SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997.
[ ] 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 0-22641
PEOPLES BANCORP, INC.
(Exact name of registrant as specified in its charter)
United States of America 22-3516910
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)
134 Franklin Corner Road, Lawrenceville, New Jersey 08648
(Address of principal executive offices)
Registrant's telephone number, including area code:
609-844-3100
- -----------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report
Indicate by check whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or 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
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date: 9,045,795
<PAGE>
PEOPLES BANCORP, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Condition as of
September 30, 1997 and December 31, 1996 4
Consolidated Statements of Income for the three
and nine months ended September 30, 1997 and 1996 5
Consolidated Statements of Stockholders' Equity
for the nine months ended September 30, 1997
and 1996 6
Consolidated Statements of Cash Flows for the
nine months ended September 30, 1997 and 1996 7
Notes to the Consolidated Financial Statements 8-9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10-14
PART II. OTHER INFORMATION 14
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PEOPLES BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(In Thousands of Dollars)
<TABLE>
September 30 December 31
ASSETS 1997 1996
(unaudited)
<S> <C> <C>
Cash and due from banks $ 10,909 $ 12,938
Federal Funds sold 2,300 8,000
Total cash and cash equivalents 13,209 20,938
Securities available for sale 127,651 87,648
Investment securities held to maturity 31,158 37,935
Mortgage-backed securities held to maturity 39,603 48,618
Federal Home Loan Bank stock, at cost 3,386 3,089
Loans, net 397,866 380,288
Bank premises and equipment, net 6,800 6,982
Accrued interest receivable 4,823 3,602
Prepaid expenses 1,822 1,471
Intangible assets 10,834 9,164
Other assets 1,790 1,281
Total assets $ 638,942 $ 601,016
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 493,334 $ 491,246
Borrowed funds 30,000 0
Accrued expenses and other liabilities 7,369 6,418
Total liabilities 530,703 497,664
Stockholders' Equity
Common Stock, par value $0.10 904 904
authorized 20,000,000 shares, issued and
outstanding 9,045,795 shares as of September 30, 1997
and 9,037,160 as of December 31, 1996
Additional paid-in capital 30,495 30,357
Retained earnings - substantially restricted 77,592 72,545
Unearned Management Recognition Plan shares (954) (1,543)
Net unrealized gain on securities available for sale,
net of taxes 202 1,089
Total stockholders' equity 108,239 103,352
Total liabilities and stockholders' equity $ 638,942 $ 601,016
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
PEOPLES BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars)
(unaudited)
<TABLE>
Three Months Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans $ 7,580 $ 6,268 $22,393 $18,085
Interest on securities 3,293 2,527 9,817 8,085
Interest on Federal funds sold 136 175 406 519
Total interest income 11,009 8,970 32,616 26,662
Interest expense 5,571 4,356 16,223 12,865
Net interest income 5,438 4,614 16,393 13,797
Provision for loan losses 1,274 0 1,488 0
Net interest income after provision
for loan losses 4,164 4,614 14,905 13,797
Other income:
Service fees on deposit accounts 200 90 651 259
Fees and other income 330 72 595 240
Net gain on sale of other real estate 0 23 0 23
Net gain on sale of securities 1,676 0 2,923 2,189
Total other income 2,206 185 4,169 2,711
Operating expense:
Salaries and employee benefits 2,035 1,166 5,357 3,361
Net occupancy expense 409 295 1,171 903
Equipment expense 27 9 84 53
FDIC insurance premium 20 16 39 232
FDIC Special Assessment 0 177 0 177
Amortization of intangible assets 201 69 577 204
Data processing fees 134 106 392 302
Other operating expense 925 531 2,224 1,202
Total operating expense 3,751 2,369 9,844 6,434
Income before income taxes 2,619 2,430 9,230 10,074
Income taxes 951 874 3,332 3,626
Net income $ 1,668 $ 1,556 $ 5,898 $ 6,448
Net income per common share $ 0.18 $ 0.17 $ 0.65 $ 0.72
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
PEOPLES BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Nine Month Period ended September 30, 1997 and 1996
(In Thousands)
(unaudited)
<TABLE>
Unrealized
Net gain
Unearned on
Management securities
Number Additional Recognition available Total
of Common paid-in Retained Plan for sale, Stockholders'
Shares stock capital Earnings Shares net of taxes equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 8,912,500 $891 $28,687 $65,267 $ 0 $ 2,697 $ 97,542
Net income for the nine months ended
September 30, 1996 0 0 0 6,448 0 0 $ 6,448
Dividends declared [$.0875 per share 0 0 0 (828) 0 0 $ (828)
