UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 0-16772
PEOPLES BANCORP INC.
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(Exact name of Registrant as specified in its charter)
Ohio 31-0987416
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
138 Putnam Street, P. O. Box 738, Marietta, Ohio 45750
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (740) 373-3155
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Securities registered pursuant to
Section 12(b) of the Act: None
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Securities registered pursuant to
Section 12(g) of the Act: Common Shares, No Par Value (3,841,449
outstanding at February 28, 1998)
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Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Based upon the closing price of the Common Shares of the
Registrant on the The NASDAQ National Market as of February 28,
1998, the aggregate market value of the Common Shares of the
Registrant held by nonaffiliates on that date was $137,414,318.
For this purpose, certain executive officers and directors are
considered affiliates.
Documents Incorporated by Reference:
1) Portions of Registrant's Annual Report to Stockholders
for the fiscal year ended December 31, 1997, are
incorporated by reference into Parts I and II of this
Annual Report on Form 10-K.
2) Portions of Registrant's Definitive Proxy Statement
relating to the Annual Meeting to be held April 9, 1998,
are incorporated by reference into Part III of this
Annual Report on Form 10-K.
PART I
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ITEM 1. BUSINESS.
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Introduction
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Peoples Bancorp Inc. ("Peoples Delaware") was incorporated under
the laws of the State of Delaware on April 1, 1980. Peoples
Delaware was merged, following shareholder approval, into
Peoples Bancorp Inc., an Ohio corporation (the "Company"),
effective April 6, 1993, pursuant to a reincorporation
proceeding. The Company's principal business is to act as a
multi-bank holding company. Its wholly-owned subsidiaries are
The Peoples Banking and Trust Company ("Peoples Bank"), The
First National Bank of Southeastern Ohio ("First National
Bank"), Gateway Bancorp, Inc. ("Gateway Bancorp"), a multiple
saving and loan holding company with two wholly-owned
subsidiaries which include Russell Federal Savings Bank
("Russell Federal") and Catlettsburg Federal Savings Bank
("Catlettsburg Federal"), and The Northwest Territory Life
Insurance Company, an Arizona corporation ("Northwest
Territory").
At December 31, 1997, Peoples Bancorp Inc. (parent company only)
had 31 full-time equivalent employees.
The Peoples Banking and Trust Company
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Peoples Bank was chartered as an Ohio banking corporation under
its present name in Marietta, Ohio, in 1902. At December 31,
1997, it had assets of $577.0 million, deposits of $480.6
million, and net loans of $412.4 million.
Peoples Bank is a full-service commercial bank. It provides the
following products to its customers: checking accounts, NOW
accounts, Super NOW accounts, money market deposit accounts,
savings accounts, time certificates of deposit, commercial
loans, installment loans, commercial and residential real estate
mortgage loans, credit cards, debit cards, lease financing,
corporate and personal trust services and safe deposit rental
facilities. Peoples Bank also sells travelers checks, money
orders and cashier's checks. Services are provided through
ordinary walk-in offices, automated teller machines ("ATMs"),
automobile drive-in facilities called "Motor Banks", banking by
phone, and limited cash management services through computer
banking. At December 31, 1997, the Trust Department of Peoples
Bank held approximately $503 million of assets (market value) in
trust and custodial accounts apart from the assets of the Bank.
With all of its offices currently located in Ohio, Peoples Bank
serves principally Washington, Athens, Meigs, and Gallia
Counties, together with portions of Hocking, Perry, Lawrence and
Vinton Counties in Ohio and adjacent parts of Northern West
Virginia. Effective at the close of business on February 28,
1997, Peoples Bank completed the purchase of one full-service
banking office located in Baltimore, Ohio, from National City
Bank of Columbus. In the transaction, Peoples Bank assumed
approximately $12.5 million in deposits. The Baltimore office,
located in Fairfield County, currently operates a full-service
banking office and an ATM.
In addition to the office acquired in 1997, Peoples Bank
provides services to its customers at its principal banking
office in downtown Marietta and through ATMs and other banking
facilities. A full-service office, Motor Bank and ATM are
located at the Frontier Shopping Center in Marietta. Also, a
full-service office and ATM are located inside a grocery store
at Pike and Acme Streets in Marietta. A full-service office,
two Motor Banks and a ATM are operated in Belpre, Ohio.
Full-service offices with Motor Banks are located in Lowell,
Reno, Gallipolis, Rutland and Nelsonville, Ohio. A full-service
branch and ATM are located at One North Court Street in downtown
Athens, Ohio. A full-service office, Motor Bank and ATM are
located at the Athens Mall. Also, three ATMs are located on the
campus of Ohio University in Athens, Ohio. A full-service
office and separate Motor Bank are located in downtown Pomeroy,
together with an ATM located outside a local convenience store.
A full-service bank is located at Middleport, Ohio. A loan
production office in Newark-Granville, Ohio, serves that
immediate area in Licking County. At December 31, 1997, Peoples
Bank had 234 full-time equivalent employees.
On March 4, 1998, a new banking facility was opened in the
recently renovated HDL Center at 152 Union Street in Athens,
Ohio. The facility, located near the Ohio University campus, is
a full-service office, offering an ATM and drive-through
facility, with loan and investment services.
The First National Bank of Southeastern Ohio
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First National Bank is a national banking association chartered
in 1900. It provides banking services and products that are
substantially the same as those of Peoples Bank. First National
Bank operates a commercial bank and Motor Bank at one location
at 415 Main Street, Caldwell, Ohio. It also has a full-service
office and Motor Bank on Marion Street in Chesterhill, Ohio. It
also operates a full-service office on Kennebec Street,
McConnelsville, Ohio. First National Bank's market area is
comprised of Caldwell, Chesterhill, McConnelsville and the
surrounding area in Noble and Morgan Counties, Ohio. At
December 31, 1997, it had assets of $86.3 million, deposits of
$65.3 million, and net loans of $59.0 million. At December 31,
1997, First National Bank had 34 full-time equivalent employees.
First National Bank also operates two insurance agency
subsidiaries, Northwest Territory Life Insurance Agency, Inc.
and Northwest Territory Property & Casualty Insurance Agency,
Inc. (the "Agencies"). The Agencies were created in compliance
with federal regulations allowing insurance powers to national
banks in communities with populations of 5,000 people or less.
On December 22, 1995, each Agency received a Certificate of
Qualification (license) to operate the Agency from the Ohio
Department of Insurance, thereby allowing the Agencies to engage
in the insurance agency business, subject to the regulations of
the Ohio Department of Insurance and the Comptroller of the
Currency. These were the first insurance agencies in Ohio
associated with a financial institution to receive licenses to
conduct a broad-based insurance business. At December 31, 1997,
the Agencies had 5 full-time equivalent employees.
Gateway Bancorp, Inc.
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On December 12, 1997, the Company completed the acquisition 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 Common Shares of
the Company ("Gateway Bancorp Acquisition" or "Catlettsburg
Federal Acquisition"). Management has continued to operate
Catlettsburg Federal as a federal savings bank subsidiary.
Gateway Bancorp, Inc. was incorporated under Kentucky law in
October 1994 in connection with the conversion of Catlettsburg
Federal from a federally-chartered mutual savings and loan
association to a federally-chartered stock savings bank. In
this conversion, Gateway Bancorp, Inc. became the sole
shareholder of Catlettsburg Federal.
Effective December 12, 1997, Gateway Bancorp, Inc. merged with
and into Peoples Acquisition Corporation, an Ohio corporation,
formed as a wholly-owned subsidiary of the Company for purposes
of effecting the transaction. Pursuant to the terms and
conditions of the Gateway Bancorp Acquisition, the separate
corporate existence of Gateway Bancorp, Inc. terminated upon
consummation of the merger. With the filing of the Certificate
of Merger with the Secretary of the State of Ohio, the name of
the surviving corporation "Peoples Acquisition Corporation" was
changed to "Gateway Bancorp, Inc." On January 1, 1998, Russell
Federal became a subsidiary of Gateway Bancorp to align the
Company's business units in northeast Kentucky.
Catlettsburg Federal Savings Bank
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Catlettsburg Federal was originally chartered as a mutual
savings and loan association in 1935. As mentioned above,
Catlettsburg Federal converted to a federally-charted stock
savings bank in 1994 with Gateway Bancorp, Inc. as sole
shareholder of Catlettsburg Federal common stock. The Company
acquired Catlettsburg Federal and its parent company Gateway
Bancorp, Inc. on December 12, 1997. At December 31, 1997,
Catlettsburg Federal had total assets of $59.2 million, deposits
of $44.0 million and shareholders' equity of $14.8 million.
Catlettsburg Federal serves the financial needs of customers in
Carter and Boyd Counties, Kentucky its primary market area,
together with portions of Greenup County. Its principal
products include savings accounts, time certificates of deposit
and commercial and residential real estate loans. Catlettsburg
Federal operates two branches located in Catlettsburg and
Grayson, Kentucky. The Catlettsburg branch, located on Louisa
Street, offers services via a walk-in office while the Grayson
branch, located on Carol Malone Boulevard, is a walk-in office
and Motor Bank. In February 1998, Catlettsburg Federal Savings
Bank completed construction of a full-service office in Ashland,
Kentucky. Located on Eagle Drive, this branch will offer
services through a walk-in office. At December 31, 1997,
Catlettsburg Federal had 10 full-time equivalent employees.
Russell Federal Savings Bank
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Effective January 1, 1997, Russell Federal in Russell, Kentucky
was purchased by the Company for approximately $9.25 million in
cash. Management has continued Russell Federal's operations as
a federal savings bank. At December 31, 1997, Russell Federal
had total assets of $31.3 million, deposits of $21.3 million and
shareholders' equity of $5.9 million.
Russell Federal was originally chartered as a mutual association
in 1914. On October 6, 1994, Russell Federal converted from a
mutual association to a stock corporation. Russell Federal
serves the financial needs of customers in Greenup and Boyd
Counties, Kentucky its primary market area. Its principal
products include savings accounts, time certificates of deposit
and commercial and residential real estate loans. Russell
Federal has one full-service office located on Ferry Street in
the city of Russell and serves its customers by this walk-in
office and attached Motor Bank. At December 31, 1997, Russell
Federal had 7 full-time equivalent employees.
The Northwest Territory Life Insurance Company
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Northwest Territory was organized under Arizona law in 1983 and
was issued a Certificate of Authority to act as a reinsurance
company by the State of Arizona on February 8, 1984. Northwest
Territory reinsures credit life and disability insurance issued
to customers of banking subsidiaries of the Company by the
issuing insurance company. At fiscal year end November 30,
1997, Northwest Territory had total assets of $1.4 million and
had gross premium income of $218,000 in 1997, $201,000 in 1996
and $244,000 in 1995. Northwest Territory reinsures risks
(currently not exceeding $15,000 per insured on a present value
basis) within limits established by governmental regulations and
management policy. Northwest Territory has no employees.
Customers and Markets
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The Company's service area has a diverse economic structure.
Principal industries in the area include metals, plastics and
petrochemical manufacturing; oil, gas and coal production and
related support industries. In addition, tourism, education and
other service-related industries are important and growing
industries. Consequently, the Company is not dependent upon any
one industry segment for its business opportunities.
Each of the Company's banking subsidiaries originates various
types of loans, including commercial and commercial real estate
loans, residential real estate loans, home equity lines of
credit, real estate construction loans, and consumer loans
(including loans to individuals, credit card loans, and indirect
loans). In general, the Company retains most of its originated
loans and, therefore, secondary market activity has been
minimal. The loans of each of the Company's subsidiaries are
spread over a broad range of industrial classifications. The
Company believes that its subsidiaries have no significant
concentrations of loans to borrowers engaged in the same or
similar industries and such subsidiaries do not have any loans
to foreign entities. The lending market areas served by the
Company's subsidiaries are primarily concentrated in
southeastern Ohio and neighboring areas of Kentucky and West
Virginia. In addition, a loan production office in central Ohio
provides opportunities to serve customers in that economic
region.
Commercial lending entails significant additional risks as
compared with consumer lending, i.e. single-family residential
mortgage lending, installment lending, credit card loans and
indirect lending. In addition, the payment experience on
commercial loans is typically dependent on adequate cash flow of
a business and thus may be subject, to a greater extent, to
adverse conditions in the economy generally or adverse
conditions in a specific industry.
At December 31, 1997, the Company's subsidiaries had outstanding
approximately $159.0 million in commercial loans (including
commercial, financial and agricultural loans), representing
approximately 30.5% of the total aggregate loan portfolio as of
that date. At December 31, 1997, none of the Company's
subsidiaries had extended credit to any one borrower in excess
of its respective legal lending limits (approximately $7.8
million, $1.6 million, $2.2 million and $0.9 million, for
Peoples Bank, First National, Catlettsburg Federal and Russell
Federal, respectively). Loan terms include amortization
schedules commensurate with the purpose of each loan, the source
of repayment and the risk involved. Board of Director approval
is required for loans whose aggregate total debt, including the
principal amount of the proposed loan, exceeds $2 million,
$300,000, $275,000 and $750,000 for Peoples Bank, Russell
Federal, First National and Catlettsburg Federal, respectively.
The primary analysis technique used in determining whether to
grant a commercial loan is the review of a schedule of cash
flows in order to evaluate whether anticipated future cash flows
will be adequate to service both interest and principal due. In
addition, collateral is reviewed to determine its value in
relation to the loan.
Each of the Company's subsidiaries regularly evaluates all
commercial loans greater in amount than $100,000. If it is
determined that deterioration has occurred, effective and prompt
action is taken by the responsible subsidiary. Upon detection
of a reduced ability of a borrower to meet cash flow
obligations, the loan is considered an impaired loan and
reviewed for possible downgrading or placement on non-accrual
status.
At December 31, 1997, the Company's subsidiaries had outstanding
consumer loans (including indirect loans and credit cards) in an
aggregate amount of approximately $114.3 million (approximately
21.9% of the aggregate total loan portfolio). Credit approval
for consumer loans requires demonstration of sufficiency of
income to repay principal and interest due, stability of
employment, a positive credit record and sufficient collateral
for secured loans. It is the Company's policy to adhere
strictly to all laws and regulations governing consumer lending.
A qualified compliance officer is responsible for monitoring
the Company's performance in this area and for advising and
updating loan personnel. The Company's subsidiaries make credit
life insurance and health and accident insurance available to
all qualified buyers, thus reducing their risk of loss when a
borrower's income is terminated or interrupted. It is the
policy of each of the Company's subsidiaries to review its
consumer loan portfolio monthly and to charge off loans that do
not meet that subsidiary's standards. Each subsidiary also
offers its customers credit card access through the consumer
lending department of Peoples Bank.
Consumer loans generally involve more risk as to collectibility
than mortgage loans because of the type and nature of the
collateral and, in certain instances, the absence of collateral.
As a result, consumer lending collections are dependent upon
the borrower's continued financial stability, and thus are more
likely to be adversely affected by employment loss, personal
bankruptcy, or adverse economic conditions.
At December 31, 1997, there were approximately $248.2 million in
residential real estate, home equity lines of credit and
construction mortgages outstanding, representing 47.6% of total
loans outstanding. The Company's subsidiaries require that the
loan amount with respect to residential real estate loans be no
more than 90% of the purchase price or the appraisal value of
the real estate securing the loan, unless private mortgage
insurance is obtained by the borrower with respect to the
percentage exceeding such 90%. On occasion, the Company's
subsidiaries may lend up to 100% of the appraised value of the
real estate. The risk conditions of such loans are considered
during underwriting for the purposes of establishing an interest
rate compatible with the risks inherent in such home equity
loans. Loans made for each subsidiary's portfolio in this
lending category are generally one to five year adjustable rate,
fully amortized mortgages. The Company's subsidiaries also
generate fixed rate real estate loans and generally retain these
loans. All real estate loans are secured by first mortgages
with evidence of title in favor of the subsidiary in the form of
an attorney's opinion of the title or a title insurance policy.
The Company's subsidiaries also require proof of hazard
insurance with the appropriate subsidiary named as the
mortgagee and as the loss payee. Licensed appraisals are
required in the case of loans in excess of $250,000.
Home equity lines of credit are generally made as second
mortgages by the Company's subsidiaries. The maximum amount of
a home equity line of credit is generally limited to 80% of the
appraised value of the property less the balance of the first
mortgage. The home equity lines of credit are written with ten
year terms but are subject to review. A variable interest rate
is generally charged on the home equity lines of credit.
Construction financing is generally considered to involve a
higher degree of risk of loss than long-term financing on
improved, occupied real estate. Risk of loss on a construction
loan is dependent largely upon the accuracy of the initial
estimate of the property's value at completion of construction
and the estimated cost (including interest) of construction. If
the estimate of construction cost proves to be inaccurate, the
Company's subsidiary making the loan may be required to advance
funds beyond the amount originally committed to permit
completion of the project. At December 31, 1997, the Company
had approximately $19.5 million in real estate construction
loans, representing approximately 3.7% of the Company's total
loan portfolio.
Competition
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The banking subsidiaries of the Company experience significant
competition in attracting depositors and borrowers. Competition
in lending activities comes principally from other commercial
banks, savings associations, insurance companies, governmental
agencies, credit unions, brokerage firms and pension funds. The
primary factors in competing for loans are interest rate and
overall lending services. Competition for deposits comes from
other commercial banks, savings associations, money market funds
and credit unions as well as from insurance companies and
brokerage firms. The primary factors in competing for deposits
are interest rates paid on deposits, account liquidity,
convenience of office location and overall financial condition.
The Company believes that its size, overall banking services and
financial condition place it in a favorable competitive position.
Northwest Territory operates in the highly competitive industry
of credit life and disability insurance. The principal methods
of competition in the credit life and disability insurance
industry are the availability of coverages and premium rates.
The Company believes Northwest Territory has a competitive
advantage due to the fact that the business of Northwest
Territory is limited to the accepting of life and disability
reinsurance ceded in part to Northwest Territory from the credit
life and disability insurance purchased by loan customers of
primarily Peoples Bank and First National Bank.
The Agencies operate in the extremely competitive life insurance
and property and casualty insurance industries, due mostly to
the large number of companies and agents located within the
Company's markets. The Agencies provide several insurance
product options to consumers, including traditional life
insurance, as well as investments in mutual funds, variable and
fixed annuities and securities. The Company intends to provide
property and casualty insurance products through Northwest
Territory Property & Casualty Insurance Agency, Inc. The
Agencies' future competitive advantage will be based on their
ability to provide products to consumers efficiently with
sensitivity to customer service and cost price issues.
Supervision and Regulation
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The following is a summary of certain statutes and regulations
affecting the Company and its subsidiaries. The summary is
qualified in its entirety by reference to such statutes and
regulations.
The Company is a bank holding company under the Bank Holding
Company Act of 1956, as amended, which restricts the activities
of the Company and the acquisition by the Company of voting
stock or assets of any bank, savings association or other
company. The Company is also subject to the reporting
requirements of, and examination and regulation by, the Board of
Governors of the Federal Reserve System (the "Federal Reserve
Board"). Subsidiary banks of a bank holding company are subject
to certain restrictions imposed by the Federal Reserve Act on
transactions with affiliates, including any loans or extensions
of credit to the bank holding company or any of its
subsidiaries, investments in the stock or other securities
thereof and the taking of such stock or securities as collateral
for loans to any borrower; the issuance of guarantees,
acceptances or letters of credit on behalf of the bank holding
company and its subsidiaries; purchases or sales of securities
or other assets; and the payment of money or furnishing of
services to the bank holding company and other subsidiaries.
