FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____ to ____
Commission file number 0-16772
PEOPLES BANCORP INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Ohio 31-0987416
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
138 Putnam Street, P. O. Box 738, Marietta, Ohio 45750
- ------------------------------------------------ ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (614) 373-3155
----------------
Indicate by check mark whether the registrant (1) has filed all
reports required by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the
issuer's class of Common Stock, as of May 1, 1996: 3,128,610.
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1
The following Condensed Consolidated Balance Sheets,
Consolidated Statements of Income, and Consolidated Statements
of Cash Flow of Peoples Bancorp Inc. (the "Company") and
subsidiaries, reflect all adjustments (which include only normal
recurring accruals) necessary to present fairly such information
for the periods and dates indicated. Since the following
condensed unaudited financial statements have been prepared in
accordance with instructions to Form 10-Q, they do not contain
all information and footnotes necessary for a fair presentation
of financial position in conformity with generally accepted
accounting principles. Operating results for the three months
ended March 31, 1996, are not necessarily indicative of the
results that may be expected for the year ending December 31,
1996. Complete audited consolidated financial statements with
footnotes thereto are included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
March 31, 1996 December 31, 1995
ASSETS
- ------
Cash and cash equivalents:
Cash and due from banks $ 17,680,000 $ 17,251,000
Interest-bearing deposits in other banks 1,479,000 243,000
Federal funds sold 11,800,000 3,500,000
------------ ------------
Total cash and cash equivalents 30,959,000 20,994,000
Investment securities (all classified as
available-for-sale, amortized cost of
$155,161,000 at March 31, 1996 and
$128,021,000 at December 31, 1995) 156,559,000 131,762,000
Loans, net of unearned interest 383,696,000 379,526,000
Allowance for loan losses (6,743,000) (6,726,000)
------------ ------------
Net loans 376,953,000 372,800,000
Bank premises and equipment, net 10,421,000 10,575,000
Other assets 7,991,000 7,299,000
------------ ------------
Total assets $582,883,000 $543,430,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits:
Non-interest bearing $ 51,983,000 $ 50,067,000
Interest bearing 383,856,000 379,010,000
------------ ------------
Total deposits 435,839,000 429,077,000
Short-term borrowings:
Federal funds purchased and securities
sold under repurchase agreements 29,673,000 12,060,000
Federal Home Loan Bank term advances 37,850,000 21,216,000
------------ ------------
Total short-term borrowings 67,523,000 33,276,000
Long-term borrowings 22,395,000 23,142,000
Accrued expenses and other liabilities 5,703,000 6,461,000
------------ ------------
Total liabilities 531,460,000 491,956,000
------------ ------------
Stockholders' Equity
Common stock, no par value, 12,000,000
shares authorized - 3,342,590 shares
issued at March 31, 1996 and 3,332,598
issued at December 31, 1995, including
shares in treasury 31,100,000 30,898,000
Net unrealized holding gain on
available-for-sale securities,
net of deferred income taxes 923,000 2,469,000
Retained earnings 23,137,000 21,786,000
------------ ------------
55,159,000 55,153,000
Treasury stock, at cost, 222,906 shares at
March 31, 1996 and 220,406 shares at
December 31, 1995 (3,737,000) (3,679,000)
------------ ------------
Total stockholders' equity 51,423,000 51,474,000
------------ ------------
Total liabilities and
stockholders' equity $582,883,000 $543,430,000
============ ============
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
Three Months Ended
March 31,
1996 1995
Interest income $ 11,398,000 $ 10,099,000
Interest expense 5,367,000 4,616,000
------------ ------------
Net interest income 6,031,000 5,483,000
Provision for loan losses 360,000 285,000
------------ ------------
Net interest income after
provision for loan losses 5,671,000 5,198,000
Other income 1,080,000 1,006,000
Gain on sale of securities 26,000 0
Other expenses 4,013,000 4,067,000
------------ ------------
Income before income taxes 2,764,000 2,137,000
Federal income taxes 883,000 651,000
------------ ------------
Net income $ 1,881,000 $ 1,486,000
============ ============
Earnings per share $0.60 $0.46
------------ ------------
Weighted average shares outstanding
(primary) 3,146,414 3,197,714
------------ ------------
Cash dividends declared $530,000 $463,000
------------ ------------
Cash dividend per share $0.17 $0.15
------------ ------------
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Three Months Ended
March 31,
1996 1995
Cash flows from operating activities:
- -------------------------------------
Net income $ 1,881,000 $ 1,486,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 360,000 285,000
Gain on sale of investment securities (26,000) 0
Depreciation, amortization, and accretion 440,000 425,000
Increase in interest receivable (171,000) (209,000)
(Decrease) increase in interest payable (239,000) 95,000
Deferred income taxes (40,000) (25,000)
Deferral of loan origination fees and costs 33,000 (22,000)
Other, net (223,000) (466,000)
----------- -----------
Net cash provided by operating activities 2,015,000 1,569,000
----------- -----------
Cash flows from investing activities:
- -------------------------------------
Purchases of available-for-sale securities (37,099,000) (8,696,000)
Purchases of held-to-maturity securities 0 (1,230,000)
Proceeds from sales of available-for-sale
securities 4,528,000 0
Proceeds from maturities of available-for-sale
securities 5,432,000 2,997,000
Proceeds from maturities of held-to-maturity
securities 0 283,000
Net increase in loans (4,546,000) (3,606,000)
Expenditures for premises and equipment (242,000) (133,000)
----------- -----------
Net cash used in investing activities (31,927,000) (10,385,000)
----------- -----------
Cash flows from financing activities:
- -------------------------------------
Net increase (decrease) in non-interest
bearing deposits 1,916,000 (2,064,000)
Net increase in interest-bearing deposits 4,846,000 26,141,000
Net increase (decrease) in short-term
borrowings 34,247,000 (6,284,000)
Payments on long-term borrowings (747,000) (706,000)
Cash dividends paid (481,000) (431,000)
Purchase of treasury stock (58,000) (254,000)
Proceeds from issuance of common stock 154,000 34,000
----------- -----------
Net cash provided by financing activities 39,877,000 16,436,000
----------- -----------
Net increase in cash and cash equivalents 9,965,000 7,620,000
Cash and cash equivalents at beginning of year 20,994,000 24,701,000
----------- -----------
Cash and cash equivalents at end of period $30,959,000 $32,321,000
=========== ===========
NOTES TO FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. Significant
intercompany accounts and transactions have been eliminated.
