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 March 31, 1998.
[ ] 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)
Delaware *
- ------------------------------- ------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification 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:
As of April 8, 1998 there were 36,236,500 shares of the company's
common stock.
* In application process.
<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: May __________, 1998 By: _____________________________________
Wendell T. Breithaupt
President and Chief Executive Officer
Date: May __________, 1998 By: _____________________________________
Robert Russo
Vice President and Treasurer
[Principal Financial and Accounting
Officer]
2
<PAGE>
PEOPLES BANCORP, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Condition as of
March 31, 1998 and December 31, 1997.....................................4
Consolidated Statements of Income for the three
months ended March 31, 1998 and 1997.....................................5
Consolidated Statements of Stockholders' Equity for the
three months ended March 31, 1998 and 1997...............................6
Consolidated Statements of Cash Flows for the three months ended
March 31, 1998 and 1997..................................................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
3
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PEOPLES BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(In Thousands of Dollars)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1998 1997
------ ---- ----
(unaudited)
<S> <C> <C>
Cash and due from banks .......................................... $ 10,970 $ 9,596
Federal funds sold ............................................... 245,400 5,950
--------- ---------
Total cash and cash equivalents ................................. 256,370 15,546
--------- ---------
Securities available for sale .................................... 142,119 137,338
Securities held to maturity ...................................... 47,679 60,955
Federal Home Loan Bank stock, at cost ............................ 3,386 3,386
Loans, net ....................................................... 412,745 396,448
Bank premises and equipment, net ................................. 6,777 6,747
Accrued interest receivable ...................................... 4,903 4,975
Prepaid expenses ................................................. 1,039 1,105
Intangible assets ................................................ 10,420 10,604
Other assets ..................................................... 3,434 3,315
--------- ---------
Total assets ................................................. $ 888,872 $ 640,419
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits ......................................................... $ 510,446 $ 493,400
Borrowed funds ................................................... 30,000 30,000
Accrued expenses and other liabilities ........................... 7,334 6,981
Stock subscription payable ....................................... 229,052 0
--------- ---------
Total liabilities ............................................ 776,832 530,381
--------- ---------
Stockholders' Equity
Common Stock, par value $0.10 ................................ 905 905
authorized 20,000,000 shares, issued & outstanding 9,046,444
shares as of March 31, 1998 and December 31, 1997
Additional paid in capital ................................... 30,502 30,502
Unearned Management Recognition Plan shares .................... (337) (673)
Retained earnings - substantially restricted ................... 80,288 78,870
Accumulated other comprehensive income, net of tax ............. 682 434
--------- ---------
Total stockholders' equity ................................... 112,040 110,038
--------- ---------
Total liabilities and stockholders' equity ................... $ 888,872 $ 640,419
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
PEOPLES BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
[In Thousands of Dollars]
Three Months
Ended March 31
----------------------
1998 1997
---- ----
[unaudited]
Interest and dividend income:
Interest and fees on loans ..................... $ 7,793 $ 7,278
Interest on securities ......................... 3,258 3,231
Interest on Federal funds sold ................. 263 137
------- -------
Total interest income ......................... 11,314 10,646
------- -------
Interest expense ................................... 5,538 5,328
------- -------
Net interest income ........................... 5,776 5,318
Provision for loan losses .......................... 186 10
------- -------
Net interest income after provision
for loan losses ............................. 5,590 5,308
------- -------
Other income:
Service fees on deposit accounts ............... 196 247
Fees and other income .......................... 796 182
Net gain on sale of securities ................. 0 334
------- -------
Total other income ............................. 992 763
------- -------
Operating expense:
Salaries and employee benefits ................. 2,269 1,657
