FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION Washington, DC. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File
September 30, 1995 Number 0-16772
PEOPLES BANCORP INC.
Incorporated - Ohio I.R.S. Identification
No. 31-0987416
138 Putnam Street
P. O. Box 738
Marietta, Ohio 45750
Telephone: (614) 373-3155
Indicate by check mark whether the registrant (1) has filed all
reports required by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
---------- ----------
Indicate the number of shares outstanding of each of the issuer's class
of Common Stock, as of November 1, 1995: 3,143,309.
Page 1 of 18 Pages
Exhibit Index Appears on Page 18
PART I - FINANCIAL INFORMATION
ITEM 1
The following Condensed Consolidated Balance Sheets,
Consolidated Income Statements, and Consolidated Statements of
Cash Flow of Peoples Bancorp Inc. (the "Company") and
subsidiaries, reflect all adjustments (which include only normal
recurring accruals) necessary to present fairly such information
for the periods and dates indicated. Since the following
condensed unaudited financial statements have been prepared in
accordance with instructions to Form 10-Q, they do not contain
all information and footnotes necessary for a fair presentation
of financial position in conformity with generally accepted
accounting principles. Operating results for the nine months
ended September 30, 1995, are not necessarily indicative of the
results that may be expected for the year ending December 31,
1995. Complete audited consolidated financial statements with
footnotes thereto are included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1994.
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
Sept. 30, 1995 Dec. 31, 1994
-------------- -------------
ASSETS
Cash and cash equivalents:
Cash and due from banks $18,202,000 $19,551,000
Interest-bearing deposits in other banks 277,000 650,000
Federal funds sold 13,650,000 4,500,000
-------------- -------------
Total cash and cash equivalents 32,129,000 24,701,000
Securities:
Available-for-sale, at estimated fair
value (amortized cost of $124,532,000
and $91,783,000 at September 30, 1995
and December 31, 1994, respectively) 126,612,000 90,172,000
Held-to-maturity, at amortized cost
(fair value of $10,044,000 and estimated
$9,089,000 at September 30, 1995 and
December 31, 1994, respectively) 9,807,000 9,247,000
------------- ------------
Total securities 136,419,000 99,419,000
Loans, net of unearned interest 370,259,000 361,353,000
Allowance for loan losses (6,781,000) (6,783,000)
------------- ------------
Net loans 363,478,000 354,570,000
Bank premises and equipment, net 10,536,000 10,807,000
Other assets 8,096,000 8,509,000
------------- ------------
Total assets $550,658,000 $498,006,000
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $46,905,000 $48,121,000
Interest bearing 394,498,000 355,698,000
------------- -------------
Total deposits 441,403,000 403,819,000
Short-term borrowings:
Federal funds purchased and securities
sold under repurchase agreements 12,437,000 9,267,000
Federal Home Loan Bank term advances 19,216,000 10,500,000
------------- -------------
Total short-term borrowings 31,653,000 19,767,000
Long-term borrowings 21,508,000 23,787,000
Accrued expenses and other liabilities 5,494,000 4,998,000
------------- -------------
Total liabilities 500,058,000 452,371,000
============= =============
Stockholders' Equity
Common stock, no par value,
6,000,000 shares authorized.
3,328,271 shares issued and 3,159,064
shares outstanding as of September 30,
1995; and 3,020,908 shares issued and
2,899,938 shares outstanding as of
December 31, 1994 30,830,000 24,326,000
Net unrealized holding gain (loss) on
available-for-sale securities, net
of deferred taxes 1,374,000 (1,030,000)
Retained earnings 20,900,000 24,078,000
------------- ------------
53,104,000 47,374,000
Treasury stock, at cost, 169,207 shares
as of September 30, 1995, and 120,970
shares as of December 31, 1994 (2,504,000) (1,739,000)
------------- ------------
Total stockholders' equity 50,600,000 45,635,000
------------- ------------
Total liabilities and
stockholders' equity $550,658,000 $498,006,000
============= ============
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
------------------------ ------------------------
Interest income $11,086,000 $9,146,000 $31,965,000 $26,288,000
Interest expense 5,476,000 3,930,000 15,320,000 11,204,000
----------- ----------- ----------- -----------
Net interest income 5,610,000 5,216,000 16,645,000 15,084,000
Provision for loan losses 360,000 167,000 955,000 607,000
----------- ----------- ----------- ----------
Net interest income
after provision for
loan losses 5,250,000 5,049,000 15,690,000 14,477,000
Other income 1,103,000 970,000 3,137,000 2,950,000
Gain on sale
of securities 17,000 --- 17,000 126,000
Other expenses 4,038,000 3,919,000 12,187,000 11,701,000