1. CHANGES IN ACCOUNTING
Effective January 1, 1996, the Company adopted Statement on
Financial Accounting Standards No. 122, "Accounting for Mortgage
Servicing Rights" (SFAS No. 122), which 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.
The effect of adopting SFAS No. 122 was not material to the
Company's financial statements due to the minimal secondary
market activity by the Company. Management anticipates
this adoption will be immaterial to the Company's 1996
financial statements.
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. The Company will provide
required disclosure in its Annual Report on Form 10-K for the
year ending December 31, 1996.
2. BRANCH ACQUISITIONS
On April 26, 1996, The Peoples Banking and Trust Company
("Peoples Bank"), one of the Company's subsidiaries, acquired
three full-service banking offices and assumed approximately $73.9
million in deposits from an unaffiliated institution (referred
hereafter as "Acquisition") for a total consideration of $5.4 million.
The offices are located in southeastern Ohio in the cities of
Gallipolis, Pomeroy, and Rutland, Ohio, and serve the counties
of Meigs (Ohio), Gallia (Ohio) and Mason (West Virginia). The
Gallipolis office is located downtown in Gallipolis and
currently operates a full-service office, Motor Bank, and an
automated teller machine. A full-service office and separate
Motor Bank are located in downtown Pomeroy. An automated teller
machine is also located in Pomeroy outside a local convenience
store. The Rutland office is a full-service and Motor Bank
facility.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
-----------------------------------------------
SELECTED FINANCIAL DATA
The following data should be read in conjunction with the
unaudited consolidated financial statements and the management
discussion and analysis that follows.
For the Three Months Ended
March 31,
1996 1995
SIGNIFICANT RATIOS
- ------------------
Net income to:
- --------------
Average assets* 1.34% 1.18%
------- -------
Average shareholders' equity* 14.44% 12.78%
------- -------
Net interest margin* 4.72% 4.87%
------- -------
Efficiency ratio* 60.23% 64.36%
------- -------
Average shareholders' equity to average assets 9.27% 9.24%
------- -------
Loans net of unearned interest to deposits
(end of period) 88.04% 88.45%
------- -------
Allowance for loan losses to loans net of
unearned interest (end of period) 1.76% 1.77%
------- -------
Capital ratios:
- ---------------
Tier I capital ratio 12.62% 13.13%
------- -------
Risk-based capital ratio 13.87% 14.38%
------- -------
Leverage ratio 8.48% 9.00%
------- -------
Cash dividends to net income 28.18% 31.16%
------- -------
PER SHARE DATA
Book value per share $16.48 $14.99
------- -------
Earnings per share $0.60 $0.46
------- -------
Cash dividends per share $0.17 $0.15
------- -------
* Net income to average assets, net income to average
shareholders' equity, net interest margin, and efficiency ratio
are presented on an annualized basis.
Net interest margin is caluclated using fully tax equivalent net
interest income as a percentage of average earning assets.
Efficiency ratio is a ratio of non-interest expense as a
percentage of fully tax equivalent net interest income plus
non-interest income.
The following discussion and analysis of the consolidated
financial statements of the Company is presented to provide
insight into management's assessment of the financial results.
The Company's subsidiaries, The Peoples Banking and Trust
Company ("Peoples Bank"), The First National Bank of
Southeastern Ohio ("First National Bank"), and The Northwest
Territory Life Insurance Company ("Northwest Territory"),
provide financial services to individuals and businesses within
the Company's market area. Peoples Bank is chartered by the
state of Ohio and subject to regulation, supervision, and
examination by the Federal Deposit Insurance Corporation
("FDIC") and the Ohio Division of Banks. First National is a
member of the Federal Reserve System and subject to regulation,
supervision, and examination by the Office of the Comptroller of
the Currency ("OCC").
RESULTS OF OPERATIONS
---------------------
Overview of the Income Statement
- --------------------------------
For the quarter ended March 31, 1996, the Company earned
$1,881,000 in net income, a 26.6% increase from $1,486,000 in
first quarter 1995. Earnings per share increased 30.4% from
$0.46 in 1995 to $0.60 in 1996. All references to per share
amounts have been adjusted to reflect a 10% stock dividend
distributed on October 25, 1995, to shareholders of record on
October 10, 1995.
