FORM 10-Q
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____ to ____
Commission file number 0-16772
PEOPLES BANCORP INC.
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(Exact name of Registrant as specified in its charter)
Ohio 31-0987416
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
138 Putnam Street, P. O. Box 738, Marietta, Ohio 45750
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (740) 373-3155
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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
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Indicate the number of shares outstanding of each of the
issuer's class of Common Stock, as of July 1, 1998: 5,748,170.
PART I - FINANCIAL INFORMATION
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ITEM 1
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The following Condensed Consolidated Balance Sheets,
Consolidated Statements of Income, Consolidated Statements of
Shareholders' Equity, and Consolidated Statements of Cash Flows
of Peoples Bancorp Inc. (the "Company") and subsidiaries,
reflect all adjustments (which include normal recurring
accruals) necessary to present fairly such information for the
periods and dates indicated. Since the following condensed
unaudited financial statements have been prepared in accordance
with instructions to Form 10-Q, they do not contain all
information and footnotes necessary for a fair presentation of
financial position in conformity with generally accepted
accounting principles. Operating results for the six months
ended June 30, 1998, are not necessarily indicative of the
results that may be expected for the year ending December 31,
1998. Complete audited consolidated financial statements with
footnotes thereto are included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. Significant
intercompany accounts and transactions have been eliminated.
PEOPLES BANCORP INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEETS
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(Dollars in thousands) June 30, December 31,
1998 1997
ASSETS
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Cash and cash equivalents:
Cash and due from banks $ 28,621 $ 21,473
Interest-bearing deposits in other banks 3,382 7,008
Federal funds sold 52,750 10,350
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Total cash and cash equivalents 84,753 38,831
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Available-for-sale investment securities,
at estimated fair value (amortized cost
of $205,277 and $170,702 at June 30,
1998 and December 31, 1997, respectively) 208,962 174,291
Loans, net of unearned interest 533,264 521,570
Allowance for loan losses (9,171) (8,356)
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Net loans 524,093 513,214
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Bank premises and equipment, net 15,155 11,971
Other assets 33,381 19,851
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Total assets $ 866,344 $ 758,158
=========================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
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Deposits:
Non-interest bearing $ 74,473 $ 64,229
Interest bearing 623,629 546,878
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Total deposits 698,102 611,107
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Short-term borrowings:
Federal funds purchased and securities
sold under repurchase agreements 31,370 30,811
Federal Home Loan Bank term advances 3,050 1,750
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Total short-term borrowings 34,420 32,561
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Long-term borrowings 44,121 28,577
Accrued expenses and other liabilities 7,712 7,095
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Total liabilities $ 784,355 $ 679,340
=========================================================================
Stockholders' Equity
- --------------------
Common stock, no par value, 12,000,000
shares authorized - 5,782,091 shares
issued at June 30, 1998 and 3,831,206
issued at December 31, 1997, including
shares in treasury 50,578 50,001
Accumulated comprehensive income, net of
deferred income taxes 2,395 2,369
Retained earnings 30,129 26,448
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83,102 78,818
Treasury stock, at cost, 37,460 shares
at June 30, 1998 and no shares at
December 31, 1997 (1,113) 0
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Total stockholders' equity 81,989 78,818
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Total liabilities and stockholders'
equity $ 866,344 $ 758,158
=========================================================================
PEOPLES BANCORP INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
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(Dollars in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Interest income $ 15,735 $ 13,122 $ 31,099 $ 25,884
Interest expense 7,531 6,106 14,851 12,024
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Net interest income 8,204 7,016 16,248 13,860
Provision for loan losses 546 641 1,242 1,229
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Net interest income
after provision for
loan losses 7,658 6,375 15,006 12,631
Other income 1,590 1,462 3,208 2,880
(Gain) loss on securities
transactions 427 (2) 431 (31)
Other expenses 5,444 4,721 10,858 9,426
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Income before income taxes 4,231 3,114 7,787 6,054
Federal income taxes 1,431 989 2,611 1,927
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Net income $ 2,800 $ 2,125 $ 5,176 $ 4,127
=============================================================================
Basic earnings per share $0.49 $0.41 $0.90 $0.80
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Diluted earnings per share $0.47 $0.40 $0.87 $0.78
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Weighted average shares
outstanding (basic) 5,754,541 5,174,951 5,750,750 5,171,895
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Weighted average shares
outstanding (diluted) 5,957,274 5,329,832 5,947,359 5,311,217
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Cash dividends declared $ 765 $ 621 $ 1,495 $ 1,241
Cash dividend per share $0.13 $0.12 $0.26 $0.24
PEOPLES BANCORP INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
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(Dollars in thousands, except share amounts)
Accumulated
Other
Common Stock Retained Treasury Comprehensive
Shares Amount Earnings Stock Income Total
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Balance,
December 31,
1997 3,831,206 $ 50,001 $ 26,448 $ 0 $ 2,369 $ 78,818
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Adjustment for
the effect of
3-for-2 common
stock split 1,915,603
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Balance,
December 31,
1997 restated 5,746,809
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Comprehensive income:
Net income 5,176 5,176
Other omprehensive income,
net of tax:
Unrealized losses on available-
for-sale securities, net of
reclassification adjustment 26 26
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Other comprehensive income 26
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Comprehensive income 5,202
Exercise of
common stock
options 28,451 370 370
Cash dividends
declared (1,495) (1,495)
Common stock
issued under
dividend
reinvestment plan 6,831 207 207
Purchase of treasury
stock, 37,460
shares (1,113) (1,113)
- ------------------------------------------------------------------------------
Balance, June
30, 1998 5,782,091 $ 50,578 $ 30,129 $(1,113) $ 2,395 $ 81,989
==============================================================================
Comprehensive Income:
- ---------------------
Unrealized holding losses on available-for-sale
securities arising during the period, net of income taxes (494)
Less: reclassification adjustment for gains
realized in net income, net of income taxes 520
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Net unrealized losses on available-for-sale securities,
net oftax 26
==============================================================================
PEOPLES BANCORP INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
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(Dollars in thousands)
Six Months Ended
June 30,
1998 1997
Cash flows from operating activities:
- -------------------------------------
Net income $ 5,176 $ 4,127
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 1,242 1,229
(Gain) loss on sale of investment securities (431) 31
Depreciation, amortization, and accretion 1,227 1,294
Increase in interest receivable (378) (216)
Increase (decrease) in interest payable 452 (72)
Deferred income taxes 697 174
Deferral of loan origination fees and costs 90 32
Other, net (2,633) (696)
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Net cash provided by operating activities 5,442 5,903
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Cash flows from investing activities:
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Purchases of available-for-sale securities (84,788) (9,774)
Proceeds from sales of available-for-sale
securities 19,698 4,204
Proceeds from maturities of available-for-sale
securities 31,248 8,589
Net increase in loans (3,889) (24,333)
Expenditures for premises and equipment (2,298) (354)
Proceeds from sales of other real estate owned 79 28
Business acquisitions, net of cash received 99,053 4,679
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Net cash provided by (used in) investing
activities 59,103 (16,961)
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Cash flows from financing activities:
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Net decrease in non-interest bearing deposits (1,177) (7,300)
Net (decrease) increase in interest-bearing
deposits (29,290) 15,959
Net (decrease) increase in short-term borrowings (1,690) 253
Proceeds from long-term borrowings 16,782 3,000
Payments on long-term borrowings (1,238) (1,599)
Cash dividends paid (1,268) (1,031)
Purchase of treasury stock (1,113) (289)
Proceeds from issuance of common stock 371 73
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Net cash (used in) provided by financing
activities (18,623) 9,066
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Net increase in cash and cash equivalents 45,922 (1,992)
Cash and cash equivalents at beginning of period 38,831 28,517
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Cash and cash equivalents at end of period $ 84,753 $ 26,525
============================================================================
NOTES TO FINANCIAL STATEMENTS
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Basis of Presentation
- ---------------------
The accounting and reporting policies of Peoples Bancorp Inc.
and Subsidiaries (the "Company") conform to generally accepted
accounting principles and to general practices within the
banking industry. The Company considers all of its principal
activities to be banking related. The preparation of the
financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates. The consolidated financial statements
include the accounts of the Company and its wholly-owned
subsidiaries. Significant intercompany accounts and
transactions have been eliminated. On April 13, 1998, the
Company declared a 3-for-2 stock split effective April 30, 1998.
Accordingly, all per share data have been restated to reflect
the dividend.
1. Acquisitions
- ----------------
The following text will include references to several
acquisition transactions that have affected and/or will affect
the Company's results of operations.
On December 12, 1997, the Company completed the purchase of
Gateway Bancorp, Inc. and its subsidiary, Catlettsburg Federal
Savings Bank ("Catlettsburg Federal"), of Catlettsburg,
Kentucky, for approximately $21.6 million in a combination of
cash of $6.2 million and 365,472 shares (before the 3-for-2
stock split issued in April 1998) of Company stock ("Gateway
Bancorp Acquisition" or "Catlettsburg Federal Acquisition").
Management has continued to operate Catlettsburg Federal as a
federal savings bank subsidiary of the Company. Catlettsburg
Federal had total assets of $64.3 million and deposits of $43.8
million at December 12, 1997.
On June 26, 1998, one of the Company's subsidiaries, The
Peoples Banking and Trust Company ("Peoples Bank") completed the
purchase of full-service banking offices located in the
communities of Point Pleasant (two offices), New Martinsville,
and Steelton, West Virginia ("West Virginia Banking Center
Acquisition") from an unaffiliated institution. In the
transaction, Peoples Bank assumed approximately $121.0 million
of deposits and purchased $8.3 million in loans.
