FORM 10-Q
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____ to ____
Commission file number 0-16772
PEOPLES BANCORP INC.
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(Exact name of Registrant as specified in its charter)
Ohio 31-0987416
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
138 Putnam Street, P. O. Box 738, Marietta, Ohio 45750
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (614) 373-3155
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Indicate by check mark whether the registrant (1) has filed all
reports required by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the
issuer's class of Common Stock, as of October 26, 1997:
3,458,783.
PART I - FINANCIAL INFORMATION
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ITEM 1
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The following Condensed Consolidated Balance Sheets,
Consolidated Statements of Income, and Consolidated Statements
of Cash Flow of Peoples Bancorp Inc. (the "Company") and
subsidiaries, reflect all adjustments (which include only normal
recurring accruals) necessary to present fairly such information
for the periods and dates indicated. Since the following
condensed unaudited financial statements have been prepared in
accordance with instructions to Form 10-Q, they do not contain
all information and footnotes necessary for a fair presentation
of financial position in conformity with generally accepted
accounting principles. Operating results for the nine months
ended September 30, 1997, are not necessarily indicative of the
results that may be expected for the year ending December 31,
1997. 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, 1996. The
consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. Significant
intercompany accounts and transactions have been eliminated.
PEOPLES BANCORP INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEETS
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September 30, December 31,
1997 1996
ASSETS
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Cash and cash equivalents:
Cash and due from banks $ 27,072,000 $ 26,200,000
Interest-bearing deposits in other banks 583,000 217,000
Federal funds sold 0 2,100,000
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Total cash and cash equivalents 27,655,000 28,517,000
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Investment securities (all classified as
available-for-sale, amortized cost of
$145,977,000 at September 30, 1997 and $
145,619,000 at December 31, 1996) 149,209,000 147,783,000
Loans, net of unearned interest 484,183,000 422,413,000
Allowance for loan losses (7,763,000) (6,873,000)
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Net loans 476,420,000 415,540,000
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Bank premises and equipment, net 11,555,000 11,508,000
Other assets 15,108,000 13,287,000
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Total assets $679,947,000 $616,635,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Deposits:
Non-interest bearing $ 60,697,000 $ 63,410,000
Interest bearing 495,082,000 441,282,000
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Total deposits 555,779,000 504,692,000
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Short-term borrowings:
Federal funds purchased and securities
sold under repurchase agreements 20,579,000 17,022,000
Federal Home Loan Bank term advances 4,000,000 2,500,000
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Total short-term borrowings 24,579,000 19,522,000
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Long-term borrowings 31,593,000 29,200,000
Accrued expenses and other liabilities 6,605,000 7,028,000
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Total liabilities 618,556,000 560,442,000
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Stockholders' Equity
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Common stock, no par value, 12,000,000
shares authorized - 3,455,601 shares
issued at September 30, 1997 and 3,445,075
issued at December 31, 1996, including
shares in treasury 34,399,000 34,349,000
Net unrealized holding gain on
available-for-sale securities, net of
deferred income taxes 2,133,000 1,428,000
Retained earnings 24,859,000 20,470,000
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61,391,000 56,247,000
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Treasury stock, at cost, no shares
at September 30, 1997 and 2,000
shares at December 31, 1996 0 (54,000)
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Total stockholders' equity 61,391,000 56,193,000
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Total liabilities and
stockholders' equity $679,947,000 $616,635,000
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PEOPLES BANCORP INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
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Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Interest income $13,639,000 $12,046,000 $39,523,000 $35,087,000
Interest expense 6,443,000 5,539,000 18,467,000 16,322,000
----------- ----------- ----------- -----------
Net interest income 7,196,000 6,507,000 21,056,000 18,765,000
Provision for loan losses 676,000 585,000 1,905,000 1,380,000
----------- ----------- ----------- -----------
Net interest income
after provision for
loan losses 6,520,000 5,922,000 19,151,000 17,385,000
Other income 1,528,000 1,304,000 4,408,000 3,737,000
(Loss) gain on sale of
securities 0 0 (31,000) 26,000
Other expenses 4,851,000 4,578,000 14,277,000 12,890,000
----------- ----------- ----------- -----------
Income before income
taxes 3,197,000 2,648,000 9,251,000 8,258,000
Federal income taxes 1,039,000 818,000 2,966,000 2,576,000
----------- ----------- ----------- -----------
Net income $ 2,158,000 $ 1,830,000 $ 6,285,000 $ 5,682,000
=========== =========== =========== ===========
Primary earnings per share $0.60 $0.53 $1.77 $1.64
----------- ----------- ----------- -----------
Fully diluted earnings
per share $0.60 $0.53 $1.76 $1.63
----------- ----------- ----------- -----------
Weighted average shares
outstanding (primary) 3,574,266 3,430,840 3,550,300 3,469,541
----------- ----------- ----------- -----------
Weighted average shares
outstanding (fully
diluted) 3,582,915 3,443,147 3,576,740 3,487,275
----------- ----------- ----------- -----------
Cash dividends declared $657,000 $593,000 $1,898,000 $1,654,000
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Cash dividend per share $0.19 $0.17 $0.55 $0.48
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PEOPLES BANCORP INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
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Nine Months Ended
September 30,
1997 1996
Cash flows from operating activities:
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Net income $ 6,285,000 $ 5,682,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 1,905,000 1,380,000
Loss (gain) on sale of investment securities 31,000 (26,000)
Depreciation, amortization, and accretion 1,941,000 2,241,000
Increase in interest receivable (203,000) (228,000)
(Decrease) increase in interest payable (228,000) 406,000
Deferred income tax benefit 174,000 (140,000)
Deferral of loan origination fees and costs (23,000) 123,000
Other, net (1,414,000) (1,230,000)
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Net cash provided by operating activities 8,468,000 8,208,000
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Cash flows from investing activities:
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Purchases of available-for-sale securities (16,923,000) (43,786,000)
Proceeds from sales of available-for-sale
securities 5,204,000 4,528,000
Proceeds from maturities of available-for-sale
securities 15,005,000 14,091,000
Net increase in loans (41,227,000) (38,595,000)
Expenditures for premises and equipment (975,000) (1,497,000)
Proceeds from sales of other real estate owned 28,000 0
Business acquisitions, net of cash received 4,679,000 68,004,000
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Net cash (used in) provided by investing
activities (34,209,000) 2,745,000
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Cash flows from financing activities:
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Net (decrease) increase in non-interest bearing
deposits (5,281,000) 4,357,000
Net increase (decrease) in interest-bearing
deposits 24,431,000 (986,000)
Net increase (decrease) in short-term borrowings 5,057,000 (14,798,000)
Proceeds from long-term borrowings 5,000,000 10,500,000
Payments on long-term borrowings (2,607,000) (2,187,000)
Cash dividends paid (1,557,000) (1,429,000)
Purchase of treasury stock (327,000) (278,000)
Proceeds from issuance of common stock 163,000 382,000
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Net cash provided by (used in) financing
activities 24,879,000 (4,439,000)
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Net (decrease) increase in cash and cash
equivalents (862,000) 6,514,000
Cash and cash equivalents at beginning of year 28,517,000 20,994,000
----------- -----------
Cash and cash equivalents at end of period $27,655,000 $27,508,000
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NOTES TO FINANCIAL STATEMENTS
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Basis of Presentation
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The accounting and reporting policies of Peoples Bancorp Inc.
and Subsidiaries (the "Company") conform to generally accepted
accounting principles and to general practices within the
banking industry. The Company considers all of its principal
activities to be banking related. The preparation of the
financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates. The consolidated financial statements
include the accounts of the Company and its wholly-owned
subsidiaries. Significant intercompany accounts and
transactions have been eliminated.
1. Acquisitions
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On June 17, 1997, the Company and Gateway Bancorp, Inc.
("Gateway"), a Kentucky corporation headquartered in
Catlettsburg, Kentucky, entered into a definitive agreement
providing for the acquisition of Gateway by the Company.
Gateway is a savings and loan holding company with one thrift
subsidiary, Catlettsburg Federal Savings Bank, a federally
chartered stock savings bank with its main office in
Catlettsburg, Kentucky.
Gateway shareholders have the right, subject to an allocation
formula, to receive (i) $18.75 in cash, (ii) a number of shares
of Peoples Bancorp common stock ("Peoples Bancorp Stock") based
on an exchange ratio which ranges from a minimum of .4978 shares
to a maximum of .6736 shares of Peoples Bancorp Stock for each
share of common stock of Gateway ("Gateway Stock"), or (iii) a
combination of cash and Peoples Bancorp Stock. As more fully
described in the Agreement, the exchange ratio and total merger
consideration varies based upon the market value of Peoples
Bancorp Stock. The Agreement provides that 68% of the Gateway
Stock will be converted into the right to receive Peoples
Bancorp Stock and 32% of the Gateway Stock will be converted
into the right to receive cash.
Based on the average of the closing high bid and low ask price
of Peoples Bancorp Stock on October 31, 1997, of $44.00, the
aggregate purchase price of the transaction would have
approximated $21.9 million ($6.3 million in cash and $15.6
million - or approximately 354,000 shares - in Peoples Bancorp
Stock) (the "Merger Consideration").