Net occupancy expense .......................... 386 381
Equipment expense .............................. 33 31
FDIC insurance premium ......................... 18 0
Amortization of intangible assets .............. 221 187
Data processing fees ........................... 148 132
Other operating expense ........................ 729 631
------- -------
Total operating expense ........................ 3,804 3,019
------- -------
Income before income taxes ..................... 2,778 3,052
Income taxes ....................................... 1,075 1,099
------- -------
Net income ..................................... $ 1,703 $ 1,953
======= =======
Earnings per common share:
Basic .......................................... $ 0.19 $ 0.22
Diluted ........................................ $ 0.19 $ 0.22
5
<PAGE>
PEOPLES BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Three Months Period ended March 31, 1998 and 1997
(In Thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Unearned
Number Accumulated Management
of Additional Other Recognition Total
Common Common paid-in Retained Comprehensive Plan Stockholders'
Shares stock capital Earnings Income Shares equity
------ ------ ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 ......... 9,037,160 904 $30,357 $72,545 $1,089 ($1,543) $103,352
Net income for the three
months ended March 31, 1997 ......... 1,953 $1,953
Other comprehensive income, net of tax (778) ($778)
Dividends paid ($0.0875 per share) ... (282) (282)
Amortization of unearned Management
Recognition Plan shares ............ 84 84
--------- --- ------ ------ --- ------ -------
Balance at March 31, 1997 ............ 9,037,160 904 30,357 74,216 311 (1,459) 104,329
========= === ====== ====== === ====== =======
Balance at December 31, 1997 ......... 9,046,444 905 30,502 78,870 434 (673) 110,038
Net income for the three months
ended March 31, 1998 ............... 1,703 1,703
Other comprehensive income, net of tax 248 248
Dividends paid ($0.0875 per share) ... (285) (285)
Amortization of unearned Management
Recognition Plan shares ............ 336 336
--------- ---- ------- ------- ---- ----- --------
Balance at March 31, 1998 ............ 9,046,444 $905 $30,502 $80,288 $682 ($337) $112,040
========= ==== ======= ======= ==== ===== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
6
<PAGE>
PEOPLES BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(unaudited)
Three Months Ended
March 31,
-----------------------
1998 1997
---- ----
Cash flows from operating activities:
Net income ......................................... $ 1,703 $ 1,953
Adjustments to reconcile net income to net
cash used in operating activities:
Provision for loan losses ...................... 186 10
Depreciation and amortization expense .......... 735 422
Net accretion of premiums and discounts
on securities ................................. (26) (8)
Decrease[Increase] in accrued interest
receivable and other assets ................... 19 (1,311)
Increase in accrued interest payable and
other liabilities ............................. 353 1,210
Net gain on sale of securities .................. 0 (334)
--------- ---------
Net cash provided by [used in] operating
activities ...................................... 2,970 1,942
--------- ---------
Cash flows used in investing activities:
Proceeds from maturities of securities
available for sale and held to maturity .......... $ 19,370 $ 12,774
Purchase of securities available for sale .......... (15,570) (43,260)
Proceeds from sales of securities available
for sale ......................................... 0 401
Purchase of Federal Home Loan Bank Stock ........... 0 (297)
Maturities and repayments of mortgage-backed
securities ....................................... 4,745 2,648
Net increase in loans .............................. (16,297) (407)
Net additions to bank premises, furniture,
& equipment ...................................... (207) (236)
Proceeds from sale of bank premises, furniture
& equipment ...................................... 0 312
--------- ---------
Net cash used in investing activities ............ (7,959) (28,065)
--------- ---------
Cash flows from financing activities:
Net increase in savings and time deposits .......... 17,046 (6,415)
Dividends paid ..................................... (285) (282)
Net increase in borrowings ......................... 0 30,000
Proceeds from stock offering ....................... 229,052 0
--------- ---------
Net cash provided by financing activities ........ 245,813 23,303
--------- ---------
Net [decrease] increase in cash and
cash equivalents .................................. 240,824 (2,820)
Cash and cash equivalents as of beginning
of year ........................................... $ 15,546 $ 20,938
--------- ---------
Cash and cash equivalents as of end of period ........ $ 256,370 $ 18,118
========= =========
Supplemental disclosure of cash flow information:
Cash paid:
Interest ......................................... $ 5,582 $ 3,106
========= =========
Income taxes ..................................... $ 0 $ 175
========= =========
See accompanying Notes to Consolidated Financial Statements.