2. New Accounting Pronouncements
- ---------------------------------
In June 1996, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS No. 125") that provides
accounting and reporting standards for transfers of financial
assets and extinguishments of liabilities. SFAS No. 125
significantly changes the accounting rules for determining
whether a transfer represents a sale or secured borrowing
transaction. Portions of SFAS No. 125 were applicable for the
Company effective January 1, 1997 and did not have a material
impact on the Company's financial statements.
On January 1, 1998, the Company adopted the provisions of SFAS
No. 125 for securities lending, repurchase agreements, dollar
rolls and other similar secured transactions which had been
delayed until after December 31, 1997. The adoption of
Statement No. 125 as it relates to securities lending,
repurchase agreements, dollar rolls, and other similar
transactions did not have a material effect on the Company's
financial statements.
On January 1, 1998, the Company also adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). SFAS No. 130 requires that certain
items of comprehensive income that are reported directly within
a separate component of stockholders' equity be displayed with
the same prominence as other financial statements. The adoption
of SFAS No. 130 had no impact on the financial position, results
of operations, stockholders' equity, or cash flows of the
Company.
ITEM 2
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
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SELECTED FINANCIAL DATA
- -----------------------
The following data should be read in conjunction with the
unaudited consolidated financial statements and the management
discussion and analysis that follows.
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
1998 1997 1998 1997
SIGNIFICANT RATIOS
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Net income to:
- --------------
Average assets* 1.39% 1.30% 1.31% 1.27%
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Average shareholders' equity* 13.82% 14.80% 12.89% 14.46%
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Net interest margin* 4.55% 4.75% 4.58% 4.73%
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Efficiency ratio* 51.24% 51.80% 51.24% 52.44%
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Average shareholders' equity
to average assets 10.11% 8.79% 10.20% 8.79%
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Loans net of unearned interest
to deposits (end of period) 76.39% 85.35% 76.39% 85.35%
- ----------------------------------------------------------------------------
Allowance for loan losses to
loans net of unearned interest
(end of period) 1.72% 1.56% 1.72% 1.56%
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Capital ratios:
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Tier I capital ratio 10.58% 11.10% 10.58% 11.10%
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Risk-based capital ratio 11.83% 12.36% 11.83% 12.36%
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Leverage ratio 7.38% 7.68% 7.38% 7.68%
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Cash dividends to net income 27.32% 29.22% 28.88% 30.07%
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PER SHARE DATA
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Book value per share $14.27 $11.40 $14.27 $11.40
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Diluted earnings per share $0.47 $0.40 $0.87 $0.78
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Cash dividends per share $0.13 $0.12 $0.26 $0.24
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* Net income to average assets, net income to average
shareholders' equity, net interest margin, and efficiency ratio
are presented on an annualized basis.
Net interest margin is calculated using fully tax equivalent net
interest income as a percentage of average earning assets.
Efficiency ratio is a ratio of non-interest expense (less
intangible amortization and non-direct operational expenses) as
a percentage of fully tax equivalent net interest income plus
non-interest income. All non-recurring items are removed from
the calculation of the Company's efficiency ratio.
Introduction
- ------------
The following discussion and analysis of the consolidated
financial statements of the Company is presented to provide
insight into management's assessment of the financial results.
The Company's subsidiaries, The Peoples Banking and Trust
Company ("Peoples Bank"); The First National Bank of
Southeastern Ohio ("First National Bank"); Gateway Bancorp, Inc.
and its subsidiaries, Catlettsburg Federal Savings Bank
("Catlettsburg Federal") and Russell Federal Savings Bank
("Russell Federal"); and The Northwest Territory Life Insurance
Company ("Northwest Territory"), provide financial services to
individuals and businesses within the Company's market area.
Peoples Bank is chartered by the state of Ohio and subject to
regulation, supervision, and examination by the Federal Deposit
Insurance Corporation ("FDIC") and the Ohio Division of Banks.
First National is a member of the Federal Reserve System and
subject to regulation, supervision, and examination by the
Office of the Comptroller of the Currency ("OCC"). Catlettsburg
Federal and Russell Federal are members of the Federal Home Loan
Bank, and are subject to the regulation, supervision, and
examination by the Office of Thrift Supervision ("OTS"), and are
also subject to limited regulation by the Board of Governors of
the Federal Reserve System. The discussion and analysis should
be read in conjunction with the prior year-end audited
consolidated financial statements and footnotes thereto and the
ratios, statistics, and discussions contained elsewhere in this
Form 10-Q.
References will be found in this Form 10-Q to several
acquisition transactions that have affected and/or will affect
the Company's results of operations. On December 12, 1997, the
Company completed the purchase of Gateway Bancorp, Inc. and its
subsidiary, Catlettsburg Federal, of Catlettsburg, Kentucky, for
approximately $21.6 million in a combination of cash of $6.2
million and 365,472 shares of Company stock ("Gateway Bancorp
Acquisition" or "Catlettsburg Federal Acquisition"). Management
has continued to operate Catlettsburg Federal as a federal
savings bank subsidiary of the Company. Catlettsburg Federal
had total assets of $64.3 million and deposits of $43.8 million
at December 12, 1997. In January, 1998, the Company
reincorporated Russell Federal as a subsidiary of Gateway
Bancorp to align the Company's business units in northeast
Kentucky.
On June 26, 1998, Peoples Bank completed the purchase of
full-service banking offices located in the communities of Point
Pleasant (two offices), New Martinsville, and Steelton, West
Virginia ("West Virginia Banking Center Acquisition") from an
unaffiliated institution. In the transaction, Peoples Bank
assumed approximately $121.0 million of deposits and purchased
$8.3 million in loans.
RESULTS OF OPERATIONS
- ---------------------
Overview of the Income Statement
- --------------------------------
For the six months ended June 30, 1998, the Company earned
$5,176,000, a 25.4% increase from $4,127,000 in net income for
the same period last year. For the quarter ended June 30, 1998,
the Company earned $2,800,000, a 31.8% increase from $2,125,000
in the second quarter of 1997. In the second quarter, diluted
earnings per share increased $0.07 from $0.40 last year to $0.47
in 1998. For the first half of 1998, diluted earnings per share
reached $0.87, up $0.09 from $0.78 for the same period a year
earlier.
Second quarter net income was positively impacted by a net gain
of $427,000 ($278,000 after taxes, or $0.05 per diluted share)
on investment activity, primarily the exchange of certain
domestic equity securities, as well as losses from repositioning
of the investment portfolio. The Company's core earnings also
increased due to stronger earnings in existing business units
and additional revenue streams associated with recent
acquisitions. Due to earning asset growth, second quarter net
interest income totaled $8,204,000, up $1,188,000 (or 16.9%)
compared to the same period last year. For the six months ended
June 30, 1998, net interest income reached $16,248,000, an
increase of $2,388,000 (or 17.2%) compared to the same period a
year earlier.
In the first half of 1998, provision for loan losses totaled
$1,242,000 compared to $1,229,000 in 1997's first six months.
For the three months ended June 30, 1998, provision for loan
losses totaled $546,000, a decrease of $95,000 (or 14.8%)
compared to last year's second quarter. Reduction in loan loss
provision reflects the quality of the Company's loan portfolio
and recent stabilization of loan delinquencies.
Second quarter non-interest income increased $128,000 (or 8.8%)
to $1,590,000, due primarily to increased fiduciary fees from
the Company's Investment and Trust Division, deposit service
charges, and electronic banking fees. For the six months ended
June 30, 1998, non-interest income totaled $3,208,000, up
$328,000 (or 11.4%) compared to the same period in 1997.
Non-interest expense for the second quarter of 1998 totaled
$5,444,000, up $723,000 (or 15.3%) from last year. For the
first half of 1998, non-interest expense reached $10,858,000, an
increase of $1,432,000 (or 15.2%) compared to the first six
months of 1997. Recent growth in non-interest expense is due
primarily to the Company's recent acquisitions and related
expenses, such as salaries and benefits expense and amortization
of intangibles. In the second quarter of 1998, the Company's
efficiency ratio improved to 50.44% compared to 51.80% for the
same period last year. For the six months ended June 30, 1998,
efficiency ratio reached 51.24% compared to 52.44% for the same
period in 1997.
Management believes that a comparative approach to financial
reporting should include the discussion of "cash earnings",
which removes the after-tax impact of the amortization of
intangibles on the Company's results of operations and
facilitates comparison of the Company with competitors that make
acquisitions using pooling of interests accounting.
In the second quarter of 1998, intangible amortization expense
totaled $372,000 ($273,000 after taxes) compared to $240,000
($156,000 after taxes) for the same period a year earlier.
After adjusting for the after-tax effect of the amortization of
intangibles, diluted cash earnings per share for the quarter
ended June 30, 1998 was $0.52, up $0.09 from $0.43 in diluted
cash earnings per share in the second quarter of 1998.
For the six months ended June 30, 1998, intangible amortization
expense totaled $741,000 ($544,000 after taxes) compared to
$481,000 ($313,000 after taxes) for the same period a year
earlier. After adjusting for the after-tax effect of the
amortization of intangibles, diluted cash earnings per share for
the six months ended June 30, 1998 was $0.96, up $0.12 from
$0.84 in diluted cash earnings per share for the same period a
year earlier.
Management uses cash earnings as one of several ways to
evaluate the impact of acquisitions to profitability and the
Company's return on its investment. Increased amortization of
intangibles for the three months and six months ended June 30,
1998, also impacted tangible return on assets and equity.
Recent acquisitions have increased and will increase the
Company's amortization expense related to goodwill and other
intangibles and as a result, the purchase method of accounting
has affected earnings per share and other ratios. In order to
provide comparative earnings per share information, management
will continue to supplement future financial analysis with
discussion concerning cash earnings per share, as previously
defined.