Net change in unrealized net gains on
securities available for sale 0 0 0 0 0 (1,668) $ (1,668)
Balance at September 30, 1996 8,912,500 $891 $28,687 $70,887 $ 0 $ 1,029 $ 101,494
Balance at December 31, 1996 9,037,160 $904 $30,357 $72,545 $(1,543) $ 1,089 $ 103,352
Net income for the nine months ended
September 30, 1997 0 0 0 5,898 0 0 5,898
Dividends paid [$0.0875 per share] 0 0 0 (851) 0 0 (851)
Net change in unrealized net gains on
securities available for sale 0 0 0 0 0 (887) (887)
Proceeds from Exercise of Stock Options 8,635 0 13 0 0 0 13
Amortization of unearned Management
Recognition Plan shares 0 0 125 0 589 0 714
Balance at September 30, 1997 9,045,795 $904 $30,495 $77,592 $(954) $ 202 $ 108,239
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
PEOPLES BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(unaudited)
<TABLE>
Nine Months Ended September 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,898 $ 6,448
Adjustments to reconcile net income to net cash used
in operating activities:
Provision for loan losses 1,488 0
Depreciation and amortization expense 1,156 407
Net accretion of premiums and discounts on securities (64) (126)
[Increase] decrease in accrued interest receivable and
other assets (3,626) 361
Increase [Decrease] in accrued interest payable and
other liabilities 826 (565)
Net gain on sale of securities (2,923) (2,189)
Net gain on sale of other real estate 0 (23)
Net cash provided by operating activities 2,755 4,313
Cash flows used in investing activities:
Proceeds from maturities of securities available for sale
and held to maturity $ 39,940 $ 44,055
Purchase of investment securities held to maturity 0 (11,522)
Purchase of securities available for sale (73,046) (16,997)
Proceeds from sales of securities available for sale 3,816 3,583
Purchase of Federal Home Loan Bank Stock (297) (225)
Maturities and repayments of mortgage-backed securities 9,337 11,042
Net increase in loans (17,578) (29,715)
Net additions to bank premises, furniture, & equipment (398) (478)
Proceeds from sale of bank premises, furniture & equipment 312 0
Proceeds from sale of other real estate 0 105
Payment for purchase of Manchester Trust Bank, net of cash acquired (3,807) 0
Net cash used in investing activities (41,721) (152)
Cash flows from financing activities:
Net increase in savings and time deposits 2,088 6359
Dividends paid (851) (828)
Net increase in borrowings 30,000 0
Net cash provided by financing activities 31,237 5,531
Net [decrease] increase in cash and cash equivalents (7,729) 9,692
Cash and cash equivalents as of beginning of year $ 20,938 $ 16,253
Cash and cash equivalents as of end of period $ 13,209 $ 25,945
Supplemental disclosure of cash flow information:
Cash paid:
Interest $ 16,112 $ 10,829
Income taxes $ 3,351 $ 3,975
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial information and in conformity
with the instructions to Form 10-Q and Article 10 of Regulation
S-X for Peoples Bancorp, Inc. (the Bancorp).
In the opinion of management, all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the
financial condition, results of operations, and changes in cash
flows have been made as of and for nine months ended September
30, 1997 and 1996. The results of operations for the nine months
ended September 30, 1997 are not necessarily indicative of
results that may be expected for the entire year ending December
31, 1997.
(2) Reorganization into a Two-tier Mutual Holding Company
Structure
At the Annual Stockholders meeting on April 25, 1997, the
stockholders approved the reorganization of the Trenton Savings
Bank (the Bank) into a two-tier structure, whereby, the Bank
becomes a wholly owned subsidiary of Peoples Bancorp, Inc. The
Bank anticipates that this restructuring will provide enhanced
ability to invest through a mid-tier structure, facilitate
mergers and acquisitions, and facilitate stock repurchases. The
Bank completed the reorganization on May 28, 1997.
(3) Plan of Conversion to Full Stock Capital Structure
At the Trenton Savings Bank Board of Directors' Meeting on
September 24, 1997, the Board approved a Plan of Conversion to
fully convert the Bank from a Mutual Holding Company to a full
stock capital structure. The Bank will be appraised by an
independent third party which will be the basis of the offering
and the exchange for minority stockholders. As part of the Plan
of Conversion, the Board selected August 31, 1996 as the
depositor eligibility date for stock subscriptions. A majority
vote of both depositors and stockholders will be required to
approve the conversion. Regulatory approval is also required.
Upon conversion of the MHC, shares of the company's common stock
will be exchanged for shares of a to-be-formed Delaware Holding
Company, which, after the completion of the conversion will be
the Bank's parent company.