7
<PAGE>
NOTES TO THE 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.
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 at and for the
three months ended March 31, 1998 and 1997. The results of operations for the
three months ended March 31, 1998 are not necessarily indicative of results that
may be expected for the entire year ending December 31, 1998.
(2) The Conversion of the Mutual Holding Company to the Stock Form of
Organization
The financial information presented herein as of March 31,1 998 and
December 31, 1997, and for the three months ended March 31, 1998 is for Peoples
Bancorp, Inc. (the "Mid-Tier Holding Company"), a federal corporation, which
form July 1997 through April 8, 1998 held 100% of the outstanding shares of
common stock of Trenton Savings Bank FSB (the "Bank"). Financial information
presented herein for the three months ended March 31, 1997 is for the Bank. The
Mid-Tier Holding Company became the Bank's holding company in a reorganization
(the "Two-Tier Reorganization"), in which all of the outstanding shares of the
Bank's common stock ("Bank Common Stock"), including shares held by Peoples
Bancorp, MHC (the "Mutual Holding Company") and stockholders other than the
Mutual Holding Company (the "Minority Stockholders"), were converted into shares
of common stock of the Mid-Tier Holding Company ("Mid-Tier Common Stock"), and
the Bank became the wholly-owned subsidiary of the Mid-Tier Holding Company.
From July 1997 through April 8, 1998, the Mid-Tier Holding Company's only
material asset consisted of 100% of the outstanding shares of common stock of
the Bank.
The Registrant, Peoples Bancorp, Inc. (the "Company"), a Delaware
corporation, is the successor to the Mid-tier Corporation. The Company was
formed as part of the mutual-to-stock conversion (the "Conversion") of the
Mutual Holding Company. In the Conversion the Bank became the wholly-owned
subsidiary of the Company and the corporate existence of the Mutual Holding
Company ended. The Conversion was completed on April 8, 1998. Prior to the
completion of the Conversion the Company had insignificant assets and
liabilities.
As part of the Conversion each of the outstanding shares of Mid-Tier
Common Stock held by Minority Stockholders was automatically converted into
3.8243 shares of common stock (the "Common Stock") of the Company. As part of
the Conversion and in addition to the 12, 430,673 shares issued due to the
conversion of Mid-Tier Common Stock into Common Stock, the Company sold
23,805,827 shares of Common Stock for a subscription price of $10.00 per share
in a subscription offering (the "Offering"). Net proceeds of the Offering were
approximately $217 million. At the conclusion of the Conversion there were
36,236,500 shares of Common Stock outstanding, including 952,233 unallocated
shares held by the Company's employee stock ownership plan (the "ESOP").
The following diagrams outline (i) the organization structure of the
Mutual Holding Company, the Mid-Tier Holding Company, and the Bank and its
subsidiaries prior to the completion of the Conversion and (ii) the
organizational structure of the Company and the Bank and its subsidiaries
following the Conversion.
