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 March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____ to ____
Commission file number 0-16772
PEOPLES BANCORP INC.
------------------------------------------------------
(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
- ------------------------------------------------ --------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (740) 373-3155
--------------
Indicate by check mark whether the registrant (1) has filed all
reports required by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the
issuer's class of Common Stock, as of May 1, 1998: 5,758,225.
<PAGE>
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1
- ------
The following Condensed Consolidated Balance Sheets,
Consolidated Statements of Income, Consolidated Statements of
Shareholders' Equity, and Consolidated Statements of Cash Flows
of Peoples Bancorp Inc. (the "Company") and subsidiaries,
reflect all adjustments (which include normal recurring
accruals) necessary to present fairly such information for the
periods and dates indicated. Since the following condensed
unaudited financial statements have been prepared in accordance
with instructions to Form 10-Q, they do not contain all
information and footnotes necessary for a fair presentation of
financial position in conformity with generally accepted
accounting principles. Operating results for the three months
ended March 31, 1998, are not necessarily indicative of the
results that may be expected for the year ending December 31,
1998. Complete audited consolidated financial statements with
footnotes thereto are included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. Significant
intercompany accounts and transactions have been eliminated.
<PAGE>
PEOPLES BANCORP INC. AND SUBSIDIARIES
- -------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
=====================================
(Dollars in thousands) March 31, December 31,
1998 1997
ASSETS
- ------
Cash and cash equivalents:
Cash and due from banks $ 28,038 $ 21,473
Interest-bearing deposits in other banks 3,122 7,008
Federal funds sold 1,100 10,350
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Total cash and cash equivalents 32,260 38,831
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Available-for-sale investment securities,
at estimated fair value (amortized cost
of $218,062 and $170,702 at March 31,
1998 and December 31, 1997, respectively) 221,317 174,291
- -------------------------------------------------------------------------
Loans, net of unearned interest 518,834 521,570
Allowance for loan losses (8,825) (8,356)
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Net loans 510,009 513,214
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Bank premises and equipment, net 12,642 11,971
Other assets 21,265 19,851
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Total assets $797,493 $758,158
=========================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits:
Non-interest bearing $ 65,525 $ 64,229
Interest bearing 550,306 546,878
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Total deposits 615,831 611,107
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Short-term borrowings:
Federal funds purchased and securities
sold under repurchase agreements 31,739 30,811
Federal Home Loan Bank term advances 17,500 1,750
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Total short-term borrowings 49,239 32,561
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Long-term borrowings 44,387 28,577
Accrued expenses and other liabilities 8,132 7,095
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Total liabilities 717,589 679,340
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Stockholders' Equity
- --------------------
Common stock, no par value, 12,000,000
shares authorized - 5,764,286 shares
issued at March 31, 1998 and 3,831,206
issued at December 31, 1997, including
shares in treasury 50,283 50,001
Accumulated comprehensive income,
net of deferred income taxes 2,116 2,369
Retained earnings 28,094 26,448
- -------------------------------------------------------------------------
80,493 78,818
Treasury stock, at cost, 20,961 shares
at March 31, 1998 and no shares at
December 31, 1997 (589) 0
- -------------------------------------------------------------------------
Total stockholders' equity 79,904 78,818
- -------------------------------------------------------------------------
Total liabilities and
stockholders' equity $797,493 $758,158
=========================================================================
<PAGE>
PEOPLES BANCORP INC. AND SUBSIDIARIES
- -------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
===========================================
(Dollars in thousands, except per share data) Three Months Ended
March 31,
1998 1997
Interest income $15,364 $12,762
Interest expense 7,320 5,918
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Net interest income 8,044 6,844
Provision for loan losses 696 588
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Net interest income after
provision for loan losses 7,348 6,256
Other income 1,618 1,418
Gain (loss) on sale of securities 4 (29)
Other expenses 5,414 4,705
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Income before income taxes 3,556 2,940
Federal income taxes 1,180 938
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Net income $ 2,376 $ 2,002
=========================================================================
Basic earnings per share $0.41 $0.39
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Diluted earnings per share $0.40 $0.38
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Weighted average shares outstanding (basic) 5,746,684 5,168,804
- -------------------------------------------------------------------------
Weighted average shares outstanding (diluted) 5,937,144 5,292,567
- -------------------------------------------------------------------------
Cash dividends declared $730 $620
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Cash dividend per share $0.13 $0.12
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<PAGE>
<TABLE>
PEOPLES BANCORP INC. AND SUBSIDIARIES
- -------------------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
==============================================
(Dollars in thousands, except share amounts)
Accumulated
Other
<CAPTION> Common Stock Retained Treasury Comprehensive
Shares Amount Earnings Stock Income Total
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 3,831,206 $50,001 $26,448 $ 0 $ 2,369 $78,818
- --------------------------------------------------------------------------------------------------------
Adjustment for the effect of 3-for-2
common stock split 1,915,603
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Balance, December 31, 1997 restated 5,746,809
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Comprehensive income:
Net income 2,376 2,376
Other comprehensive income,
net of tax:
Unrealized losses on available-
for-sale securities, net of
reclassification adjustment (253) (253)
- --------------------------------------------------------------------------------------------------------
Other comprehensive income (253)
- --------------------------------------------------------------------------------------------------------
Comprehensive income 2,123
Exercise of common stock options 14,009 182 182
Cash dividends declared (730) (730)
Common stock issued under dividend
reinvestment plan 3,468 100 100
Purchase of treasury stock,
20,961 shares (589) (589)
- --------------------------------------------------------------------------------------------------------
Balance, March 31, 1998 5,764,286 $50,283 $28,094 $ (589) $ 2,116 $79,904
========================================================================================================
Comprehensive Income:
- ---------------------
Unrealized holding losses on
available-for-sale securities
arising during the period,
net of income taxes (256)
Less: reclassification adjustment
for gains realized in net income,
net of income taxes 3
- --------------------------------------------------------------------------------------------------------
Net unrealized losses on
available-for-sale securities,
net of tax (253)
========================================================================================================
</TABLE>
<PAGE>
PEOPLES BANCORP INC. AND SUBSIDIARIES
- -------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
=====================================
(Dollars in thousands) Three Months Ended
March 31,
1998 1997
Cash flows from operating activities:
- -------------------------------------
Net income $ 2,376 $ 2,002
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 696 588
(Gain) loss on sale of investment securities (4) 29
Depreciation, amortization, and accretion 1,006 651
Increase in interest receivable (152) (113)
Increase (decrease) in interest payable 164 (13)
Deferred income taxes 522 209
Deferral of loan origination fees and costs 21 24
Other, net (1,711) (97)
- -------------------------------------------------------------------------
Net cash provided by
operating activities 2,918 3,280
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Cash flows from investing activities:
- -------------------------------------
Purchases of available-for-sale securities (65,733) (4,591)
Proceeds from sales of available-for-sale
securities 4,026 2,995
Proceeds from maturities of available-for-sale
securities 14,527 3,921
Net decrease (increase) in loans 2,488 (5,245)
Expenditures for premises and equipment (1,093) (146)
Proceeds from sales of other real estate owned 79 28
Business acquisitions, net of cash received 4,679
- -------------------------------------------------------------------------
Net cash (used in) provided by
investing activities (45,706) 1,641
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Cash flows from financing activities:
- -------------------------------------
Net increase (decrease) in non-interest
bearing deposits 1,296 (3,480)
Net increase in interest-bearing deposits 3,470 9,451
Net increase (decrease) in short-term
borrowings 16,678 (1,563)
Proceeds from long-term borrowings 16,500 3,000
Payments on long-term borrowings (690) (837)
Cash dividends paid (630) (496)
Purchase of treasury stock (589) (31)
Proceeds from issuance of common stock 182 47
- -------------------------------------------------------------------------
Net cash provided by
financing activities 36,217 6,091
- -------------------------------------------------------------------------
Net increase in cash and cash equivalents (6,571) 11,012
Cash and cash equivalents at beginning
of period 38,831 28,517
- -------------------------------------------------------------------------
Cash and cash equivalents at end of period $32,260 $39,529
=========================================================================
<PAGE>
NOTES TO FINANCIAL STATEMENTS
=============================
Basis of Presentation
- ---------------------
The accounting and reporting policies of Peoples Bancorp Inc.
and Subsidiaries (the "Company") conform to generally accepted
accounting principles and to general practices within the
banking industry. The Company considers all of its principal
activities to be banking related. The preparation of the
financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates. The consolidated financial statements
include the accounts of the Company and its wholly-owned
subsidiaries. Significant intercompany accounts and
transactions have been eliminated. On April 13, 1998, the
Company declared a 3-for-2 stock split effective April 30, 1998.
Accordingly, all per share data have been restated to reflect
the dividend.
1. Acquisitions
- ----------------
The following text will include references to several
acquisition transactions that have affected and/or will affect
the Company's results of operations.