----------- ----------- ----------- ----------
Income before
income taxes 2,332,000 2,100,000 6,657,000 5,852,000
Federal income taxes 722,000 628,000 2,027,000 1,762,000
----------- ----------- ----------- -----------
Net income $1,610,000 $1,472,000 $4,630,000 $4,090,000
=========== =========== =========== ===========
Earnings per share $0.51 $0.46 $1.45 $1.28
========== ========== ========== ==========
Weighted average shares
outstanding (primary) 3,172,341 3,199,843 3,185,711 3,199,178
========== ========== ========== ==========
Cash dividends declared $488,000 $435,000 $1,413,000 $1,247,000
========== ========== ========== ==========
Cash dividend per share $0.15 $0.14 $0.45 $0.39
========== ========== ========== ==========
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
1995 1994
----------- ----------
Cash flows from operating activities:
Net income $4,630,000 $4,090,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 955,000 607,000
Gain on sale of investment securities (17,000) (126,000)
Depreciation and amortization 1,145,000 1,261,000
Decrease (increase) in interest receivable 711,000 (310,000)
Increase in interest payable 80,000 69,000
Deferred income taxes (75,000) ---
Deferral of net loan origination (fees) costs (37,000) 47,000
Other, net (597,000) (1,167,000)
----------- -----------
Net cash provided by operating activities 6,795,000 4,471,000
Cash flows from investing activities:
Purchases of available-for-sale securities (48,633,000) (19,686,000)
Purchases of held-to-maturity securities (1,230,000) (3,113,000)
Proceeds from sales of
available-for-sale securities 1,066,000 8,274,000
Proceeds from maturities of
available-for-sale securities 14,351,000 13,502,000
Proceeds from maturities of
held-to-maturity securities 651,000 506,000
Net increase in loans (10,209,000) (26,837,000)
Expenditures for premises and equipment (716,000) (322,000)
Proceeds from sales of other real estate owned 69,000 142,000
----------- ----------
Net cash used in investing activities (44,651,000) (27,534,000)
Cash flows from financing activities:
Net (decrease) increase in
non-interest bearing deposits (1,216,000) 374,000
Net increase in interest-bearing deposits 38,800,000 17,419,000
Net increase in short-term borrowings 11,886,000 1,414,000
Proceeds from long-term borrowings --- 7,500,000
Payments on long-term borrowings (2,279,000) (3,221,000)
Cash dividends paid (1,252,000) (1,247,000)
Purchase of treasury stock (765,000) (215,000)
Proceeds from issuance of common stock 110,000 ---
------------ -----------
Net cash provided by financing activities 45,284,000 22,024,000
Net increase (decrease) in cash
and cash equivalents 7,428,000 (1,039,000)
Cash and cash equivalents at beginning of year 24,701,000 28,323,000
----------- -----------
Cash and cash equivalents at end of period $32,129,000 $27,284,000
=========== ===========
NOTES TO FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. Significant
intercompany accounts and transactions have been eliminated.
On August 22, 1995, the Board of Directors of the Company
announced the declaration of a 10% stock dividend to be issued
October 25, 1995, to shareholders of record as of October 10,
1995. This stock dividend has been given retroactive effect to
the financial statements and per share information as if it
occurred on or before September 30, 1995.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
SELECTED FINANCIAL DATA
The following data should be read in conjunction with the
unaudited consolidated financial statements and the management
discussion and analysis that follows.
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
--------------- ----------------
SIGNIFCANT RATIOS
Net income to:
Average assets* 1.20% 1.22% 1.18% 1.15%
Average shareholders' equity* 12.85% 13.06% 12.75% 12.29%
Net interest margin* 4.61% 4.82% 4.71% 4.75%
Efficiency ratio* 60.15% 63.35% 61.61% 64.88%
Average shareholders' equity
to average assets 9.31% 9.31% 9.29% 9.35%
Loans net of unearned interest
to deposits (end of period) 83.88% 86.37% 83.88% 86.37%
Allowance for loan losses to
loans net of unearned
interest (end of period) 1.83% 1.94% 1.83% 1.94%
Capital ratios:
Tier I capital ratio 12.88% 13.07% 12.88% 13.07%
Risk-based capital ratio 14.13% 14.32% 14.13% 14.32%
Leverage ratio 8.75% 8.93% 8.75% 8.93%
Cash dividends to net income 30.31% 29.55% 30.52% 30.49%
PER SHARE DATA
Book value per share $16.02 $14.15 $16.02 $14.15
Net income per share $0.51 $0.46 $1.45 $1.28
Cash dividends per share $0.15 $0.14 $0.45 $0.39
* Net income to average assets, net income to average shareholders'
equity, net interest margin, and efficiency ratio are presented on an
annualized basis.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The following discussion and analysis of the consolidated
financial statements of the Company is presented to provide
insight into management's assessment of the financial results.