The Gateway shareholders are scheduled to meet December 4,
1997, to vote on the proposed transaction. If the shareholders
approve the merger, closing of the proposed transaction is
expected on or around December 12, 1997.
At September 30, 1997, Gateway had total assets of $62.6
million, total deposits of $44.9 million, and total
stockholders' equity of $17.4 million. The Gateway acquisition
will be accounted for using the purchase method of accounting.
Accordingly, Gateway's assets and liabilities will be adjusted
to their estimated fair values at the date of consummation and
its results of operations will be included in the Company's
consolidated results of operations from the date of
consummation. Based on an estimated aggregate Merger
Consideration of $21.9 million, management's preliminary
estimate is that the aggregate Merger Consideration will exceed
net identifiable assets by approximately $4.5 million (annual
amortization is estimated to approximate $300,000 after taxes).
On February 28, 1997, The Peoples Banking and Trust Company
("Peoples Bank"), one of the Company's subsidiaries, acquired
one full-service banking office located in Baltimore, Ohio from
an unrelated financial institution. In the transaction, Peoples
Bank assumed approximately $12.5 million in deposits. This
office is located in Fairfield County in central Ohio and
currently operates a full-service banking office with an ATM.
On January 1, 1997, the Company purchased Russell Federal
Savings Bank ("Russell Federal") in Russell, Kentucky for
approximately $9.25 million in cash. At December 31, 1996,
Russell Federal had total assets of $28.0 million, loans of
$21.5 million (primarily real estate loans), deposits of $19.5
million (interest bearing deposits including savings accounts
and certificates of deposit), and shareholders' equity of $8.0
million. The Company has continued Russell Federal's operations
as a federal savings bank subsidiary of Peoples Bancorp.
Russell Federal serves the financial needs of customers in
northeast Kentucky, in particular Greenup and Boyd Counties, its
primary market area. Its principal products include savings
accounts, time certificates of deposit and commercial and
residential real estate loans. With one office located on Ferry
Street in the city of Russell, services are provided by a
walk-in office and a Motor Bank.
On April 26, 1996, Peoples Bank acquired three full-service
banking offices and assumed approximately $73.9 million in
deposits from an unaffiliated institution. The offices are
located in southeastern Ohio in the cities of Gallipolis,
Pomeroy, and Rutland, Ohio, and serve the counties of Meigs
(Ohio), Gallia (Ohio) and Mason (West Virginia). The Gallipolis
office is located downtown in Gallipolis and currently operates
a full-service office, motor bank, and an automated teller
machine. A full-service office and separate motor bank are
located in downtown Pomeroy. An automated teller machine is
also located in Pomeroy outside a local convenience store. The
Rutland office is a full-service and motor bank facility.
2. New Accounting Pronouncements
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In June 1996, the Financial Accounting Standards Board ("FASB")
issued Statement on Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS No. 125") that provides
accounting and reporting standards for transfers of financial
assets and extinguishments of liabilities. SFAS No. 125
significantly changes the accounting rules for determining
whether a transfer represents a sale or secured borrowing
transaction. Portions of SFAS No. 125 were applicable for the
Company effective January 1, 1997 and did not have a material
impact on the Company's financial statements.
In December 1996, the FASB agreed to defer the effective date
for one year for the following transactions: securities
lending, repurchase agreements, dollar rolls and other similar
secured transactions. In general, these are the transactions
addressed by SFAS No. 125 that apply specifically to the
Company's current operations but will not be effective for
transfers of assets until beginning after December 31, 1997.
The adoption of Statement No. 125 as it relates to securities
lending, repurchase agreements, dollar rolls, and other similar
transactions is not expected to have a material effect on the
Company's future financial statements.
In February 1997, the FASB issued Statement on Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS No.
128"), which simplifies the computation of earnings per share by
replacing primary earnings per share with basic earnings per
share. Under the new standard, basic earnings per share and
diluted earnings per share will be presented on the face of the
income statements. The provision of SFAS No. 128 will be
effective for periods ending after December 15, 1997. The
Company does not expect the application of SFAS No. 128 to
produce earnings per share amounts that are materially different
from those presented under existing standards.
ITEM 2
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
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SELECTED FINANCIAL DATA
The following data should be read in conjunction with the
unaudited consolidated financial statements and the management
discussion and analysis that follows.
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
1997 1996 1997 1996
SIGNIFICANT RATIOS
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Net income to:
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Average assets* 1.29% 1.21% 1.28% 1.29%
Average stockholders'' equity* 14.33% 13.84% 14.42% 14.49%
Net interest margin* 4.73% 4.88% 4.73% 4.81%
Efficiency ratio* 51.48% 54.02% 52.02% 53.81%
Average stockholders'' equity to
average assets 8.97% 8.74% 8.85% 8.93%
Loans net of unearned interest to
deposits (end of period) 87.12% 82.29% 87.12% 82.29%
Allowance for loan losses to loans
net of unearned interest (end
of period) 1.60% 1.66% 1.60% 1.66%
Capital ratios:
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Tier I capital ratio 11.27% 11.27% 11.27% 11.27%
Risk-based capital ratio 12.53% 12.52% 12.53% 12.52%
Leverage ratio 7.80% 7.80% 7.80% 7.80%
Cash dividends to net income 30.42% 32.40% 30.19% 29.11%
PER SHARE DATA
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Book value per share (end of period) $17.77 $15.62 $17.77 $15.62
Primary earnings per share $ 0.60 $ 0.53 $ 1.77 $ 1.64
Fully diluted earnings per share $ 0.60 $ 0.53 $ 1.76 $ 1.63
Cash dividends per share $ 0.19 $ 0.17 $ 0.55 $ 0.48
* 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.
Efficiency ratio is a ratio of non-interest expense (less
amortization of intangibles) as a percentage of fully tax
equivalent net interest income plus non-interest income
(excluding gains).
Introduction
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The following discussion and analysis of the consolidated
financial statements of the Company is presented to provide
insight into management's assessment of the financial results.
The Company's subsidiaries, The Peoples Banking and Trust
Company ("Peoples Bank"), The First National Bank of
Southeastern Ohio ("First National Bank"), Russell Federal
Savings Bank ("Russell Federal"), and The Northwest Territory
Life Insurance Company ("Northwest Territory"), provide
financial services to individuals and businesses primarily
within the Company's market area.
References will be found in this Form 10-Q to three separate
acquisition transactions that have impacted the Company's
results of operations. In April 1996, Peoples Bank completed
the acquisition of three full-service banking centers and
approximately $73.9 million in deposits of an unaffiliated
financial institution. Referred hereafter as "Banking Center
Acquisition", the three full-service branches are located in the
cities of Pomeroy, Gallipolis, and Rutland, Ohio. On January 1,
1997, the Company purchased Russell Federal in Russell, Kentucky
(referred hereafter as "Russell Federal Acquisition"), for $9.25
million in cash. At December 31, 1996, Russell Federal had
total assets of $28.0 million, loans of $21.5 million (primarily
real estate loans), deposits of $19.5 million (interest bearing
deposits including savings accounts and certificates of
deposit), and shareholders' equity of $8.0 million. On February
28, 1997, Peoples Bank acquired one full-service banking office
located in Baltimore, Ohio (referred to hereafter as "Baltimore
Banking Center Acquisition"), from an unaffiliated financial
institution. In the transaction, Peoples Bank assumed
approximately $12 million in deposits. This office is located
in Fairfield County in central Ohio and currently operates a
full-service banking office with an ATM.
The Banking Center Acquisition, the Russell Federal
Acquisition, and the Baltimore Banking Center Acquisition will
be referred to hereafter in the aggregate as "Acquisitions".
RESULTS OF OPERATIONS
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Overview of the Income Statement
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For the nine months ended September 30, 1997, the Company
earned $6,285,000, a 10.6% increase from $5,682,000 in net
income for the same period last year. For the quarter ended
September 30, 1997, the Company recorded net income of
$2,158,000, a 17.9% increase from $1,830,000 in third quarter
1996. In the third quarter, earnings per share increased $0.07
from $0.53 last year to $0.60 in 1997. For the first nine
months of 1997, earnings per share reached $1.76, up $0.13 from
$1.63 for the same period in 1996.
The increase in third quarter net income is due primarily to
growth of the Company's earning asset base through the
Acquisitions and the Company's ability to maintain consistent
net interest margin. Net interest income totaled $7,196,000, up
$689,000 (or 10.6%) compared to the same period one year ago.
The Company's net interest margin was 4.73% in the third
quarter, a modest decrease compared to the previous quarter's
ratio of 4.75%. Net interest margin in the third quarter of
1996 totaled 4.81%. Recent decreases in the Company's net
interest margin are due to increased competition for loans and
deposits and the impact of the Russell Acquisition (earning
assets are primarily placed in typically lower-yielding earning
assets such as real estate loans).
For the nine months ended September 30, 1997, the Company's
provision for loan losses totaled $1,905,000, up $525,000 (or
38.0%) compared to the same period last year. Third quarter
provision for loan losses totaled $676,000 compared to $585,000
in 1996's third quarter. Management has provided increased
provision for loan losses in recognition of significant loan
growth as described in later sections.