Bank holding companies are prohibited from acquiring direct or
indirect control of more than 5% of any class of voting stock or
substantially all of the assets of any bank holding company
without the prior approval of the Federal Reserve Board. A bank
holding company and its subsidiaries are prohibited from
engaging in certain tying arrangements in connection with
extensions of credit and/or the provision of other property or
services to a customer by the bank holding company or its
subsidiaries. In addition, any savings association acquired by
a bank holding company must conform its activities to those
permissible for a bank holding company under the Bank Holding
Company Act.
The Company is also a savings and loan holding company due to
its ownership of Russell Federal and Catlettsburg Federal.
However, since the Company is a bank holding company regulated
by the Federal Reserve Board, it is not subject to any separate
regulation as a savings and loan holding company. Transactions
between a savings association subsidiary of a savings and loan
holding company and an affiliate thereof are subject to the same
restrictions imposed by the Federal Reserve Act on subsidiary
banks of a bank holding company.
Congress is considering legislation to eliminate the federal
savings and loan charter and the separate federal regulations of
savings and loan associations. Although such legislation may
change the activities in which Catlettsburg Federal and Russell
Federal may engage, it is not anticipated that the current
activities of either the Company or the Bank will be materially
affected by those activity limits.
As a national bank, First National Bank is supervised and
regulated by the Comptroller of the Currency. As an Ohio
state-chartered bank, Peoples Bank is supervised and regulated
by the Ohio Division of Financial Institutions and the Federal
Deposit Insurance Corporation ("FDIC"). The deposits of First
National Bank and Peoples Bank are insured by the FDIC and those
entities are subject to the applicable provisions of the Federal
Deposit Insurance Act. A subsidiary of a bank holding company
or savings and loan holding company can be liable to reimburse
the FDIC if the FDIC incurs or anticipates a loss because of a
default of another FDIC-insured subsidiary of the bank holding
company or savings and loan holding company or in connection
with FDIC assistance provided to such subsidiary in danger of
default. In addition, the holding company of any insured
financial institution that submits a capital plan under the
federal banking agencies' regulations on prompt corrective
action, guarantees a portion of the institution's capital
shortfall, as discussed below.
Russell Federal and Catlettsburg Federal are federally-chartered
savings bank and are subject to regulation, supervision, and
examination by the Office of Thrift Supervision ("OTS"). As
members of the FHLB of Cincinnati, they are subject to certain
limited regulation by the Federal Reserve Board. Russell
Federal and Catlettsburg Federal deposits are insured by the
FDIC, which exercises regulatory and examination authority. The
enforcement authority of the OTS includes, among other things,
the ability to assess civil money penalties, to issue
cease-and-desist or removal orders and to initiate injunctive
actions. In general, these enforcement actions may be initiated
for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for
enforcement action, including misleading or untimely reports
filed with the OTS. Except under certain circumstances, public
disclosure of final enforcement actions by the OTS is required.
The FHLBs provide credit to their members in the form of
advances. The Company's savings bank subsidiaries are members
of the FHLB of Cincinnati and must maintain an investment in the
capital stock of that FHLB in an amount equal to the greater of
1.0% of the aggregate outstanding principal amount of their
respective residential mortgage loans, home purchase contracts
and similar obligations at the beginning of each year, or 5% of
its advances from the FHLB. The Company's savings bank
subsidiaries are in compliance with this requirement with an
aggregate investment in stock of the FHLB of Cincinnati of $8.0
million at December 31, 1997.
Various requirements and restrictions under the laws of the
United States and the State of Ohio affect the operations of
Peoples Bank, First National Bank, Russell Federal and
Catlettsburg Federal including requirements to maintain reserves
against deposits, restrictions on the nature and amount of loans
which may be made and the interest that may be charged thereon,
restrictions relating to investments and other activities,
limitations on credit exposure to correspondent banks,
limitations on activities based on capital and surplus,
limitations on payment of dividends, and limitations on
branching. Since June 1997, pursuant to federal legislation,
First National Bank has been authorized to branch across state
lines, unless the law of the other state specifically prohibits
the interstate branching authority granted by federal law.
The Federal Reserve Board has adopted risk-based capital
guidelines for bank holding companies and for state member
banks, such as Peoples Bank and First National Bank. The
risk-based capital guidelines include both a definition of
capital and a framework for calculating weighted-risk assets by
assigning assets and off-balance sheet items to broad risk
categories. The minimum ratio of total capital to weighted-risk
assets (including certain off-balance sheet items, such as
standby letters of credit) is 8%. At least 4.0 percentage
points is to be comprised of common stockholder's equity
(including retained earnings but excluding treasury stock),
noncumulative perpetual preferred stock, a limited amount of
cumulative perpetual preferred stock, and minority interests in
equity accounts of consolidated subsidiaries, less goodwill and
certain other intangible assets ("Tier 1 capital"). The
remainder ("Tier 2 capital") may consist, among other things, of
mandatory convertible debt securities, a limited amount of
subordinated debt, other preferred stock and a limited amount of
allowance for loan and lease losses. The Federal Reserve Board
also imposes a minimum leverage ratio (Tier 1 capital to total
assets) of 3% for bank holding companies and state member banks
that meet certain specified conditions, including no
operational, financial or supervisory deficiencies and including
having the highest regulatory rating. The minimum leverage
ratio is 100 - 200 basis points higher for other bank holding
companies and state member banks based on their particular
circumstances and risk profiles and those experiencing or
anticipating significant growth. National bank subsidiaries,
such as First National Bank, are subject to similar capital
requirements adopted by the Comptroller of the Currency.
The OTS has established capital standards, including a tangible
capital requirement, a leverage ratio (or core capital)
requirement and risk-based capital requirement applicable to
savings associations such as Russell Federal and Catlettsburg
Federal. The framework provided by the OTS to define capital
and calculate risk-weighted assets is much the same as the
framework provided by the Federal Reserve Board for bank holding
companies and for state member banks, such as Peoples Bank.
These capital requirements must be generally as stringent as the
comparable capital requirements for national banks. The capital
regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible
capital generally includes common stockholders' equity and
retained income and certain noncumulative perpetual preferred
stock and related income. The capital standards also require
core capital equal at least 3% of adjusted total assets. Core
capital generally consists of tangible capital plus certain
intangible assets, including a limited amount of purchased
credit card relationships. The OTS risk-based requirement
requires saving associations to have total capital of at least
8% of risk-weighted assets. Total capital consists of core
capital and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments
that do not qualify as core capital and general valuation loan
and lease loss allowances up to a maximum of 1.25% of
risk-weighted assets. Supplementary capital may be used to
satisfy the risk-based requirement only to the extent of core
capital. The OTS is also authorized to require a savings
association to maintain an additional amount of total capital to
account for concentration of credit risk and the risk of
non-traditional activities.
The Company and its subsidiaries currently satisfy all capital
requirements. Failure to meet applicable capital guidelines
could subject a banking institution to a variety of enforcement
remedies available to federal and state regulatory authorities,
including the termination of deposit insurance by the FDIC.
Federal regulation requires prompt corrective action to resolve
capital deficient banks and savings associations. Under these
regulations, institutions which become undercapitalized become
subject to mandatory regulatory scrutiny and limitations, which
increase as capital continues to decrease. Such institutions
are also required to file capital plans with their primary
federal regulator, and their holding companies must guarantee
the capital shortfall up to 5% of the assets of the capital
deficient institution at the time it becomes undercapitalized.
The OTS has adopted an interest rate risk component to the
risk-based capital requirement, though the implementation of
that component has been delayed. Pursuant to that requirement,
a savings association would have to measure the effect of an
immediate 200 basis point change in interest rates on the value
of its portfolio, as determined under the methodology
established by the OTS. If the measured interest rate risk is
above the level deemed normal under the regulation, the
association will be required to deduct one-half of that excess
exposure from its total capital when determining its level of
risk-based capital. In general, an association with less than
$300 million in assets and a risk-based capital ratio of greater
than 12% will not be subject to the interest rate risk
component. (Catlettsburg Federal and Russell Federal currently
qualify for such exemption.) Pending implementation of the
interest rate risk component, the OTS has the authority to
impose a higher individualized capital requirement on any
savings association it deems to have excess interest rate risk.
The OTS also may adjust the rick-based capital requirement on an
individual basis for any association to take into account risks
due to concentrations of credit and non-traditional activities.
The ability of a bank holding company to obtain funds for the
payment of dividends and for other cash requirements is largely
dependent on the amount of dividends which may be declared by
its subsidiary banks and other subsidiaries. However, the
Federal Reserve Board expects the Company to serve as a source
of strength to its subsidiary banks, which may require it to
retain capital for further investment in subsidiaries, rather
than for dividends for shareholders of the Company. Peoples
Bank, First National Bank, Russell Federal and Catlettsburg
Federal may not pay dividends to the Company if, after paying
such dividends, they would fail to meet the required minimum
levels under the risk-based capital guidelines and the minimum
leverage ratio requirements. Peoples Bank and First National
Bank must have the approval of their respective regulative
authorities if a dividend in any year would cause the total
dividends for that year to exceed the sum of the current year's
net profits and the retained net profits for the preceding two
years, less required transfers to surplus. Russell Federal and
Catlettsburg Federal may make capital distributions during any
calendar year equal to the greater of 100% of net income for the
year-to-date plus 50% of the amount by which the lesser of the
savings bank's tangible, core of risk-based capital exceeds its
capital requirement for such capital component, as measured at
the beginning of the calendar year, or 75% of its net income for
the most recent four-quarter period. If the current minimum
capital requirements following a proposed capital distribution
are not met, Russell Federal and Catlettsburg Federal must
obtain prior approval from the OTS. Payment of dividends by the
Company's subsidiaries may be restricted at any time at the
discretion of the regulatory authorities, if they deem such
dividends to constitute an unsafe and/or unsound banking
practice. These provisions could have the effect of limiting
the Company's ability to pay dividends on its outstanding common
shares.
The Company's financial institution subsidiaries are subject to
regulatory oversight under various consumer protection and fair
lending laws. These laws govern, among other things,
truth-in-lending disclosure, equal credit opportunity , fair
credit reporting and community reinvestment. Failure to abide
by federal laws and regulations governing community reinvestment
could limit the ability of a financial institution to open a new
branch or engage in a merger transaction. Community
reinvestment regulations evaluate how well and to what extent an
institution lends and invests in its designated service area,
with particular emphasis on low-to-moderate income communities
and borrowers in such areas. First National, Russell Federal
and Catlettsburg Federal have received a "satisfactory"
examination rating under those regulations while Peoples Bank
has received an "outstanding" examination rating.
Prior to the enactment of the Small Business Jobs Protection Act
(the "1996 Act") which was signed into law on August 21, 1996,
earnings appropriated to bad debt reserves and deducted for
federal income tax purposes could not be used by Russell Federal
or Catlettsburg Federal to pay cash dividends to the Company
without the payment of federal income taxes by the Company at
the then current income tax rate on the amount deemed
distributed, which would include the amount of any federal
income taxes attributable to the distribution. The Company does
not contemplate any distribution by Russell Federal or
Catlettsburg Federal in a manner which would create the
above-mentioned federal tax liabilities.
The FDIC is authorized to establish separate annual assessment
rates for deposit insurance for members of the Bank Insurance
Fund ("BIF") and of the Savings Association Insurance Fund
("SAIF"). Peoples Bank and First National Bank are members of
the BIF. Russell Federal and Catlettsburg Federal are members
of the SAIF. The FDIC may increase assessment rates for either
fund if necessary to restore the fund's ratio of reserves to
insured deposits to its target level within a reasonable time
and may decrease such rates if such target level has been met.
The FDIC has established a risk-based assessment system for both
BIF and SAIF members. Under this system, assessments may vary
based on the risk the institution poses to its deposit insurance
fund. The risk level is determined based on the institution's
capital level and the FDIC's level of supervisory concern about
the institution.
Because BIF has become fully funded, BIF assessments for
well-capitalized commercial banks were reduced to, in effect,
$2,000 per year, during 1996. Federal legislation, which became
effective September 30, 1996, provides, among other things, for
the costs of prior thrift failures to be shared by both the BIF
and the SAIF. As a result of such cost sharing, BIF assessments
for well-capitalized banks during 1998 will be $.013 per $100 in
deposits. SAIF assessments for well-capitalized institutions in
1998 will be $.063 per $100 in deposits. Based upon their
respective level of deposits at December 31, 1997, the projected
BIF assessment for the Company's banking subsidiaries would
aggregate approximately $71,000 in 1998. The projected SAIF
assessment for Russell Federal and Catlettsburg Federal would
total approximately $41,000 in 1998.
Northwest Territory is chartered by the State of Arizona and is
subject to regulation, supervision and examination by the
Arizona Department of Insurance. The powers of regulation and
supervision of the Arizona Department of Insurance relate
generally to such matters as minimum capitalization, the grant
and revocation of certificates of authority to transact
business, the nature of and limitations on investments, the
maintenance of reserves, the form and content of required
financial statements, reporting requirements and other matters
pertaining to life and disability insurance companies.
The Agencies are incorporated in the State of Ohio and licensed
by the Ohio Department of Insurance, which regulates, supervises
and has authority to examine the Agencies.
Monetary Policy and Economic Conditions
- ---------------------------------------
The business of commercial banks and savings associations is
affected not only by general economic conditions, but also by
the policies of various governmental regulatory agencies,
including the Federal Reserve Board. The Federal Reserve Board
regulates money and credit conditions and interest rates in
order to influence general economic conditions primarily through
open market operations in U.S. Government securities, changes in
the discount rate on bank borrowings, and changes in the reserve
requirements against bank and savings association deposits.
These policies and regulations significantly affect the overall
growth and distribution of bank and savings association loans,
investments and deposits, and the interest rates charged on
loans, as well as the interest rates paid on deposits and
accounts.
The monetary policies of the Federal Reserve Board have had a
significant effect on the operating results of commercial banks
and savings associations in the past and are expected to
continue to have significant effects in the future. In view of
the changing conditions in the economy and the money markets and
the activities of monetary and fiscal authorities, no definitive
predictions can be made as to future changes in interest rates,
credit availability or deposit levels.
Statistical Financial Information Regarding the Company
- -------------------------------------------------------
The following listing of statistical financial information,
which is included in the Company's Annual Report to Shareholders
for the fiscal year ended December 31, 1997 (the "Company's 1997
Annual Report") and incorporated herein by reference, provides
comparative data for the Company over the past three and five
years, as appropriate. These tables should be read in
conjunction with "Management's Discussion and Analysis" and the
Consolidated Financial Statements of the Company and its
subsidiaries found at pages 32 through 49 and 8 through 26,
respectively, of the Company's 1997 Annual Report.
Average Balances and Analysis of Net Interest Income:
Please refer to page 28 of the Company's 1997 Annual Report.
Rate Volume Analysis:
Please refer to page 29 of the Company's 1997 Annual Report.
Loan Maturities:
Please refer to page 29 of the Company's 1997 Annual Report.
Average Deposits:
Please refer to page 28 of the Company's 1997 Annual Report.
Maturities Schedule of Large Certificates of Deposit:
Please refer to page 29 of the Company's 1997 Annual Report.
Loan Portfolio Analysis:
Please refer to pages 30 and 31 of the Company's 1997 Annual Report.
Securities Analysis:
Please refer to pages 14 and 15, page 43 and page 45 of the
Company's 1997 Annual Report.
Return Ratios:
Please refer to page 5 of the Company's 1997 Annual Report.
Effect of Environmental Regulation
- ----------------------------------
Compliance with federal, state and local provisions regulating
the discharge of materials into the environment, or otherwise
relating to the protection of the environment, has not had a
material effect upon the capital expenditures, earnings or
competitive position of the Company and its subsidiaries. The
Company believes that the nature of the operations of its
subsidiaries has little, if any, environmental impact. The
Company, therefore, anticipates no material capital expenditures
for environmental control facilities for its current fiscal year
or for the foreseeable future. The Company's subsidiaries may
be required to make capital expenditures for environmental
control facilities related to properties which they may acquire
through foreclosure proceedings in the future; however, the
amount of such capital expenditures, if any, is not currently
determinable.
ITEM 2. PROPERTIES
===================
The principal office of the Company and Peoples Bank is located
at 138 Putnam Street, Marietta, Ohio. This location consists of
a five-story, stone-block building and one other smaller
building attached by interior corridors. In 1993, Peoples Bank
completed construction of a five-story addition to its primary
facility in downtown Marietta. Peoples Bank also owns several
nearby vacant lots for parking and a nearby Motor Bank.
Other Washington County offices for Peoples Bank include
property owned at Second and Scammel Streets in downtown
Marietta on which an additional Motor Bank exists. Peoples Bank
also leases land in the Frontier Shopping Center near downtown
Marietta on which a full-service branch is located. In
addition, Peoples Bank leases its other full-service branch
located inside a supermarket in Washington Center near downtown
Marietta. In Belpre, Peoples Bank owns a full-service branch at
1902 Washington Boulevard and a nearby Motor Bank. Peoples Bank
also owns a full-service branch in Lowell, Ohio, and a Motor
Bank in Reno, Ohio.
In Athens County, Peoples Bank owns a two-story, block building
on the Public Square in Nelsonville, Ohio, and an additional
Motor Bank in Nelsonville. In addition, Peoples Bank owns an
office consisting of a two-story concrete structure at One North
Court Street, Athens, Ohio, and a brick full-service office in
the Athens Mall. The building in the Mall is owned by Peoples
Bank on leased real property. The branch office located in The
Plains is operated under a lease which expires in June, 2001.
The newly opened brick full-service office located on Union
Street in Athens is operated under a lease which expires in
March, 2008.
In Meigs County, Peoples Bank owns full-service offices in
Middleport and Rutland, Ohio. Peoples Bank also owns
full-service and nearby Motor Banks in Gallipolis and Pomeroy,
Ohio.
Peoples Bank's loan production office in Newark-Granville is
also leased. The Company owns the land and building on which
the newly acquired Baltimore branch is located.
First National Bank owns a three-story office building of brick
and stone at 415 Main Street in Caldwell, Ohio, and a one-story
masonry and brick building located on Marion Street in
Chesterhill, Morgan County, Ohio, together with a two-story
brick structure in McConnelsville, Morgan County, Ohio, located
on Kennebec Street. The Agencies headquarters are also located
in the Caldwell office of First National Bank.
Catlettsburg Federal owns a two-story block and brick building
located on Louisa Street in Catlettsburg, Kentucky, and a
single-story block and brick located on Carol Malone Boulevard
in Grayson, Kentucky. An additional one-story brick building
was renovated and opened on Eagle Drive in Ashland, Kentucky by
Catlettsburg Federal in March, 1998.
Russell Federal owns a two-story brick office building with
adjoining land and parking lot at 404 Ferry Street in Russell,
Kentucky, as well as adjacent property located at 408 Ferry
Street.
All other properties occupied by the Company and its
subsidiaries are owned by the Company or its subsidiaries. The
Company and its subsidiaries own other real property which, when
considered in the aggregate, is not material to their operations.
Management believes all of the properties described above are in
satisfactory condition for their intended use.
ITEM 3. LEGAL PROCEEDINGS.