The Company's subsidiaries, The Peoples Banking and Trust
Company ("Peoples Bank"), The First National Bank of
Southeastern Ohio ("First National Bank"), and The Northwest
Territory Life Insurance Company ("Northwest Territory"),
provide financial services to individuals and businesses within
the Company's market area. Peoples Bank is chartered by the
state of Ohio and subject to regulation, supervision, and
examination by the Federal Deposit Insurance Corporation
("FDIC") and the Ohio Division of Banks. First National is a
member of the Federal Reserve System and subject to regulation,
supervision, and examination by the Office of the Comptroller of
the Currency.
RESULTS OF OPERATIONS
OVERVIEW OF THE INCOME STATEMENT
For the quarter ended September 30, 1995, the Company earned
$1,610,000 in net income, a 9.4% increase from $1,472,000 in
third quarter 1994. Third quarter earnings per share increased
10.9% from $0.46 in 1994 to $0.51 in 1995. For the nine months
ended September 30, 1995, net income reached $4,630,000, or
$1.45 per share, compared to net income of $4,090,000 and
earnings per share of $1.28 for the same period last year. All
references to per share amounts have been adjusted to reflect a
10% stock dividend issued to shareholders of record on October
10, 1995, and a 2 for 1 stock split issued to shareholders of
record on April 29, 1994.
Net income increased in the third quarter due to enhanced
performance in several key areas. Third quarter fully-tax
equivalent net interest income increased $387,000, or 7.1%
compared to 1994's third quarter, due to increased earning asset
volume. Comparing the same time periods, net interest margin
(net yield on interest-earning assets) decreased 21 basis points
to 4.61%. Excluding gains from sales of investment securities,
third quarter non-interest income reached $1,103,000, a 13.7%
increase compared to the same period last year. Third quarter
non-interest expense was $4,038,000 compared to $3,919,000 in
the same period last year, an increase of 3.0%.
INTEREST INCOME AND EXPENSE
Net interest income continued to provide strong earnings for
the Company, as third quarter net interest income totaled
$5,610,000 in 1995 compared to $5,216,000 last year, up 7.6%.
Net interest margin totaled 4.61% in the third quarter, a modest
decline compared to the previous quarter's ratio of 4.69%.
Interest rate pressures remain a challenge for the entire
financial services industry. The Company's aggressive pricing
of interest-bearing deposits in the first nine months of 1995
caused the narrowing of net interest margin. Management expects
net interest margin to stabilize in the near term and will
continue to monitor the effects it has on the performance of the
Company.
Please refer to the "Average Balance Sheet and Analysis of Net
Interest Income" table included on page 13 for a complete
quantitative evaluation of interest yields and costs for the
Company.
The Company recorded a provision for loan loss of $360,000 in
the third quarter, up from $167,000 reported for the same period
last year. In 1994, the Company recognized a reduction in the
allowance established in 1992 for certain loans from acquired
Resolution Trust Corporation ("RTC") loans. The allowance was
decreased in 1994 due to the future expected performance of the
RTC loans, and as a result, reduced the 1994 third quarter
provision for loan loss by approximately $51,000. Management
believes third quarter loan loss provision to be appropriate.
NON-INTEREST INCOME
Several categories of non-interest income reflect increases
compared to 1994. Income generated from fiduciary activities
totaled $468,000 for the quarter ended September 30, 1995, up
23.5% compared to the same period last year. The Investment and
Trust Division of Peoples Bank manages over $350 million in
assets (market value) and continues to be a leader in fiduciary
services for the Company's market area.
Third quarter service charge income increased 7.9% to $530,000
compared to third quarter 1994. The Company's fee income
generated from deposits is based on cost recoveries associated
with services provided. In addition to traditional deposit
products generating non-interest income for the Company, an
agreement with an unaffiliated annuities and life insurance
agency has also generated non-interest income through the
receipt of lease payments. In the third quarter of 1995,
approximately $41,000 of non-interest income was recorded
compared to $26,000 in third quarter 1994. The Company expects
this non-traditional source of income to produce growth in
revenue streams through the remainder of 1995 and beyond.
NON-INTEREST EXPENSE
Maintaining acceptable levels of non-interest expense is
important to the profitability of the Company. In the third
quarter of 1995, non-interest expense totaled $4,038,000, a 3.0%
rise compared to last year's third quarter. Third quarter
non-interest expense reflects the Company's receipt of a refund
of $260,000 from previously paid insurance premiums to the Bank
Insurance Fund ("BIF"). In connection with the refund, the
Company's annual premium rate charged per $100 of BIF deposits
has been decreased from $0.23 to $0.04. Management anticipates
lower future BIF premiums, which will improve the Company's
efficiency ratios in the future.