On a year-to-date basis through September 30, 1997,
non-interest income increased $671,000 (or 18.0%) to $4,408,000
compared to the same period one year earlier. For the third
quarter, non-interest income totaled $1,528,000, up $224,000 (or
17.2%) compared to last year's third quarter. Non-interest
expense totaled $4,851,000 in the third quarter, up $273,000 (or
6.0%) compared to the same period last year. For the first nine
months of 1997, non-interest expense approximated $14,277,000,
up $1,387,000 (or 10.8%) compared to 1996. Increases in
non-interest income and non-interest expense relate primarily to
the Company's Acquisitions. The Company's efficiency ratio
improved to 52.02% for the nine months ended September 30, 1997
compared to 53.81% for the same period a year earlier.
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
competitors that make acquisitions using pooling of interest
accounting. For the quarter and nine months ended September 30,
1997, intangible amortization expense totaled $274,000 ($181,000
after taxes) and $754,000 ($498,000 after taxes), respectively,
compared to $211,000 ($139,000 after taxes) and $429,000
($283,000 after taxes) for the same periods a year earlier. As
a result, cash earnings per share for the quarter ended
September 30, 1997, totaled $0.65, up $0.08 compared to the
third quarter of 1996's calculation of cash earnings per share.
For the first nine months of 1997, cash earnings per share
totaled $1.90, an increase of $0.19 compared to 1996.
Management uses cash earnings to evaluate the impact of recent
Acquisitions on cash earnings. Increased amortization of
intangibles in 1997 has had an impact on the representation of
tangible return on assets and equity. 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 affected earnings per share and other ratios. In
order to provide comparative earnings per share information,
management will supplement future financial analysis with
discussion concerning cash earnings per share, as previously
defined.
Interest Income and Expense
- ---------------------------
The Federal Reserve Board increased the discount rate slightly
in early 1997 and as a result, the national prime rate moved up
25 basis points. The Company adjusted its base loan rates in
the second quarter of 1997 to reflect the increase in the
national prime rate. These rate adjustments increased net
interest income and made significant contributions to the
Company's revenue streams in the second and third quarters of
1997.
Growth in net interest income continued to fuel the Company's
income growth in recent quarters. Third quarter net interest
income totaled $7,196,000 in 1997 compared to $6,507,000 in the
same period one year earlier, up 10.6%. In the third quarter,
interest income totaled $13,639,000 (up $1,593,000 or 13.2%
compared to prior year) and interest expense totaled $6,443,000
(up $904,000 or 16.3% compared to prior year). While interest
expense increased in response to market pressures to provide
higher interest-bearing products to deposit customers, continued
growth in higher-yielding assets such as loans provided the
Company increased net interest income.
Asset growth and corresponding net interest revenue growth
occurred as a result of the Russell Federal Acquisition and the
Baltimore Banking Center Acquisition. Third quarter increases
in net interest income occurred as a result of continuing to
shift the mix of the Company's earning assets to higher-yielding
assets such as loans.
Average loan balances increased over $66 million from third
quarter 1996 to third quarter 1997 and continues to be the
largest earning asset component of the Company's balance sheet.
Loans as a percentage of deposits totaled 87.12% at September
30, 1997, compared to 82.29% a year earlier. This ratio
reflects the Company's strategic initiatives to increase its
higher-yielding asset base and satisfy the strong loan demand
experienced it its markets.
The yield on earning assets was 8.85% in the third quarter of
1997, compared to 8.83% in the same quarter a year earlier. The
cost of the Company's funding sources increased 17 basis points
in the third quarter of 1997 to 4.15% due to growth in volume of
the Company's time deposits, the Company's highest-priced
deposits.
Net interest margin is calculated by dividing fully-tax
equivalent ("FTE") net interest income by average
interest-earning assets and serves as a performance measurement
of the net interest revenue stream from the Company's balance
sheet. In third quarter 1997, the Company's net interest
margin was 4.73% and matched 1997's year-to-date ratio of 4.73%.
For the nine months ended September 30, 1996, net interest
margin totaled 4.81%. The first nine months of 1997's decrease
compared to prior year net interest margin can be attributed to
increased market competition for both loans and deposits.
During 1997, the Company has aggressively marketed several
special short-term time deposits to fund loan demand. In the
first half of 1997, special 5-month and 10-month time deposits
were priced competitively in the Company's markets and generated
significant funding for recent asset growth. The 5-month and
10-month specials were discontinued in the second quarter. In
the third quarter, the Company began offering a special 7-month
time deposit designed to retain previously written short-term
time deposits as well as provide opportunities for new customers
to use the many products and services offered by the Company.
The 7-month special continues to be a popular product in the
Company's markets and will be continued until volume goals are
reached. Management expects interest rate pressures will
continue to challenge the Company for the remainder of 1997 and
into 1998 as financial institutions and other competitors
continue to search for new methods and products to satisfy
increasing customer demand for higher yielding interest-bearing
deposits.
Please refer to the "Consolidated Average Balance Sheet and
Analysis of Net Interest Income" table included on page 22 for a
complete quantitative evaluation of the Company's net interest
margin.
In the third quarter, the Company recorded a provision for loan
losses of $676,000, up from $585,000 in third quarter 1996, due
primarily to increased loan volumes. In the third quarter, the
Company experienced decreased consumer credit delinquencies as a
percent of total consumer loans outstanding. However, due to
increased commercial loan activity and the inherent risk
associated with commercial loans and possible future loan
demand, management expects to maintain the current level of loan
loss provision in the fourth quarter and similar levels into
early 1998.
Non-Interest Income
- -------------------
The Company's non-interest income is generated from four
primary sources: income derived from fiduciary activities,
cost-recovery fees related to deposit accounts, electronic
banking revenues, and income generated by the Company's
insurance agency subsidiaries. In the first nine months and
third quarter of 1997, all of the Company's major sources of
non-interest income grew compared to the same periods a year
earlier. These increases illustrate management's commitment to
continual improvement of the Company's operating performance
through revenue growth associated with a variety of non-interest
income generating activities.
The Company's Investment and Trust Division of Peoples Bank had
a strong third quarter. The fee structure for fiduciary
activities is based primarily on the fair value of assets under
management and since year-end 1996, total assets managed have
increased nearly $20 million to over $450 million at September
30, 1997. As a result of growth in market values and in the
number of accounts served, third quarter income generated from
fiduciary activities totaled $559,000, up 24.5% compared to
$449,000 of revenue in third quarter 1996. The Investment and
Trust Division continues to be a leader in fiduciary services
for the Company's market area and a significant contributor to
the Company's increased revenue related to cost-recovery
services. On a year-to-date basis through September 30, 1997,
revenue from fiduciary activities totaled $1,592,000, up 14.5%
compared to last year's income for the first nine months.
Deposit account service charge income has also increased in
1997 compared to prior periods, due primarily to the full-year
effect of additional cost-recovery fees from deposits acquired
in the Banking Center Acquisition in the second quarter of 1996.
The Company's fee income generated from deposits is based on
cost recoveries associated with services provided. In addition,
non-customer activity in the Company's network of ATM's has
increased and caused a corresponding increase in ATM-related
fees. In the third quarter of 1997, total account service
charge income reached $557,000, compared to $520,000 for the
same period last year, an increase of 7.1%. In the first nine
months of 1997, account service charge income reached
$1,609,000, up $213,000 (or 15.3%) over 1996.
Electronic banking has been a service offered to the Company's
customer's for several years, including ATM cards, direct
deposit services, and debit card services. Recently the
financial services industry has increased its focus on
electronic banking products as a method to enhance relationships
with the customer. In 1997, the cost-recovery fees associated
with these products and services have started to impact the
Company's non-interest income. In the third quarter, total
electronic banking revenue reached $124,000, up $19,000 (or
18.1%) compared to the same period a year earlier. For the nine
months ended September 30, 1997, electronic banking revenues
totaled $345,000, up 33.2% from $259,000 for the same period in
1996. Increases are due primarily to revenues related to the
debit card program launched in late 1996.
In late 1995, First National Bank's subsidiaries, Northwest
Territory Life Insurance Agency, Inc. and Northwest Territory
Property and Casualty Insurance Agency, Inc. (the "Agencies"),
were awarded insurance agency powers in the State of Ohio. The
Agencies received Certificates of Qualification to provide full
life and property insurance product lines to consumers in Ohio.
Although the Agencies' results of operations did not have a
material impact on results of the first nine months or quarter
ended September 30, 1997, they are anticipated to produce income
growth and long-term value to the Company through internal
development as well as external affiliation and acquisition.
Currently the Agencies are generating fee income on sales of
annuities, mutual funds, and other similar investment products,
as well as life insurance policies. Management intends to
develop the Agencies' property and casualty insurance product
lines through both internal development and acquisition of
existing independent agencies.
In addition to traditional deposit products generating
non-interest income for the Company, an agreement with an
unaffiliated securities dealer has also generated non-interest
income through the receipt of lease payments. Management
expects this non-traditional revenue source to continue to
provide incremental earnings for the Company in the future.