Interest Income and Expense
- ---------------------------
Net interest income is the amount by which interest income on
earning assets exceeds interest paid on interest-bearing
liabilities. Interest earning assets include loans and
investment securities. Interest-bearing liabilities include
interest-bearing deposits and borrowed funds. Net interest
income remains the primary source of revenue for the Company.
Changes in market interest rates, as well as changes in the mix
and volume of interest-earning assets and interest-bearing
liabilities, impact net interest income.
When compared to prior year, increased operating earnings for
the quarter and six months ended June 30, 1998 can be attributed
primarily to growth of the Company's net interest income. The
Company's interest earning assets and interest-bearing
liabilities were positioned to generate increased net interest
income streams in the second quarter. Also, the recent
acquisitions provided additional earning assets to the Company,
generating increased incremental net interest income. Earning
asset growth strategies implemented in the second quarter of
1998 (in anticipation of the deposits acquired in the West
Virginia Banking Center Acquisition) also contributed to
incremental increases in net interest income.
As a result, net interest income continued to grow in the
second quarter of 1998, reaching $8,204,000 compared to
$7,016,000 in last year's second quarter, an increase of
$1,188,000 (or 16.9%). In the second quarter of 1998, total
interest income reached $15,735,000 while interest expense
totaled $7,531,00. Included in second quarter 1998 interest
income is $466,000 of tax-exempt income from investments issued
by states and political subdivisions. Since these revenues are
not taxed, it is more meaningful to analyze net interest income
on a fully-tax equivalent ("FTE") basis.
Net interest margin is calculated by dividing FTE net interest
income by average interest-earning assets and serves as a
performance measurement of the net interest revenue stream
generated by the Company's balance sheet. For the three months
ended June 30, 1998, net interest margin (on an FTE basis)
totaled 4.55% compared to 4.75% in the second quarter of 1997.
On a year-to-date basis through June 30, net interest margin in
1998 totaled 4.58% compared to 4.73% for the same period last
year.
Several factors have contributed to net interest margin
compression. The deposits acquired in the West Virginia Banking
Center Acquisition significantly increased the Company's earning
asset base in lower-yielding assets such as federal funds sold.
Management continues to analyze methods to redeploy the acquired
funds in an earning asset mix that is similar to that of the
Company's ratios before the West Virginia Banking Center
Acquisition.
Net interest margin also decreased due to competitive pressures
for loans and deposits in the Company's markets. In addition,
the recent thrift acquisitions have modestly changed the
Company's earning asset mix and lowered margins for comparative
purposes, due to the fact the Company's thrifts have primarily
invested in real estate loans, which typically do not generate
return on investment like other loan products such as commercial
and personal loans.
In the first quarter of 1998, the Company implemented a
pre-acquisition investment strategy to take advantage of
reasonably favorable asset yields on selected investment
securities (such as mortgage-backed securities and other
corporate investments). The pre-investment program totaled
approximately $49 million and was funded by short-term
borrowings, which were replaced late in the second quarter of
1998 with deposits assumed in the West Virginia Banking Center
Acquisition. The growth strategy resulted in modest compression
of the Company's net interest margin in the second quarter of
1998, due to yields on investment that are modestly lower than
typical loan yields.
The sudden growth of the Company's earning asset base will
continue to impact net interest margin in the second half of
1998 until the asset mix can be returned to a more appropriate
balance of profitability and risk. Due to the replacement of
short-term borrowings with the acquired deposits, management
expects net interest margin to stabilize at current levels for
the remainder of 1998.
Average loans grew $65.3 million (or 14.2%) from second quarter
1997 to second quarter 1998 which comprise the largest earning
asset component on the Company's balance sheet. Yield on
earning assets totaled 8.61% in the second quarter of 1998,
compared to 8.80% for the same period a year earlier. Although
loan yields are consistent from 1997 to 1998, the Company's
investment portfolio yield has dropped 34 basis points to 6.74%
in the second quarter of 1998, reflecting the replacement of
higher-yielding, maturing investments with lower-yielding
investments. In addition, the average balance of investment
securities has increased $73.4 million to $220.9 million due to
recent growth strategies and acquisitions.
Compared to the second quarter of 1997, cost of
interest-bearing liabilities increased five basis points to
4.68% in the second quarter of 1998. Costs increased due to
increases in the Company's use of short-term, higher-costing
funding sources used to fund the previously described
pre-acquisition strategy (in anticipation of the deposits
acquired in the West Virginia Banking Center Acquisition).
Management expects future interest costs to modestly decline in
future reporting periods due to the acquisition of lower
interest cost funding sources from the West Virginia Banking
Center Acquisition. Management will continue to monitor the
effects of net interest margin on the performance of the Company.
Please refer to the "Consolidated Average Balance Sheet and
Analysis of Net Interest Income" table included on page ____ for
a complete quantitative evaluation of the Company's net interest
margin.
Provision for Loan Losses
- -------------------------
In the second quarter of 1998, the Company's loan loss
provision decreased due to improvement in loan delinquencies and
net loan losses. For the three months ended June 30, 1998, the
Company recorded a provision for loan losses of $546,000, a
decrease of $95,000 (or 14.8%) from $641,000 in the second
quarter of 1997. On a year-to-date basis through June 30, loan
loss provision totaled $1,242,000 in 1998 compared to $1,229,000
last year. Loan growth in late 1997 and early 1998 was the
primary reason for higher provisions for loan losses in quarters
the first quarter of 1998.
Management expects modest internal loan growth for the
remainder of 1998. Due to this anticipated slowdown in loan
growth, combined with stabilized levels of delinquencies and net
loan losses, management believes that future 1998 provision
expense will remain approximately level with the provision
recorded in the second quarter of 1998. The duration of current
provision levels will be dependent on acceptable loan
delinquencies, portfolio risk, and general economic conditions
in our markets.
Non-Interest Income
- -------------------
The Company's non-interest income is generated from four
primary sources: income derived from fiduciary activities,
cost-recovery fees related to deposit accounts, electronic
banking revenues, and income generated by the Company's
insurance agency subsidiaries. For the quarter and six months
ended June 30, 1998, all of the Company's major sources of
non-interest income increased compared to the same period a year
earlier, representing management's commitment to continual
improvement of the Company's operating performance.
Second quarter non-interest income reached $1,590,000 in 1998,
an increase of $128,000 (or 8.8%) compared to the same period in
1997. For the six months ended June 30, 1998, non-interest
income totaled $3,208,000, up $328,000 (or 11.4%) compared to
last year.
The Investment and Trust Division of Peoples Bank continued its
strong earnings growth in 1998. The fee structure for fiduciary
activities is based primarily on the fair value of assets being
managed, which totaled over $500 million at June 30, 1998. As a
result of growth in market values and in the number of accounts
served, second quarter income generated from fiduciary
activities increased $38,000 (or 7.2%) to $566,000. On a
year-to-date basis through June 30, fiduciary activities revenue
increased $150,000 (or 14.5%) to $1,182,000 in 1998 compared to
the same period a year earlier. The Investment and Trust
Division continues to be a leader in fiduciary services in the
Company's lead market area.
Deposit account service charge income also increased in the
second quarter of 1998, reaching $597,000, compared to $540,000
for the quarter ended June 30, 1997, an increase of $57,000 (or
10.6%). On a year-to-date basis for the six months ended June
30, 1998, deposit account service charge income increased
$95,000 (or 9.0%) compared to 1997. The Company's fee income
generated from deposits is based on cost recoveries associated
with relevant services provided.
Electronic banking, including ATM cards, direct deposit
services, and debit card services, is one of the many services
offered by the Company. The recovery of costs through fees
associated with these products and services are beginning to
significantly impact the Company's non-interest income. For the
quarter ended June 30, 1998, total fees related to electronic
banking reached $158,000, up $113,000 (or 39.8%) compared to the
same period last year. For the six months ended June 30, 1998,
electronic banking revenues totaled $284,000, an increase of
$66,000 (or 30.3%) compared to the same period a year earlier.
These increases are due primarily to revenues related to the
Company's growing debit card program as well as non-customer
activity in the Company's network of ATM's, which has caused a
corresponding increase in ATM-related revenues.
Management will continue to explore new methods of enhancing
non-interest income. Both traditional and non-traditional
financial service products are being analyzed for inclusion in
the Company's product mix.
Net Gain on Securities
- ----------------------
In the second quarter of 1998, the Company recognized net gains
on securities of $427,000 ($278,000 after taxes, or $0.05 per
diluted share), compared to minimal net losses in the second
quarter of 1997. The Company had a net gain of $516,000
($336,000 after taxes) from an equity investment in a company
that was acquired in a merger transaction. In addition, the
Company recognized losses of $89,000 ($58,000 after taxes) from
sales of investment securities due to repositioning of the
investment portfolio. Management does not expect similar gains
or losses to occur during the remainder of 1998.
Non-Interest Expense
- --------------------
For the three months ended June 30, 1998, non-interest expense
totaled $5,444,000, an increase of $723,000 (or 15.1%) compared
to the same period last year. For the first half of 1998, total
non-interest expense reached $10,858,000, up $1,432,000 (or
15.2%) compared to 1997's first six months.
When comparing 1998 non-interest expense information to 1997,
it is important to consider the non-interest expense related to
recent acquisitions. Acquisitions, and the related salaries
and employee benefits and increased depreciation expense,
comprise the majority of the increase in non-interest expense in
1998. Non-operational items also contributed to the increase in
non-interest expense for the quarter and six months ended June
30, 1998. In particular, amortization of intangibles totaled
$372,000 (up 55.0%) and $741,000 (an increase of 54.1%) for the
quarter and six months ended June 30, 1998, respectively,
compared to $240,000 and $481,000 for the identical periods a
year earlier. Future amortization expense will increase due to
the completion of the West Virginia Banking Center Acquisition.