Information on the stock offering will be part of an
offering circular which is expected to be distributed in early
1998.
(4) Non-Performing Loans, Non-Performing Assets and the
Allowance for Loan Losses
Non-performing loans at September 30, 1997 and December 31,
1996 are as follows (in thousands of dollars):
<TABLE>
September 30, December 31,
1997 1996
<S> <C> <C>
Loans delinquent 90 days or more 4,063 3,704
Loans delinquent 90 days or more
as a percentage of net loans
receivable 1.02% 0.97%
</TABLE>
An analysis of the allowance for loan losses for the nine
month periods ended September 30, 1997 and 1996 is as follows (in
thousands of dollars):
<PAGE>
<TABLE>
September 30, September 30,
1997 1996
<S> <C> <C>
Balance at beginning of the period $ 2,901 $ 1,767
Provision charged to operations 1,488 0
Charge-offs, net (1,187) (26)
Balance at the end of the period $ 3,202 $ 1,741
</TABLE>
Generally, the Bancorp's loans are placed on a non-accrual
status when a default of principal or interest has existed for a
period of 90 days except when, in the opinion of management, the
collection of principal or interest is reasonable anticipated or
adequate collateral exists. In addition, the Bancorp places any
loan on non-accrual, if any part of its is classified as doubtful
or loss or foreclosure and acquired by deed in lieu of
foreclosure, and is recorded at the lower of cost or fair value.
At September 30, 1997, the Bancorp has $123,000 classified as
real estate owned.
During the third quarter of 1997 the Bank increased its loan
loss provision by $1.27 million, as compared to no provision in
the third quarter of 1996. This increase was primarily
attributable to a niche line of business that was inherited
through the acquisition of Burlington County Bank. Management
has made the decision to exit the automobile dealer floorplan
financing business and has made provisions for the deterioration
of this portfolio. Of the $1.27 million provision, $687,000 was
immediately charged-off as the Bank expeditiously addressed the
credit risk in these loans and any potential losses associated
with exiting this line of business. However, management believes
that the Bancorp's asset quality remains strong. Management
believes that the allowance for loan losses is adequate based on
historical experience, the volume and type of lending conducted
by the Bancorp, the amount of non-performing loans, general
economic conditions and other factors relating to the Bancorp's
loan portfolio. However, there can be no assurance that actual
losses will not exceed estimated amounts.
As of September 30, 1997, the Bancorp's total non-performing
loans and foreclosed assets amounted to $4.6 million, or .72% of
total assets, compared to $3.4 million, or .57% of total assets
at December 31, 1996.
Federal regulations required that each insured savings
institution classify it assets on a regular basis. There are
four categories for problem assets: "special mention",
"substandard", "doubtful", and "loss."
At September 30, 1997, the Bancorp had $3.3 million of loans
criticized as special mention, $6.4 million classified as
substandard and $583,000 classified as doubtful and $5,000
classified loss. As of September 30, 1997, total classified
assets, which includes substandard, doubtful and loss assets and
repossessed assets, amounted to $7.1 million, 1.09% of total
assets.
It is management's policy to maintain an allowance for
estimated loan losses based upon an assessment [1] in the case of
residential loans, management's review of delinquent loans, loans
in foreclosure and market conditions, [2] in the case of
commercial business loans and commercial mortgage loans, when a
significant decline in value can be identified as well as an
overall assessment of the inherent risk in the portfolio and [3]
in the case of consumer loans, based on the assessment of risks
inherent in the loan portfolio. The Bancorp's allowance for loan
losses, which includes a general valuation allowance, amounted to
approximately $3.2 million at September 30, 1997 and $2.9 million
at December 31, 1996.
(5) Acquisition of Manchester Trust Bank
On September 8, 1997, the Bank completed the previously
announced acquisition of Manchester Trust Bank, a trust services
company with $140.1 million of assets under management. Under
terms of the agreement, Manchester will be operated as a wholly
owned subsidiary of the Bank. This acquisition was accounted for
as a purchase with $2.2 million of goodwill creates which is
being amortized over 15 years.
(6) Recent Accounting Pronouncements
On March 3, 1997, the Financial Accounting Standards Board
(the "FASB") issued Statement of Financial
<PAGE>
Accounting Standards (SFAS) No. 128, "Earnings Per Share." SFAS
No. 128 establishes new standards for the computation and
presentation of earnings per share ("EPS") by simplifying the
standards prescribed in APB Opinion No. 15. Under the new
requirements, the Bank will be required to present both basic and
diluted EPS on the face of the income statement. Basic EPS will
replace the current EPS terminology and continue to be computed
by dividing income available to common shareholders by the
weighted-average number of common shares outstanding. Diluted
EPS will include any additional common shares as if all
potentially dilutive common shares were issued. The Bank will be
required to adopt SFAS No. 128 for the period ended December 31,
1997. All prior-period EPS data is required to be restated. The
impact of adopting SFAS No. 128 is not expected to have a
material effect on earnings per share data.