8
<PAGE>
---------------------- --------------------
Mutual Holding Company Minority Stockholder
---------------------- --------------------
64.1% 35.9%
-----------------
Mid-Tier
Holding Company
-----------------
100%
-----------------
Bank
-----------------
---------------------- --------------------
Manchester Trust Bank TSBusiness Finance
---------------------- --------------------
Organizational structure following the Conversion:
-------------------
Public Stockholders
-------------------
100%
-------------------
Company
-------------------
100%
-------------------
Bank
-------------------
--------------------- --------------------
Manchester Trust Bank TSBusiness Finance
--------------------- --------------------
(3) Non Performing Loans, Non Performing Assets and the Allowance for Loan
Losses
Non performing loans at March 31, 1998 and December 31, 1997 are as follows
(in thousands of dollars):
9
<PAGE>
March 31, 1998 December 31, 1997
-------------- -----------------
Loans delinquent 90 days or more ........ 4,139 5,606
Loans delinquent 90 days or more
as a percentage of net loans
receivable ............................. 1.00% 1.41%
An analysis of the allowance for loan losses for the three month
periods ended March 31, 1998 and 1997 is as follows (in thousands of dollars):
March 31, 1998 March 31, 1997
-------------- --------------
Balance at beginning of the period ....... $ 3,415 $ 2,901
Provision charged to operations .......... 186 10
Charge-offs, net ......................... (39) (42)
------- -------
Balance at the end of the period ......... $ 3,562 $ 2,869
Generally, the Bank'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
reasonably anticipated or adequate collateral exists. In addition, the Bank
places any loan on non-accrual if any part of it is classified as doubtful or
loss or if any part has been charged to the allowance for loan losses. Real
estate owned consists of property acquired through formal foreclosures and
acquired by deed in lieu of foreclosure, and is recorded at the lower of cost or
fair value. At March 31, 1998, the Bank had $294 thousand classified as real
estate owned.
The Bank continually reviews the quality of the loan portfolio, and
engages an outside consultant to perform routine reviews of the portfolio on a
quarterly basis. Management believes that the allowance for loan losses is
adequate based on historical experience, the volume and type of lending
conducted by the Bank, the amount of non-performing loans, general economic
conditions and other factors relating to the Bank's loan portfolio. However,
there can be no assurance that actual losses will not exceed estimated amounts.
As of March 31, 1998, the Bank's total non-pcrforming loans and
foreclosed assets amounted to $3.7 million, or .42% of total assets, compared to
$5.9 million, or.92% of total assets at December 31, 1997.
Federal regulations required that each insured savings institution
classify its assets on a regular basis. There are four classifications for
problem assets: "special mention," "substandard," "doubtful" and "loss."
At March 31, 1998, the Bank had $4.8 million of loans classified as
special mention, $4.7 million classified as substandard and $.6 million
classified as doubtful or loss. As of March 31, 1998, total classified assets,
which includes repossessed assets, was $5.6 million.
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 Bank's allowance for loan losses, which includes a general valuation
allowance, amounted to approximately $3.6 million and $3.4 million, respectively
at March 31, 1998 and December 31, 1997.
(4) Per Share Data
The earnings per share for the three months ended March 31, 1998 of
$.19, has been calculated on a weighted average number of shares of Mid-Tier
Common Stock outstanding during the period of 9,046,444. Earnings per share data
for the three months ended March 31, 1997 was $.22 per share. On April 8, each
share of the Mid-Tier Common Stock was converted into 3.8243 shares of the
Company's Common Stock. See Note 2.
10
<PAGE>
(5) Comprehensive Income
During the first quarter of 1998, the Bank adopted the provisions of
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). SFAS 130 establishes standards for reporting and display
of comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. This Statement
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. This Statement requires that an enterprise (a) classify items of
other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. In accordance with the provisions of SFAS 130
for interim period reporting, The Bank's total comprehensive income for the
three months ended March 31, 1998 and 1997 was $248,000 and ($778) thousand. The
difference between the Bank's net income and total comprehensive income for
these periods relates to the change in the net unrealized gains on securities
available for sale during the applicable period of time.
(6) Net Portfolio Value
The OTS has adopted a final rule that incorporates an interest rate
risk ("IRR") component into the risk-based capital rules. The IRR component is a
dollar amount that will be deducted from total capital for the purpose of
calculating an institution's risk based capital requirement and is expressed in
terms of the sensitivity of its net portfolio value ("NPV") to changes in
interest rates. NPV is the difference between discounted incoming and outgoing
cash flows from assets, liabilities, and off-balance sheet contracts. An
institution's IRR is measured as the change to its NPV as a result of a
hypothetical 200 basis point change in market interest rates. A resulting change
in NPV of more than 2% of the estimated market value of its assets will require
the institution to deduct from its capital 50% of that excess change. The rule
provides that the OTS will calculate the IRR component quarterly for each
institution from the institution's Thrift Financial Reports. The OTS has
postponed the date that the component will first be deducted from an
institution's total capital to provide it with an opportunity to review the
interest rate risk approaches taken by the other federal banking agencies. The
following table presents the Bank's NPV as of December 31, 1997, as calculated
by the OTS, based on information provided to the OTS by the Bank.
