FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 0-16772
PEOPLES BANCORP INC.
- -------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Ohio
----------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
31-0987416
----------------------------------------------
(I.R.S. Employer Identification No.)
138 Putnam Street, P. O. Box 738, Marietta, Ohio
----------------------------------------------------------------
(Address of principal executive offices)
45750
----------------------------------------------
(Zip Code)
Registrant's telephone number, including area code:
---------------------------------------------------
(740) 373-3155
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of August 1, 1999: 6,170,012.
Page 1 of 34 Pages
Exhibit Index Appears on Page 33
PART I - FINANCIAL INFORMATION
ITEM 1
The following Condensed Consolidated Balance Sheets, Consolidated
Statements of Income, Consolidated Statements of Stockholders' 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, 1999, are not necessarily indicative
of the results that may be expected for the year ending December 31, 1999.
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, 1998.
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
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30, December 31,
1999 1998
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 25,710 $ 27,048
Interest-bearing deposits in other banks 1,498 3,373
Federal funds sold -- 9,700
- ------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 27,208 40,121
- ------------------------------------------------------------------------------------------------------------------
Available-for-sale investment securities, at estimated fair value (amortized
cost of $357,556 and $230,049 at June 30, 1999 and
December 31, 1998, respectively) 350,936 235,569
Loans, net of unearned interest 600,586 567,917
Allowance for loan losses (10,119) (9,509)
- ------------------------------------------------------------------------------------------------------------------
Net loans 590,467 558,408
- ------------------------------------------------------------------------------------------------------------------
Bank premises and equipment, net 14,886 14,826
Other assets 37,516 31,360
- ------------------------------------------------------------------------------------------------------------------
Total assets $ 1,021,013 $ 880,284
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 76,300 $ 80,884
Interest bearing 616,869 633,284
- ------------------------------------------------------------------------------------------------------------------
Total deposits 693,169 714,168
- ------------------------------------------------------------------------------------------------------------------
Short-term borrowings:
Federal funds purchased and securities sold under repurchase agreements 50,540 31,814
Federal Home Loan Bank term advances 11,100 700
- ------------------------------------------------------------------------------------------------------------------
Total short-term borrowings 61,640 32,514
- ------------------------------------------------------------------------------------------------------------------
Long-term borrowings 150,501 40,664
Accrued expenses and other liabilities 7,303 6,924
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 912,613 794,270
- ------------------------------------------------------------------------------------------------------------------
Guaranteed preferred beneficial interests in junior subordinated debentures 29,001 --
Stockholders' Equity
Common stock, no par value, 12,000,000 shares authorized - 6,380,718 shares
issued at June 30, 1999 and 5,790,148 issued
at December 31, 1998, including shares in treasury 64,984 50,807
Accumulated comprehensive (loss) income, net of deferred income taxes (4,303) 3,588
Retained earnings 22,406 33,441
- ------------------------------------------------------------------------------------------------------------------
83,087 87,836
Treasury stock, at cost, 134,677 shares at June 30, 1999 and
52,031 shares at December 31, 1998 (3,688) (1,822)
- ------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 79,399 86,014
- ------------------------------------------------------------------------------------------------------------------
Total liabilities, minority interests and stockholders' equity $ 1,021,013 $ 880,284
- ------------------------------------------------------------------------------------------------------------------
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data) Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
Interest income $ 17,622 $ 15,735 $ 33,607 $ 31,099
Interest expense 8,162 7,531 15,404 14,851
- -----------------------------------------------------------------------------------------------------------------------
Net interest income 9,460 8,204 18,203 16,248
Provision for loan losses 447 546 984 1,242
- -----------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 9,013 7,658 17,219 15,006
Other income 1,820 1,590 3,664 3,208
Gain on securities transactions 1 427 1 431
Other expenses 7,084 5,444 13,320 10,858
- -----------------------------------------------------------------------------------------------------------------------
Income before income taxes 3,750 4,231 7,564 7,787
Income taxes 1,201 1,431 2,385 2,611
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 2,549 $ 2,800 $ 5,179 $ 5,176
- -----------------------------------------------------------------------------------------------------------------------
Basic earnings per share (a) $0.41 $0.44 $0.82 $0.82
- -----------------------------------------------------------------------------------------------------------------------
Diluted earnings per share (a) $0.40 $0.43 $0.80 $0.79
- -----------------------------------------------------------------------------------------------------------------------
Basic cash earnings per share (a) (b) $0.48 $0.49 $0.97 $0.90
- -----------------------------------------------------------------------------------------------------------------------
Diluted cash earnings per share (a) (b) $0.47 $0.47 $0.94 $0.87
- -----------------------------------------------------------------------------------------------------------------------
Weighted average shares
outstanding (basic) 6,281,877 6,329,995 6,298,652 6,325,825
- -----------------------------------------------------------------------------------------------------------------------
Weighted average shares
outstanding (diluted) 6,443,357 6,551,252 6,452,820 6,540,332
- -----------------------------------------------------------------------------------------------------------------------
Cash dividends declared $893 $765 $1,702 $1,495
- -----------------------------------------------------------------------------------------------------------------------
Cash dividend per share $0.14 $0.12 $0.27 $0.23
- -----------------------------------------------------------------------------------------------------------------------
<FN>
(a) 1998 data includes pretax gains on securities transactions of $427,000 ($278,000 after taxes or $0.04 per share.
(b) Excludes after-tax impact of intangible amortization expense.
</FN>
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except share amounts)
Accumulated
Other
Comprehensive
Common Stock Retained Treasury Income
Shares Amount Earnings Stock (Loss) Total
- -----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 5,790,148 $ 50,807 $ 33,441 $ (1,822) $ 3,588 $ 86,014
- ----------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income 5,179 5,179
Other comprehensive income,
net of tax:
Unrealized losses on available-
for-sale securities (7,891) (7,891)
----------
Comprehensive income (2,712)
Exercise of common stock options
(reissued 35,172 treasury shares) (590) 945 355
Cash dividends declared (1,702) (1,702)
10% stock dividend 579,505 14,512 (14,512)
Common stock issued under dividend
reinvestment plan 11,065 255 255
Purchase of treasury stock, 107,362 shares (2,811) (2,811)
- -----------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1999 6,380,718 $ 64,984 $ 22,406 $ (3,688) $ (4,303) $ 79,399
- -----------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net unrealized depreciation arising during period, net of tax (7,891)
- -----------------------------------------------------------------------------------------------------------------------
Net unrealized depreciation on investment securities (7,891)
- -----------------------------------------------------------------------------------------------------------------------
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands) Six Months Ended
June 30,
1999 1998
Cash flows from operating activities:
Net income $ 5,179 $ 5,176
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 984 1,242
Gain on securities transactions (1) (431)
Depreciation, amortization, and accretion 2,574 1,227
Increase in interest receivable (1,447) (378)
Increase in interest payable 203 452
Deferred income tax (benefit) expense (513) 697
Deferral of loan origination fees and costs (112) 90
Other, net (2,591) (598)
- -------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,276 7,477
- -------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of available-for-sale securities (154,416) (84,788)
Proceeds from sales of available-for-sale securities 20 19,698
Proceeds from maturities of available-for-sale securities 27,218 31,248
Net increase in loans (32,719) (3,889)
Expenditures for premises and equipment (1,246) (2,298)
Proceeds from sales of other real estate owned 176 79
Business acquisitions, net of cash received -- 99,053
Investment in limited partnership and tax credit funds (400) (2,035)
- -------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (161,367) 57,068
- -------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net decrease in non-interest bearing deposits (4,584) (1,177)
Net decrease in interest-bearing deposits (16,371) (29,290)
Net increase (decrease) in short-term borrowings 29,126 (1,690)
Proceeds from long-term borrowings 110,000 16,782
Payments on long-term borrowings (163) (1,238)
Cash dividends paid (1,374) (1,268)
Purchase of treasury stock (2,811) (1,113)
Proceeds from issuance of common stock 355 371
Proceeds from issuance of Capital Securities 30,000 --
- -------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 144,178 (18,623)
- -------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (12,913) 45,922
Cash and cash equivalents at beginning of period 40,121 38,831
- -------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 27,208 $ 84,753
- -------------------------------------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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's parent company and its wholly-owned subsidiaries.
Significant intercompany accounts and transactions have been eliminated.
On May 13, 1999, the Company declared a 10% stock dividend to be issued
June 15, 1999, to shareholders of record at May 28, 1999. Accordingly, all per
share data reflects the dividend.
1. Acquisition
On June 26, 1998, The Peoples Banking and Trust Company ("Peoples
Bank") completed the purchase of four 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.
The following text will include references to the acquisition and its
impact on the Company's results of operations.
2. Accounting Pronouncements
In June, 1997, the Financial Accounting Standards Board issued
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information." The Statement requires disclosure about an enterprise's operating
segments in annual and interim financial reports issued to shareholders. The
Statement defines an operating segment as a component of an enterprise that
engages in business activities that generate revenue and incur expense, and the
operating results of which are reviewed by the chief operating decision maker in
the determination of resource allocation and performance. The Company's business
activities are currently confined to one segment which is community banking.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
SELECTED FINANCIAL DATA
The following data should be read in conjunction with the unaudited
consolidated financial statements and the management discussion and analysis
that follows.
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
1999 1998 1999 1998
SIGNIFICANT RATIOS
Net income to:
Average assets (a) (b) 1.04% 1.39% 1.12% 1.31%
- ---------------------------------------------------------------------------------------------------------------
Average stockholders' equity (a) (b) 11.90% 13.82% 12.01% 12.89%
- ---------------------------------------------------------------------------------------------------------------
Net interest margin (a) (b) 4.36% 4.55% 4.45% 4.58%
- ---------------------------------------------------------------------------------------------------------------
Efficiency ratio (b) (c) 55.26% 50.44% 53.31% 51.24%
- ---------------------------------------------------------------------------------------------------------------
Average stockholders' equity to average assets 8.78% 10.11% 9.34% 10.20%
- ---------------------------------------------------------------------------------------------------------------
Loans net of unearned interest to deposits (end of period) 86.64% 76.39% 86.64% 76.39%
- ---------------------------------------------------------------------------------------------------------------
Allowance for loan losses to loans net of
unearned interest (end of period) 1.68% 1.72% 1.68% 1.72%
- ---------------------------------------------------------------------------------------------------------------
Capital ratios:
Tier I capital ratio 13.98% 10.58% 13.98% 10.58%
- ---------------------------------------------------------------------------------------------------------------
Risk-based capital ratio 15.57% 11.83% 15.57% 11.83%
- ---------------------------------------------------------------------------------------------------------------
Leverage ratio 9.54% 7.38% 9.54% 7.38%
- ---------------------------------------------------------------------------------------------------------------
Cash dividends to net income 35.05% 27.32% 32.87% 28.88%
- ---------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Book value per share $12.71 $12.97 $12.71 $12.97
- ---------------------------------------------------------------------------------------------------------------
Diluted earnings per share $0.40 $0.43 $0.80 $0.79
- ---------------------------------------------------------------------------------------------------------------
Cash dividends per share $0.14 $0.12 $0.27 $0.23
- ---------------------------------------------------------------------------------------------------------------
<FN>
(a) 1998 data includes pretax gains on securities transactions of $427,000
($278,000 after taxes or $0.04 per share).