On December 12, 1997, the Company completed the purchase of
Gateway Bancorp, Inc. and its subsidiary, Catlettsburg Federal
Savings Bank ("Catlettsburg Federal"), of Catlettsburg,
Kentucky, for approximately $21.6 million in a combination of
cash of $6.2 million and 365,472 shares (before the 3-for-2
stock split issued in April 1998) of Company stock ("Gateway
Bancorp Acquisition" or "Catlettsburg Federal Acquisition").
Management has continued to operate Catlettsburg Federal as a
federal savings bank subsidiary of the Company. Catlettsburg
Federal had total assets of $64.3 million and deposits of $43.8
million at December 12, 1997.
In January, 1998, the Company reincorporated Russell Federal as
a subsidiary of Gateway Bancorp to align the Company's business
units in northeast Kentucky. Russell Federal and Catlettsburg
Federal serve the financial needs of customers in northeast
Kentucky, in particular Greenup and Boyd Counties, its primary
market areas. Its principal products include savings accounts,
time certificates of deposit and commercial and residential real
estate loans. Russell Federal provides services from a walk-in
office and Motor Bank located on Ferry Street in the city of
Russell. Catlettsburg Federal has three full-service locations
in the communities of Catlettsburg, Grayson, and a recently
completed office near Ashland, Kentucky.
On January 20, 1998, the Company announced the signing by one
of its subsidiaries, The Peoples Banking and Trust Company
("Peoples Bank") of an agreement to acquire multiple
full-service banking offices located in the communities of Point
Pleasant (two offices), New Martinsville, and Steelton, West
Virginia ("West Virginia Banking Center Acquisition") from an
unaffiliated institution. In the transaction, Peoples Bank will
assume approximately $125 million in deposits and purchase $10
million in loans. The acquisition is contingent upon regulatory
approval and other conditions and is expected to be completed on
or about June 26, 1998.
2. New Accounting Pronouncements
- ---------------------------------
In June 1996, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS No. 125") that provides
accounting and reporting standards for transfers of financial
assets and extinguishments of liabilities. SFAS No. 125
significantly changes the accounting rules for determining
whether a transfer represents a sale or secured borrowing
transaction. Portions of SFAS No. 125 were applicable for the
Company effective January 1, 1997 and did not have a material
impact on the Company's financial statements.
On January 1, 1998, the Company adopted the provisions of SFAS
No. 125 for securities lending, repurchase agreements, dollar
rolls and other similar secured transactions which had been
delayed until after December 31, 1997. The adoption of
Statement No. 125 as it relates to securities lending,
repurchase agreements, dollar rolls, and other similar
transactions did not have a material effect on the Company's
financial statements.
On January 1, 1998, the Company also adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). SFAS No. 130 requires that certain
items of comprehensive income that are reported directly within
a separate component of stockholders' equity be displayed with
the same prominence as other financial statements. The adoption
of SFAS No. 130 had no impact on the financial position, results
of operations, stockholders' equity, or cash flows of the
Company.
<PAGE>
ITEM 2
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
===============================================
SELECTED FINANCIAL DATA
The following data should be read in conjunction with the
unaudited consolidated financial statements and the management
discussion and analysis that follows.
For the Three Months Ended
March 31,
1998 1997
SIGNIFICANT RATIOS
==================
Net income to:
- --------------
Average assets* 1.22% 1.24%
- -------------------------------------------------------------------------
Average shareholders' equity* 11.94% 14.12%
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Net interest margin* 4.60% 4.72%
- -------------------------------------------------------------------------
Efficiency ratio* 52.06% 52.80%
- -------------------------------------------------------------------------
Average shareholders' equity to average assets 10.25% 8.80%
- -------------------------------------------------------------------------
Loans net of unearned interest to deposits
(end of period) 84.25% 82.71%
- -------------------------------------------------------------------------
Allowance for loan losses to loans net of
unearned interest (end of period) 1.70% 1.59%
- -------------------------------------------------------------------------
Capital ratios:
- ---------------
Tier I capital ratio 12.87% 11.20%
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Risk-based capital ratio 14.13% 12.45%
- -------------------------------------------------------------------------
Leverage ratio 8.60% 7.53%
- -------------------------------------------------------------------------
Cash dividends to net income 30.72% 30.97%
- -------------------------------------------------------------------------
PER SHARE DATA
==============
Book value per share $13.91 $10.92
- -------------------------------------------------------------------------
Market value per share at end of period
(closing price) $32.17 $20.17
- -------------------------------------------------------------------------
Diluted earnings per share $0.40 $0.38
- -------------------------------------------------------------------------
Cash dividends per share $0.13 $0.12
- -------------------------------------------------------------------------
* Net income to average assets, net income to average
shareholders' equity, net interest margin, and efficiency ratio
are presented on an annualized basis.
Net interest margin is calculated using fully tax equivalent net
interest income as a percentage of average earning assets.
Efficiency ratio is a ratio of non-interest expense (less
intangible amortization and non-direct operational expenses) as
a percentage of fully tax equivalent net interest income plus
non-interest income. All non-recurring items are removed from
the calculation of the Company's efficiency ratio.
<PAGE>
Introduction
- ------------
The following discussion and analysis of the consolidated
financial statements of the Company is presented to provide
insight into management's assessment of the financial results.
The Company's subsidiaries, The Peoples Banking and Trust
Company ("Peoples Bank"); The First National Bank of
Southeastern Ohio ("First National Bank"); Gateway Bancorp, Inc.
and its subsidiaries, Catlettsburg Federal Savings Bank
("Catlettsburg Federal") and Russell Federal Savings Bank
("Russell Federal"); and The Northwest Territory Life Insurance
Company ("Northwest Territory"), provide financial services to
individuals and businesses within the Company's market area.
Peoples Bank is chartered by the state of Ohio and subject to
regulation, supervision, and examination by the Federal Deposit
Insurance Corporation ("FDIC") and the Ohio Division of Banks.
First National is a member of the Federal Reserve System and
subject to regulation, supervision, and examination by the
Office of the Comptroller of the Currency ("OCC"). Catlettsburg
Federal and Russell Federal are members of the Federal Home Loan
Bank, and are subject to the regulation, supervision, and
examination by the Office of Thrift Supervision ("OTS"), and are
also subject to limited regulation by the Board of Governors of
the Federal Reserve System. The discussion and analysis should
be read in conjunction with the prior year-end audited
consolidated financial statements and footnotes thereto and the
ratios, statistics, and discussions contained elsewhere in this
Form 10-Q.
References will be found in this Form 10-Q to several
acquisition transactions that have affected and/or will affect
the Company's results of operations. In January 1997, the
Company completed the purchase of Russell Federal in Russell,
Kentucky, for approximately $9.25 million in cash ("Russell
Federal Acquisition"). Management has continued Russell
Federal's operations as a federal savings bank subsidiary of the
Company. Russell Federal had total assets of $28.0 million and
deposits of $19.5 million at December 31, 1996. On February 28,
1997, Peoples Bank acquired one full-service banking office
located in Baltimore, Ohio, ("Baltimore Banking Center
Acquisition"), by assuming approximately $12.5 million in
deposits from an unrelated financial institution. This
full-service banking office is located in Fairfield County in
central Ohio. On December 12, 1997, the Company completed the
purchase of Gateway Bancorp, Inc. and its subsidiary,
Catlettsburg Federal, of Catlettsburg, Kentucky, for
approximately $21.6 million in a combination of cash of $6.2
million and 365,472 shares of Company stock ("Gateway Bancorp
Acquisition" or "Catlettsburg Federal Acquisition"). Management
has continued to operate Catlettsburg Federal as a federal
savings bank subsidiary of the Company. Catlettsburg Federal
had total assets of $64.3 million and deposits of $43.8 million
at December 12, 1997. In January, 1998, the Company
reincorporated Russell Federal as a subsidiary of Gateway
Bancorp to align the Company's business units in northeast
Kentucky. On January 20, 1998, the Company announced the
signing by Peoples Bank of an agreement to acquire multiple
full-service banking offices located in the communities of Point
Pleasant (two offices), New Martinsville, and Steelton, West
Virginia ("West Virginia Banking Center Acquisition") from an
unaffiliated institution. In the agreement, Peoples Bank will
assume approximately $125 million in deposits and purchase $10
million in loans. The acquisition is contingent upon regulatory
approval and other conditions and is expected to be completed on
or around June 26, 1998.
RESULTS OF OPERATIONS
=====================
Overview of the Income Statement
- --------------------------------
For the quarter ended March 31, 1998, the Company earned
$2,376,000, an 18.7% increase from $2,002,000 in first quarter
1997. Net income increased in the first three months of 1998
due primarily to stronger earnings in existing business units
and additional revenue streams associated with recent
acquisitions. Net interest income totaled $8,044,000, up
$1,200,000 (or 17.5%) compared to the same period last year.
First quarter provision for loan losses totaled $696,000 in the
first quarter of 1998 compared to $588,000 in 1997's first
quarter.