Non-Interest Expense
- --------------------
Maintaining acceptable levels of non-interest expense and
operating efficiency continue to be important performance
objectives for the Company. For the quarter ended September 30,
1997, non-interest expense was $4,851,000, an increase of
$273,000 (or 6.0%) compared to the same period last year. This
increase relates primarily to the Acquisitions and related
increased levels of non-interest expense such as salaries and
benefits, intangible amortization, etc. Management has
initiated steps to leverage non-interest expense associated with
market expansion, and believes non-interest expense levels have
stabilized when compared to the previous quarter totals of
non-interest expense.
When comparing year-to-date and quarterly information from 1997
to 1996, it is important to note the changes to the Company's
non-interest expense levels related to the Acquisitions. The
impact of the Acquisitions, including salaries and employee
benefits and amortization of intangibles, represent the majority
of the increase in non-interest expense for the third quarter.
Non-operational items have resulted in significant increases in
the third quarter and first nine months of 1997's non-interest
expense compared to the same periods a year earlier. In
particular, amortization of intangibles totaled $274,000 in
third quarter 1997, compared to $211,000 for the same period
last year, an increase of $63,000 (or 29.9%).
Expenses for human resources also increased through the
Acquisitions and corresponding expansion of the Company's
services and geographic area. For the quarter ended September
30, 1997, salaries and benefits expense increased $189,000 (or
9.8%) to $2,113,000 compared to 1996's third quarter. The
Acquisitions increased the number of employees due to the
retention of many customer service associates. At September 30,
1997, the Company had 304 full-time equivalent employees, up
from 288 employees at December 31, 1996. The Company had
261 employees at March 31, 1996, before the combined impact
of the Acquisitions. Management will continue to strive to
find new ways of increasing efficiencies and leveraging its
resources while concentrating on maximizing customer service.
Compared to the third quarter of 1996, software support and
maintenance costs increased $68,000 to $233,000 in the third
quarter of 1997. These costs are related to upgrades of
existing software products as well as expense for maintenance
agreements for many of the software systems used for product
delivery and enhanced customer service. Management believes
technology is a key factor for the Company's delivery methods
and plans to continue investment in technology to enhance
customer service and improve operating efficiencies.
Many categories within non-interest expense remained at levels
comparable to last year's third quarter and first nine months.
Management believes that non-interest expense was leveraged
through September 30, 1997, and will continue to focus on the
Company's efficiency ratio as a key indicator of performance.
The Company's efficiency ratio totaled 51.48% and 52.02% in the
recent quarter and nine months, compared to 54.02% and 53.81%
for the same periods last year. Management expects the
efficiency ratio to continue to modestly improve throughout the
remainder of 1997 due to continued leveraging of the Company's
non-interest expense to generate net interest income and other
revenue streams.
Return on Assets
- ----------------
For the quarter ended September 30, 1997, return on average
assets ("ROA") totaled 1.29%, up from 1.21% recorded in the same
period a year earlier. Third quarter 1996 ratio's were impacted
by costs incurred related to the Banking Center Acquisition.
For the nine months ended September 30, 1997, ROA totaled 1.28%
compared to 1.29% in 1996. This decrease is a primary result of
the additional amortization expenses related to the
Acquisitions. Also, the Company's Russell Federal Acquisition
(a thrift subsidiary) has caused ROA to decrease slightly in
1997. In general, the thrift industry has historically
performed at lower ROA levels than commercial banks due to the
core competencies usually associated with the thrift industry.
Management anticipates that ROA levels will remain relatively
stable for the remainder of 1997.
Return on Equity
- ----------------
Management believes return on average stockholders' equity
("ROE") is an important indicator of an organization's financial
strength and continues to monitor the performance of the Company
relative to this ratio. The Company's ROE in the third quarter
was 14.33% compared to 13.84% for the same period a year
earlier. On a year-to-date basis, ROE totaled 14.42% for the
nine months ended September 30, 1997, compared to 14.49% last
year.
The Company's capital is adequate under regulatory and industry
standards and has grown through retention of higher earnings
over the last several quarters and the recent growth in the
markup of the Company's equity due to net unrealized holding
gains on the Company's investment portfolio. Total equity for
the Company has increased nearly $5.2 million since December 31,
1996. As a result, the Company's ROE has been tempered in the
third quarter and first nine months of 1997.
Management will focus efforts on enhancing ROE through the
remainder of 1997. Fourth quarter 1997 and 1998 ROE will be
impacted by the Gateway Acquisition and the approximately $15.6
million in equity the Company will issue as a result of the
purchase. Management expects ROE to drop below recent ROE
performance due to the increased equity base of the Company and
will continue to strive to find ways to leverage the capital of
the Company in 1998.
On September 12, 1997, the Company's Board of Directors
authorized the Company to repurchase up to 10,000 treasury
shares at market prices. Newly purchased treasury shares will
be used in the Company's stock option programs. At September
30, 1997, the Company owned no treasury shares and has been
using authorized, unissued shares for recently exercised stock
options.
Federal Income Tax Expense
- --------------------------
Federal income taxes increased from $818,000 in third quarter
of 1996 to $1,039,000 in 1997's third quarter, a change of
$221,000 (or 27.0%) compared to the same period a year earlier.
For the six months ended September 30, 1997, federal income
taxes totaled $2,966,000, an increase of $390,000 (or 15.1%)
compared to the same period a year earlier. These increases can
be attributed to the Company's higher pre-tax income and a
modest decrease in tax-exempt revenue. The Company's effective
tax rate is approximately 32%.
FINANCIAL CONDITION
- -------------------
Overview of Balance Sheet
- -------------------------
Total assets increased from $616.6 million at December 31, 1996
to $679.9 million at September 30, 1997, a growth rate of 10.3%.
The Company continued to leverage its capital base through the
first quarter Acquisitions and strong loan growth in the third
quarter.
The increase in assets can be attributed to the assets acquired
in the Russell Federal Acquisition and the Baltimore Banking
Center Acquisition. The Russell Federal Acquisition boosted the
Company's loan balances by $22.4 million at September 30, 1997.
Internal loan growth also continued its upward trend in the
first nine months of 1997 and particularly the third quarter as
the Company employed more assets into higher-yielding products.
Total loans reached $484.2 million at September 30, compared to
$422.4 million at December 31, 1996. Loan growth has been
steady throughout most of 1997, but third quarter growth was
quite strong, as average loans totaled $473.4 million in third
quarter 1997, up $15.3 million (or 3.3%) compared to the
previous quarter's average.
Total deposits increased $51.1 million (or 10.1%) for the nine
months ended September 30, 1997. External sources provided most
of the growth, as the Russell Federal Acquisition and the
Baltimore Banking Center Acquisition contributed nearly $34
million in deposit growth at September 30, 1997, compared to the
Company's year-end balances. In general, the Company has been
successful maintaining the deposit balances purchased in the
Acquisitions.
Additional deposit growth occurred in interest-bearing demand
deposits and in particular, certificates of deposits ("CD's").
For the three months ended September 30, 1997, average CD
balances increased $9.9 million to $278.1 million. In addition
to retaining many maturing CD's, an aggressively priced
short-term CD offering contributed significant new deposits to
third quarter growth.
Since December 31, 1996, total borrowings increased $7.5
million (or 15.3%) to $56.2 million, while stockholders' equity
increased $5.2 million (or 9.3%) to $61.4 million. The Company
purchased $328,000 of treasury shares in the first nine months
of 1997 and also reissued treasury shares through exercised
stock options, resulting in a zero balance of treasury stock at
September 30, 1997.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents totaled $27.7 million at September
30, 1997, down modestly from year-end 1996's balance of $28.5
million. Balances in cash and cash equivalents have fluctuated
significantly in the first nine months of 1997 due to funds
available from the Baltimore Banking Center Acquisition. In the
third quarter, these balances stabilized. Management considers
cash balances at September 30, 1997, to be normal and reflect
the shifting of balances to other higher-yielding assets such as
loans.
Total cash and cash equivalents fluctuate on a daily basis due
to transactions in process and other liquidity factors.
Management believes the liquidity needs of the Company are
satisfied by the current balance of cash and cash equivalents,
readily available access to traditional and non-traditional
funding sources, and the portion of the investment and loan
portfolios that matures within one year. These sources will
enable the Company to meet funding obligations and off-balance
sheet commitments as they mature.
Investment Securities
- ---------------------
Investments in securities did not significantly fluctuate
during the third quarter of 1997, increasing $1.4 million to
$149.2 million at September 30, 1997. In the third quarter, the
Company purchased $7.2 million of available-for-sale securities
and recorded proceeds from sales or maturities of
available-for-sale securities of $7.4 million.
The increase in the value of the investment portfolio was due
primarily to growth in the market value of the Company's
securities held within the portfolio. The Company's entire
investment portfolio is classified as available-for-sale and as
a result, changes in interest rates have more impact to the
total valuation of investment securities. At September 30,
1997, the Company's markup on investment securities totaled $3.2
million, up $1.2 million since June 30, 1997. Management
believes securities classified as available-for-sale provide
greater flexibility in management of this portfolio to meet
liquidity needs and other funding obligations as they arise.
The Company's balances in specific investment categories
remained relatively unchanged from year-end 1996. The
investment portfolio primarily is comprised of $75.6 million
invested in US Agencies and mortgage-backed securities. The
Company continues a significant investment in US Treasuries,
which totaled $29.3 million at September 30, 1997, up
approximately $4 million since year-end 1996. Tax-exempt
investments totaled $22.8 million at the end of the third
quarter compared to $22.6 million at year-end 1996.