Change in Change in NPV
Interest Rates Net Portfolio Value as a percentage of
in Basis Points --------------------------------- Estimated Market
(Rate Shock) Amount $ Change % Change Value of Assets
------------ ------ -------- -------- ---------------
(dollars in thousands)
400 $ 75,074 ($35,682) 32.22% (8.02%)
200 $ 94,531 ($16,225) 14.65% (2.57%)
Static $110,756 -- -- --
(200) $122,763 $12,007 10.84% 1.90%
(400) $133,662 $22,906 20.60% 3.63%
As shown by the table above, increases in interest rates will result in
net decreases in the Bank's NPV, while decreases in interest rates will result
in smaller net increases in the Bank's NPV. The table suggests that in the event
of a 200 basis point change in interest rates, the Bank would experience a 2.57%
decrease in NPV in a rising interest rate environment, and a 1.90% increase in
NPV in a decreasing interest rate environment.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The financial information presented herein as of March 31, 1998 and
December 31, 1997, and for the three months ended March 31, 1998 is for Peoples
Bancorp, Inc. (the "Mid-Tier Holding Company"), a federal corporation, which
from July 1997 through April 8, 1998 held 100% of the outstanding shares of
common stock of Trenton Savings Bank FSB (the "Bank"). Financial information
presented herein for the three months ended March 31, 1997 is for the Bank. the
Mid-Tier Holding Company became the banles holding company in a reorganization
(the "Two-Tier Reorganization"), in which all of the outstanding shares of the
bank's common stock ("Bank Common Stock"), including shares held by Peoples
Bancorp, MHC (the "Mutual Holding Company") and stockholders other than the
Mutual Holding Company (the "Minority stockholders"), were converted into shares
of common stock of the Mid-Tier Holding Company ("Mid-Tier Common Stock"), and
the bank became the wholly-owned subsidiary of the Mid-Tier Holding Company.
From July 1997 through April 8, 1998, the Mid-Tier Holding Company's only
material assets consisted of 100% of the outstanding shares of common stock of
the Bank.
The Registrant, Peoples Bancorp, Inc. (The "Company"), a Delaware
corporation, is the successor to the Mid-Tier Corporation. The Company was
formed as par of the mutual-to-stock conversion (the "Conversion") of the Mutual
Holding Company. In the Conversion the Bank became the wholly-owned subsidiary
of the Company and the corporate existence of the Mutual Holding Company ended.
The Conversion was completed on April 8, 1998. Prior to the completion of the
Conversion the Company had insignificant assets and liabilities.
As part of the Conversion each of the outstanding share of Mid-Tier
Common Stock held by Minority Stockholders was automatically converted into
3.8243 shares o common stock (the "Common Stock") of the Company. As part of the
Conversion and in addition to the 12,430,673 shares issued due to the conversion
of Mid-Tier Common Stock into Common Stock, the Company sold 23,805,827 shares
of Common Stock for a subscription price of $10.00 per share in a subscription
offering (the "Offering"). Net proceeds of the Offering were approximately $217
million. At the conclusion of the Conversion there were 36,236,500 shares of
Common Stock outstanding, including 952,233 unallocated shares held by the
Company's employee stock ownership plan (the "ESOP").
Although the following discussion of the financial condition and
results of operations includes the collective results of the Mid-Tier Holding
Company and the Bank, this discussion reflects principally the Bank's activities
as the Mid-Tier Holding Company did not engage in any significant activities
other than the management of the Bank.