===========================
There are no pending legal proceedings to which the Company or
its subsidiaries are a party or to which any of their property
is subject other than ordinary routine litigation incidental to
their business, none of which is material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
=============================================================
Not applicable.
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
==========================================================
Please refer to pages 6 and 7 of the Company's 1997 Annual
Report, which are incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
=================================
The table of Selected Financial Data on page 5 of the Company's
1997 Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION.
==========================================================
Please refer to pages 32 through 49 of the Company's 1997 Annual
Report, which are incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
=====================================================================
Please refer to page 45 of the Company's 1997 Annual Report,
which is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
=====================================================
The Consolidated Financial Statements of Peoples Bancorp Inc.
and it subsidiaries, included on pages 8 through 26 of the
Company's 1997 Annual Report, and the Report of Ernst & Young
LLP included therein at page 27 are incorporated herein by
reference. Following is an index to the financial statements
included in the Company's 1997 Annual Report:
1997
Annual
Report
Financial Statements: Pages
- -------------------------------------------------------------- ------
Peoples Bancorp Inc. and Subsidiaries:
Report of Independent Auditors (Ernst & Young LLP) 27
Consolidated Balance Sheets as of December 31, 1997 and 1996 8
Consolidated Statements of Income for each of the
Three Years Ended December 31, 1997 9
Consolidated Statements of Stockholders' Equity for each
of the Three Years Ended December 31, 1997 10
Consolidated Statements of Cash Flows for each of the
Three Years Ended December 31, 1997 11
Notes to the Consolidated Financial Statements 12-26
Peoples Bancorp Inc.: (Parent Company Only Financial
Statements are included in Note 15 of the Notes to the
Consolidated Financial Statements) 24-25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
=========================================================
No response required.
PART III
---------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
=============================================================
Directors and Executive Officers of the Company include those
persons enumerated under "Election of Directors" on pages 5
through 7 of the Company's definitive Proxy Statement relating
to the Company's Annual Meeting of Shareholders to be held April
9, 1998, which section is expressly incorporated by reference.
Other Executive Officers are Carol A. Schneeberger (41), Vice
President/Operations; John (Jack) W. Conlon (52), Chief
Financial Officer; Jeffrey D. Welch (43), Treasurer; and Mark F.
Bradley (28), Controller.
Ms. Schneeberger became Vice President/Operations of the Company
in October, 1988. Prior thereto, she was Auditor of the Company
from August, 1987 to October, 1988, and Auditor of Peoples Bank
from January, 1986 to October, 1988. She was Assistant Auditor
of Peoples Bank from January, 1979 to January, 1986.
Mr. Conlon has been Chief Financial Officer of the Company since
April, 1991. He has also been Chief Financial Officer and
Treasurer of Peoples Bank for more than five years.
Mr. Welch has been Treasurer of the Company since 1985.
Mr. Bradley became Controller of the Company in January, 1998.
Prior thereto, he was Manager of Accounting and External
Reporting for the Company from February, 1995 to January, 1998.
Has has been Controller for Peoples Bank since March, 1997. He
was Manager of Accounting and External Reporting for Peoples
Bank from February, 1995 to January, 1997. Prior to February
1995, Mr. Bradley served as a staff accountant of the Company
beginning in 1991.
The information required to be disclosed under Item 405 of
Regulation S-K is included under the caption "Section 16(a)
Beneficial Ownership Report Compliance" on pages 4 and 5 of the
Company's definitive Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION.
=================================
See "Compensation Committee Interlocks and Insider
Participation" and "Compensation of Executive Officers and
Directors" on page 11, and pages 11 through 15, respectively, of
the Company's definitive Proxy Statement relating to the
Company's Annual Meeting of Shareholders to be held April 9,
1998, which are expressly incorporated herein by reference.
Neither the report on executive compensation nor the performance
graph included in the Company's definitive Proxy Statement
relating to the Company's Annual Meeting of Shareholders to be
held on April 9, 1998, shall be deemed to be incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
=========================================================================
See "Security Ownership of Certain Beneficial Owners and
Management" on pages 2 through 4 of the Company's definitive
Proxy Statement relating to the Company's Annual Meeting of
Shareholders to be held April 9, 1998, which section is
expressly incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
=========================================================
See "Transactions Involving Management" on page 8 of
the Company's definitive Proxy Statement relating to the
Company's Annual Meeting of Shareholders to be held April 9,
1998, which section is expressly incorporated herein by
reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.
==============================================================
(a) (1) Financial Statements
--------------------
For a list of all financial statements included in this Annual
Report on Form 10-K, see "Index to Financial Statements" at Page
17.
(a) (2) Financial Statement Schedules
-----------------------------
All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable and, therefore, have been omitted.
(a) (3) Exhibits
--------
Exhibits filed with this Annual Report on Form 10-K are
attached hereto. For a list of such exhibits, see "Exhibit
Index" beginning at page 18. The following table provides
certain information concerning executive compensation plans and
arrangements required to be filed as exhibits to this Annual
Report on Form 10-K.
Executive Compensation Plans and Arrangements
---------------------------------------------
Exhibit No. Description Location
----------- ---------------------------- -----------------------
10(a) Deferred Compensation Incorporated herein by
Agreement dated November 16, reference to Exhibit
1976 between Robert E. Evans 6(g) to Registration
and The Peoples Banking and Statement No. 2-68524
Trust Company, as amended on Form S-14 of
March 13, 1979. Peoples Delaware, the
Company's predecessor.
10(b) Peoples Bancorp Inc. Incorporated herein by
Retirement Savings Plan. reference to Exhibit
(Amended and Restated 10(b) of the Company's
Effective January 1, 1996.) Annual Report on Form
10-K for fiscal year
ended December 31, 1995
(File No. 0-16772)
10(c) Peoples Bancorp Inc. Incorporated herein by
Deferred Compensation Plan reference to Exhibit
for Directors of Peoples 10(a) of Registrant's
Bancorp Inc. and Registration Statement
Subsidiaries (Amended and on Form S-8 December
Restated Effective January 31, 1997 (Registration
2, 1998.) No. 333-43629)
10(d) Peoples Bancorp Inc. Incorporated herein by
Retirement Plan and Trust. reference to Exhibit
(Amended and Restated 10(d) of the Company's
Effective January 1, 1989.) Annual Report on Form
10-K for fiscal year
ended December 31, 1995
(File No. 0-16772)
10(e) Summary of the Performance Incorporated herein by
Compensation Plan of reference to Exhibit
Peoples Bancorp Inc. 10(f) of the Company's
effective for calendar year Annual Report on Form
beginning January 1, 1997. 10-K for fiscal year
ended December 31, 1996
(File No. 0-16772).
10(f) Peoples Bancorp Inc. Amended Incorporated herein by
and Restated 1993 Stock reference to Exhibit
Option Plan. 4 of the Company's
Registration Statement
on Form S-8 filed
August 25, 1993
(Registration Statement
No. 33-67878).
10(g) Form of Stock Option Incorporated herein by
Agreement used in connection reference to Exhibit
with grant of non-qualified 10(g) of the Company's
stock options under Peoples Annual Report on Form
Bancorp Inc. Amended and 10-K for fiscal year
Restated 1993 Stock Option ended December 31, 1995
Plan. (File No. 0-16772)
10(h) Form of Stock Option Incorporated herein by
Agreement dated May 20, reference to Exhibit
1993, used in connection 10(h) of the Company's
with grant of incentive Annual Report on Form
stock options under Peoples 10-K for fiscal year
Bancorp Inc. Amended and ended December 31, 1995
Restated 1993 Stock Option (File No. 0-16772)
Plan.
10(i) Form of Stock Option Incorporated herein by
Agreement dated November 10, reference to Exhibit
1994, used in connection 10(i) of the Company's
with grant of incentive Annual Report on Form
stock options under Peoples 10-K for fiscal year
Bancorp Inc. Amended and ended December 31, 1995
Restated 1993 Stock Option (File No. 0-16772)
Plan.
10(j) Peoples Bancorp Inc. 1995 Incorporated herein by
Stock Option Plan. reference to Exhibit 4
of the Company's Form
S-8 filed May 24, 1995
(Registration Statement
No. 33-59569).
10(k) Form of Stock Option Incorporated herein by
Agreement used in connection reference to Exhibit
with grant of non-qualified 10(k) of the Company's
stock options to Annual Report on Form
non-employee directors of 10-K for fiscal year
the Company under Peoples ended December 31, 1995
Bancorp Inc. 1995 Stock (File No. 0-16772)
Option Plan.
10(l) Form of Stock Option Incorporated herein by
Agreement used in connection reference to Exhibit
with grant of non-qualified 10(l) of the Company's
stock options to Annual Report on Form
non-employee directors of 10-K for fiscal year
the Company's subsidiaries ended December 31, 1995
under Peoples Bancorp Inc. (File No. 0-16772)
1995 Stock Option Plan.
(b) Reports on Form 8-K
-------------------
The Company filed a Current Report on Form 8-K on December
24, 1997 relating to the acquisition on December 12, 1997 of all
of the outstanding shares of common stock of Gateway Bancorp,
Inc., a Kentucky corporation, pursuant to an Agreement and Plan
of Merger, dated June 17, 1997, as amended as of September 2,
1997, between the Company and Gateway Bancorp, Inc. This
acquisition was report under Item 5 - Other Events. No
financial statement of pro forma financial information was
required to be filed therein.
(c) Exhibits
--------
Exhibits filed with Annual Report on Form 10-K are attached
hereto. For a list of such exhibits, see "Exhibit Index"
beginning at page 18.
(d) Financial Statement Schedules
-----------------------------
None.
<PAGE>
SIGNATURES
==========
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PEOPLES BANCORP INC.
Date: March 26, 1998 By: /s/ ROBERT E. EVANS
Robert E. Evans, President
Pursuant to the requirements of the Securities Exchange
Act of 1934, this Report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Signatures Title Date
- -------------------------- ----------------------------- --------------
/s/ ROBERT E. EVANS President and Chief Executive March 30, 1998
Robert E. Evans Officer and Director
/s/ GEORGE W. BROUGHTON Director March 26, 1998
George W. Broughton
/s/ WILFORD D. DIMIT Director March 26, 1998
Wilford D. Dimit
/s/ BARTON S. HOLL Director March 26, 1998
Barton S. Holl
/s/ REX E. MAIDEN Director March 26, 1998
Rex E. Maiden
/s/ NORMAN J. MURRAY Director March 26, 1998
Norman J. Murray
/s/ PAUL T. THEISEN Director March 26, 1998
Paul T. Theisen
/S/ THOMAS C. VADAKIN Director March 26, 1998
Thomas C. Vadakin
/S/ JOSEPH H. WESEL Chairman of the Board March 26, 1998
Joseph H. Wesel and Director
/s/ JEFFREY D. WELCH Treasurer (Principal March 30, 1998
Jeffrey D. Welch Accounting Officer)
/s/ JOHN W. CONLON Chief Financial Officer March 30, 1998
John W. Conlon
<PAGE>
PEOPLES BANCORP INC.
INDEX TO FINANCIAL STATEMENTS
1997
Annual
Report
Financial Statements: Pages
- -------------------------------------------------------------- ------
Peoples Bancorp Inc. and Subsidiaries:
Report of Independent Auditors (Ernst & Young LLP) 27
Consolidated Balance Sheets as of December 31, 1997 and 1996 8
Consolidated Statements of Income for each of the
Three Years Ended December 31, 1997 9
Consolidated Statements of Stockholders' Equity for each
of the Three Years Ended December 31, 1997 10
Consolidated Statements of Cash Flows for each of the
Three Years Ended December 31, 1997 11
Notes to the Consolidated Financial Statements 12-26
Peoples Bancorp Inc.: (Parent Company Only Financial
Statements are included in Note 15 of the Notes to the
Consolidated Financial Statements) 24-25
<PAGE>
EXHIBIT INDEX
PEOPLES BANCORP INC. ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1997
Exhibit
Number Description Exhibit Location
- ----------- ---------------------------- -----------------------
2 (a) Agreement and Plan of Merger Incorporated herein by
and Reorganization by and reference to Exhibit
between Peoples Bancorp Inc. 2(b) of the Company's
and Russell Federal Savings Annual Report on Form
Bank, dated August 19, 1996. 10-K for fiscal year
ended December 31, 1996
(File No. 0-16772).
2 (b) Agreement and Plan of Incorporated herein by
Merger, dated June 17, 1997, reference to Exhibit
as amended by and between 2(a) of Registrant's
Peoples Bancorp Inc. and Registration Statement
Gateway Bancorp, Inc. on Form S-4 (File No.
333-37261) effective
October 2, 1997.
3 (a)(1) Amended Articles of Incorporated herein by
Incorporation of Peoples reference to Exhibit
Bancorp Inc. (as filed with 3(a) to the Company's
the Ohio Secretary of State Registration Statement
on May 3, 1993) on Form 8-B filed
July 20, 1993
(File No. 0-16772).
3(a)(2) Certificate of Amendment to *
the Amended Articles of
Peoples Bancorp Inc. (as
filed with the Ohio
Secretary of State on
April 22, 1994)
3(a)(3) Certificate of Amendment to *
the Amended Articles of
Peoples Bancorp Inc. (as
filed with the Ohio
Secretary of State on
April 9, 1996)
3(a)(4) Amended Articles of *
Incorporation Peoples
Bancorp Inc. (reflecting
amendments through April 9,
1996) [ For SEC reporting
compliance purposes only --
not filed with Ohio
Secretary of State]
3 (b) Regulations of Peoples Incorporated herein by
Bancorp Inc. reference to Exhibit
3(b) to the Company's
Registration Statement
on Form 8-B filed
July 20, 1993
(File No. 0-16772).
4 Pledge Agreement, dated Incorporated herein by
March 18, 1997, between reference to Exhibit
Peoples Bancorp Inc. and 4 of Registrant's
Fountain Square Commercial Registration Statement
Funding Corp. on Form S-4 (File No.
333-37261) effective
October 2, 1997.
10(a) Deferred Compensation Incorporated herein by
Agreement dated November 16, reference to Exhibit
1976 between Robert E. Evans 6(g) to Registration
and The Peoples Banking and Statement No. 2-68524
Trust Company, as amended on Form S-14 of
March 13, 1979. Peoples Delaware, the
Company's predecessor.
10(b) Peoples Bancorp Inc. Incorporated herein by
Retirement Savings Plan. reference to Exhibit
(Amended and Restated 10(b) of the Company's
Effective January 1, 1996.) Annual Report on Form
10-K for fiscal year
ended December 31, 1995
(File No. 0-16772)
10(c) Peoples Bancorp Inc. Incorporated herein by
Deferred Compensation Plan reference to Exhibit
for Directors of Peoples 10(a) of Registrant's
Bancorp Inc. and Registration Statement
Subsidiaries (Amended and on Form S-8 December
Restated Effective January 31, 1997 (Registration
2, 1998.) No. 333-43629)
10(d) Peoples Bancorp Inc. Incorporated herein by
Retirement Plan and Trust. reference to Exhibit
(Amended and Restated 10(d) of the Company's
Effective January 1, 1989.) Annual Report on Form
10-K for fiscal year
ended December 31, 1995
(File No. 0-16772)
10(e) Summary of the Performance Incorporated herein by
Compensation Plan of reference to Exhibit
Peoples Bancorp Inc. 10(f) of the Company's
effective for calendar year Annual Report on Form
beginning January 1, 1997. 10-K for fiscal year
ended December 31, 1996
(File No. 0-16772).
10(f) Peoples Bancorp Inc. Amended Incorporated herein by
and Restated 1993 Stock reference to Exhibit
Option Plan. 4 of the Company's
Registration Statement
on Form S-8 filed
August 25, 1993
(Registration Statement
No. 33-67878).
10(g) Form of Stock Option Incorporated herein by
Agreement used in connection reference to Exhibit
with grant of non-qualified 10(g) of the Company's
stock options under Peoples Annual Report on Form
Bancorp Inc. Amended and 10-K for fiscal year
Restated 1993 Stock Option ended December 31, 1995
Plan. (File No. 0-16772)
10(h) Form of Stock Option Incorporated herein by
Agreement dated May 20, reference to Exhibit
1993, used in connection 10(h) of the Company's
with grant of incentive Annual Report on Form
stock options under Peoples 10-K for fiscal year
Bancorp Inc. Amended and ended December 31, 1995
Restated 1993 Stock Option (File No. 0-16772)
Plan.
10(i) Form of Stock Option Incorporated herein by
Agreement dated November 10, reference to Exhibit
1994, used in connection 10(i) of the Company's
with grant of incentive Annual Report on Form
stock options under Peoples 10-K for fiscal year
Bancorp Inc. Amended and ended December 31, 1995
Restated 1993 Stock Option (File No. 0-16772)
Plan.
10(j) Peoples Bancorp Inc. 1995 Incorporated herein by
Stock Option Plan. reference to Exhibit 4
of the Company's Form
S-8 filed May 24, 1995
(Registration Statement
No. 33-59569).
10(k) Form of Stock Option Incorporated herein by
Agreement used in connection reference to Exhibit
with grant of non-qualified 10(k) of the Company's
stock options to Annual Report on Form
non-employee directors of 10-K for fiscal year
the Company under Peoples ended December 31, 1995
Bancorp Inc. 1995 Stock (File No. 0-16772)
Option Plan.
10(l) Form of Stock Option Incorporated herein by
Agreement used in connection reference to Exhibit
with grant of non-qualified 10(l) of the Company's
stock options to Annual Report on Form
non-employee directors of 10-K for fiscal year
the Company's subsidiaries ended December 31, 1995
under Peoples Bancorp Inc. (File No. 0-16772)
1995 Stock Option Plan.
11 Computation of Earnings Per Page 29.
Share.
12 Statements of Computation Page 30.
of Ratios.
13 Peoples Bancorp Inc. Annual Page 31 through 88.
Report to Stockholders for
the fiscal year ended
December 31, 1997 (not
deemed filed except for
portions thereof which are
specifically incorporated by
reference into this Annual
Report on Form 10-K).
21 Subsidiaries of Peoples Page 89.
Bancorp Inc.
23 Consent of Independent Page 90.
Auditors - Ernst & Young
LLP.
27.1 Financial Data Schedule. Page 91.
27.2 Financial Data Schedule. Page 92 through 93.
27.3 Financial Data Schedule. Page 94 through 95.
27.4 Financial Data Schedule. Page 96 through 97.
*Filed herewith.
Exhibit 3(a)(2)
---------------
Certificate of Amendment to
the Amended Articles of Incorporation
of Peoples Bancorp Inc.
as filed with the Ohio Secretary of State
on April 22, 1994
<PAGE>
CERTIFICATE
OF
AMENDMENT TO THE AMENDED ARTICLES OF INCORPORATION
OF
PEOPLES BANCORP INC.
The undersigned hereby certify that they are the duly elected,
qualified and acting President and Secretary, respectively, of
Peoples Bancorp Inc., an Ohio corporation (the "Company"); that
the Annual Meeting of the Shareholders (the "Annual Meeting") of
the Company was duly called and held on April 5, 1994, at which
Annual Meeting a quorum of shareholders of the Company was at
all times present in person or by proxy; that the directors of
the Company unanimously approved and recommended to the
shareholders the approval of an amendment to Article FOURTH of
the Company's Amended Articles of Incorporation in order to
increase the authorized number of shares of the Company to
6,000,000 shares, all of which will be common shares, without
par value; and that the resolution attached hereto as Annex 1
and incorporated herein by this reference was duly adopted by
the shareholders of the Company at the Annual Meeting by the
affirmative vote of the holders of shares entitling them to
exercise at least a majority of the voting power of the Company
entitled to vote thereon in accordance with Article SEVENTH of
the Amended Articles of Incorporation of the Company.