The Company considers the impact of intangible amortization when
evaluating potential acquisitions.
The Company's recent acquisitions also impacted non-interest
expense in other areas, as the Company continues to expand its
services and geographic area. Compared to 1997's second
quarter, salaries and benefits expense increased $233,000 (or
11.6%) to $2,249,000 in the second quarter of 1998. For the six
months ended June 30, salaries and benefits expense increased
$546,000 (or 13.2%) to $4,691,000 in 1998 compared to 1997's
first half of the year.
Recent acquisitions have increased the number of Company
employees, primarily customer service associates in the acquired
offices. At June 30, 1998, the Company had 363 full-time
equivalent employees, compared to 314 full-time equivalent
employees at December 31, 1997, and 304 full-time equivalent
employees at year-end 1996. While future salaries and benefit
expense will increase on a gross comparison basis due to the
associates retained in the West Virginia Banking Center
acquisition, management will continue to strive to find new ways
of increasing efficiencies and leveraging its resources while
concentrating on maximizing customer service.
Recent acquisitions also impacted net occupancy expenses, in
particular depreciation expense. For the quarter and six months
ended June 30, 1998, furniture and equipment expenses totaled
$446,000 and $891,000, respectively, up $70,000 (or 18.7%) and
$98,000 (or 12.4%) compared to 1997's identical reporting
periods. Net occupancy expense totaled $389,000 in the second
quarter of 1998, an increase of $83,000 (or 27.1%) compared to
the same period a year earlier. On a year-to-date basis through
June 30 and compared to last year, net occupancy expense
increased $123,000 (or 15.5%) to $891,000 in 1998. These
increases can be attributed primarily to the depreciation of the
assets purchased in recent acquisitions, completion of
construction projects to full-service offices in Athens and
Caldwell, Ohio, as well as Ashland, Kentucky. Increases are
also due to growth in depreciation of additional expenditures on
technology. The Company's increased investment in technology
and other customer-service enhancements will also impact
depreciation expense in the future.
Maintaining acceptable levels of non-interest expense and
operating efficiency are key performance indicators for the
Company. The Company and financial services industry use the
efficiency ratio (total non-interest expense less amortization
of intangibles and non-recurring items as a percentage of the
aggregate of fully-tax equivalent net interest income and
non-interest income) as a key indicator of performance. Gains
and losses on sales of investment securities are not included in
the calculation of the Company's efficiency ratio. In the
second quarter of 1998, the Company's efficiency ratio was
50.44% compared to 51.80% for the same period last year. For
the six months ended June 30, 1998, efficiency ratio improved to
51.24% compared to 52.44% for the same period in 1997.
Management expects the efficiency ratio to continue to modestly
improve throughout the remainder of 1998 and into 1999.
Return on Assets
- ----------------
For the quarter ended June 30, 1998, return on average assets
("ROA") reached 1.39% compared to 1.30% for the same period a
year earlier. The Company's increased operating income and net
gain on securities grew income more in the second quarter of
1998 than in recent reporting periods. For the six months ended
June 30, 1998, the Company's ROA totaled 1.31%, up modestly from
1.27% for the same period a year earlier.
The West Virginia Banking Center Acquisition significantly
increased the asset base of the Company near the end of the
second quarter of 1998. The effect of the West Virginia Banking
Center Acquisition on average assets will not fully impact the
Company until the third quarter of 1998, when average assets are
estimated to grow approximately $70 million to nearly $870
million.
The Company will be challenged to employ these new funds in a
manner that will produce acceptable returns on investment in a
short period of time. Management anticipates that ROA will
continue to modestly decrease in 1998. As management is
successful in transitioning the recently acquired funds sources
to an asset mix similar to that held by the Company in previous
reporting periods, ROA should return to pre-acquisition levels.
Return on Equity
- ----------------
The Company's return on average equity ("ROE") in the second
quarter of 1998 was 13.82%, compared to 14.80% for the same
period last year. For the first half of 1998, ROE totaled
12.89% compared to 14.46% in the first half of 1997.
ROE decreased in 1998 due primarily to issuance of
approximately $15.35 million of capital stock for the purchase
of Gateway Bancorp, Inc. in late 1997. As a result, the
increase in total equity had a significant impact on 1998's ROE
for the quarter and six months ended June 30, 1998. Management
expects ROE in 1998 to continue to be below prior year levels
until the Company leverages the capital of the Company to the
extent that capital was leveraged prior to the Gateway Bancorp
Acquisition.
The Company is considered well-capitalized under regulatory and
industry standards of risk-based capital and has experienced
growth through retention of increased earnings over the last
several quarters.
Federal Income Tax Expense
- --------------------------
Federal income taxes increased from $989,000 in the second
quarter of 1997 to $1,431,000 for the same period this year, an
increase of $442,000 (or 44.7%). On a year-to-date basis
through six months, the Company's income tax expense totaled
$2,611,000 in 1998, an increase of $684,000 (or 35.5%) compared
to 1997's first half. These increases are comparable to growth
in pre-tax income.
The Company's effective tax rate is approximately 33.8% for the
second quarter of 1998, compared to 31.8% for the same period
last year, primarily due to non-deductible expenses from the
Gateway Bancorp Acquisition.
FINANCIAL CONDITION
- -------------------
Overview of Balance Sheet
- -------------------------
Total assets have increased steadily from $758.2 million at
December 31, 1997 to $797.5 million at March 31, 1998, and to
$866.3 million at June 30, 1998. First quarter 1998 asset
growth occurred primarily due to pre-acquisition strategies
implemented in anticipation of the West Virginia Banking Center
Acquisition's associated $121.0 million in deposits and $8.3
million in loans. Strategies for managing asset growth were
implemented in the first quarter of 1998 within the Company's
thrift subsidiaries to leverage their strong capital positions
and enhance incremental interest income. On June 26, 1998, the
Company completed the West Virginia Banking Center Acquisition,
increasing assets approximately $70 million (or 8.7%) to $866.3
million at June 30, 1998.
Net cash received in the West Virginia Banking Center
Acquisition was redeployed into investment securities, which
increased nearly $35 million (or 19.9%) from year-end 1997 to
$209.0 million at June 30, 1998. Near the end of the second
quarter of 1998, the Company sold approximately $8 million of
investment securities to reposition the portfolio for enhanced
future earnings. Proceeds from these sales were reinvested
shortly thereafter in similar investment securities.
Since March 31, 1998, total loans increased $14.4 million (or
2.8%) to over $533 million, due primarily to the loans purchased
in the West Virginia Banking Center Acquisition. During the
same period, total deposits increased $82.3 million (or 13.4%),
due primarily to the net increase of deposits acquired in the
West Virginia Banking Center Acquisition combined with
maturities of short-term, higher interest rate time deposits.
At June 30, 1998, the Company had short-term borrowings of
$34.4 million compared to $49.2 million at March 31, 1998.
Purchases of certain investment securities were funded by
short-term Federal Home Loan Bank (FHLB) borrowings in
anticipation of paying off such advances upon receipt of the
deposits acquired in the West Virginia Banking Center
Acquisition.
As a result of the second quarter asset growth, the Company
leveraged its recently expanded capital base (through the
issuance of stock in the Gateway Bancorp, Inc. acquisition in
late 1997). Total equity reached $83.1 million at June 30,
1998, compared to $80.5 million at March 31, 1998, an increase
of $2.6 million (or 3.2%).
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents totaled $84.8 million at June 30,
1998, up $52.5 million from March 31, 1998, due to funds
received in the West Virginia Banking Center Acquisition. Funds
from the West Virginia Banking Center Acquisition were also
temporarily invested in federal funds sold, which grew to $52.8
million at June 30, 1998. These balances will decrease over
time through redeployment of those funding sources into higher
yielding assets such as loans or investment securities.
Management feels the liquidity needs of the Company are
satisfied by the current balance of cash and cash equivalents,
readily available access to traditional and non-traditional
funding sources, and the portion of the investment and loan
portfolios that mature within one year. These sources of funds
should enable the Company to meet cash obligations and
off-balance sheet commitments as they come due.
Investment Securities
- ---------------------
All of the Company's investment securities are classified as
available-for-sale. Management believes the available-for-sale
classification provides flexibility for the Company in terms of
selling securities as well as interest rate risk management
opportunities. At June 30, 1998, the amortized cost of the
Company's investment securities totaled $205.3 million.
At year-end 1997, investment securities totaled $174.3 million
and increased to $221.3 million at March 31, 1998 as a result of
previously described growth strategies implemented in the first
quarter of 1998. Investment securities totaled $209.0 million
at June 30, 1998, a decrease of $12.4 million (or 5.6%) for the
three months ended June 30, 1998. Near the end of the second
quarter of 1998, the Company sold approximately $8 million of
investment securities to reposition the portfolio for enhanced
future income streams. These securities were reinvested in
early third quarter.
As a direct result of the pre-acquisition investment strategy
and other growth strategies implemented by the Company, several
categories of investments within the investment portfolio had
significant growth. Variances since March 31, 1998 were caused
by the sales of securities late in the second quarter of 1998;
therefore comparisons between year-end 1997 and June 30, 1998
provide more meaningful information. At June 30, 1998,
investments in US Treasury securities and obligations of US
government agencies and corporations totaled $48.0 million, down
$4.0 million (or 7.7%) since year-end 1997. In the first half
of 1998, investments in mortgage-backed securities increased
$17.7 million (or 23.2%) to $94.0 million at June 30, 1998. The
Company's balances in investment obligations of states and
political subdivisions totaled $36.3 million at June 30, 1998,
an increase of $10.6 million (or 41.2%) since year-end 1997.