Net income increased in the first quarter due to enhanced
performance in several key areas. Net interest income increased
$515,000, or 9.3% compared to 1995's first quarter, due to
increased earning asset volume. Comparing the same time
periods, net interest margin (net yield on interest-earning
assets) decreased slightly from 4.87% in 1995 to 4.72% in 1996.
Excluding gains from sales of investment securities, first
quarter non-interest income reached $1,080,000, an 8.0% increase
compared to the same period last year. Non-interest expense
totaled $4,013,000 compared to $4,094,000 in first quarter 1995,
a decrease of 2.0%.
Interest Income and Expense
- ---------------------------
Increased profits in the first quarter can be attributed
primarily to net interest income growth, as first quarter net
interest income totaled $6,031,000 in 1996 compared to
$5,516,000 last year, up 9.3%. In anticipation of the acquired
deposits related to the Acquisition, the Company invested
approximately $20 million in mortgage-backed securities. The
incremental net interest income realized as a result of these
investments resulted in increased net interest income dollars.
Net interest margin totaled 4.72% in first quarter 1996, a
modest decline compared to 1995's fourth quarter ratio of 4.87%.
Interest rate pressures continue to challenge the entire
financial services industry. Management also expects to
aggressively offer special time deposit prices over the next
several months. The Company's management expects net interest
margin to stabilize in the near term and will continue to
monitor the effects it has on the performance of the Company.
Please refer to the "Consolidated Average Balance Sheet and
Analysis of Net Interest Income" table included on page 16 for a
complete quantitative evaluation of interest yields and costs
for the Company.
The Company recorded a provision for loan losses of $360,000 in
the first quarter, up from $285,000 reported for the same period
last year. Due primarily to increased charge-off activity in
the consumer loan portfolio, management expects to slightly
increase the provision for loan losses over the next several
months.
Non-Interest Income
- -------------------
Several categories of non-interest income reflect increases
compared to 1995. Income generated from fiduciary activities
totaled $472,000 for the quarter ended March 31, 1996, up 12.6%
compared to the same period last year. The Investment and Trust
Division of Peoples Bank manages over $390 million in assets
(market value) and continues to be a leader in fiduciary
services for the Company's market area.
First quarter account service charge income increased 2.3% to
$394,000 compared to last year. The Company's fee income
generated from deposits is based on cost recoveries associated
with services provided. In addition to traditional deposit
products generating non-interest income for the Company, an
agreement with an unaffiliated annuities and life insurance
agency has also generated non-interest income through the
receipt of lease payments. Management expects this
non-traditional revenue source to continue to provide
incremental earnings for the Company in the future.
In late 1995, subsidiaries of First National Bank, Northwest
Territory Life Insurance Agency, Inc. and Northwest Territory
Property and Casualty Insurance Agency, Inc. (the "Agencies"),
were awarded insurance agency powers in the State of Ohio. The
Agencies received Certificates of Qualification to provide full
life and property product lines to consumers in Ohio. These
Agencies were the first in Ohio to be affiliated with a
financial institution. Although the Agencies' results of
operations did not have a material impact on first quarter
results, they are anticipated to produce income growth and
long-term value to the Company through internal development as
well as external affiliation and acquisition.
Non-Interest Expense
- --------------------
Maintaining acceptable levels of non-interest expense is vital
to the profitability of the Company. In the first three months
of 1996, non-interest expense totaled $4,013,000, a 2.0%
decrease compared to last year's first quarter.
Several recent developments contributed to this modest
decrease. The Company incurred Bank Insurance Fund ("BIF")
expense of $4,000, representing a significant decrease of
$222,000 compared to first quarter 1995. BIF expense is the
annual premium financial institutions pay for deposit insurance.
Lower BIF premiums in the future should improve the Company's
efficiency ratios as well.
Also contributing to a reduction in non-interest expense was a
modest decrease in salaries and benefits expense. In fourth
quarter 1995, twenty-one of the Company's employees (7% of the
Company's workforce) accepted voluntary early retirement. As a
result, salaries and benefits expense was reduced in the first
quarter of 1996 by 1.7%, or $30,000, compared to the same period
last year. Management expects salaries and benefits expense to
remain at these levels throughout the remainder of 1996.
Future non-interest expense will be impacted by the
amortization of intangibles related to the Acquisition.
Management does not expect this amortization to materially
impact the future profitability of the Company and is pleased
with the enhanced customer service potential of the acquired
offices.
Return on Assets
- ----------------
For the quarter ended March 31, 1996, return on average assets
("ROA") reached 1.34%, up from 1.18% recorded in first quarter
1995. The increase in ROA for the first quarter can be
attributed to asset growth strategies implemented by the Company
in late 1995 designed to produce incremental net income dollars
for increased return on equity, as well as increased
efficiencies achieved in the areas of non-interest expense.
Management anticipates ROA levels to remain relatively steady
for the remainder of 1996.
Return on Equity
- ----------------
Management believes return on average stockholders' equity
("ROE") is an important indicator of an organization's financial
strength and continues to monitor the performance of the Company
relative to this ratio. The Company's ROE for the first quarter
of 1996 was 14.44%, compared to 12.78% for the same period last
year. This increase can be attributed primarily to increased
first quarter net income as well as a reduction in total equity
due to significant treasury share purchases in 1995.