IN WITNESS WHEREOF, the undersigned President and Secretary of
Peoples Bancorp Inc., acting for and on behalf of said
corporation, have hereunto set their hands this 19th day of
April, 1994.
/s/ Robert E. Evans
- --------------------------
Robert E. Evans, President
/s/ Ruth I. Otto
- --------------------------
Ruth I. Otto, Secretary
Annex 1
-------
RESOLVED, that the Amended Articles of Incorporation of
Peoples Bancorp Inc. be, and the same hereby are, amended by
deleting present Article FOURTH in its entirety and by
substituting in its place new Article FOURTH in the following
form:
Article FOURTH
of
the Amended Articles of Incorporation
of
Peoples Bancorp Inc.
--------------------
FOURTH: The authorized number of shares of the Corporation
shall be 6,000,000, all of which shall be common shares, each
without par value.
03/30/98 - 8095187.01
Exhibit 3(a)(3)
---------------
Certificate of Amendment to
the Amended Articles of
Incorporation of Peoples
Bancorp Inc. as filed with
the Ohio Secretary of State
on April 9, 1996
<PAGE>
CERTIFICATE
OF
AMENDMENT TO THE AMENDED ARTICLES OF INCORPORATION
OF
PEOPLES BANCORP INC.
The undersigned hereby certify that they are the duly elected,
qualified and acting President and Secretary, respectively, of
Peoples Bancorp Inc., an Ohio corporation (the "Company"); that
the Annual Meeting of the Shareholders (the "Annual Meeting") of
the Company was duly called and held on April 9, 1996, at which
Annual Meeting a quorum of shareholders of the Company was at
all times present in person or by proxy; that the directors of
the Company unanimously approved and recommended to the
shareholders the approval of an amendment to Article FOURTH of
the Company's Amended Articles of Incorporation in order to
increase the authorized number of shares of the Company to
12,000,000 shares, all of which will be common shares, without
par value; and that the resolution attached hereto as Annex 1
and incorporated herein by this reference was duly adopted by
the shareholders of the Company at the Annual Meeting by the
affirmative vote of the holders of shares entitling them to
exercise at least a majority of the voting power of the Company
entitled to vote thereon in accordance with Article SEVENTH of
the Amended Articles of Incorporation of the Company.
IN WITNESS WHEREOF, the undersigned President and Secretary of
Peoples Bancorp Inc., acting for and on behalf of said
corporation, have hereunto set their hands this 9th day of
April, 1996.
/s/ Robert E. Evans
- --------------------------
Robert E. Evans, President
/s/ Ruth I. Otto
- --------------------------
Ruth I. Otto, Secretary
Annex 1
-------
RESOLVED, that Article FOURTH of the Corporation's Amended
Articles of Incorporation be amended to increase the authorized
number of shares from 6,000,000 to 12,000,000, all of which will
be common shares, without par value.
Exhibit 3(a)(4)
---------------
Amended Articles of Incorporation
of Peoples Bancorp Inc.
(reflecting amendments through
April 9, 1996)
[For SEC reporting compliance
purposes only -- not filed with
Ohio Secretary of State]
<PAGE>
AMENDED
ARTICLES OF INCORPORATION
OF
PEOPLES BANCORP INC.
(reflecting amendments through April 9, 1996)
[for SEC reporting compliance only --
not filed with Ohio Secretary of State]
FIRST: The name of the corporation shall be Peoples Bancorp
Inc. (the "Corporation").
SECOND: The place in Ohio where the principal office of the
Corporation is to be located is in the City of Marietta, County
of Washington.
THIRD: The purpose for which the Corporation is formed is to
engage in any lawful act or activity for which corporations may
be formed under Sections 1701.01 to 1701.98 of the Ohio Revised
Code.
FOURTH: The authorized number of shares of the Corporation
shall be 12,000,000, all of which shall be common shares, each
without par value.
FIFTH: The directors of the Corporation shall have the power
to cause the Corporation from time to time and at any time to
purchase, hold, sell, transfer or otherwise deal with (A) shares
of any class or series issued by it, (B) any security or other
obligation of the Corporation which may confer upon the holder
thereof the right to convert the same into shares of any class
or series authorized by the Articles of the Corporation, and (C)
any security or other obligation which may confer upon the
holder thereof the right to purchase shares of any class or
series authorized by the Articles of the Corporation. The
Corporation shall have the right to repurchase, if and when any
shareholder desires to sell, or on the happening of any event is
required to sell, shares of any class or series issued by the
Corporation. The authority granted in this Article FIFTH of
these Articles shall not limit the plenary authority of the
directors to purchase, hold, sell, transfer or otherwise deal
with shares of any class or series, securities, or other
obligations issued by the Corporation or authorized by its
Articles.
SIXTH: No shareholder of the Corporation shall have, as a
matter of right, the preemptive right to purchase or subscribe
for shares of any class, now or hereafter authorized, or to
purchase or subscribe for securities or other obligations
convertible into or exchangeable for such shares or which by
warrants or otherwise entitle the holders thereof to subscribe
for or purchase any such share.
SEVENTH: Notwithstanding any provision of the Ohio Revised
Code now or hereafter in force requiring for any purpose the
vote, consent, waiver or release of the holders of shares of the
Corporation entitling them to exercise two-thirds (2/3) or any
other proportion of the voting power of the Corporation or of
any class or classes of shares thereof, such action, unless
expressly otherwise provided by statute, may be taken by the
vote, consent, waiver or release of the holders of shares
entitling them to exercise not less than a majority of the
voting power of the Corporation or of such class or classes;
provided, however, that if any three members of the Board of
Directors of the Corporation shall affirmatively vote against
any of the following matters, the affirmative vote of the
holders of shares entitling them to exercise not less than 75%
of the voting power of the Corporation entitled to vote thereon
shall be required to adopt:
(1) a proposed amendment to the Articles of the Corporation;
(2) proposed new regulations or an alteration, amendment or
repeal of the regulations of the Corporation;
(3) an agreement of merger or consolidation providing for the
merger or consolidation of the Corporation with or into one or
more other corporations;
(4) a proposed combination or majority share acquisition
involving the issuance of shares of the Corporation and
requiring shareholder approval;
(5) a proposal to sell, lease, exchange, transfer or otherwise
dispose of all or substantially all of the property and assets
of the Corporation;
(6) a proposed dissolution of the Corporation; or
(7) a proposal to fix or change the number of directors by
action of the shareholders of the Corporation.
The written objection of a director to any such matter submitted
to the President or Secretary of the Corporation not less than
three days before the meeting of the shareholders of the
Corporation at which any such matter is to be considered shall
be deemed to be an affirmative vote by such director against
such matter.
EIGHTH: The members of the Board of Directors of the
Corporation, when evaluating any offer of another party to (A)
make a tender or exchange offer for any shares of the
Corporation, (B) merge or consolidate the Corporation with
another corporation or (C) purchase or otherwise acquire all or
substantially all of the properties and assets of the
Corporation, in connection with the exercise of their judgment
in determining what they reasonably believe to be in the best
interests of the Corporation, shall consider the interests of
the Corporation's shareholders and, in their discretion, may
consider any of the following:
(1) the interests of the Corporation's employees, suppliers,
creditors, and customers;
(2) the economy of Ohio and the nation;
(3) community and societal considerations; and
(4) the long-term as well as the short-term interests of the
Corporation and its shareholders, including the possibility that
these interests may be best served by the continued independence
of the Corporation.
NINTH: Shareholders of the Corporation shall not have the
right to vote cumulatively in the election of directors.
TENTH: These Amended Articles of Incorporation take the place
of and supersede the existing Articles of Incorporation of
Peoples Bancorp Inc.
EXHIBIT 11
----------
PEOPLES BANCORP INC. ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1997
COMPUTATION OF EARNINGS PER SHARE
Year Ended December 31,
1997 1996 1995
------------------------------------------
BASIC EARNINGS PER SHARE
- ------------------------
EARNINGS:
Net income $8,605,000 $7,651,000 $6,050,000
AVERAGE SHARES OUTSTANDING:
Weighted average Common Shares
outstanding 3,473,158 3,437,790 3,481,176
---------- ---------- ----------
BASIC EARNINGS PER SHARE $2.48 $2.23 $1.74
========== ========== ==========
DILUTED EARNINGS PER SHARE
- --------------------------
EARNINGS:
Net income $8,605,000 $7,651,000 $6,050,000
AVERAGE SHARES OUTSTANDING:
Weighted average Common Shares
outstanding 3,473,158 3,437,790 3,481,176
Net effect of the assumed
exercise of stock options based
on the treasury stock method 110,188 43,002 17,779
---------- ---------- ----------
Total 3,583,346 3,480,792 3,498,955
DILUTED EARNINGS PER SHARE $2.40 $2.20 $1.73
========== ========== ==========
EXHIBIT 12
----------
PEOPLES BANCORP INC. ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1997
COMPUTATION OF RATIOS
CASH DIVIDENDS PER SHARE Cash dividends paid/Common shares
outstanding at date of declaration
BOOK VALUE PER SHARE Total stockholders' equity/Common shares
outstanding at year-end
RETURN ON AVERAGE ASSETS Net income/Average assets
RETURN ON AVERAGE STOCKHOLDERS'
EQUITY Net income/Average stockholders' equity
NET INTEREST MARGIN Fully-tax equivalent net interest
income/Average earning assets
NON-INTEREST EXPENSE TO AVERAGE
ASSETS Non-interest expense/Average assets
EFFICIENCY RATIO (Non-interest expenses less intangible and
non-recurring , non-operational items)/
(Fully-tax equivalent net interest income
plus non-interest income)
AVERAGE LOANS TO AVERAGE DEPOSITS Average gross loans/Average deposits
DIVIDEND PAYOUT RATIO Dividends declared/Net income
AVERAGE STOCKHOLDERS' EQUITY TO
AVERAGE ASSETS Average stockholders' equity/Average assets
PRIMARY CAPITAL TO PERIOD END
TOTAL ASSETS (Stockholders' equity plus allowance for
loan losses less intangible assets)/
(Period end total assets plus allowance
for loan losses less intangible assets)
TIER 1 CAPITAL RATIO Stockholders' equity less intangible
assets less securities mark-to-market
capital reserve ("Tier 1 Capital")/
Risk adjusted assets
TOTAL CAPITAL RATIO Tier 1 Capital plus allowance for loan
losses/Risk adjusted assets
TIER 1 LEVERAGE RATIO Tier 1 Capital/Quarterly average assets
NET CHARGE-OFFS TO AVERAGE LOANS (Gross chargeoffs less recoveries)/
Average net loans
NONPERFORMING LOANS AS A
PERCENTAGE OF PERIOD END LOANS (Nonaccrual loans plus loans past due
90 days or greater plus other real
estate owned)/Gross loans net of
unearned interest
ALLOWANCE FOR LOAN LOSSES TO
PERIOD END TOTAL LOANS Allowance for loan losses/Gross loans net
of unearned interest
EXECUTIVE SUMMARY
=================
In 1997 Peoples Bancorp Inc. attained record levels of earnings
and asset growth. We also welcomed many new shareholders in late 1997
through the acquisition of Gateway Bancorp, Inc. of Catlettsburg,
Kentucky.
Consistent earnings growth and increased shareholder return are
basic principles of our strategic plan. The financial information
beginning on page 5 highlights your Company's growth and profitability.
1997 marks the Company's 24th consecutive year of increased earnings,
with total net income of $8,605,000, an increase of 12.5% compared to
1996. Diluted earnings per share totaled $2.40, up 9.1% over 1996's
$2.20. Dividends per share continued to grow, reaching $0.74 per share
in 1997, an increase of $0.09 per share (or 13.8%) compared to 1996.
Strong earnings growth in 1997 can be attributed primarily to
internal loan growth and enhancements to the Company's operating
efficiency.
Expansion of our products, services and markets remains a principal
objective for our bankers in 1998 and beyond. In 1997, Peoples Bancorp
successfully completed three acquisitions. In December, 1997, Peoples
Bancorp acquired Gateway Bancorp, Inc. and its wholly-owned subsidiary,
the Catlettsburg Federal Savings Bank, which has approximately $60
million in assets. Catlettsburg Federal represents Peoples Bancorp's
second acquisition in northeast Kentucky. In January, 1997, Peoples
Bancorp purchased Russell Federal Savings Bank which was recently
reorganized as a subsidiary of Gateway Bancorp in an effort to align
our business units in northeast Kentucky. We also added a full-service
banking facility in Baltimore, Ohio, purchased by The Peoples Banking
and Trust Company. We are encouraged by the early performance of
these acquired offices and expect even stronger contributions in 1998.
More recently we announced the signing of an agreement by Peoples
Bank to acquire five full-service banking facilities in West Virginia
from an unaffiliated financial institution. The offices are located
in Point Pleasant, New Martinsville, and Steelton, West Virginia,
and will establish Peoples Bancorp's first physical presence in
West Virginia. The acquisition is expected to be completed in mid-1998.
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. We are excited
by the many opportunities that exist in these West Virginia markets
and the opportunity for new relationships and new product offerings.
In addition to new products, we are constantly looking for ways
to enhance service to customers through our delivery systems. The
First National Bank of Southeastern Ohio opened their first ATM in 1997,
expanding service potential to their customer base in Noble County.
The Peoples Connect Card, a debit card that acts like a check, is
currently being enjoyed by thousands of customers who make electronic
purchases with ease. In recent months we began offering a PC-based
cash management product that will be offered to both consumer and
commercial customers. We believe that home banking and PC banking
are future services that must be part of the Company's core delivery
of services. Our people look forward to the opportunities that lie
ahead in new markets, products, and services. It seems the financial
services industry is in a state of perpetual motion, as technologies
continue to reshape the way we do business. Our associates' commitment
to adjust to meet customer needs allows for a flexible work environment.
1997 produced strong loan growth. Internal loan growth totaled
over $50 million in 1997, as total loans grew to over $515 million.
Our lenders believe that investment in the communities where we live
is an integral part of the role of today's financial institutions and
will continue to support community growth applying sound underwriting
skills.
The experience of our associates is one of Peoples Bancorp's
strongest assets and we strive to share our talents and resources to
improve the communities we serve. Considering the rise of electronic
banking services, banking now has no geographical boundaries, but we
maintain our commitment to those markets where we have developed
long-term relationships.
Excellence within the Company means more than just meeting or
exceeding financial goals. Our customers set the standards. The
ability to adapt to shifting customer needs and preferences provides
the base for consistent return to investors. As our enterprising
customers have grown, so have we.
Each year we set financial goals and key performance indicators
that, if met, create a solid return for our investors. The strategic
plan for Peoples Bancorp is simple: to strive for excellence in all
aspects of delivering financial products and services. This pursuit
of excellence is a program of adding value to a customer relationship,
maximizing the customer's link to Peoples Bancorp, and creating a
fair profit for our shareholders. Our key performance indicators
are financial goals based on improvement over prior year performance
and are designed to reward our associates for increasing shareholder
value. We believe that our associates are stakeholders in the Company
and should share the same competitive goals as our owners.
Expectations for 1998 are high. In 1997 alone, your Company's
stock price climbed 58% to $41.75, the closing price of PEBO December
31, 1997. Increased stock price creates pressure to continue such
success, a challenge to our bankers for 1998. Recent acquisitions
should position your Company for continued asset growth and market
penetration, but acquisitions by themselves do not guarantee enhanced
performance in 1998 and beyond.
Looking to the long-term, the main challenge for Peoples Bancorp
continues to be earnings growth in an increasingly competitive environment.
In order to provide ongoing enhancement to our shareholders' investment,
Peoples Bancorp must be an efficient financial services provider.
A measure of operating efficiency in the financial services industry is
the efficiency ratio, which improved to 51.06% in 1997, compared to
53.76% in 1996, and continued our recent trend of enhanced operating
efficiency through leveraged technology and continuous improvement.
Understandably, Peoples Bancorp will surely be challenged by our
shareholders and competitors to continue to improve operating efficiency
in 1998 and beyond. It is not Peoples Bancorp's strategy to be simply
efficient, because cutting costs is not enough in a highly competitive
industry, such as banking, where customers expect professionalism along
with efficiency.
Our associates have developed the ability to serve customers
in a manner that best fits the customer's needs, whether it's
24-hour banking through our TeleBank office, or one-on-one service
through one of our many Personal Bankers. We realize that group
of customers have different needs and our ability to recognize
those subtle differences provides a competitive advantage.
Exceeding the expectations of our customers, shareholders, and
associates is the challenge for 1998.
And finally, a note about the loss of a friend. On August 2,
1997, we received notice of the death of William K. Hamer, retired
Chairman of Peoples Bancorp (1982-1988) and the fifth President of
The Peoples Banking and Trust Company (1968-1986). Recognizing his
excellent leadership at the time of his retirement it was said, "A
bank is known by the quality of its people and the quality of its
people is determined by the quality of its leadership." We will
always remember Bill Hamer as an excellent leader and an
outstanding person.
If you have any questions concerning Peoples Bancorp stock,
please contact our Investor Relations Department at (740) 374-6136,
or visit our web site at www.peoplesbancorp.com. We invite you to
enjoy the benefits of Peoples Bancorp's many financial products
and services.
/s/ ROBERT E. EVANS
Robert E. Evans
President and Chief Executive Officer
<PAGE>
SELECTED FINANCIAL DATA
=======================
The information below under the captions "Operating Data",
"Balance Sheet Data" and "Per Share Data" for each of the five
years in the period ended December 31, 1997 has been derived
from the Consolidated Financial Statements of the Company.
(Dollars in thousands, except ratios and per share data)
1997 1996 1995 1994 1993
OPERATING DATA
for the year ended:
Total interest income $ 53,836 $ 47,397 $ 43,068 $ 35,801 $ 35,086
Total interest expense 25,216 21,966 20,777 15,424 15,263
Net interest income 28,620 25,431 22,291 20,377 20,048
Provision for loan losses 2,589 1,965 1,315 765 1,592
Other income 5,938 5,178 4,481 4,141 4,177
Other expenses 19,265 17,522 16,818 15,672 15,124
Net income 8,605 7,651 6,050 5,748 5,071
- -----------------------------------------------------------------------------
BALANCE SHEET DATA
at year end:
Total assets $758,158 $616,635 $543,430 $498,006 $465,373
Investment securities 174,291 147,783 131,762 99,419 103,349
Net loans 513,214 415,540 372,800 354,570 315,305
Total deposits 611,107 504,692 429,077 403,819 385,639
Long-term borrowings 28,577 29,200 23,142 23,787 20,331
Stockholders' equity 78,818 56,193 51,474 45,635 42,778
- -----------------------------------------------------------------------------
SIGNIFICANT RATIOS
Net income to:
Average total assets 1.29% 1.29% 1.15% 1.20% 1.09%
Average stockholders'
equity 14.3 14.4 12.3 12.9 11.9
Average stockholders'
equity to average
total assets 9.0 8.9 9.3 9.3 8.8
Average loans to
average deposits 85.5 84.0 85.2 85.5 78.4
Primary capital to
period end total assets 9.9 9.9 10.4 10.1 10.1
Dividend payout ratio 30.5 30.5 32.2 29.3 29.8
- -----------------------------------------------------------------------------
PER SHARE DATA
Net income:
Basic $ 2.48 $ 2.23 $ 1.74 $ 1.64 $ 1.50
Diluted 2.40 2.20 1.73 1.63 1.48
Weighted average
shares outstanding:
Basic 3,473,158 3,437,790 3,481,176 3,508,941 3,380,694
Diluted 3,583,346 3,480,792 3,498,955 3,520,337 3,438,808
Cash dividends paid 0.74 0.65 0.56 0.48 0.43
Book value at
end of period 20.57 16.32 15.04 13.01 12.15
- -----------------------------------------------------------------------------
<PAGE>
COMMON STOCK
============
Return to Investors
- -------------------
The Company's goal is to become the financial services leader in
all of the communities we serve. Achieving this objective will
lead to increases in shareholder value, the most important
measure of our financial success. Peoples Bancorp's strong
capital base ensures the Company's safety and allows opportunity
for growth and expansion. Shareholder return on this investment
continues to be a top priority, through both dividends and
growth in the market value of the Company's stock.