Corporate investments at June 30, 1998 totaled $30.7 million, an
increase of $10.5 million (or 52.0%) for the six months ended
June 30, 1998.
Management monitors the earnings performance and liquidity of
the investment portfolio on a regular basis through
Asset/Liability Committee (" ALCO") meetings. The group also
monitors net interest income, sets pricing guidelines, and
manages interest rate risk for the Company. Through active
balance sheet management and analysis of the investment
securities portfolio, the Company maintains sufficient liquidity
to satisfy depositor requirements and the various credit needs
of its customers. Management believes the risk characteristics
inherent in the investment portfolio are acceptable based on
these parameters.
Loans
- -----
The Company's lending is primarily focused in the mid-Ohio
Valley areas of southeastern Ohio, northern and western West
Virginia, as well as central Ohio and northeastern Kentucky
markets. The Company's lending consists principally of retail
lending, which includes single-family residential mortgages and
other consumer lending.
Loans totaled $533.3 million at June 30, 1998, an increase of
$14.4 million (or 2.8%) since March 31, 1998, and up $11.7
million (or 2.2%) since year-end 1997. At December 31, 1997,
the Company had $6 million of term federal funds sold invested
with unaffiliated financial institutions. These investments
were classified as loans for purposes of financial statement
reporting and generate interest income streams similar to
federal funds sold. Such investments were made in late 1997 to
enhance the Company's short-term net interest income at a fixed
rate. Of the $6 million of term federal funds held by the
Company at year-end 1997, $5 million matured in the first
quarter of 1998 and the remaining $1 million matured in the
second quarter of 1998.
The Company's loan portfolio grew in the second quarter due
primarily to loans purchased in the West Virginia banking Center
Acquisition. The Company purchased $8.3 million of commercial
and consumer loans in the June, 1998 acquisition. The following
table details total outstanding loans at the specified dates:
(dollars in thousands)
June 30, March 31, December 31,
1998 1998 1997
Commercial, financial,
and agricultural $ 179,666 $ 163,293 $ 159,035
Real estate, construction 12,709 16,724 19,513
Real estate, mortgage 228,661 227,358 228,689
Consumer 112,228 111,459 114,333
- --------------------------------------------------------------------------
Total loans $ 533,264 $ 518,834 $ 521,570
==========================================================================
Real estate loans to the Company's retail customers (including
real estate construction loans) continue to be the largest
portion of the loan portfolio, comprising 47.1% of the total
loan portfolio. Real estate loans totaled $241.4 million at
June 30, 1998, down $2.7 million (or 1.1%) since March 31, 1998.
Included in real estate loans are home equity credit lines
("Equilines"), which totaled $19.1 million at June 30, 1998, a
quarterly increase of $2.0 million (or 11.7%). The Company
continues to offer special fixed Equiline rates in its markets
and specially priced Equiline products in its new West Virginia
markets. Management believes the Equiline product is a
competitive product that has an acceptable return on investment,
after risk considerations, and anticipates these balances will
continue to grow from new customers and increased market
penetration. Residential real estate lending will continue to
represent a major focus of the Company due to the lower risk
factors associated with these types of loans and the opportunity
to provide additional products and services to these consumers
at attractive combined returns.
Strong growth in commercial, financial, and agricultural loans
("commercial loans") occurred in the second quarter of 1998, as
commercial loans increased $16.4 million (or 10.0%) to $179.7
million. Nearly half of this second quarter growth can be
directly attributed to commercial loans purchased in the West
Virginia Banking Center Acquisition. Economic conditions in the
Company's markets have provided quality credit opportunities.
Management will continue to focus on the enhancement and growth
of the commercial loan portfolio while maintaining appropriate
underwriting standards. Management expects commercial loan
demand to continue to be strong in several of the Company's
markets for the remainder of 1998 due to positive economic
conditions in those markets.
Consumer lending continues to be a vital part of the Company's
core lending. For the three months ended June 30, 1998,
consumer loan balances (excluding credit card loans) grew
modestly to $105.8 million, a quarterly increase of $0.7
million. The majority of the Company's consumer loan focus
continues to be in the indirect lending area. At June 30, 1998,
the Company had indirect loan balances of $69.5 million,
compared to $70.5 million at year-end 1997. Management is
pleased with the recent performance of the Company's consumer
loan portfolio, which can be attributed to the Company's
commitment to quality customer service and the continued demand
for indirect loans in the markets served by the Company.
Lenders use a tiered pricing system that enables the Company to
apply interest rates based on the corresponding risk associated
with the indirect loan. Although consumer debt delinquency is
increasing in the financial services industry (due mostly to
credit card debt), management's recent actions to reinforce the
Company's pricing system and underwriting criteria have tempered
indirect lending delinquencies and recently tempered the overall
growth of the indirect loan portfolio. Management plans to
continue its focus on the use of this tiered pricing system
combined with controlled growth of the indirect lending
portfolio in 1998, particularly in the new markets recently
entered by the Company.
Credit card balances remained relatively unchanged since
year-end 1997, totaling $6.5 million at June 30, 1998. In the
past, the Company has offered several new products to better
serve the credit needs of its customers, including a no-fee
credit card and increased credit limits to qualified customers.
Management will continue to evaluate new opportunities to serve
credit card customers.
Management anticipates loan growth in the remainder of 1998 to
be consistent with the first half of 1998. Projected loan
growth is expected in the recently entered West Virginia markets
as well, as management focuses on employing the acquired funding
sources in higher-yielding assets such as loans.
In addition, management will continue to research and analyze
various methods to satisfy the loan demand of the customers in
its various markets. Management also continues to research the
possibility of purchasing loans in packages or outside of the
Company's core markets as a means of providing increased returns
on its funding sources.
Loan Concentration
- ------------------
The Company does not have a concentration of its loan portfolio
in any one industry. Real estate lending (both mortgage and
construction loans) continues to be the largest component of the
loan portfolio, representing $241.4 million (or 45.3%) of total
loans. At year-end 1997, these loans comprised 47.6% of
outstanding loans. At June 30, 1998, commercial, financial, and
agricultural loans totaled $179.7 million (or 33.7%) of
outstanding loans, compared to 30.5% of outstanding loans at
December 31, 1997.
The Company's lending is primarily focused in the local
southeastern Ohio market and contiguous mid-Ohio Valley areas.
The Company's loan mix consists principally of retail lending,
which includes single-family residential mortgages and other
consumer loan products. Approximately 10% of the Company's
commercial loans are to lodging and lodging related companies.
These lending opportunities have arisen because of the recent
growth in the lodging industry and the need for additional
travel related services in certain areas in or contiguous to the
Company's markets, as well as the Company's ability to respond
to the needs of customers in this segment of the economy. The
credits have been subjected to the Company's normal commercial
loan underwriting standards and do not present more than the
normal amount of risk assumed in other lending areas.
Allowance for Loan Losses
- -------------------------
The allowance for loan losses as a percentage of loans
increased from 1.60% at December 31, 1997, to 1.72% at June 30,
1998. For the quarter and six months ended June 30, 1998, the
total dollar amount of the allowance for loan losses increased
$346,000 and $469,000, respectively, due to decreased net
chargeoffs. Total loan balances remained relatively unchanged
due to slower than expected internal loan growth, causing an
increase in the allowance as a percentage of total loans through
the first half of 1998. The following table presents changes in
the Company's allowance for loan losses for the three months and
six months ended June 30, 1998, and 1997, respectively:
Three Months Ended Six Months Ended
(in thousands) June 30, June 30,
1998 1997 1998 1997
------------------ ------------------
Balance, beginning
of period $ 8,825 $ 7,152 $ 8,356 $ 6,873
Allowance for loan
losses acquired in
Russell Federal Acquisition 120
Chargeoffs (342) (642) (706) (1,153)
Recoveries 142 147 279 229
- ------------------------------------------------------------------------------
Net chargeoffs (200) (495) (427) (924)
- ------------------------------------------------------------------------------
Provision for loan losses 546 641 1,242 1,229
- ------------------------------------------------------------------------------
Balance, end of period $ 9,171 $ 7,298 $ 9,171 $ 7,298
==============================================================================
For the three months ended June 30, 1998, provision for loan
losses totaled $546,000, while gross chargeoffs were $342,000
and recoveries amounted to $142,000. In the first half of 1998,
provision for loan losses totaled $1,242,000, while gross
chargeoffs were $706,000 and recoveries amounted to $279,000.
For the period ended June 30, 1998, net chargeoff activity was
down compared to both the quarter and six months for the same
periods a year earlier.
A significant portion of the Company's prior quarter's
chargeoffs occurred in the consumer loan portfolio. In the
first half of 1998, consumer loan chargeoffs tempered due to
continued focus of measurements of the Company's indirect
lending portfolio performance, including a review of
underwriting standards and more aggressive collection of past
due accounts. Management will continue to monitor the
performance of the consumer loan portfolio and focus efforts to
continue recent positive trends. Real estate and commercial
loan chargeoffs and recoveries were insignificant for the first
six months of 1998, demonstrating the quality of these
portfolios.
Nonperforming loans (those loans classified as nonaccrual, 90
days or more past due, and other real estate owned) as a
percentage of outstanding loans were 0.29% at June 30, 1998,
compared to 0.33% at December 31, 1997. Nonaccrual loans and
those loans 90 days past due totaled $1,103,000 and $478,000,
respectively, at June 30, 1998, compared to $1,220,000 and
$462,000, respectively, at year-end 1997. Management believes
the current level of nonperforming loans is acceptable and
reflects the overall quality of the Company's loan portfolio.
At June 30, 1998 the Company had an insignificant amount of
loans that were considered impaired. Management will continue
to monitor the status of impaired loans, including performing
and non-performing loans, in order to determine the appropriate
level of the allowance for loan losses.