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes the reporting
and display requirements of total comprehensive income and other
comprehensive income in a full set of general-purpose financial
statements. The statement defines total comprehensive income as
all changes in equity during a period except those resulting for
investments by owners and distribution to owners. Other
comprehensive income would include revenues, expenses, gains and
losses that, under SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. Comparative financial
statements will be reclassified to reflect the provisions of SFAS
No. 130.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
Stockholders' equity increased by $4.9 million, or 4.7%, to
$108.2 million at September 30, 1997 from $103.4 million at
December 31, 1996. The increase in stockholders' equity was due
to net income of $5.9 million for the nine months ended September
30, 1997 which offset a net after tax decrease of $.9 million in
the market value of the Bancorp's portfolio of available for sale
investments. The decrease was primarily attributed to the Bank's
sale of equity securities to comply with OTS regulations that
require the Bank to divest its portfolio of equity securities.
At September 30, 1997, the Bancorp's tangible, core and risk-
based capital ratios were 15.48%, 15.48%, and 26.48%,
respectively.
Total assets increased $37.9 million, or 6.31%, to $638.9
million at September 30, 1997 from $601.0 million at December 31,
1996. Deposit growth from the branch system and net earnings
after dividend payments generated $7.1 million of asset growth.
Deposits increased by $2.1 million, or .43%, to $493.3 million at
September 30, 1997 from $491.2 million at December 31, 1996.
Cash and cash equivalents decreased by $7.7 million, or 36.9%, to
$13.2 million at September 30, 1997 from $20.9 million at
December 31, 1996. Securities available for sale increased $40.0
million, or 45.6%, to $127.7 million at September 30, 1997 from
$87.6 million at December 31, 1996. Securities held to maturity
decreased $6.8 million or 17.9% to $31.2 million at September 30,
1997 from $37.9 million at December 31, 1996. On January 4,
1997, the Bank instituted an investment leverage program by
borrowing $30 million for reinvestment in federal agency
securities which were designated as available for sale. Net
loans increased $17.6 million, or 4.6%, to $397.9 million at
September 30, 197 from $380.3 million at December 31, 1996.
These portfolios also increased as loan and mortgage-backed
securities principal payment, and deposit flows were reinvested
in these asset categories. Mortgage-backed securities decreased
$9.0 million, or 18.5%, to $39.6 million at September 30, 1997
from $48.6 million at December 31, 1996. The Bank's investment
in Federal Home Loan Bank ("FHLB") stock increased $297,000, or
9.6%, to $3.4 million at September 30, 1997 from $3.1 million at
December 31, 1996, as the Bank's larger mortgage loan portfolio
permitted additional investment in FHLB stock.
Results of Operations
The annualized return on average assets and return on
average equity were 1.05% and 6.20% respectively for the quarter
ended September 30, 1997 compared to 1.19% and 6.32% respectively
for the quarter ended September 30, 1996.
Net income [excluding net securities gains] decreased by
$1.0 million or 20.2% to $4.0 million for the nine months ended
September 30, 1997 from $5.0 million for the nine moths ended
September 30, 1996. Net income, including security gains of $2.9
million, was $5.9 million for the first nine months of 1997
compared to $6.4 million for the first nine months of 1996, with
net securities gains of $2.2 million.
Net Interest and Dividend Income
Total interest income increased $2.0 million, or 22.7%, to
$11.0 million for the three months ended September 30, 1997 from
$9.0 million for the three months ended September 30, 1996, as
the Bank increased its interest income from loans, and securities
which increases were partially offset by a decrease in interest
income from federal funds sold. The increase in interest income
resulted primarily from a $107.1 million, or 21.4%, increase in
average interest-earning assets to $606.3 million from $499.2
million combined with a 5 basis point increase in yield on the
Bank's average interest-earning assets to 7.24% from 7.19%. The
increase in average interest-earning assets resulted primarily
from the Bank's acquisition of BCB, the $30 million leverage
program, and deposit inflows.