Non-interest income increased $200,000 (or 14.1%) to
$1,618,000, due primarily to increased fiduciary fees from the
Company's Investment and Trust Division, deposit service
charges, and electronic banking fees. Non-interest expense for
the first quarter totaled $5,414,000, up $709,000 (or 15.1%)
from last year. The growth in non-interest expense was due
primarily to the Company's recent acquisitions and related
expenses, such as salaries and benefits expense and amortization
of intangibles. The Company's efficiency ratio improved to
52.06% in the first quarter of 1998 compared to 52.80% for the
same period a year earlier.
First quarter diluted earnings per share increased 5.3% from
$0.38 last year to $0.40 in the first quarter of 1998. All
references to per share amounts have been adjusted to reflect a
3-for-2 stock split issued to shareholders on April 30, 1998 (to
shareholders of record as of April 13, 1998).
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 interests
accounting. In the first quarter of 1998, intangible
amortization expense totaled $370,000 ($272,000 after taxes)
compared to $240,000 ($156,000 after taxes) for the same period
a year earlier. After adjusting for the after-tax effect of the
amortization of intangibles, diluted cash earnings per share for
the quarter ended March 31, 1998 was $0.45, up $0.04 from $0.41
in diluted cash earnings per share in the first quarter of 1997.
Management uses cash earnings as one of several ways to
evaluate the impact of acquisitions to profitability and the
Company's return on its investment. Increased amortization of
intangibles in 1998 also impacted 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
continue to supplement future financial analysis with discussion
concerning cash earnings per share, as previously defined.
Interest Income and Expense
- ---------------------------
Net interest income is the amount by which interest income on
earning assets exceeds interest paid on interest-bearing
liabilities. Interest earning assets include loans and
investment securities. Interest-bearing liabilities include
interest-bearing deposits and borrowed funds. Net interest
income remains the primary source of revenue for the Company.
Changes in market interest rates, as well as changes in the mix
and volume of interest-earning assets and interest-bearing
liabilities, impact net interest income.
When compared to prior year, increased earnings in the first
quarter of 1998 can be attributed primarily to growth of the
Company's net interest income. The Company's interest earning
assets and interest-bearing liabilities were positioned to
generate strong first quarter net interest income streams.
Also, the recent acquisitions provided additional earning assets
to the Company, generating increased incremental net interest
income.
As a result, net interest income continued to grow in the first
quarter of 1998, reaching $8,044,000 compared to $6,844,000 last
year, up $1,200,000 or 17.5%. In the first quarter of 1998,
total interest income reached $15,364,000 while interest expense
totaled $7,320,00. Included in interest income is $385,000 of
tax-exempt income from investments issued by states and
political subdivisions. Since these revenues are not taxed, it
is more meaningful to analyze net interest income on a fully-tax
equivalent ("FTE") basis.
Net interest margin is calculated by dividing FTE net interest
income by average interest-earning assets and serves as a
performance measurement of the net interest revenue stream
generated by the Company's balance sheet. In the first quarter
of 1998, net interest margin (on an FTE basis) totaled 4.60%, a
somewhat modest decrease compared to 4.72% in 1997's first
quarter. Net interest margin has compressed in the first three
months of 1998 due to competitive pressures experienced in the
Company's markets. In addition, the recent thrift acquisitions
have modestly changed the Company's earning asset mix and
lowered margins for comparative purposes, due to the fact the
Company's thrifts have primarily invested in real estate loans,
which typically do not generate return on investment like other
loan products such as commercial and personal loans.
In the first quarter, the Company implemented a pre-acquisition
investment strategy to take advantage of reasonably favorable
asset yields on selected investment securities (such as
mortgage-backed securities and other corporate investments).
The pre-investment program totaled approximately $49 million.
While management expects to retain the investment securities for
long-term contribution to net interest income, the amount of
retention will depend on future loan demand and corresponding
activity in the Company's markets.
The $49 million purchase of investment securities was funded by
short-term borrowings, which are expected to be replaced late in
the second quarter of 1998 with deposits being assumed in the
West Virginia Banking Center Acquisition. The growth strategy
resulted in compression of the Company's net interest margin in
the first quarter of 1998 and will continue to impact net
interest margin in the second quarter of 1998 until the
short-term borrowings can be replaced with the acquired
deposits. Management expects some improvement in the Company's
net interest margin in the second half of 1998.
During 1997, the Company offered short-term certificate of
deposit ("CD") specials that were aggressively priced in the
Company's markets to meet specific funding targets. The
discontinuance of these special offerings should also have a
positive impact on the Company's current interest costs and
enhance future net interest margin.
Average loan balances grew $75.4 million (or 16.9%) from first
quarter 1997 to first quarter 1998 and comprises the largest
earning asset component on the Company's balance sheet. Yield
on earning assets totaled 8.72% in 1998, compared to 8.73% in
first quarter 1997. Compared to the first quarter of 1997, cost
of interest-bearing liabilities increased 14 basis points in
first quarter 1998 to 4.75%. Volume increases through
acquisitions and internal loan growth provided the Company with
increased incremental net interest income, but the combination
of stable asset yields and increased costs of funding sources
caused a decrease in net interest margin in the first quarter of
1998. Management will continue to monitor the effects of net
interest margin on the performance of the Company.
Please refer to the "Consolidated Average Balance Sheet and
Analysis of Net Interest Income" table included on page 21 for a
complete quantitative evaluation of the Company's net interest
margin.
Provision for Loan Losses
- -------------------------
In the first quarter of 1998, the Company recorded a provision
for loan losses of $696,000, up $108,000 (or 18.4%) from
$588,000 in the first quarter of 1997. Significant loan growth
in late 1997 was the primary reason for this increase and the
provision reported in recent quarters.
Management expects tempered internal loan growth for the
remainder of 1998. Due to this anticipated slowdown, combined
with improvement in delinquencies and net loan losses,
management believes that provision expense may be decreased for
the last three quarters of 1998. The duration of this decrease
will be dependent on acceptable loan delinquencies, portfolio
risk, and general economic conditions in our markets.
Non-Interest Income
- -------------------
The Company's non-interest income is generated from four
primary sources: income derived from fiduciary activities,
cost-recovery fees related to deposit accounts, electronic
banking revenues, and income generated by the Company's
insurance agency subsidiaries. In the first quarter of 1998,
all of the Company's major sources of non-interest income
increased compared to the same period a year earlier,
representing management's commitment to continual improvement of
the Company's operating performance. Total non-interest income
reached $1,618,000 in the first three months of 1998, compared
to $1,418,000 in the first quarter of 1997, an increase of
$200,000 (or 14.1%).
The Investment and Trust Division of Peoples Bank, which
significantly contributes to the Company's non-interest income,
continued its strong earnings growth in 1998. The fee structure
for fiduciary activities is based primarily on the fair value of
assets being managed, which totaled over $500 million at March
31, 1998. As a result of growth in market values and in the
number of accounts served, first quarter income generated from
fiduciary activities increased $112,000 (or 22.2%) to $616,000.
The Investment and Trust Division continues to be a leader in
fiduciary services in the Company's lead market area.
Deposit account service charge income has also increased in the
first quarter of 1998, reaching $550,000, compared to $512,000
for the quarter ended March 31, 1997, an increase of $38,000 (or
7.4%). The Company's fee income generated from deposits is
based on cost recoveries associated with services provided.
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. The cost-recovery
fees associated with these products and services are beginning
to significantly impact the Company's non-interest income. In
the first quarter of 1998, total fees related to electronic
banking reached $126,000, up $19,000 (or 17.8%) compared to last
year's first quarter. This increase is due primarily to
revenues related to the debit card program launched in 1996, as
well as non-customer activity in the Company's network of ATM's,
which has caused a corresponding increase in ATM-related
revenues.
Management will continue to explore new methods of enhancing
non-interest income. Both traditional and non-traditional
financial service products are being analyzed for inclusion in
the Company's product mix.
Non-Interest Expense
- --------------------
For the three months ended March 31, 1998, non-interest expense
totaled $5,414,000, an increase of $709,000 (or 15.1%) compared
to the same period last year. When comparing non-interest
expense information from 1997 to 1998, it is important to note
the changes to the Company's non-interest expense levels related
to recent acquisitions. Acquisitions, and the related salaries
and employee benefits and increased depreciation expense,
comprise the majority of the increase in non-interest expense in
1998. Non-operational items also contributed to the increase in
non-interest expense during the first quarter of 1998. In
particular, amortization of intangibles totaled $370,000 in
first quarter 1998, compared to $240,000 for the same period
last year, an increase of $130,000 (or 54.2%). Future
amortization expense will remain consistent with first quarter
results until the completion of the West Virginia Banking Center
Acquisition, which will result in increased intangible
amortization expense in future reporting periods.