Management continually monitors the loan portfolio through its
Loan Review Department and Loan Loss Reserve Committee to
determine the adequacy of the allowance for loan losses and
considers it to be adequate at June 30, 1998. Management
expects future loan loss provision in 1998 to be consistent with
second quarter 1998 expense, due to slower than expected loan
growth and a reduction in delinquencies in the loan portfolio
compared to 1997. Management believes the current allowance for
loan losses of 1.72% of total loans at June 30, 1998 to be
adequate to absorb inherent losses in the portfolio.
Funding Sources
- ---------------
The Company considers deposits, short-term borrowings, and
long-term borrowings when evaluating funding sources.
Traditional deposits continue to be the most significant source
of funds for the Company, reaching $698.1 million at June 30,
1998, a quarterly increase of $82.3 million (or 13.4%). The
West Virginia Banking Center Acquisition provided the Company
with significant additional funding sources, as detailed in the
following table (in thousands):
Non-interest bearing demand deposits $ 11,300
Interest-bearing transaction accounts 61,000
Time deposits (CD's and IRA's) 48,700
- ---------------------------------------------------
Total acquired deposits $ 121,080
===================================================
The Company assumed $121.0 million in core deposits from the
West Virginia Acquisition and has experienced minimal runoff of
those deposit balances in the months following the completion of
the acquisition. Management is pleased with the efforts of the
Company's associates to maintain these acquired deposit accounts
and look forward to expanding new customers' product and service
relationships.
In the second quarter of 1998, non-interest bearing deposit
balances grew nearly $9 million (or 13.7%) to $74.5 million, due
primarily to the deposits acquired in the West Virginia Banking
Center Acquisition. Management intends to continue its focus of
maintaining its recently enlarged base of lower-costing funding
sources.
During the first half of 1998, the Company's mix of
interest-bearing deposits modestly shifted to interest-bearing
transaction accounts from time deposit balances. In addition,
the Company experienced modest attrition in late first quarter
and in the second quarter of 1998 of maturing, short-term time
deposits, as rate sensitive customers strive to maximize their
investments by comparing rates offered by the Company's
competitors. The Company will continue to offer special
"relationship accounts" (both non-interest bearing and
interest-bearing) based on deposits in other products such as
CD's or IRA's.
Management believes that the deposit base remains the most
significant funding source for the Company and will continue to
concentrate on deposit growth and maintaining adequate net
interest margin to meet the Company's strategic goals.
In addition to traditional deposits, the Company accesses both
short-term and long-term borrowings to fund its operations and
investments. The Company's short-term borrowings consist of
federal funds purchased, corporate deposits held in overnight
repurchase agreements, and various FHLB borrowings. After
utilizing short-term FHLB borrowings to fund first quarter 1998
growth in anticipation of the West Virginia banking Center
Acquisition, the Company decreased total borrowings to $34.4
million, compared to $49.2 million at March 31, 1998.
The largest component of short-term borrowings consisted of
balances in corporate repurchase agreements, which totaled $29.8
million at June 30, 1998, compared to $30.7 million at year-end
1997. In late 1997, growth occurred due primarily to increases
in overnight repurchase agreement balances from a significant
commercial customer. Management expects current balances to
continue to modestly decrease throughout 1998 and, as a result,
overnight repurchase agreement balances will correspondingly
decrease to lower levels. In general, the Company will continue
to access short-term FHLB borrowings at various times to meet
liquidity needs as they arise.
In addition to traditional deposits and short-term borrowings,
the Company maintains long-term borrowing capacity with the
FHLB. This allows the Company to obtain reliable funds at fixed
and indexed rates for longer periods of time than other
traditional deposit products, creating the opportunity to match
longer term fixed rate mortgages and other extended-maturity
asset commitments against a similar funding source.
Long-term FHLB advances totaled $41.3 million at June 30, 1998,
a net quarterly decrease of $0.2 million since the previous
quarter-end. Since December 31, 1997, the Company increased
FHLB long-term advances approximately $15.7 million to fund
growth strategies designed to leverage the respective equity
bases of Russell Federal and Catlettsburg Federal.
In order to finance a portion of the total purchase price of
the Russell Federal Acquisition, the Company obtained a $3
million loan from an unaffiliated financial institution. The
remaining funds for the Russell Federal Acquisition were
generated from internal sources. Principal paydowns began on
the $3 million note in the first quarter of 1998 and will
continue semi-annually over the next several years. At June 30,
1998, the Company had $2.9 million in long-term debt related to
the Russell Federal Acquisition.
Capital/Stockholders' Equity
- ----------------------------
The Company's capital increased $3.2 million (or 4.0%) to $82.0
million at June 30, 1998.. In the second quarter of 1998, the
capital position of the Company grew approximately $2.1 million
(or 2.6%). For the three months ended June 30, 1998, the
Company had net income of $2.8 million and paid dividends of
$0.8 million, a dividend payout ratio of 27.32% of earnings.
For the first half of 1998, net income totaled $5.2 million and
dividends paid reached $1.5 million, a dividend payout ratio of
28.88% of net income, compared to 30.07% for the same period
last year. Management believes recent dividends represent a
balanced payout ratio for the Company and anticipates similar
payout ratios in future periods through quarterly dividends.
At June 30, 1998, the adjustment for the net unrealized holding
gain on available-for-sale securities, net of deferred income
taxes, totaled $2.4 million, unchanged for the six months ended
June 30, 1998. Since all of the investment securities in the
Company's portfolio are classified as available-for-sale, both
the investment and equity sections of the Company's balance
sheet are more sensitive to the changing market values of
investments. The combination of stable market interest rates
and recent purchases of investment securities (when the
difference between amortized cost and estimated fair value is
insignificant), have caused the equity adjustment to remain
relatively unchanged.
The Company has also complied with the standards of capital
adequacy mandated by the banking industry. Bank regulators have
established "risk-based" capital requirements designed to
measure capital adequacy. Risk-based capital ratios reflect the
relative risks of various assets banks hold in their portfolios.
A weight category of either 0% (lowest risk assets), 20%, 50%,
or 100% (highest risk assets) is assigned to each asset on the
balance sheet and to certain off-balance sheet commitments.
At June 30, 1998, the Company's and each of its banking
subsidiaries' risk-based capital ratios were above the minimum
standards for a well-capitalized institution. The Company's
risk-based capital ratio was 11.83%, above the minimum standard
of 8%. The Company's Tier 1 capital ratio of 10.58% also
exceeded the regulatory minimum of 4%. The Leverage ratio at
the end of the first quarter was 7.38% and also above the
minimum standard of 4%. The Company's capital ratios provide
quantitative data demonstrating the strength and future
opportunities for use of the Company's capital base. Management
continues to evaluate risk-based capital ratios and the capital
position of the Company and each of its banking subsidiaries as
part of its strategic decision process.
On June 15, 1998, the Company's Board of Directors announced
approval and implementation of a formal plan to purchase
treasury shares for use in its stock option plans. The
announcement superseded a previously announced stock repurchase
plan and serves as the basis for treasury purchases in
anticipation of the Company's projected stock option exercises.
The stock repurchase plan is based upon specific criteria
related to market prices and the number of shares expected to be
issued under the Company's stock option plans. Subsequent to
the announcement of the formal plan, the Company purchased
15,000 shares in the amount of $0.5 million near the end of the
second quarter of 1998. Management expects to purchase similar
share amounts in future quarters for use in its stock option
plans. Future changes, if any, to the Company's systematic
share repurchase program may be necessary to respond to the
number of shares expected to be reissued in the Company's stock
option plans. The Company intends to fund future treasury share
purchases with internally generated sources.
During early 1998, the Company initiated the Peoples Bancorp
Inc. Deferred Compensation Plan ("DCP") for the directors of the
Company and its subsidiaries, which is designed to recognize the
value to the Company of the past and present service of its
directors and encourage their continued service through
implementation of a deferred compensation plan. The DCP allows
directors to defer the fees earned for their service as Company
and subsidiary directors into deferred accounts that are either
invested in the Company's common stock or a time deposit, at the
specific director's discretion at the time of entering the DCP.
As a result and in accordance with accounting regulations, the
balances invested in Company stock in such accounts are reported
as treasury stock in the Company's financial statements. At
June 30, 1998, the DCP and its participants owned $0.6 million
of Company stock, which is a reduction to the equity balance of
the Company. Management does not expect the DCP to have a
material impact on future financial statements or results of
operations for the Company.
As a result of treasury stock purchases and DCP activity, the
Company had a treasury stock balance of $1.1 million at June 30,
1998. Due primarily to DCP activity, management expects the
Company's treasury stock balance to continue to modestly
increase in the future.
Liquidity
- ---------
Liquidity measures an organization's ability to meet cash
obligations as they come due. During the six months ended June
30, 1998, the Company generated cash from operating activities
and investing activities of $5.4 million and $59.1 million,
respectively. The major cash inflow was $99.0 million generated
from the West Virginia Banking Center Acquisition, which offset
cash used for purchase of investment securities of $84.8
million. Proceeds from maturities and ales of investment
securities totaled $31.2 million and $19.7 million ,
respectively, for the six months ended June 30, 1998.
The Company used cash flows of $18.6 million from financing
activities in the first half of 1998. The major outflow of cash
in the first six months of 1998 was $29.3 million decrease in
interest bearing deposits, mostly short-term, rate sensitive
time deposits. The Consolidated Statements of Cash Flows
presented on page 6 of the Company's Consolidated Financial
Statements provides analysis of cash flow activity.
Additionally, management considers that portion of the loan
portfolio that matures within one year and the maturities within
one year in the investment portfolio as part of the Company's
liquid assets. The Company's liquidity is monitored by the
ALCO, which establishes and monitors ranges of acceptable
liquidity. Management feels the Company's current liquidity
position is acceptable.