Interest income from mortgage loans decreased by $57,000, or
1.2%, to $4.9 million for the three months ended September 30,
1997, from $5.0 million for the three months ended September 30,
1996. This decrease was due to a $1.6 million, or .6%, decrease
in average mortgage loans to $268.5 million from $270.0 million,
combined with
<PAGE>
a decrease in the yield on average mortgage loans to 7.29% from
7.34%. Interest income from consumer loans increased by
$112,000, or 11.6%, to $1.1 million from $1.0 million as a result
of a $9.0 million increase in average consumer loans to $57.0
million from $47.9 million, which was offset by a 49 basis point
decrease in the yield on average consumer loans. Interest income
from commercial business loans increased by $1.3 million or
360.5%, to $1.6 million for the three months ended September 30,
1997 from $349,000 for the three months ended September 30, 1996.
This increase was due to a $54.0 million, or a 354.2% increase in
average commercial business loans to $69.2 million from $15.2
million combined with a 12 basis point increase in the yield on
average commercial business loans to 9.28% from 9.16%. The
increase in average commercial business loan balances was due to
the acquisition of BCB and increased commercial business loan
activity. The Bank intends to focus its efforts in increasing
its portfolio of commercial business loans in the future.
Interest income from debt securities available for sale increase
by $.8 million, or 69.3%, to $1.8 million from $1.1 million
combined with a $48.0 million, or 72.0%, increase in average debt
securities available for sale to $114.6 million from $66.7
million, which offset a 10 basis point decrease in the yield on
average debt securities available for sale to 6.45% from 6.55%.
The increase in average debt securities available for sale was
attributable to the investment of funds for the $30 million
leverage program and the acquisition of investments with the
purchase of BCB. Interest income from mortgage-backed securities
held to maturity declined to $0.7 million for the three months
ended September 30, 1997, from $0.8 million, or 13.9% for the
three months ended September 30, 1996. The decrease in income
was primarily attributed to $4.1 million decrease in the average
balance of mortgage-backed securities to $39.4 million from $45.8
million which offset an increase in the yield on average
mortgage-backed securities to 6.81% from 6.78%.
Income from equity securities available for sale decreased
by $20,000, or 66.7%, to $10,000 from $30,000 due to a $1.0
million, or 84.2%, decrease in average equity securities
available for sale to $.2 million from $1.2 million which was
partially offset by a 11.6% increase in the yield on average
equity securities available for sale to 21.98% from 10.42%. The
decrease in average equity securities available for sale resulted
from the Bank's liquidation of this portfolio, as required by OTS
regulation in connection with the Bank's conversion to a
federally-chartered savings bank, while the increase in yield
resulted from the favorable market conditions for equities that
existed during 1997.
Interest income from debt securities held to maturity and
FHLB stock decreased by $53,000, or 8.4%, to $576,000 for the
three months ended September 30, 1997 from $629,000 for the three
months ended September 30, 1996 due to a $1.0 million, or 2.5%
decrease in the average balance of debt securities held to
maturity to $38.3 million for the three months ended September
30, 1997 from $39.2 million for the three months ended September
30, 1996. The decrease in income was also attributed to a 39
basis point decrease in yield to 6.02% from 6.41%. Interest
income from federal funds sold decreased $39,000 to $136,000 from
$175,000 due to a $4.1 million decrease in average federal funds
sold to $9.1 million from $13.2 million, which offset a 67 basis
point increase in the yield on average federal funds sold to
5.98% from 5.31%. The decrease in amount of federal funds sold
reflects the investment of available cash in higher yielding
investments and the Bank's utilization of a leverage strategy.
The increase in the Bank's average balance of mortgage,
commercial loans, consumer loans, and debt securities available
for sale, resulted from the Bank's leverage program, the
acquisition of BCB and internal loan growth. The changes in
yields on mortgage loans, consumer loans, commercial loans,
investment securities and federal funds sold resulted primarily
from the purchase of interest-earning assets at 1997 market
yields.
Total interest income increased by $6.0 million, or 22.3%,
to $32.6 million for the nine months ended September 30, 1997
from $26.7 million for the nine moths ended September 30, 1996,
as the Bank increased its interest income from all loan
categories, debt securities available for sale, investment
securities and FHLB stock, which increases were partially offset
by decreases in interest income from equity securities available
for sale, federal funds sold, and mortgage-backed securities.
The increase in interest income resulted primarily from a $100.6
million, or 20.2%, increase in average interest-earning assets to
$599.4 million from $498.8 million and a 13 basis point increase
in yield on the Bank's average interest-earning assets to 7.25%
from 7.12%. The increase in average interest-earning assets
resulted from the Bank's acquisition of BCB, the $30 million
leverage program, and deposit inflows.