The aggregate impact of the Company's recent acquisitions also
impacted non-interest expense in other areas, as the Company
expanded its services and geographic area. Compared to 1997's
first quarter, salaries and benefits expense increased $315,000
(or 14.8%) to $2,444,000 in the first quarter of 1998. Recent
acquisitions increased the number of employees due to the
retention of many customer service associates in the acquired
offices. At year-end 1996, the Company had 288 full-time
equivalent employees. At March 31, 1998, the Company had 315
full-time equivalent employees. Management will continue to
strive to find new ways of increasing efficiencies and
leveraging its resources while concentrating on maximizing
customer service.
Recent acquisitions also impacted net occupancy expenses, in
particular depreciation expense. For the quarter ended March
31, 1998, furniture and equipment expenses totaled $444,000, up
$26,000 (or 6.2%) from last year's first quarter. Net occupancy
expense totaled $343,000 in the first quarter of 1998, an
increase of $39,000 (or 12.8%) compared to the same period a
year earlier. These increases can be attributed primarily to
the depreciation of the assets purchased in recent acquisitions,
completion of construction projects to full-service offices in
Athens, Ohio, and Ashland, Kentucky, as well as increased
depreciation of additional expenditures on technology. The
Company's increased investment in technology and other
customer-service enhancements will also impact depreciation
expense in the future.
Maintaining acceptable levels of non-interest expense and
operating efficiency are key performance indicators for the
Company. The financial services industry uses the efficiency
ratio (total non-interest expense less amortization of
intangibles and non-recurring items as a percentage of the
aggregate of fully-tax equivalent net interest income and
non-interest income) as a key indicator of performance. Gains
and losses on sales of investment securities are not included in
the calculation of the Company's efficiency ratio. In the first
quarter of 1998, the Company's efficiency ratio was 52.06%
compared to 52.80% for the same period last year. Management
expects the efficiency ratio to modestly improve through the
remainder of 1998.
Return on Assets
- ----------------
For the quarter ended March 31, 1998, return on average assets
("ROA") totaled 1.22%, compared to 1.24% in the same period a
year earlier. Recent acquisitions have increased average assets
faster than corresponding revenue streams. As management is
successful in transitioning the recently acquired thrifts to
core competencies usually associated with commercial banks, the
thrifts will produce greater returns and have a positive impact
on ROA.
In addition to the recent thrift acquisitions, the Company's
ROA will be constrained in 1998 and future periods by the West
Virginia Banking Center Acquisition and its related
approximately $125 million in deposits. The Company will be
challenged to employ these new funds in a manner that will
produce acceptable returns on investment in a short period of
time. Since the Company's asset base will increase more rapidly
than earnings streams, management anticipates that ROA will
continue to modestly decrease in 1998.
Return on Equity
- ----------------
The Company's return on average equity ("ROE") in the first
quarter of 1998 was 11.94%, compared to 14.12% for the same
period last year, as a result of issuance of approximately
$15.35 million of capital stock for the purchase of Gateway
Bancorp, Inc. in late 1997. As a result, the increase in total
equity had a significant impact on 1998's first quarter ROE.
Management expects ROE in 1998 to continue to be below prior
year levels and will continue to strive to find ways to leverage
the capital of the Company in future periods.
The Company is considered well-capitalized under regulatory and
industry standards of risk-based capital and has experienced
growth through retention of increased earnings over the last
several quarters.
Federal Income Tax Expense
- --------------------------
Federal income taxes increased from $938,000 in first quarter
1997 to $1,180,000 in 1998, an increase of $242,000 (or 25.8%)
compared to the same period a year earlier. This increase can
be attributed to several factors, including the Company's higher
pre-tax income, recognition of non-tax deductible intangible
amortization expense related to the purchase of Gateway Bancorp,
Inc., and a modest decrease in tax-exempt income. The Company's
effective tax rate is approximately 33.2% for the first quarter
of 1998, compared to 31.9% for the same period last year.
FINANCIAL CONDITION
===================
Overview of Balance Sheet
- -------------------------
Total assets increased from $758.2 million at December 31, 1997
to $797.5 million at March 31, 1998. In the first quarter of
1998, the Company grew its balance sheet primarily in
preparation of the pending West Virginia Banking Center
Acquisition and its associated approximate $125 million in
deposits and $10 million in loans. Russell Federal and
Catlettsburg Federal also adopted balance sheet growth
strategies designed to leverage their strong capital position
and enhance incremental interest income.
As a result, total investment securities increased over $47
million to $221.3 million at March 31, 1998, an increase of
27.0% since year-end 1997. These purchases were funded
primarily by a combination of short-term and long-term FHLB
borrowings at each banking subsidiary. Peoples Bank funded its
growth with short-term FHLB borrowings in anticipation of paying
off such advances upon receipt of the deposits to be acquired in
the West Virginia Banking Center Acquisition. Russell Federal
and Catlettsburg Federal borrowed longer-term funds as a part of
their growth strategy.
As a result of the increased investment in securities, the
Company leveraged its recently expanded capital base (through
the issuance of stock in the Gateway Bancorp, Inc. acquisition
in late 1997). Further leveraging will occur late in the second
quarter of 1998 with the completion of the West Virginia Banking
Center Acquisition.
The Company's total loans and deposits did not fluctuate
significantly in the first quarter of 1998. Total equity
increased $1.1 million to $79.9 million (an increase of 1.4%).
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents totaled $32.3 million at March 31,
1998, down $6.5 million from year-end 1997. Management expected
this decrease in the first quarter of 1998 due to temporary
increases in the Company's balances of cash and cash equivalents
in late 1997 related to the acquisition of Catlettsburg Federal,
which maintained significant balances in short-term investments.
The Company has shifted such assets into higher-yielding assets
to enhance profitability.
Also, the Company's balances in federal funds sold decreased in
the first quarter of 1998 as the Company transferred these
assets to higher-yielding, longer-term assets in conjunction
with the pre-acquisition strategy in anticipation of the West
Virginia Banking Center Acquisition. In future reporting
periods, the Company's balances in cash and cash equivalents (in
particular, federal funds sold) are expected to significantly
increase due to the deposits associated with the West Virginia
Banking Center Acquisition. These balances are then expected to
decrease over time through expected migration of those funding
sources into higher yielding assets such as loans or investment
securities, depending on loan activity in the Company's markets
and other variables in the second half of 1998 and beyond.
Total cash and cash equivalents fluctuate on a daily basis due
to transactions in process and other liquidity needs.
Management feels the liquidity needs of the Company are
satisfied by the current balance of cash and cash equivalents,
readily available access to traditional and non-traditional
funding sources, and the portion of the investment and loan
portfolios that mature within one year. These sources of funds
should enable the Company to meet cash obligations and
off-balance sheet commitments as they come due.
Investment Securities
- ---------------------
Investment securities totaled $221.3 million at March 31, 1998,
up $47.0 million (or 27.0%) compared to year-end 1997. All of
the Company's investment securities are classified as
available-for-sale. Management believes the available-for-sale
classification provides flexibility for the Company in terms of
selling securities as well as interest rate risk management
opportunities. At March 31, 1998, the amortized cost of the
Company's investment securities totaled $218.1 million.
The significant growth that occurred in the first three months
of 1998 was due primarily to the aforementioned pre-acquisition
investment strategy implemented by the Company in anticipation
of approximately $125 million in deposits associated with the
West Virginia Banking Center Acquisition expected to be
completed June 26, 1998. The strategy was intended to take
advantage of reasonably favorable asset yields on selected
investment securities (such as mortgage-backed securities and
other corporate investments). The pre-investment program
totaled nearly $49 million and directly caused the Company's
investment securities portfolio to grow to its current level.
The Company purchased approximately $5.0 million of US Agencies
securities, $27.6 million of mortgage-backed securities, $5.0
million of tax-exempt securities, and $11.1 million of corporate
and other securities. The securities were purchased in late
first quarter of 1998 and have an estimated maturity of
approximately 10 years. Management expects to retain the
approximate $49 million purchase of investment securities for
long-term enhancement to net interest income. Depending on loan
activity, management expects current balances of investment
securities to slowly shrink due to targeted loan demand and the
shifting of maturing investments to higher-yielding assets.
As a direct result of the pre-acquisition investment strategy
and other growth strategies implemented by the Company, several
categories of investments within the investment portfolio had
significant growth. At March 31, 1998, investments in US
Treasury securities and obligations of US government agencies
and corporations totaled $50.1 million, down $1.9 million (or
3.7%) since year-end 1997. In the first quarter of 1998,
investments in mortgage-backed securities increased $32.3
million (or 42.2%) to $108.6 million at March 31, 1998. The
Company's balances in investment obligations of states and
political subdivisions totaled $32.5 million at March 31, 1998,
a quarterly increase of $6.8 million (or 26.5%). Corporate
investments at March 31, 1998, totaled $30.1 million, an
increase of $9.9 million (or 49.0%) for the quarter ended March
31, 1998.