Interest Rate Sensitivity
- -------------------------
Static gap analysis measures the amount of repricing risk
embedded in the balance sheet at a point in time. It does so by
comparing the differences in the repricing characteristics of
assets and liabilities. A gap is defined as the difference
between the principal amount of assets and liabilities which
reprice within a specified time period.
At June 30, 1998, the Company's interest rate sensitivity
position, based on static gap analysis, was liability sensitive
in the short-term, decreasing in sensitivity for periods over
one year and up to five years. Up to one year, the Company is
liability sensitive due primarily to increases in funding
sources which are short-term, such as the FHLB borrowings and CD
specials previously mentioned. the funding sources acquired in
the West Virginia Banking Center Acquisition caused the
Company's balance sheet to become less liability sensitive due
to significant increases in federal funds sold, a highly liquid
and rate sensitive asset that reprices daily.
Management believes the Company's balance sheet is
theoretically insulated from significant increases or decreases
in interest rates due to the various variable rate assets and
liabilities. Management monitors the asset and liability
sensitivity through the ALCO and uses available dynamic data to
make appropriate strategic decisions.
In addition to the interest rate sensitivity schedule and
asset/liability repricing schedules, management also uses
simulation modeling and forecasting to determine the impact of a
changing rate environment and interest rate risk. This
combination provides dynamic information concerning the
Company's balance sheet structure in different interest rate
environments. When using simulation modeling, assumptions based
on anticipated market pricing are applied to interest-earning
assets and interest-bearing liabilities. These adjustments more
accurately indicate the interest rate risk of the Company.
Management believes the Company's current mix of assets and
liabilities provides a reasonable level of insulation from
significant fluctuations in net interest income and the
resulting volatility of the Company's earning base. Management
also considers various hedging products as a method of
minimizing the interest rate risk of the Company's balance
sheet. The Company's management reviews interest rate risk in
relation to its effect on net interest income, net interest
margin, and the volatility of the earnings base of the Company.
Effects of Inflation on Financial Statements
- --------------------------------------------
Substantially all of the Company's assets relate to banking and
are monetary in nature. Therefore they are not impacted by
inflation to the same degree as companies in capital intensive
industries in a replacement cost environment. During a period
of rising prices, a net monetary asset position results in loss
in purchasing power and conversely a net monetary liability
position results in an increase in purchasing power. In the
banking industry, typically monetary assets exceed monetary
liabilities. Therefore as prices have recently increased,
financial institutions experienced a decline in the purchasing
power of their net assets.
Future Outlook
- --------------
Results of operations for the quarter and six months ended June
30, 1998 represent enhanced financial performance through a
combination of external growth and enhanced core competencies
based on customer service and community presence. Management
continues to challenge its employees to improve critical banking
processes to provide the customer with the highest quality
products and services in the most efficient manner. In
addition, management has identified and will continue to analyze
key performance areas which quantitatively measure the relative
performance of the Company compared to prior year results.
Management is pleased with recent efforts to transition the
offices and associates acquired in the West Virginia Banking
Center Acquisition. The geographic expansion is a natural
extension of the Company's presence in the mid-Ohio Valley. The
Company will be challenged in the third and fourth quarters of
1998 to employ the large inflow of cash associated with the
acquisition in assets that provide acceptable return on
investment without compromising the Company's performance and
capital ratios.
Management intends to invest a portion of the acquired funds in
loans in the new geographic markets as well as in the Company's
established markets, although overall loan activity has tempered
in recent periods. Management will continue to analyze the
viability of purchasing loans to enhance revenues of the
Company. Future loan growth will depend on the Company's
ability to serve existing markets, penetrate new markets through
acquisition, and serve selected customers outside traditional
geographic markets.
Management is satisfied with the retention of the acquired core
deposit base and looks forward to continuing the development of
the markets in Point Pleasant, New Martinsville, and Steelton,
West Virginia. These markets represent additional opportunities
to provide superior customer service and strengthen the
Company's position in those markets. One of the Company's top
priorities for the remainder of 1998 will be the management and
direction of the West Virginia Banking Center Acquisition
offices with existing full-service banking centers to create a
united financial service provider for the customers of Mason and
Wetzel Counties in West Virginia and surrounding areas of West
Virginia and Ohio. Management expects to enhance non-interest
income streams in the second half of 1998 and beyond due to the
acquired deposits and associated cost-recovery fees of those
deposits.
In August, 1998, the Company will open a full-service banking
center in Parkersburg, West Virginia. For years, the Company
has provided financial products and services to the customers of
Wood County (across the Ohio River from Washington County in
Ohio). Management is excited by the opportunity to enhance
these customer relationships through its first physical presence
in south Parkersburg of Wood County. The Parkersburg office
will offer traditional banking services such as loans and
deposits, investment and trust services, and insurance products,
and is expected to provide strong opportunities to penetrate the
Parkersburg, West Virginia, market.
Managing the delicate balance between expansion into new
markets and development of new products and services will also
challenge the Company in 1998 and beyond. The financial
services environment remains dynamic as merger and consolidation
continues to change traditional banking services and the
competitors the Company must face. Customers continue to strive
for better, faster, more efficient methods of banking, and as a
result, the Company has invested in technology and dedicated
resources that provide the means for those customers to perform
banking functions through their personal computers 24 hours a
day. "PC banking" continues to be an integral part of the
Company's core service delivery process.
Loan loss provisions in 1998 will be based on loan delinquency
trends, economic conditions, and anticipated loan growth. Based
on the most recent analysis, management expects future loan
provisions to approximate that recorded in the second quarter of
1998. Management believes the Company's reserve for loan losses
is adequate for the risks inherent in the portfolio and believes
the reduction in loan loss provision is a reflection of the
overall quality of the Company's loan portfolio and market
conditions. Future financial performance will depend directly
on the timing of anticipated loan growth and other factors.
Future operating results will be determined by the ability of
the Company to capture lending opportunities in expanded market
areas or make similar investments with acceptable risk and
return on investment indicators.
Mergers and acquisitions remain a viable strategic alternative
for the continued growth of the Company's operations and scope
of customer service. Future acquisitions, if they occur, may
not be limited to specific geographic location or proximity to
current markets. Acquisitions will depend upon financial
service opportunities that strengthen the core competencies
developed by the Company. Management considers mergers and
acquisitions to be a viable method of enhancing the Company's
earnings potential and will continue to pursue appropriate
business opportunities as they develop.
Management concentrates on several key performance indicators
to measure and direct the performance of the Company. While
past results are not an indication of future earnings,
management feels the Company is positioned to leverage its
recent equity growth and maintain current levels of performance
through the remainder of 1998.
Impact of the Year 2000 Issue
- -----------------------------
Many companies across various industries have dedicated efforts
to analyze the much-publicized "Year 2000" issue, which is the
result of computer programs being written using two digits
rather than four to define the applicable year. Any of the
Company's computer programs or hardware that have date-sensitive
software or embedded chips may recognize a date of "00" as the
year 1900 rather than the year 2000. This could result in
system failure or miscalculations causing disruptions of
operations, including, among other things, the inability to
process transactions or engage in similar normal business
activities.
Management has implemented plans to address Year 2000 issues
and their impact to its business, operations, and relationships
with customers, suppliers, and other third parties. The Company
primarily relies on third party vendors for all critical
processing systems software. Based on recent assessments, the
Company determined that it will be required to modify or replace
portions of its software and work with software vendors so that
those systems will properly utilize dates beyond December 31,
1999. Management presently believes that with modifications and
replacement of existing hardware and software, the Year 2000
issue can be mitigated. However, if such modifications and
replacements are not made, or are not completed timely, the Year
2000 issue could have a material impact on the operations of the
Company.
The Company is also assessing the credit, liquidity and
counterparty trading risks that may be posed by customers who
encounter Year 2000-related problems. These problems may result
from the failure of a customer to properly remediate its own
systems and from Year 2000 problems that are not addressed by
the customer's suppliers and clients. The Company has amended
credit policies to include an assessment of Year 2000-related
risks for material new customers and plans to complete the
initial assessment of customer-related risks for material
customers by September 30, 1998.
Management plans to resolve the Year 2000 issue in five phases
as follows: awareness, assessment, renovation, validation, and
implementation. To date, the Company has completed its
assessment of all material systems that could be affected by the
Year 2000 issue and addressed the extent to which its operations
are vulnerable should its software fail to be Year 2000
compliant. The completed assessment indicated that most of the
Company's significant information technology systems could be
affected. Banking regulators have issued guidelines and
deadlines detailing what they expect banks to do in order to
insure Year 2000 preparedness. The Company is following these
guidelines and expects to meet the deadlines defined by the
regulators. As a part of this process, the Company is also
developing contingency plans for all mission-critical systems,
which it will implement in the event any of these systems fail
to function. Contingency plans include a combination of manual
processes and utilization of systems (which have already been
Year 2000 validated and implemented) that are completely
independent from the Company's core information systems.
Management estimates that half of its potential Year 2000
issues originate in the Company's core banking system (software
provided by a third-party vendor). The Company's core banking
system supports approximately 50% of the information processing
for the Company. This single system software provides
accounting for the Company, as well as loan and deposit
products. This core banking system has been certified as Year
2000 compliant by the vendor and the Information Technology
Association of America. To date, the Company has not completed
its due diligence of the core banking system and expects to
perform a complete review by December 31, 1998. Since the
software has essentially been Year 2000 compliant for several
years, management is confident that validation and
implementation will occur by year-end 1998 due to the fact the
system currently supports calculations beyond the Year 2000.