Interest income from mortgage loans increased by $307,000,
or 2.1%, to $14.8 million for the nine months ended September 30,
1997, from $14.5 million for the nine moths ended September 30,
1996. This increase was due to a $5.1 million, or 1.9%, increase
in average mortgage loans to $268.5 million from $263.4 million,
combined with an increase in the yield on average mortgage loans
to 7.35% from 7.34%. Interest income from consumer loans
<PAGE>
increased by $666,000, or 25.0%, to $3.3 million from $2.7
million as a result of a $11.9 million increase in average
consumer loans to $56.9 million from $45.0 million, which was
partially offset by a 10 basis point decrease in the yield on
average consumer loans. Interest income from commercial business
loans increased by $3.3 million or 365.3%, to $4.2 million for
the nine months ended September 30, 1997 from $913,000 for the
nine months ended September 30, 1996. This increase was due to a
$49.4 million, or a 365.78% increase in average commercial
business loans to $62.9 million from $13.5 million which offset a
one basis point decrease in the yield on average commercial
business loans to 9.01% from 9.02%. The increase in average
commercial business loan balances was due to the acquisition of
BCB and increased commercial business loan activity. The Bank
intends to focus its efforts in increasing its portfolio of
commercial business loans in the future. Interest income from
debt securities available for sale increased by $2.2 million, or
62.8% to $5.6 million from $3.5 million due to a 15 point
increase in the yield on average debt securities available to
sale to 6.51%, from 6.36%, and a $42.9 million, or 59.2% increase
in average debt securities available for sale to $115.5 million
from $72.5 million. The increase in average debt securities
available for sale was primarily attributable to the investment
of funds for the $30 million leverage program. Interest income
from the mortgage-backed securities held to maturity declined to
$2.2 million, from $2.5 million, or 11.7% for the nine months
ended September 30, 1996. The decrease in income was primarily
attributable to $4.9 million decrease in the average balance or
mortgage-backed securities to $44.1 million from $48.9 million
combined with a decrease in the yield on average mortgage-backed
securities to 6.67% from 6.80%.
Income from equity securities available for sale decreased
by $71,000, or 53.8%, to $61,000 from $132,000 due to a $1.0
million, or 67.2%, decrease in average equity securities
available for sale to $.5 million from $1.5 million, which was
partially offset by a 486 basis point increase in the yield on
average equity securities available for sale to 16.77% from
11.91%. The decrease in average equity securities available for
sale resulted from the Bank's liquidation of this portfolio, as
required in connection with the Bank's conversion to a federally-
chartered savings bank, while the increase in yield resulted from
the favorable market conditions for equities that existed during
1997.
Interest income from debt securities held to maturity and
FHLB stock decreased by $180,000, or 9.2%, to $1.8 million for
the nine months ended September 30, 1997 from $2.0 million for
the nine months ended September 30, 1996 due to a $1.4 million,
or 3.3% decrease in the average balance of debt securities to
$39.6 million for the nine months ended September 30, 1997 from
$40.9 million for the nine months ended September 30, 1996. The
decrease in income was also attributable to a 39 basis point
decrease in yield to 6.02% from 6.41%. Interest income from
federal funds sold decreased $113,000 to $406,000 from $519,000
due to a $3.9 million decrease in average federal funds sold to
$9.2 million from $13.0 million, which offset a 59 basis point
increase in the yield on average federal funds sold to 5.90% from
5.31%. The decrease in amount of federal funds sold reflects the
investment of available cash in higher yielding investments and
the Bank's utilization of a leverage strategy.
The increase in the Bank's average balance of mortgage,
commercial loans, consumer loans, and debt securities available
for sale, resulted from the Bank's leverage program, the
acquisition of BCB and internal loan growth. The changes in
yields on mortgage loans, consumer loans, commercial loans,
investment securities and federal funds sold resulted primarily
from the purchase of interest-earning assets at 1997 market
yields.
Total Interest Expense
Total interest expense increased by $1.2 million, or 27.9%,
to $5.6 million for the three months ended September 30, 1997,
from $4.4 million for the three months ended September 30, 1996.
The increase was due to a $105.0 million, or 25.3%, increase in
average interest-bearing liabilities to $520.4 million from
$415.3 million and a 9 basis point increase in the average cost
of the Bank's interest-bearing liabilities to 4.28% from 4.19%.
The increase in average interest-bearing liabilities resulted
from a $30 million borrowing in January 1997 for the Bank's
leverage investment program combined with a $24.0 million, or
9.0%, increase in average certificates of deposit and a $51.0
million, or 34.1% increase in average core deposits. The
increase in interest-bearing liabilities was largely the result
of the acquisition of BCB. The decrease in rates paid on
deposits was attributed to the effect of paying lower market
rates on certificates of deposit and core deposits. The increase
in the average rate paid for funds was attributed to the higher
cost of monies for the Bank's leverage program. These borrowed
funds were reinvested at a 7.23% earnings rate, providing a 121
basis point net return on the funds borrowed.