The largest component of non-interest expense remains employee
wages and benefits, which totaled $2,284,000, an increase of
10.5% compared to third quarter 1994. This increase can be
attributed to additional accruals in the third quarter, which
reflect anticipated cost increases in incentive and medical
benefits for 1995. Management does not consider third quarter
employee wage and benefit expense to be representative of future
expectations. The Company's management will continue to focus
on controlling employee wages and benefits as a method for
enhancing performance.
On September 29, 1995, the Company announced a voluntary early
retirement program to certain qualifying employees representing
approximately 7% of the Company's employee base. The plan is
designed to position the Company to manage the future challenges
facing the banking industry. The Company will recognize a
charge to earnings when the employees accept the offer and the
amount of benefits to be awarded can be reasonably estimated.
Twenty-one employees are eligible for early retirement. If all
who qualify for the program accept, the Company would recognize
an after-tax charge of no more than approximately $525,000 in
the fourth quarter of 1995. All eligible employees must make
their decisions for election for early retirement by December of
1995. The Company anticipates future benefits in terms of
reduced non-interest expense and increased efficiencies.
Current estimates indicate a payback within the next three years.
In October 1995, the Financial Accounting Standards Board
("FASB") approved a one-time holiday from Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No. 123 defines a fair
value based method of accounting for an employee stock option or
similar equity instrument or allows an entity to continue to
measure compensation cost for those plans using the intrinsic
value based method prescribed by APB Opinion No. 25, "Accounting
for Stock Issued to Employees" ("Opinion No. 25"). SFAS No. 123
is effective for transactions entered into in fiscal that begin
after December 15, 1995.
Under the fair value based method, compensation cost is
measured at the grant date based on the value of the award and
is recognized over the service period, which is usually the
vesting period. Under the intrinsic value based method,
compensation cost is the excess, if any, of the quoted market
price of the stock at grant date or other measurement date over
the amount an employee must pay to acquire the stock. The
Company maintains fixed stock option plans and such options have
no intrinsic value at the grant date, and under Opinion No. 25,
no compensation cost is recognized for them.
As permitted by SFAS No. 123, the Company has elected to
continue accounting for stock-based compensation under Opinion
No. 25, and accordingly, will make pro forma disclosures of net
income and earnings per share as if the fair value based method
of accounting defined in SFAS No. 123 had been applied.
RETURN ON ASSETS
For the nine months ended September 30, 1995, return on average
assets ("ROA") reached 1.18%, up three basis points from the
same period last year. The Company's third quarter ROA of 1.20%
has decreased slightly from 1.22% reported for the third quarter
of 1994. The decline in ROA for the third quarter can be
attributed to asset growth strategies implemented by the Company
in 1995 designed to produce incremental net income dollars for
increased return on stockholders' equity. Management
anticipates ROA levels to remain steady for the remainder of
1995 and through early 1996.
RETURN ON EQUITY
The Company's return on average equity ("ROE") has remained
steady through the first three quarters of 1995. In the third
quarter, ROE was reported at 12.85%, a modest decline compared
to third quarter 1994's ratio of 13.06%. This decrease can be
attributed to equity fluctuations from 1994 to 1995 relative to
the equity adjustment on available-for-sale investment
securities. Last year's third quarter average equity balance
was affected minimally by the net unrealized gain on
available-for-sale securities, net of deferred taxes. In 1995's
third quarter, the net unrealized gain increased average equity
by nearly $1.4 million.
The Company's management expects modest improvement in ROE
through the remainder of 1995 and into 1996. During the third
quarter, the Company's Board of Directors authorized the Company
to repurchase of up to $1 million in treasury shares at market
prices, thereby slowing the growth of equity experienced by the
Company in recent periods. Management believes ROE is an
important measure of an organization's financial strength and
continues to monitor the performance of the Company in relation
to shareholders' equity.
FEDERAL INCOME TAX EXPENSE
Federal income taxes increased from $628,000 in third quarter
1994 to $722,000 in 1995. This increase can be attributed to
the Company's higher pre-tax income and decrease in tax-exempt
income from $388,000 in third quarter 1994 to $374,000 in 1995,
a 3.6% decline.
FINANCIAL CONDITION
OVERVIEW OF BALANCE SHEET
Total assets increased from $530,494,000 at June 30, 1995 to
$550,658,000 at the end of the third quarter, a growth rate of
3.8%. Since December 31, 1994, the Company's total assets have
grown 10.6% through deposit growth and borrowings. In 1995's
third quarter, asset growth occurred primarily in investment
securities, which increased 16.6% to $136,419,000. Total loans
increased in the third quarter by over $4 million to
$370,259,000. Since June 30, 1995, total deposits have grown $4
million, short-term borrowings more than doubled to over $31.6
million, and long-term borrowings declined 4.2% to $21,508,000.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents totaled $32,129,000 at September 30,
1995, a quarterly decrease of 8.4%. In the third quarter,
federal funds sold decreased over $4.7 million to $13,650,000 as
the Company directed liquid funds into higher interest-earning
assets such as investment securities and loans. Management
feels the liquidity needs of the Company are satisfied by the
current balance of cash and cash equivalents, readily available
access to traditional and non-traditional funding sources, and
the portion of the investment and loan portfolios that mature
within one year. These sources of funds should enable the
Company to meet cash obligations and off-balance sheet
commitments as they come due.
