SELECTED FINANCIAL DATA
The information below under the captions "Operating Data",
"Balance Sheet Data" and "Per Share Data" for each of the five
years in the period ended December 31, 1995 has been derived
from the Consolidated Financial Statements of the Company.
(Dollars in thousands, except ratios and per share data)
1995 1994 1993 1992 1991
OPERATING DATA <1>
FOR THE YEAR ENDED:
Total interest income $ 43,392 $ 36,104 $ 35,311 $ 37,707 $ 39,151
Total interest expense 20,777 15,424 15,263 17,887 22,172
Net interest income 22,615 20,680 20,048 19,820 16,979
Provision for loan losses 1,315 765 1,592 2,387 1,748
Other income 4,157 3,838 3,952 3,514 2,924
Other expenses 16,818 15,672 15,124 14,945 13,547
Net income 6,050 5,748 5,071 4,550 3,615
- --------------------------------------------------------------------------
BALANCE SHEET DATA
AT YEAR END:
Total assets $543,430 $498,006 $465,373 $468,562 $424,449
Investment securities 131,762 99,419 103,349 112,556 99,963
Net loans 372,800 354,570 315,305 285,448 273,980
Total deposits 429,077 403,819 385,639 401,623 375,027
Long-term borrowings 23,142 23,787 20,331 15,506 6,836
Stockholders' equity 51,474 45,635 42,778 38,497 32,414
- --------------------------------------------------------------------------
SIGNIFICANT RATIOS <1>,<2>
Net income to:
Average total assets 1.15% 1.20% 1.09% 1.01% 0.85%
Average stockholders'
equity 12.3 12.9 11.9 11.8 11.7
Average stockholders'
equity to average
total assets 9.3 9.3 8.8 7.5 7.3
Average loans to
average deposits 85.2 85.5 78.4 70.2 71.4
Primary capital to period
end total assets 10.4 10.1 10.1 8.9 8.6
Dividend payout ratio 32.2 29.3 29.8 28.0 29.2
- -------------------------------------------------------------------------
PER SHARE DATA <1>,<2>,<3>
Net income:
Primary $ 1.90 $ 1.80 $ 1.65 $ 1.55 $ 1.36
Fully diluted 4 1.89 1.79 1.63 1.45 1.18
Cash dividends paid 0.62 0.53 0.47 0.44 0.40
Book value at end
of period 16.54 14.31 13.37 12.56 12.08
- -------------------------------------------------------------------------
Notes:
- ------
<1> 1993 net income and per share information based upon net
income after adjustment for cumulative effect of accounting
changes of $314,000 or $0.10 per share.
<2> Adjusted to reflect a 10% stock dividend issued October 25,
1995, a two-for-one stock split issued April 29, 1994, and a 10%
stock dividend issued April 15, 1993.
1995 1994 1993 1992 1991
<3> Primary shares
outstanding 3,180,868 3,200,306 3,077,087 2,930,072 2,659,041
Fully diluted shares
outstanding 3,199,203 3,203,465 3,126,189 3,233,804 3,250,674
<4> Fully diluted net income per share for 1993, 1992 and 1991 is
calculated as if the Subordinated Convertible Debenture were
converted as of the issue date, with a corresponding increase
from the after-tax reduction in interest expense.
COMMON STOCK
Return to Investors
- -------------------
Management has a vision for Peoples Bancorp. Our goal is to
become the financial services leader in all the communities we
serve. Achieving this objective will lead to increases in
shareholder value. Shareholder return continues to be the most
important measure of our financial success. Peoples Bancorp's
strong capital base ensures the Company's safety and allows
opportunity for growth and expansion. Shareholder return on
this investment continues to be a top priority, through both
dividends and growth in the market value of the Company's stock.
As a result, the Company continues to focus attention on
enhancement of net income and earnings per share. Under normal
circumstances, as earnings per share increase, the dividends
paid per share should follow with a similar increase and have a
positive effect on the market value of the Company's common
stock. The following graph presents the last six year's annual
performance for both earnings per share and dividends per share
(data has been restated for stock splits and stock dividends):
Dividends per share Earnings per share
1990 $0.37 $1.12
1991 0.40 1.18
1992 0.44 1.45
1993 0.47 1.63
1994 0.53 1.79
1995 0.62 1.89
The Company and its predecessor have paid cash dividends on
their Common Stock for over 39 consecutive years and have
increased the annual dividend in each of the last 30 years. The
Company plans to continue to pay quarterly cash dividends,
subject to certain restrictions as described in Note 10 to the
audited financial statements.
Prior to 1993, the Company's Common Stock was traded on a
limited basis in the over-the-counter market. On February 9,
1993, the Company began trading on the Nasdaq National Stock
Market (National Association of Securities Dealers Automated
Quotation). Nasdaq provides brokers and others with immediate
access to the best stock price for the Company and thousands of
other companies across the world. The Company can be found
under the symbol PEBO.
In 1995, there were 567,128 shares traded through the Nasdaq
system, an average daily volume of 2,251 shares. The table
below sets forth the high and low bid quotations for the
indicated periods, and the cash dividends declared, with respect
to the Company's Common Stock.
Currently eight companies serve as market makers on the Nasdaq
National Stock Market on behalf of the Company. Market prices
since February 9, 1993, have been obtained directly from the
Nasdaq quotation system. The bid quotations and per share
dividends have been retroactively adjusted for a 10% stock
dividend issued on October 25, 1995, a two-for-one stock split
issued on April 29, 1994, and a 10% stock dividend issued April
15, 1993. Peoples Bancorp had 1,024 stockholders of record on
December 31, 1995.
COMMON STOCK
Quarterly Market and Dividend Information
- -----------------------------------------
PER SHARE
High Bid Low Bid Dividend
1995
Fourth Quarter $ 23.63 $ 22.25 $ 0.17
Third Quarter 22.73 20.00 0.15
Second Quarter 22.05 20.00 0.15
First Quarter 22.73 20.45 0.15
- -----------------------------------------------------------
1994
Fourth Quarter $ 23.18 $ 21.14 $ 0.14
Third Quarter 22.27 20.00 0.14
Second Quarter 21.82 18.18 0.13
First Quarter 20.45 17.27 0.13
- -----------------------------------------------------------
1993
Fourth Quarter $ 20.00 $ 17.73 $ 0.13
Third Quarter 21.14 17.27 0.12
Second Quarter 21.36 15.91 0.12
First Quarter 22.32 15.71 0.11
- -----------------------------------------------------------
The following graph represents the closing stock price of the
Company's common stock for each of the last six years (adjusted
for stock splits and stock dividends):
Closing Stock Price
------------------------------
1990 $ 9.61
1991 11.16
1992 16.12
1993 18.98
1994 21.82
1995 23.625
Stockholders are cordially invited to attend the Annual Meeting
of Stockholders of Peoples Bancorp Inc. to be held Tuesday,
April 9, 1996 at 10:00 A.M. in the Peoples Bank Conference Room,
138 Putnam Street, Marietta, Ohio.
On written request, a copy of our Annual Report to the
Securities and Exchange Commission on Form 10-K is available to
interested Stockholders. Requests should be addressed to Ruth
Otto, Corporate Secretary, Peoples Bancorp Inc., P.O. Box 738,
Marietta, Ohio 45750.
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
1995 1994
ASSETS
- ------
Cash and cash equivalents:
Cash and due from banks $ 17,251,000 $ 19,551,000
Interest-bearing deposits in other banks 243,000 650,000
Federal funds sold 3,500,000 4,500,000
------------ ------------
Total cash and cash equivalents 20,994,000 24,701,000
------------ ------------
Investment securities:
Available-for-sale, at estimated fair
value (amortized cost of $128,021,000
in 1995 and $91,783,000 in 1994) 131,762,000 90,172,000
Held-to-maturity, at amortized cost
(fair value of $9,089,000 in 1994) 9,247,000
------------ ------------
Total securities 131,762,000 99,419,000
------------ ------------
Loans, net of unearned interest 379,526,000 361,353,000
Allowance for loan losses (6,726,000) (6,783,000)
------------ ------------
Net loans 372,800,000 354,570,000
------------ ------------
Bank premises and equipment, net 10,575,000 10,807,000
Other assets 7,299,000 8,509,000
------------ ------------
Total assets $543,430,000 $498,006,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits:
Non-interest bearing $ 50,067,000 $ 48,121,000
Interest bearing 379,010,000 355,698,000
------------ ------------
Total deposits 429,077,000 403,819,000
------------ ------------
Short-term borrowings:
Federal funds purchased and securities
sold under repurchase agreements 12,060,000 9,267,000
Federal Home Loan Bank advances 21,216,000 10,500,000
------------ ------------
Total short-term borrowings 33,276,000 19,767,000
------------ ------------
Long-term borrowings 23,142,000 23,787,000
Accrued expenses and other liabilities 6,461,000 4,998,000
------------ ------------
Total liabilities 491,956,000 452,371,000
------------ ------------
STOCKHOLDERS' EQUITY
- --------------------
Common stock, no par value, 6,000,000
shares authorized - 3,332,598 shares
issued in 1995 and 3,020,908 issued in
1994, including shares in treasury 30,898,000 24,326,000
Net unrealized holding gain (loss) on
available-for-sale securities, net of
deferred taxes 2,469,000 (1,030,000)
Retained earnings 21,786,000 24,078,000
------------ ------------
55,153,000 47,374,000
Treasury stock, at cost, 220,406 shares
in 1995 and 120,970 shares in 1994 (3,679,000) (1,739,000)
------------ ------------
Total stockholders' equity 51,474,000 45,635,000
------------ ------------
Total liabilities and
stockholders' equity $543,430,000 $498,006,000
============ ============
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31,
1995 1994 1993
INTEREST INCOME:
- ----------------
Interest and fees on loans $34,501,000 $28,848,000 $26,645,000
Interest and dividends on:
Obligations of U.S.