(b) Net income to average assets, net income to average stockholders' 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.
(c) 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.
</FN>
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 are The Peoples
Banking and Trust Company ("Peoples Bank"); The First National Bank of
Southeastern Ohio ("First National Bank"), which also owns two insurance agency
subsidiaries, Northwest Territory Life Insurance Agency, Inc. and Northwest
Territory Property and Casualty Insurance Agency, Inc.; Peoples Bank FSB; and
The Northwest Territory Life Insurance Company, an Arizona corporation that
reinsures credit life and disability insurance issued to customers of the
Company's banking subsidiaries.
The Company provides an array of financial products and services to its
customers, including traditional banking products such as deposit accounts,
lending products, credit and debit cards, corporate and personal trust services,
and safe deposit rental facilities. The Company also offers investment and
insurance products. The Company provides services through ordinary walk-in
offices, automated teller machines, and automobile drive-in facilities, banking
by phone, and also provide limited cash management services through computer
banking.
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 Financial Institutions. 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"). Peoples Bank FSB is a member of the Federal Home Loan Bank, and is
subject to the regulation, supervision, and examination by the Office of Thrift
Supervision ("OTS"), and is 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 transactions that have
impacted or will impact the Company's results of operations. The Company has
entered into agreements with Wal*Mart to lease certain retail space in three
Wal*Mart superstores in West Virginia, for the purpose of establishing financial
service centers. On April 1, 1999, Peoples Bank opened a financial services
facility within a Wal*Mart superstore in New Martinsville, West Virginia. The
banking facility offers extended evening and weekend hours (including Sundays),
ATM access, and provides a wide array of financial products and services, and
complements Peoples Bank's existing full-service offices in New Martinsville and
Steelton, West Virginia.
On July 1, 1999, Peoples Bank opened a similar financial services
facility in Wood County, West Virginia. Peoples Bank's sales office, located
within a Wal*Mart superstore at 701 Grand Central Avenue in Vienna, also offers
extended banking hours and provides a wide array of financial products and
services, including ATM access. The Vienna financial services center complements
Peoples Bank's full-service office on Pike Street in nearby Parkersburg and adds
to the Company's existing network of community banking offices in Ohio and West
Virginia. In late 1999, Peoples Bank also plans to open a third banking facility
in a to-be-constructed Wal*Mart supercenter in South Parkersburg, West Virginia
The sales facility will be similar to the aforementioned Wal*Mart sales offices.
Peoples Bank's financial services facilities located within the New
Martinsville and Vienna Wal*Mart superstores, as well as the South Parkersburg
Wal*Mart financial services center, will be collectively referred to as the
"Wal*Mart Financial Service Centers" in this Form 10-Q.
On June 26, 1998, Peoples Bank completed the purchase of four
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.
On April 20, 1999, the Company sold, through PEBO Capital Trust I (a
newly-formed subsidiary) $30.0 million of 8.62% Capital Securities ("Capital
Securities" or "Trust Preferred Securities"). The proceeds were used by the
Trust to purchase, from the Company, Junior Subordinated Deferrable Interest
Debentures due May 1, 2029. In late April, 1999, the Company invested $10.0
million in Peoples Bank (the Company's largest subsidiary bank) with a portion
of the net proceeds. The remaining proceeds have been used for general corporate
purposes, including the repurchase of a portion of the Company's outstanding
common shares. On April 22, 1999, the Company announced intentions to repurchase
5% of the Company's outstanding common shares (or 315,000 shares) from time to
time in open market or privately negotiated transactions ("Stock Repurchase
Program"). The timing of the purchases and the actual number of common shares
purchased have depended and will depend on market conditions. The Stock
Repurchase Program will continue through December 31, 1999. The combined effect
of the issuance of Capital Securities and the Stock Repurchase Program have
impacted and will impact several key performance indicators of the Company's
future financial results. The impact, where significant, is discussed in the
applicable sections of Management's Discussion and Analysis.
RESULTS OF OPERATIONS
Overview of the Income Statement
For the six months ended June 30, 1999, the Company's operating
earnings totaled $5,179,000, a 5.7% increase from $4,898,000 in operating
earnings for the same period last year. For the quarter ended June 30, 1999, the
Company's operating earnings reached $2,549,000, a 1.1% increase from $2,522,000
in the second quarter of 1998. In the second quarter, diluted operating earnings
per share increased $0.02 from $0.38 last year to $0.40 in 1999. For the first
half of 1999, diluted operating earnings per share reached $0.80, up $0.05
compared to the same period a year earlier.
Operating earnings for the second quarter of 1998 exclude net pretax
gains of $427,000 on investment activity, primarily from the exchange of certain
domestic equity securities, as well as losses from repositioning of the
investment portfolio. The effect of the nonrecurring net gain was to increase
net income by $278,000, or $0.04 per share. Management believes that an
appropriate comparative approach to 1999's performance versus previous year
should exclude the aforementioned nonrecurring gains.
Including the gains on securities transactions in 1998, the Company
earned $5,176,000 for the six months ended June 30, 1998. For the quarter ended
June 30, 1998, the Company earned $2,800,000. In the second quarter, diluted
earnings per share decreased from $0.43 last year to $0.40 in 1999. For the
first half of 1999, diluted earnings per share reached $0.80, up $0.01 over the
prior year.
Management believes that a comparative approach to financial reporting
should include the discussion of results using a "cash earnings" method, 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 entities
that make acquisitions using pooling of interests accounting. In the second
quarter of 1999, intangible amortization expense totaled $656,000 ($456,000
after taxes) compared to $372,000 ($273,000 after taxes) for the same period a
year earlier. The increase was due to the Peoples Bank's completion of the West
Virginia Banking Center Acquisition at the end of 1998's second quarter and
amortization of associated intangibles which began in the third quarter of 1998.
After removing the after-tax effect of the amortization of intangibles,
diluted cash basis operating earnings per share for the quarter ended June 30,
1999, was $0.47, up $0.04 (or 9.3%) from $0.43 in the second quarter of 1998. On
a cash earnings operating basis, return on average tangible assets was 1.26% for
the second quarter of 1999, a decrease of 15 basis points from last year's
second quarter figure of 1.41%. Cash earnings as a percentage of average
tangible equity grew to 18.63% at June 30, 1999, up from 1998's second quarter
return on average tangible equity of 16.32%.
Management uses cash earnings as one of several ways to evaluate the
impact of acquisitions on profitability and return on the Company's investment.
Recent acquisitions have increased the Company's amortization expense related to
goodwill and other intangibles and as a result, the purchase method of
accounting has impacted earnings per share and other ratios. In order to provide
comparative earnings per share information, management will continue to
supplement future financial analysis with a discussion concerning cash earnings
per share, as previously defined.
Second quarter net interest income totaled $9,460,000, up $1,256,000
(or 15.3%) compared to the same period last year. For the six months ended June
30, 1999, net interest income reached $18,203,000, an increase of $1,955,000 (or
12.0%) compared to the same period a year earlier.
The provision for loan losses totaled $447,000 in the second quarter of
1999, down $99,000 (or 18.1%) compared to $546,000 in 1998's second quarter. In
the first half of 1999, provision for loan losses totaled $984,000 compared to
$1,242,000 in 1998's first six months, a decrease of $258,000 (or 20.8%). The
provision for loan losses, which is determined by management each quarter,
reflects the quality of the loan portfolio and as well as management of the
inherent credit risks therein.
Second quarter non-interest income increased $230,000 (or 14.5%) to
$1,820,000, due primarily to growth of deposit account service charges
(generated in part from volume increases related to the West Virginia Banking
Center Acquisition), increased fiduciary fees from the Company's Investment and
Trust activity, and increased electronic banking fees. For the six months ended
June 30, 1999, non-interest income totaled $3,664,000, up $456,000 (or 14.2%)
compared to the same period in 1998.
Non-interest expense for the second quarter of 1999 totaled $7,084,000,
up $1,640,000 (or 30.1%) from last year. For the six months ended June 30, 1999,
non-interest expense totaled $13,320,000, up 22.7% compared to the same period a
year earlier. The growth in non-interest expense was due primarily to the
Company's recent acquisitions and related expenses, such as salaries and
benefits expense and amortization of intangibles. In addition, non-interest
expense increased due to debt service costs on the Trust Preferred Securities
issued in the early part of the second quarter of 1999.
The Company's efficiency ratio was 55.26% in the second quarter of
1999, compared to 50.44% for the same period last year. This decline in this
performance ratio was due primarily to increased costs related to the Trust
Preferred Securities, which is projected to enhance other performance ratios
such as return on equity and earnings per share. For the six months ended June
30, 1999, the efficiency ratio totaled 53.31% compared to 51.24% for the same
period in 1998.
Interest Income and Expense
Net interest income is the amount by which interest income on
interest-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.
During the second quarter of 1999, the Company initiated an asset
growth strategy to offset the costs to service the Trust Preferred Securities,
thereby leveraging the Company's increased capital levels ("Leverage Strategy").
The Leverage Strategy increased the Company's earnings asset base approximately
$150 million and was funded primarily by Federal Home Loan Bank ("FHLB")
borrowings and other wholesale funding sources. The Leverage Strategy was
implemented throughout the second quarter of 1999 and was completed on June 30,
1999. Due to timing issues, management expects the full impact of the Leverage
Strategy to positively affect the results of operations in the third quarter of
1999 and future periods.
The Leverage Strategy and the earning asset growth that occurred
through 1998's West Virginia Banking Center Acquisition generated strong second
quarter net interest income stream in 1999. Net interest income reached
$9,460,000 in the second quarter of 1999, compared to $8,204,000 in last year's
second quarter, an increase of $1,256,000 (or 15.3%). For the second quarter of
1999, total interest income reached $17,622,000 while interest expense totaled
$8,162,000. Included in second quarter 1999 interest income is $604,000 of
tax-exempt income from investments issued by states and political subdivisions.
Since these revenues are not taxed, it is more meaningful to analyze the impact
of 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, 1999, net interest margin (on an FTE basis)
totaled 4.36% compared to 4.55% in the second quarter of 1998. On a year-to-date
basis through June 30, net interest margin in 1999 totaled 4.45% compared to
4.58% for the same period last year.