As a result of the foregoing, the Bank's net interest income
was $5.4 million for the three months ended
<PAGE>
September 30, 1997 compared to $4.6 million for the three months
ended September 30, 1996. The Bank's interest-rate spread was
2.96% for the three months ended September 30, 1997 compared to
3.00% for the three months ended September 30, 1996, as the yield
on the Bank's interest-earning assets increased more rapidly than
the Bank's cost of interest-bearing liabilities. The Bank's
interest rate spread was 2.98% for 1996 compared to 2.96% for
1995.
Total interest expense increased by $3.4 million, or 26.1%,
to $16.2 million for the nine months ended September 30, 1997,
from $12.9 million for the nine months ended September 30, 1996.
The increase was due to a $104.1 million, or 25% increase in
average interest-bearing liabilities to $516.5 million from
$412.4 million, and a 3 basis point increase in the average cost
of the Bank's interest-bearing liabilities to 4.19% from 4.16%.
The increase in average interest-bearing liabilities resulted
from the $30 million borrowing in January 1997 for the Bank's
leverage investment program combined with a $26.9 million, or
10.2%, increase in average certificates of deposit and a $47.2
million, or 31.6% increase in average core deposits. The
increase in interest-bearing liabilities was largely the result
of the acquisition of BCB. The crease in rates paid on deposits
was attributed to the effect of paying lower market rate on
certificates of deposit and core deposits. The increase in the
average rate paid for funds was attributed to the higher cost of
monies for the Bank's leverage program. These borrowed funds
were reinvested at a 7.23% earnings rate providing a 63 basis
point net return on the funds borrowed.
As a result of the foregoing, the Bank' net interest income
was $16.4 million for the nine months ended September 30, 1997
compared to $13.8 million for the nine months ended September 30,
1996. The Bank's interest rate spread was 3.06% for the nine
months ended September 30, 1997 compared to 2.96% for the nine
months ended September 30, 1996, as the yield on the Bank's
interest-earning assets increase more rapidly than the Bank's
cost of interest-bearing liabilities.
Provision for Loan Losses
The provision for loan losses was $1.3 million and $1.5
million, respectively for the three and nine month periods ended
September 30, 1997. There was no provision for loan losses
during the comparable 1996 periods. The provision for 1997 was
primarily attributable to a niche line of business that was
inherited through the acquisition of Burlington County Bank.
Management has made the decision to exit the automobile dealer
floorplan financing business and has made provisions for the
deterioration of the portfolio. Management has taken steps to
expeditiously address the credit risk in these loans and any
potential losses associated with exiting this line of business.
Management believes that the allowance for loan losses is
adequate based on historical experience, the volume and type of
lending conducted by the Bancorp, the amount of non-performing
loans, general economic conditions and other factors relating to
the Bancorp's loan portfolio. However, there can be no
assurances that actual losses will not exceed estimated amounts.
Other Income
For the three months ended September 30, 1997, the net gain
on security sales was $1.7 million. There were no gains on sale
of securities for three months ended September 30, 1996. Service
fees and other income increased $.4 million or 227.2% for the
three months ended September 30, 1997 to $.5 million from $.2
million for the three months ended September 30, 1996. The
increase in fees in primarily attributable to the acquisition of
BCB deposits which have higher fee generating characteristics.
During the third quarter of 1996, $23,000 was realized from the
sale of other real estate.
For the nine months ended September 30, 1997, the net gain
on security sales increased $.7 million, or 33.5%, to $2.9
million, compared to a net gain of $2.2 million for the nine
months ended September 30, 1996. Service fees and other income
increased $.7 million or 149.7% for the nine months ended
September 30, 1997 to $1.2 million from $.5 million for the nine
months ended September 30, 1996. The increase in fees is
primarily attributable to the acquisition of BCB deposits which
have higher fee generating characteristics.
<PAGE>
Operating Expenses
Total operating expenses increased by $1.4 million, or
58.3%, to $3.8 million for the three months ended September 30,
1997 as compared to $2.4 million for the three months ended
September 30, 1996. During the same period the amortization of
intangible assets increased from $69,000 to $201,000, reflecting
the amortization of goodwill from the acquisition of BCB.
Salaries and employee benefits increased by $.9 million, or
74.5%, to $2.0 million for the three months ended September 30,
1997 from $1.2 million for the three months ended September 30,
1996, reflecting normal salary increases, management incentive
awards, and three months additional salaries from the acquisition
of BCB. During the same period, net occupancy expenses increased
$114,000, or 38.6%, due to the opening of one branch and the
acquisition of three BCB branches. Other operating expenses
increased $.4 million, or 74.2%, to $.9 million for the three
months ended September 30, 1997 as compared to $.5 million for
the three months ended September 30, 1996, reflecting routine
expense increase and three months of expenses from the
acquisition of BCB. These expense increases were offset by a
$173,000 reduction in FDIC insurance premiums to $20,000 from
$193,000 which included a special FDIC assessment of $177,000.