Government and its agencies 5,338,000 4,266,000 5,050,000
Obligations of states and
political subdivisions 1,543,000 1,613,000 2,022,000
Other interest income 2,010,000 1,377,000 1,594,000
----------- ----------- -----------
Total interest income 43,392,000 36,104,000 35,311,000
----------- ----------- -----------
INTEREST EXPENSE:
- -----------------
Interest on deposits 18,384,000 13,616,000 13,855,000
Interest on short-term
borrowings 1,010,000 337,000 203,000
Interest on long-term
borrowings 1,383,000 1,471,000 1,205,000
----------- ----------- -----------
Total interest expense 20,777,000 15,424,000 15,263,000
----------- ----------- -----------
Net interest income 22,615,000 20,680,000 20,048,000
Provision for loan losses 1,315,000 765,000 1,592,000
----------- ----------- -----------
Net interest income after
provision for loan losses 21,300,000 19,915,000 18,456,000
----------- ----------- -----------
OTHER INCOME:
- -------------
Income from fiduciary activities 1,751,000 1,607,000 1,475,000
Service charges on deposit
accounts 1,565,000 1,456,000 1,295,000
Gain (loss) on sales of
securities 24,000 (237,000) 45,000
Other 817,000 1,012,000 1,137,000
----------- ----------- -----------
Total other income 4,157,000 3,838,000 3,952,000
----------- ----------- -----------
OTHER EXPENSES:
- ---------------
Salaries and employee benefits 7,836,000 6,779,000 6,840,000
Net occupancy 1,126,000 1,040,000 924,000
Equipment 1,241,000 1,205,000 1,091,000
Insurance 656,000 1,038,000 1,057,000
Stationery and other supplies 572,000 619,000 543,000
Taxes other than income taxes 588,000 575,000 565,000
Amortization of excess cost
over net assets acquired 159,000 159,000 159,000
Other 4,640,000 4,257,000 3,945,000
----------- ----------- -----------
Total other expenses 16,818,000 15,672,000 15,124,000
----------- ----------- -----------
Income before federal income
taxes and cumulative effect of
accounting changes 8,639,000 8,081,000 7,284,000
----------- ----------- -----------
FEDERAL INCOME TAXES:
- ---------------------
Current 2,792,000 2,330,000 2,168,000
Deferred (203,000) 3,000 (269,000)
----------- ----------- -----------
Total federal income taxes 2,589,000 2,333,000 1,899,000
----------- ----------- -----------
Income before cumulative effect
of accounting changes 6,050,000 5,748,000 5,385,000
Cumulative effect of accounting
changes, net of applicable taxes (314,000)
----------- ----------- -----------
NET INCOME $ 6,050,000 $ 5,748,000 $ 5,071,000
=========== =========== ===========
EARNINGS PER SHARE:
- -------------------
Income before cumulative effect of accounting changes:
Primary $1.90 $1.80 $1.75
Assuming full dilution $1.89 $1.79 $1.73
Cumulative effect of accounting changes:
Primary $0.10
Assuming full dilution $0.10
Net income per share:
Primary $1.90 $1.80 $1.65
Assuming full dilution $1.89 $1.79 $1.63
Weighted average number of shares outstanding:
Primary 3,180,868 3,200,306 3,077,087
Assuming full dilution 3,199,203 3,203,465 3,126,189
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Net
Unrealized
Holding
Gain (Loss)
on
Capital Available-
Common Stock in Excess Retained for-Sale Treasury
Shares Amount of Par Earnings Securities Stock Total
- -----------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1993 1,309,491 $ 1,309,000 $16,575,000 $21,639,000 $(1,026,000) $38,497,000
- -----------------------------------------------------------------------------------------------------------------------------
Net income 5,071,000 5,071,000
Purchase of treasury stock,
12,316 shares (498,000) (498,000)
Conversion of subordinated
debentures to common stock 73,532 74,000 1,144,000 1,218,000
10% stock dividend 126,517 126,000 5,062,000 (5,188,000)
Conversion from $1.00 par
value to no par value 22,781,000 (22,781,000)
Cash dividends declared
of $0.47 per share (1,510,000) (1,510,000)
- -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 1,509,540 24,290,000 0 20,012,000 (1,524,000) 42,778,000
- -----------------------------------------------------------------------------------------------------------------------------
Adjustment for change in
method of accounting, net
of taxes $ 3,048,000 3,048,000
Net income 5,748,000 5,748,000
Purchase of treasury stock,
10,488 shares (215,000) (215,000)
Two-for-one stock split 1,509,540
Exercise of common
stock options 520 5,000 5,000
Issuance of common stock
under dividend
reinvestment plan 1,308 31,000 31,000
Net change in unrealized gain
(loss) on available-for-sale
securities (4,078,000) (4,078,000)
Cash dividends declared
of $0.53 per share (1,682,000) (1,682,000)
- -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 3,020,908 24,326,000 0 24,078,000 (1,030,000) (1,739,000) 45,635,000
- -----------------------------------------------------------------------------------------------------------------------------
Net income 6,050,000 6,050,000
Purchase of treasury stock,
87,340 shares (1,940,000) (1,940,000)
10% stock dividend 302,470 6,394,000 (6,394,000)
Exercise of common stock
options 2,722 26,000 26,000
Issuance of common stock
under dividend
reinvestment plan 6,498 152,000 152,000
Net change in unrealized gain
(loss) on available-for-sale
securities 3,499,000 3,499,000
Cash dividends declared
of $0.62 per share (1,948,000) (1,948,000)
- -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 3,332,598 $30,898,000 $ 0 $21,786,000 $ 2,469,000 $(3,679,000) $51,474,000
- -----------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
1995 1994 1993
Cash flows from operating activities:
- -------------------------------------
Net income $ 6,050,000 $ 5,748,000 $ 5,071,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for loan losses 1,315,000 765,000 1,592,000
(Gain) loss on sale of
investment securities (24,000) 237,000 (45,000)
Depreciation, amortization,
and accretion 1,564,000 1,884,000 1,584,000
(Increase) decrease in
interest receivable (480,000) 466,000
Increase (decrease) in
interest payable 238,000 185,000 (275,000)
Deferred income tax
(benefit) expense (203,000) 3,000 (565,000)
Deferral of loan origination
fees and costs 17,000 410,000 (221,000)
Accrual for postretirement
benefits 867,000
Other, net 896,000 (91,000) (698,000)
- --------------------------------------------------------------------------
Net cash provided by
operating activities 9,373,000 9,141,000 7,776,000
- --------------------------------------------------------------------------
Cash flows from investing activities:
- -------------------------------------
Net decrease in term interest
bearing deposits with banks
and federal funds sold 7,468,000
Purchases of available-for-sale
securities (52,955,000) (35,659,000)
Purchases of held-to-maturity
securities (1,230,000) (4,409,000) (29,260,000)
Proceeds from sales of
available-for-sale securities 1,066,000 23,072,000
Proceeds from maturities of
available-for-sale securities 25,337,000 16,479,000
Proceeds from maturities of
held-to-maturity securities 803,000 2,025,000
Proceeds from sales of
securities held for investment 4,558,000
Proceeds from maturities of
securities held for investment 33,402,000
Net increase in loans (19,562,000) (40,576,000) (31,166,000)
Expenditures for premises
and equipment (1,122,000) (1,142,000) (3,566,000)
Proceeds from sales of other
real estate owned 77,000 137,000 56,000
- --------------------------------------------------------------------------
Net cash used in
investing activities (47,586,000) (40,073,000) (18,508,000)
- --------------------------------------------------------------------------
Cash flows from financing activities:
- -------------------------------------
Net increase (decrease) in
non-interest bearing deposits 1,946,000 3,016,000 (608,000)
Net increase (decrease) in
interest bearing deposits 23,312,000 15,164,000 (15,376,000)
Net increase in short-term
borrowings 13,509,000 7,507,000 2,559,000
Proceeds from long-term
borrowings 2,500,000 7,700,000 8,000,000
Payments on long-term
borrowings (3,145,000) (4,244,000) (1,956,000)
Cash dividends paid (1,702,000) (1,623,000) (1,510,000)
Purchase of treasury stock (1,940,000) (215,000) (498,000)
Proceeds from issuance of
common stock 26,000 5,000
- --------------------------------------------------------------------------
Net cash provided by (used
in) financing activities 34,506,000 27,310,000 (9,389,000)
- --------------------------------------------------------------------------
Net decrease in cash and
cash equivalents (3,707,000) (3,622,000) (20,121,000)
Cash and cash equivalents
at beginning of year 24,701,000 28,323,000 48,444,000
- --------------------------------------------------------------------------
Cash and cash equivalents
at end of year $20,994,000 $24,701,000 $28,323,000
- --------------------------------------------------------------------------
Supplemental cash flow information:
Interest paid $20,540,000 $15,239,000 $15,538,000
Income taxes paid $ 2,364,000 $ 2,383,000 $ 2,754,000
See notes to consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accounting and reporting policies of Peoples Bancorp Inc.
and Subsidiaries (the "Company") conform to generally accepted
accounting principles and to general practices within the
banking industry. The Company considers all of its principal
activities to be banking related. The preparation of the
financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates. The following is a summary of significant
accounting policies followed in the preparation of the financial
statements. Certain amounts in the 1994 and 1993 financial
statements have been reclassified to conform to the 1995
presentation.
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 with banks, and federal funds sold,
all with original maturities of ninety days or less.
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 are deferred and recognized as income over the life of
the loan as an adjustment of the yield. Subsidiary banks
discontinue 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.
Investment Securities:
- ----------------------
Management determines the appropriate classification of
investment securities at the time of purchase. Held-to-maturity
securities are those securities that the Company 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 the Company's 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 stockholders' equity, net of applicable
deferred income taxes. The cost of securities sold is based on
the specific identification method.
In late 1995, the Financial Accounting Standards Board ("FASB")
issued a Special Report, "A Guide to Implementation of Statement
of Financial Accounting Standards ("SFAS") No. 115 on Accounting
for Certain Investments in Debt and Equity Securities". In
accordance with provisions in that Special Report, the Company
chose to reclassify all held-to-maturity securities to
available-for-sale. At the date of transfer the amortized cost
of those securities was $9,644,000 and the unrealized holding
gain, net of deferred income taxes, on those securities was
$271,000, which is included in stockholders' equity.
Allowance for Loan Losses:
- --------------------------
The allowance for loan losses is maintained at a level believed
adequate by management to absorb potential 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.
On January 1, 1995, the Company adopted SFAS No. 114
"Accounting by Creditors for Impairment of a Loan", as amended
by SFAS No. 118. The allowance for loan losses related to loans
that are identified for evaluation in accordance with SFAS No.
114 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. Prior to the adoption of
SFAS No. 114, the allowance for loan losses related to these
loans was based on undiscounted cash flows or the fair value of
the collateral on collateral dependent loans. The adoption of
this standard did not have a material effect on the Company's
financial position, results of operations, accounting policies,
or the determination of the adequacy of the allowance for
loan losses. Impaired loans at December 31, 1995 and the
average investment in impaired loans for the year then ended
were immaterial to the financial statements.
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
the Company's 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.
Excess of Cost Over Net Assets Acquired:
- ----------------------------------------
The excess of cost over the fair value of net assets of
subsidiary banks acquired is being amortized on a straight-line
basis over a ten-year period.
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 Company and its banking
subsidiaries file a consolidated federal income tax return and
income tax expense is allocated among all companies on a
separate return basis.
Earnings Per Share:
- -------------------
Primary and fully diluted earnings per share are computed by
dividing net income by average common shares outstanding during
the year plus the dilutive effect of common stock equivalents.
Options granted under the Company's stock option plans are
considered common stock equivalents for the purpose of computing
earnings per share. Fully diluted earnings per share is
computed for 1993 and prior years assuming the Subordinated
Debentures were converted as of the issue date with a
corresponding increase in net income from the after-tax
reduction in interest expense.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used by the Company
in estimating its fair value disclosures for financial
instruments in accordance with SFAS No. 107:
Cash and due from banks, interest bearing deposits with banks,
and federal funds sold:
- --------------------------------------------------------------
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:
- ------
For performing variable rate loans that reprice frequently and
performing demand loans, with no significant change in credit
risk, fair values are based on carrying values. The fair values
for certain mortgage loans are 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) are estimated using
discounted cash flow analyses, using interest rates currently
being offered for loans with similar terms to borrowers of
similar credit quality.
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 the Company for borrowings with similar terms.
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 taking into account the remaining terms of
the agreements and the counterparties' credit standing. The
estimated fair value of these commitments approximates their
carrying value. The fair value of the interest rate floor is
based on quotes from other financial institutions.
The estimated fair values of the Company's financial instruments
are as follows:
1995 1994
Carrying Fair Carrying Fair
Amount Value Amount Value
FINANCIAL ASSETS:
Cash and due from banks,
interest bearing deposits
with other banks, and
federal funds sold $20,994,000 $20,994,000 $24,701,000 $24,701,000
Investment securities 131,762,000 131,762,000 99,419,000 99,261,000
Loans, net 372,800,000 378,612,000 354,570,000 350,817,000
FINANCIAL LIABILITIES:
Deposits 429,077,000 430,184,000 403,819,000 402,949,000
Short-term borrowings 33,276,000 33,276,000 19,767,000 19,767,000
Long-term borrowings 23,142,000 23,255,000 23,787,000 22,098,000
OFF-BALANCE SHEET INSTRUMENTS:
Interest rate floors $116,000 $751,000
3. INVESTMENT SECURITIES:
Effective January 1, 1994, the Company adopted the provisions of
SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". The effect of this change in accounting
principle resulted in an unrealized holding gain of $3,048,000
(net of $1,570,000 in deferred income taxes), for securities
classified as available-for-sale effective January 1, 1994, and
has been reflected in a separate component of stockholders'equity.
The expected 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 34% federal income tax rate. The portfolio contains no
single issue (excluding U.S. Government and U.S. Agency
securities) which exceeds 10% of stockholders' equity.