Management expected net interest margin to compress in the second
quarter (and for the remainder of 1999) due to the Leverage Strategy, which
significantly increased the Company's earning asset base in comparatively
lower-yielding assets such as mortgage-backed investment securities and other
investments. Management continues to analyze methods to redeploy the Company's
assets to an earning asset mix which will result in a net interest margin
similar to the Company's ratios before the Leverage Strategy was initiated. Loan
growth continues to be strong and management anticipates that loan activity will
remain strong in the short-term future, which will enable to Company to shift a
portion of its earning asset base to these higher-yield assets.
Average loans grew $64.5 million (or 12.3%) from second quarter 1998 to
second quarter 1999 and comprise the largest earning asset component on the
Company's balance sheet. Due to the Leverage Strategy, as well as increased
competition for loans, total yield on earning assets dropped to 8.00% in the
second quarter of 1999, compared to 8.61% for the same period a year earlier.
Compared to the second quarter of 1998, cost of interest-bearing liabilities
decreased 50 basis points in the second quarter of 1999 to 4.18%, due primarily
to attrition of higher cost funding sources such as short-term, aggressively
priced certificates of deposit, as well as prepayments of long-term FHLB
advances in October, 1998. These funding sources were replaced with
lower-costing deposits and other FHLB advances.
Please refer to the "Consolidated Average Balance Sheet and Analysis of
Net Interest Income" table included on page 29 for a complete quantitative
evaluation of the Company's net interest margin.
Provision for Loan Losses
The provision for loan losses is based upon management's continuing
evaluation of the adequacy of the allowance for loan losses and is reflective of
the quality of the portfolio and overall management of the inherent credit risk.
In the second quarter of 1999, the Company recorded a provision for loan losses
of $447,000, a decrease of $99,000 (or 18.1%) from $546,000 in the second
quarter of 1998. On a year-to-date basis through June 30, loan loss provision
totaled $984,000 in 1999 compared to $1,242,000 last year.
Due to continued strong asset quality, management anticipates the
Company's loan loss provision for the year ending December 31, 1999, to be down
from 1998. Any further reduction in the provision will be dependent on
acceptable loan delinquencies, portfolio risk, and general economic conditions
in the Company's markets.
Non-Interest Income
The Company's non-interest income is generated from four primary
sources: cost-recovery based fees related to deposit accounts, income from
fiduciary activities, electronic banking revenue, and insurance commissions. For
the quarter and six months ended June 30, 1999, most of the Company's major
sources of non-interest income increased compared to the same period a year
earlier, reflecting management's focus on non-interest revenue enhancement as a
primary source of cost-recovery.
Second quarter non-interest income reached $1,820,000 in 1999, an
increase of $230,000 (or 14.5%) compared to the same period in 1998. For the six
months ended June 30, 1999, non-interest income totaled $3,664,000, up $456,000
(or 14.2%) compared to last year.
Deposit account service charge income reached $758,000 in the second
quarter of 1999, compared to $597,000 for the quarter ended June 30, 1998, an
increase of $161,000 (or 27.0%). On a year-to-date basis through June 30,
deposit account service charge income totaled $1,478,000, a $331,000 (or 28.9%)
increase over the first half of 1998. In the first half of 1999, deposit account
service charge income was impacted favorably by the West Virginia Banking Center
Acquisition and its associated $121 million in deposits, which provided the base
for increased fee income. Approximately $190,000 of the Company's increase in
non-interest revenue in the first half of 1999 can be attributed to the deposits
acquired in the West Virginia Banking Center Acquisition. The Company's fee
income generated from deposits is based on cost recoveries associated with
services provided.
The fee structure for fiduciary activities is based primarily on the
fair value of assets being managed, which totaled nearly $600 million at June
30, 1999, compared to $551 million at year-end 1998. As a result of recent
growth in market values and in the number of accounts served, income from
fiduciary activities in the second quarter of 1999 increased $47,000 (or 8.3%)
compared to $613,000 reported in the same period a year earlier. On a
year-to-date basis through June 30, revenue from fiduciary activities increased
$97,000 (or 8.2%) to $1,279,000 in 1999 compared to the first half of 1998. The
Company continues to build on its leadership position in its markets. Management
believes investment and fiduciary services will be a significant contributor to
the Company's non-interest income streams.
Electronic banking, including ATM cards, direct deposit services, and
debit card services, is one of the many product lines offered by the Company.
The cost-recovery fees associated with these products and services significantly
impact the Company's non-interest income. In the second quarter of 1999,
revenues related to electronic banking totaled $162,000, nearly identical to the
previous year's second quarter. For the six months ended June 30, 1999,
electronic banking revenues totaled $320,000, an increase of $29,000 (or 10.0%)
compared to the same period a year earlier. Management will continue to focus on
electronic banking as a source of revenue as the financial services industry
develops additional methods to provide electronic commerce.
In addition to traditional sources of non-interest income, the Company
also offers a complete line of insurance and investment products. The Company's
product offerings include credit life and disability insurance, as well as life
and property insurance to consumers in Ohio and West Virginia. Commissions on
insurance and securities generated revenues of $115,000 in the second quarter of
1999, identical to the revenues recognized for the same period in 1998. For the
first half of 1999, commissions on insurance and securities generated revenues
totaling $243,000, a $35,000 (or 16.8%) increase over the same period last year.
In the second quarter of 1999, the Company named Raymond James
Financial Services, Inc. (member NASD and SIPC), an unaffiliated registered
broker/dealer, as its provider of improved services to the Company's investment
customers, including, but not limited to, asset management, corporate bonds,
municipal bonds, portfolio evaluation, asset allocation, tax shelters, unit
trusts, common/preferred stocks, government securities, mutual funds, retirement
planning, estate planning, tax-exempt securities, annuities, and financial
planning services. Management believes these services are critical to the
Company's relationship and needs-based sales philosophy.
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 Transactions
In the second quarter of 1999, the Company generated insignificant
gains on securities transactions. For the three months ended June 30, 1998, the
Company reported net gains on securities of $427,000 ($278,000 after taxes, or
$0.04 per diluted share), compared to minimal net gain of $1,000 in the second
quarter of 1999. 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, during the second quarter of 1998, the Company
recognized losses of $89,000 ($58,000 after taxes) from sales of investment
securities due to repositioning of the investment portfolio.
Non-Interest Expense
For the three months ended June 30, 1999, non-interest expense totaled
$7,084,000, an increase of $1,640,000 (or 30.1%) compared to the same period
last year. For the first half of 1999, total non-interest expense reached
$13,320,000, up $2,462,000 (or 22.7%) compared to 1998's first six months. When
comparing 1999 non-interest expense information to 1998, it is important to
consider that several categories within non-interest expense were directly
impacted by the West Virginia Banking Center Acquisition and the related growth
of non-interest expenses such as salaries and benefits, depreciation expense,
and intangible amortization. In addition, non-interest expense was impacted due
to costs associated with the Trust Preferred Securities, which totaled $517,000
in the second quarter of 1999.
Non-operational items caused a significant increase in non-interest
expense for the quarter and six months ended June 30, 1999. In particular,
amortization of intangibles totaled $656,000 (up 76.3%) and $1,313,000 (an
increase of 77.2%) for the quarter and six months ended June 30, 1999,
respectively, compared to $372,000 and $741,000 for the identical periods a year
earlier. The additional intangible asset amortization expense arising from the
West Virginia Banking Center Acquisition was the primary reason for these
increases.
Compared to 1998's second quarter, salaries and benefits expense
increased $354,000 (or 15.7%) to $2,603,000 in the second quarter of 1999. For
the six months ended June 30, salaries and benefits expense increased $590,000
(or 12.6%) to $5,281,000 in 1999 compared to 1998's first half of the year.
Acquisitions and new financial service center openings have increased the number
of the Company's employees, primarily those associates dedicated to customer
service areas in the acquired offices and new offices recently opened by the
Company. At June 30, 1999, the Company had 370 full-time equivalent employees,
compared to 362 full-time equivalent employees at December 31, 1998. Management
will continue to strive to find new ways of increasing efficiencies and
leveraging its resources, effectively optimizing customer service and return to
shareholders.
Recent acquisitions also impacted net occupancy expenses, in particular
depreciation expense. For the quarter and six months ended June 30, 1999,
furniture and equipment expenses totaled $478,000 and $936,000, respectively, up
$32,000 (or 7.2%) and $45,000 (or 5.1%) compared to 1998's identical reporting
periods. Net occupancy expense totaled $453,000 in the second quarter of 1999,
an increase of $63,000 (or 16.2%) 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 $161,000 (or 22.0%) to $894,000 in 1999. These increases can
be attributed primarily to the depreciation of the assets purchased in recent
acquisitions, completion of financial service center remodeling projects
(specifically the two Wal*Mart Financial Service Centers opened to date), as
well as increased 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.
In the first half of 1999, the Company embarked on several educational
sales programs designed to increase associates' knowledge of relationship sales
techniques and enhance the Company's sales culture. The educational programs are
expected to continue through the remainder of 1999 and have modestly increased
non-interest expense compared to previous periods. Management believes these
types of investments in the future are necessary to remain competitive in the
financial services industry and anticipates the programs increasing customer
service associates perception and understanding of the relationship sales
process.
Maintaining acceptable levels of non-interest expense and operating
efficiency are key performance indicators for the Company in its strategic
initiatives. The financial services industry uses the efficiency ratio (total
non-interest expense less amortization of intangibles and non-recurring items as
a percentage of the aggregate of fully-tax equivalent net interest income and
non-interest income) as a key indicator of performance. Gains and losses on
sales of investment securities, as well as other nonrecurring charges, are not
included in the calculation of the Company's efficiency ratio.
In the second quarter of 1999, the Company's efficiency ratio was
55.26% compared to 50.44% for the same period last year. For the six months
ended June 30, 1999, the efficiency ratio was 53.31% compared to 51.24% for the
same period in 1998. Management believes the second quarter of 1999 was a period
of transition for the Company due to the Trust Preferred Securities being issued
and the Leverage Strategy completion. Due to timing issues related to settlement
of assets purchased in the Leverage Strategy, management anticipates that the
efficiency ratio will modestly improve throughout the remainder of 1999 as
additional incremental interest income generated by the Leverage Strategy
counterbalances debt service costs associated with the Capital Securities.
Return on Assets
For the quarter ended June 30, 1999, operating return on average assets
("ROA") totaled 1.04% compared to 1.25% for the same period a year earlier. For
the six months ended June 30, 1999, the Company's operating ROA totaled 1.12%,
compared to 1.24% for the same period a year earlier. Including the $278,000
after-tax gain on securities transactions, ROA for the quarter and six months
ended June 30, 1998, reached 1.39% and 1.31%, respectively.
The Leverage Strategy significantly increased the asset base of the
Company near the end of the second quarter of 1999. Due to timing issues related
to settlement of the investments purchased, the Leverage Strategy's increased
net interest income streams will not fully impact the Company's earning assets
until the third quarter of 1999. In addition, ROA and other performance ratios
may be enhanced in the future through interest income increases as a result of
funds involved in the Leverage Strategy being redirected into a mix of earning
assets more similar to the Company's earning asset base before the Leverage
Strategy was initiated.