Management monitors the earnings performance and liquidity of
the investment portfolio on a regular basis through
Asset/Liability Committee (" ALCO") meetings. The group also
monitors net interest income, sets pricing guidelines, and
manages interest rate risk for the Company. Through active
balance sheet management and analysis of the investment
securities portfolio, the Company maintains sufficient liquidity
to satisfy depositor requirements and the various credit needs
of its customers. Management believes the risk characteristics
inherent in the investment portfolio are acceptable based on
these parameters.
Loans
- -----
The Company's lending is primarily focused in 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.
Loans totaled $518.8 million at March 31, 1998, a decrease of
$2.7 million (or 0.5%) compared to year-end 1997's total of
$521.6 million. At December 31, 1997, the Company had $6
million of term federal funds sold invested with unaffiliated
financial institutions. These investments were classified as
loans for purposes of financial statement reporting and generate
interest income streams similar to federal funds sold. Such
investments were made in late 1997 to enhance the Company's
short-term net interest income at a fixed rate. Of the $6
million of term federal funds held by the Company at year-end
1997, $5 million matured in the first quarter of 1998.
Reinvestment of these assets occurred in the investment
portfolio as part of the pre-acquisition strategy as previously
discussed. As a result, the Company's loan portfolio did not
significantly grow in the first quarter of 1998.
The following table details total outstanding loans at the
specified dates:
(dollars in thousands) March 31, December 31,
1998 1997
--------- ------------
Commercial, financial, and agricultural $163,293 $159,035
Real estate, construction 16,724 19,513
Real estate, mortgage 227,358 228,689
Consumer 111,459 114,333
- -------------------------------------------------------------------------
Total loans $518,834 $521,570
=========================================================================
Real estate loans to the Company's retail customers (including
real estate construction loans) continue to be the largest
portion of the loan portfolio, comprising 47.1% of the total
loan portfolio. Real estate loans totaled $244.1 million at
March 31, 1998, down $4.1 million (or 1.7%) in the first
quarter. Included in real estate loans are home equity credit
lines ("Equilines"), which totaled $17.1 million at March 31,
1998. The Company is currently offering special fixed Equiline
rates and anticipates these balances will grow from new
customers and increased market penetration. Residential real
estate lending continues to represent a major focus of the
lending portfolio due to the lower risk factors associated with
these types of loans and the opportunity to provide additional
products and services to these consumers at reasonable yields to
the Company.
Lending activity in the Russell Federal and Catlettsburg
Federal markets has historically centered on real estate loans.
Management expects to continue to penetrate those local markets
in 1998. Mortgage lending will remain a vital part of the
Company's lending operations due to the programs offered to
customers, who continue to seek quality real estate loan
products in a competitive environment.
Loan growth occurred in the first quarter for the Company in
commercial, financial, and agricultural loans ("commercial
loans"), which increased $4.3 million (or 2.7%) to $163.3
million. Economic conditions in the Company's markets have
provided quality credit opportunities. Management will continue
to focus on the enhancement and growth of the commercial loan
portfolio while maintaining appropriate underwriting standards.
Management expects commercial loan demand to continue to be
strong in several of the Company's markets for the remainder of
1998 as local economic conditions appear to be consistent with
recent positive trends.
The Company's team of Personal Bankers is dedicated to serving
consumer needs for loans, and as a result, consumer lending
continues to be a vital part of the Company's core lending. In
the first quarter of 1998, consumer loan balances (excluding
credit card loans) decreased $2.1 million (or 2.0%) to $105.0
million. The majority of the Company's consumer loans are in
the indirect lending area. At March 31, 1998, the Company had
indirect loan balances of $69.3 million, compared to $70.5
million at year-end 1997. Management is pleased with the recent
performance of the Company's consumer loan portfolio, which can
be attributed to the Company's commitment to quality customer
service and the continued demand for indirect loans in the
markets served by the Company. Lenders use a tiered pricing
system that enables the Company to apply interest rates based on
the corresponding risk associated with the indirect loan.
Although consumer debt delinquency is increasing in the
financial services industry (due mostly to credit card debt),
management's recent actions to reinforce the Company's pricing
system and underwriting criteria have tempered indirect lending
delinquencies and recently tempered the overall growth of the
indirect loan portfolio. Management plans to continue its focus
on the use of this tiered pricing system combined with
controlled growth of the indirect lending portfolio in 1998.
The Company's credit card balances at March 31, 1998, totaled
$6.4 million, down $0.8 million (or 11.1%) since year-end 1997.
Typically the Company experiences a decrease in credit card
balances in the first quarter of each year as the Company's
customers reduce seasonal debt. In the past, the Company has
offered several new products to better serve the credit needs of
its customers, including a no-fee credit card and increased
credit limits to qualified customers. Management will continue
to evaluate new opportunities to serve credit card customers.
In the second quarter, the Company will purchase approximately
$10 million of commercial and consumer loans associated with the
West Virginia Banking Center Acquisition. In addition,
management will continue to research and analyze various methods
to satisfy the loan demand of the customers in its various
markets. Management also continues to research the possibility
of purchasing loans in packages or outside of the Company's core
markets as a means of providing increased returns on its funding
sources.
Loan Concentration
- ------------------
The Company does not have a concentration of its loan portfolio
in any one industry. Real estate lending (both mortgage and
construction loans) continues to be the largest component of the
loan portfolio, representing $244.1 million (or 47.0%) of total
loans. At year-end 1997, these loans comprised 47.6% of
outstanding loans. At March 31, 1998, commercial, financial,
and agricultural loans totaled $163.3 million (or 31.5%) of
outstanding loans, compared to 30.5% of outstanding loans at
December 31, 1997.
The Company's lending is primarily focused in the local
southeastern Ohio market and consists principally of retail
lending, which includes single-family residential mortgages and
other consumer loan products. One of the Company's largest
groups of commercial loans consists of automobile dealer floor
plans, which totaled $20.8 million at March 31, 1998. It is the
Company's policy to secure these loans with the underlying
inventory as collateral.
Allowance for Loan Losses
- -------------------------
The allowance for loan losses as a percentage of loans
increased from 1.60% at December 31, 1997, to 1.70% at the end
of the first quarter of 1998. The total dollar amount of the
allowance for loan losses increased $469,000 while net
chargeoffs declined and total loan balances remained relatively
unchanged, causing an increase in the allowance as a percentage
of total loans in the first quarter of 1998.
The following table presents changes in the Company's allowance
for loan losses for the three months ended March 31, 19987, and
1997, respectively:
(dollars in thousands) Three Months Ended
March 31,
------------------
1998 1997
------ ------
Allowance for loan losses, January 1 $8,356 $6,873
Allowance for loan loss acquired
in Russell Federal Acquisition 120
Chargeoffs 364 511
Recoveries 137 82
- ---------------------------------------------------------------------
Net chargeoffs 227 429
- ---------------------------------------------------------------------
Provision for loan losses 696 588
- ---------------------------------------------------------------------
Allowance for loan losses $8,825 $7,152
=====================================================================
For the three months ended March 31, 1998, the provision for
loan losses totaled $696,000, while gross chargeoffs were
$365,000 and recoveries amounted to $137,000. In the first
quarter of 1997, the provision for loan losses totaled $588,000,
while gross chargeoffs were $511,000 and recoveries amounted to
$82,000. The Company's provision for loan losses was increased
steadily through recent quarters due to overall loan growth.
A significant portion of the Company's recent chargeoffs
occurred in the consumer loan portfolio. In the first quarter
of 1998, consumer loan chargeoffs tempered due to continued
focus of measurements of the Company's indirect lending
portfolio performance, including a review of underwriting
standards and more aggressive collection of past due accounts.
Management will continue to monitor the performance of the
consumer loan portfolio and focus efforts to continue recent
positive trends. Real estate and commercial loan chargeoffs and
recoveries were insignificant in the first quarter of 1998,
demonstrating the quality of these portfolios.
Nonperforming loans (those loans classified as nonaccrual, 90
days or more past due, and other real estate owned) as a
percentage of outstanding loans were 0.24% at March 31, 1998,
compared to 0.33% at December 31, 1997. Nonaccrual loans and
those loans 90 days past due totaled $911,000 and $297,000,
respectively, at March 31, 1998, compared to $1,220,000 and
$462,000, respectively, at year-end 1997. Management believes
the current level of nonperforming loans is acceptable and
reflects the overall quality of the Company's loan portfolio.
At March 31, 1998 the Company had an insignificant amount of
loans that were considered impaired. Management will continue
to monitor the status of impaired loans, including performing
and non-performing loans, in order to determine the appropriate
level of the allowance for loan losses.
Management continually monitors the loan portfolio through its
Loan Review Department and Loan Loss Reserve Committee to
determine the adequacy of the allowance for loan losses and
considers it to be adequate at March 31, 1998. Management
expects future loan loss provision in 1998 to be less than first
quarter 1998 expense, due to slower than expected loan growth
and a reduction in delinquencies in the loan portfolio in
general. Management believes the current allowance for loan
losses of 1.70% of total loans at March 31, 1998 to be adequate
to absorb inherent losses in the portfolio.