Securities classified as available-for-sale
At December 31, 1995:
- -------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Treasury securities $ 32,295,000 $1,057,000 $ (28,000) $ 33,324,000
U.S. Agency mortgage-
backed securities 33,195,000 531,000 (15,000) 33,711,000
Other U.S. Agency
securities 6,947,000 262,000 0 7,209,000
------------ ---------- --------- ------------
Total U.S. Treasury
and Agency securities 72,437,000 1,850,000 (43,000) 74,244,000
------------ ---------- --------- ------------
Obligations of states and
political subdivisions 24,879,000 997,000 (16,000) 25,860,000
Other mortgage-backed
securities 12,270,000 88,000 (53,000) 12,305,000
Other securities 18,435,000 920,000 (2,000) 19,353,000
------------ ---------- --------- ------------
Total securities
available-for-sale $128,021,000 $3,855,000 $(114,000) $131,762,000
============ ========== ========== ============
MATURITY DISTRIBUTION OF SECURITIES AVAILABLE-FOR-SALE
Contractual maturities at December 31, 1995
Obliga-
U.S. tions of
Agency Total U.S. states and Other Total
mortgage- Other Treasury political mortgage- securities
U.S. backed U.S. and sub- backed Other available-
Treasury securities Agency Agency divisions securities securities for-sale
Within one year
- ---------------
Amortized cost $ 7,144,000 $ 7,144,000 $ 2,191,000 $ 500,000 $ 9,835,000
Fair Value $ 7,238,000 $ 7,238,000 $ 2,218,000 $ 512,000 $ 9,968,000
Yield 7.47% 7.47% 9.76% 8.45% 8.03%
1 to 5 years
- ------------
Amortized cost 23,941,000 $ 600,000 $ 3,703,000 28,244,000 8,989,000 $ 1,018,000 9,783,000 48,034,000
Fair value 24,643,000 $ 610,000 $ 3,809,000 29,062,000 9,406,000 $ 1,015,000 10,072,000 49,555,000
Yield 6.56% 6.74% 7.83% 6.79% 8.95% 5.82% 6.95% 7.17%
5 to 10 years
- -------------
Amortized cost 1,210,000 368,000 3,244,000 4,822,000 3,035,000 3,007,000 2,009,000 12,873,000
Fair value 1,443,000 370,000 3,400,000 5,213,000 3,164,000 3,025,000 2,088,000 13,490,000
Yield 7.88% 7.91% 8.02% 7.98% 8.45% 6.26% 6.87% 7.55%
Over 10 years
- -------------
Amortized cost 32,227,000 32,227,000 10,664,000 8,245,000 6,143,000 57,279,000
Fair value 32,731,000 32,731,000 11,072,000 8,265,000 6,681,000 58,749,000
Yield 7.36% 7.36% 8.11% 6.35% 6.07% 7.22%
Total amortized
cost $32,295,000 $33,195,000 $ 6,947,000 $72,437,000 $24,879,000 $12,270,000 $18,435,000 $128,021,000
Total fair value $33,324,000 $33,711,000 $ 7,209,000 $74,244,000 $25,860,000 $12,305,000 $19,353,000 $131,762,000
Total yield 6.81% 7.36% 7.92% 7.11% 8.61% 6.32% 6.69% 7.30%
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
At December 31, 1994:
SECURITIES CLASSIFIED AS AVAILABLE-FOR-SALE:
- --------------------------------------------
U.S. Treasury securities $ 30,138,000 $ 157,000 $ (577,000) $ 29,718,000
U.S. Agency mortgage-
backed securities 10,873,000 16,000 (391,000) 10,498,000
Other U.S. Agency
securities 2,223,000 24,000 (8,000) 2,239,000
Obligations of states and
political subdivisions 21,624,000 312,000 (233,000) 21,703,000
Other mortgage-backed
securities 12,557,000 0 (1,144,000) 11,413,000
Other securities 14,368,000 554,000 (321,000) 14,601,000
------------ ---------- ----------- ------------
Total securities
available-for-sale $ 91,783,000 $1,063,000 $(2,674,000) $ 90,172,000
------------ ---------- ----------- ------------
SECURITIES CLASSIFIED AS HELD-TO MATURITY:
- ------------------------------------------
U.S. Agency mortgage-
backed securities $ 992,000 $ 0 $ (38,000) $ 954,000
Other U.S. Agency
securities 4,683,000 5,000 (35,000) 4,653,000
Obligations of states and
political subdivisions 3,414,000 40,000 (123,000) 3,331,000
Other securities 158,000 0 (7,000) 151,000
------------ ---------- ----------- ------------
Total securities
held-to-maturity $ 9,247,000 $ 45,000 $ (203,000) $ 9,089,000
============ ========== =========== ============
At December 31, 1993:
SECURITIES CLASSIFIED AS HELD FOR INVESTMENT:
- ---------------------------------------------
Obligations of U.S.
Government $ 48,790,000 $2,244,000 $ (12,000) $ 51,022,000
Obligations of U.S.
Government agencies 4,809,000 56,000 (3,000) 4,862,000
Government mortgage-
backed securities 13,589,000 149,000 (17,000) 13,721,000
Obligations of states and
political subdivisions 26,183,000 1,648,000 27,831,000
Other bonds and securities 9,978,000 701,000 (10,000) 10,669,000
------------ ---------- ----------- ------------
Total securities held
for investment $103,349,000 $4,798,000 $ (42,000) $108,105,000
============ ========== =========== ============
Gross realized gains were $24,000 in 1995. Gross realized gains
and realized losses were $126,000 and $363,000, respectively, in
1994. Gross gains on sales of investments of $45,000 were
realized in 1993. At December 31, 1995 and 1994, investment
securities having a par value of $68,501,000 and $55,570,000,
respectively, were pledged to collateralize government and trust
department deposits in accordance with federal and state
requirements.
4. LOANS:
Loans are comprised of the following at December 31:
1995 1994
Commercial, financial, and agricultural $ 117,306,000 $ 117,015,000
Real estate, construction 5,919,000 2,528,000
Real estate, mortgage 154,469,000 150,289,000
Consumer 101,832,000 91,521,000
------------- -------------
Total loans $ 379,526,000 $ 361,353,000
============= =============
Changes in the allowance for loan losses for each of the three
years in the period ended December 31, 1995, were as follows:
1995 1994 1993
Balance, beginning of year $6,783,000 $6,370,000 $5,687,000
Charge-offs (1,803,000) (1,124,000) (1,203,000)
Recoveries 431,000 772,000 294,000
---------- ---------- ----------
Net charge-offs (1,372,000) (352,000) (909,000)
Provision for loan losses 1,315,000 765,000 1,592,000
---------- ---------- ----------
Balance, end of year $6,726,000 $6,783,000 $6,370,000
========== ========== ==========
The Company's 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. The Company's largest group of business
loans consists of automobile dealer floor plans, which totaled
$16,455,000 and $19,238,000 at December 31, 1995 and 1994,
respectively. It is the Company's policy to obtain the
underlying inventory as collateral on these loans. The Company
does not extend credit to any single borrower or group of
related borrowers in excess of the combined legal lending limits
of its subsidiary banks.
In the normal course of its business, the subsidiary banks have
granted loans to executive officers and directors of the Company
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, 1995:
Balance, January 1, 1995 $11,374,000
New loans 3,747,000
Repayments 2,866,000
-----------
Balance, December 31, 1995 $12,255,000
===========
The balance at December 31, 1995, includes $2,041,000 of loans
to one of the Company's directors which are considered by
management to be potential problem loans. The credit risk
associated with these loans has been considered by management in
the Company's determination of the overall adequacy of the
allowance for loan losses.
5. BANK PREMISES AND EQUIPMENT:
The major categories of bank premises and equipment and
accumulated depreciation are summarized as follows at December 31:
1995 1994
Land $ 1,607,000 $ 1,592,000
Building and premises 10,341,000 10,078,000
Furniture, fixtures and equipment 7,274,000 6,856,000
------------ ------------
19,222,000 18,526,000
Accumulated depreciation 8,647,000 7,719,000
------------ ------------
Net book value $ 10,575,000 $ 10,807,000
============ ============
Depreciation expense was $1,230,000, $1,110,000 and $906,000 for
the years ended December 31, 1995, 1994 and 1993, respectively.
The Company leases a banking facility 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, 1995:
Year Ending December 31, Operating Leases
1996 $ 120,000
1997 120,000
1998 113,000
1999 64,000
2000 6,000
Thereafter 3,000
---------
Total minimum lease payments $ 426,000
=========
Rent expense was $170,000, $181,000 and $149,000 in 1995, 1994
and 1993, respectively.
6. LONG-TERM BORROWINGS:
Long-term borrowings consisted of the following at December 31:
1995 1994
Term note payable, at prime
(8.5% at December 31, 1995) $ 1,560,000 $ 1,820,000
Federal Home Loan Bank advances,
bearing interest at rates
ranging from 4.15% to 7.00% 21,582,000 21,967,000
------------ ------------
Total long-term borrowings $ 23,142,000 $ 23,787,000
============ ============
The term note payable is due on December 31, 1996, with interest
payable quarterly. The Note Agreement is collateralized by all
of the common stock of a wholly-owned subsidiary and places
certain restrictive covenants on the Company, including the
maintenance of tangible net worth and the incurrence of
additional indebtedness.
The Federal Home Loan Bank ("FHLB") advances consist of various
borrowings with maturities ranging from 10 to 15 years. The
advances are collateralized by the Company's real estate
mortgage portfolio and all of the FHLB common stock owned by the
banking subsidiaries. The most restrictive requirement of the
debt agreement requires the Company 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:
1996 $ 4,611,000
1997 2,372,000
1998 4,521,000
1999 2,145,000
2000 2,276,000
Thereafter 7,217,000
------------
Total long-term borrowings $ 23,142,000
============
7. EMPLOYEE BENEFIT PLANS:
The Company has 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. The Company's funding policy is to contribute
annually an amount that can be deducted for federal income tax
purposes.
Net pension cost included the following components:
1995 1994 1993
Service cost-benefits earned
during the year $ 254,000 $ 260,000 $ 243,000
Interest cost on projected
benefit obligations 444,000 401,000 388,000
Actual return on plan assets (831,000) (414,000) (411,000)
Early retirement benefits 777,000
Net amortization and deferral 381,000 (13,000) (11,000)
---------- --------- ---------
Net pension cost $1,025,000 $ 234,000 $ 209,000
========== ========= =========
The following table sets forth the funded status and amounts
recognized for the defined benefit pension plan in the
consolidated balance sheets at December 31:
1995 1994
Actuarial present value of accumulated
benefit obligations:
Vested benefits $ 5,555,000 $ 3,958,000
Nonvested benefits 186,000 142,000
----------- -----------
Accumulated benefit obligation 5,741,000 4,100,000
Impact of future salary increases 1,164,000 1,105,000
----------- -----------
Actuarial present value of projected
benefit obligation for service
rendered to date 6,905,000 5,205,000
Plan assets at fair value, primarily
U.S. Government obligations and
collective investment stock and
bond funds 5,460,000 4,693,000
----------- -----------
Projected benefit obligations in
excess of plan assets (1,445,000) (512,000)
Unrecognized prior service cost (82,000) (92,000)
Unrecognized net gain from past
experience different from that
assumed and effects of changes
in assumptions (171,000) (404,000)
Unrecognized net transition asset (59,000) (62,000)
----------- -----------
Accrued pension cost included
in other liabilities $(1,757,000) $(1,070,000)
=========== ===========
The rates used in determining the actuarial present value of the
projected benefit obligation were as follows:
1995 1994 1993
Discount rate 7.50% 8.50% 7.25%
Rate of increase in compensations levels 4.00% 5.00% 4.50%
Long-term rate of return on assets 9.00% 8.50% 8.50%
The unrecognized net gain decreased in 1995 due to the change in
the discount rate. In late 1995, the Company offered a
voluntary early retirement program to a select group of
employees who met certain qualifications. All employees
eligible for the early retirement program accepted the offer and
the Company incurred $777,000 in additional expense.
The Company has a contributory defined benefit postretirement
plan for former employees who were retired as of December 31,
1992. The plan provides for health and life insurance benefits.
The Company's policy is to fund the cost of the benefits as
they are incurred.
On January 1, 1993, the Company adopted SFAS No. 106 "Employers'
Accounting for Postretirement Benefits Other Than Pensions"
which requires the accrual of the expected costs of providing
postretirement benefits during the period of employee service.
The Company recognized the cumulative effect of its transition
obligation of $583,000, net of taxes, as a decrease in income in
1993. The net periodic postretirement benefit cost, which
relates primarily to interest cost, was $65,000, $68,000, and
$74,000 for 1995, 1994, and 1993, respectively.
The following table sets forth the funded status and amounts
recognized in the consolidated balance sheets at December 31:
1995 1994
Accumulated postretirement benefit obligation $ (857,000) $ (875,000)
Unrecognized net gain 1,000 9,000
Accrued postretirement benefit cost
included in other liabilities $ (856,000) $ (866,000)
The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 7.50% at
December 31, 1995 and 8.50% at December 31, 1994.
The weighted average annual assumed rate of increase in the per
capita cost of covered benefits (i.e. health care cost trend
rate) is 9% for 1996, grading down 1% per year to an ultimate
rate of 5%. The health care cost trend rate assumption has a
significant effect on the amounts reported. For example,
increasing the assumed health care cost trend rates by one
percentage point each year would increase the accumulated
benefit obligation for the plan at December 31, 1995, by
$103,000 and the net periodic postretirement benefit cost in
1995 by $8,000.
8. 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
1995 1994 1993
Statutory corporate tax rate 34.0% 34.0% 34.0%
Differences in rate resulting from:
Interest on obligations of state
and political subdivisions (5.0) (5.8) (7.9)
Other, net 1.0 0.7
------ ------ ------
30.0% 28.9% 26.1%
====== ====== ======
The significant components of the Company's deferred tax assets
and liabilities consisted of the following at December 31:
1995 1994
Deferred tax assets:
- --------------------
Allowance for loan losses $ 1,709,000 $ 1,784,000
Accrued employee benefits 991,000 659,000
Available-for-sale securities 531,000
Deferred loan fees and costs 333,000 328,000
Other 211,000 257,000
----------- -----------
Total deferred tax assets 3,244,000 3,559,000
Deferred tax liabilities:
- -------------------------
Available-for-sale securities 1,272,000
Bank premises and equipment 546,000 468,000
Other 446,000 511,000
----------- -----------
Total deferred tax liabilities 2,264,000 979,000
----------- -----------
Net deferred tax assets $ 980,000 $ 2,580,000
=========== ===========
The related federal income tax expense (benefit) on securities
transactions approximated $8,000 in 1995, $(81,000) in 1994, and
$15,000 in 1993.
On January 1, 1993, the Company adopted SFAS No. 109,
"Accounting for Income Taxes", which requires the recognition of
deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial
statements or tax returns. The Company recognized the
cumulative effect of this change in accounting of $269,000 as an
increase in income in 1993.
9. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK:
In the normal course of business, the Company 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 floors. 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 the Company has in these
financial instruments.