Management anticipates that ROA will stabilize for the remainder of
1999. In the future, the Company will be challenged to employ its asset base in
a manner that will produce acceptable returns on investment. As the Company is
successful in transitioning the investments purchased in the Leverage Strategy
to higher-yielding loans, management expects ROA to modestly improve. Management
believes that recent changes to the Company's balance sheet, particularly
through the Trust Preferred Securities issuance and Leverage Strategy, will
shift the Company's strategic focus to ratios such as return on equity and
earnings per share.
Return on Equity
The Company's operating return on average equity ("ROE") in the second
quarter of 1999 was 11.90%, compared to 12.45% for the same period last year.
For the first half of 1999, operating ROE totaled 12.01% compared to 12.20% for
the same period in 1998. Including the $278,000 after-tax gain on securities
transactions, ROE for the quarter and six months ended June 30, 1998, reached
13.82% and 12.89%, respectively.
Using a portion of the proceeds from the Trust Preferred Securities
issuance to implement the Company's Stock Repurchase Program, management
anticipates enhanced ROE for the Company in future periods. The Stock Repurchase
Program was established on April 22, 1999 and is nearly 60% complete at August
12, 1999. Enhancements to ROE depend on the timing of the common stock
repurchases and the availability of the Company's shares. Management views the
issuance of the Trust Preferred Securities as an opportunity to leverage the
Company's strong equity position and expects ROE improvement for the remainder
of 1999 and into 2000.
The Company and all of its banking subsidiaries are considered
well-capitalized under regulatory and industry standards of risk-based capital.
Income Tax Expense
Due primarily to the net gain on securities transactions in the second
quarter of 1998, income tax expense decreased $230,000 (or 16.1%) to $1,201,000
for the three months ended June 30, 1999, when compared to the same period a
year earlier. On a year-to-date basis through six months, the Company's income
tax expense totaled $2,385,000 in 1999, a decrease of $226,000 (or 8.7%)
compared to 1998's first half. This decrease can be attributed to three primary
reasons: additional income tax expense totaling $149,000 recognized in the
second quarter of 1998 resulting from the net gain on securities transactions,
increases in tax-exempt income compared to the prior year, as well as tax credit
investments finalized in 1998 that lowered the Company's effective tax rate.
These tax credits reduce the Company's tax burden and helped lower the Company's
effective tax rate to 32.0% for the second quarter of 1999, compared to 33.8%
for the same period last year.
With the funds generated from the Trust Preferred Securities, the
Company has invested and plans to make additional investments in various tax
credit pools over the next several years. Total investment in these tax credit
pools is not expected to exceed $5.0 million and is expected to benefit the
Company's future results of operations through reductions in the Company's
effective tax rate.
FINANCIAL CONDITION
Overview of Balance Sheet
The Company's balance sheet changed dramatically in the second quarter
of 1999, due largely to the issuance of the Trust Preferred Securities and the
associated Leverage Strategy. The Company's assets topped $1 billion during the
second quarter as total assets reached $1.02 billion at June 30, 1999, up $140
million (or 16.0%) since year end 1998. Due to the Leverage Strategy, the
largest asset growth occurred in the investment securities portfolio, which
totaled $350.9 million at June 30, 1999, an increase of $115.4 million (or
49.0%) over year-end 1998. Compared to December 31, 1998, total loans increased
$32.7 million (or 5.8%) to $600.6 million, as growth continues to be strong in
the Company's commercial loan area.
Total liabilities increased $118.3 million (or 14.9%) to $912.6 million
for the six months ended June 30, 1999. This increase can be attributed
primarily to the Leverage Strategy and the funding needs generated from its
implementation. Long-term borrowings increased to $150.5 million at June 30,
1999, up $109.8 million over year-end 1998. Short-term borrowings increased
$29.1 million compared to year-end 1998, totaling $61.6 million at June 30,
1999. The Company's total deposits decreased $21.0 million to $693.2 million at
June 30, 1999, due primarily to attrition of higher-cost, short-term funding
sources such as certificates of deposit.
The April, 1999 issuance of the Trust Preferred Securities is presented
as "Guaranteed Preferred Beneficial Interest in Junior Subordinated Debentures".
The Company has classified the Trust Preferred Securities as "mezzanine" equity
on its balance sheet, net of issuance costs of approximately $1.0 million.
Stockholders' equity totaled $79.4 million at June 30, 1999, compared
to $86.0 million at December 31, 1998, a decrease of $6.6 million (or 7.7%). The
decrease in equity resulted primarily from the Company's net unrealized loss on
available for sale securities, combined with initiation of the Stock Repurchase
Program. At June 30, 1999, the Company had a $4.3 million net unrealized loss on
available for sale securities, which represents a $7.9 million decrease compared
to the $3.6 million unrealized gain on available for sale securities at December
31, 1998. At June 30, 1999, the Company had a treasury share balance of 134,677
shares, up 82,646 shares compared to year-end 1998 due mostly to purchases under
the Company's Stock Repurchase Plan. Other repurchases of the Company's common
shares in the first half of 1999 funded the Company's stock benefit plans and a
deferred compensation plan that permits the Company's directors to purchase
common shares through an established trust. Please see the Consolidated
Statements of Stockholders' Equity found on page 5 in this Form 10-Q for
additional information regarding the Company's changes in stockholders' equity.
Cash and Cash Equivalents
Cash and cash equivalents totaled $27.2 million at June 30, 1999, down
$11.6 million from March 31, 1999. At June 30, 1999, the Company held no federal
funds sold compared to $6.2 million held at March 31, 1999, which reflects
management's focus to direct liquid funds into higher-yielding assets such as
loans to meet loan demand in its markets, as well as enhance profitability.
Management believes the current balance of cash and cash equivalents
adequately serves the Company's liquidity and performance needs. Total cash and
cash equivalents fluctuate on a daily basis due to transactions in process and
other liquidity needs. Management believes the liquidity needs of the Company
are satisfied by the current balance of cash and cash equivalents, readily
available access to traditional and non-traditional funding sources, and the
portions 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
At June 30, 1999, investment securities totaled $350.9 million, an
increase of $115.4 million (or 49.0%) compared to year-end 1998. Funds generated
from the issuance of the Trust Preferred Securities, as well as the Leverage
Strategy, were used to purchase approximately $150 million of additional
investment securities during the second quarter of 1999.
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, 1999, the amortized
cost of the Company's investment securities totaled $357.6 million, resulting in
unrealized depreciation in the investment portfolio of $6.6 million and a
corresponding after tax decrease in the Company's equity of $4.3 million.
As a direct result of the Leverage Strategy, several categories of
investments within the investment portfolio experienced significant growth in
the three months ended June 30, 1999. Investments in US Treasury securities and
obligations of US government agencies and corporations increased $48.2 million
(or 98.1%) to $97.4 million at June 30, 1999. In the second quarter of 1999,
investments in mortgage-backed securities increased $53.8 million (or 56.6%) to
$148.9 million at June 30, 1999, and now represent the largest segment of the
Company's investment securities portfolio. The Company's balances in investment
obligations of states and political subdivisions totaled $52.4 million at June
30, 1999, an increase of $7.0 million (or 15.5%) since March 31, 1999. Corporate
investments at June 30, 1999 totaled $52.3 million, an increase of $18.7 million
(or 55.8%) for the three months ended June 30, 1999.
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
region of central and southeastern Ohio, northern West Virginia, and
northeastern Kentucky. These are principally retail lending markets, which
include single-family residential and other consumer lending.
Gross loans totaled $600.6 million at June 30, 1999, an increase of
$26.0 million (or 4.5%) since March 31, 1999, and up $32.7 million (or 5.8%)
since year-end 1998. Loan growth occurred primarily in the Company's existing
markets.
The following table details total outstanding loans at the specified
dates:
(dollars in thousands) June 30, March 31, December 31,
1999 1999 1998
---------- ---------- ----------
Commercial, financial, and agricultural $ 240,006 $ 223,169 $ 212,530
Real estate, construction 12,952 10,362 10,307
Real estate, mortgage 234,826 230,610 233,550
Consumer 112,802 110,419 111,530
- -------------------------------------------------------------------------------
Total loans $ 600,586 $ 574,560 $ 567,917
- -------------------------------------------------------------------------------
Real estate loans (including real estate construction loans) continue
to be the largest portion of total loans, comprising 41.3% of the total loan
portfolio. Real estate loans totaled $247.8 million at June 30, 1999, an
increase of $6.8 million (or 2.8%) since March 31, 1999.
Included in real estate loans are home equity credit lines
("Equilines"), which totaled $20.7 million at June 30, 1999, compared to $19.7
million at March 31, 1999. In 1999, the Company has offered special fixed
Equiline rates in its markets. During the second quarter of 1999, the Company
offered specially priced Equiline product, to qualifying customers, which
contributed to the Equiline balance increases. Management believes the Equiline
loans are a competitive product with an acceptable return on investment, after
risk considerations. Residential real estate lending continues to represent a
major focus of the Company's lending due to the lower risk factors associated
with this type of loans and the opportunity to provide additional products and
services to these consumers at reasonable yields to the Company.
Lending activity in the Company's northeastern Kentucky markets has
historically focused on real estate loans. Peoples Bank FSB continues to offer
special programs designed to increase its penetration of those local markets and
increase opportunities to sell additional lending and deposit products. Mortgage
lending will remain a vital part of the Company's lending operations due to the
programs offered to customers, who continue to seek quality real estate loan
products in a competitive environment.
The Company experienced significant loan growth in the second quarter
of 1999 in commercial, financial, and agricultural loans ("commercial loans"),
which increased $16.8 million (or 7.5%) to $240.0 million. At June 30, 1999,
commercial loans comprised 40.0% of the Company's total loan portfolio. Economic
conditions in the Company's markets have provided quality credit opportunities,
in particular, in southeastern Ohio and central Ohio. Management will continue
to focus on the enhancement and growth of the commercial loan portfolio while
maintaining appropriate underwriting standards and risk/price balance.
Management expects commercial loan demand to continue to be strong for the
remainder of 1999. In addition to the anticipated additional in-market
penetration, the Company will continue to selectively lend to customers outside
its primary markets.
Consumer lending continues to be a vital part of the Company's core
lending. For the three months ended June 30, 1999, consumer loan balances
(excluding credit card loans) increased $2.3 million (or 2.2%) to $106.5
million. The majority of the Company's consumer loans are in the indirect
lending area. At June 30, 1999, the Company had indirect loan balances of $65.6
million, compared to $64.6 million at March 31, 1999.
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
actions to reinforce the Company's pricing system and underwriting criteria have
tempered indirect lending delinquencies causing a modest but acceptable decline
in new indirect loan generation. Management plans to continue its focus on the
use of this tiered pricing system in 1999, combined with controlled growth of
the indirect lending portfolio if economic conditions remain strong.