The impact of the Russell Federal Acquisition increased the
Company's total investment securities by $6.2 million at
September 30, 1997. Upon consummation of the Russell Federal
Acquisition, the Company reclassified all of Russell Federal's
investment portfolio to available-for-sale securities to conform
to the Company's investment policy. The majority of Russell
Federal's portfolio is invested in US Treasury and US Agencies
securities.
Management monitors the earnings performance and the
effectiveness of the liquidity of the investment portfolio on a
regular basis through Asset/Liability Committee ("ALCO")
meetings. The ALCO also monitors net interest income, sets
pricing guidelines, and manages interest rate risk for the
Company. Through active balance sheet management and analysis
of the investment securities portfolio, the Company maintains
sufficient liquidity to satisfy depositor requirements and the
various credit needs of its customers.
Loans
- -----
The Company's lending is primarily focused in central and
southeastern Ohio, northern West Virginia, and northeastern
Kentucky markets, and consists principally of retail lending,
which includes single-family residential mortgages and other
consumer lending. The Company's loan volume grew in early 1997
due primarily to the Russell Federal Acquisition. At September
30, 1997, Russell Federal had $22.4 million in loans (primarily
real estate loans).
In the third quarter of 1997, loan originations occurred
primarily in the southeastern and central Ohio markets,
reflecting additional credit opportunities in the markets
served. Average loans in the third quarter totaled $473.4
million, up $15.3 million (or 3.3%) from 1997's first quarter
average of $458.1 million.
The following table details total outstanding loans at the
specified dates:
September 30, December 31,
1997 1996
------------- ------------
Commercial, financial, and agricultural $143,172,000 $127,927,000
Real estate, construction 15,649,000 9,944,000
Real estate, mortgage 209,750,000 175,505,000
Consumer 115,612,000 109,037,000
------------ ------------
Total loans $484,183,000 $422,413,000
============ ============
Real estate loans (excluding construction loans) continue to
comprise the largest portion of the Company's loan portfolio,
totaling over $209 million at September 30, 1997, an increase of
over $34 million since year-end 1996. The Russell Federal
Acquisition boosted loan volume while other markets also
experienced increased loan activity, particularly in the third
quarter. Significant growth continues to occur in 1 to 4 family
residential loans. Average balances in all real estate loans
(including construction loans) totaled $211.5 million for the
third quarter, up $5.3 million compared to the previous quarter.
The majority of real estate loan growth in the third quarter of
1997 occurred primarily in the established markets of
southeastern Ohio.
Since year-end 1996, home equity credit line ("Equiline")
balances increased $1.5 million to $17.0 million at September
30, 1997, reflecting consumer demand in the markets served by
the Company. Equiline growth demonstrates the Company's
commitment for quality loan programs designed to meet the needs
of the customer and management expects the Equiline program to
continue to be an integral part of the Company's array of loan
products.
The largest growth in the third quarter occurred in commercial,
financial, and agricultural loans ("commercial loans"). Average
commercial loan balances increased $7.5 million (or 5.4%)
compared to the previous quarter, to a balance of $146.7
million. 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 loan portfolio while
maintaining appropriate underwriting standards.
Consumer lending continues to be a vital part of the core
lending facilities of the Company. In the third quarter, the
Company's average consumer loans increased $2.5 million to
$115.2 million. The majority of the Company's consumer loans
are in the indirect lending area. At September 30, 1997, the
Company had indirect loan balances of $72.5 million, up $4.2
million since year-end 1996. Management is pleased with the
recent combination of performance and growth of the indirect
segment of the Company's loan portfolio. Lenders use a tiered
pricing system that enables the Company to apply an interest
rate based on the corresponding risk of a loan. Although
consumer debt delinquency is on the rise in the financial
services industry (due mostly to credit card debt), management's
recent actions to reinforce the Company's pricing system and
underwriting criteria have tempered delinquencies and overall
growth of the portfolio. Management expects the indirect
lending portfolio to remain an integral part of the Company's
loan portfolio in future quarters.
Loan Concentration
- ------------------
The Company does not have a concentration of its loan portfolio
in any one industry. In the first quarter of 1997, the Russell
Acquisition increased the Company's loan balances in real estate
lending (both mortgage and construction loans), and this
component continues to comprise the largest balance of the loan
portfolio. Growth in real estate loans continued in the third
quarter, reaching $225.4 million, or 46.6% of total loans at
September 30, 1997, while commercial, financial, and
agricultural loans totaled $143.2 million, or 29.6% of the loan
portfolio. The remaining loans are comprised of loans to
individuals totaling $115.6 million at September 30, 1997, or
23.8% of the loan portfolio.
One of the Company's largest group of commercial loans consists
of automobile dealer floor plans, which totaled $16.1 million at
September 30, 1997. It is the Company's policy to obtain the
underlying inventory as collateral on these loans.
The Company does not extend credit to any single borrower in
excess of the combined legal lending limits of its subsidiary
banks, which approximated $10.2 million at September 30, 1997.
Allowance for Loan Losses
- -------------------------
Despite strong loan growth in recent quarters, the Company's
allowance for loan losses as a percentage of loans increased
modestly from 1.56% at June 30, 1997, to 1.60% at the end of the
third quarter of 1997. Since June 30, 1997, the total dollar
amount of the allowance for loan losses increased $465,000 while
total loans grew $16.7 million in the third quarter. Since
year-end 1996, the total dollar amount of the allowance for loan
losses increased $890,000 while total loans have increased $61.8
million in the nine months ended September 30, 1997.
In the third quarter of 1997, the provision for loan losses
totaled $676,000 compared to $585,000 for the same period last
year. For the nine months ended September 30, 1997, the
provision for loan losses totaled $1,905,000 compared to
$1,380,000 for the same period a year earlier. The Company's
provision for loan losses has increased steadily since the third
quarter of 1996 due to the combination of overall loan growth
and consumer loan delinquencies.
Over the past several years, the Company has been very active
in indirect lending and other personal loans. In late 1996 and
early 1997, management implemented additional measurements of
the Company's indirect lending performance, including a review
of underwriting standards and more aggressive collection of past
due accounts, and as a result, the Company's consumer loan
delinquencies have decreased. Management will continue to
monitor the entire loan portfolio to maintain loan quality and
effective underwriting standards. Anticipated loan growth in
future quarters could impact the provision for loan losses.
The following table presents changes in the Company's allowance
for loan losses:
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
Balance, beginning
of period $7,298,000 $6,723,000 $6,873,000 $6,726,000
Allowance for loan losses
acquired in Russell
Federal Acquisition 120,000
Chargeoffs (376,000) (569,000) (1,529,000) (1,578,000)
Recoveries 165,000 167,000 394,000 378,000
---------- ---------- ---------- ----------
Net chargeoffs (211,000) (402,000) (1,135,000) (1,200,000)
---------- ---------- ---------- ----------
Provision for loan losses 676,000 585,000 1,905,000 1,380,000
---------- ---------- ---------- ----------
Balance, end of period $7,763,000 $6,906,000 $7,763,000 $6,906,000
========== ========== ========== ==========
Chargeoffs in the third quarter of 1997 significantly decreased
compared to the same quarter a year earlier, reflecting
management's commitment to reducing delinquencies and resulting
chargeoffs in the personal loan portfolio. Compared to the
second quarter of 1997, net chargeoffs were down $284,000
(chargeoffs decreased $266,000 and recoveries increased
$18,000). Net chargeoffs in the second quarter of 1997 were
impacted by chargeoffs of several commercial loans. In the
third quarter of 1997, the commercial loan category recorded a
net recovery of approximately $22,000.
Third quarter consumer loan chargeoffs and recoveries totaled
$343,000 and $111,000, respectively, down significantly from
third quarter 1996's totals of gross chargeoffs of $555,000 and
recoveries of $153,000. Unlike many other financial
institutions, where consumer credit problems have occurred in
the credit card segment, a significant portion of the Company's
chargeoffs in 1996 occurred in the consumer loan category and in
particular, indirect lending, which has experienced increased
loan activity in recent reporting periods. Management is
confident that the recent positive trends experienced in the
indirect loan portfolio will continue through the remainder of
1997.
Net chargeoffs in the real estate loan category were lower than
expected and demonstrate the quality of that segment of the loan
portfolio. Management will continue to monitor the entire loan
portfolio to determine the adequacy of the allowance.
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 0.27% at September 30,
1997, compared to 0.31% at June 30, 1997, and 0.39% at year-end
1996. Nonaccrual loans and those loans 90 days past due totaled
$746,000 and $428,000 at September 30, 1997, compared to
$808,000 and $580,000, respectively, at June 30, 1997. Other
real estate owned totaled $147,000 at September 30, 1997,
compared to $67,000 at June 30, 1997. Management believes the
current nonperforming loan ratio is acceptable and reflects the
overall quality of the Company's loan portfolio.
At September 30, 1997, the Company had an insignificant amount
of loans that were considered impaired under Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan" ("SFAS No. 114"), as amended by SFAS
No. 118. Management will continue to monitor the status of
impaired loans, as well as performing and non-performing loans,
in order to determine the appropriate level of the allowance for
loan losses. Management believes the allowance for loan losses
of 1.60% of total loans at September 30, 1997, to be adequate to
absorb inherent losses in the portfolio.