Loan Commitments and Standby Letters of Credit:
- -----------------------------------------------
Loan commitments are made to accommodate the financial needs of
the Company's customers. Standby letters of credit commit the
Company to make payments on behalf of customers when certain
specified future events occur. Historically, most loan
commitments and standby letters of credit expire unused. The
Company's 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. The Company uses the
same credit policies 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
1995 1994
Loan commitments $36,106,000 $ 30,966,000
Standby letters of credit 2,116,000 2,083,000
Unused credit card limits 14,582,000 13,408,000
Interest Rate Floors:
- ---------------------
In February, 1995, the Company entered into several interest
rate floor contracts with two unaffiliated financial
institutions as a means of managing the risks of changing
interest rates. Interest rate floors are agreements to receive
payments for interest rate differentials between an index rate
and a specified floor rate, computed on notional amounts. The
Company is subject to the risk that the effect of changes in
interest rates will cause the Company to earn less than the then
current market rates on its assets. These interest rate floors
subject the Company to the risk that the counter-parties may
fail to perform. In order to minimize such risk, the Company
deals only with high-quality, financially secure financial
institutions. The exposure to credit risk is significantly less
than the notional amounts of $20,000,000 since the Company will
only receive the interest rate differential. These interest
rate contracts expire in February, 1998.
10. REGULATORY MATTERS:
The primary source of funds for the dividends paid by the
Company is dividends received from its banking subsidiaries.
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, 1995, approximately $6,780,000 of retained net profits of
the banking subsidiaries were available for the payment of
dividends to Peoples Bancorp Inc. without regulatory approval.
The Company's banking subsidiaries are required to maintain
minimum amounts of capital to total "risk weighted" assets, as
defined by the banking regulations. At December 31, 1995 the
banking subsidiaries are required to have minimum Tier 1 and
total capital ratios of 4% and 8%, respectively. The banking
subsidiaries' actual ratios at that date were in excess of these
stated minimums.
11. 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 $6,371,000 for the year ended December 31, 1995.
12. BRANCH ACQUISITIONS:
In December 1995, the Company entered into a definitive
agreement to assume approximately $75 million in deposit
liabilities from an unaffiliated institution. In the agreement,
the Company will also acquire three full-service banking offices
in the cities of Pomeroy, Gallipolis, and Rutland, Ohio.
Pending regulatory approval, the acquisition is expected to
close during the first half of 1996 and is expected to be
accounted for under the purchase method.
13. CHANGES IN CAPITAL STRUCTURE:
On August 22, 1995, the Company declared a 10% stock dividend
issued on October 25, 1995 to shareholders of record as of
October 10, 1995. On March 24, 1994, the Company declared a
two-for-one stock split issued on April 29, 1994 to shareholders
of record as of April 15, 1994. On January 25, 1993, the
Company declared a ten percent stock dividend issued on April
15, 1993 to shareholders of record as of April 1, 1993. All per
share information in the accompanying consolidated financial
statements has been adjusted to give retroactive effect to these
stock transactions.
14. STOCK OPTIONS:
The Company's stock option plans provide for the granting of
both incentive stock options and non-qualified stock options of
up to 352,000 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. All granted options vest in periods ranging from
six months to six years and expire 10 years from the date of
grant.
Activity in the plans is summarized as follows:
1995 1994
Number Option Number Option
of shares price of shares price
Non-qualified stock options
- ---------------------------
Outstanding at beginning
of year 18,150 $17.73-20.00 17,710 $ 18.64
Granted 27,402 20.45-21.36 2,860 17.73-20.00
Exercised 242 18.64
Canceled 2,178 18.64
------- ------------ ------- ------------
Outstanding at end of year 45,552 17.73-21.36 18,150 17.73-20.00
======= ============ ======= ============
Exercisable at end of year 24,798 $17.73-21.36 6,908 $17.73-20.00
======= ============ ======= ============
Incentive stock options
- -----------------------
Outstanding at beginning
of year 188,650 $15.91-21.25 41,800 $ 15.91
Granted 150,150 21.25
Exercised 4,956 15.91 1,100 15.91
Canceled 2,200 15.91
------- ------------ ------- ------------
Outstanding at end of year 183,694 15.91-21.25 188,650 15.91-21.25
======= ============ ======= ============
Exercisable at end of year 45,094 $15.91-21.25 38,500 $ 15.91
======= ============ ======= ============
In November, 1995, the FASB issued SFAS No. 123, "Accounting for
Stock Based Compensation", which is effective for fiscal years
beginning after December 15, 1995. SFAS No. 123 requires
companies to estimate a fair value for stock options at the date
of grant and recognize the related expense over the applicable
service period. SFAS No. 123 provides companies with the option
of continuing to account for stock based compensation under APB
Opinion No. 25, "Accounting for Stock Issued to Employees", or
applying the provisions of SFAS No. 123. The Company has
decided to continue to apply the provisions of APB No. 25 to
account for stock based compensation.
15. PARENT COMPANY ONLY FINANCIAL INFORMATION:
December 31,
1995 1994
CONDENSED BALANCE SHEETS
Assets:
- -------
Cash $ 20,000 $ 20,000
Interest bearing deposits in subsidiary bank 533,000 636,000
Receivable from subsidiary bank 969,000 2,012,000
Investment securities: Available-for-sale
(amortized cost of $1,098,000 and $757,000
at December 31, 1995 and 1994, respectively) 1,636,000 1,261,000
Capital note receivable from subsidiary bank 3,000,000 3,000,000
Investments in subsidiaries:
Banks 46,299,000 39,651,000
Non-banks 1,065,000 976,000
Excess cost over net assets acquired 967,000 1,104,000
Other 906,000 709,000
----------- -----------
Total assets $55,395,000 $49,369,000
=========== ===========
Liabilities:
- ------------
Accrued pension $ 1,757,000 $ 1,070,000
Accrued interest payable and other
accrued expenses 75,000 409,000
Dividends payable 529,000 435,000
Long-term borrowings 1,560,000 1,820,000
----------- -----------
Total liabilities 3,921,000 3,734,000
----------- -----------
Stockholders' equity 51,474,000 45,635,000
----------- -----------
Total liabilities and
stockholders' equity $55,395,000 $49,369,000
=========== ===========
Year ended December 31,
1995 1994 1993
CONSOLIDATED STATEMENTS OF INCOME
Income:
- -------
Dividends from subsidiary banks $3,415,000 $2,280,000 $5,080,000
Dividends from other subsidiaries 50,000 40,000 50,000
Interest 393,000 301,000 58,000
Management fees from subsidiaries 907,000 818,000 770,000
Other 69,000 123,000 110,000
---------- ---------- ----------
Total income 4,834,000 3,562,000 6,068,000
Expenses:
- ---------
Salaries and benefits 1,183,000 948,000 848,000
Interest 148,000 141,000 169,000
Other 764,000 549,000 709,000
---------- ---------- ----------
Total expenses 2,095,000 1,638,000 1,726,000
Income before federal income taxes
and equity in undistributed
earnings of subsidiaries 2,739,000 1,924,000 4,342,000
Applicable income tax benefit (200,000) (100,000) (231,000)
Equity in undistributed earnings
of subsidiaries 3,111,000 3,724,000 498,000
---------- ---------- ----------
Net income $6,050,000 $5,748,000 $5,071,000
========== ========== ==========
Year ended December 31,
1995 1994 1993
STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
- -------------------------------------
Net income $6,050,000 $5,748,000 $5,071,000
Adjustment to reconcile net income
to cash provided by operations:
Amortization and depreciation 179,000 134,000 265,000
Equity in undistributed earnings
of subsidiaries (3,111,000) (3,724,000) (498,000)
Other, net. 189,000 1,103,000 115,000
- --------------------------------------------------------------------------
Net cash provided by
operating activities 3,307,000 3,261,000 4,953,000
- --------------------------------------------------------------------------
Cash flows from investing activities:
- -------------------------------------
Purchase of investment securities (340,000) (188,000)
Expenditures for premises and
equipment (87,000) (46,000) (20,000)
Investment in subsidiaries (150,000)
Capital note receivable from
subsidiary bank (3,000,000)
- --------------------------------------------------------------------------
Net cash used in
investing activities (577,000) (234,000) (3,020,000)
- --------------------------------------------------------------------------
Cash flows from financing activities:
- -------------------------------------
Payments on long-term borrowings (260,000) (260,000) (276,000)
Purchase of treasury stock (1,940,000) (215,000) (498,000)
Change in receivable from
subsidiary 1,043,000 (406,000) 159,000
Proceeds from issuance of
common stock 26,000 5,000
Cash dividends paid (1,702,000) (1,623,000) (1,510,000)
- --------------------------------------------------------------------------
Net cash used in
financing activities (2,833,000) (2,499,000) (2,125,000)
- --------------------------------------------------------------------------
Net (decrease) increase in cash (103,000) 528,000 (192,000)
Cash and cash equivalents at the
beginning of the year 656,000 128,000 320,000
- --------------------------------------------------------------------------
Cash and cash equivalents at the
end of the year $ 553,000 $ 656,000 $ 128,000
==========================================================================
The parent company paid interest totaling $148,000, $141,000
and $185,000 during the years ended December 31, 1995, 1994 and
1993, respectively.
16. SUMMARIZED QUARTERLY INFORMATION (UNAUDITED):
A summary of selected quarterly financial information
for 1995 and 1994 follows:
1995
----------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
Interest income $10,099,000 $10,780,000 $11,086,000 $11,427,000
Interest expense 4,616,000 5,228,000 5,476,000 5,457,000
Net interest income 5,483,000 5,552,000 5,610,000 5,970,000
Provision for
possible loan losses 285,000 310,000 360,000 360,000
Investment
securities gains 0 0 17,000 7,000
Other income 1,006,000 1,028,000 1,103,000 996,000
Other expenses 4,067,000 4,082,000 4,038,000 4,631,000
Income taxes 651,000 654,000 722,000 562,000
Net income 1,486,000 1,534,000 1,610,000 1,420,000
Earnings per share
assuming full dilution $0.46 $0.48 $0.51 $0.45
1994
---------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
Interest income $ 8,497,000 $ 8,645,000 $ 9,146,000 $ 9,816,000
Interest expense 3,620,000 3,654,000 3,930,000 4,220,000
Net interest income 4,877,000 4,991,000 5,216,000 5,596,000
Provision for possible
loan losses 192,000 248,000 167,000 158,000
Investment securities
gains (losses) 81,000 45,000 0 (363,000)
Other income 1,029,000 951,000 970,000 1,125,000
Other expenses 3,911,000 3,871,000 3,919,000 3,971,000
Income taxes 578,000 556,000 628,000 571,000
Net income 1,306,000 1,312,000 1,472,000 1,658,000
Earnings per share
assuming full dilution $0.41 $0.41 $0.46 $0.51
REPORT OF INDEPENDENT AUDITORS
- ------------------------------
To the Stockholders and Board of Directors:
We have audited the accompanying consolidated balance sheet of
Peoples Bancorp Inc. and Subsidiaries as of December 31, 1995,
and the related consolidated statements of income, stockholders'
equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of
Peoples Bancorp Inc. and Subsidiaries for the years ended
December 31, 1994 and 1993, were audited by other auditors whose
report dated January 26, 1995, expressed an unqualified opinion
on those statements.