The Company's credit card balances at June 30, 1999, totaled $6.3
million, down $0.5 million (or 7.0%) since year-end 1998. While management
continues to explore new opportunities to serve credit card customers, those
plans do not include the assumption of additional unnecessary risk merely for
the sake of growth.
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 $247.8
million (or 41.3%) of total loans. At year-end 1998, these loans comprised 42.9%
of outstanding loans. At June 30, 1999, commercial, financial, and agricultural
loans totaled $240.0 million (or 40.0%) of outstanding loans, compared to 37.4%
of outstanding loans at December 31, 1998.
The Company's lending is primarily focused in the local southeastern
Ohio market and contiguous mid-Ohio valley areas. The Company's loan mix of
retail lending, which includes single-family residential mortgages and other
consumer loan products, is periodically reviewed for appropriate changes in mix.
The Company's largest concentration of commercial loans is credits to
lodging and lodging related companies, which comprised approximately 14% of the
Company's outstanding commercial loans at June 30, 1999, compared to 10% at
December 31, 1998. These lending opportunities have arisen both 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, and 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 types of lending.
In addition to loans to lodging and lodging related companies, one of
the Company's larger groups of commercial loans consists of automobile dealer
floor plans, which accounted for 8% of the Company's outstanding commercial
loans at June 30, 1999, a decrease from 10% at the end of the first quarter of
1999.
Allowance for Loan Losses
As a result of the Company's continued monitoring of the loan
portfolio, the allowance for loan losses as a percentage of loans increased from
1.67% at December 31, 1998, to 1.68% at June 30, 1999. For the quarter and six
months ended June 30, 1999, net chargeoffs modestly decreased compared to the
same periods a year earlier.
The following table presents changes in the Company's allowance for
loan losses for the three months and six months ended June 30, 1999, and 1998,
respectively:
Three Months Ended Six Months Ended
(in thousands) June 30, June 30,
---------------------- ---------------------
1999 1998 1999 1998
--------- ---------- --------- ---------
Balance, beginning of period ... $ 9,855 $ 8,825 $ 9,509 $ 8,356
Chargeoffs ..................... (319) (342) (574) (706)
Recoveries ..................... 136 142 200 279
- --------------------------------------------------------------------------------
Net chargeoffs ............ (183) (200) (374) (427)
-------------------------------------------------------------------------------
Provision for loan losses ...... 447 546 984 1,242
-------------------------------------------------------------------------------
Balance, end of period $ 10,119 $ 9,171 $ 10,119 $ 9,171
- --------------------------------------------------------------------------------
The second quarter of 1999's provision for loan losses was reduced in
comparison to the same period a year earlier due to management's evaluation of
the adequacy of the allowance for loan losses, satisfactory loan portfolio
quality, current loan delinquency, forecasted chargeoff trends, and reduced
overall inherent credit risk.
The most significant portion of the Company's chargeoffs continue to
occur in the consumer loan portfolio. Compared to the second quarter of 1998,
net consumer loan chargeoffs decreased for the three months ended June 30, 1999.
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 0.26% at June 30, 1999, compared to 0.25% at December 31, 1998. Nonaccrual
loans and those loans 90 days past due totaled $528,000 and $691,000,
respectively, at June 30, 1999, compared to $685,000 and $360,000, respectively,
at year-end 1998. Management believes the current level of nonperforming loans
is better than peer group levels and is a reflection of the quality of the
Company's loan portfolio.
At June 30, 1999, 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, 1999.
Management expects future loan loss provisions in 1999 to be less than 1998's
provision due to general improvements in loan delinquencies and the overall
quality of the loan portfolio. The allowance for loan losses of 1.68% of total
loans at June 30, 1999, is deemed to be adequate to absorb losses inherent in
the portfolio.
Funding Sources
The Company considers a number of funding alternatives, including but
not limited to deposits, short-term borrowings, and long-term borrowings when
evaluating funding sources. Traditional deposits continue to be the most
significant source of funds for the Company, totaling $693.2 million at June 30,
1999, or 76.6% of the Company's funding sources at June 30, 1999.
Non-interest bearing deposits remain a core funding source for the
Company, and balances modestly increased for the three months ended June 30,
1999. Management intends to continue its focus of maintaining its base of
lower-costing funding sources, through product offerings that benefit customers
who increase their relationship with the Company by using multiple products and
services.
Interest bearing deposits totaled $616.9 million at June 30, 1999, a
decrease of $16.4 million (or 2.6%) compared to year end 1998, and a $14.2
million (or 2.3%) decrease compared to March 31, 1999. In the first half of
1999, the Company experienced attrition of maturing, short-term certificates of
deposit as rate sensitive customers strive to maximize their investments by
comparing rates offered by the Company's competitors. Management will continue
to emphasize deposit-gathering in 1999 by offering special "relationship
accounts" (both non-interest bearing and interest-bearing) based on other
products and services offered by the Company. Management will also concentrate
on balancing deposit growth and adequate net interest margin to meet the
Company's strategic goals.
Along with 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, term repurchase agreements, and various
FHLB borrowings. At June 30, 1999, short-term borrowings totaled $61.6 million,
a quarterly increase of $30.3 million (or 97.0%).
Increases in term repurchase agreements (utilized in the Company's
Leverage Strategy) and short-term FHLB borrowings contributed to growth in the
Company's borrowings. In the second quarter of 1999, the Company borrowed $23.0
million in short-term, national market repurchase agreements. At June 30, 1999,
the Company had $11.1 million in short-term FHLB advances compared to $0.7
million advanced at year-end 1998. In general, the Company accesses this funding
source at various times to balance liquidity needs.
The largest component of short-term borrowings consisted of balances in
corporate repurchase agreements, which totaled $27.4 million at June 30, 1999,
compared to $31.7 million at year-end 1998. Management anticipates that
corporate repurchase agreement balances will remain generally stable for the
remainder of 1999.
In addition to traditional deposits and short-term borrowings, the
Company maintains long-term borrowing capacity with the FHLB. Long-term FHLB
advances totaled $148.0 million at June 30, 1999, compared to $38.0 million at
the previous quarter-end. In the second quarter of 1999, the Company advanced
$110 million in long-term FHLB borrowings to fund investment securities
purchased in the Leverage Strategy, which is expected to generate additional net
interest income. The second quarter advances were primarily 10-year borrowings,
with fixed rate features for periods of two, three, or four years, depending on
the specific advance. Each advance has the opportunity to reprice after its
initial fixed rate period (at the discretion of the FHLB), and the Company has
the option to prepay any repriced advance without penalty, or allow the
borrowing to reprice to a LIBOR based, variable product. Management plans to
maintain access to long-term FHLB borrowings as an appropriate funding source.
The Company also has a long-term note with an unaffiliated financial
institution. The original principal balance of the note was $3.0 million and was
used to finance an acquisition in early 1997. At June 30, 1999, the balance was
$2.6 million, a decrease of $0.2 million since year-end 1998. Principal payments
began in 1998 and continue semi-annually over the next three years.
Capital/Stockholders' Equity
For the three months ended June 30, 1999, the Company had net income of
$2.5 million and paid dividends of $0.9 million, a dividend payout ratio of
35.05% of earnings. For the first half of 1999, net income totaled $5.2 million
and dividends paid reached $1.7 million, a dividend payout ratio of 32.87% of
net income, compared to 28.88% 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, 1999, the adjustment for the net unrealized holding loss on
available-for-sale securities, net of deferred income taxes, totaled $4.3
million, a change of $7.9 million since year-end 1998. Since all 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 changes in market
value of the Company's investment portfolio directly impacted the Company's
stockholders' equity. For the quarter ended June 30, 1999, stockholders' equity
decreased approximately $7.4 million (or 8.5%) to $79.4 million. Since year-end
1998, stockholders' equity decreased $6.6 million (or 7.7%). Management believes
the Company's capital continues to provide a strong base for profitable growth.
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, 1999, the Company's and each of the banking subsidiaries'
risk-based capital ratios were above the minimum standard for a well-capitalized
institution. The Company's risk-based capital ratio was 15.57%, well above the
10% minimum standard for well-capitalized institutions. The Company's Tier 1
capital ratio of 13.98% also exceeded the 6% minimum standard for
well-capitalized institutions. The leverage ratio at the end of the second
quarter of 1999 was also above the minimum standard of 5% for well-capitalized
institutions. 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 the banking subsidiaries as part of
its strategic decision process.
In April 1999, the Company announced its Stock Repurchase Program,
under which the Company will purchase up to 5% of its outstanding common shares
(or approximately 315,000 shares) in open market or privately negotiated
transactions. The timing of the purchases and the actual number of common shares
purchased will depend on market conditions. The Stock Repurchase Program,
established in late April, 1999, will continue through December 31, 1999. During
the second quarter of 1999, the Company purchased 74,500 treasury shares at a
weighted-average price of $26.93 per share, totaling $2.0 million.
In June, 1998, the Company implemented a formal plan to purchase
treasury shares for use in its stock option plans. The formal plan serves as the
basis for treasury purchases in anticipation of the Company's projected stock
option exercises and is based upon specific criteria related to market prices,
as well as the number of common shares expected to be reissued under the
Company's stock option plans. During the second quarter of 1999, the Company
purchased 15,000 treasury shares at a weighted-average price of $23.80 per
share, totaling $0.4 million. 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 for the Company's stock
option plans. Management intends to continue its systematic quarterly treasury
share program in addition to the Stock Repurchase Program.
The Company also maintains the Peoples Bancorp Inc. Deferred
Compensation Plan ("Deferred Compensation Plan") for the directors of the
Company and its subsidiaries. The Deferred Compensation Plan 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 Deferred Compensation Plan allows directors to
direct the fees earned for their service as Company and subsidiary directors
into deferred accounts that are either invested in the Company's common shares
or a time deposit, at the specific director's discretion at the time of entering
the Plan. 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, 1999, the Deferred
Compensation Plan and its participants owned $0.8 million of Company common
shares, which is a reduction to the equity balance of the Company. Management
does not expect the Deferred Compensation Plan to have a material impact on
future financial statements or results of operations of the Company.
Liquidity and Interest Rate Sensitivity
The objective of the Company's Asset/Liability Management function is
to maintain consistent growth in net interest income through management of the
Company's balance sheet liquidity and interest rate risk exposure based on
changes in economic conditions, interest rate levels, and customer preferences.
Liquidity measures an organization's ability to meet cash obligations
as they come due. During the six months ended June 30, 1999, the Company
generated cash from operating and financing activities of $4.3 million and
$144.2 million, respectively. Net cash used in investing activities for the six
months ended June 30, 1999, totaled $161.4 million. The major cash inflows from
financing activities were from $110.0 million in long-term borrowings and $30.0
million from the issuance of the Trust Preferred Securities. These inflows were
offset with cash used for the purchase of investment securities of $154.4
million. A significant cash outflow from financing activities resulted from the
net decrease in non-interest and interest bearing deposits totaling $4.6 million
and $16.4 million, respectively.