The Company's management expects improvement in ROE through the
remainder of 1996 and into 1997. The Acquisition and its $73.7
million in deposits provide increased revenue potential without
increasing stockholder's equity. The Company's capital is
adequate under regulatory and industry standards.
During the first quarter, the Company's Board of Directors
authorized the Company to repurchase up to 10,000 treasury
shares at prices not to exceed $23.50. The newly purchased
treasury shares will be used in the Company's stock option
programs.
Federal Income Tax Expense
- --------------------------
Federal income taxes increased from $651,000 in first quarter
1995 to $883,000 in 1996. This increase can be attributed to
the Company's higher pre-tax income and a modest decrease in
tax-exempt income.
FINANCIAL CONDITION
-------------------
Overview of Balance Sheet
- -------------------------
Total assets increased from $543,430,000 at December 31, 1995
to $582,883,000 at the end of the first quarter, a growth rate
of 7.3%. The increase in assets can be attributed primarily to
increased investment in mortgage-backed securities, part of a
strategy implemented by management prior to completing the April
26 Acquisition. To fund the additional investments, the Company
utilized short-term borrowings, including Federal Home Loan Bank
("FHLB") advances and repurchase agreements. Short-term
borrowings increased from $33,276,000 at year-end 1995 to
$67,523,000 at March 31, 1996. Management expects to replace
the majority of short-term borrowings with the acquired deposits
assumed in the branch acquisition.
Loan demand continues to grow in the markets served by the
Company. Total loans increased in the first quarter by over $4
million (or 1.1%) to $383,696,000. Since year-end 1995, total
deposits have grown 1.6% to nearly $436 million while long-term
borrowings declined 3.2% to $22,395,000.
Stockholders' equity decreased $51,000 (or 0.1%) to $51,423,000
in the three months ended March 31, 1996. Although retained
earnings and other factors increased stockholders' equity in the
first quarter, total stockholders' equity remained relatively
unchanged due to the decrease in market value of the Company's
investment securities portfolio (all of which are classified as
available-for-sale).
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents totaled $31,074,000 at March 31,
1996. In the first quarter, federal funds sold increased $8.3
million to $11,800,000. This increase in federal funds reflects
several balance fluctuations in a sizable public fund SuperNow
account.
Management believes 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 matures 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 1996 occurred in
investment securities, which increased $24.7 million in the
first quarter to $156,444,000. All of the Company's investment
securities are classified as available-for-sale.
In anticipation of the Acquisition (and its associated
deposits), the Company's management initiated a pre-Acquisition
investment program. As a result, quarterly investments in U. S.
government agencies grew $26,224,000 to March 31, 1996's
balance of $79,447,000. This pre-Acquisition investment
strategy was also designed to position the portfolio for future
earnings while maintaining adequate liquidity.
Balances in other investment categories remain relatively
unchanged in the first quarter. Since all of the Company's
investment securities are classified as available-for-sale, the
carrying value of the investments are more susceptible to market
fluctuations compared to investments classified as
held-to-maturity. At December 31, 1995, the Company was
carrying a markup of $2,469,000 on its investment portfolio,
compared to March 31's markup of $923,000. Management believes
securities classified as available-for-sale provide greater
flexibility in meeting liquidity needs as they come due and
feels market fluctuations to have minimal impact to the
Company's balance sheet.
Management monitors the earnings performance and the
effectiveness of the liquidity of the investment portfolio on a
regular basis through Asset/Liability Committee ("ALCO")
meetings. The group also monitors net interest income, sets
pricing guidelines, and manages interest rate risk for the
Company. Through active balance sheet management and analysis
of the investment securities portfolio, the Company maintains
sufficient liquidity to satisfy depositor requirements and the
various credit needs of its customers.
Loans
- -----
The Company's loan volume continues to grow, and reflects the
additional credit opportunities provided by the markets served.
At March 31, 1996, the Company had mortgage real estate loan
balances of $156,999,000, up $2,530,000 (or 1.6%) from year-end
1995. Consumer loan balances remained stable in the first
quarter, reaching $101,976,000 at March 31, 1996, up $144,000
since year-end 1995. 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.
Recently the Company has expanded its lending focus to
commercial, financial, and agricultural loans. These balances
rose $1,690,000 (or 1.4%) to $118,996,000 at March 31, 1996.
The respective economies in the Company's markets continue to
provide quality credit opportunities, in particular, through the
business production office located in the Newark-Granville area
of central Ohio. Since its inception in mid-1993, this office
has continued its growth and contribution to the Company's loan
portfolio. At March 31, 1996, the Newark-Granville office had
nearly $17 million in total loans, of which over $14 million
were commercial loans. Management is pleased with the
performance and growth of this office and will continue to focus
efforts on enhancement and growth of the loan portfolio while
maintaining underwriting quality.
Also in the first quarter, the Company launched a special home
equity credit line ("Equiline") program in response to the
growing credit needs of the communities it serves. The special
program offers 5-year, fixed rate Equilines at a competitive
interest rates. Since the program's inception in early
February, the Company has written over 100 new Equilines with
available credit lines of up to approximately $2.5 million. At
March 31, 1996, over $750,000 of the available Equiline balances
were outstanding. Included in these totals are new Equilines
extended by First National Bank, which began offering Equilines
to their customers in the first quarter of 1996. Management is
pleased with the response to the special Equiline programs and
will continue to monitor the progress of the credit line
portfolio.