Financial Condition
Stockholders' equity increased by $2.0 million, or 1.8%, to $112.0
million at March 31, 1998 from $110.0 million at December 31, 1997. The increase
in Stockholders' equity was due to net income of $1.7 million for the quarter
ended March 31, 1998 combined with amortization of $336 thousand of unearned
Management Recognition Plan (the "MRP") shares , a $248 thousand increase in the
market value of the Bank's portfolio of available for sale investments, reduced
by cash dividends of $285 thousand. At March 31, 1998 the Bank's tangible, core
and risk based capital ratios were 11.56%, 11.56%, and 20.56%, respectively.
As previously discussed the Conversion generated cash subscriptions of
$229.0 million by March 31, 1998. This amount was reflected in the Bank's asset,
cash and cash equivalents, and stock subscription payable account on the March
31, 1998 balance sheet. Consequently, total assets increased by $248.5 million,
or 38.8%, to $888.9 million at March 31, 1998 from $640.4 million at December
31, 1997. Cash and cash equivalents also increased by $240.8 million to $256.4
million at March 31, 1998 from $15.5 million at December 31, 1997 primarily due
to these cash stock subscriptions. Deposits increased by $17.0 million, or 3.5%,
to $510.4 million at March 31, 1998 from $493.4 million at December 31, 1997.
Securities available for sale increased by $4.8 million or 3.5% to $142.1
million at March 31, 1998 from $137.3 million at December 31, 1997. Loans
increased by $16.3 million or 4.1% to $412.7 million at March 31, 1998 from
$396.4 million at December 31, 1997.
Results of Operations
The annualized return on average assets and return on average equity
were 1.03% and 6.12% respectively for the quarter ended March 31, 1998 compared
to 1.24% and 7.49% respectively for the quarter ended March 31, 1997. Net income
was $1.7 million for the first quarter of 1998 compared to $2.0 million for the
first quarter of 1997 which included net securities gains of $3 million.
12
<PAGE>
Total interest income increased $.7 million, or 6.3%, to $11.3 million
for the quarter ended March 31, 4998 from $10.6 million for the quarter ended
March 31, 1997. The increase resulted from an increase in average interest
earnings assets to $625.3 million for the quarter ended March 31, 1998 from
$596.1 million for the quarter ended March 31, 1997 combined with an increase in
the average yield on interest-earnings assets from 7.14% for the quarter ended
March 31, 1997 to 7.24% for the quarter ended March 31, 1998. The $29.2 million
increase in average interest eamings assets was attributed to the previously
discussed $229.0 million of stock subscriptions received in March.
Total interest expense increased by $.2 million, or 3.9%, for the
quarter ended March 31, 1998 to $5.5 million from $5.3 million for the quarter
ended March 31, 1997. The increase was primarily the result of an increase in
average deposits to $541.8 million for the quarter ended March 31, 1998 from
$516.4 million for the quarter ended March 31, 1997 which offset a decrease in
the average rate paid on deposits from 4.13% for the quarter ended March 31,
1997 to 4.09% for the quarter ended March 31, 1998. The increase in deposits is
primarily attributed to the stock subscriptions. The decrease in the average
rate paid on deposits was attributed to the effect of the payment of the
passbook rate on these stock subscriptions.
There was a $.2 million provision for loan losses for the quarter ended
March 31, 1998 compared to a $10 thousand provision for the three months ended
March 31, 1997. The increased provision generally reflects loan growth. The loan
loss provision evaluation includes a review of all loans for which full
collectibillity may not be reasonably assured and considers, among other
matters, the estimated net realizable value of the underlying collateral,
economic conditions and other matters which warrant consideration. The allowance
for loan losses was $3.6 million or 97.3% of non-performing assets at March 31,
1998 compared to $3.4 million or 57.6% of non-performing assets at December 31,
1997 [see note three].
Total other income increased by $.2 million, or 30.0%, to $1.0 million
for the quarter ended March 31, 1998 compared to $.8 million for the quarter
ended March 31, 1997. Other income included $.3 million of gains from the sale
of equity securities for the quarter ended March 31, 1997 compared to $0 gains
from the sale of equity securities for the quarter ended March 31, 1998.