INVESTMENT SECURITIES
The most significant area of asset growth in 1995 and
particularly in the third quarter was investment securities,
which have grown $37.0 million since December 31, 1994, and over
$19.3 million in the third quarter.
The majority of growth has occurred in the available-for-sale
classification of the portfolio. In the third quarter, the
Company initiated a growth strategy designed to position the
portfolio for future earnings while maintaining adequate
liquidity. As a result, quarterly investments in U. S.
government agencies grew $16,629,000 to a September 30, 1995
balance of $48,129,000. Tax-exempt securities also increased
during the third quarter, reaching $21,891,000 at the end of the
quarter, a rise of 8.4% or $1,688,000.
Since the majority of the Company's investment securities are
classified as available-for-sale, the investments are more
susceptible to market fluctuations than investments classified
as held-to-maturity. At September 30, 1995, the Company was
carrying a markup of $2,080,000 on its available-for-sale
securities, compared to June 30's markup of $2,433,000.
Management expects market fluctuations to have minimal effect on
the Company's balance sheet. Available-for-sale securities also
provide greater flexibility in meeting liquidity needs as they
come due. The Company will continue to classify investment
securities, as appropriate, in the available-for-sale category.
Management monitors the earnings performance and the
effectiveness of the 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.
In October 1995, FASB approved a one-time holiday from SFAS No.
115, "Accounting for Certain Investments in Debt and Equity
Securities", preventing restrictions over held-to-maturity
securities. Entities will have a one time opportunity to
restructure their portfolios from approximately November 1 to
December 31, 1995. Specifically, the FASB decided that entities
may sell or transfer securities from their held-to-maturity
portfolio without calling into question their intent to hold
other debt securities to maturity in the future or their past
financial reporting. The Company has not yet completed its
analysis of the potential impact of the SFAS No. 115 "holiday".
However, the Company intends to take advantage of the "holiday"
if it will favorably impact its liquidity and interest rate risk
management strategy.
LOANS
The Company's loan volume continues to grow reflecting the
additional credit opportunities provided by the markets served.
In the third quarter, average consumer loan balances increased
3.2% to $99,263,000, as a result of growing consumer credit
demand in the Company's market area as well as the entire
financial services industry. Average real estate loans grew by
a modest 0.5% in the third quarter but still comprise over 60%
of the entire loan portfolio of the Company. Average balances
in commercial loans decreased by over $4.0 million in the third
quarter, as the Company experienced softening of commercial loan
demand in the markets served, fluctuations in automobile floor
plan balances due to timing of inventory shipments, as well as
normal attrition of commercial loans as they mature. Management
feels the fluctuating needs of operating lines of credit for
commercial customers also caused this decline in total
commercial credit outstanding for the third quarter. The
Company's management feels commercial loan balances will remain
stable thorough the remainder of 1995 and modestly increase in
the future as the Company's markets present opportunities for
quality commercial loans.
In May 1995, the FASB issued SFAS No. 122, "Accounting for
Mortgage Servicing Rights". SFAS No. 122 amends SFAS No. 65 and
requires financial institutions to recognize as separate assets
rights to service mortgage loans for others, whether those
rights were acquired through purchase or through the origination
and subsequent sale of loans with servicing rights retained.
SFAS No. 122 is to be applied prospectively for years beginning
after December 15, 1995, with earlier application encouraged.
Historically the Company has experienced minimal secondary
market action, therefore management anticipates this adoption
will be immaterial to the Company's financial statements.
LOAN CONCENTRATION
The Company does not have a concentration of its loan portfolio
in any one industry. Real estate lending continues to be the
largest component of the loan portfolio.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses as a percentage of loans modestly
increased from 1.82% at June 30, 1995, to 1.83% at the end of
the third quarter. The total dollar amount of the reserve
increased $100,000. The Company's third quarter provision for
loan losses on the income statement totaled $360,000, while
gross charge-offs were $369,000, and recoveries amounted to
$109,000.
A significant portion of the Company's charge-offs through
September 30, 1995 occurred in the consumer loan category.
Recent industry reports indicate outstanding consumer credit is
on the rise. Consequently, consumer credit delinquency has
increased. Management continues to monitor the entire loan
portfolio to determine the adequacy of the allowance.