The major inflow of cash from investing activities in the first half of
1999 was provided by the maturity of investment securities totaling $27.2
million. A significant outlay of cash from investing activities resulted from
the $32.7 million net increase in loans.
The Consolidated Statements of Cash Flows presented on page 6 of this
Form 10-Q 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.
The Company has implemented a strategic plan to address the contingency
for extraordinary demands on liquidity due to the Year 2000 ("Y2K") phenomena.
The plan is designed to ensure the adequacy and availability of a variety of
sources of liquidity. A primary part of the plan involves securing the
availability of the Federal Reserve Bank Discount Borrowings for the
subsidiaries of the Company. Also, the Company plans, as much as is reasonably
possible, to accumulate cash and near cash assets to meet the potential need of
additional liquidity. Additionally, the Company intends to review current
correspondent relationships, as well as seek additional relationships to provide
diverse sources of liquidity. The Company has also implemented a proactive
campaign to allay customer Y2K concerns which complements the Y2K liquidity
contingency plan.
The Company manages interest rate risk to minimize the impact of
fluctuating interest rates on earnings. The Company uses simulation techniques
which attempt to measure the volatility of changes in the level of interest
rates, basic banking interest rate spreads, the shape of the yield curve, and
the impact of changing product growth patterns. The primary method of measuring
the sensitivity of earnings to changing market interest rates is to simulate
expected cash flows using varying assumed interest rates while also adjusting
the timing and magnitude of non-contractual deposit repricing to more accurately
reflect anticipated pricing behavior. These simulations include adjustments for
the lag in prime loan repricing and the spread and volume elasticity of
interest-bearing deposit accounts, regular savings, and money market deposit
accounts.
The principal function of interest rate risk management is to maintain
an appropriate relationship between those assets and liabilities that are
sensitive to changing market interest rates. The Company closely monitors the
sensitivity of its assets and liabilities on an ongoing basis and projects the
effect of various interest rate changes on its net interest margin. Interest
sensitive assets and liabilities are defined as those assets or liabilities that
mature or reprice within a designated time-frame. The difference between rate
sensitive assets and rate sensitive liabilities for a specified period of time
is known as "gap".
At June 30, 1999, the Company's interest rate sensitivity position,
based on static gap analysis, was liability sensitive in the short-term (one
year or less) and 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. 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 regular meetings of the
Company's ALCO and uses available dynamic data to make appropriate strategic
decisions.
To aid in interest rate management, the Company uses FHLB advances as a
lower risk means of matching maturities of earning assets with interest bearing
funds to achieve a desired interest rate spread over the life of the earning
assets. Additionally, the Company considers the use of certain off-balance sheet
instruments such as interest rate caps, floors, and swaps, to further aid
interest rate risk management. As shown in the table below, the Company
currently has two such off-balance sheet instruments. These instruments, known
as interest rate floors, will provide income to the Company should a selected
market interest rate decline below a preset level specified in the transaction
agreement.
The intent of this type of instrument is to provide additional income
stability to the Company should there be a dramatic decline in interest rate.
Off-balance sheet instruments are an important tool for effective interest rate
risk management. The Company continuously evaluates the current off-balance
sheet positions and the need for additional interest rate management tools.
As demonstrated in the past, the Company will use these instruments whenever
appropriate.
In addition to gap analysis, management also analyzes the impact of
maturing assets and liabilities relative to the interest rates on those
products. The following table provides information about the Company's
derivative financial instruments and other financial instruments that are
sensitive to changes in interest rates. For loans, investment securities, and
liabilities with contractual maturities, the table presents principal cash flows
and related weighted average interest rates by contractual maturities as well as
estimated prepayments of residential mortgages and mortgage-backed securities.
For core deposits (non-interest bearing demand deposits, interest-bearing
checking accounts, and savings accounts) that have no contractual maturity, the
following table presents principal cash flows, and, as applicable, related
weighted average interest rates based on the Company's historical experience and
statistical analysis. For interest rate floors, the table presents notional
amounts (as described in previous sections) and weighted average interest rates
by contractual maturity date. A fundamental difference between the following
table and traditional "static gap" analysis is that the following table presents
the financial instruments based on the date of expected cash flows while a
static gap analysis only focuses on the repricing characteristics of the
financial instruments.
The following tables present the various maturities and fair values of
the Company's interest-earning assets and interest-bearing liabilities at June
30, 1999, and June 30, 1998:
Principal/Notional Amount Maturities at June 30, 1999:
Maturing Maturing Maturing Maturing Maturing Maturing
(Dollars in Thousands) Within Within Within Within Within in
12 13-24 25-36 37-48 49-60 60+ Fair Value
Months Months Months Months Months Months Total 6/30/99
Rate sensitive assets:
Fixed interest rate loans $74,805 $52,600 $34,469 $22,970 $15,276 $61,593 $261,713 $268,569
Average interest rate 9.46% 9.29% 9.07% 9.33% 9.06% 8.75% 9.17%
Variable interest rate loans $115,905 $34,939 $24,992 $21,385 $18,960 $122,692 $338,873 $338,873
Average interest rate 8.32% 7.81% 7.85% 7.90% 7.91% 8.03% 8.08%
Total loans $600,586
Fixed interest rate securities $34,254 $20,545 $19,798 $18,720 $16,208 $213,834 $323,359 $323,359
Average interest rate 6.07% 6.08% 6.06% 6.06% 6.06% 6.03% 6.04%
Variable interest rate securities $3,423 $3,660 $1,826 $292 $331 $18,045 $27,577 $27,577
Average interest rate 6.11% 6.02% 6.14% 6.56% 6.48% 6.57% 6.41%
Total securities $350,936
Other interest-earning assets $1,498 $1,498 $1,498
Average interest rate 4.34% 4.34%
- -----------------------------------------------------------------------------------------------------------------------
Rate sensitive liabilities:
Non-interest bearing checking $21,364 $12,208 $9,156 $3,052 $8,164 $22,356 $76,300 $76,300
Average interest rate
Savings $15,600 $7,800 $7,800 $11,700 $5,850 $48,751 $97,501 $97,501
Average interest rate 2.40% 2.40% 2.40% 2.40% 2.40% 2.40% 2.40%
Interest bearing checking $23,672 $52,374 $23,672 $7,891 $19,332 $70,326 $197,267 $197,267
Average interest rate 3.45% 4.22% 3.45% 3.45% 3.45% 3.45% 3.65%
Time deposits $216,216 $86,609 $9,775 $4,279 $4,325 $897 $322,101 $323,840
Average interest rate 4.85% 5.05% 5.25% 5.46% 4.91% 4.17% 4.92%
Total deposits $693,169
Fixed interest rate borrowings $145 $28 $29 $25 $31 $147,809 $148,067 $142,961
Average interest rate 4.73% 4.06% 4.06% 4.06% 4.06% 4.91% 4.91%
Variable interest rate borrowings $64,074 $64,074 $64,074
Average interest rate 4.28% 4.28%
Total borrowings $212,141
- ----------------------------------------------------------------------------------------------------------------------
Rate sensitive derivative financial instruments:
Interest rate floors purchased $10,000 $10,000 $20,000 $23
Average strike rate 5.50% 5.25%
Forward rate 5.31% 5.31%
- ----------------------------------------------------------------------------------------------------------------------
Principal/Notional Amount Maturities at June 30, 1998:
Maturing Maturing Maturing Maturing Maturing Maturing
(Dollars in Thousands) Within Within Within Within Within in
12 13-24 25-36 37-48 49-60 60+ Fair Value
Months Months Months Months Months Months Total 6/30/98
Rate sensitive assets:
Fixed interest rate loans $65,807 $42,022 $29,962 $19,005 $11,781 $43,868 $212,445 $214,307
Average interest rate 9.86% 9.98% 9.74% 10.30% 10.36% 9.70% 9.90%
Variable interest rate loans $88,023 $35,248 $29,434 $25,682 $23,021 $119,411 $320,819 $320,819
Average interest rate 9.43% 8.39% 8.37% 8.38% 8.41% 8.49% 8.71%
Total loans $533,264
Fixed interest rate securities $29,994 $15,504 $14,330 $13,495 $12,117 $106,931 $192,371 $192,371
Average interest rate 5.98% 5.99% 6.03% 5.96% 6.05% 6.04% 6.02%
Variable interest rate securities $2,147 $1,694 $2,563 $1,242 $188 $8,757 $16,591 $16,591
Average interest rate 7.37% 6.76% 6.31% 7.22% 7.14% 7.35% 7.12%
Total securities $208,962
Other interest-bearing assets $56,132 $56,132 $56,132
Average interest rate 5.67% 5.67%
- ------------------------------------------------------------------------------------------------------------------------
Rate sensitive liabilities:
Non-interest bearing checking $20,926 $11,916 $8,937 $8,192 $5,809 $18,693 $74,473 $74,473
Average interest rate
Savings $17,178 $8,589 $8,589 $9,340 $7,515 $56,150 $107,361 $107,361
Average interest rate 2.94% 2.94% 2.94% 2.94% 2.94% 2.94% 2.94%
Interest bearing checking $22,915 $48,704 $22,486 $7,495 $18,364 $67,419 $187,383 $187,383
Average interest rate 3.17% 4.04% 3.17% 3.17% 3.17% 3.17% 3.40%
Time deposits $247,129 $53,678 $18,876 $4,404 $3,744 $1,054 $328,885 $330,384
Average interest rate 5.39% 5.66% 5.54% 5.80% 5.41% 4.39% 5.44%
Total deposits $698,102
Fixed interest rate borrowings $9,916 $3,742 $3,817 $2,907 $2,254 $20,184 $42,820 $43,085
Average interest rate 5.97% 6.14% 6.17% 6.05% 6.02% 4.61% 5.37%
Variable interest rate borrowings $35,721 $35,721 $35,721
Average interest rate 4.83% 4.83%
Total borrowings $78,541
- -----------------------------------------------------------------------------------------------------------------------
Rate sensitive derivative financial instruments:
Interest rate floors purchased $10,000 $10,000 $20,000 $31
Average strike rate 5.50% 5.25%
Forward rate 5.72% 5.72%
- -----------------------------------------------------------------------------------------------------------------------
The preceding tables represent the Company's best estimates of future
cash flows from rate sensitive assets and liabilities. While this table
represents several significant changes in cash flow estimates for assets and
liabilities in maturity periods exceeding five years, the increases in fixed
rate loan and fixed rate investment securities maturing in 2004 and beyond
reflect investment decisions that were driven by simulation modeling which
indicated an asset sensitive balance sheet. Consequently, additional emphasis
was placed on adding fixed rate assets, which also resulted in extended cash
flow cycles to reduce the potential earnings impact of a declining rate
environment. In addition, several fixed rate liability categories also reflect
increases in extended cash flow characteristics. While the underlying
instruments have longer contractual maturities, certain repricing options, if
exercised by the creditor, would result in a corresponding option to the Company
to repay the borrowing. Management intends to actively manage the corresponding
impact of these extended cash flow characteristics as a part of the regular
review and actions of the ALCO.