Management focuses on several key ratios that define our
dedication to shareholder return. We concentrate on earnings
per share, return on shareholders' equity, and dividends per
share. Enhancement of net income and profitability through
increased efficiencies are major Company goals, as well as
positioning the Company for increased future profits. Under
normal circumstances, as earnings per share increase, the
dividends paid per share should follow with a similar increase
and have a positive effect on the market value of the Company's
common stock. Our associates are committed to enhancing the
total return to our shareholders and the following graphs
illustrate our commitment.
In the last five years, the Company's earnings per share has
grown by a compound annual average rate of 10.2%. Diluted earnings
per share reached $2.40 in 1997. Through balance sheet growth and
investments in technology, the Company has gained efficiencies
and enhanced overall performance. Increases in non-interest income
have also contributed to the profitability of the Company.
In addition to increasing shareholder wealth through growth in
stock value, we believe a competitive dividend rate is also
important to the overall return to our shareholders. In the last 5 years,
the compound annual average growth rate of the Company's per share
dividend was 11.5%. The Company has paid cash dividends on its
Common Stock for over 40 consecutive years and has increased
the annual dividend in each of the last 32 years. The Company
plans to continue to pay quarterly cash dividends, subject to
certain regulatory restrictions as described in Note 11 to the audited
financial statements.
In recent years, the financial services industry has emphasized
return on shareholders' equity (or "ROE") as a means of measuring an
entity's performance. Recently, the Company has implemented
several strategic initiatives designed to increase ROE. The
graph to the right shows recent ROE performance for the Company.
Future ROE will be impacted by the shares issued in a recent
acquisition. Management will continue to focus on enhancements
to ROE as a means of increasing the value of shareholder
investment.
Earnings Dividends Return on Average
per share per share Shareholders' Equity
--------- --------- --------------------
1993 $1.48 $0.43 12.45%
1994 1.63 0.48 12.94
1995 1.73 0.56 12.33
1996 2.20 0.65 14.43
1997 2.40 0.74 14.33
Since February 9, 1993, the Company's common stock has traded
on the Nasdaq National Stock Market (National Association of
Securities Dealers Automated Quotation) under the symbol PEBO.
Nasdaq provides brokers and others with immediate access to the
best stock price for the Company and thousands of other companies
across the world. In 1996, the Company also launched its web
site at address www.peoplesbancorp.com, where the Company's information
can be accessed electronically. In 1997, there were 383,977
shares traded through the Nasdaq system, an average daily volume of
1,523 shares. The table on page 7 sets forth the high and low bid
quotations for the indicated periods, and the cash dividends
declared, with respect to the Company's common stock.
Currently, five companies serve as market makers on the Nasdaq
National Stock Market on behalf of the Company. Market prices
have been obtained directly from the Nasdaq quotation system.
The bid quotations and per share dividends have been
retroactively adjusted for a 10% stock dividend issued on July
15, 1996, and a 10% stock dividend issued on October 25, 1995.
Peoples Bancorp had 1,243 stockholders of record at December 31,
1997.
Quarterly Market and Dividend Information
- -----------------------------------------
PER SHARE
High Bid Low Bid Dividend
1997
Fourth Quarter $ 49.00 $ 39.50 $ 0.19
Third Quarter 40.50 35.25 0.19
Second Quarter 36.75 29.25 0.18
First Quarter 30.25 26.25 0.18
- ------------------------------------------------------------------------
1996
Fourth Quarter $ 28.00 $ 23.75 $ 0.17
Third Quarter 24.00 21.02 0.17
Second Quarter 21.36 20.91 0.15
First Quarter 21.59 20.91 0.15
- ------------------------------------------------------------------------
1995
Fourth Quarter $ 21.48 $ 20.23 $ 0.15
Third Quarter 20.66 18.18 0.14
Second Quarter 20.05 18.18 0.14
First Quarter 20.66 18.59 0.14
- ------------------------------------------------------------------------
The following graph presents the closing stock price of the
Company's common stock for each of the last five years (adjusted
for stock splits and stock dividends):
Closing Stock Price
-------------------
1993 $17.25
1994 19.84
1995 21.48
1996 26.50
1997 41.75
Stockholders are cordially invited to attend the Annual Meeting
of Stockholders of Peoples Bancorp Inc. to be held April 9,
1998, at 11:00 A.M. in the Peoples Bank Conference Room, 138
Putnam Street, Marietta, Ohio.
On written request, a copy of our Annual Report to the
Securities and Exchange Commission on Form 10-K is available to
interested Stockholders. Requests should be addressed to Ruth
Otto, Corporate Secretary, Peoples Bancorp Inc., P.O. Box 738,
Marietta, Ohio 45750.
<PAGE>
CONSOLIDATED BALANCE SHEETS
===========================
December 31,
Assets 1997 1996
- ------
Cash and cash equivalents:
Cash and due from banks $ 21,473,000 $ 26,200,000
Interest-bearing deposits in other banks 7,008,000 217,000
Federal funds sold 10,350,000 2,100,000
- ---------------------------------------------------------------------------
Total cash and cash equivalents 38,831,000 28,517,000
- ---------------------------------------------------------------------------
Available-for-sale investment securities,
at estimated fair value (amortized cost
of $170,702,000 in 1997 and $145,619,000
in 1996) 174,291,000 147,783,000
- ---------------------------------------------------------------------------
Loans, net of deferred fees and costs 521,570,000 422,413,000
Allowance for loan losses (8,356,000) (6,873,000)
- ---------------------------------------------------------------------------
Net loans 513,214,000 415,540,000
- ---------------------------------------------------------------------------
Bank premises and equipment, net 11,971,000 11,508,000
Other assets 19,851,000 13,287,000
- ---------------------------------------------------------------------------
Total assets $758,158,000 $ 616,635,000
===========================================================================
Liabilities
- -----------
Deposits:
Non-interest bearing $ 64,229,000 $ 63,410,000
Interest bearing 546,878,000 441,282,000
- ---------------------------------------------------------------------------
Total deposits 611,107,000 504,692,000
- ---------------------------------------------------------------------------
Short-term borrowings:
Federal funds purchased and securities
sold under repurchase agreements 30,811,000 17,022,000
Federal Home Loan Bank advances 1,750,000 2,500,000
- ---------------------------------------------------------------------------
Total short-term borrowings 32,561,000 19,522,000
- ---------------------------------------------------------------------------
Long-term borrowings 28,577,000 29,200,000
Accrued expenses and other liabilities 7,095,000 7,028,000
- ---------------------------------------------------------------------------
Total liabilities 679,340,000 560,442,000
- ---------------------------------------------------------------------------
Stockholders' Equity
- --------------------
Common stock, no par value, 12,000,000
shares authorized - 3,831,206 shares
issued in 1997 and 3,445,075 issued in
1996, including shares in treasury 50,001,000 34,349,000
Net unrealized holding gain on
available-for-sale securities,
net of deferred taxes 2,369,000 1,428,000
Retained earnings 26,448,000 20,470,000
- ---------------------------------------------------------------------------
78,818,000 56,247,000
Treasury stock, at cost, no shares
in 1997 and 2,000 shares in 1996 (54,000)
- ---------------------------------------------------------------------------
Total stockholders' equity 78,818,000 56,193,000
- ---------------------------------------------------------------------------
Total liabilities and
stockholders' equity $758,158,000 $ 616,635,000
===========================================================================
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
=================================
Year ended December 31,
1997 1996 1995
Interest Income:
- ----------------
Interest and fees on loans $43,451,000 $37,140,000 $34,177,000
Interest and dividends on:
Obligations of U.S.
Government and its agencies 7,255,000 7,205,000 5,338,000
Obligations of states and
political subdivisions 1,324,000 1,402,000 1,543,000
Other interest income 1,806,000 1,650,000 2,010,000
- ----------------------------------------------------------------------------
Total interest income 53,836,000 47,397,000 43,068,000
- ----------------------------------------------------------------------------
Interest Expense:
- -----------------
Interest on deposits 22,282,000 18,880,000 18,384,000
Interest on short-term
borrowings 1,023,000 1,449,000 1,010,000
Interest on long-term
borrowings 1,911,000 1,637,000 1,383,000
- ----------------------------------------------------------------------------
Total interest expense 25,216,000 21,966,000 20,777,000
- ----------------------------------------------------------------------------
Net interest income 28,620,000 25,431,000 22,291,000
Provision for loan losses 2,589,000 1,965,000 1,315,000
- ----------------------------------------------------------------------------
Net interest income after
provision for loan losses 26,031,000 23,466,000 20,976,000
- ----------------------------------------------------------------------------
Other Income:
- -------------
Income from fiduciary activities 2,176,000 1,897,000 1,751,000
Service charges on deposit
accounts 2,202,000 1,937,000 1,565,000
(Loss) gain on sales of
securities (28,000) 48,000 24,000
Other 1,588,000 1,296,000 1,141,000
- ----------------------------------------------------------------------------
Total other income 5,938,000 5,178,000 4,481,000
- ----------------------------------------------------------------------------
Other Expenses:
- ---------------
Salaries and employee benefits 8,358,000 7,514,000 7,836,000
Net occupancy 1,297,000 1,193,000 1,126,000
Equipment 1,501,000 1,329,000 1,241,000
Insurance 242,000 175,000 656,000
Supplies 516,000 713,000 572,000
Taxes other than income taxes 709,000 833,000 588,000
Amortization of intangibles 1,138,000 625,000 210,000
Other 5,504,000 5,140,000 4,589,000
- ----------------------------------------------------------------------------
Total other expenses 19,265,000 17,522,000 16,818,000
- ----------------------------------------------------------------------------
Income before federal income taxes 12,704,000 11,122,000 8,639,000
- ----------------------------------------------------------------------------
Federal Income Taxes:
Current 3,941,000 3,303,000 2,792,000
Deferred 158,000 168,000 (203,000)
- ----------------------------------------------------------------------------
Total federal income taxes 4,099,000 3,471,000 2,589,000
- ----------------------------------------------------------------------------
NET INCOME $ 8,605,000 $ 7,651,000 $ 6,050,000
============================================================================
Earnings per share:
- -------------------
Basic $2.48 $2.23 $1.74
- ----------------------------------------------------------------------------
Diluted $2.40 $2.20 $1.73
- ----------------------------------------------------------------------------
Weighted average number of shares outstanding:
- ----------------------------------------------
Basic 3,473,158 3,437,790 3,481,176
- ----------------------------------------------------------------------------
Diluted 3,583,346 3,480,792 3,498,955
- ----------------------------------------------------------------------------
See notes to consolidated financial statements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
===============================================
<CAPTION>
Net
Unrealized
Holding
Gain/(Loss)
on
Available-
Common Stock Retained for-Sale Treasury
Shares Amount Earnings Securities Stock Total
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 3,020,908 $ 24,326,000 $ 24,078,000 $ (1,030,000) $ (1,739,000) $ 45,635,000
- ------------------------------------------------------------------------------------------------------------------------
Net income 6,050,000 6,050,000
Purchase of treasury stock,
87,340 shares (1,940,000) (1,940,000)
10% stock dividend 302,470 6,394,000 (6,394,000)
Exercise of common stock options 2,722 26,000 26,000
Issuance of common stock under
dividend reinvestment plan 6,498 152,000 152,000
Net change in unrealized gain(loss)
on available-for-sale securities 3,499,000 3,499,000
Cash dividends declared
of $0.56 per share (1,948,000) (1,948,000)
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 3,332,598 30,898,000 21,786,000 2,469,000 (3,679,000) 51,474,000
- ------------------------------------------------------------------------------------------------------------------------
Net income 7,651,000 7,651,000
Purchase of treasury stock,
14,000 shares (332,000) (332,000)
10% stock dividend (reissued
226,989 treasury shares) 85,468 2,871,000 (6,727,000) 3,856,000
Exercise of common stock
options (reissued 5,417
treasury shares) 16,434 330,000 101,000 431,000
Issuance of common stock under
dividend reinvestment plan 10,575 250,000 250,000
Net change in unrealized gain (loss)
on available-for-sale securities (1,041,000) (1,041,000)
Cash dividends declared
of $0.65 per share (2,240,000) (2,240,000)
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 3,445,075 34,349,000 20,470,000 1,428,000 (54,000) 56,193,000
- ------------------------------------------------------------------------------------------------------------------------
Net income 8,605,000 8,605,000
Purchase of treasury stock,
10,150 shares (327,000) (327,000)
Exercise of common stock
options (reissued 12,150
treasury shares) 9,173 (67,000) 381,000 314,000
Issuance of common stock under
dividend reinvestment plan 11,486 370,000 370,000
Net change in unrealized gain (loss)
on available-for-sale securities 941,000 941,000
Cash dividends declared
of $0.74 per share (2,627,000) (2,627,000)
Issuance of common stock to
purchase Gateway Bancorp, Inc. 365,472 15,349,000 15,349,000
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 3,831,206 $ 50,001,000 $ 26,448,000 $ 2,369,000 $ 0 $ 78,818,000
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
=====================================
Year ended December 31,
1997 1996 1995
Cash flows from operating activities:
- -------------------------------------
Net income $ 8,605,000 $ 7,651,000 $ 6,050,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for loan losses 2,589,000 1,965,000 1,315,000
Loss (gain) on sales of
investment securities 28,000 (48,000) (24,000)
Depreciation, amortization,
and accretion 2,648,000 2,068,000 1,564,000
Increase in interest receivable (811,000) (31,000) (480,000
(Decrease) increase in interest
payable (129,000) 486,000 238,000
Deferred income tax expense
(benefit) 158,000 168,000 (203,000)
Deferral of loan origination
fees and costs (118,000) 73,000 17,000
Other, net (757,000) (820,000) 896,000
- ---------------------------------------------------------------------------
Net cash provided by
operating activities 12,213,000 11,512,000 9,373,000
- ---------------------------------------------------------------------------
Cash flows from investing activities:
- -------------------------------------
Purchases of available-for-sale
securities (34,035,000) (45,240,000) (52,955,000)
Purchases of held-to-maturity
securities (1,230,000)
Proceeds from sales of
available-for-sale securities 5,309,000 5,522,000 1,066,000
Proceeds from maturities of
available-for-sale securities 26,244,000 22,034,000 25,337,000
Proceeds from maturities of
held-to-maturity securities 803,000
Net increase in loans (59,026,000) (44,504,000) (19,562,000)
Expenditures for premises
and equipment (1,184,000) (1,773,000) (1,122,000)
Proceeds from sales of other
real estate owned 144,000 77,000
Business acquisitions,
net of cash received 19,844,000 68,004,000
- ---------------------------------------------------------------------------
Net cash (used in) provided
by investing activities (42,704,000) 4,043,000 (47,586,000)
- ---------------------------------------------------------------------------
Cash flows from financing activities:
- -------------------------------------
Net (decrease) increase in
non-interest bearing deposits (1,749,000) 8,393,000 1,946,000
Net increase (decrease) in
interest bearing deposits 32,335,000 (6,894,000) 23,312,000
Net increase (decrease) in
short-term borrowings 13,039,000 (13,754,000) 13,509,000
Proceeds from long-term
borrowings 6,000,000 10,500,000 2,500,000
Payments on long-term
borrowings (6,623,000) (4,442,000) (3,145,000)
Cash dividends paid (2,184,000) (1,934,000) (1,702,000)
Purchase of treasury stock (327,000) (332,000) (1,940,000)
Proceeds from issuance of
common stock 314,000 431,000 26,000
- ---------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 40,805,000 (8,032,000) 34,506,000
- ---------------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents 10,314,000 7,523,000 (3,707,000)
Cash and cash equivalents
at beginning of year 28,517,000 20,994,000 24,701,000
- ---------------------------------------------------------------------------
Cash and cash equivalents
at end of year $38,831,000 $28,517,000 $20,994,000
===========================================================================
Supplemental cash flow information:
Interest paid $21,732,000 $21,757,000 $20,540,000
- ---------------------------------------------------------------------------
Income taxes paid $ 3,197,000 $ 3,832,000 $ 2,364,000
- ---------------------------------------------------------------------------
See notes to consolidated financial statements.
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
==============================================
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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 following is a summary of significant
accounting policies followed in the preparation of the financial
statements.
Principles of Consolidation:
- ----------------------------
The consolidated financial statements include the accounts of
Peoples Bancorp Inc. and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been
eliminated.
Cash and Cash Equivalents:
- --------------------------
Cash and cash equivalents include cash and due from banks,
interest bearing deposits in other banks, and federal funds
sold, all with original maturities of ninety days or less.
Investment Securities:
- ----------------------
Management determines the appropriate classification of
investment securities at the time of purchase. Held-to-maturity
securities are those securities that the Company has the
positive intent and ability to hold to maturity and are recorded
at amortized cost. Available-for-sale securities are those
securities that would be available to be sold in the future in
response to the Company's liquidity needs, changes in market
interest rates, and asset-liability management strategies, among
others. Available-for-sale securities are reported at fair
value, with unrealized holding gains and losses reported in a
separate component of stockholders' equity, net of applicable
deferred income taxes. The cost of securities sold is based on
the specific identification method.
Allowance for Loan Losses:
- --------------------------
The allowance for loan losses is maintained at a level believed
adequate by management to absorb potential losses in the loan
portfolio. Management's determination of the adequacy of the
allowance for loan losses is based on a quarterly evaluation of
the portfolio, historical loan loss experience, current national
and local economic conditions, volume, growth and composition of
the portfolio, and other relevant factors. This evaluation is
inherently subjective and requires management to make estimates
of the amounts and timing of future cash flows on impaired
loans, consisting primarily of non-accrual and restructured
loans. The allowance for loan losses related to impaired loans
is based on discounted cash flows using the loan's initial
effective interest rate or the fair value of the collateral for
certain collateral dependent loans.
Bank Premises and Equipment:
- ----------------------------
Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed on the straight-line
method over the estimated useful lives of the related assets.
Other Real Estate:
- ------------------
Other real estate owned, included in other assets on the
consolidated balance sheet, represents properties acquired by
the Company's subsidiary banks in satisfaction of a loan. Real
estate is recorded at the lower of cost or fair value based on
appraised value at the date actually or constructively received,
less estimated costs to sell the property.