Excluding gains on sales of securities, other income increased $.6 million or
131.2% to $1 million for the quarter ended March 31, 1998 compared to $.4
million for the quarter ended March 31, 1997. The increase in other income is
attributed to fees earned by Manchester Trust Bank which was purchased in
September of 1997, and $153 thousand of a post retirement plan actuary
adjustment. Total operating expenses increased by $.8 million, or 26.0%, to $3.8
million for the quarter ended March 31, 1998 compared to $3.0 million for the
quarter ended March 31, 1997. The increase in operating expenses is attributed
to the addition of staff and activities from the MTB acquisition, the expansion
of TSBusiness Finance Corporation, the opening of an additional branch [Leisure
Village West] and additional vesting of the Management Recognition Plan.
Capital
The OTS requires that the Bank meet minimum tangible, core and
risk-based capital requirements. As of March 31, 1998, the Bank exceeded all
regulatory capital requirements. The Bank's required, actual, and excess capital
levels as of March 31, 1998, are as follows:
Required Actual Excess of
---------------- ------------------ Actual Over
% of % of Regulatory
Amount Assets Amount Assets Requirement
------ ------ ------ ------ -----------
(Dollars in Thousands)
Tangible Capital .... 13,175 1.50% 101,553 11.56% 88,378
Core Capital ........ 26,351 3.00% 101,553 11.56% 75,202
Risk-based Capital .. 40,871 8.00% 105,048 20.56% 64,177
Liquidity
The Bank 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
Bank's liquidity ratio averaged 30.16% during the first quarter of 1998 an~
equaled 76.4% at March 31, 1998. ne Bank adjusts liquidity as appropriate to
meet its asset and liability management objectives.
13
<PAGE>
PART II. OTHER INFORMATION
Legal Proceedings
There are various claims and lawsuits in which the Bank is periodically
involved incidental to the Bank's business. in the opinion of management, no
material loss is expected from any of such pending claims or lawsuits.
Changes in Securities
Not applicable.
Defaults upon Senior Securities
Not applicable.
Submission of Matters to a Vote of Security Holders
A special meeting of the Mid-Tier Holding Company's stockholders was
held on March 31, 1998. At the special meeting, stockholders approved the Plan
Conversion and Reorganization (the "Plan") and transactions incident to the
Plan, including the Conversion. At the special meeting there were 7,794,646
votes cast in favor of the Plan and, 8,979 votes cast against the Plan.
Other Information
Not applicable.
Exhibits and Report on Form 8-K.
Not applicable.
14
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<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 10,970
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 245,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 142,119
<INVESTMENTS-CARRYING> 51,065
<INVESTMENTS-MARKET> 53,009
<LOANS> 412,745
<ALLOWANCE> 3,562
<TOTAL-ASSETS> 888,872
<DEPOSITS> 510,000
<SHORT-TERM> 30,000
<LIABILITIES-OTHER> 7,334
<LONG-TERM> 0
0
0
<COMMON> 905
<OTHER-SE> 111,135
<TOTAL-LIABILITIES-AND-EQUITY> 888,872
<INTEREST-LOAN> 7,793
<INTEREST-INVEST> 3,258
<INTEREST-OTHER> 263
<INTEREST-TOTAL> 11,314
<INTEREST-DEPOSIT> 5,085
<INTEREST-EXPENSE> 5,538
<INTEREST-INCOME-NET> 5,776
<LOAN-LOSSES> 186
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,804
<INCOME-PRETAX> 2,778
<INCOME-PRE-EXTRAORDINARY> 2,778
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,703
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
<YIELD-ACTUAL> 7.24
<LOANS-NON> 3,444
<LOANS-PAST> 695
<LOANS-TROUBLED> 375
<LOANS-PROBLEM> 5,352
<ALLOWANCE-OPEN> 3,415
<CHARGE-OFFS> 39
<RECOVERIES> 186
<ALLOWANCE-CLOSE> 3,562
<ALLOWANCE-DOMESTIC> 3,562
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 326
</TABLE>