We conducted our audit in accordance with generally accepted
auditing standards. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Peoples Bancorp Inc. and Subsidiaries at
December 31, 1995 and the consolidated results of their
operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Ernst & Young LLP
Charleston, West Virginia
January 25, 1996
AVERAGE BALANCES AND ANALYSIS OF NET INTEREST INCOME
(Dollars in Thousands)
1995 1994 1993
Average Average Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
Securities <F1> <F2>:
- ---------------------
Taxable $ 95,056 $ 6,633 7.0% $ 77,811 $ 5,229 6.7% $ 79,086 $ 5,959 7.5%
Nontaxable (2) 23,761 2,117 8.9% 23,647 2,278 9.6% 26,895 2,608 9.7%
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total 118,817 8,750 7.4% 101,458 7,507 7.4% 105,981 8,567 8.1%
-------- ------- ----- -------- ------- ----- -------- ------- -----
Loans (3) (4):
- --------------
Commercial 113,782 11,254 9.9% 105,290 8,896 8.5% 96,262 7,962 8.3%
Real estate 156,598 13,657 8.7% 146,966 12,311 8.4% 135,612 11,492 8.5%
Consumer 96,604 9,618 10.0% 85,219 7,645 9.0% 74,408 7,191 9.7%
Valuation reserve (6,719) (6,680) (6,095)
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total 360,265 34,529 9.6% 330,795 28,852 8.7% 300,187 26,645 8.9%
-------- ------- ----- -------- ------- ----- -------- ------- -----
Money Market:
- -------------
Interest-bearin deposits 526 22 4.2% 1,734 66 3.8% 8,562 209 2.4%
Federal funds sold 13,464 796 5.9% 10,615 422 4.0% 17,706 623 3.5%
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total 13,990 818 5.8% 12,349 488 4.0% 26,268 832 3.2%
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total earning assets 493,072 44,097 8.9% 444,602 36,847 8.3% 432,436 36,044 8.3%
-------- ------- ----- -------- ------- ----- -------- ------- -----
Other assets 34,910 35,422 32,580
-------- -------- --------
Total assets $527,982 $480,024 $465,016
-------- -------- --------
Deposits:
- ---------
Savings $ 68,867 2,307 3.4% $ 75,422 2,106 2.8% $ 72,999 2,107 2.9%
Interest-bearing
demand 92,280 3,228 3.5% 85,326 2,212 2.6% 80,100 1,998 2.5%
Time 222,898 12,849 5.8% 187,842 9,298 4.9% 196,374 9,750 5.0%
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total 384,045 18,384 4.8% 348,590 13,616 3.9% 349,473 13,855 4.0%
Borrowed Funds:
- ---------------
Short-term 19,993 1,010 5.1% 10,953 337 3.1% 9,186 203 2.2%
Long-term 22,612 1,383 6.1% 24,614 1,471 6.0% 19,611 1,205 6.1%
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total 42,605 2,393 5.6% 35,567 1,808 5.1% 28,797 1,408 4.9%
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total interest-
bearing liabilities 426,650 20,777 4.9% 384,157 15,424 4.0% 378,270 15,263 4.0%
-------- ------- ----- -------- ------- ----- -------- ------- -----
Noninterest-bearing
demand deposits 46,876 46,224 41,621
Other liabilities 5,396 5,029 4,320
-------- -------- --------
Total liabilities 478,922 435,410 424,211
Stockholders' equity 49,060 44,614 40,805
Total liabilities -------- -------- --------
and stockholders'
equity $527,982 $480,024 $465,016
======== ======== ========
Interest rate spread $23,320 4.0% $21,423 4.3% $20,781 4.3%
------- ----- ------- ----- ------- -----
Interest revenue/earning assets 8.9% 8.3% 8.3%
Interest expense/earning assets 4.2% 3.5% 3.5%
Net yield on earning ----- ----- -----
assets (net interest margin) 4.7% 4.8% 4.8%
===== ===== =====
<FN>
<F1> Average balances of investment securities based on historical cost.
<F2> Computed on a fully tax equivalent basis using a tax rate
of 34%. Interest income was increased by $705,000, $743,000 and
$733,000 for 1995, 1994 and 1993, respectively.
<F3> 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 status is included in
loan interest income. At December 31, 1995, 1994 and 1993,
nonaccrual loans outstanding were $482,000, $902,000 and
$1,416,000, respectively.
<F4> Loan fees included in interest income for 1995, 1994 and
1993 were $741,000, $659,000 and $558,000, respectively.
</FN>
RATE VOLUME ANALYSIS/MATURITIES TABLES
Rate Volume Analysis
- --------------------
(Dollars in Thousands)
Change in Income/Expense <F1> Rate Effect Volume Effect
1995 1994 1993 1995 1994 1993 1995 1994 1993
Investment income:
- ------------------
Taxable $ 1,404 $ (730) $ (419) $ 207 $ (635) $ (225) $ 1,197 $ (95) $ (194)
Nontaxable (161) (330) (266) (172) (17) (26) 11 (313) (240)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total 1,243 (1,060) (685) 35 (652) (251) 1,208 (408) (434)
Loan income:
- ------------
Commercial 2,358 934 (80) 1,601 174 (1,200) 757 760 1,120
Real estate 1,346 819 (824) 519 (133) (645) 827 952 (179)
Consumer 1,973 454 (239) 890 (541) (721) 1,083 995 482
------- ------- ------- ------- ------- ------- ------- ------- -------
Total 5,677 2,207 (1,143) 3,010 (500) (2,566) 2,667 2,707 1,423
------- ------- ------- ------- ------- ------- ------- ------- -------
Money market funds 330 (344) (655) 247 151 (583) 83 (495) (72)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total interest income 7,250 803 (2,483) 3,292 (1,001) (3,400) 3,958 1,804 917
======= ======= ======= ======= ======= ======== ======= ======== ========
Interest expense:
- -----------------
Savings 201 (1) (88) 395 (70) (454) (194) 69 366
Interest-bearing
demand deposits 1,016 214 (312) 824 80 (496) 192 134 184
Time 3,551 (452) (2,931) 1,665 (30) (1,422) 1,886 (422) (1,509)
Short-term borrowings 673 134 (59) 294 90 (53) 379 44 (6)
Long-term borrowings (88) 266 766 33 (34) (40) (121) 300 806
------- ------- ------- ------- ------- ------- ------- ------- -------
Total interest expense 5,353 161 (2,624) 3,211 36 (2,465) 2,142 125 (159)
======= ======= ======== ======= ======= ======== ======= ======= =======
$ 1,897 $ 642 $ 141 $ 81 $(1,037) $ (935) $ 1,816 $ 1,679 $ 1,076
======= ======= ======= ======= ======= ======= ======= ======= =======
<FN>
<F1> 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.
</FN>
LOAN MATURITIES AT DECEMBER 31, 1995
- ------------------------------------
Due in
Due in One Year Due
One Year Through After
or Less Five Years Five Years Total
LOAN TYPE
Commercial loans:
- -----------------
Fixed $ 3,617 $ 6,927 $ 6,026 $ 16,570
Variable 27,870 13,025 59,841 100,736
-------- -------- -------- --------
31,487 19,952 65,867 117,306
Real estate loans:
- ------------------
Fixed 1,280 4,145 32,716 38,141
Variable 1,173 13,351 107,723 122,247
-------- -------- -------- --------
2,453 17,496 140,439 160,388
Consumer loans:
- ---------------
Fixed 4,059 77,665 10,567 92,291
Variable 272 8,068 1,201 9,541
-------- -------- -------- --------
4,331 85,733 11,768 101,832
-------- -------- -------- --------
Total $ 38,271 $123,181 $218,074 $379,526
======== ======== ======== ========
MATURITIES OF CERTIFICATES OF DEPOSIT OVER $100,000 AT DECEMBER 31:
- -------------------------------------------------------------------
1995 1994 1993 1992
Under 3 months $18,662 $5,657 $5,761 $7,810
3 to 6 months 9,319 2,149 2,241 5,957
6 to 12 months 5,140 5,868 2,859 2,109
Over 12 months 8,266 12,695 6,939 7,291
-------- -------- -------- --------
Total $41,387 $26,369 $17,800 $23,167
======== ======== ======== ========
LOAN PORTFOLIO ANALYSIS
(Dollars in thousands)
1995 1994 1993 1992 1991
Year-end balances:
- ------------------
Commercial, financial
and agricultural $117,306 $117,015 $101,633 $91,138 $61,594
Real estate 154,469 150,289 135,704 125,586 140,600
Real estate
construction 5,919 2,528 5,421 4,514 6,560
Consumer 95,464 86,098 74,775 66,129 65,714
Credit card 6,368 5,423 4,142 3,768 3,785
-------- -------- -------- -------- --------
Total $379,526 $361,353 $321,675 $291,135 $278,253
======== ======== ======== ======== ========
Average total loans $366,984 $337,475 $306,282 $291,033 $270,213
Average allowance
for loan losses (6,719) (6,680) (6,095) (5,298) (3,945)
Average loans, -------- -------- -------- -------- --------
net of allowance $360,265 $330,795 $300,187 $285,735 $266,268
======== ======== ======== ======== ========
Allowance for loan
losses, January 1 $6,783 $6,370 $5,687 $4,273 $4,086
Allowance for loan
losses of acquired branch 721
Loans charged off:
- ------------------
Commercial, financial
and agricultural 256 39 193 1,163 572
Real estate 82 189 143 295 401
Consumer 1,352 842 816 826 1,002
Credit card 113 54 51 33 62
------- ------ ------ ------ ------
Total 1,803 1,124 1,203 2,317 2,037
------- ------ ------ ------ ------
Recoveries:
- -----------
Commercial, financial
and agricultural 111 392 60 241 91
Real estate 60 61 65 110 25
Consumer 251 304 157 267 354
Credit card 9 15 12 5 6
------- ------ ------ ------ ------
Total 431 772 294 623 476
------- ------ ------ ------ ------
Net chargeoffs:
- ---------------
Commercial, financial
and agricultural 145 (353) 133 922 481
Real estate 22 128 78 185 376
Consumer 1,101 538 659 559 648
Credit card 104 39 39 28 56
------ ----- ------ ------ ------
Total 1,372 352 909 1,694 1,561
------ ----- ------ ------ ------
Provision for
loan losses 1,315 765 1,592 2,387 1,748
------ ----- ------ ------ ------
Allowance for loan
losses, December 31 $6,726 $6,783 $6,370 $5,687 $4,273
====== ====== ====== ====== ======
Allocation of allowance for loan losses at December 31:
- -------------------------------------------------------
Commercial $3,440 $3,281 $3,185 $2,651 $1,797
Real estate 1,517 1,828 2,000 1,189 1,108
Consumer 1,519 1,096 987 602 454
Credit card 100 89 166 45 45
Unallocated 150 489 32 1,200 869
-------- ------- ------- -------- --------
Total $6,726 $6,783 $6,370 $5,687 $4,273
======== ======= ======= ======== ========
Percent of loans to total loans at December 31:
- -----------------------------------------------
Commercial 30.9% 32.4% 31.6% 31.3% 22.1%
Real estate 40.7 41.6 42.2 43.1 50.5
Real estate, construction 1.5 0.7 1.7 1.6 2.4
Consumer 25.2 23.8 23.2 22.7 23.6
Credit card 1.7 1.5 1.3 1.3 1.4
-------- ------- -------- -------- --------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
======== ======= ======== ======== ========
Ratio of net chargeoffs to average total loans:
- -----------------------------------------------
Commercial 0.04% (0.11)% 0.04% 0.32% 0.18%
Real estate 0.01 0.04 0.03 0.06 0.14
Consumer 0.30 0.16 0.22 0.19 0.24
Credit card 0.03 0.01 0.01 0.01 0.02
------- -------- ------- ------- --------
Total 0.38% 0.10% 0.30% 0.58% 0.58%
======= ======== ======= ======= ========
Nonperforming loans:
- --------------------
Nonaccrual loans $482 $902 $1,416 $1,279 $1,301
Loans 90+ days past due 1,236 1,082 896 1,284 1,706
Other real estate owned 45 97 38 49 779
------ ------ ------- ------- -------
Total $1,763 $2,081 $2,350 $2,612 $3,786
====== ====== ======= ======= =======
Nonperforming loans
as a percent of
total loans 0.46% 0.58% 0.73% 0.90% 1.36%
======= ====== ======= ======= =======
Interest income on nonaccrual loans which would have been
recorded under the original terms of the loans for 1995, 1994
and 1993 was $19,000 (of which $10,000 was actually recorded),
$48,000 (of which $36,000 was actually recorded) and $149,000
(of which $41,000 was actually recorded), respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Introduction
- ------------
The following discussion and analysis of the consolidated
financial statements of Peoples Bancorp Inc. (the "Company") is
presented to give the reader insight into management's
assessment of the financial results. It also recaps the
significant events that led to the results. The Company's
subsidiaries, The Peoples Banking and Trust Company ("Peoples
Bank"), The First National Bank of Southeastern Ohio ("First
National") and The Northwest Territory Life Insurance Company,
provide financial services to individuals and businesses within
our 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.
This discussion and analysis should be read in conjunction with
the audited financial statements and footnotes and the ratios,
statistics, and discussions contained elsewhere in the Annual
Report.
Overview of the Income Statement
- --------------------------------
The Company recognized an increase in net income of $302,000, or
5.3%, to $6,050,000 in 1995 from $5,748,000 in 1994. Fully tax
equivalent net interest income increased $1,897,000 in 1995
compared to 1994, an increase of 8.9%. The yield on
interest-earning assets increased from 8.29% in 1994 to 8.94% in
1995, while the interest rate paid on interest-bearing
liabilities increased from 4.02% in 1994 to 4.87% in 1995. The
increase in net interest income can be attributed primarily to
the growth in interest-earning assets outpacing interest-bearing
liabilities with interest rates earned and paid, increasing at a
consistent spread from 1994 to 1995. The provision for loan
losses in 1995 totaled $1,315,000, up from $766,000 in 1994, in
response to continued retail loan growth. Non-interest income
(excluding gains or losses on sales of investment securities)
increased 1.4% to $4,133,000 in 1995, compared to $4,075,000 in
1994. Gains on sales of investment securities totaled $24,000
in 1995, compared to 1994's loss of $237,000. Non-interest
expense increased 7.3% in 1995 to $16,818,000, due primarily to
the effect of the voluntary early retirement plan offered to
qualified employees.