Funding Sources
- ---------------
The Company considers deposits, short-term borrowings, and
long-term borrowings when evaluating funding sources.
Traditional deposits continue to be the most significant source
of funds for the Company, reaching $615.8 million at March 31,
1998, a quarterly increase of $4.7 million (or 0.8%).
Non-interest bearing demand deposits grew $1.3 million (or
2.0%) to $65.5 million for the quarter ended March 31, 1998. In
general, the Company's mix of interest-bearing deposits modestly
shifted in the first quarter of 1998 to interest-bearing
transaction accounts from time deposit balances. In addition,
the Company experienced modest attrition in late first quarter
of maturing, short-term time deposits. Management expects
similar attrition in the second quarter of 1998 as rate
sensitive customers strive to maximize their investments by
comparing rates offered by the Company's competitors.
Management will continue to emphasize deposit-gathering methods
in 1998 through special "relationship accounts" (both
non-interest bearing and interest-bearing) based on deposits in
other products such as CD's or IRA's.
In 1998's second quarter, deposit growth will occur through the
West Virginia Banking Center Acquisition and its associated
approximately $125 million in deposits. The West Virginia
Banking Center Acquisition is expected to provide approximately
$50 million in time deposits, as well as approximately $75
million in other interest bearing and non-interest bearing
deposits, for the Company's use as a funding source for future
asset growth or replacement of current funding sources,
depending on the Company's asset/liability position and interest
rate risk factors at the time.
Management believes that the deposit base remains the most
significant funding source for the Company and will continue to
concentrate on deposit growth and maintaining adequate net
interest margin to meet the Company's strategic goals.
In addition to traditional deposits, the Company accesses both
short-term and long-term borrowings to fund its operations and
investments. The Company's short-term borrowings consist of
federal funds purchased, corporate deposits held in overnight
repurchase agreements, and various FHLB borrowings. Short-term
borrowings totaled $49.2 million at March 31, 1998, a quarterly
increase of $16.7 million (or 51.2%).
The largest component of short-term borrowings consisted of
balances in corporate repurchase agreements, which totaled $30.2
million at March 31, 1998, compared to $30.7 million at year-end
1997. In late 1997, growth occurred due primarily to increases
in overnight repurchase agreement balances from a significant
commercial customer. Management expects current balances to
modestly decrease throughout 1998 and, as a result, overnight
repurchase agreement balances will correspondingly decrease to
somewhat lower levels.
An expected increase in borrowings for the three months ended
March 31, 1998, occurred in short-term FHLB advances, which were
accessed to fund the aforementioned pre-investment growth
strategy of the Company. At March 31, 1998, the Company had
$17.5 million in short-term FHLB advances, an increase of $15.8
million since year-end 1997. The Company financed a portion of
the pre-investment strategy with short-term FHLB borrowings, and
plans to ultimately replace such borrowings with the deposits
acquired in the West Virginia Banking Center Acquisition. Since
the West Virginia Banking Center Acquisition is not expected to
be completed until June 26, 1998, management expects balances in
short-term borrowings will increase significantly throughout the
second quarter of 1998 due to maturity and attrition of
aggressively priced short-term time deposits. Ultimately, the
Company's investment in short-term borrowings will decrease
after completion of the West Virginia Banking Center
Acquisition. In general, the Company will continue to access
short-term FHLB borrowings at various times to meet liquidity
needs as they arise.
In addition to traditional deposits and short-term borrowings,
the Company 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.
Long-term FHLB advances totaled $41.5 million at March 31,
1998, a net quarterly increase of $15.9 million (or 62.1%) since
December 31, 1997. Increases occurred at Russell Federal and
Catlettsburg Federal to fund growth strategies designed to
leverage the respective equity bases of those entities. The
$15.9 million increase was net of scheduled principal paydowns
of $0.6 million. Management plans to maintain access to
long-term FHLB borrowings as an appropriate funding source.
In order to finance a portion of the total purchase price of
the Russell Federal Acquisition, the Company obtained a $3
million loan from an unaffiliated financial institution. The
remaining funds for the Russell Federal Acquisition were
generated from internal sources. Principal paydowns began on
the $3 million note in the first quarter of 1998 and will
continue semi-annually over the next several years. At March
31, 1998, the Company had $2.9 million in long-term debt related
to the Russell Federal Acquisition.
Capital/Stockholders' Equity
- ----------------------------
For the quarter ended March 31, 1998, the capital position of
the Company grew approximately $1.1 million (or 1.4%) to $79.9
million at year-end. In late 1997, the Company issued common
shares with a value of $15.35 million in the acquisition of
Gateway Bancorp.
In the first quarter of 1998, the Company had net income of
$2.4 million and paid dividends of $0.7 million, a dividend
payout ratio of 30.72% of earnings, compared to 30.97% in the
first quarter of the prior year. Management believes recent
dividends represent an acceptable payout ratio for the Company
and anticipates similar payout ratios in future periods through
quarterly dividends.
At March 31, 1998, the adjustment for the net unrealized
holding gain on available-for-sale securities, net of deferred
income taxes, totaled $2.1 million, a decrease of $0.3 million
since year-end 1997. Since all of the investment securities in
the Company's portfolio are classified as available-for-sale,
both the investment and equity sections of the Company's balance
sheet are more sensitive to the changing market values of
investments.
The Company has also complied with the standards of capital
adequacy mandated by the banking industry. Bank regulators have
established "risk-based" capital requirements designed to
measure capital adequacy. Risk-based capital ratios reflect the
relative risks of various assets banks hold in their portfolios.
A weight category of either 0% (lowest risk assets), 20%, 50%,
or 100% (highest risk assets) is assigned to each asset on the
balance sheet and to certain off-balance sheet commitments.
At March 31, 1998, the Company's and each of its banking
subsidiaries' risk-based capital ratios were above the minimum
standards for a well-capitalized institution. The Company's
risk-based capital ratio was 14.13%, well above the minimum
standard of 8%. The Company's Tier 1 capital ratio of 12.87%
also exceeded the regulatory minimum of 4%. The Leverage ratio
at the end of the first quarter was 8.60% and also above the
minimum standard of 4%. The Company's capital ratios provide
quantitative data demonstrating the strength and future
opportunities for use of the Company's capital base. Management
continues to evaluate risk-based capital ratios and the capital
position of the Company and each of its banking subsidiaries as
part of its strategic decision process.
As a result of the pending West Virginia Banking Center
Acquisition, Peoples Bank's capital position required additional
capital injection to maintain its well-capitalized risk-based
capital ratios. Management used internally generated sources to
fund this increase in required equity, ensuring that adequate
capital ratios were maintained at each of the Company's banking
subsidiaries and optimizing internally available sources of
equity
During the first quarter of 1998, the Company initiated the
Peoples Bancorp Inc. Deferred Compensation Plan ("Plan") for the
directors of the Company and its subsidiaries, which is designed
to recognize the value to the Company of the past and present
service of its directors and encourage their continued service
through implementation of a deferred compensation plan. The
Plan allows directors to defer the fees earned for their service
as Company and subsidiary directors into deferred accounts that
are either invested in the Company's common stock or a time
deposit, at the specific director's discretion at the time of
entering the Plan. As a result and in accordance with
accounting regulations, the balances invested in Company stock
in such accounts are reported as treasury stock in the Company's
financial statements. At March 31, 1998, the Plan and its
participants owned $0.6 million of Company stock, which is a
reduction to the equity balance of the Company. Management does
not expect the Plan to have a material impact on future
financial statements or results of operations for the Company.
For the three months ended March 31, 1998, the Company
purchased no treasury shares. In the past, the Company has from
time to time purchased treasury shares for use in conjunction
with its employee benefit plans. Due to recent stock option
exercises, the Company has not had a balance of treasury shares
for use in its employee benefit plans and therefore future
exercises will be issued from authorized and unissued common
shares, unless additional treasury shares are purchased. At
March 31, 1998, the Company had 9,000 shares available to be
purchased as treasury shares under the Board of Director's
September 12, 1997 authorization to purchase up to 10,000 shares
at market value.
Liquidity
- ---------
Liquidity measures an organization's ability to meet cash
obligations as they come due. During the quarter ended March
31, 1998, the Company generated cash from operating and
investing activities of $2.9 million. The Company also
generated cash flows of $36.2 million from financing activities.
The major cash inflow was the net increase in short-term
borrowings of $16.7 million and proceeds from additional
long-term borrowings of $16.5 million.
The Company used cash flows of $45.7 million in investing
activities. The major outflow of cash for the Company in the
first quarter of 1998 was its purchase of $65.7 million of
investment securities. Also, the Company had $18.6 million in
sales or maturities of investment securities in the first
quarter of 1998.
The Consolidated Statements of Cash Flows presented on page 6
of the Company's Consolidated Financial Statements provides
analysis of cash flow activity.