Intangibles:
- ------------
Intangible assets representing the present value of future net
income to be earned from deposits are being amortized on an
accelerated basis over a ten year period. The excess of cost
over the fair value of net assets acquired (goodwill) is being
amortized on a straight-line basis over periods ranging from 10
to 15 years.
Income Recognition:
- -------------------
Interest income is recognized by methods which result in level
rates of return on principal amounts outstanding. Amortization
of premiums has been deducted from and accretion of discounts
has been added to the related interest income. Nonrefundable
loan fees and direct loan costs are deferred and recognized over
the life of the loan as an adjustment of the yield. Subsidiary
banks discontinue the accrual of interest when, in management's
opinion, collection of all or a portion of contractual interest
has become doubtful, which generally occurs when a loan is 90
days past due. When deemed uncollectible, previously accrued
interest recognized in income in the current year is reversed
and interest accrued in prior years is charged against the
allowance for loan losses. Interest received on non-accrual
loans is included in income only if principal recovery is
reasonably assured. A non-accrual loan is restored to accrual
status when it is brought current, has performed in accordance
with contractual terms for a reasonable period of time, and the
collectibility of the total contractual principal and interest
is no longer in doubt.
Income Taxes:
- -------------
Deferred income taxes (included in other assets) are provided
for temporary differences between the tax basis of an asset or
liability and its reported amount in the financial statements at
the statutory tax rate.
Earnings Per Share:
- -------------------
In 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share". SFAS No. 128 requires the presentation of basic and
diluted earnings per share for all periods presented. Basic
earnings per share is determined by dividing net income by the
weighted average number of shares outstanding. Diluted earnings
per share is determined by dividing net income by the weighted
average number of shares outstanding increased by the number of
shares that would be issued assuming the exercise of stock
options. Earnings per share amounts for all periods presented
have been restated to conform to SFAS No. 128.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used by the Company
in estimating its fair value disclosures for financial
instruments in accordance with SFAS No. 107:
Cash and cash equivalents:
- --------------------------
The carrying amounts reported in the balance sheet for these
captions approximate their fair values.
Investment securities:
- ----------------------
Fair values for investment securities are based on quoted market
prices, where available. If quoted market prices are not
available, fair values are estimated using quoted market prices
of comparable securities.
Loans:
- ------
The fair value of performing variable rate loans that reprice
frequently and performing demand loans, with no significant
change in credit risk, is based on carrying value. The fair
value of certain mortgage loans is based on quoted market prices
of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics.
The fair value of other performing loans (e.g., commercial real
estate, commercial and consumer loans) is estimated using
discounted cash flow analyses and interest rates currently being
offered for loans with similar terms to borrowers of similar
credit quality.
The fair value for significant nonperforming loans is based on
either the estimated fair value of underlying collateral or
estimated cash flows, discounted at a rate commensurate with the
risk. Assumptions regarding credit risk, cash flows, and
discount rates are determined using available market information
and specific borrower information.
Deposits:
- ---------
The carrying amounts of demand deposits, savings accounts and
certain money market deposits approximate their fair values.
The fair value of fixed maturity certificates of deposit is
estimated using a discounted cash flow calculation that applies
current rates offered for deposits of similar remaining
maturities.
Short-term borrowings:
- ----------------------
The carrying amounts of federal funds purchased, Federal Home
Loan Bank advances, and securities sold under repurchase
agreements approximate their fair values.
Long-term borrowings:
- ---------------------
The fair value of long-term borrowings is estimated using
discounted cash flow analysis based on rates currently available
to the Company for borrowings with similar terms.
Financial instruments:
- ----------------------
The fair value of loan commitments and standby letters of credit
is estimated using the fees currently charged to enter into
similar agreements taking into account the remaining terms of
the agreements and the counterparties' credit standing. The
estimated fair value of these commitments approximates their
carrying value. The fair value of the interest rate floor is
based on quotes from other financial institutions.
The estimated fair values of the Company's financial instruments
are as follows:
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial Assets:
- -----------------
Cash and cash
equivalents $ 38,831,000 $ 38,831,000 $ 28,517,000 $ 28,517,000
Investment securities 174,291,000 174,291,000 147,783,000 147,783,000
Loans, net 513,214,000 518,736,000 415,540,000 418,921,000
Financial Liabilities:
- ----------------------
Deposits 611,107,000 611,775,000 504,692,000 506,039,000
Short-term borrowings 32,561,000 32,561,000 19,522,000 19,522,000
Long-term borrowings 28,577,000 28,677,000 29,200,000 29,289,000
Off-Balance Sheet Instruments:
- ------------------------------
Interest rate floors 46,000 101,000 71,000 325,000
Bank premises and equipment, customer relationships, deposit
base, banking center networks, and other information required
to compute the Company's aggregate fair value are not included
in the above information. Accordingly, the above fair values are
not intended to represent the aggregate fair value of the Company.
3. INVESTMENT SECURITIES:
The estimated maturities presented in the tables below may
differ from the contractual maturities because borrowers may
have the right to call or prepay obligations without call or
prepayment penalties. Rates are calculated on a taxable
equivalent basis using a 35% federal income tax rate. The
portfolio contains no single issue (excluding U.S. Government
and U.S. Agency securities) which exceeds 10% of stockholders'
equity.
Securities classified as available-for-sale
At December 31, 1997:
- -------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
U.S. Treasury securities
and obligations of U.S.
government agencies and
corporations $ 51,304,000 $ 751,000 $ (87,000) $ 51,968,000
Obligations of states and
political subdivisions 24,679,000 1,030,000 (1,000) 25,708,000
Mortgage-backed securities 76,229,000 467,000 (288,000) 76,408,000
Other securities 18,490,000 1,720,000 (3,000) 20,207,000
- -----------------------------------------------------------------------------
Total available-for-sale
securities $170,702,000 $3,968,000 $(379,000) $174,291,000
=============================================================================
<TABLE>
Maturity distribution of available-for-sale securities
- ------------------------------------------------------
Contractual maturities at December 31, 1997
<CAPTION>
U.S. Treasury Obligations
securities and of states Total
obligations of and Mortgage- available-
U.S. Government political backed Other for-sale
Agencies subdivisions securities securities securities
<S> <C> <C> <C> <C> <C>
Within one year
- ---------------
Amortized cost $27,299,000 $ 2,517,000 $ 6,296,000 $ 1,753,000 $ 37,865,000
Fair value $27,322,000 $ 2,543,000 $ 6,229,000 $ 1,769,000 $ 37,863,000
Yield 6.63% 9.06% 5.89% 7.01% 6.69%
1 to 5 years
- ------------
Amortized cost 20,832,000 7,049,000 48,118,000 5,844,000 81,843,000
Fair value 21,228,000 7,291,000 48,350,000 5,900,000 82,769,000
Yield 6.76% 8.34% 7.00% 6.75% 7.04%
5 to 10 years
- -------------
Amortized cost 3,173,000 7,726,000 18,198,000 1,001,000 30,098,000
Fair value 3,418,000 8,139,000 18,153,000 1,028,000 30,738,000
Yield 7.49% 8.13% 6.91% 6.79% 7.28%
Over 10 years
- -------------
Amortized cost 7,387,000 3,617,000 9,892,000 20,896,000
Fair value 7,735,000 3,676,000 11,510,000 22,921,000
Yield 8.14% 6.81% 6.46% 7.11%
- --------------------------------------------------------------------------------------------------
Total amortized
cost $51,304,000 $24,679,000 $76,229,000 $18,490,000 $170,702,000
Total fair value $51,968,000 $25,708,000 $76,408,000 $20,207,000 $174,291,000
Total yield 6.74% 8.29% 6.88% 6.62% 7.01%
==================================================================================================
</TABLE>
Securities classified as available-for-sale
At December 31, 1996:
- -------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
U.S. Treasury securities
and obligations of U.S.
government agencies and
corporations $ 41,855,000 $ 742,000 $(126,000) $ 42,471,000
Obligations of states and
political subdivisions 23,949,000 743,000 (36,000) 24,656,000
Mortgage-backed securities 61,197,000 280,000 (697,000) 60,780,000
Other securities 18,618,000 1,277,000 (19,000) 19,876,000
- -----------------------------------------------------------------------------
Total available-for-sale
securities $145,619,000 $3,042,000 $(878,000) $147,783,000
=============================================================================
Securities classified as available-for-sale
At December 31, 1995:
- -------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
U.S. Treasury securities
and obligations of U.S.
government agencies and
corporations $ 39,242,000 $1,319,000 $ (28,000) $ 40,533,000
Obligations of states and
political subdivisions 24,879,000 997,000 (16,000) 25,860,000
Mortgage-backed securities 45,465,000 619,000 (68,000) 46,016,000
Other securities 18,435,000 920,000 (2,000) 19,353,000
- -----------------------------------------------------------------------------
Total available-for-sale
securities $128,021,000 $3,855,000 $(114,000) $131,762,000
=============================================================================
Gross realized gains and realized losses were $3,000 and
$31,000, respectively, in 1997. Gross realized gains were
$48,000 and $24,000 in 1996 and 1995, respectively. At December
31, 1997, investment securities having a carrying value of
$89,843,000 were pledged to secure public and trust department
deposits and repurchase agreements in accordance with federal
and state requirements.
4. LOANS:
Loans are comprised of the following at December 31:
1997 1996
Commercial, financial, and agricultural $159,035,000 $128,033,000
Real estate, construction 19,513,000 9,944,000
Real estate, mortgage 228,689,000 175,505,000
Consumer 114,333,000 108,931,000
- ------------------------------------------------------------------------
Total loans $521,570,000 $422,413,000
========================================================================
Changes in the allowance for loan losses for each of the three
years in the period ended December 31, 1997, were as follows:
1997 1996 1995
Balance, beginning of year $6,873,000 $6,726,000 $6,783,000
Charge-offs (1,917,000) (2,329,000) (1,803,000)
Recoveries 521,000 511,000 431,000
- --------------------------------------------------------------------------
Net charge-offs (1,396,000) (1,818,000) (1,372,000)
Provision for loan losses 2,589,000 1,965,000 1,315,000
Balances of acquired subsidiaries 290,000
- --------------------------------------------------------------------------
Balance, end of year $8,356,000 $6,873,000 $6,726,000
==========================================================================
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 lending. The Company's largest group of business
loans consists of automobile dealer floor plans, which totaled
$20,559,000 and $13,673,000 at December 31, 1997 and 1996,
respectively. It is the Company's policy to obtain the
underlying inventory as collateral on these loans. The Company
does not extend credit to any single borrower or group of
related borrowers in excess of the combined legal lending limits
of its subsidiary banks. Impaired loans at December 31, 1997 and
1996, and the average investment in impaired loans for the years
then ended were immaterial to the financial statements.
In the normal course of its business, the subsidiary banks have
granted loans to executive officers and directors of the Company
and to their associates. Related party loans were made on
substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable loans
with unrelated persons and did not involve more than normal risk
of collectibility. The following is an analysis of activity of
related party loans for the year ended December 31, 1997:
Balance, January 1, 1997 $ 8,453,000
New loans 19,442,000
Repayments 11,317,000
-------------------------------------------
Balance, December 31, 1997 $16,578,000
===========================================
In June 1996, the FASB issued Statement No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" which was applicable to the Company effective
January 1, 1997. However, in December 1996, the FASB agreed to
defer the effective date for one year for the following
transactions: securities lending, repurchase agreements, dollar
rolls and other similar secured transactions. The adoption of
the 1997 provisions did not have a material effect on the
Company's financial statements and management anticipates the
same results for the provisions adopted on January 1, 1998.
5. BANK PREMISES AND EQUIPMENT:
The major categories of bank premises and equipment and
accumulated depreciation are summarized as follows at December 31:
1997 1996
Land $ 2,146,000 $ 1,836,000
Building and premises 12,290,000 11,299,000
Furniture, fixtures and equipment 8,817,000 8,162,000
---------------------------------------------------------------
23,253,000 21,297,000
Accumulated depreciation 11,282,000 9,789,000
---------------------------------------------------------------
Net book value $11,971,000 $11,508,000
===============================================================
Depreciation expense was $1,534,000, $1,358,000, and $1,230,000
for the years ended December 31, 1997, 1996 and 1995, respectively.
The Company leases a banking facility and equipment under
various agreements with original terms providing for fixed
monthly payments over periods ranging from two to ten years.
The future minimum payments, by year and in the aggregate, under
noncancelable operating leases with initial or remaining terms
of one year or more consisted of the following at December 31,
1997:
Year Ending December 31, Operating Leases
1998 $223,000
1999 162,000
2000 94,000
2001 73,000
2002 48,000
Thereafter 177,000
-------------------------------------------
Total minimum lease payments $777,000
===========================================
Rent expense was $163,000, $150,000 and $170,000 in 1997, 1996
and 1995, respectively.
6. DEPOSITS:
Included in interest-bearing deposits are various time deposit
products. The maturities of time deposits for each of the next
five years and thereafter are as follows: $224,705,000 in 1998;
$78,199,000 in 1999; $10,638,000 in 2000; $6,496,000 in 2001;
$3,740,000 in 2002; and $631,000 thereafter.
Deposits from related parties approximated $17.0 million and
$6.2 million at December 31, 1997 and 1996, respectively.
7. LONG-TERM BORROWINGS:
Long-term borrowings consisted of the following at December 31:
1997 1996
Term note payable, at LIBOR
(parent company) $ 3,000,000
Federal Home Loan Bank advances,
bearing interest at rates
ranging from 4.15% to 7.00% 25,577,000 $29,200,000
- ---------------------------------------------------------------
Total long-term borrowings $28,577,000 $29,200,000
===============================================================
The Federal Home Loan Bank ("FHLB") advances consist of various
borrowings with maturities ranging from 10 to 15 years. The
advances are collateralized by the Company's real estate
mortgage portfolio and all of the FHLB common stock owned by the
banking subsidiaries. The most restrictive requirement of the
debt agreement requires the Company to provide real estate
mortgage loans as collateral in an amount not less than 150% of
advances outstanding.
The aggregate minimum annual retirements of long-term borrowings
in the next five years and thereafter are as follows:
1998 $ 8,304,000
1999 3,681,000
2000 3,752,000
2001 2,837,000
2002 2,818,000
Thereafter (includes parent company debt) 7,185,000
------------------------------------------------------
Total long-term borrowings $28,577,000
======================================================
8. EMPLOYEE BENEFIT PLANS:
The Company has a noncontributory defined benefit pension plan
which covers substantially all employees. The plan provides
benefits based on an employee's years of service and
compensation. The Company's funding policy is to contribute
annually an amount that can be deducted for federal income tax
purposes.
Net pension cost included the following components:
1997 1996 1995
Service cost-benefits
earned during the year $259,000 $248,000 $ 254,000
Interest cost on projected
benefit obligations 462,000 416,000 444,000
Actual return on plan assets (904,000) (635,000) (831,000)
Early retirement benefits 777,000
Net amortization and deferral 465,000 220,000 381,000
- --------------------------------------------------------------------
Net pension cost $282,000 $249,000 $1,025,000
====================================================================
The following table sets forth the funded status and amounts
recognized for the defined benefit pension plan in the
consolidated balance sheets at December 31:
1997 1996
Actuarial present value of
accumulated benefit obligations:
Vested benefits $ 5,430,000 $ 4,598,000
Nonvested benefits 127,000 118,000
- ---------------------------------------------------------------
Accumulated benefit obligation 5,557,000 4,716,000
Impact of future salary increases 1,233,000 1,152,000
- ---------------------------------------------------------------
Actuarial present value of
projected benefit obligation
for service rendered to date 6,790,000 5,868,000
Plan assets at fair value,
primarily U.S. Government
obligations and collective
investment stock and bond funds 6,249,000 5,034,000
- ---------------------------------------------------------------
Projected benefit obligations
in excess of plan assets (541,000) (834,000)
Unrecognized prior service cost (63,000) (73,000)
Unrecognized net gain from past
experience different from that
assumed and effects of changes
in assumptions (395,000) (552,000)
Unrecognized net transition asset (40,000) (48,000)
- ---------------------------------------------------------------
Accrued pension cost included
in other liabilities $(1,039,000) $(1,507,000)
===============================================================
The rates used in determining the actuarial present value of the
projected benefit obligation were as follows:
1997 1996 1995
Discount rate 7.25% 8.00% 7.50%
Rate of increase in compensation levels 4.00% 4.50% 4.00%
Long-term rate of return on assets 9.00% 9.00% 9.00%
In late 1995, the Company offered a voluntary early retirement
program to a select group of employees who met certain
qualifications. All employees eligible for the early retirement
program accepted the offer and the Company incurred $777,000 in
additional expense.
The Company has a contributory defined benefit postretirement
plan for former employees who were retired as of December 31,
1992. The plan provides for health and life insurance benefits.
The Company's policy is to fund the cost of the benefits as
they are incurred. The net periodic postretirement benefit
cost, which relates primarily to interest cost, was $65,000,
$62,000 and $65,000 for 1997, 1996, and 1995, respectively.
The following table sets forth the funded status and amounts
recognized in the consolidated balance sheets at December 31:
1997 1996
Accumulated postretirement benefit obligation $(604,000) $(865,000)
Unrecognized net loss (gain) 205,000 (34,000)
- -----------------------------------------------------------------------
Accrued postretirement benefit cost
included in other liabilities $(399,000) $(899,000)
=======================================================================
The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 7.25% at
December 31, 1997 and 8.00% at December 31, 1996. The weighted
average annual assumed rate of increase in the per capita cost
of covered benefits (i.e. health care cost trend rate) is 7% for
1998, grading down 1% per year to an ultimate rate of 5%. The
health care cost trend rate assumption has a significant effect
on the amounts reported. For example, increasing the assumed
health care cost trend rates by one percentage point each year
would increase the accumulated benefit obligation for the plan
at December 31, 1997, by $85,000 and the net periodic
postretirement benefit cost in 1997 by $10,000.
9. FEDERAL INCOME TAXES:
The effective federal income tax rate in the consolidated
statement of income is less than the statutory corporate tax
rate due to the following:
Year ended December 31
1997 1996 1995
Statutory corporate tax rate 35.0% 34.0% 34.0%
Differences in rate resulting from:
Interest on obligations of state
and political subdivisions (3.1) (3.7) (5.0)
Other, net 0.4 0.9 1.0
- -----------------------------------------------------------------------
Effective federal income tax rate 32.3% 31.2% 30.0%
=======================================================================
The significant components of the Company's deferred tax assets
and liabilities consisted of the following at December 31:
1997 1996
Deferred tax assets:
- --------------------
Allowance for loan losses $2,447,000 $1,888,000
Accrued employee benefits 1,046,000 945,000
Deferred loan fees and costs 441,000 191,000
Other 170,000 240,000
- ----------------------------------------------------------------
Total deferred tax assets 4,104,000 3,264,000
- ----------------------------------------------------------------
Deferred tax liabilities:
- -------------------------
Available-for-sale securities 1,220,000 736,000
Bank premises and equipment 764,000 593,000
Deferred Income 515,000
Investments 725,000 312,000
Other 347,000 275,000
- ----------------------------------------------------------------
Total deferred tax liabilities 3,571,000 1,916,000
- ----------------------------------------------------------------
Net deferred tax assets $ 533,000 $1,348,000
================================================================
The related federal income tax (benefit) expense on securities
transactions approximated ($10,000) in 1997, $16,000 in 1996,
and $8,000 in 1995.
10. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK:
In the normal course of business, the Company is party to
financial instruments with off-balance sheet risk necessary to
meet the financing needs of customers and to manage its own
exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit, standby
letters of credit, and interest rate floors. The instruments
involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the balance
sheets. The contract or notional amounts of these instruments
express the extent of involvement the Company has in these
financial instruments.
Loan Commitments and Standby Letters of Credit:
- -----------------------------------------------
Loan commitments are made to accommodate the financial needs of
the Company's customers. Standby letters of credit commit the
Company to make payments on behalf of customers when certain
specified future events occur. Historically, most loan
commitments and standby letters of credit expire unused. The
Company's exposure to credit loss in the event of nonperformance
by the counter-party to the financial instrument for loan
commitments and standby letters of credit is represented by the
contractual amount of those instruments. The Company uses the
same underwriting standards in making commitments and
conditional obligations as it does for on-balance sheet
instruments. The amount of collateral obtained is based on
management's credit evaluation of the customer. Collateral held
varies, but may include accounts receivable, inventory,
property, plant, and equipment, and income-producing commercial
properties. The total amounts of loan commitments and standby
letters of credit are summarized as follows at December 31:
Contract Amount
1997 1996
Loan commitments $53,682,000 $50,518,000
Standby letters of credit 1,973,000 3,164,000
Unused credit card limits 18,132,000 17,718,000
Interest Rate Floors:
- ---------------------
The Company has entered into several interest rate floor
contracts with three unaffiliated financial institutions as a
means of managing the risks of changing interest rates.
Interest rate floors are agreements to receive payments for
interest rate differentials between an index rate and a
specified floor rate, computed on notional amounts. The Company
is subject to the risk that the effect of changes in interest
rates will cause the Company to earn less than the then current
market rates on its assets. These interest rate floors subject
the Company to the risk that the counter-parties may fail to
perform. In order to minimize such risk, the Company deals only
with high-quality, financially secure financial institutions.
The exposure to credit risk is significantly less than the
notional amounts of $40 million since the Company will only
receive the interest rate differential. These interest rate
contracts expire as follows: $20 million in February, 1998, $10
million in September, 1999, and $10 million in September, 2000.
11. REGULATORY MATTERS:
The primary source of funds for the dividends paid by the
Company is dividends received from its banking subsidiaries.
The payment of dividends by banking subsidiaries is subject to
various banking regulations. The most restrictive provision
requires regulatory approval if dividends declared in any
calendar year exceed the total net profits of that year plus the
retained net profits of the preceding two years. At December
31, 1997, approximately $10,615,000 of retained net profits of
the banking subsidiaries was available for the payment of
dividends to Peoples Bancorp Inc. without regulatory approval.
The Company and its banking subsidiaries are subject to various
regulatory capital requirements administered by the banking
regulatory agencies. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company
and each of its banking subsidiaries must meet specific capital
guidelines that involve quantitative measures of each entity's
assets, liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices. The Company's
and each of its banking subsidiaries' capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Company and each of its banking
subsidiaries to maintain minimum amounts and ratios of total and
Tier I capital (as defined in the regulations) to risk-weighted
assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). The Company and each of its
banking subsidiaries met all capital adequacy requirements at
December 31, 1997.
As of December 31, 1997, the most recent notifications from the
banking regulatory agencies categorized the Company and each of
its banking subsidiaries as well capitalized under the
regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Company and each of its
banking subsidiaries must maintain minimum total risk-based,
Tier I risk-based and Tier I leverage ratios as set forth in the
table below. There are no conditions or events since these
notifications that management believes have changed the
Company's or any of its banking subsidiaries' category.
The Company's and its significant banking subsidiary's, The
Peoples Banking and Trust Company ("Peoples Bank"), actual
capital amounts and ratios are also presented in the table below.
Well Capitalized
Under
For Capital Prompt Corrective
Actual Adequacy Action Provision
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1997:
- -------------------------
Total capital (to
Risk Weighted Assets)
The Company $69,760,000 14.3% $38,904,000 8% $48,630,000 10%
Peoples Bank 44,703,000 11.1% 32,095,000 8% 40,119,000 10%
- ----------------------------------------------------------------------------
Tier 1 (to
Risk Weighted Assets)
The Company 63,653,000 13.1% 19,452,000 4% 29,178,000 6%
Peoples Bank 39,665,000 9.9% 16,048,000 4% 24,071,000 6%
- ----------------------------------------------------------------------------
Tier 1 (to
Average Assets)
The Company 63,653,000 9.3% 27,401,000 4% 34,251,000 5%
Peoples Bank 39,665,000 7.1% 22,427,000 4% 28,034,000 5%
- ----------------------------------------------------------------------------
As of December 31, 1996:
- -------------------------
Total capital (to
Risk Weighted Assets)
The Company $53,560,000 12.9% $33,324,000 8% $41,654,000 10%
Peoples Bank 41,727,000 11.4% 29,354,000 8% 36,693,000 10%
- ----------------------------------------------------------------------------
Tier 1 (to
Risk Weighted Assets)
The Company 48,332,000 11.6% 16,662,000 4% 24,993,000 6%
Peoples Bank 34,125,000 9.3% 14,677,000 4% 22,016,000 6%
- ----------------------------------------------------------------------------
Tier 1 (to
Average Assets)
The Company 48,332,000 7.9% 24,408,000 4% 30,510,000 5%
Peoples Bank 34,125,000 6.5% 21,163,000 4% 26,454,000 5%
- ----------------------------------------------------------------------------
12. FEDERAL RESERVE REQUIREMENTS:
The subsidiary banks are required to maintain average reserve
balances with the Federal Reserve Bank. The Reserve requirement
is calculated on a percentage of total deposit liabilities and
averaged $9,015,000 for the year ended December 31, 1997.
13. ACQUISITIONS:
On December 12, 1997, the Company acquired Gateway
Bancorp, Inc. and its subsidiary, Catlettsburg Federal Savings
Bank, for a total consideration of $21.6 million ($6.2 million
in cash and $15.4 million in common stock). Gateway Bancorp
operates two full service offices in northeastern Kentucky, and
had total assets of $61.2 million, deposits of $43.9 million and
shareholders' equity of $15.3 million. This acquisition was
accounted for under the purchase method of accounting.
In February 1997, the Company assumed approximately
$12.5 million in deposit liabilities from an unaffiliated
institution. In the agreement, the Company also acquired one
full-service banking office in the community of Baltimore, Ohio.
This acquisition was accounted for under the purchase method of
accounting.
On January 1, 1997, the Company acquired Russell
Federal Savings Bank ("Russell Federal") for a cash
consideration of approximately $9.25 million. Russell Federal
has one full service office located in Russell, Kentucky, and
had total assets of $28.0 million, deposits of $19.5 million and
shareholders' equity of $8.0 million at December 31, 1996. This
acquisition was accounted for under the purchase method of
accounting.
On April 26, 1996, the Company acquired three
full-service banking offices in the cities of Pomeroy,
Gallipolis, and Rutland, Ohio, and assumed approximately $74
million in deposit liabilities from an unaffiliated institution
for a cash consideration of approximately $5.4 million.
Accordingly, consolidated results include the operations of the
three full-service banking offices subsequent to the acquisition
date.
The purchase prices of the above and other previous
acquisitions were allocated to the identifiable tangible and
intangible assets acquired based upon their fair value at the
acquisition date. Deposit intangibles, included in other
assets, approximated $2,682,000 and $1,827,000 at December 31,
1997 and 1996, respectively, while the related amortization
expense approximated $407,000 and $206,000 in 1997 and 1996,
respectively. Goodwill, included in other assets, approximated
$10,114,000 and $4,606,000 at December 31, 1997 and 1996,
respectively, and the related amortization expense approximated
$731,000 and $419,000 in 1997 and 1996, respectively.
The following summarizes the unaudited pro forma results
of operations for the years ended December 31, 1997 and 1996,
assuming the acquisitions accounted for under the purchase
method had been consummated at the beginning of each year
presented.
1997 1996
Total interest income $57,993,000 $53,125,000
Net income 8,888,000 7,600,000
Diluted earnings per share 2.26 1.98
On January 20, 1998, the Company entered into an
agreement to acquire five full-service banking offices located
in the communities of Point Pleasant (three offices), New
Martinsville, and Steelton, West Virginia, from an unaffiliated
institution. In the agreement, the Company will assume
approximately $125 million in deposits and purchase $10.5
million in loans. The acquisition is contingent upon regulatory
approval and other conditions and is expected to be completed in
the second quarter of 1998. The acquisition is expected to be
accounted for under the purchase method of accounting.
14. STOCK OPTIONS:
The Company's stock option plans provide for the granting of
both incentive stock options and non-qualified stock options of
up to 387,200 shares of common stock. Under the provisions of
the plans, the option price per share shall not be less than the
fair market value of the common stock on the date of grant of
such option, therefore no compensation expense is recognized.
All granted options vest in periods ranging from six months to
eight years and expire 10 years from the date of grant. The
weighted average remaining contractual life of options
outstanding at December 31, 1997 was 7.8 years.
The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB
25") and related interpretations in accounting for its employee
stock options instead of applying SFAS Statement No. 123
"Accounting for Stock Based Compensation". Under APB 25,
because the exercise price of the Company's stock options
granted is equal to the market price of the underlying stock on
the date of grant, no compensation expense is recognized. Pro
forma information regarding net income and earnings per share
has been determined as if the Company had recognized
compensation expense for its employee stock options under the
fair value method. However, pro forma financial information and
assumptions used to estimate the fair value of stock options
have not been included herein because the effect of applying the
fair value method to the Company's stock-based awards in 1997
and 1996 results in net income and earnings per share that are
not materially different from amounts reported. Activity in the
plans is summarized as follows:
1997 1996
Number Option Number Option
of shares price of shares price
Non-qualified stock options
- ---------------------------
Outstanding at beginning
of year 44,698 $ 16.12-21.14 50,120 $16.12-19.42
Granted 38,467 26.875-42.00 1,785 21.14
Exercised 9,710 16.95-30.50 6,142 16.95-19.42
Canceled 2,998 18.60-30.50 1,065 16.95-18.60
- ----------------------------------------------------------------------------
Outstanding at end of year 70,457 16.12-42.00 44,698 16.12-21.14
============================================================================
Exercisable at end of year 45,134 $ 16.12-30.50 29,481 $16.12-21.14
============================================================================
Weighted average fair
value of options granted
during the year $ 8.43 3.54
============================================================================
Incentive stock options
- -----------------------
Outstanding at beginning
of year 180,215 $ 14.47-19.32 202,065 $14.47-19.32
Granted 69,500 43.75
Exercised 16,234 14.47-19.32 17,615 14.47-19.32
Canceled 4,235 19.32
- ----------------------------------------------------------------------------
Outstanding at end of year 233,481 14.47-43.75 180,215 14.47-19.32
============================================================================
Exercisable at end of year 89,873 $ 14.47-19.32 69,063 $14.47-19.32
============================================================================
15. PARENT COMPANY ONLY FINANCIAL INFORMATION:
December 31,
CONDENSED BALANCE SHEETS 1997 1996
Assets:
- -------
Cash $ 20,000 $ 20,000
Interest bearing deposits in subsidiary bank 530,000 239,000
Receivable from subsidiary bank 1,168,000 900,000
Investment securities: Available-for-sale
(amortized cost of $1,341,000 and $1,297,000
at December 31, 1997 and 1996, respectively) 2,960,000 2,447,000
Capital note receivable from subsidiary bank 3,000,000
Investments in subsidiaries:
Banks 76,869,000 48,951,000
Non-banks 1,138,000 1,125,000
Goodwill 693,000 830,000
Other 581,000 939,000
- -------------------------------------------------------------------------
Total assets $83,959,000 $58,451,000
=========================================================================
Liabilities:
- ------------
Accrued pension $ 1,071,000 $ 1,525,000
Accrued expenses 341,000 148,000
Dividends payable 729,000 585,000
Long-term borrowings 3,000,000
- -------------------------------------------------------------------------
Total liabilities 5,141,000 2,258,000
- -------------------------------------------------------------------------
Stockholders' equity 78,818,000 56,193,000
- -------------------------------------------------------------------------
Total liabilities and stockholders' equity $83,959,000 $58,451,000
=========================================================================
Year ended December 31,
CONSOLIDATED STATEMENTS OF INCOME 1997 1996 1995
Income:
- -------
Dividends from subsidiary banks $12,990,000 $4,010,000 $3,415,000
Dividends from other subsidiaries 50,000 40,000 50,000
Interest 72,000 346,000 393,000
Management fees from subsidiaries 903,000 902,000 907,000
Other 77,000 64,000 69,000
- --------------------------------------------------------------------------
Total income 14,092,000 5,362,000 4,834,000
- --------------------------------------------------------------------------
Expenses:
- ---------
Salaries and benefits 1,220,000 1,156,000 1,183,000
Interest 217,000 118,000 148,000
Other 818,000 784,000 764,000
- --------------------------------------------------------------------------
Total expenses 2,255,000 2,058,000 2,095,000
- --------------------------------------------------------------------------
Income before federal income taxes
and (excess dividends from)
equity in undistributed earnings
of subsidiaries 11,837,000 3,304,000 2,739,000
Applicable income tax benefit (250,000) (190,000) (200,000)
(Excess dividends from) equity
in undistributed earnings of
subsidiaries (3,482,000) 4,157,000 3,111,000
- --------------------------------------------------------------------------
Net income $ 8,605,000 $7,651,000 $6,050,000
==========================================================================
Year ended December 31,
STATEMENTS OF CASH FLOWS 1997 1996 1995
Cash flows from operating activities:
- -------------------------------------
Net income $ 8,605,000 $7,651,000 $6,050,000
Adjustment to reconcile net income
to cash provided by operations:
Amortization and depreciation 230,000 208,000 179,000
Excess dividends from (equity
in undistributed earnings of)
subsidiaries 3,482,000 (4,157,000) (3,111,000)
Other, net (48,000) (382,000) 189,000
- ----------------------------------------------------------------------------
Net cash provided by
operating activities 12,269,000 3,320,000 3,307,000
- ----------------------------------------------------------------------------
Cash flows from investing activities:
- -------------------------------------
Purchase of investment securities (44,000) (199,000) (340,000)
Expenditures for premises and
equipment (33,000) (89,000) (87,000)
Investment in subsidiaries (15,436,000) (150,000)
Repayment of capital note receivable
from subsidiary 3,000,000
- ----------------------------------------------------------------------------
Net cash used in
investing activities (12,513,000) (288,000) (577,000)
- ----------------------------------------------------------------------------
Cash flows from financing activities:
- -------------------------------------
Proceeds from long-term borrowings 3,000,000
Payments on long-term borrowings (1,560,000) (260,000)
Purchase of treasury stock (327,000) (332,000) (1,940,000)
Change in receivable from
subsidiary (268,000) 69,000 1,043,000
Proceeds from issuance of
common stock 314,000 431,000 26,000
Cash dividends paid (2,184,000) (1,934,000) (1,702,000)
- ----------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 535,000 (3,326,000) (2,833,000)
- ----------------------------------------------------------------------------
Net increase (decrease) in cash 291,000 (294,000) (103,000)
Cash and cash equivalents at the
beginning of the year 259,000 553,000 656,000
- ----------------------------------------------------------------------------
Cash and cash equivalents
at the end of the year $ 550,000 $ 259,000 $ 553,000
============================================================================
The parent company paid interest totaling $217,000, $118,000 and
$148,000 during the years ended December 31, 1997, 1996, and 1995,
respectively.
16. SUMMARIZED QUARTERLY INFORMATION (UNAUDITED):
A summary of selected quarterly financial information
for 1997 and 1996 follows.
1997
First Second Third Fourth
Quarter Quarter Quarter Quarter
Interest income $12,762,000 $13,122,000 $13,639,000 $14,313,000
Interest expense 5,918,000 6,106,000 6,443,000 6,749,000
Net interest income 6,844,000 7,016,000 7,196,000 7,564,000
Provision for possible
loan losses 588,000 641,000 676,000 684,000
Investment securities
(losses) gains (29,000) (2,000) 3,000
Other income 1,418,000 1,462,000 1,528,000 1,558,000
Other expenses 4,705,000 4,721,000 4,851,000 4,988,000
Income taxes 938,000 989,000 1,039,000 1,133,000
Net income 2,002,000 2,125,000 2,158,000 2,320,000
Earnings per share:
Basic 0.58 0.62 0.62 0.65
Diluted $ 0.57 $ 0.60 $ 0.60 $ 0.63
Average shares outstanding:
Basic 3,446,000 3,450,000 3,454,000 3,542,000
Diluted 3,528,000 3,553,000 3,574,000 3,677,000
1996
First Second Third Fourth
Quarter Quarter Quarter Quarter
Interest income $11,316,000 $11,725,000 $12,046,000 $12,310,000
Interest expense 5,367,000 5,416,000 5,539,000 5,644,000
Net interest income 5,949,000 6,309,000 6,507,000 6,666,000
Provision for possible
loan losses 360,000 435,000 585,000 585,000
Investment securities
gains 26,000 22,000
Other income 1,162,000 1,271,000 1,304,000 1,393,000
Other expenses 4,013,000 4,299,000 4,578,000 4,632,000
Income taxes 883,000 875,000 818,000 895,000
Net income 1,881,000 1,971,000 1,830,000 1,969,000
Earnings per share:
Basic 0.55 0.57 0.53 0.57
Diluted $ 0.54 $ 0.57 $ 0.53 $ 0.56
Average shares outstanding:
Basic 3,429,000 3,442,000 3,440,000 3,444,000
Diluted 3,461,000 3,473,000 3,479,000 3,513,000
<PAGE>
REPORT OF INDEPENDENT AUDITORS
==============================
To the Stockholders and Board of Directors:
We have audited the accompanying consolidated balance sheets of
Peoples Bancorp Inc. and Subsidiaries as of December 31, 1997
and 1996, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Peoples Bancorp Inc. and
Subsidiaries at December 31, 1997 and 1996 and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Ernst & Young LLP
Charleston, West Virginia
February 6, 1998
<PAGE>
<TABLE>
AVERAGE BALANCES AND ANALYSIS OF NET INTEREST INCOME
====================================================
<CAPTION>
(Dollars in Thousands)
1997 1996 1995
Average Average Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities <F1>:
- ----------------
Taxable $126,632 $ 8,636 6.82% $127,815 $ 8,655 6.77% $ 95,056 $ 6,667 6.98%
Nontaxable <F2> 22,271 1,819 8.17% 22,621 1,906 8.42% 23,761 2,117 8.91%
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total 148,903 10,455 7.02% 150,436 10,561 7.02% 118,817 8,784 7.40%
-------- ------- ------ -------- ------- ------ -------- ------- ------
Loans <F3> <F4>:
- ----------------
Commercial 145,971 13,939 9.55% 125,138 11,944 9.54% 114,020 11,270 9.88%
Real estate 209,330 17,863 8.53% 172,367 14,322 8.31% 156,598 13,663 8.73%
Consumer 112,762 11,739 10.41% 102,759 10,949 10.66% 96,604 9,305 9.63%
Valuation reserve (7,521) (6,799) (6,719)
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total 460,542 43,541 9.30% 393,465 37,215 9.46% 360,503 34,238 9.50%
-------- ------- ------ -------- ------- ------ -------- ------- ------
Short-term Investments:
- -----------------------
Interest-bearing
deposits 1,713 93 5.41% 622 29 4.64% 526 31 5.80%
Federal funds sold 7,915 437 5.52% 5,900 315 5.35% 13,226 780 5.90%
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total 9,628 530 5.50% 6,522 344 5.28% 13,752 811 5.90%
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total earning assets 619,073 54,526 8.81% 550,423 48,120 8.74% 493,072 43,833 8.89%
-------- ------- ------ -------- ------- ------ -------- ------- ------
Other assets 48,426 42,021 34,910
-------- -------- --------
Total assets $667,499 $592,444 $527,982
======== ======== ========
Deposits:
- ---------
Savings $ 83,342 2,552 3.06% $ 75,805 2,302 3.04% $ 68,867 2,307 3.35%
Interest-bearing
demand 126,462 4,372 3.46% 111,376 3,656 3.28% 92,280 3,228 3.50%
Time 277,559 15,358 5.53% 234,550 12,922 5.51% 222,898 12,849 5.76%
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total 487,363 22,282 4.57% 421,731 18,880 4.48% 384,045 18,384 4.79%
-------- ------- ------ -------- ------- ------ -------- ------- ------
Borrowed Funds:
- ---------------
Short-term 22,463 1,023 4.55% 29,965 1,449 4.84% 19,993 1,010 5.05%
Long-term 30,495 1,911 6.27% 26,692 1,637 6.13% 22,612 1,383 6.12%
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total 52,958 2,934 5.54% 56,657 3,086 5.45% 42,605 2,393 5.62%
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total interest-
bearing liabilities 540,321 25,216 4.67% 478,388 21,966 4.59% 426,650 20,777 4.87%
-------- ------- ------ -------- ------- ------ -------- ------- ------
Noninterest-bearing
demand deposits 59,860 54,923 46,876
Other liabilities 7,248 6,114 5,396
-------- -------- --------
Total liabilities 607,429 539,425 478,922
Stockholders' equity 60,070 53,019 49,060
-------- -------- --------
Total liabilities
and stockholders'
equity $667,499 $592,444 $527,982
======== ======== ========
Interest rate spread 29,310 4.14% 26,154 4.15% 23,056 4.02%
------- ------ ------- ------ ------- ------
Interest revenue/earning assets 8.81% 8.74% 8.89%
Interest expense/earning assets 4.07% 3.99% 4.21%
------ ------ ------
Net yield on earning assets
(net interest margin) 4.74% 4.75% 4.68%
====== ====== ======
<FN>
<F1> Average balances of investment securities based on historical cost.