Interest Income and Expense
- ---------------------------
Net interest income represents the amount by which interest
income on earning assets exceeds interest paid on
interest-bearing liabilities. Interest earning assets include
loans and investment securities. Interest-bearing liabilities
include interest-bearing deposits and borrowed funds such as
Federal Home Loan Bank borrowings. Net interest income remains
the primary source of income for the Company. Market changes in
interest rates, as well as adjustments in the mix of
interest-earning assets and interest-bearing liabilities,
continue to impact net interest income.
Market rates fluctuated in 1995, as the monetary policies of the
Federal Reserve Board resulted in decreases in short-term
interest rates. The national prime rate increased early in 1995
to 9.00%, but had decreased to 8.50% by December 31, 1995. The
Company's Asset Liability Committee ("ALCO") meets on a regular
basis and monitors adjustments in interest rates and sets
pricing guidelines for the Company.
In 1995, the Company recorded net interest income of
$22,615,000, an increase of 9.4% from 1994. Total interest
income reached $43,392,000 while interest expense totaled
$20,777,000. Included in interest income is $705,000 of
tax-exempt income from investments in states and political
subdivisions. Since these revenues are not taxed , it is more
meaningful to analyze net interest income on a fully-tax
equivalent ("FTE") basis.
Net interest margin is calculated by dividing FTE net interest
income by average interest-earning assets. In 1995, the net
interest margin was 4.73%, a decrease of 9 basis points compared
to 1994's 4.82%. This decrease is primarily the result of
management strategically maintaining interest rates paid on
certain deposits, even though market rates had declined in the
latter part of 1995, to continue the deposit growth. Management
expects interest rate pressures to intensify in the future as
they have in recent periods. As a result of increased interest
rate pressure, the Company has utilized several balance sheet
growth strategies to increase the volume of both
interest-earning assets and interest-bearing liabilities, and as
a result, the volume of net interest income to overall
operations.
More detailed analysis of several categories within
interest-earning assets and interest-bearing liabilities reveals
changes in mix and shifts in interest rates. In 1995, average
balances in commercial loans increased $8,492,000 or 8.1% while
the average yield on those loans increased from 8.5% in 1994 to
9.9% in 1995. Average real estate loan balances grew $9,632,000
or 6.6% to $156,598,000. Net interest income earned on real
estate loans grew $1,346,000 to $13,657,000, an increase of
10.9%, while the average yield grew 34 basis points to 8.72%.
Consumer loans continued to grow in the markets we serve,
increasing $11,385,000 or 13.4% to an average of $96,604,000 in
1995. Average yield on consumer loans reached 9.96%, an
increase of 99 basis points over the previous year's average
yield of 8.97%. The Company has been able to meet its operating
goals through the growth of the loan portfolio at competitive
but profitable yields.
The Company experienced increases in interest costs of funding
sources as well. The Company priced its deposit products
aggressively in 1995, which resulted in the growth of certain
interest-bearing liabilities. Interest costs on traditional
deposit products increased 88 basis points compared to 1994.
The most significant component of interest expense in 1995
related to interest paid on time deposits (i.e., certificates of
deposits). In 1995, the Company paid interest of $12,849,000,
or 5.76%, on average time deposit balances of $222,898,000. In
1994, the average rate paid on time deposits totaled 4.95% on
average balances of $187,842,000. Average interest-bearing
demand deposit balances grew 8.1% to $92,280,000 in 1995, which
can be attributed to aggressive pricing on money market
accounts. Interest costs increased on these accounts due to the
growth in average balances as well as the Company's arrangement
of a high volume, fixed-rate pricing contract with a major
customer.
In 1995, the Company increased its utilization of short-term
borrowed funds. Historically the Company's cash management
services offered to a variety of business customers have
provided short-term funding, specifically overnight repurchase
agreements. In 1995, the Company's average balances of
overnight repurchase agreements increased 9.1% to $9,908,000.
The average rate paid in 1995 on overnight repurchase agreements
totaled 4.01%, up from 1994's average rate of 2.67%. These
rates are based on selected indices which rose proportionately
in 1995.
The most significant change in short-term borrowings interest
expense was incurred through Federal Home Loan Bank ("FHLB")
advances, which totaled $21,216,000 at December 31, 1995.
Average short-term FHLB balances totaled $8,110,000 in 1995 at
an average cost of 6.13%. Management plans to maintain access
to FHLB borrowings as an appropriate funding source.
Interest expense on long-term borrowings did not change
significantly. The rate paid on average long-term borrowings
totaled 6.11% in 1995, an increase of 13 basis points compared
to 1994's average rate of 5.98%. The majority of the Company's
long-term borrowings are fixed rate FHLB borrowings.
Non-Interest Income
- -------------------
Several categories of non-interest income had increases in 1995
compared to 1994. The Company's Investment and Trust Division,
with a strong boost to non-interest income, continued its
earnings trend. The fee structure for fiduciary activities is
based primarily on the fair value of assets being managed, which
totaled approximately $390 million at December 31, 1995, an
increase of nearly $60 million from the previous year-end. As a
result of the increases in market values and increases in the
number of accounts served, income from fiduciary activities
totaled $1,751,000, an increase of 9.0% compared to 1994.
In 1995, account service charge income increased $109,000 or
7.5% to $1,565,000. Several factors contributed to this growth,
but is primarily due to increased revenues from electronic
banking fees and other cost-recovery based fees and charges.
The Company will continue to explore new methods of enhancing
non-interest income in the future. Both traditional and
non-traditional financial service products are being analyzed
for future inclusion in the array of products currently being
offered by the Company.
Non-Interest Expense
- --------------------
Maintaining acceptable levels of non-interest expense is one of
the many performance goals for the Company. In 1995,
non-interest expense totaled $16,818,000, an increase of 7.3%
over 1994. Two significant occurrences impacted non-interest
expense in 1995: increased expense incurred as a result of a
voluntary early retirement program and a reduction in FDIC
insurance premiums.
On September 29, 1995, the Company announced a voluntary early
retirement program to certain qualifying employees representing
approximately seven percent of the Company's employee base. In
addition to rewarding long-time employees for their valuable
years of service, the program was designed to position the
Company to manage the future challenges facing the banking
industry. All employees eligible for the program accepted the
offer and as a result, the Company recognized a charge to
salaries and employee benefits of $777,000. The Company
anticipates future benefits in terms of reduced non-interest
expense and increased efficiencies. Management expects a
payback of this expense within the next three years.
Non-interest expense was decreased in 1995 by the long-awaited
reduction in insurance premiums paid on Bank Insurance Fund
("BIF") deposits. In the third quarter, the Company received a
$260,000 refund on previously paid insurance premiums to the
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. In 1995, the Company incurred BIF
insurance expense of $481,000, a decrease of $391,000, or 44.8%
compared to 1994. Lower BIF premiums in the future should
improve the Company's efficiency ratios.
Other categories within non-interest expense remained at levels
comparable to 1994. Depreciation expense on furniture and
fixtures increased 14.7% to 794,000 in 1995, due mostly to
increased investment in technology and other customer-service
enhancements. Management feels that, in the future,
non-interest expense can be leveraged to enhance customer
service and improve market share.
In October 1995, the FASB approved SFAS No. 123, "Accounting for
Stock-Based Compensation". 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 years 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 price stock option plans which have no intrinsic value at
the grant date, and under Opinion No. 25, compensation expense
is recognized for them.
As permitted by SFAS No. 123, the Company will continue to
account for stock-based compensation under Opinion No. 25, and
accordingly, will disclose in the future pro forma net income
and earnings per share as if the fair value based method of
accounting, as defined in SFAS No. 123, had been applied.
Return on Assets
- ----------------
For the year ended December 31, 1995, return on average assets
("ROA") was 1.15%, down five basis points from 1994's ratio of
1.20%. This decline in ROA was primarily due to the decrease in
the net yield on earning assets and the expense related to the
early retirement program. With the reduction of BIF premium
rates and the continual review for opportunities to improve the
efficiency of its operations, management expects ROA to increase
in 1996.
Return on Equity
- ----------------
Over the past five years, the Company's return on average
stockholders' equity ("ROE") has remained relatively constant.
This ratio was 12.33% in 1995, down 55 basis points from 1994.
This decrease is primarily the result of the impact on net
income of the early retirement program and the decline in the
net yield on earning assets.
Several other factors affected stockholders' equity in 1995, but
they partially offset each other. Stockholders' equity
increased due to the adjustment in the net unrealized holding
gain, net of deferred income taxes, on available-for-sale
securities, which totaled $2,469,000 at December 31, 1995,
compared to prior year's net unrealized holding loss of
$1,030,000, or an increase of $3,499,000. As the fair value of
the Company's investment portfolio increased throughout 1995,
the adjustment caused average stockholders' equity to increase
over $800,000. This increase in equity was offset by the
purchase of 87,340 of the Company's common shares for its
treasury. The Company paid $1,940,000 for these treasury shares
in 1995, increasing its total investment in treasury shares to
$3,670,000 at December 31, 1995. The acquisition of any
treasury shares in the future will depend on market conditions.
Management believes ROE is an important measure of an
organization's strength and will continue to monitor the
performance of the Company in relation to stockholders' equity,
and expects ROE to increase in 1996.
Federal Income Tax Expense
- --------------------------
Although federal income taxes totaled $2,589,000 in 1995, an
increase of $256,000 compared to 1994's total of $2,333,000, the
Company's effective tax rate remained relatively constant at 30%
in 1995 and 1994.
Overview of Balance Sheet
- -------------------------
In 1995, the Company continued its recent growth trend, as total
assets increased 9.1% to $543,430,000 at year-end 1995. Since
December 31, 1994, the Company's asset growth has occurred
primarily in the area of investment securities, which increased
$32,343,000, or 32.5% to $131,762,000 at year-end 1995, and
total loans, which increased $18,173,000, or 5.0%, to nearly
$380 million.
These increases in assets were funded by the growth of deposits
and short-term borrowings. Total deposits increased 6.3% to
$429,077,000. In 1995, the Company utilized additional
borrowings from the FHLB, as short-term borrowings increased 68.3%
to $33,276,000 at December 31, 1995. Long-term borrowings, comprised
mostly of FHLB borrowings with maturities greater than one year,
remained relatively constant, totaling $23,142,000 at December 31, 1995.
Stockholders' equity increased $5,839,000, or 12.8%, to
$51,474,000 at December 31, 1995. Certain components of
stockholders' equity and all per share information have been
adjusted for the 10% stock dividend issued to shareholders of
record as of October 10, 1995. The Company also purchased
$1,940,000 of treasury shares in 1995, bringing the total
balance of treasury shares to $3,679,000. Please see the
Consolidated Statements of Stockholders' Equity found on page 16
in this Report for additional information regarding the changes
in stockholders' equity.
Cash and Cash Equivalents
- -------------------------
The Company's cash and cash equivalents totaled $20,994,000 at
December 31, 1995, a decrease of $3,707,000 compared to year-end
1994. Management 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 occurred in
investment securities, which increased $32,343,000, or 32.5%, to
$131,762,000. At December 31, 1995, all investment securities
were classified as available-for-sale. At December 31, 1994,
the Company had total available-for-sale securities of
$90,172,000 and held-to-maturity securities of $9,247,000.
In October 1995, FASB approved a one-time holiday from SFAS No.
115, "Accounting for Certain Investments in Debt and Equity
Securities", which placed restrictions on held-to-maturity
securities. Entities had a one-time opportunity to restructure
their portfolios from approximately November 15 to December 31,
1995. Specifically, the FASB decided that entities could sell
or transfer securities from their held-to-maturity portfolio
without calling into question either their intent to hold other
debt securities to maturity in the future or their past
financial reporting. Upon analysis of the Company's investment
portfolio, management decided to take advantage of the one-time
holiday from SFAS No. 115 and transfer all held-to-maturity
securities to the available-for-sale category. Management
believes this action will favorably impact the overall
flexibility of the Company and interest rate risk management
opportunities of the Company.
A closer look at the specific components of the Company's
investment portfolio reveals a significant increase in
investments in U.S. Agency mortgage-backed securities. At
December 31, 1995, the Company had a fair value investment of
$33,711,000 in these securities, up from year-end 1994's total
of $11,452,000. These acquisitions reflect a portion of the
strategy implemented by the Company in 1995 to increase
incremental amounts of net interest income by investing in
higher-yield instruments. Investments in U.S. Treasury
securities increased $3,606,000, a result of additional
investments as well as the adjustment in interest rates, which
caused the fair value of these instruments to increase
throughout 1995. The other major categories of the investment
portfolio did not significantly change.
Management monitors the earnings performance and liquidity of
the investment portfolio on a regular basis through the 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.
Loans
- -----
Loan volume continues to grow, reflecting the additional credit
opportunities provided within the markets served. Total loans
increased by $18,173,000 or 5.0% to $379,526,000. During 1995,
the Company refined its procedures for classifying loans.
Accordingly, prior period loan amounts have been reclassified to
conform to the 1995 presentation.