The remaining information technology systems such as the
automated teller machine (ATM) network software, document
processing and retrieval system, the accounting system for the
Investment and Trust Division software, etc., are expected to
fully validated and implemented by June 30, 1999. The ATM
network software and the Investment and Trust Division software
system have also been certified compliant by their respective
vendors. Year 2000 compliant versions of other vendor-supported
software are scheduled for release to the Company during the
third and fourth quarters of 1998.
Management expects to replace the Company's internal operating
systems (on existing hardware) in the third quarter of 1998. No
additional replacement costs are estimated since the Company's
annual maintenance contracts cover upgrades such as those
related to Year 2000. Immediately following the core operating
system's replacement, management intends to begin renovation of
material internal systems and expects to complete such
renovation by year-end 1998. Management does not consider
internal software systems to be significant to the overall
operations of the Company.
In general, for its information technology exposures, to date
the Company is 70% complete on the renovation phase for all
material systems and expects to complete software reprogramming
and replacement no later than December, 1998. After completing
the reprogramming and replacement of these systems, the
Company's plans call for testing and implementing its
information technology systems. To date, the Company
approximates that it has completed 20% of its testing and has
not implemented any renovated systems. As soon as management
completes its due diligence of the core banking system in the
second half of 1998, the Company will have implemented
approximately 50% of renovated systems. Completion of the
testing phase is expected by year-end 1998, with all renovated
systems fully implemented by June 30, 1999.
The Company's systems interface with systems supported and
maintained by other third-party providers, such as ATM and
Automated Clearing House (ACH) networks. The Company has
scheduled testing of significant interfaces during the second
half of 1998.
The Company has queried its important suppliers, such as
utility companies, that do not involve system interface. To
date, the Company is not aware of any problems that would
materially impact operations, although the Company has no means
of ensuring that these organizations will be Year 2000 ready.
The inability of these parties to complete their Year 2000
resolution process could materially impact the Company, as well
as other businesses and consumers.
The Company expenses Year 2000 project costs as incurred. The
total out-of-pocket cost of the Year 2000 compliance project is
not expected to be greater than $200,000 and, therefore, is
immaterial to the Company's results of operations or financial
position. This estimate includes human resource expense which
are approximated between $75,000 to $100,000 (and estimated to
be 25% complete to date).
The Company plans to complete the Year 2000 modifications are
based on management's best estimates, which were derived
utilizing assumptions of future events including the continued
availability of certain resources, and other factors. Estimates
on the status of completion and the expected completion dates
are based on costs incurred to date compared to total expected
costs. However, there can be no guarantee that these estimates
will be achieved and actual results could differ materially from
those plans. Specific factors that might cause such material
differences include, but are not limited to, the availability
and cost of personnel trained in this area, the ability of
vendors to deliver Year 2000 compliant software as planned, the
ability to locate and correct all relevant computer codes, and
similar uncertainties.
"Safe Harbor" Statement under the Private Securities Litigation
Reform Act of 1995
- ---------------------------------------------------------------
The statements in this Form 10-Q which are not historical fact
are forward looking statements that involve risks and
uncertainties, including, but not limited to, the interest rate
environment, the effect of federal and state banking and tax
regulations, the effect of technological changes, the effect of
third party or Company failures to achieve timely remediation of
Year 2000 issues, the effect of economic conditions, the impact
of competitive products and pricing, and other risks detailed in
the Company's Securities and Exchange Commission filings.
PEOPLES BANCORP INC. AND SUBSIDIARIES
- -------------------------------------
CONSOLIDATED AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST INCOME
- ----------------------------------------------------------------------
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
Average Yield/ Average Yield/ Average Yield/ Average Yield/
Balance Rate Balance Rate Balance Rate Balance Rate
ASSETS
- ------
Securities:
Taxable $188,561 6.55% $125,614 6.87% $177,358 6.56% $125,755 6.85%
Tax-exempt 32,362 7.85% 21,640 8.32% 29,000 7.93% 22,067 8.34%
- --------------------------------------------------------------------------------------------------
Total 220,923 6.74% 147,254 7.08% 206,358 6.75% 147,822 7.07%
- --------------------------------------------------------------------------------------------------
Loans:
Commercial 179,631 9.37% 139,199 9.54% 177,172 9.45% 136,975 9.53%
Real estate 232,808 8.68% 206,211 8.49% 232,681 8.69% 203,817 8.44%
Consumer 110,908 10.50% 112,674 10.34% 111,693 10.51% 110,946 10.38%
- --------------------------------------------------------------------------------------------------
Total loans 523,347 9.30% 458,084 9.26% 521,546 9.34% 451,738 9.25%
Less: Allowance
for loan loss (9,047) (7,269) (8,860) (7,194)
- --------------------------------------------------------------------------------------------------
Net loans 514,300 9.47% 450,815 9.41% 512,686 9.50% 444,544 9.40%
Interest-bearing
deposits 4,440 5.03% 681 3.48% 5,482 6.06% 1,377 4.29%
Federal funds sold 3,554 5.69% 6,273 5.53% 6,307 5.55% 7,195 5.43%
- --------------------------------------------------------------------------------------------------
Total earning
assets 743,217 8.61% 605,023 8.80% 730,833 8.67% 600,938 8.76%
Other assets 58,510 48,451 56,926 48,097
- --------------------------------------------------------------------------------------------------
Total assets $801,727 $653,474 $787,759 $649,035
==================================================================================================
LIABILITIES AND EQUITY
- ----------------------
Interest-bearing
deposits:
Savings $ 91,989 2.99% $ 85,203 3.03% $ 91,547 3.03% $ 84,118 3.04%
Interest-bearing
demand deposits 140,887 3.52% 124,962 3.43% 139,337 3.57% 122,301 3.38%
Time 299,806 5.43% 268,207 5.53% 311,142 5.48% 267,468 5.52%
- --------------------------------------------------------------------------------------------------
Total 532,682 4.50% 478,372 4.54% 542,026 4.58% 473,887 4.53%
Borrowed funds:
Short-term 68,161 5.30% 19,647 4.35% 55,233 5.21% 19,610 4.19%
Long-term 44,025 5.85% 30,851 6.26% 37,128 5.94% 31,133 6.28%
- --------------------------------------------------------------------------------------------------
Total 112,186 5.51% 50,498 5.52% 92,361 5.49% 50,743 5.47%
Total interest
bearing liabilities 644,868 4.68% 528,870 4.63% 634,387 4.71% 524,630 4.62%
Non-interest bearing
deposits 65,243 60,189 63,990 59,768
Other liabilities 10,561 6,987 9,054 7,562
- --------------------------------------------------------------------------------------------------
Total liabilities 720,672 596,046 707,431 591,960
Stockholders' equity 81,055 57,428 80,328 57,075
- --------------------------------------------------------------------------------------------------
Total liabilities
and equity $801,727 $653,474 $787,759 $649,035
==================================================================================================
Interest income to
earning assets 8.61% 8.80% 8.67% 8.76%
Interest expense to
earning assets 4.06% 4.05% 4.09% 4.03%
- --------------------------------------------------------------------------------------------------
Net interest margin 4.55% 4.75% 4.58% 4.73%
==================================================================================================
Interest income and yields presented on a fully tax-equivalent
basis using a 35% tax rate in 1998 and a 34% tax rate in 1997.
PART II
- -------
ITEM 1: Legal Proceedings.
None.
ITEM 2: Changes in Securities.
None.
ITEM 3: Defaults upon Senior Securities.
None.
ITEM 4: Submission of Matters to a Vote of Security Holders.
None.
ITEM 5: Other Information.
As discussed in the Company's Proxy Statement for the 1998
Annual Meeting of Shareholders, any qualified shareholder of the
Company who intends to submit a proposal to the Company at the
1999 Annual Meeting of Shareholders must submit such proposal to
the Company not later than November 6, 1998 to be considered for
inclusion in the Company's Proxy Statement and form of Proxy
(the "Proxy Materials") relating to that Meeting. If a
shareholder intends to present a proposal at the 1999 Annual
Meeting of Shareholders, but has not sought the inclusion of
such proposal in the Company's Proxy Materials, such proposal
must be received by the Company prior to January 20, 1999 or the
Company's management proxies for the 1999 Annual Meeting will be
entitled to use their discretionary voting authority should such
proposal then be raised, without any discussion of the matter in
the Company's Proxy Materials.
ITEM 6: Exhibits and Reports on Form 8-K.
a) Exhibits:
EXHIBIT INDEX
-------------
Exhibit Number Description Exhibit Location
- -------------- -------------------------------- ----------------
2 Office Purchase and Assumption *
between Peoples Bank and Community
Trust Bancorp, Inc., dated January
26, 1998; and Letter Agreement
between Peoples Bank and Community
Trust Bancorp, Inc., dated June 4,
1998.
11 Computation of Earnings Per Share. *
27 Financial Data Schedule. EDGAR electronic
filing only.
*Filed herewith
b) Reports on Form 8-K: None.
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunder duly authorized.
PEOPLES BANCORP INC.
Date: August 14, 1998 By: /s/ ROBERT E. EVANS
Robert E. Evans
President and Chief Executive Officer
Date: August 14, 1998 By: /s/ JOHN W. CONLON
John W. Conlon
Chief Financial Officer
EXHIBIT INDEX
-------------
PEOPLES BANCORP INC. QUARTERLY REPORT ON FORM 10-Q
FOR PERIOD ENDED JUNE 30, 1998
--------------------------------------------------
Exhibit Number Description Exhibit Location
- -------------- --------------------------------- ----------------
2 Office Purchase and Assumption *
between Peoples Bank and Community
Trust Bancorp, Inc., dated January
26, 1998; and Letter Agreement
between Peoples Bank and Community
Trust Bancorp, Inc., dated June 4,
1998.
11 Computation of Earnings Per Share. *
27 Financial Data Schedule. EDGAR electronic
filing only.
*Filed herewith