Nonaccrual loans and those loans 90 days past due totaled
$509,000 and $1,195,000 respectively at the end of 1995's third
quarter. Nonperforming loans as a percentage of outstanding
loans was 0.47% at September 30, 1995, compared to 0.68% at
September 30, 1994.
On January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan" ("SFAS No. 114"), which established new
reporting criteria for all creditors when accounting for the
impairment of certain loans. SFAS No. 114 requires that certain
impaired loans be measured based on the present value of
expected future cash flows, discounted at the effective interest
rate of the loan, or, as a practical expedient, the loan may be
valued at the fair value of the collateral if the loan is
collateral dependent. SFAS No. 114 does not apply to large
groups of smaller-balance homogeneous loans, such as mortgage
and consumer loans, which are evaluated collectively for
impairment. Because the majority of the Company's loan
portfolio is comprised of these types of homogeneous loans,
adoption of SFAS No. 114 was not material to the Company's
financial statements concerning accounting policies, revenue
recognition, and reporting of nonperforming assets. The Company
will continue to monitor the status of any impaired loans, as
well as performing loans, in order to determine the appropriate
reserve for potential loan loss. Management considers the
allowance for loan loss of 1.83% of total loans at September 30,
1995 to be adequate.
FUNDING SOURCES
The Company considers deposits, short-term borrowings, and term
debt when evaluating funding sources. Traditional deposits
continue to be the most significant source of funds for the
Company and the expansion of the deposit base has sustained the
asset growth of the Company during 1995. For the nine months
ended September 30, 1995, total deposits have grown 9.3%, with
the majority of the growth occurring in time deposits. In the
third quarter, total deposits grew $4.0 million to $441,403,000.
During the first six months of 1995, the Company experienced a
change in the mix of its deposit base, as many customers found
the higher interest rates offered for certificates of deposits
to be attractive. Late in the third quarter, the Company
adjusted its time deposit rates to be closer to average of the
market area. The result was a 1.6% quarterly decrease in time
deposits to $226,358,000 (including $10 million in brokered
certificates of deposit) at September 30, 1995. Other
interest-bearing deposit balances such as NOW accounts, savings
deposits, etc., did not significantly change during the third
quarter. Non-interest bearing deposits increased 1.8% to the
September 30, 1995 balance of $46,905,000.
In addition to traditional deposits, the Company continues to
access borrowings from the Federal Home Loan Bank ("FHLB").
This allows the Company to obtain reliable funds at fixed and
indexed rates for longer periods of time than other traditional
deposit products, creating the opportunity to match longer term
fixed rate mortgages and other extended-maturity asset
commitments against a similar funding source. Principal
paydowns on long-term advances from the FHLB during the third
quarter resulted in total long-term FHLB borrowings of
$19,818,000, a quarterly decrease of 4.5%.
The most significant change to the Company's funding sources in
the third quarter occurred through increased balances in
short-term borrowings. In the third quarter, the Company
implemented a growth strategy designed to enhance net interest
income and other performance ratios in future periods.
Short-term borrowings increased $16,514,000 in the third quarter
to $31,653,000 at September 30, due primarily to a $15 million,
90-day borrowing from the FHLB. Management plans to maintain
access to FHLB borrowings as an appropriate funding source. In
the third quarter, other short-term borrowings such as overnight
repurchase agreements increased over $2 million to $11,279,000
due mostly to fluctuating customer needs. A modest volume
increase can be attributed to new business customers using the
Company's cash management services. The Company continues to
explore new methods of providing cash management services for
its business customers through enhanced systems and products.
CAPITAL/STOCKHOLDERS' EQUITY
The Company's capital continues to provide a strong base for
profitable growth. Stockholders' equity reached $50,600,000 at
September 30, 1995, a quarterly increase of 1.3%, and a 10.9%
increase from year-end 1994. Third quarter growth was a result
of retention of net income as the Company earned $1,610,000 and
paid dividends of $488,000, a dividend payout ratio of 30.31% of
net income. Management feels this is an acceptable payout ratio
for the Company and anticipates similar payout ratios in future
periods.
Equity growth was slowed in the third quarter by the adjustment
for net unrealized holding gain on available-for-sale
securities, net of deferred taxes, which decreased $232,000 to
$1,374,000 at September 30, 1995. Since the majority of
securities in the Company's portfolio are classified as
available-for-sale, both the investment and equity sections of
the Company's balance sheet are more sensitive to the changing
fair values of investments experienced during the third quarter.
The Company's management feels the status of the investment
markets do not substantially affect the Company's equity, as it
continues to provide a strong base for expansion of operations
as well as potential for growth in both new and existing
markets.
The Company has also complied with the standards of capital
adequacy mandated by the banking industry. Bank regulators have
established "risk-based" capital requirements designed to
measure capital adequacy. Risk-based capital ratios reflect the
relative risks of various assets banks hold in their portfolios.