Funding Sources
- ---------------
The Company considers deposits, short-term borrowings, and
long-term borrowings when evaluating funding sources.
Traditional deposits continue to be the most significant source
of funds for the Company, reaching $555.8 million at September
30, 1997, an increase of $10.5 million since June 30, 1997.
Deposit growth in 1997 occurred primarily in the first quarter
through the Russell Federal Acquisition and the Baltimore
Banking Center Acquisition. At September 30, 1997, the impact
of the Russell Federal Acquisition to the Company's total
deposits was $21.0 million (approximately $4.7 million in
savings deposits and $16.3 million in balances of certificates
of deposit). At September 30, 1997, the Baltimore Banking
Center Acquisition contributed approximately $12 million to
1997's deposit growth. The majority of those deposits are
interest-bearing certificates of deposits ("CD's") and
Individual Retirement Accounts ("IRA's").
In addition to funds acquired in the Russell Federal
Acquisition and the Baltimore Banking Center Acquisition, the
Company also experienced internal deposit growth in the third
quarter of 1997 in interest-bearing transaction accounts and
savings accounts. In early 1997, the Company introduced several
"relationship accounts" that provided incentives for new and
existing customers to open deposit accounts (both non-interest
bearing and interest-bearing) based on deposits in other
products such as CD's or IRA's. The program was successful and
as a result, management intends to promote other products in a
similar manner. Total interest-bearing transaction deposits
averaged $130.0 million in the third quarter of 1997, up $5.1
million (or 4.1%) compared to the previous quarter. Total time
deposit balances averaged $278.1 million for the three months
ended September 30, 1997, an increase of $9.9 million (or 3.7%)
compared to the previous quarter.
In the second quarter of 1997, management introduced
aggressively priced 5-month and 10-month CD's. These "specials"
were well-received in the Company's markets and produced
approximately $10 million in additional deposits for the Company
to fund loan growth. The CD specials also allowed the Company
to retain many maturing deposits as competition for deposits
continued to increase in the third quarter of 1997. In early
third quarter, the specials reached volume goals and as a
result, management discontinued offering the specials.
Late in the third quarter of 1997, management introduced a
7-month special designed to retain maturing short-term CD's as
well as provide a competitive product in many of the markets
served by the Company. The 7-month special has been successful
and volume continues to increase in this product. As a result
of the CD specials, total CD balances reached $283.9 million at
September 30, 1997, an increase of $7.5 million in the third
quarter. Management expects CD's to continue to be a vital
funding source for the Company in the future.
Average balances in non-interest bearing demand deposits
decreased $2.1 million to $58.1 million for the three months
ended September 30, 1997. Many customers continue to shift
deposit balances into interest-bearing deposit accounts and
other time deposits in effort to maximize returns. Customers
also shifted deposits into certain interest-bearing checking
accounts during the third quarter due to favorable rates being
offered on those deposits. Management will continue to focus
efforts to maintain the non-interest bearing deposit base of
the Company.
Management feels the deposit base remains the most significant
funding source for the Company and will continue to concentrate
on deposit growth and maintaining adequate net interest margin
to meet the Company's strategic goals.
Short-term borrowings increased during the third quarter to
$24.6 million at September 30, 1997, up from the previous
quarter end balance of $19.8 million, due primarily to increases
in short-term Federal Home Loan Bank ("FHLB") borrowings. At
September 30, 1997, the Company had $4.0 million in short-term
borrowings at the FHLB, compared to $0.6 million at June 30,
1997. In general, the Company accesses this funding source at
various times to meet liquidity needs as they arise. The
Company will continue to access short-term FHLB borrowings as
necessary.
In addition to traditional deposits, the Company continues to
maintain long-term borrowings from the FHLB. This allows the
Company to obtain reliable funds at fixed and indexed rates for
longer periods of time than other traditional deposit products,
creating the opportunity to match longer term fixed rate
mortgages and other extended-maturity asset commitments against
a similar funding source. Total long-term FHLB advances were
$28.6 million at September 30, 1997, a net increase of $1.0
million during the third quarter as a result of a combination of
advances and scheduled principal paydowns. Management plans to
maintain access to long-term FHLB borrowings as an appropriate
funding source.
In order to finance the purchase of the Russell Federal
Acquisition, the Company obtained a $3 million loan from an
unaffiliated financial institution. The remaining funds for the
Russell Federal Acquisition were generated from internal
sources. Principal paydowns are scheduled to begin on the $3
million note in the first quarter of 1998.
On June 17, 1997, the Company and Gateway Bancorp, Inc.
("Gateway"), a Kentucky corporation headquartered in
Catlettsburg, Kentucky, entered into a definitive agreement
providing for the acquisition of Gateway by the Company. The
definitive agreement states the terms of consideration to be
approximately 32% cash and 68% in shares of Company stock,
resulting in an aggregate purchase price of approximately $21.9
million ($6.3 million in cash and $15.6 million in the Company's
stock). Due to the timing of the consummation of the Gateway
transaction, the Company may have to obtain a short-term loan
from an unaffiliated financial institution. Management intends
to ultimately finance the cash portion of the Gateway purchase
with internally generated sources.
Capital/Stockholders' Equity
- ----------------------------
The Company's capital provides a strong base for profitable
growth. Total stockholders' equity was $61.4 million at
September 30, 1997, compared to $58.9 million at June 30, 1997,
and $56.2 million at year-end 1996.
Since the Company's investment portfolio is 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. As a result of first quarter
increases in interest rates, equity growth was slowed in the
first quarter. At September 30, 1997, the impact to equity had
increased $0.7 million since year-end 1996 to $2.1 million, due
to favorable changes in interest rates relative to the Company's
investment portfolio yields.
In the third quarter of 1997, the Company earned $2.2 million
and declared dividends of $657,000 (or $0.19 per share), a
dividend payout ratio of 30.42%, compared to 32.40% in third
quarter 1996. For the nine months ended September 30, 1997, the
Company had net income of $6.3 million and declared dividends of
$1.9 million, a dividend payout ratio of 30.19%, compared to
29.11% for the same period last year. Management feels this is
an acceptable payout ratio and anticipates similar payout ratios
in future periods.
The Company has also complied with the standards of capital
adequacy mandated by the banking industry. Bank regulators have
established "risk-based" capital requirements designed to
measure capital adequacy. Risk-based capital ratios reflect the
relative risks of various assets banks hold in their portfolios.
A weight category of either 0% (lowest risk assets), 20%, 50%,
or 100% (highest risk assets) is assigned to each asset on the
balance sheet. The Company's risk-based capital ratio of 12.53%
at September 30, 1997, is well above the minimum standard of 8%.
The Company's Tier 1 capital ratio of 11.27% also exceeded the
regulatory minimum of 4%. The Leverage ratio at September 30,
1997 was 7.80% and also above the minimum standard of 3%. These
ratios increased slightly during the third quarter and provide
quantitative data demonstrating the strength and future
opportunities for use of the Company's capital base. Management
continues to evaluate risk-based capital ratios and the capital
position of the Company as part of its strategic decision
process.
On December 12, 1996, the Company's Board of Directors
authorized the purchase of 10,000 treasury shares at market
prices for use in conjunction with employee benefit plans. In
early September, the Company had purchased 9,150 treasury
shares. On September 12, 1997, the Board of Directors
authorized the purchase of an additional 10,000 treasury shares
and subsequently, the Company purchased 1,000 treasury shares.
Due to stock option exercises, the Company had no treasury
shares at September 30 for use in its employee benefit plans.
Future exercises will be issued from authorized and unissued
common shares, unless additional treasury shares are purchased.
At November 1, 1997, the Company had 9,000 shares available to
be purchased as treasury shares under the Board's September 12,
1997 authorization.
On or about December 12, 1997, the Company expects to issue
approximately $15.6 million of Peoples Bancorp equity (or
approximately 354,000 shares) to the shareholders of Gateway, in
relation to the transaction described in other sections of this
Form 10-Q. The definitive agreement states the terms of
consideration to be approximately 32% cash and 68% in shares of
Company stock, resulting in an aggregate purchase price of
approximately $21.9 million ($6.3 million in cash and $15.6
million of the Company's stock).
Liquidity
- ---------
Liquidity measures an organization's ability to meet cash
obligations. During the nine months ended September 30, 1997,
the Company generated cash from operating and financing
activities of $8.5 million and $24.9 million, respectively. The
Company used cash flows of $34.2 million in investing
activities, primarily through lending activities.
The major cash inflow in the first nine months of 1997 was the
$24.4 million increase in interest-bearing deposits. The CD
specials offered during the third quarter generated significant
cash flow and retained many existing deposits. Also, the net
cash received from the Acquisitions during the first quarter of
1997 was $4.7 million. Major outlays of cash for the nine
months ended September 30, 1997, included $41.2 million in
loans, of which $16.9 million occurred in the third quarter as
the Company responded to strong loan demand in many of its
markets. The Consolidated Statements of Cash Flows presented on
page 5 of the Company's Consolidated Financial Statements
provides analysis of cash flow activity.