Additionally, management considers that portion of the loan
portfolio that matures within one year and the maturities within
one year in the investment portfolio as part of the Company's
liquid assets. The Company's liquidity is monitored by the
ALCO, which establishes and monitors ranges of acceptable
liquidity. Management feels the Company's current liquidity
position is acceptable.
Interest Rate Sensitivity
- -------------------------
Static gap analysis measures the amount of repricing risk
embedded in the balance sheet at a point in time. It does so by
comparing the differences in the repricing characteristics of
assets and liabilities. A gap is defined as the difference
between the principal amount of assets and liabilities which
reprice within a specified time period.
At March 31, 1998, the Company's interest rate sensitivity
position, based on static gap analysis, was liability sensitive
in the short-term, decreasing in sensitivity for periods over
one year and up to five years. Up to one year, the Company is
liability sensitive due primarily to increases in funding
sources which are short-term, such as the FHLB borrowings and CD
specials previously mentioned. Management believes the
Company's balance sheet is theoretically insulated from
significant increases or decreases in interest rates due to the
various variable rate assets and liabilities. Management
monitors the asset and liability sensitivity through the ALCO
and uses available dynamic data to make appropriate strategic
decisions.
In addition to the interest rate sensitivity schedule and
asset/liability repricing schedules, management also uses
simulation modeling and forecasting to determine the impact of a
changing rate environment and interest rate risk. This
combination provides dynamic information concerning the
Company's balance sheet structure in different interest rate
environments. When using simulation modeling, assumptions based
on anticipated market pricing are applied to interest-earning
assets and interest-bearing liabilities. These adjustments more
accurately indicate the interest rate risk of the Company.
Management believes the Company's current mix of assets and
liabilities provides a reasonable level of insulation from
significant fluctuations in net interest income and the
resulting volatility of the Company's earning base. Management
also considers various hedging products as a method of
minimizing the interest rate risk of the Company's balance
sheet. The Company's management reviews interest rate risk in
relation to its effect on net interest income, net interest
margin, and the volatility of the earnings base of the Company.
Effects of Inflation on Financial Statements
- --------------------------------------------
Substantially all of the Company's assets relate to banking and
are monetary in nature. Therefore they are not impacted by
inflation to the same degree as companies in capital intensive
industries in a replacement cost environment. During a period
of rising prices, a net monetary asset position results in loss
in purchasing power and conversely a net monetary liability
position results in an increase in purchasing power. In the
banking industry, typically monetary assets exceed monetary
liabilities. Therefore as prices have recently increased,
financial institutions experienced a decline in the purchasing
power of their net assets.
Future Outlook
- --------------
Results of operations in the first quarter of 1998 represent
enhanced 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. In addition, management
has identified and will continue to analyze key performance
areas which quantitatively measure the relative performance of
the Company compared to prior year results.
Recent external acquisitions have provided balance sheet growth
and expansion of the Company's geographic service areas in the
tri-state (Kentucky, Ohio, and West Virginia) in northeastern
Kentucky. Future challenges for the Company include increasing
market penetration in these areas and enhancing established
banking relationships with a full array of products and services
currently not offered to those customers by Russell Federal or
Catlettsburg Federal.
Management is satisfied with the retention of the acquired core
deposit base and looks forward to continuing the development of
Russell Federal and Catlettsburg Federal in 1998. Many goals
have been established for future operations, most of which
target customer service enhancement as a means of increasing
shareholder value. In the second quarter of 1998, Russell
Federal and Catlettsburg Federal began offering checking
accounts and electronic banking services to its customer base,
providing opportunities for increased customer service and
leveraging of the strong capital base and human resources of the
Company in those areas. These strategies are designed to
complement the current product offerings at the Company's
thrifts to maximize the relationship with current customers,
increase the potential to attract new customers in those
markets, and solidify the Company's recent emphasis on gathering
non-interest expense funding sources in 1998.
In January 1998, Catlettsburg Federal expanded its presence in
northeast Kentucky through the opening of a new full-service
office on Route 60 near Interstate 64 in the Ashland, Kentucky,
area. 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 the Company's network of offices and
customer service resources.
Recent acquisitions have provided increased funding sources and
new markets for the Company. In addition to providing superior
customer service, management believes growth into new markets,
as well as further penetration of existing markets, is a
priority of the Company. One of the Company's top priorities in
1998 will be the addition of the West Virginia Banking Center
Acquisition offices with existing full-service banking centers
to create a united financial service provider for the customers
of Mason and Wetzel Counties in West Virginia and surrounding
areas of West Virginia and Ohio. Management expects
enhancements to non-interest income streams in the second half
of 1998 and beyond due to the acquired deposits and associated
cost-recovery fees of those deposits.
The West Virginia Banking Center Acquisition is expected to be
completed on June 26, 1998. Due to the large inflow of cash
associated with the acquisition, the Company will be challenged
in the third and fourth quarters of 1998 to employ these funding
sources in assets that provide acceptable return on investment
without compromising the Company's risk-weighted assets and
other capital ratios. Management intends to invest a portion of
the acquired deposits in loans in the new markets as well as
established markets, although overall loan activity in the
Company's markets has tempered in the recent periods.
Management is currently analyzing the possibility of purchasing
loan packages from unaffiliated financial institutions due to
slower than expected loan growth in the first quarter of 1998.
Due to recent decreases in loan delinquencies and revised
projected loan growth, management expects future loan provision
to be reduced in the second quarter of 1998. Future loan loss
provisions in 1998 will be based on loan delinquency trends,
economic conditions, and anticipated loan growth. Management
believes the Company's reserve for loan losses is adequate for
the risks inherent in the portfolio and believes the reduction
in loan loss provision is a reflection of the overall quality
of the Company's loan portfolio and market conditions.
Managing the delicate balance between expansion into new
markets and developing new products and services will also
challenge the Company in 1998 and beyond. The financial
services environment remains dynamic as merger and consolidation
continues to change traditional banking services and the
competitors the Company must face. Customers continue to strive
for better, faster, more efficient methods in which to do their
banking, and as a result, the Company has invested in technology
and dedicated resources that provides the opportunity for those
customers to perform banking functions through their computers
24 hours a day.
In the first quarter of 1998, the Company introduced a PC-based
cash management/home banking product that was offered to both
consumer and commercial customers. The results were successful
and well-received by the users. Management believes that "PC
banking" is a future service that must be an integral part of
the Company's core service delivery process. Changing consumer
preferences related to financial product delivery systems
dictate that PC banking will emerge as a significant financial
product delivery system for many of the Company's existing and
prospective customers in the future. The Company will continue
to strive to meet future customer service challenges through its
wide array of delivery channels, using technology and
traditional methods in the manner that best fits each customer.
Management recognizes the importance of electronic banking to
its customer base and continues to focus efforts designed to
enhance this process and allow customers almost unlimited
banking products and services at their convenience.
In the first half of 1998, the Company will complete
refurbishments of several of its offices, including the
Baltimore, Ohio full-service office, as well as First National
Bank's Caldwell and McConnelsville offices. The Company also
recently completed the aforementioned construction of a new
full-service office near Ashland, Kentucky, and expanded its
delivery area in the southeastern Ohio market of Athens, Ohio,
with the first quarter 1998 opening of a new full-service
facility at 152 Union Street near the Ohio University campus.
The expansion and refurbishment of the Company's physical
locations represent the Company's commitment to quality service
through top quality banking offices, as well as strategic
intentions to capture increased market share in those areas.
The combined effect of recent acquisitions for the Company have
impacted financial performance in the first quarter of 1998. To
the extent the Company can integrate into current operations and
redeploy acquired assets from the West Virginia Banking Center
Acquisition into the Company's current asset mix (which has
produced higher levels of ROA, ROE, and earnings per share in
periods prior to the first quarter of 1998), financial
performance in the future will depend directly on the timing of
anticipated loan growth and other factors. Future operating
results will be determined by the ability of the Company to
capture lending opportunities in expanded market areas or make
similar investments with acceptable risk and return on
investment indicators.
Many companies across various industries have dedicated efforts
to analyze the much-publicized "Year 2000" issue, which arises
because many existing computer programs only recognize the last
two digits to identify the year in the date information field.
Management has implemented plans to address Year 2000 issues and
the impact to its business, operations, and relationships with
customers, suppliers, and other third parties. Management has
completed its assessment phase, which addresses the extent to
which its operations are vulnerable should its software fail to
be Year 2000 compliant. The majority of the Company's software
is supplied by third-party vendors. The Company has been
assured by third-party vendors who provide its core software
applications that such applications are or will be Year 2000
compliant without additional significant costs to the Company.
Management began testing such applications in the first quarter
of 1998 and preliminary results indicate that the Year 2000
issue does not appear to be a significant problem for the
Company or its operations. During the second quarter of 1998,
the Company plans to forward a self-assessment to its commercial
customers designed to increase their awareness of the Year 2000
issue and potential impact to their operations. While the
Company believes its planning efforts are adequate to address
Year 2000 concerns, there can be no guarantee that the systems
of other companies on which the Company's systems and operations
rely will be converted on a timely basis and will not have a
material effect. The cost of Year 2000 issues are not expected
to be material to the Company's results of operations or
financial position.