A weight category of either 0% (lowest risk assets), 20%, 50%,
or 100% (highest risk assets) is assigned to each asset on the
balance sheet. The Company's risk-based capital ratio of 14.13%
at September 30, 1995 is well above the minimum standard of 8%.
The Company's Tier 1 capital ratio of 12.88% also exceeded the
regulatory minimum of 4%. The Leverage ratio at September 30,
1995 was 8.75% and also above the minimum standard of 3%. These
ratios provide quantitative data demonstrating the strength and
future opportunities for use of the Company's capital base.
Management continues to evaluate risk-based capital ratios and
the capital position of the Company as part of its strategic
decision process.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Liquidity measures an organization's ability to meet cash
obligations as they come due. The Consolidated Statement of
Cash Flows presented on page 5 of the accompanying financial
statements provide analysis of the Company's cash and cash
equivalents. Additionally, management considers that portion of
the loan portfolio that matures within one year and the
maturities within one year in the investment portfolio as part
of the Company's liquid assets. The Company's liquidity is
monitored by the ALCO, which establishes and monitors ranges of
acceptable liquidity measurement. Management feels the
Company's current liquidity position is adequate.
The interest rate sensitivity position at September 30, 1995
indicated the Company was liability sensitive in the short-term
and asset sensitive for periods longer than one year. In the
long-term, the Company is in a net asset sensitive position,
which means if interest rates increase, the Company's net
interest income will increase over time. If interest rates
decline, net interest income will also decrease. Management
monitors the asset and liability sensitivity through the ALCO
and uses this data to make appropriate strategic decisions.
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. 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
The performance of the Company in 1995's third quarter has
slightly exceeded expectations. Management feels the consistent
earnings record has positioned the Company to achieve
established goals and enhance investor return. Management
continues to challenge its workforce to identify critical
banking processes and re-engineer services to provide the
customer with exceedingly high quality products and services.
Investments in technology allow the workforce the opportunity to
compete at higher levels than other financial institutions of
similar size. Management feels the current combination of human
resources and technology has positioned the Company for the
future.
The interest rate environment will play an important role in
the future earnings of the entire financial services industry
and pressures on net interest income and margin are expected to
intensify throughout 1995 and into next year. Aggressive
pricing of funding products, such as certificates of deposits,
in the first nine months of 1995 reflected the changing interest
rate environment and more competitive market for customer
deposits. Recently, interest rates were adjusted in several
time deposit categories to bring deposit pricing closer to the
average of the markets served. Management realizes that
successful management of the effect of the customer deposit
interest rates will be vital to the overall performance of the
Company in 1995 and beyond.
The Company's asset growth continues to be a focus of
management. Several strategies, including additional purchases
of investment securities, have been implemented during 1995.
Management will continue to analyze a wide variety of methods as
means of maximizing customer service, as well as enhancing
profitability and return to shareholders.
Enhanced non-interest income and controlled non-interest
expense are critical to the success of the Company. Third
quarter results reflect successful enhancements of the Company's
performance and efficiency. The third quarter efficiency ratio
shows the Company's results to be improved compared to the prior
quarter, from 62.04% in the second quarter of 1995 to 60.15% for
the quarter ended September 30, 1995. The efficiency ratio,
which measures non-interest expense as a percentage of net
interest income and non-interest income, was improved primarily
through the refund received from previously paid BIF premiums.
An improved efficiency ratio will help enable the Company to
enhance profitability and return on equity.
Other methods of reducing non-interest expense include a
Company focus to decrease normal costs of business such as paper
and supplies expense. The Company has increased its investment
in technology in preparation for a business environment based
more on electronic services, which will provide the customer
with faster, more efficient service. Salaries and wages are
analyzed on a regular basis to identify greater possible
efficiencies. The early retirement program offered to select
employees will also have an effect on future performance and the
ability of the Company to meet expected performance goals.
Throughout 1995, the Company's loan to deposit ratio has
modestly declined, due mostly to the expansion of the deposit
base during the first nine months. At September 30, 1995, loan
to deposit ratio was 83.88%, compared to 89.48% at December 31,
1994. Management is comfortable with the current loan to
deposit ratio and feels an acceptable ratio can be maintained
due to strong loan demand experienced through the first nine
months of 1995.
Although net interest margin has narrowed in 1995, growth
through increased volume activity in the third quarter has
provided the Company increased earnings, and thus remains an
integral part of management's operating plan. The Company
continues to enhance profits through larger dollar volume
obtained by the expansion of interest bearing deposits and the
ensuing asset growth. Management concentrates on return on
equity and earnings per share, among other methods, as
techniques to measure and direct the performance of the Company
and in comparison with peer groups of financial institutions.