Additionally, management considers that portion of the loan
portfolio that matures within one year and the maturities within
one year in the investment portfolio as part of the Company's
liquid assets. The Company's liquidity is monitored by the
ALCO, which establishes and monitors ranges of acceptable
liquidity. Management feels the Company's current liquidity
position is acceptable.
Interest Rate Sensitivity
- -------------------------
At September 30, 1997, the Company's interest rate sensitivity
position, based on static gap analysis, did not significantly
shift from the previous quarter-end and 1996 year-end:
liability sensitive in the short-term and asset sensitive for
periods longer than one year. In general, static gap
information reflects that the Company is in a net asset
sensitive position for periods beyond three months and in
theory, this means if interest rates increase, the Company's net
interest income will increase over time. Management uses
simulation modeling and forecasting to determine the impact of a
changing interest rate environment. These tools provide dynamic
information concerning the Company's balance sheet structure in
different rate environments. Management believes the Company's
current mix of assets and liabilities provides a reasonable
level of insulation to significant fluctuations in net interest
income and the resulting volatility of the Company's earnings
base.
In the future, management intends to analyze interest rate risk
utilizing a complete risk management model. Currently the ALCO
reviews interest rate risk parameters using in-house technology,
which provides simulation modeling and assists the ALCO in terms
of balance sheet structure and interest rate risk management.
Management considers various hedging products as a method of
minimizing the interest rate risk of the Company's balance
sheet. The Company's management reviews interest rate risk in
relation to its effect on net interest income, net interest
margin, and the volatility of the earnings base of the Company.
Effects of Inflation on Financial Statements
- --------------------------------------------
Substantially all of the Company's assets relate to banking and
are monetary in nature. Therefore they are not impacted by
inflation to the same degree as companies in capital intensive
industries in a replacement cost environment. During a period
of rising prices, a net monetary asset position results in loss
in purchasing power and conversely a net monetary liability
position results in an increase in purchasing power. In the
banking industry, typically monetary assets exceed monetary
liabilities. Therefore as prices have recently increased,
financial institutions experienced a decline in the purchasing
power of their net assets.
Future Outlook
- --------------
Third quarter results of operations represent improved
financial performance through a combination of external growth
and enhanced 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. Investments in
technology provide the opportunity to compete at higher levels
than most other financial institutions of similar size and
enable the Company to meet future customer service challenges.
The Acquisitions in 1996 and 1997 have provided increased
funding sources as well as new markets for the Company. As
expected, the transition of combining the new offices with
existing full-service banking centers went smoothly and
customers in these markets responded favorably to the change.
Management is satisfied with the retention of the acquired
deposits and looks forward to continuing the development of
Russell Federal and the Baltimore office.
The Russell Federal Acquisition in early 1997 established the
Company's first presence in Kentucky as well as in the thrift
industry. In the first nine months of 1997, Russell Federal
initiated strategic steps to leverage its substantial capital
base (as a recently converted mutual savings bank) and increase
earnings potential. The tri-state markets of southern Ohio,
northeastern Kentucky, and western West Virginia offer many
future growth opportunities. By late 1997, the Company intends
to offer its complete program of deposit and loan products to
the customers of northeastern Kentucky through Russell Federal.
As discussed in detail in earlier sections of this Form 10-Q,
on April 25, 1997, the Company announced the signing of a
non-binding letter of intent with Gateway Bancorp, Inc.
("Gateway"), a Kentucky corporation headquartered in
Catlettsburg, Kentucky, providing for the acquisition of
Gateway. A definitive agreement was signed on June 17, 1997.
The aggregate purchase price will approximate $21.9 million
($6.3 million in cash and $15.6 million of the Company's stock)
based on the assumption that the Company's market value of
common stock is $44.00 (the average of the closing high bid and
low asked price of the Company's common stock per the Nasdaq
National Market on October 31, 1997).
Necessary regulatory approval has been obtained and the
acquisition is subject to approval of Gateway shareholders at a
special meeting to be held December 4, 1997. Pending Gateway
shareholder approval, completion of the purchase is expected to
occur on or about December 12, 1997, and would represent the
Company's second acquisition of a thrift subsidiary and
subsequent expansion of the Company's presence in northeastern
Kentucky. As of September 30, 1997, Gateway had approximately
$62.6 million in total assets, $44.9 million in deposits, and
$17.4 million in stockholder's equity.
Currently neither Russell Federal nor Gateway offer
non-interest bearing deposit accounts to their markets. After
the consummation of the Gateway acquisition, management intends
to expand Russell Federal's and Gateway's current product
offerings and focus on leveraging existing resources as well as
additional technological and strategic resources that will
enhance customer service and increase market penetration. These
strategic actions are designed to enhance the product offerings
at the Company's thrifts to maximize the relationship with
current customers as well as increase the potential to attract
new customers in those markets.
Management is excited by the opportunity to expand the
Company's presence in northeastern Kentucky and contiguous
metropolitan areas in West Virginia. The nearby Ashland,
Kentucky - Huntington, West Virginia metropolitan market
represents an opportunity to provide the Company's array of
financial products to many commercial and consumer customers
through Gateway's network of offices and customer service
resources. Management intends to leverage the significant
capital bases of Gateway and Russell Federal through expansion
of product offerings and increased market penetration as well as
a focus on customer retention.
Management continues to view a combination of external growth
and internal development as strategic goals to enhance
shareholder return. While results through September 30, 1997,
reflect that the Company's earning assets were positioned to
provide strong net interest income, the interest rate
environment will play an important role in the future earnings
of the Company. Although management is satisfied with third
quarter 1997's net interest margin, continuing pressures on net
interest margin are likely to intensify in the future.
In addition to the special short-term CD's that were introduced
during the third quarter, management has implemented new pricing
strategies to generate deposits and effectively retain the new
deposits assumed through the Acquisitions. This strategy
includes a tiered CD pricing structure in which the customer
earns a higher interest rate by investing more money in a CD
product. This product has been well-accepted by many customers
in the markets served by the Company and has provided additional
deposit growth in the third and fourth quarters of 1997.
Management expects this new CD product to be an integral part of
the Company's deposit product offerings in the future.
The Company's balance sheet growth continues to be a focus of
management. The recent CD specials boosted the Company's
funding sources and provided opportunity for asset growth
through increased loan activity. Management expects commercial
loan demand to provide additional income opportunities for the
Company during the remainder of 1997. At September 30, 1997,
the loan to deposit ratio totaled 87.12%, up from 85.72% at June
30, 1997. Management is comfortable with the current loan to
deposit ratio and expects the ratio to stabilize or increase
slightly in the future due to anticipated loan demand.
The recent increase in loan balances has also spurred increases
in the provision for loan losses. Management is pleased with a
slowdown of consumer loan chargeoffs in the third quarter and
expects future consumer loan chargeoffs to be consistent with
third quarter results. Management feels the current allowance
for loan losses is adequate to absorb losses inherent in the
loan portfolio at September 30, 1997. However, future provision
for loan losses are affected by the delinquencies in all loan
categories, and as a result, may increase in future quarters as
anticipated loan growth occurs.
Management is in the process of using simulation data in its
analysis of the earnings potential of the Company and how it
relates to changes in interest rates. Simulation data indicates
the Company is asset sensitive. Management believes the balance
sheet is adequately positioned to avoid significant earnings
volatility and analyzes the use of off-balance sheet instruments
to temper interest rate risk. The Company's ALCO Committee
holds regular meetings to discuss and analyze earnings potential
in relation to the Company's balance sheet composition.
The Company continues to research methods to provide electronic
banking services to its customers. The Company's successful
debit card has been well-received by many customers and should
continue to generate increasing revenue streams. In early 1998,
the Company plans to introduce a PC-based cash management
product that will be offered for both consumer and commercial
customers. In the fourth quarter of 1997, management intends to
begin testing the cash management product at several "beta"
sites. Management believes that "home banking" and "PC banking"
are future services that must be part of the Company's core
delivery of services. The Company is aware of changing consumer
preferences related to financial product delivery systems and
believes that PC banking will emerge as a major financial
product delivery system for many of the Company's customers.
Management recognizes the importance of electronic banking to
its customer base and continues to focus efforts designed to
enhance this process and allow customers unlimited banking
products and services at their convenience.
In addition to increased market penetration in Kentucky, the
Company intends to increase its market presence in southeastern
Ohio with the opening of a new full-service office in Athens,
Ohio. In early 1998, Peoples Bank will open a full-service
banking facility in the newly renovated HDL Center at 152 Union
Street in downtown Athens, near the Ohio University campus. The
facility will be a full-service center, including an ATM, a
drive-through facility, and will have loans and investment
services. The Company has received regulatory approval from the
FDIC for the opening of the Union Street office.
The Union Street office will complement two existing
full-service offices in Athens as well as offices in nearby
Nelsonville and The Plains. The expansion of Peoples Bank's
presence in Athens (in southeastern Ohio) represents a strategic
initiative designed to capture increased market share in this
area.
In addition to the new full-service facility in Athens, Peoples
Bank continues plans to refurbish its office in Baltimore,
adding drive-through customer service areas. First National
Bank is in initial stages of rehabilitating its downtown
Caldwell office to enhance customer service. Also, First
National Bank has added an ATM location near a major highway,
providing improved customer service and cost-recovery
opportunities through convenient access by non-customers.