The Company employs a variety of measurement techniques to identify and
manage its interest rate risk exposure. In addition to the interest rate
sensitivity and asset/liability repricing schedules, management also uses
simulation modeling and forecasting capability to determine the impact of
changing rate environments and to assess 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 modeling results are more
reasonable indications of the Company's interest rate risk. Evaluation and
review of the techniques, tools, and assumptions used in assessing the Company's
interest rate risk is an ongoing process.
Management believes the Company's current mix of assets and liabilities
provides a reasonable level of risk related to significant fluctuations in net
interest income and the resulting volatility of the Company's earning base. 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 in the second quarter of 1999 represent a period
of transition for the Company with plans to produce enhanced future financial
performance through a combination of external growth and a focus on core
competencies. Management continues to challenge its employees to identify
critical banking processes and re-engineer services to provide the customer with
the highest quality products and services. 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.
Issuance of the Trust Preferred Securities, initiation and completion
of the Leverage Strategy, and Stock Repurchase Program offered unique
opportunities to the Company to capitalize on the Company's financial strength
and favorable long-term interest rate market. With these recent strategic
actions, management projects to enhance future key performance indicators, in
particular earnings per share and return on stockholders' equity. The Company's
future financial results will depend on the timing of stock repurchases and
other factors, such as the interest rate environment and loan demand.
In the first half of 1999, the Company initiated multiple programs
designed to enhance customer service representatives' sales expertise and
relationship building. These and other investments in customer service
enhancements represent the Company's strategic initiatives to increase current
and potential customer relationships within the Company. Management will
continue to invest in sales training and other professional expenses as the
Company's sales process evolves.
In addition to intensified sales and education efforts, the Company's
financial service centers have grown in recent quarters through the addition of
two Wal*Mart Financial Service Centers. The Vienna sales office expands the
Company's presence in Wood County, West Virginia, and adds to the existing
network of community banking offices in Ohio and West Virginia. Management is
pleased with the early results of the new Wal*Mart offices and is encouraged by
the sales momentum generated in these offices.
Later in 1999, Peoples Bank will open its third sales facility within a
West Virginia Wal*Mart superstore, specifically in a to-be-constructed building
in South Parkersburg. These new offices will increase the Company's visibility
in its West Virginia markets and give the Company's personal bankers better
access to an increased number of shoppers compared to a traditional banking
center.
The Wal*Mart Financial Service Centers complement the Company's
existing full-service banking centers in New Martinsville and Parkersburg, as
well as provide additional locations to Peoples Bank's customers in the greater
Parkersburg area, particularly through the Vienna store. Management believes
these new sales centers are catalysts for 1999's sales and customer service
efforts and a focal point for future financial service centers. Rather than
traditional banking offices, the Wal*Mart locations will be full-service
`electronic' sales centers, with an emphasis on selling products that meet the
customers' financial needs combined with electronic transaction capabilities and
access to customer accounts.
Continuing the Company's emphasis on electronic product delivery, the
Company will begin offering a fully integrated internet banking system
("Internet Banking System") in the third quarter of 1999. The Internet Banking
System, named Peoples OnLine Connection, will allow customers to perform online
transactions, pay bills, view account history, stop payment, open accounts,
change address, reorder checks, and complete other financial transactions. The
Internet Banking System will be an on-line service that offers real time
transaction capability and portability for the customer. The Company's intends
to satisfy some of the demand for internet banking in the markets it serves
while providing a link to its history of needs-based selling and
community-minded service. The Internet Banking System will act as the conduit of
financial information for many of the Company's customers in future periods.
The Internet Banking System will be offered in conjunction with the
Company's current PC-based cash management/home banking product that has been
used primarily by commercial customers. The Company will continue to strive to
meet future customer service challenges through its wide array of delivery
channels, using technology and traditional methods in the manner that best fits
each customer. Management recognizes the importance of electronic financial
services to its customer base and continues to focus efforts designed to enhance
this process and allow customers almost unlimited banking products and services
at their convenience.
In addition to operating efficiency, management focuses on increasing
future non-interest revenue streams to lessen the Company's dependency on net
interest income as the primary driver of future net income. In 1998, net
interest income increased as a percentage of total revenues due to the West
Virginia Banking Center Acquisition. In future periods, management will focus on
methods to enhance earnings potential by optimizing customer relationships
through an integrated sales process.
Integration of the Company's many sales processes, products, and
services will be the primary focus during the second half of 1999. The Company
will continue to focus on a marketing program based on establishing brand
awareness of the Company in its markets, as well as establishing the
"connection" between customers and the many products and services offered by the
Company. The Internet Banking System will strengthen the Company's goal to be
the leader in the markets it serves.
The Company's insurance capabilities are an integral part of future
earnings streams and should reach break-even levels in 2000, and gradually
increase profitability thereafter. Management will continue to research
alternative methods of enhancing non-interest income streams, such as electronic
banking revenues, low income housing tax credits, and other investments.
Mergers and acquisitions remain a viable strategic option 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. Management will continue to focus its
energies on review and research of possible mergers, consolidations, or banking
center purchases as a means of acquiring sales centers that complement existing
Company locations and sales strategies. Ultimately, acquisitions will depend
upon financial service opportunities that complement the Company's core
competencies and strategic intent. 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 believes the Company is poised to
capitalize on its recent growth and initiatives to reposition the Company's
balance sheet through the combined impact of the issuance of the Trust Preferred
Securities, the Leverage Strategy, and Stock Repurchase Program. Management
believes that the Company can produce enhanced future performance levels through
integrated sales techniques and commitment to the strategic initiatives outlined
in this section, which are designed to enhance customer service and increase
future shareholder value.
Impact of the Year 2000 Issue
The Company intends this information to constitute notice under the
Year 2000 Information and Readiness Disclosure Act as a "Year 2000 Readiness
Disclosure". Many companies across various industries have dedicated efforts to
analyze the much-publicized "Year 2000" issue (or "Y2K"), which is the result of
computer programs written using two digits rather than four to define the
applicable year. Computer programs or hardware which 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.
As discussed further below and based on assessments completed by the
Company, portions of the Company's software and hardware systems have been
modified, updated, or replaced so that those systems will properly utilize dates
beyond December 31, 1999. Management believes its assessment and resulting
remediation measures have mitigated the Y2K issue and ensured Y2K compliance in
regards to mission-critical applications, including customer service related
hardware and software systems.
Management has implemented plans to address Y2K issues and the impact
to the Company's 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 management's
assessments, the Company replaced certain portions of its software and worked
with software vendors so that those systems would properly utilize dates beyond
December 31, 1999. Management presently believes with these recent
modifications, the Y2K issue will be mitigated. Since the Company offers
fiduciary services, management has conducted a review of these services to
identify potential liabilities. Management continues to take appropriate action
to manage identified exposure in order to fulfill its responsibilities to
fiduciary clients and to observe the standards of prudence set forth in
applicable laws and regulations.
Management plans to resolve the Y2K issue in five phases as follows:
awareness, assessment, renovation, validation, and implementation. To date, the
Company has completed its assessment of all material systems which could be
affected by the Y2K issue and addressed the extent to which its operations are
vulnerable should its software fail to be Y2K compliant. The completed
assessment indicates most of the Company's significant information technology
systems could be affected. Banking regulators have issued guidelines and
deadlines detailing what they expect financial institutions to do in order to
ensure Y2K preparedness. The Company is following these guidelines and has met
all deadlines defined by the regulators. The Company intends to meet
requirements of any additional guidance issued by the regulators.
The Company has also developed contingency plans for all
mission-critical systems, which it will implement in the event any of these
systems fail to function. The Company has completed the four phases of business
resumption contingency planning process, as outlined by the banking regulators,
which include the following: establishing organizational planning guidelines,
completing a business impact analysis, developing the business resumption
contingency plan, and designing a method of validation so that the business
resumption contingency plan can be tested for viability. Contingency plans for
both information technology systems ("IT") and non-information technology
systems ("non-IT") include a combination of manual processes and utilization of
systems (which have already been Y2K validated and implemented) that are
completely independent from the Company's core information systems.
The Company continues to assess the credit, liquidity and counterparty
trading risks which may be posed by customers who encounter Y2K related
problems. These problems may result from the failure of a customer to properly
remediate its own systems and from Y2K 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. The
initial assessment of customer-related risks for material customers has been
completed and management does not anticipate material losses or a significant
negative impact to the Company's future results of operations or financial
position. The Company will continue to monitor these risks.
The Company's assessment process included IT and non-IT systems. The IT
systems identified included personal computers, mainframes, local area networks
and servers, wide area network, automated teller machines ("ATM's"), printers,
copy machines, facsimile machines, telephones, and the operating systems and
softwares for these systems. Based on the results of its assessment process,
management considers these IT systems to be compliant with Y2K. Non-IT systems
identified included heating, air conditioning, vault controls, alarm systems,
surveillance systems, and postage meters. Contact has been made with all outside
servicers and major vendors to determine their individual levels of Y2K
compliance. Based on vendor responses and/or certification of Y2K compliance,
the Company has determined that it should not be significantly impacted by Y2K
from these systems.
As of August 9, 1999, the following chart shows the current and
projected status of the Company's Y2K compliance efforts relative to IT systems:
Nov. Dec. Feb. Mar. May June Aug.
13, 31, 12, 31, 10, 30, 9,
PHASE 1998 1998 1999 1999 1999 1999 1999
- ------------------ ---- ---- ---- ---- ---- ---- --------
Awareness 100% ---- ---- ---- ---- ---- complete
Assessment 100% ---- ---- ---- ---- ---- complete
Renovation 80% 80% 100% ---- ---- ---- complete
Validation 20% 70% 75% 80% 90% 100% complete
Implementation 20% 70% 75% 80% 90% 100% complete
Management estimates that half of its potential Y2K issues originate in
the Company's core banking system (software provided by a third-party vendor),
which supports approximately 50% of the Company's information processing. This
single system software provides accounting for the Company, as well as loan and
deposit products. This core banking system has been certified as Y2K compliant
by the vendor and the Information Technology Association of America. This
software has essentially been Y2K compliant for several years (it was designed
with a four digit year field) and supports calculations beyond the year 2000.
The Company has completed 100% of its due diligence review of the proxy testing
of the core banking system. Additionally, the Company has conducted testing in
its own environment and has validated the proxy tests. The Company has also
successfully tested all its mission critical interfaces into its core banking
system.
The Company has replaced the central processing unit (hardware) that
supports the accounting system for Investment and Trust. The Company has also
upgraded the accounting system software, which has been certified compliant by
its vendor. These replacements and upgrades enabled the Company to test the
software and the related network and computer hardware, in its own environment.