Loan Concentration
- ------------------
The Company does not have a concentration of its loan portfolio
in any one industry. Real estate lending continues to be the
largest component of the loan portfolio, representing
$162,723,000 (or 42.2%) of total loans, while commercial,
financial, and agricultural loans totaled $118,996,000 (or
31.0%). 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
commercial loans consists of automobile dealer floor plans,
which totaled $15,501,000 at March 31, 1996. It is the
Company's policy to obtain the pledge of the underlying
inventory as collateral on these loans.
The Company does not extend credit to any single borrower in
excess of the combined legal lending limits of its subsidiary
banks.
Allowance for Loan Losses
- -------------------------
The allowance for loan losses as a percentage of loans modestly
decreased from 1.77% at year-end 1995 to 1.76% at the end of the
first quarter. The total dollar amount of the reserve increased
$17,000. The Company's first quarter provision for loan losses
on the income statement totaled $360,000, while gross chargeoffs
were $431,000, and recoveries amounted to $88,000.
A significant portion of the Company's recent chargeoffs have
occurred in the consumer loan category and in particular,
indirect lending, which has experienced increased loan activity
in recent reporting periods. Industry reports indicate
outstanding consumer credit has been on the rise. Consequently,
consumer credit delinquency has increased. In the first
quarter, the Company had gross chargeoffs in the consumer loan
category of $402,000 and recoveries of $71,000. Although 1996
consumer loan chargeoffs through the first quarter have been
higher than anticipated, management expects the chargeoffs to
stabilize in the future. Net chargeoffs in both the real estate
and commercial loan categories were lower than expected and
demonstrate the quality of the loan portfolio. Management will
continue to monitor the entire loan portfolio to determine the
adequacy of the allowance.
Nonaccrual loans and those loans 90 days past due totaled
$939,000 and $1,441,000 respectively at the end of 1996's first
quarter. Other real estate owned remained at $45,000, unchanged
from year-end 1995. As a result, nonperforming loans (those
loans classified as nonaccrual, 90 days or more past due, and
other real estate owned) as a percentage of outstanding loans
were 0.63% at March 31, 1996. Management believes this is an
acceptable ratio in relation to the overall quality of the
Company's loan portfolio.
At March 31, 1996, the recorded investment in loans that were
considered to be impaired under Statement of Financial Standards
No. 114, "Accounting by Creditors for Impairment of a Loan"
("SFAS No. 114"), as amended by SFAS No. 118, was $1,618,000 (of
which $165,000 were on a nonaccrual basis). Included in this
amount is $106,000 of impaired loans for which the related
allowance for loan losses is $31,000. The remaining impaired
loan balances of $1,511,000 do not have a related allocation of
the allowance for loan losses as a result of write-downs, being
well-secured, or possessing characteristics demonstrating
ability to repay the loan. The average recorded investment in
impaired loans during the quarter ended March 31, 1996 was
approximately $1,560,000. For the quarter ended March 31, 1996,
the Company recognized interest income on impaired loans of
$49,000, which included $1,000 of interest income recognized on
a cash basis.
SFAS No. 114 requires that certain impaired loans be measured
based on the present value of expected future cash flows,
discounted at the effective interest rate of the loan, or, as a
practical expedient, the loan may be valued at the fair value of
the collateral if the loan is collateral dependent. SFAS No.
114 does not apply to large groups of smaller-balance
homogeneous loans, such as mortgage and consumer loans, which
are evaluated collectively for impairment.
The Company will continue to monitor the status of any impaired
loans, as well as performing loans, in order to determine the
appropriate reserve for potential loan loss. Management
believes the allowance for loan loss of 1.76% of total loans at
March 31, 1996, to be adequate to absorb inherent losses in the
portfolio.
Funding Sources
- ---------------
The Company considers deposits, short-term borrowings, and term
debt when evaluating funding sources. Traditional deposits
continue to be the most significant source of funds for the
Company, reaching $435,839,000 at March 31, 1996, an increase of
1.6% since year-end 1995. Deposit growth occurred primarily in
transaction-based accounts such as SuperNow balances.
Non-interest bearing demand deposits at March 31, 1996 totaled
$51,983,000, up from year-end 1995's balance of $50,067,000.
Management feels the March 31 balance was a temporary
fluctuation and that average balances in non-interest-bearing
deposits are more meaningful and should be used for comparative
purposes. Compared to fourth quarter 1995, average non-interest
bearing deposit balances increased $697,000 (or 1.4%) to
$48,873,000. Management will continue to focus efforts to
maintain the non-interest bearing deposit base of the Company
and anticipates growth in this funding category through the
Acquisition and new markets.
Short-term borrowings fueled the majority of growth for the
Company in the first quarter. Management feels most of these
short-term funds will be replaced by the acquired deposits from
the Acquisition. The Company utilizes several forms of
short-term borrowings, including FHLB advances and repurchase
agreements (from both local business customers as well as
national markets). At March 31, 1996, the largest component of
short-term borrowings was FHLB borrowings, which totaled
$37,850,000. Management believes these borrowings will be
repaid upon consummation of the Acquisition and the Company will
continue to access short-term FHLB borrowings as necessary.
During the first three months of 1996, the Company experienced
a change in the mix of its deposit base. In January, a $5
million brokered certificate of deposit ("CD") matured. The
Company has another brokered CD in the amount of $5 million
scheduled to mature in July 1996.