Total operating expenses increased by $3.4 million, or
53.0%, to $9.8 million for the nine months ended September 30,
1997 as compared to $6.4 million for the nine months ended
September 30, 1996. During the same period the amortization of
intangible assets increased from $204,000 to $577,000, reflecting
the amortization of nine months of goodwill from the acquisition
of BCB. Salaries and employee benefits increased $2.0 million,
or 59.4%, to $5.4 million for the nine months ended September 30,
1997 from $3.4 million for the nine months ended September 30,
1996, reflecting normal salary increases, management incentive
awards, and nine month additional salaries from the acquisition
of BCB. Net occupancy expenses increased $268,000, or 29.7%, due
to the addition of two branches as well as the acquisition of
three BCB branches. Other operating expenses increased $1.0
million, or 85.0%, to $2.2 million for the nine months ended
September 30, 1997 as compared to $1.2 million for the nine
months ended September 30, 1996, reflecting routine expense
increases and nine months of expenses from the acquisition of
BCB. These expense increases were offset by a $370,000 reduction
in FDIC insurance premiums to $39,000 from $409,000 which
included a special FDIC assessment of $177,000.
Capital
The OTS requires that the Bancorp meet minimum tangible,
core and risk-based capital requirements. As of September 30,
1997, the Bancorp exceeded all regulatory capital requirements.
The Bancorp's required, actual, and excess capital levels as of
September 30, 1997, are as follows:
<TABLE>
Excess of
Required Actual Actual Over
% of % of Regulatory
Amount Assets Amount Assets Requirement
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Tangible Capital 9,418 1.50% 97,200 15.48% 87,782
Core Capital 18,835 3.00 97,200 15.48 78,365
Risk-based Capital 30,324 8,00 100,401 26.48 70,077
</TABLE>
Liquidity
The Bancorp is required to maintain minimum levels of liquid
assets as defined by OTS regulations. This requirement, which
varies from time to time depending upon economic conditions and
deposit flows, is based upon a percentage of deposits and short-
term borrowings. The required ratio currently is 5%. The
Bancorp's liquidity ratio averaged 30.85% during the third
quarter of 1997 and equaled 28.83% at September 30, 1997. The
Bancorp adjusts liquidity as appropriate to meet it asset and
liability management objectives.
<PAGE>
PART II. OTHER INFORMATION
Exhibits and Report on Form 8-K
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
by the undersigned thereunto duly authorized.
PEOPLES BANCORP, INC.
Date: November 14, 1997 By: /s/ Wendell T. Breithaupt
------------------------------
Wendell T. Breithaupt
President and Chief Executive
Officer
Date: November 14, 1997 By: /s/ Robert Russo
------------------------------
Robert Russo
Vice President and Treasurer
(Principal Financial and
Accounting Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<CAPTION>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 10904
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 127651
<INVESTMENTS-CARRYING> 74147
<INVESTMENTS-MARKET> 74308
<LOANS> 397866
<ALLOWANCE> 3202
<TOTAL-ASSETS> 638942
<DEPOSITS> 493334
<SHORT-TERM> 0
<LIABILITIES-OTHER> 7369
<LONG-TERM> 30000
<COMMON> 904
0
0
<OTHER-SE> 107335
<TOTAL-LIABILITIES-AND-EQUITY> 638942
<INTEREST-LOAN> 7580
<INTEREST-INVEST> 3293
<INTEREST-OTHER> 136
<INTEREST-TOTAL> 11009
<INTEREST-DEPOSIT> 5016
<INTEREST-EXPENSE> 5571
<INTEREST-INCOME-NET> 5432
<LOAN-LOSSES> 1274
<SECURITIES-GAINS> 1676
<EXPENSE-OTHER> 3751
<INCOME-PRETAX> 2619
<INCOME-PRE-EXTRAORDINARY> 2619
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1668
<EPS-PRIMARY> .18
<EPS-DILUTED> 0
<YIELD-ACTUAL> 7.24
<LOANS-NON> 4477
<LOANS-PAST> 1023
<LOANS-TROUBLED> 192
<LOANS-PROBLEM> 3261
<ALLOWANCE-OPEN> 2589
<CHARGE-OFFS> 688
<RECOVERIES> 27
<ALLOWANCE-CLOSE> 3202
<ALLOWANCE-DOMESTIC> 3202
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