While past results are not an indication of future earnings,
management feels the Company is positioned to maintain
performance of normal operations through the remainder of 1995
and into next year.
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST INCOME
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
--------------- --------------- --------------- ---------------
Average Yield/ Average Yield/ Average Yield/ Average Yield/
Balance Rate Balance Rate Balance Rate Balance Rate
------- ------ ------- ------ ------- ------ ------- ------
ASSETS
Securities:
Taxable $98,878 6.99% $77,666 6.75% $90,255 7.06% $77,308 6.76%
Tax-exempt 24,915 8.76% 24,569 9.10% 23,415 8.98% 23,995 9.32%
------- ----- ------- ----- ------- ----- ------- -----
Total 123,793 7.35% 102,235 7.32% 113,670 7.46% 101,303 7.36%
Loans:
Commercial 43,727 10.78% 50,523 9.49% 45,917 10.47% 48,032 8.93%
Real estate 222,922 8.75% 207,556 7.91% 222,607 8.61% 202,399 7.80%
Consumer (net) 99,263 10.67% 84,840 9.66% 96,191 10.44% 81,202 9.59%
------- ------ ------- ----- ------- ------ ------- -----
Total 365,912 9.52% 342,919 8.57% 364,716 9.33% 331,633 8.40%
Less: Allowance for
loan losses (6,726) (6,753) (6,723) (6,645)
------- ------ ------- ----- ------- ----- ------- -----
Net loans 359,186 9.69% 336,166 8.75% 357,993 9.50% 324,988 8.58%
Interest-bearing deposits 339 4.72% 1,328 4.22% 610 5.68% 2,094 3.37%
Federal funds sold 20,179 5.87% 9,757 4.59% 14,608 5.78% 11,923 3.78%
------- ----- ------- ----- ------- ----- ------- -----
Total earning assets 503,497 8.96% 449,486 8.32% 486,881 8.91% 440,308 8.14%
Other assets 34,899 35,427 34,496 34,946
-------- -------- -------- --------
Total assets $538,396 $484,913 $521,377 $475,254
======== ======== ======== ========
LIABILITIES AND EQUITY
Interest-bearing deposits:
Savings $69,013 3.42% $76,267 2.86% $69,289 3.36% $76,140 2.72%
Interest-bearing
demand deposits 96,105 3.69% 87,290 2.70% 91,080 3.47% 84,385 2.51%
Time 229,014 5.93% 186,504 4.97% 222,731 5.73% 185,380 4.87%
------- ----- ------- ----- ------- ----- ------- -----
Total 394,132 4.95% 350,061 3.95% 383,100 4.76% 345,905 3.82%
Borrowed funds:
Short-term 20,282 5.25% 9,940 2.82% 14,681 5.00% 8,921 2.48%
Long-term 22,309 6.04% 27,561 5.88% 24,125 6.01% 25,595 5.91%
------- ----- ------- ----- ------ ----- ------ -----
Total 42,591 5.66% 37,501 5.07% 38,806 5.63% 34,516 5.03%
------- ----- ------- ----- ------ ----- ------ -----
Total interest
bearing liabilities 436,723 5.02% 387,562 4.06% 421,906 4.84% 380,421 3.93%
Non-interest
bearing deposits 46,602 47,128 46,439 45,403
Other liabilities 4,951 5,126 4,617 5,059
------- ------- ------- -------
Total liabilities 488,276 439,816 472,962 430,883
------- ------- ------- -------
Stockholders' equity 50,120 45,097 48,415 44,371
------- ------- ------- -------
Total liabilities
and equity $538,396 $484,913 $521,377 $475,254
======== ======== ======== ========
Interest income to earning assets 8.96% 8.32% 8.91% 8.14%
Interest expense to earning assets 4.35% 3.50% 4.20% 3.39%
----- ----- ----- -----
Net interest margin 4.61% 4.82% 4.71% 4.75%
===== ===== ===== =====
Interest income and yields presented on a fully tax-equivalent
basis using a 34% tax rate.
PART II
ITEM 1: Legal Proceedings.
None.
ITEM 2: Changes in Securities.
None.
ITEM 3: Defaults upon Senior Securities.
None.
ITEM 4: Submission of Matters to a Vote of Security Holders.
None.
ITEM 5: Other Information.
None.
ITEM 6: Exhibits and Reports on Form 8-K.
a) Exhibits.
11. Computation of Earnings Per Share.
27. Financial Data Schedule (electronic filing only).
b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunder duly authorized.
PEOPLES BANCORP INC.
Date: November 10, 1995 By: /s/ ROBERT E. EVANS
Robert E. Evans
President and Chief Executive Officer
Date: November 10, 1995 By: /s/ JOHN W. CONLON
John W. Conlon
Chief Financial Officer