At December 31, 1995, commercial loans remained relatively
unchanged at $117,306,000, compared to $117,015,000 at December
31, 1994. Commercial loan demand continues to be strong in
several of our markets, particularly in the Licking County loan
production office located in central Ohio. Established in 1993,
this office has initiated increases in both the number of
customers served as well as loan balances in this market, one of
the leading growth markets in the State of Ohio. The Company is
proud of the customer relationships we have developed in the
Licking County office. Real estate loans to our retail
customers continue to be the most significant portion of the
loan portfolio. Total real estate loans reached $154,469,000
at December 31, 1995, an increase of 2.8% compared to year-end
1994. Management believes mortgage lending will remain a vital
part of the lending operation of the Company as individuals
continue to aggressively seek refinancing of their current
mortgages. In addition, in early 1996, the Company initiated
a fixed-rate equiline program designed to capture a significant
share of the home equiline market in the areas we serve.
The financial services industry has experienced recent increases
in consumer debt and the Company is no exception as its consumer
lending has grown to meet the customers' demands. The Company's
credit card balances at December 31, 1995, were $6,368,000, up
17.4% from year-end 1994's balance of $5,423,000. In an effort
to spur additional credit card activity and better serve the
credit needs of our customers, the Company offered several new
products, including a no-fee credit card, increased credit
limits to qualified customers, and specialty credit cards issued
to specific organizational groups. Management is pleased with
the performance of the credit card portfolio and continues to
evaluate new opportunities. Although credit card loans
contributed to the overall growth in consumer lending, the
largest contribution to personal loans has been through the
Company's indirect lending area. At December 31, 1995, the
Company had indirect loan balances of $62,647,000, up 13.5% from
year-end 1994's balance of $55,180,000. This growth can be
attributed to the Company's commitment to quality customer
service and the continued strong demand for indirect loans in
the markets served by the Company.
In May 1995, the FASB issued SFAS No. 122, "Accounting for
Mortgage Servicing Rights" ("SFAS No. 122"). 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
not engaged in significant secondary market activity, 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. At December 31, 1995, real estate lending
continued to be the most significant part of our loan portfolio
representing 42.2% of total loans, while commercial, financial,
and agricultural loans totaled 30.9%.
Allowance for Loan Losses
- -------------------------
The allowance for loan losses as a percentage of total loans
decreased from 1.88% at year-end 1994 to 1.77% at December 31,
1995. The total dollar amount of the reserve decreased $57,000
over the same period. The Company's 1995 provision for loan
losses totaled $1,315,000, while gross chargeoffs were
$1,803,000 and recoveries amounted to $431,000. In 1994, the
Company had gross chargeoffs of $1,124,000 and recoveries of
$772,000.
A significant portion of the Company's chargeoffs in 1995
occurred in consumer lending. Increased loan activity,
especially in the indirect lending area, resulted in gross
chargeoffs of $1,465,000 in 1995, up 63.5% compared to 1994. As
a result, management has increased its allocation of the
allowance to consumer loans to address this exposure, but
expects the rate of chargeoffs to remain steady or decrease in
this area. Commercial loan chargeoffs totaled $256,000 while
recoveries were $111,000. Real estate loan chargeoffs and
recoveries were insignificant. Management continually monitors
the loan portfolio through its credit review department and loan
loss committee to determine the adequacy of the allowance for
loan losses and considers it to be adequate at December 31, 1995.
Nonaccrual loans and those loans 90 days past due totaled
$482,000 and $1,236,000, respectively, at December 31, 1995.
Nonperforming loans as a percentage of outstanding loans was
0.46% at year-end 1995, compared to 0.57% at December 31, 1994.
On January 1, 1995, the Company adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan", which
established new accounting and reporting criteria for all loans
determined to be impaired. SFAS No. 114 requires that 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.
Management considers such factors as past payment history,
recent economic developments, current and projected financial
condition and other relevant information to determine whether a
loan is impaired. Impairment is determined on a loan-by-loan
basis and generally consists of non-homogeneous (large
commercial) loans that have been placed on non-accrual status.
However, a loan will be identified and reported as impaired when
it is probable that a creditor will be unable to pay all
principal and interest amounts due according to the contractual
terms of the loan agreement. The adoption of SFAS No. 114 did
not have a material effect on the Company's financial position,
results of operations, accounting policies, or the determination
of the adequacy of the allowance for loan losses. Impaired
loans at December 31, 1995, the average investment in impaired
loans during 1995, and the interest income recognized on
impaired loans for the year then ended were immaterial to the
Company's financial statements.
As of December 31, 1995, management has identified performing
loans totaling $2,041,000 to one of the Company's directors
which are considered to be potential problem loans. The
borrower has encountered financial difficulties during the past
few years with some improvement in 1995. Management does not
anticipate any losses resulting from this relationship.
Funding Sources
- ---------------
The Company considers deposits and short-term and long-term
borrowings 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 bolstered the
asset growth of the Company. In 1995, total deposits grew 6.3%,
with the majority of the growth occurring in time deposits.
The most significant change to the Company's funding sources in
1995 occurred through increased balances in short-term
borrowings, which primarily consist of FHLB borrowings. In the
third quarter, the Company implemented a growth strategy
designed to enhance net interest income and other performance
ratios. Short-term borrowings were used to fund the balance
sheet growth and, as a result, short-term borrowings increased
$13,509,000 in 1995 to $33,276,000. Management plans to
maintain access to FHLB borrowings as an appropriate funding
source.
In addition to increased use of short-term borrowings with the
FHLB, the Company's balances in federal funds purchased and
securities sold under agreements to repurchase also grew. The
balances of these funds were $12,060,000 at year-end 1995, an
increase of 30.1% compared to 1994, reflecting the Company's
intentions to grow its cash management services program for both
new and existing commercial customers. The Company continues to
explore improved methods of providing cash management services
to these customers through enhanced systems and products.
In addition to the FHLB short-term borrowings, the Company also
continues to access long-term FHLB borrowings. 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. The net decrease of 1.8% in 1995 in
long-term FHLB borrowings is a result of an additional
$2,500,000 in borrowings and principal paydowns of $3,015,000.
Total long-term FHLB borrowings totaled $21,582,000 at December
31, 1995.
The acquisition of approximately $75 million in deposits from an
unaffiliated financial institution is expected to provide
additional funding sources. The majority of the deposits to be
assumed by the Company are time deposits. This acquisition is
expected to close during the first half of 1996.
Capital/Stockholders' Equity
- ----------------------------
The capital position of the Company remains strong. Total
stockholders' equity increased 12.8% to $51,474,000 at December
31, 1995. Stockholders' equity increased in 1995 for several
reasons, including the retention of net income. The Company
paid dividends of $1,948,000 in 1995, a dividend payout ratio of
32.20%, up from 1994's payout ratio of 29.26%. Management feels
this is an acceptable payout ratio for the Company and
anticipates similar payout ratios in future periods.
The Company's capital strength is apparent when measured to
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 13.85% at December 31, 1995 is well
above the minimum standard of 8%. The Company's Tier 1 capital
ratio of 12.60% also exceeded the regulatory minimum of 4%. The
leverage ratio at December 31, 1995 was 8.81%, 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 planning process.
Equity was affected in 1995 by SFAS No. 115, which requires an
equity adjustment for unrealized holding gains or losses for the
fair value of available-for-sale securities, net of deferred
income taxes. Since all of the investment securities in the
Company's portfolio are classified as available-for-sale, both
the investment and equity sections of the Company's balance
sheet are more sensitive to the changing fair values of
investments experienced during 1995. At December 31, 1994, the
Company had a net unrealized holding loss on available-for-sale
securities of $1,030,000. At December 31, 1995, the Company had
a net unrealized holding gain of $2,469,000, an increase of
$3,499,000 during the year. 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 level of stockholders' equity will be
impacted in the future by changes in the volume and market
values of available-for-sale securities.
Liquidity
- ---------
Liquidity measures an organization's ability to meet cash
obligations as they come due. During the year ended December
31, 1995, the Company generated cash flows from operations of
$9,373,000, used net cash flows of $26,979,000 (net of cash flow
proceeds from maturities and sales of investment securities) to
acquire investment securities, and generated cash flows from
financing activities of $34,506,000. The Consolidated
Statements of Cash Flows presented on page 17 of the
consolidated financial statements provides analysis of the
Company's cash flow activity. Additionally, management
considers that portion of the investment securities and loan
portfolios that mature within one year as part of our liquid
assets. The Company's liquidity is monitored by the ALCO, which
establishes ranges of acceptable liquidity. The current
liquidity position is adequate to fund off-balance sheet
commitments and liabilities as they come due. Please see
additional discussion of off-balance sheet commitments in Note 9
of the Notes to the Consolidated Financial Statements.
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 in the same manner 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 banks, monetary assets exceed
monetary liabilities and therefore, as prices have increased
over the past year, financial institutions experienced a modest
decline in the purchasing power of their assets.
Interest Rate Sensitivity
- -------------------------
The following table presents the Company's interest rate
sensitivity position at December 31, 1995 (dollars in thousands):
0 - 3 4 - 12 1 - 5 Over 5
Months Months Years Years Total
--------- -------- --------- --------- ---------
Interest earning assets:
- ------------------------
Investment securities (all
securities classified as
available-for-sale):
Taxable $4,391 $3,479 $40,276 $59,842 $107,988
Tax-exempt 554 1,544 9,279 12,397 23,774
------- ------- -------- -------- ---------
Total 4,945 5,023 49,555 72,239 131,762
Federal funds sold 3,500 3,500
Loans 132,287 125,060 95,679 26,500 379,526
Interest-bearing
deposits with banks 243 243
------- ------- -------- -------- ---------
Total 140,975 130,083 145,234 98,739 515,031
------- ------- -------- -------- ---------
Interest-bearing liabilities:
- -----------------------------
Deposits 217,271 73,636 88,103 379,010
Federal funds
purchased 1,133 1,133
Securities sold under
agreements to
repurchase 10,927 10,927
Short-term Federal
Home Loan Bank
borrowings 21,216 21,216
Long-term Federal
Home Loan Bank
borrowings 744 2,307 11,314 7,217 21,582
Other long-term
borrowings 1,560 1,560
-------- ------- ------- ------ --------
Total 252,851 75,943 99,417 7,217 435,428
-------- ------- ------- ------ --------
Interest
sensitivity $(111,876) $54,140 $45,817 $91,522 $79,603
========== ======= ======= ======= =======
The Interest Rate Sensitivity table above shows that the Company
is in a net asset sensitivity position. In theory, this means
that if interest rates increase, the Company's net income will
increase over time. Conversely, if interest rates decline,
so too will net income. The above table allocates interest
rate sensitivity within various time frames. Within zero to
three months, the Company is liability sensitive and all
other categories are asset sensitive. Management monitors
the asset and liability sensitivity through the ALCO and
uses this data to make appropriate strategic decisions.
In addition to the interest rate sensitivity schedule and
asset/liability repricing schedules, management has recently
added simulation modeling to its analysis of interest rate risk.
This combination provides dynamic information concerning the
Company's balance sheet structure in different interest rate
environments. When using simulation modeling, assumptions based
on anticipated market pricing are made to interest-earning
assets and interest-bearing liabilities. These adjustments
more accurately determine the interest rate risk of the Company.
In 1996, the Company expects in-house technology to provide
more flexible simulation modeling to assist the ALCO in terms
of balance sheet structure and interest rate risk management.
As part of its asset/liability strategies, the Company may use
certain off-balance sheet derivatives to manage interest rate
risks. In February 1995, the Company paid a $195,000 premium
for interest rate floors with a total notional value of $20
million. The interest rate floors require the counter-party to
pay the difference between the specified floor rate and an index
rate. The Company receives nothing if the index rate exceeds
the specified floor rate. The Company is subject to the risk
that the effect of changes in interest rates will cause the
Company to earn less than the current market rates on the
commercial loans associated with these floors. These interest
rate floors also subject the Company to the risk that the
counter-parties may fail to perform. To minimize this credit
risk, the Company only enters into these types of transactions
with high-quality, financially secure financial institutions.
The exposure to credit risk is substantially less than the
notional principal amounts since only the interest rate
differential is received and the premium was paid at the
inception. These agreements expire in February 1998 and they
did not materially affect net income for 1995.
Outlook for 1996
- ----------------
1996 should be an exciting year for the Company. Many goals
have been established for future operations, most of which focus
on customer service enhancement. In addition to providing
superior customer service, management feels growth into new
markets, as well as further penetration into existing markets,
is a priority of the Company.
In the first half of the year, three full-service offices will
be added in Pomeroy, Gallipolis, and Rutland, Ohio, extending
the markets served by the Company into southern Ohio and
contiguous areas of West Virginia. These offices, along with
approximately $75 million in deposits, will be acquired from an
unaffiliated financial institution. The transaction is subject
to regulatory approval. The new offices reflect the continuing
commitment to expansion of the Company's markets in southeastern
Ohio and beyond.