Management is comfortable with the current loan to deposit
ratio of 84.2% and anticipates the loan to deposit ratio will
decrease by June 30, 1998, due to the West Virginia Banking
Center Acquisition. The Company's balance sheet growth and
future leveraging of equity is a management focus for the
remainder of 1998. Future loan growth will reflect the
Company's ability to serve existing markets, markets to be
penetrated via acquisition, and selected customers outside
traditional geographic markets.
Mergers and acquisitions remain a viable strategic alternative
for the continued growth of the Company's operations and scope
of customer service. Future acquisitions, if they occur, may
not be limited to specific geographic location or proximity to
current markets. Acquisitions will depend upon financial
service opportunities that strengthen the core competencies
developed by the Company. Management considers mergers and
acquisitions to be a viable method of enhancing the Company's
earnings potential and will continue to pursue appropriate
business opportunities as they develop. Management concentrates
on several key performance indicators to measure and direct the
performance of the Company. While past results are not an
indication of future earnings, management feels the Company is
positioned to leverage its recent equity growth and maintain
current levels of performance through the remainder of 1998.
"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.
<PAGE>
PEOPLES BANCORP INC. AND SUBSIDIARIES
- -------------------------------------
CONSOLIDATED AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST INCOME
======================================================================
(dollars in thousands) For the Three Months Ended
March 31,
1998 1997
Average Yield/ Average Yield/
Balance Rate Balance Rate
ASSETS
======
Securities:
Taxable $166,030 6.58% $125,899 6.82%
Tax-exempt 25,601 8.04% 22,499 8.35%
- ----------------------------------------------------------------------------
Total 191,631 6.77% 148,398 7.06%
Loans:
Commercial 175,664 9.52% 134,726 9.52%
Real estate 232,553 8.70% 201,395 8.40%
Consumer (net) 112,486 10.53% 109,199 10.43%
- ----------------------------------------------------------------------------
Total 520,703 9.37% 445,320 9.23%
Less: Allowance for loan losses (8,670) (7,119)
- ----------------------------------------------------------------------------
Net loans 512,033 9.53% 438,201 9.39%
Interest-bearing deposits 6,578 6.72% 2,081 4.56%
Federal funds sold 9,090 5.49% 8,127 5.35%
- ----------------------------------------------------------------------------
Total earning assets 719,332 8.72% 596,807 8.73%
Other assets 55,623 47,740
- ----------------------------------------------------------------------------
Total assets $774,955 $644,547
============================================================================
LIABILITIES AND EQUITY
======================
Interest-bearing deposits:
Savings $ 91,101 3.07% $ 83,022 3.04%
Interest-bearing demand deposits 137,769 3.63% 119,609 3.32%
Time 322,604 5.53% 266,721 5.52%
- ----------------------------------------------------------------------------
Total 551,474 4.65% 469,352 4.52%
Borrowed funds:
Short-term 43,138 5.08% 19,572 4.02%
Long-term 30,153 6.09% 31,421 6.29%
- ----------------------------------------------------------------------------
Total 73,291 5.48% 50,993 5.42%
Total interest-
bearing liabilities 624,765 4.75% 520,345 4.61%
Non-interest bearing deposits 62,724 59,343
Other liabilities 7,873 8,142
- ----------------------------------------------------------------------------
Total liabilities 695,362 587,830
Stockholders' equity 79,593 56,717
- ----------------------------------------------------------------------------
Total liabilities and equity $774,955 $644,547
============================================================================
Interest income to earning assets 8.72% 8.73%
Interest expense to earning assets 4.12% 4.01%
- ----------------------------------------------------------------------------
Net interest margin 4.60% 4.72%
============================================================================
Interest income and yields presented on a fully tax-equivalent
basis using a 35% tax rate in 1998 and a 34% tax rate in 1997.
<PAGE>
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.
On April 9, 1998, the Peoples Bancorp Inc. Annual Meeting of
Shareholders was held in The Peoples Banking and Trust Company
Conference Room in Marietta, Ohio. The meeting was
well-attended and over 83% of the outstanding common shares were
represented by proxy. No votes were placed in person. All
items of business on the agenda were approved by the
shareholders and the results are as follows:
1) Three Directors of the Company were re-elected to serve
terms of three years each (expiring in 2001): Robert E. Evans,
Paul T. Theisen, and Thomas C. Vadakin. Directors of the
Company who continue to serve after the 1998 Annual Meeting
include George W. Broughton, Wilford D. Dimit, Barton S. Holl,
Rex E. Maiden, Norman J. Murray, and Joseph H. Wesel (Chairman
of the Board).
2) The Peoples Bancorp Inc. 1998 Stock Option Plan was approved
by the shareholders. The adoption of the plan made available an
additional 100,000 common shares (prior to the 3-for-2 stock
split effective April 30, 1998) available for issuance.
3) The Peoples Bancorp Inc. Deferred Compensation Plan for
Directors of Peoples Bancorp Inc. and Subsidiaries was approved
by the shareholders. The adopted plan sets forth provisions
which allow the Directors of the Company and Directors of its
subsidiaries to invest their deferred compensation in common
shares of the Company and/or certificates of deposit.
SHAREHOLDER VOTING RESULTS
- -----------------------------------------------------------------------------
BROKER
NON-
ISSUE FOR WITHHELD AGAINST ABSTAIN VOTES
- ----------------------------- --------- -------- ------- ------- -------
Robert E. Evans 3,224,451 3,111 N/A N/A 0
Paul T. Theisen 3,218,679 8,883 N/A N/A 0
Thomas C. Vadakin 3,184,604 42,958 N/A N/A 0
Peoples Bancorp Inc. 1998
Stock Option Plan 3,128,105 N/A 51,926 47,531 0
Peoples Bancorp Inc. Deferred
Compensation Plan 3,080,983 N/A 88,232 58,347 0
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.
<PAGE>
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: May 14, 1998 By: /s/ ROBERT E. EVANS
Robert E. Evans
President and Chief Executive Officer
Date: May 14, 1998 By: /s/ JOHN W. CONLON
John W. Conlon
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
-------------
PEOPLES BANCORP INC. QUARTERLY REPORT ON FORM 10-Q
FOR PERIOD ENDED MARCH 31, 1998
==================================================
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
=====================================
(dollars in thousands, except share data)
For the Three Months Ended
March 31,
1998 1997
BASIC EARNINGS PER SHARE
========================
EARNINGS:
Net income $2,376 $2,002
AVERAGE SHARES OUTSTANDING:
Weighted average Common Shares outstanding 5,746,684 5,168,804
- -------------------------------------------------------------------------
BASIC EARNINGS PER SHARE $0.41 $0.39
=========================================================================
DILUTED EARNINGS PER SHARE
==========================
EARNINGS:
Net income $2,376 $2,002
AVERAGE SHARES OUTSTANDING:
Weighted average Common Shares outstanding 5,746,684 5,168,804
Net effect of the assumed exercise of
stock options based on the treasury
stock method 190,460 123,763
- -------------------------------------------------------------------------
Total 5,937,144 5,292,567
DILUTED EARNINGS PER SHARE $0.40 $0.38
=========================================================================
Adjusted for 3-for-2 stock split issued April 30, 1998, to shareholders
of record as of April 13, 1998.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Form 10-Q filed as of March 31, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 28,038
<INT-BEARING-DEPOSITS> 3,122
<FED-FUNDS-SOLD> 1,100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 221,317
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 518,834
<ALLOWANCE> 8,825
<TOTAL-ASSETS> 797,493
<DEPOSITS> 615,831
<SHORT-TERM> 49,239
<LIABILITIES-OTHER> 8,132
<LONG-TERM> 44,387
0
0
<COMMON> 50,283
<OTHER-SE> 29,621
<TOTAL-LIABILITIES-AND-EQUITY> 797,493
<INTEREST-LOAN> 12,030
<INTEREST-INVEST> 2,688
<INTEREST-OTHER> 646
<INTEREST-TOTAL> 15,364
<INTEREST-DEPOSIT> 6,321
<INTEREST-EXPENSE> 7,320
<INTEREST-INCOME-NET> 8,044
<LOAN-LOSSES> 696
<SECURITIES-GAINS> 4
<EXPENSE-OTHER> 5,414
<INCOME-PRETAX> 3,556
<INCOME-PRE-EXTRAORDINARY> 2,376
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,376
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.40
<YIELD-ACTUAL> 4.60
<LOANS-NON> 911
<LOANS-PAST> 297
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 8,356
<CHARGE-OFFS> 364
<RECOVERIES> 137
<ALLOWANCE-CLOSE> 8,825
<ALLOWANCE-DOMESTIC> 8,825
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,411
</TABLE>