Enhancements to the Company's existing facilities will improve
customer service and emphasize the Company's existing strengths
in serving our customers.
Management concentrates on return on equity and earnings per
share objectives, plus other methods, to measure and direct the
performance of the Company. New products and services are
consistently being evaluated for consumer acceptance and
potential return on the Company's investment. While past
results are not an indication of future earnings, management
feels the Company is positioned to maintain current levels of
performance through the remainder of 1997 and into 1998.
"Safe Harbor" Statement under the Private Securities Litigation
Reform Act of 1995
- ---------------------------------------------------------------
The statements in this Form 10-Q which are not historical fact
are forward looking statements that involve risks and
uncertainties, including, but not limited to, the interest rate
environment, the effect of federal and state banking and tax
regulations, the effect of economic conditions, the impact of
competitive products and pricing, and other risks detailed in
the Company's Securities and Exchange Commission filings.
PEOPLES BANCORP INC. AND SUBSIDIARIES
- -------------------------------------
CONSOLIDATED AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST INCOME
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
Average Yield/ Average Yield/ Average Yield/ Average Yield/
Balance Rate Balance Rate Balance Rate Balance Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Securities:
Taxable $125,136 6.78% $131,156 6.80% $125,547 6.83% $127,866 6.76%
Tax-exempt 21,937 8.26% 22,514 8.49% 22,023 8.31% 22,747 8.46%
-------- ------ -------- ------ -------- ------ -------- ------
Total 147,073 7.00% 153,670 7.04% 147,570 7.05% 150,613 7.02%
Loans:
Commercial 146,666 9.63% 126,879 9.60% 140,240 9.56% 122,426 9.55%
Real estate 211,509 8.54% 178,202 8.36% 206,409 8.48% 168,553 8.48%
Consumer 115,190 10.43% 102,145 10.90% 112,376 10.40% 101,807 10.80%
-------- ------ -------- ------ -------- ------ -------- ------
Total loans 473,365 9.34% 407,226 9.38% 459,025 9.28% 392,786 9.42%
Less: Allowance
for loan loss (7,816) (6,726) (7,404) (6,726)
-------- ------ -------- ------ -------- ------ -------- ------
Net loans 465,549 9.50% 400,500 9.54% 451,621 9.43% 386,060 9.58%
Interest-bearing
deposits 733 3.68% 241 4.25% 1,160 4.17% 765 4.80%
Federal funds sold 8,353 5.60% 2,961 5.35% 7,585 5.49% 6,180 5.34%
-------- ------ -------- ------ -------- ------ -------- ------
Total earning assets 621,708 8.85% 557,372 8.83% 607,936 8.79% 543,618 8.82%
Other assets 48,425 47,198 48,272 40,954
-------- -------- -------- --------
Total assets $670,133 $604,570 $656,208 $584,572
======== ======== ======== ========
LIABILITIES AND EQUITY
Interest-bearing
deposits:
Savings $ 82,674 3.03% $ 78,869 3.03% $ 83,631 3.04% $ 75,526 3.03%
Interest-bearing
demand deposits 130,049 3.53% 118,047 3.25% 124,913 3.43% 109,097 3.29%
Time 278,057 5.55% 241,540 5.42% 271,036 5.53% 229,484 5.54%
-------- ------ -------- ------ -------- ------ -------- ------
Total 490,780 4.59% 438,456 4.41% 479,580 4.55% 414,107 4.49%
Borrowed funds:
Short-term 23,756 4.78% 19,184 4.25% 21,007 4.41% 33,499 4.97%
Long-term 30,384 6.26% 30,754 6.20% 30,881 6.27% 25,274 6.11%
-------- ------ -------- ------ -------- ------ -------- ------
Total 54,140 5.61% 49,938 5.45% 51,888 5.52% 58,773 5.46%
-------- ------ -------- ------ -------- ------ -------- ------
Total interest
bearing liabilities 544,920 4.69% 488,394 4.51% 531,468 4.64% 472,880 4.61%
Non-interest
bearing deposits 58,108 56,500 59,209 53,380
Other liabilities 6,880 6,800 7,395 6,021
-------- -------- -------- --------
Total liabilities 609,908 551,694 598,072 532,281
Stockholders' equity 60,225 52,876 58,136 52,291
-------- -------- -------- --------
Total liabilities
and equity $670,133 $604,570 $656,208 $584,572
======== ======== ======== ========
Interest income to
earning assets 8.85% 8.83% 8.79% 8.82%
Interest expense to
earning assets 4.12% 3.95% 4.06% 4.01%
------ ------ ------ ------
Net interest margin 4.73% 4.88% 4.73% 4.81%
====== ====== ====== ======
Interest income and yields presented on a fully tax-equivalent
basis using a 34% tax rate.
</TABLE>
PART II
- -------
ITEM 1: Legal Proceedings.
None.
ITEM 2: Changes in Securities.
None.
ITEM 3: Defaults upon Senior Securities.
None.
ITEM 4: Submission of Matters to a Vote of Security Holders.
None.
ITEM 5: Other Information.
None
ITEM 6: Exhibits and Reports on Form 8-K.
a) Exhibits:
EXHIBIT INDEX
-------------
Exhibit Number Description Exhibit Location
- -------------- ---------------------------------- ----------------
11 Computation of Earnings Per Share. Page 26.
27 Financial Data Schedule. EDGAR electronic
filing only.
b) Reports on Form 8-K: None
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunder duly authorized.
PEOPLES BANCORP INC.
Date: November 4, 1997 By: /s/ ROBERT E. EVANS
Robert E. Evans
President and Chief Executive Officer
Date: November 4, 1997 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 SEPTEMBER 30, 1997
--------------------------------------------------
Exhibit Number Description Exhibit Location
- -------------- ---------------------------------- ----------------
11 Computation of Earnings Per Share. Page 26.
27 Financial Data Schedule. EDGAR electronic
filing only.
EXHIBIT 11
==========
PEOPLES BANCORP INC. AND SUBSIDIARIES
-------------------------------------
COMPUTATION OF EARNINGS PER SHARE
---------------------------------
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
PRIMARY EARNINGS PER SHARE
- --------------------------
EARNINGS:
Net income $2,158,000 $1,830,000 $6,285,000 $5,682,000
COMMON SHARES OUTSTANDING:
Weighted average common
shares outstanding* 3,453,943 3,391,571 3,449,956 3,435,772
Add: net effect of the
assumed exercise of
outstanding stock
options - based on the
treasury stock method 120,323 39,269 100,344 33,769
---------- ---------- ---------- ----------
Total primary weighted
average shares outstanding 3,574,266 3,430,840 3,550,300 3,469,541
---------- ---------- ---------- ----------
PRIMARY EARNINGS PER SHARE $0.60 $0.53 $1.77 $1.64
---------- ---------- ---------- ----------
FULLY DILUTED EARNINGS PER SHARE
- --------------------------------
EARNINGS:
Net income $2,158,000 $1,830,000 $6,285,000 $5,682,000
COMMON SHARES OUTSTANDING:
Weighted average common
shares outstanding* 3,453,943 3,391,571 3,449,956 3,435,772
Add: net effect of the
assumed exercise of
outstanding stock
options - based on the
treasury stock method 128,972 51,576 126,784 51,503
---------- ---------- ---------- ----------
Total fully diluted
weighted average shares
outstanding 3,582,915 3,443,147 3,576,740 3,487,275
---------- ---------- ---------- ----------
FULLY DILUTED EARNINGS
PER SHARE $0.60 $0.53 $1.76 $1.63
---------- ---------- ---------- ----------
* Adjusted for 10% stock dividend issued to stockholders of record
at July 15, 1996.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Form 10-Q filed as of September 30, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 27,072
<INT-BEARING-DEPOSITS> 583
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 149,209
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 484,183
<ALLOWANCE> 7,763
<TOTAL-ASSETS> 679,947
<DEPOSITS> 555,779
<SHORT-TERM> 24,579
<LIABILITIES-OTHER> 6,605
<LONG-TERM> 31,593
0
0
<COMMON> 34,399
<OTHER-SE> 26,992
<TOTAL-LIABILITIES-AND-EQUITY> 679,947
<INTEREST-LOAN> 31,848
<INTEREST-INVEST> 6,391
<INTEREST-OTHER> 1,284
<INTEREST-TOTAL> 39,523
<INTEREST-DEPOSIT> 16,321
<INTEREST-EXPENSE> 18,467
<INTEREST-INCOME-NET> 21,056
<LOAN-LOSSES> 1,905
<SECURITIES-GAINS> (31)
<EXPENSE-OTHER> 14,277
<INCOME-PRETAX> 9,251
<INCOME-PRE-EXTRAORDINARY> 6,285
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,285
<EPS-PRIMARY> 1.77
<EPS-DILUTED> 1.76
<YIELD-ACTUAL> 4.73
<LOANS-NON> 746
<LOANS-PAST> 428
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,873
<CHARGE-OFFS> 1,529
<RECOVERIES> 394
<ALLOWANCE-CLOSE> 7,763
<ALLOWANCE-DOMESTIC> 7,763
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 856
</TABLE>