As a result of the maturity of the brokered CD and other
short-term, aggressively priced CD's offered in 1995, total CD's
decreased $10,836,000 (or 4.9%) to $208,122,000 at March 31,
1996. Management expects existing CD balances to remain level
or increase slightly in 1996. In the Acquisition, the Company
assumed approximately $40 million of CD's, with maturities
ranging from six months to 5 years. In addition, a special
11-month CD offering was initiated in April to remain
competitive in the markets served by the Company.
In the first quarter, the largest growth in deposits occurred
in SuperNow accounts, an increase of nearly $12 million (or
35.3%) since year-end 1995. This increase was due primarily to
seasonal growth in a special account relationship using the
SuperNow deposit product. Due to this account's cyclical
nature, management expects this customer's SuperNow balances to
return to normal levels over the next three month period.
Other deposit account balances showed minor changes in average
aggregate account balances for the three months ended March 31,
1996. Average total balances in savings accounts increased
$2,240,000 (or 3.3%) to nearly $70 million, as consumers shifted
their investments to these types of deposits. Average
non-interest bearing demand deposits increased $691,000 (or
1.4%) to $48,689,000.
In addition to traditional deposits, the Company continues to
maintain long-term borrowings from the FHLB. This allows the
Company to obtain reliable funds at fixed and indexed rates for
longer periods of time than other traditional deposit products,
creating the opportunity to match longer term fixed rate
mortgages and other extended-maturity asset commitments against
a similar funding source. Principal paydowns on long-term
advances from the FHLB during the first quarter resulted in
total long-term FHLB borrowings at March 31 of $20,835,000, a
quarterly decrease of 3.5%. Management plans to maintain access
to long-term FHLB borrowings as an appropriate funding source.
Capital/Stockholders' Equity
- ----------------------------
The Company's capital continues to provide a strong base for
profitable growth. Total stockholders' equity was $51,423,000
at March 31, 1996 compared to $51,474,000 at year-end 1995, a
modest decrease. Equity growth was slowed in the first quarter
by the adjustment for net unrealized holding gain on
available-for-sale securities, net of deferred taxes, which
decreased $1,546,000 to $923,000 by the end of the first
quarter. Tangible equity (stockholders' equity less adjustment
for net unrealized holding gain on available-for-sale
securities) totaled $50,500,000 at March 31, 1996, up nearly
$1.5 million (or 3.1%) since December 31, 1995.
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.
In the first quarter, interest rates slightly increased, causing
a corresponding decrease in the market value of the investment
portfolio. The Company's management feels the status of the
investment markets do not substantially affect the Company's
equity, as it continues to provide a strong base for expansion
of operations as well as potential for growth in both new and
existing markets.
In the first quarter, the Company earned $1,881,000 and
declared dividends of $530,000, a dividend payout ratio of
28.18% of net income. Management feels this is an acceptable
payout ratio for the Company and anticipates similar payout
ratios in future periods.
The Company has also complied with the standards of capital
adequacy mandated by the banking industry. Bank regulators have
established "risk-based" capital requirements designed to
measure capital adequacy. Risk-based capital ratios reflect the
relative risks of various assets banks hold in their portfolios.
A weight category of either 0% (lowest risk assets), 20%, 50%,
or 100% (highest risk assets) is assigned to each asset on the
balance sheet. The Company's risk-based capital ratio of 13.87%
at March 31, 1996 is well above the minimum standard of 8%. The
Company's Tier 1 capital ratio of 12.62% also exceeded the
regulatory minimum of 4%. The Leverage ratio at March 31, 1996
was 8.48% and also above the minimum standard of 3%. These
ratios provide quantitative data demonstrating the strength and
future opportunities for use of the Company's capital base.
Management continues to evaluate risk-based capital ratios and
the capital position of the Company as part of its strategic
decision process.
Liquidity and Interest Rate Sensitivity
- ---------------------------------------
Liquidity measures an organization's ability to meet cash
obligations as they come due. The Consolidated Statement of
Cash Flows presented on page 5 of the accompanying financial
statements provide analysis of the Company's cash and cash
equivalents. Additionally, management considers that portion of
the loan portfolio that matures within one year and the
maturities within one year in the investment portfolio as part
of the Company's liquid assets. The Company's liquidity is
monitored by the ALCO, which establishes and monitors ranges of
acceptable liquidity measurement. Management feels the
Company's current liquidity position is adequate.
The interest rate sensitivity position at March 31, 1996
indicated the Company was liability sensitive in the short-term
and asset sensitive for periods longer than one year. In the
long-term, the Company is in a net asset sensitive position,
which means if interest rates increase, the Company's net
interest income will increase over time. If interest rates
decline, net interest income will also decrease. Management
monitors the asset and liability sensitivity through the ALCO
and uses this data to make appropriate strategic decisions.
Management does not expect the Acquisition to negatively impact
either the Company's liquidity situation or interest rate
sensitivity position.
Effects of Inflation on Financial Statements
- --------------------------------------------
Substantially all of the Company's assets relate to banking and
are monetary in nature. Therefore they are not impacted by
inflation to the same degree as companies in capital intensive
industries. During a period of rising prices, a net monetary
asset position results in loss in purchasing power and
conversely a net monetary liability position results in an
increase in purchasing power. In the banking industry,
typically monetary assets exceed monetary liabilities.
Therefore as prices have recently increased, financial
institutions experienced a decline in the purchasing power of
their net assets.