This testing has been completed and management believes the results were
successful.
The ATM network software has also been certified compliant by its
vendor and has been tested in the Company's environment. The remaining mission
critical IT system, the Company's document processing and retrieval system, was
fully validated and implemented by June 30, 1999, as planned.
Also as planned, management replaced the Company's internal operating
systems (on existing hardware) during the second half of 1998. The internal
operating system for the mainframe computer has been successfully tested and
proven to be Y2K compliant. The Company has also completed the renovation phase
for all internally developed software applications. Management does not consider
internal software systems to be significant to the overall operations of the
Company. All mission critical applications that were not Y2K compliant have been
upgraded. All reprogramming of internal software was completed in the third
quarter of 1998.
As of August 9, 1999, the Company has completed 100% of its testing and
has implemented all of the renovated systems that have been tested. Throughout
the remainder of 1999, the Company will continue to update hardware and software
in conjunction with its normal business plan. All systems will be tested for Y2K
compliance prior to the integration into the Company's network.
The Company has queried, through written and verbal communication, its
important suppliers (such as utility companies) which do not involve system
interface. To date, the Company is not aware of any problems which would
materially impact operations, although the Company has no means of ensuring that
these organizations will be Y2K ready. The inability of these parties to
complete their Y2K resolution processes could materially impact the Company, as
well as other businesses and consumers.
The Company expenses Y2K project costs as incurred. The total
out-of-pocket cost of the Y2K compliance project is not expected to be greater
than $200,000 and, therefore, is immaterial to the Company's results of
operations and financial position. As of August 9, 1999, management estimates
that 82% of the Company's costs have been incurred. Included in the cost
estimate is internal human resource expense which is estimated to approximate
between $100,000 to $150,000. Although actual out-of-pocket expenses have been
less than anticipated, management has increased the amount of internal human
resource expected to be consumed by this project, offsetting the costs saved
relative to purchases of hardware, software, and/or consulting fees. Management
anticipates the unused portion of the budget will be consumed by ongoing
customer contacts to further determine risks related to users and providers of
funds, as well as other customer communication programs, additional internal
audit testing of the Company's Y2K efforts, further enhancement of contingency
plans, and continued project management. The Company has no pending material
legal proceedings related to Y2K.
Due to the positive progress of the Company relative to remediation of
the Y2K issue, management has continued the Company's comprehensive marketing
program designed to communicate to its customers the Company's preparedness
regarding Y2K. Throughout 1999, the Company plans to increase its efforts to
communicate its Y2K readiness in the market areas it serves.
The foregoing discussion of the Company's plans to complete the Y2K
modifications contains forward-looking statements for purposes of the Private
Securities Litigation Reform Act of 1995 and is 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 which might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in the specialized area of Y2K compliance, the ability of
vendors to deliver Y2K 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.
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by this item is provided under the caption
"Liquidity and Interest Rate Sensitivity" under Item 2 - Management's Discussion
and Analysis of Financial Condition and Results of Operations in this Form 10-Q,
and is incorporated herein by reference.
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST INCOME
For the Three Months Ended June 30, For the Six Months Ended June 30,
1999 1998 1999 1998
Average Yield/ Average Yield/ Average Yield/ Average Yield/
Balance Rate Balance Rate Balance Rate Balance Rate
ASSETS
Securities:
Taxable $ 252,164 6.23% $ 188,561 6.55% $ 219,733 6.15% $ 177,358 6.56%
Tax-exempt 47,350 7.25% 32,362 7.85% 45,404 7.31% 29,000 7.93%
- ----------------------------------------------------------------------------------------------------------------------
Total 299,514 6.40% 220,923 6.74% 265,137 6.35% 206,358 6.75%
Loans:
Commercial 241,591 8.65% 179,631 9.37% 233,138 8.64% 177,172 9.45%
Real estate 235,712 8.30% 232,808 8.68% 235,692 8.35% 232,681 8.69%
Consumer 110,504 10.23% 110,908 10.50% 110,338 10.35% 111,693 10.51%
- ----------------------------------------------------------------------------------------------------------------------
Total loans 587,807 8.81% 523,347 9.30% 579,168 8.85% 521,546 9.34%
Less: Allowance for loan (10,013) (9,047) (9,867) (8,860)
loss
- ----------------------------------------------------------------------------------------------------------------------
Net loans 577,794 8.96% 514,300 9.47% 569,301 9.00% 512,686 9.50%
Interest-bearing deposits 8,405 4.24% 4,440 5.03% 5,303 4.18% 5,482 6.06%
Federal funds sold 13,654 4.73% 3,554 5.69% 9,453 4.78% 6,307 5.55%
- ----------------------------------------------------------------------------------------------------------------------
Total earning assets 899,367 8.00% 743,217 8.61% 849,194 8.10% 730,833 8.67%
Other assets 75,899 58,510 74,141 56,926
- ----------------------------------------------------------------------------------------------------------------------
Total assets $ 975,266 $ 801,727 $ 923,335 $ 787,759
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND EQUITY
Interest-bearing deposits:
Savings $ 98,323 2.40% $ 91,989 2.99% $ 98,374 2.40% $ 91,547 3.03%
Interest-bearing
demand deposits 213,514 3.42% 140,887 3.52% 209,295 3.45% 139,337 3.57%
Time 314,706 5.01% 299,806 5.43% 320,668 5.05% 311,142 5.48%
- ----------------------------------------------------------------------------------------------------------------------
Total 626,543 4.06% 532,682 4.50% 628,337 4.10% 542,026 4.58%
Borrowed funds:
Short-term 39,873 4.31% 68,161 5.30% 35,327 4.26% 55,233 5.21%
Long-term 115,668 4.82% 44,025 5.85% 78,305 4.79% 37,128 5.94%
- ----------------------------------------------------------------------------------------------------------------------
Total 155,541 4.69% 112,186 5.51% 113,632 4.62% 92,361 5.49%
Total interest
bearing liabilities 782,084 4.18% 644,868 4.68% 741,969 4.18% 634,387 4.71%
Non-interest bearing 77,822 65,243 76,945 63,990
deposits
Other liabilities 29,690 10,561 18,182 9,054
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 889,596 720,672 837,096 707,431
Stockholders' equity 85,670 81,055 86,239 80,328
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities and $ 975,266 $ 801,727 $ 923,335 $ 787,759
equity
- ----------------------------------------------------------------------------------------------------------------------
Interest income to earning assets 8.00% 8.61% 8.10% 8.67%
Interest expense to earning assets 3.64% 4.06% 3.65% 4.09%
- ----------------------------------------------------------------------------------------------------------------------
Net interest margin 4.36% 4.55% 4.45% 4.58%
- ----------------------------------------------------------------------------------------------------------------------
Interest income and yields presented on a fully tax-equivalent basis using a 35%
tax rate.
PART II
ITEM 1: Legal Proceedings.
None.
ITEM 2: Changes in Securities and Use of Proceeds.
None.
ITEM 3: Defaults upon Senior Securities.
None.
ITEM 4: Submission of Matters to a Vote of Security Holders.
None.
ITEM 5: Other Information.
None.
ITEM 6: Exhibits and Reports on Form 8-K.
a) Exhibits:
Exhibit
Number Description Exhibit Location
- ------------ -------------------------- --------------------------------
4.1 Indenture, dated as of Incorporated herein by
April 20, 1999, between reference to Exhibit 4.1 to
Peoples Bancorp Inc. and Peoples Bancorp Inc.'s
Wilmington Trust Company, Registration Statement on Form
as Debenture Trustee. S-4 filed June 22, 1999
(Registration No. 333-81251)
(the "Form S-4").
4.2 Amended and Restated Incorporated herein by
Declaration of Trust of reference to Exhibit 4.5 to the
PEBO Capital Trust I, Form S-4.
dated as of April 20, 1999.
4.3 Form of Series B Capital Incorporated herein by
Securities Guarantee reference to Exhibit 4.9 to the
Agreement between Peoples Form S-4.
Bancorp Inc. and Wilmington
Trust Company, as Guarantee
Trust.
4.4 Series A Capital Securities Incorporated herein by
Guarantee Agreement, dated reference to Exhibit 4.10 to
as of April 20, 1999, the Form S-4.
between Peoples Bancorp Inc.
and Wilmington Trust
Company, as Guarantee Trust.
11 Computation of Earnings Per *
Share.
27 Financial Data Schedule. EDGAR electronic filing only.
* Filed herewith.
b) Reports on Form 8-K: The Company filed the following reports on Form
8-K during the three months ended June 30, 1999:
1) Filed April 1, 1999 - News release announcing the Company's
opening of a sales center by subsidiary The Peoples Banking and Trust Company's
in a Wal*Mart superstore located in New Martinsville, West Virginia.
2) Filed April 13, 1999 - News release announcing the Company's
earnings for the three months ended March 31, 1999.
3) Filed April 20, 1999 - News release announcing the Company's
sale through PEBO Capital Trust I (the "Trust"), a newly formed subsidiary, of
$30.0 million of 8.62% Capital Securities. The proceeds of such sale were used
by the Trust to purchase and equal amount of Junior Subordinated Deferrable
Interest Debentures due May 1, 2029 from the Company.
4) Filed April 22, 1999 - News release announcing the adoption of
a resolution by the Board of Directors of the Company authorizing the repurchase
of up to 290,000 shares of Peoples Bancorp Inc. Common shares.
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 thereunto duly authorized.
PEOPLES BANCORP INC.
Date: August 16, 1999 By:/s/ ROBERT E. EVANS
Robert E. Evans
President and Chief Executive Officer
Date: August 16, 1999 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, 1999
Exhibit
Number Description Exhibit Location
- ------------ -------------------------- --------------------------------
4.1 Indenture, dated as of Incorporated herein by
April 20, 1999, between reference to Exhibit 4.1 to
Peoples Bancorp Inc. and Peoples Bancorp Inc.'s
Wilmington Trust Company, Registration Statement on Form
as Debenture Trustee. S-4 filed June 22, 1999
(Registration No. 333-81251)
(the "Form S-4").
4.2 Amended and Restated Incorporated herein by
Declaration of Trust of reference to Exhibit 4.5 to the
PEBO Capital Trust I, Form S-4.
dated as of April 20, 1999.
4.3 Form of Series B Capital Incorporated herein by
Securities Guarantee reference to Exhibit 4.9 to the
Agreement between Peoples Form S-4.
Bancorp Inc. and Wilmington
Trust Company, as Guarantee
Trust.
4.4 Series A Capital Securities Incorporated herein by
Guarantee Agreement, dated reference to Exhibit 4.10 to
as of April 20, 1999, the Form S-4.
between Peoples Bancorp Inc.
and Wilmington Trust
Company, as Guarantee Trust.
11 Computation of Earnings Per *
Share.
27 Financial Data Schedule. EDGAR electronic filing only.
* Filed herewith.