In late 1995, one of the Company's banking subsidiaries was
awarded insurance agency powers in the State of Ohio. Northwest
Territory Life Insurance Agency, Inc. and Northwest Territory
Property and Casualty Insurance Agency, Inc. (the "Agencies"),
subsidiaries of The First National Bank of Southeastern Ohio,
received Certificates of Qualification to provide full life and
property product lines to consumers in Ohio. These Agencies are
the first in Ohio to be affiliated with a financial institution.
Although management does not expect a material impact on the
results of 1996 operations, the Agencies are poised to produce
significant income growth and long-term value to the Company.
Internal development as well as external affiliation and
acquisition will be used to achieve these goals.
The operating plan for 1996 anticipates net interest income to
remain at levels similar to December 31, 1995. The acquisition
of $75 million in deposits could enhance net interest income
depending on how quickly the Company can invest the acquired
deposits in interest-earning assets with acceptable yields.
Movements in interest rates continue to impact the performance
of financial institutions. However, the Company does not manage
its balance sheet based upon interest rate forecasts. Through
its ALCO, management evaluates the balance sheet and monitors
earnings performance, as well as effectiveness of its liquidity
policy. The group also monitors net interest income, sets
pricing guidelines, and manages interest rate risk for the
Company.
Although net interest income remains a vital portion of the
earnings of the Company, management expects other operational
areas to provide additional revenues or cost savings to enhance
net income. The Company's recent investments in technology will
be complemented in 1996 with the purchase of a broad, PC-based
customer service representative ("CSR") system, which will
connect our CSR's to the Company-wide electronic network and
provide virtually all employees access to this electronic
environment. The CSR project, expected to be fully implemented
in mid-1996, is another phase in the integration of the
Company's financial information. When finished, the system will
enhance customer service as product information will be more
readily available to all CSR's. Electronic communication is the
future of a competitive business, and through increased
investment in technology, the Company anticipates a virtual
electronic financial institution in the future. Costs will be
reduced via decreased paper usage and other efficiencies.
Non-interest income continues to be a priority for enhancement
of earnings. As the Company expands into new products and
markets and increases existing market penetration, it is vital
to determine the appropriate cost-recovery for the services the
Company provides. With the potential earnings from the addition
of the Agencies to the Company's operations, future non-interest
income should increase. The fee income generated by the
Investment and Trust Division as well as other fee income from
electronic banking, service charges, etc., helps offset the
expense incurred to deliver that particular service or product.
In addition to the employees of the Agencies, the Company has
over 50 employees licensed to sell annuities. An outside firm
has been engaged to provide additional products to meet our
customers' financial needs. This program has been successful
for the Company in the past and management expects earnings
streams to be level or improve from this program in the future.
The rapid changes in banking coupled with increased competition
from all arenas have caused our organization to reevaluate the
way in which we do business. A strong customer focus has been
identified as a key to the continued future growth of the
Company. Out of this evaluation process the "Customer First"
concept was born. The basic premise of Customer First is that a
customer's total financial needs can best be met through one
financial consultant with whom they have built a relationship.
The goal is to create a staff of associates well trained in
multiple product lines to serve the changing needs of our
customers over their lifetimes. The Company benefits by
increased sales to a core of loyal, well-satisfied customers who
seek our counsel for all their financial needs. The customer
benefits by having a "Personal Banker" they know and trust to
facilitate their one-stop banking, whatever the need may be.
Recently our associates have begun the Customer First program
and will continue this program in the future.
Comparison of 1994 to 1993
- --------------------------
The Company achieved an increase in net income of $677,000 or
13.4% in 1994. Net income totaled $5,748,000, which provided
primary and fully diluted earnings per share of $1.80 and $1.79,
respectively, for the year ended December 31, 1994. Assets grew
7.0% in 1994 to over $498 million, providing a return on average
assets of 1.20%.
Net income to average stockholders' equity totaled 12.88% in
1994, compared to 12.43% the prior year. Total stockholders'
equity increased 6.7% to $45,635,000 at December 31, 1994. In
1994, the Company adopted SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", which requires that
debt and equity securities be classified into three different
categories: held-to-maturity, available-for-sale, and trading
securities. The Company adopted SFAS No. 115 on January 1,
1994, and classified the majority of its investment portfolio in
the available-for-sale classification, with unrealized holding
gains and losses excluded from earnings and reported as a
separate component of stockholders' equity. As a direct result
of SFAS No. 115, as market values of investment securities
dropped in 1994, the Company's equity decreased. At December
31, 1994, the Company had a net unrealized holding loss on
available-for-sale securities (net of deferred income taxes) of
$1,030,000.
The year ended December 31, 1994, offered strong loan growth, as
total loans outstanding grew nearly $40 million (or 12.3%) to
$361,353,000. Several factors contributed to overall loan
growth in 1994. The first full year of operation for the
Company's Licking County loan production office opened new
markets for business and real estate loans. Also, many
individuals actively looked to refinance home mortgages in 1994
and the Company was successful in capturing many of these loans.
Increased loan demand resulted in growth in interest-bearing
assets and a corresponding increase in interest-bearing
liabilities. Average interest-earning assets increased
$12,166,000 in 1994, or 2.8%, while interest-bearing liabilities
increased $5,887,000, or 1.6%, resulting in an increase in net
interest-earning assets. The Company also changed its mix in
interest-earning assets, as average loan balances grew
$31,193,000 to $337,475,000. Average balances in lower-yielding
assets such as interest-bearing deposits with other banks and
federal funds sold decreased nearly $14 million to $12,349,000.
This shift allowed the Company to sustain net interest margin.
Non-interest income (excluding gains on sales of investment
securities) increased $168,000 (or 4.3%) to $4,075,000, due
primarily to revenue generated from fiduciary activities and
service charges on deposit accounts. Non-interest expense
increased $548,000 (or 3.6%) to $15,672,000. December 31, 1994,
marked the first full-year of depreciation for bank premises,
furniture, and equipment acquired in relation to the five-story
addition to the downtown Marietta banking facility and the
seven-lane motor banking facility located at Second and Scammel
Streets in downtown Marietta. Other categories of non-interest
expense did not experience dramatic changes in 1994.
In 1994, the Company recorded net losses of $237,000 resulting
from the sales of investment securities. Management elected to
sell some of the lower yielding investments in its
available-for-sale portion of the portfolio and replace those
securities with higher-yielding investments. This opportunity
to improve the overall yield of the portfolio was available due
to dramatic increases in market interest rates during 1994. In
1993, the Company recorded gains of $45,000 on the sales of
investment securities.
DIRECTORS
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Peoples Bancorp Inc.
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Jewell Baker
Co-Owner, B & N Coal Company
Dennis D. Blauser
President, Blauser Energy Corp.
George W. Broughton
Executive Vice President
and Director of Sales and Marketing
Broughton Foods Company
Wilford D. Dimit
Owner, First Settlement Square
Robert E. Evans
President and Chief Executive Officer
Barton S. Holl
Chairman of the Board
Logan Clay Products
Norman J. Murray
Retired, The Airolite Company
James B. Stowe
Chairman of the Board
Stowe Truck and Equipment Company
Paul T. Theisen
Attorney, Theisen, Brock, Frye, Erb, & Leeper Co., L.P.A.
Thomas C. Vadakin
President, Vadakin, Inc.
Joseph H. Wesel, Chairman
President
Marietta Automotive Warehouse, Inc.
DIRECTORS EMERITUS
Carl L. Broughton
R. Neil Christy
William K. Hamer
William E. McKinney
Fred R. Price
The Peoples Banking and Trust Company
- -------------------------------------
Dave M. Archer
President, Pioneer Pipe, Inc.
Dennis D. Blauser
President, Blauser Energy Corp.
George W. Broughton
Executive Vice President
and Director of Sales and Marketing
Broughton Foods Company
Wilford D. Dimit
Owner, First Settlement Square
Robert E. Evans
President and Chief Executive Officer
Brenda F. Jones, M.D.
Medical Director
Marietta Opthamology Associates, Inc.
Harold D. Laughlin
Owner, Laughlin Music and Vending Service
Rex E. Maiden
President, Maiden & Jenkins Construction Co.
Norman J. Murray, Chairman
Retired, The Airolite Company
T. Pat Sauber
Owner, McDonald's Restaurants
James B. Stowe
Chairman of the Board
Stowe Truck and Equipment Company
Paul T. Theisen
Attorney, Theisen, Brock, Frye, Erb, & Leeper Co., L.P.A.
Thomas C. Vadakin
President, Vadakin, Inc.
Joseph H. Wesel
President
Marietta Automotive Warehouse, Inc.
DIRECTORS EMERITUS
Carl L. Broughton
R. Neil Christy
William K. Hamer
William E. McKinney
The First National Bank of Southeastern Ohio
- --------------------------------------------
Larry J. Armstrong
Armstrong and Smith
Carl Baker, Jr.
Co-Owner, B & N Coal Company
Robert E. Evans
President and Chief Executive Officer
Peoples Bancorp Inc.
Wilfred O. Hill
Retired, Oil and Gas
Charles R. Hunsaker
General Counsel
0H. Clayton John
Vice Chairperson
James D. McKinney
Retired Superintendent
Morgan County Schools
Carol A. Schneeberger, Chairperson
Vice President, Operations
Peoples Bancorp Inc.
Paul T. Theisen
Attorney, Theisen, Brock, Frye, Erb, & Leeper Co., L.P.A.
Rick D. Turner
President and Chief Executive Officer
DIRECTORS EMERITUS
Marcus Gant
Arthur W. Gilchrist
OFFICERS
- --------
Peoples Bancorp Inc.
- --------------------
OFFICERS
Robert E. Evans
President and Chief Executive Officer
Carol A. Schneeberger
Vice President
Operations
Rolland B. Swart
Vice President
Business Development
Charles R. Hunsaker
General Counsel
John W. Conlon
Chief Financial Officer
Jeffrey D. Welch
Treasurer
RobRoy Walters
Controller
Ruth I. Otto
Corporate Secretary
Karen V. Clark
Auditor
Johanna Burke
Assistant Auditor
Teresa A. Pyles
Security Officer
Mark F. Bradley
Manager of Accounting and External Reporting
The Peoples Banking and Trust Company
- -------------------------------------
EXECUTIVE OFFICERS
Robert E. Evans
President and Chief Executive Officer
David B. Baker
President, Investment and Trust Division
John W. Conlon
Chief Financial Officer and Treasurer
Larry E. Holdren
Executive Vice President
Director of Human Resources
Robert A. McKnight
Executive Vice President
Lending
Robert W. Mingus
Executive Vice President
President, Athens/Meigs Division
Joseph S. Yazombek
Executive Vice President
Mortgage Lending
BANKING AND LENDING
John A. King
Vice President and
Executive Officer
Nelsonville Office
William L. Malster
Vice President
David M. Redrow
Vice President/Licking Co.
Jerald L. Post
Vice President
RobRoy Walters
Controller
David L. Batten
Assistant Vice President
Susan L. Corcoran
Assistant Vice President
Operations
Joseph P. Flinn
Assistant Vice President
Personal Loan Manager
Sondra K. Herlan
Loan Officer
Paul A. Huffman
Assistant Vice President
Operations
Mary Ann Mitchell
Assistant Vice President
Betty L. Reynolds
Assistant Vice President
Larry P. Smith
Assistant Vice President
Ruth I. Otto
Assistant Secretary
Julie I. Giffin
Manager, Account Services
Cathleen S. Knox
Loan Officer/Loan Analyst
Cathy J. Linscott
Loan Officer
Beverly C. Mellinger
Loan Officer
Charles V. Robinson, Jr.
Loan Officer/Credit Administration
Jonathan T. Schenz
Loan Officer
Jeffrey F. Crabill
Vice President/Licking Co.
Loan Officer
Mark F. Bradley
Manager of Accounting and External Reporting
INFORMATION SYSTEMS
R. Joe Cowdery
Vice President/Manager
Information Systems
Michael E. Weaver
Manager/Computer Systems
LEGAL AND COMPLIANCE
Charles R. Hunsaker
Vice President and General Counsel
Charles Snodgrass
Assistant Vice President
Teresa A. Pyles
Assistant Compliance
Officer and Security Officer
INVESTMENT AND TRUST DIVISION
David B. Baker
President, Investment and Trust Division
Rose N. Haas
Vice President and Investment Officer
Jeffrey D. Welch, CPA
Vice President and Trust Officer
Beth Ann Worthington
Vice President
Personal Trust Officer
Ronald L. Close
Financial Planning Officer
The First National Bank of Southeastern Ohio
- --------------------------------------------
OFFICERS
Rick D. Turner
President and Chief Executive Officer
Kenneth E. Shafer
Executive Vice President and Cashier
Catherine R. Ogle
Vice President/Lending
Thomas D. Hesson
Assistant Vice President/Operations
Kristi A. Schafer
Assistant Vice President
Marketing and Business Development
Michael J. Schramm
Assistant Vice President
Manager, McConnelsville
Office and Security Officer
Cheryl Hanson
Loan Officer
Manager, Chesterhill Office
Ruth I. Otto
Secretary
Karen Mills
Assistant Secretary
Charles R. Hunsaker
General Counsel