Future Outlook
- --------------
Management is pleased with the Company's performance in the
first three months of 1996 and feels the consistent earnings
record has positioned the Company to achieve established goals
and enhance investor return. Management continues to challenge
its workforce to identify critical banking processes and
re-engineer services to provide the customer with exceedingly
high quality products and services. Investments in technology
allow the workforce the opportunity to compete at higher levels
than other financial institutions of similar size. Management
feels the current combination of human resources and technology
has positioned the Company for the future.
Product enhancement in customer service will be implemented in
second quarter 1996. The Peoples "Connect" Card, a debit card,
will be unveiled to customers in May. The Peoples Connect Card
looks like a credit card, but acts like a traditional check.
Payment for purchases comes directly from the customer's bank
account, and therefore no interest charges are incurred. The
Peoples Connect Card will be accepted anywhere MasterCard is
accepted. Benefits to our customers include increased security,
alternative to writing checks, and improved money management.
Management believes the introduction of the Peoples Connect Card
will enhance the customer's range of choices in selecting their
financial services and represents the Company's strong
commitment to provide continued full-service banking products.
Technological advances will be achieved in second quarter 1996
through investment in a broad, PC-based system for the Company's
customer service representatives ("CSR's"). In this system,
each CSR will be connected to the Company-wide electronic
network that provides a faster, more efficient method of serving
our customers. The new system represents 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. The project is progressing as expected
and is scheduled to begin operation by June 30, 1996.
The interest rate environment will play an important role in
the future earnings of the Company. Pressures on net interest
income and margin are expected to intensify throughout 1996.
Management has implemented several pricing strategies to
effectively include the new deposits assumed through the branch
acquisition. Interest rates on CD's continue to be highly
competitive, and in response, management began offering a
special 11-month CD in early second quarter at rates slightly
higher than the average comparable CD rates in the markets we
serve. Management expects this product to generate additional
funding sources for the Company as well as provide additional
financial service opportunities to customers.
The Company's balance sheet growth continues to be a focus of
management. Several strategies, including branch acquisition of
deposits as well as growth strategies through borrowings and
additional purchases of investment securities, have been
implemented during 1995 and first quarter 1996. Management will
continue to analyze a wide variety of methods as means of
maximizing customer service, as well as enhancing profitability
and return to shareholders.
Enhanced non-interest income and controlled non-interest
expense are critical to the success of the Company. First
quarter results reflect successful enhancements of the Company's
performance and efficiency. The first quarter efficiency ratio
shows the Company's results to be improved compared to the same
period last year, from 64.36% in first quarter 1995 to 60.23%
for the quarter ended March 31, 1996. The efficiency ratio,
which measures non-interest expense as a percentage of fully tax
equivalent net interest income and non-interest income, was
improved primarily through decreased non-interest expense, via
reduced BIF premium expense as well as decreased salaries and
benefits achieved through the early retirement plan of 1995.
Salaries and wages are analyzed on a regular basis to identify
greater possible efficiencies. Management has recently
directed its focus to an improved efficiency ratio as a method
of enhancing profitability and return on equity.
The Company's loan to deposit ratio has remained relatively
constant through the first quarter of 1996 at 88.04%, compared
to 88.45% at December 31, 1995. This ratio is expected to
decrease during the second quarter as a result of the deposits
acquired in the Acquisition. Due primarily to the demand for
new loans experienced in the markets we serve, management
expects the Company's loan to deposit ratio to decrease slightly
and stabilize as the acquired deposits are used to fund these
new loans. Management is comfortable with the current loan to
deposit ratio and feels an acceptable ratio can be maintained
due to the strong loan demand.
Although net interest margin has narrowed in 1996, increased
volume in the first quarter has provided the Company increased
earnings. As non-interest expense from the three full-service
banking offices is realized in the remainder of 1996, the
Company must continue to recognize new methods of improving
operating efficiencies. This goal remains an integral part of
management's operating plan and the Company's business
definition.
The Company continues to enhance profits through the expansion
of interest bearing deposits and the ensuing asset growth.
Management concentrates on return on equity and earnings per
share evaluations, plus other methods, to measure and direct the
performance of the Company. While past results are not an
indication of future earnings, management feels the Company is
positioned to maintain performance of normal operations through
the remainder of 1996.
"Safe Harbor" Statement under the Private Securities Litigation
Reform Act of 1995
- ---------------------------------------------------------------
The statements in this Form 10-Q which are not historical fact
are forward looking statements that involve risks and
uncertainties, including, but not limited to, the interest rate
environment, the effect of federal and state banking and tax
regulations, the effect of economic conditions, the impact of
competitive products and pricing, and other risks detailed in
the Company's Securities and Exchange Commission filings.
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCE SHEET AND
ANALYSIS OF NET INTEREST INCOME
--------------------------------------
For the Three Months Ended March 31,
1996 1995
Average Yield/ Average Yield/
Balance Rate Balance Rate
ASSETS
- ------
Securities:
Taxable $120,522 6.71% $ 80,151 7.20%
Tax-exempt 23,363 7.95% 22,343 8.86%
-------- ------ -------- ------
Total 143,885 6.92% 102,494 7.56%
Loans:
Commercial 119,200 9.70% 114,804 9.35%
Real estate 160,475 8.67% 154,040 8.59%
Consumer (net) 101,759 10.23% 94,459 9.74%
-------- ------ -------- ------
Total 381,434 9.41% 363,303 9.13%
Less: Allowance for loan losses (6,750) (6,755)
-------- ------ -------- ------
Net loans 374,684 9.62% 356,548 9.30%
Interest-bearing deposits 966 4.96% 1,220 5.79%
Federal funds sold 5,947 5.40% 7,458 5.97%
-------- ------ -------- ------
Total earning assets 525,482 8.81% 467,720 8.87%
Other assets 36,501 35,421
-------- --------
Total assets $561,983 $503,141
======== ========
LIABILITIES AND EQUITY
- ----------------------
Interest-bearing deposits:
Savings $ 69,856 3.05% $ 70,228 3.32%
Interest-bearing demand deposits 96,804 3.43% 88,125 3.12%
Time 212,495 5.62% 210,834 5.50%
-------- ------ -------- ------
Total 379,155 4.58% 369,187 4.51%
Borrowed funds:
Short-term 51,097 5.31% 12,899 4.63%
Long-term 22,880 6.05% 23,476 6.11%
-------- ------ -------- ------
Total 73,977 5.53% 36,375 5.58%
-------- ------ -------- ------
Total interest bearing liabilities 453,132 4.74% 405,562 4.61%
Non-interest bearing deposits 48,873 46,261
Other liabilities 7,872 4,806
-------- --------
Total liabilities 509,877 456,629
-------- --------
Stockholders' equity 52,106 46,512
-------- --------
Total liabilities and equity $561,983 $503,141
======== ========
Interest income to earning assets 8.81% 8.87%
Interest expense to earning assets 4.09% 4.00%
------ ------
Net interest margin 4.72% 4.87%
====== ======
Interest income and yields presented on a fully tax-equivalent basis
using a 34% tax rate.
PART II
-------
ITEM 1: Legal Proceedings.
None.
ITEM 2: Changes in Securities.
None.
ITEM 3: Defaults upon Senior Securities.
None.
ITEM 4: Submission of Matters to a Vote of Security Holders.
On April 9, 1996, the Peoples Bancorp Inc. Annual Meeting of
Shareholders was held in The Peoples Banking and Trust Company
Conference Room in Marietta, Ohio. The meeting was
well-attended and over 83% of the outstanding common shares were
represented by proxy. No votes were placed in person. All
items of business on the agenda were approved by the
shareholders and the results are as follows:
1) Three Directors of the Company were re-elected to serve
terms of three years each (expiring in 1999): Dennis D.
Blauser, Norman J. Murray, and Joseph H. Wesel. In addition, a
new Director of the Company was elected: Rex E. Maiden, who has
served on the Board of Directors of Peoples Bank for several
years. Directors of the Company who continue to serve after the
1996 Annual Meeting include George W. Broughton, Wilford D.
Dimit, Robert E. Evans, Barton S. Holl, James B. Stowe, Paul T.
Theisen and Thomas C. Vadakin.
2) A proposal was approved to adopt an amendment to Article
FOURTH of the Company's Amended Articles of Incorporation to
increase the authorized number of common shares, without par
value, of the Company from 6,000,000 to 12,000,000 common shares.
SHAREHOLDER VOTING RESULTS
BROKER
NON-
ISSUE FOR WITHHELD AGAINST ABSTAIN VOTES
- -------------------------- --------- -------- ------- ------- ------
Dennis D. Blauser 2,469,668 119,927 0 0 N/A
Norman J. Murray 2,506,073 83,522 0 0 N/A
Joseph H. Wesel 2,545,309 44,286 0 0 N/A
Rex E. Maiden 2,520,795 68,800 0 0 N/A
Amendment to increase the
authorized number of
common shares of the
Company from 6,000,000
to 12,000,000 common
shares 2,509,901 0 33,173 46,521 0
ITEM 5: Other Information.
None.
ITEM 6: Exhibits and Reports on Form 8-K.
a) Exhibits:
EXHIBIT INDEX
Exhibit
Number Description Exhibit Location
- ------- -------------------------------------------- --------------------
3 (a) Certificate of Amendment to the Amended Pages 20 to 22.
Articles of Incorporation of
Peoples Bancorp Inc.
3 (b) Amended Articles of Incorporation of Pages 23 to 25.
Peoples Bancorp Inc. (as amended).
11 Computation of Earnings Per Share. Page 26.
27 Financial Data Schedule. EDGAR electronic
filing only.
b) Reports on Form 8-K.
None.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunder duly authorized.
PEOPLES BANCORP INC.
Date: May 13, 1996 By: /s/ ROBERT E. EVANS
Robert E. Evans
President and Chief Executive Officer
Date: May 13, 1996 By: /s/ JOHN W. CONLON
John W. Conlon
Chief Financial Officer
EXHIBIT INDEX
PEOPLES BANCORP INC. QUARTERLY REPORT ON FORM 10-Q
FOR PERIOD ENDED MARCH 31, 1996
--------------------------------------------------
Exhibit
Number Description Exhibit Location
- ------- -------------------------------------------- --------------------
3 (a) Certificate of Amendment to the Amended Pages 21 to 23.
Articles of Incorporation of
Peoples Bancorp Inc.
3 (b) Amended Articles of Incorporation of Pages 24 to 26.
Peoples Bancorp Inc. (as amended).
11 Computation of Earnings Per Share. Page 27.
27 Financial Data Schedule. EDGAR electronic
filing only.