<F2> Computed on a fully tax equivalent basis using a tax rate
of 35% in 1997 and 34% in 1996 and 1995. Interest income was
increased by $618,000, $723,000 and $765,000 for 1997, 1996 and
1995, respectively.
<F3> Nonaccrual and impaired loans are included in the average
balances listed. Related interest income on nonaccrual loans
prior to the loan being put on nonaccrual status is included in
loan interest income. At December 31, 1997, 1996 and 1995,
nonaccrual loans outstanding were $1,220,000, $999,000 and
$482,000, respectively.
<F4> Loan fees included in interest income for 1997, 1996 and
1995 were $542,000, $460,000 and $428,000, respectively.
</FN>
</TABLE>
<PAGE>
<TABLE>
RATE VOLUME ANALYSIS/MATURITIES TABLES
======================================
Rate Volume Analysis
- --------------------
(Dollars in Thousands)
<CAPTION>
Change in Income/Expense <F1> Rate Effect Volume Effect
1997 1996 1995 1997 1996 1995 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
- ------------------
Taxable $ (19) $1,988 $1,359 $ 61 $ (237) $ 141 $ (80) $2,225 $1,218
Nontaxable (87) (211) (103) (58) (112) (79) (29) (99) (24)
- --------------------------------------------------------------------------------------------------------------
Total (106) 1,777 1,256 3 (349) 62 (109) 2,126 1,194
- --------------------------------------------------------------------------------------------------------------
Loan income:
- ------------
Commercial 1,995 674 2,336 6 (397) 1,557 1,989 1,071 779
Real estate 3,541 659 1,352 396 (672) 525 3,145 1,331 827
Consumer 790 1,644 1,965 (256) 1,028 923 1,046 616 1,042
- --------------------------------------------------------------------------------------------------------------
Total 6,326 2,977 5,653 146 (41) 3,005 6,180 3,018 2,648
- --------------------------------------------------------------------------------------------------------------
Short-term investments 186 (467) 328 17 (75) 262 169 (392) 66
- --------------------------------------------------------------------------------------------------------------
Total interest income 6,406 4,287 7,237 166 (465) 3,329 6,240 4,752 3,908
==============================================================================================================
Interest expense:
- -----------------
Savings 250 (5) 201 19 (226) 395 231 221 (194)
Interest-bearing
demand deposits 716 428 1,016 202 (208) 824 514 636 192
Time 2,436 73 3,551 2,831 (583) 1,664 (395) 656 1,887
Short-term borrowings (426) 398 673 (80) (182) 294 (346) 580 379
Long-term borrowings 274 295 (88) 36 240 34 238 55 (122)
- --------------------------------------------------------------------------------------------------------------
Total interest expense 3,250 1,189 5,353 3,008 (959) 3,211 242 2,148 2,142
==============================================================================================================
$3,156 $3,098 $1,884 $(2,842) $ 494 $ 118 $5,998 $2,604 $1,766
==============================================================================================================
<FN>
<F1> The change in interest due to both rate and volume has been
allocated to volume and rate changes in proportion to the
relationship of the dollar amounts of the change in each.
</FN>
</TABLE>
Loan Maturities at December 31, 1997:
- -------------------------------------
Due in
Due in One Year Due
One Year Through After
or Less Five Years Five Years Total
LOAN TYPE
Commercial loans:
- -----------------
Fixed $ 14,807 $ 12,394 $ 4,709 $ 31,910
Variable 56,884 25,698 44,543 127,125
- -------------------------------------------------------------------------
71,691 38,092 49,252 159,035
=========================================================================
Real estate loans:
- ------------------
Fixed 5,973 20,364 44,595 70,932
Variable 22,545 28,722 126,003 177,270
- -------------------------------------------------------------------------
28,518 49,086 170,598 248,202
=========================================================================
Consumer loans:
- ---------------
Fixed 32,446 67,004 3,889 103,339
Variable 8,449 2,154 391 10,994
- -------------------------------------------------------------------------
40,895 69,158 4,280 114,333
=========================================================================
Total $141,104 $156,336 $224,130 $521,570
=========================================================================
Maturities of Certificates of Deposit $100,000 and over at December 31:
- ------------------------------------------------------------------------
1997 1996 1995 1994
Under 3 months $13,302 $16,437 $18,662 $ 5,657
3 to 6 months 24,069 8,279 9,319 2,149
6 to 12 months 9,520 10,309 5,140 5,868
Over 12 months 10,698 8,356 8,266 12,695
- -------------------------------------------------------------------------
Total $57,589 $43,381 $41,387 $26,369
=========================================================================
<PAGE>
LOAN PORTFOLIO ANALYSIS
=======================
(Dollars in thousands)
1997 1996 1995 1994 1993
Year-end balances:
- ------------------
Commercial, financial
and agricultural $159,035 $127,927 $117,306 $117,015 $101,633
Real estate 228,689 175,505 154,469 150,289 135,704
Real estate,
construction 19,513 9,944 5,919 2,528 5,421
Consumer 107,158 102,044 95,464 86,098 74,775
Credit card 7,175 6,993 6,368 5,423 4,142
- ----------------------------------------------------------------------------
Total $521,570 $422,413 $379,526 $361,353 $321,675
============================================================================
Average total loans $467,897 $400,264 $367,222 $337,500 $306,282
Average allowance
for loan losses (7,521) (6,799) (6,719) (6,680) (6,095)
- ----------------------------------------------------------------------------
Average loans,
net of allowance $460,376 $393,465 $360,503 $330,820 $300,187
============================================================================
Allowance for loan
losses, January 1 $6,873 $6,726 $6,783 $6,370 $5,687
Allowance for loan
losses acquired 290
Loans charged off:
- ------------------
Commercial, financial
and agricultural 354 342 256 39 193
Real estate 42 93 82 189 143
Consumer 1,258 1,726 1,352 842 816
Credit card 263 168 113 54 51
- ----------------------------------------------------------------------------
Total 1,917 2,329 1,803 1,124 1,203
- ----------------------------------------------------------------------------
Recoveries:
- -----------
Commercial, financial
and agricultural 124 36 111 392 60
Real estate 6 75 60 61 65
Consumer 374 391 251 304 157
Credit card 17 9 9 15 12
- ----------------------------------------------------------------------------
Total 521 511 431 772 294
- ----------------------------------------------------------------------------
Net chargeoffs:
- ---------------
Commercial, financial
and agricultural 230 306 145 (353) 133
Real estate 36 18 22 128 78
Consumer 884 1,335 1,101 538 659
Credit card 246 159 104 39 39
- ----------------------------------------------------------------------------
Total 1,396 1,818 1,372 352 909
- ----------------------------------------------------------------------------
Provision for loan losses 2,589 1,965 1,315 765 1,592
- ----------------------------------------------------------------------------
Allowance for loan
losses, December 31 $8,356 $6,873 $6,726 $6,783 $6,370
============================================================================
Allocation of allowance for loan losses at December 31:
- -------------------------------------------------------
Commercial $3,147 $2,741 $3,440 $3,281 $3,185
Real estate 1,478 1,050 1,517 1,828 2,000
Consumer 2,255 2,078 1,519 1,096 987
Credit card 395 131 100 89 166
Unallocated 1,081 873 150 489 32
- ----------------------------------------------------------------------------
Total $8,356 $6,873 $6,726 $6,783 $6,370
============================================================================
Percent of loans to total loans at December 31:
- -----------------------------------------------
Commercial 30.5% 30.3% 30.9% 32.4% 31.6%
Real estate 43.8 41.5 40.7 41.6 42.2
Real estate, construction 3.8 2.3 1.5 0.7 1.7
Consumer 20.5 24.2 25.2 23.8 23.2
Credit card 1.4 1.7 1.7 1.5 1.3
- ----------------------------------------------------------------------------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
============================================================================
Ratio of net chargeoffs to average total loans:
- -----------------------------------------------
Commercial 0.05% 0.08% 0.04% (0.11)% 0.04%
Real estate 0.01 0.00 0.01 0.04 0.03
Consumer 0.19 0.33 0.30 0.16 0.22
Credit card 0.05 0.04 0.03 0.01 0.01
- ----------------------------------------------------------------------------
Total 0.30% 0.45% 0.38% 0.10% 0.30%
============================================================================
Nonperforming loans:
- --------------------
Nonaccrual loans $1,220 $ 999 $ 482 $ 902 $1,416
Loans 90+ days past due 462 621 1,236 1,082 896
Other real estate owned 19 28 45 97 38
- ----------------------------------------------------------------------------
Total $1,701 $1,648 $1,763 $2,081 $2,350
============================================================================
Nonperforming loans as a
percent of total loans 0.33% 0.39% 0.46% 0.58% 0.73%
============================================================================
Interest income on nonaccrual loans which would have been
recorded under the original terms of the loans for 1997, 1996
and 1995 was $41,000 (of which $5,000 was actually recorded),
$78,000 (of which $11,000 was actually recorded) and $19,000 (of
which $10,000 was actually recorded), respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS
====================================
Introduction
- ------------
The following discussion and analysis of the consolidated
financial statements of Peoples Bancorp Inc. (the "Company") is
presented to give the reader insight into management's
assessment of the financial results. It also recaps the
significant events that led to the results. The Company's
subsidiaries, The Peoples Banking and Trust Company ("Peoples
Bank"), The First National Bank of Southeastern Ohio ("First
National"), Catlettsburg Federal Savings Bank ("Catlettsburg
Federal"), Russell Federal Savings Bank ("Russell Federal"),
and The Northwest Territory Life Insurance Company, provide
financial services to individuals and businesses within our
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. Catlettsburg Federal
and Russell Federal are members of the Federal Home Loan Bank,
and are subject to regulation, supervision, and examination by
the Office of Thrift Supervision, and are also subject to
limited regulation by the Board of Governors of the Federal
Reserve System. This discussion and analysis should be read in
conjunction with the audited consolidated financial statements
and footnotes thereto and the ratios, statistics, and
discussions contained elsewhere in this Annual Report.
The following text will include references to several
acquisition transactions that have affected and/or will affect
the Company's results of operations. In April 1996, Peoples
Bank completed the acquisition of three full-service banking
centers in the communities of Pomeroy, Gallipolis, and Rutland,
Ohio ("Southeast Ohio Banking Center Acquisition"), by acquiring
approximately $74 million in deposits from an unaffiliated
financial institution. 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 five
full-service banking offices located in the communities of Point
Pleasant (three 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 $10.5
million in loans. The acquisition is contingent upon regulatory
approval and other conditions and is expected to be completed in
the second quarter of 1998.
Overview of the Income Statement
- --------------------------------
Net income increased $954,000 or 12.5%, to $8,605,000 in 1997
from $7,651,000 in 1996. The increase was primarily due to
strong internal loan growth and loans acquired in the Russell
Federal Acquisition as well as enhanced operational
efficiencies. Fully tax equivalent net interest income
increased $3,156,000 in 1997 to $29,310,000, up 12.1% compared
to 1996. The yield on interest-earning assets increased from
8.74% in 1996 to 8.81% in 1997, as the Company increased its
percentage of interest-earning assets to higher-yielding assets
such as loans. The average interest rate paid on
interest-bearing liabilities also increased, from 4.59% in 1996
to 4.67% in 1997. Net interest margin for the Company totaled
4.74% compared to 4.75% last year. Strong loan growth prompted
an increase in the provision for loan losses in 1997, totaling
$2,589,000, up from $1,965,000 in 1996. Non-interest income
(excluding gains or losses on sales of investment securities)
increased 16.3% to $5,966,000 in 1997, compared to $5,130,000
last year. Gains and losses on sales of investment securities
were insignificant in 1997 and 1996. Due primarily to increased
expenses related to the aforementioned multiple acquisitions,
non-interest expense increased 9.9% in 1997 to $19,265,000,
compared to $17,522,000 in the prior year. The Company's
efficiency ratio improved to 51.06% for the year ended December
31, 1997, compared to 53.76% in 1996.
Diluted earnings per share totaled $2.40 in 1997, up $0.20 per
share compared to 1996. 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 1997, intangible
amortization expense totaled $1,138,000 ($751,000 after taxes)
compared to $625,000 ($413,000 after taxes) for the same period
a year earlier. Adjusting for the amortization of intangibles
results in diluted cash earnings per share for the year ended
December 31, 1997 of $2.61, up $0.29 from $2.32 in cash earnings
per share in 1996.
Management uses cash earnings as one of several ways to evaluate
the impact of acquisitions to profitability and return on
investment. Increased amortization of intangibles in 1997 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 adjustments in the
mix of interest-earning assets and interest-bearing liabilities,
impact net interest income.
Short-term market interest rates did not fluctuate significantly
in 1997. The Federal Reserve Board modestly increased the
discount rate in early 1997 and, as a result, the national prime
rate moved up 25 basis points. The Company adjusted its base
loan rates in mid-1997 to reflect the increase in the national
prime rate. These rate adjustments increased net interest
income in 1997 and made significant contributions to interest
income streams. The Company's interest bearing transaction
accounts that are tied to various national market indices were
also affected by the modest rise in interest income and
therefore also increased in 1997, causing a slight increase in
interest costs in 1997.
In 1997, the Company recorded net interest income of
$28,620,000, an increase of 12.5% from 1996. Total interest
income reached $53,836,000 while interest expense totaled
$25,216,000. Included in interest income is $1,324,000 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
measurement of the net revenue stream generated by the Company's
balance sheet. Net interest margin remained relatively stable
at 4.74% in 1997, a modest decrease compared to 1996's ratio of
4.75%. The FTE yield on earning assets was 8.81% in 1997,
compared to 8.74% in 1996. The cost of earning assets increased
8 basis points to 4.07% in 1997, due primarily to rates paid on
time deposits and minimal growth in non-interest bearing
deposits. Average loan balances increased nearly $68 million
compared to prior year and continue to be the largest component
of the earning assets on the Company's balance sheet. Loans
averaged 84.2% of deposits during 1997 compared to 82.6% in
1996. This increase is consistent with the Company's strategic
initiatives to increase its higher-yielding asset base and
satisfy the loan demand experienced in its markets.
Detailed analyses of several categories within interest-earning
assets and interest-bearing liabilities reveal changes in mix
and modest shifts in interest rates. Commercial loans continued
to grow in 1997, reaching average balances of $146.0 million and
a maintaining yield of 9.55% compared to average balances and
yields of $125.1 million and 9.54%, respectively, in the prior
year. This volume growth increased interest income nearly $2
million in 1997. In 1997, average real estate loan balances
grew $37.0 million (or 21.4%) due primarily to the Russell
Federal Acquisition and significant internal growth. The
average yield on real estate loans was 8.53% in 1997, compared
to 8.31% in 1996. The modest increase in yield and significant
growth in volume produced an increase of $3,541,000 in real
estate loan income. In 1997, average balances in personal loans
increased $10.0 million or 9.7%. The average yield on those
loans was 10.41% in 1997 compared to 10.66% in 1996. This
decrease in yield was due primarily to increased competition for
personal loans in the Company's markets. However, increased
volumes provided the Company with additional incremental
interest income of over $1 million. The Company has been able
to meet its operating goals while growing the loan portfolio at
competitive, but profitable yields.
Yields on long-term investment securities remained stable in
1997 compared to prior year, totaling 7.02% of average balances
on an FTE basis. Average balances decreased $1.5 million as the
Company shifted earning assets to higher-yielding assets such as
loans. Average short-term investment balances (interest bearing
deposits in other banks and federal funds sold) increased $3.1
million in 1997, and yields increased 22 basis points to 5.50%
in 1997. The increased income from short-term investments
offset the decreased interest income generated from long-term
investment securities in 1997.
During 1997, the Company offered several special short-term time
deposits to fund loan demand. In the first half of 1997,
special 5-month and 10-month time deposits were priced
competitively in the Company's markets and generated significant
funding for recent asset growth. The 5-month and 10-month
specials were discontinued in the second quarter of 1997, and in
the third quarter, the Company began offering a special 7-month
time deposit designed to retain previously written short-term
time deposits as well as encourage customers to use the many
products and services offered by the Company. The 7-month
special was discontinued in late 1997 when volume goals were
reached. Management expects interest rate pressures will
continue to challenge the Company in 1998 as financial
institutions and other competitors continue to search for new
methods and products to satisfy increasing customer demand for
higher yielding interest-bearing deposits.
Interest costs on the Company's array of traditional
interest-bearing deposit products increased nine basis points to
4.57% in 1997 compared to 4.48% in 1996. The most significant
component of interest expense in 1997 was interest paid on time
deposits (i.e., Certificates of Deposits and Individual
Retirement Accounts). In 1997, the Company incurred interest of
$15,358,000, or 5.53%, on average time deposit balances of
$227.6 million. In 1996, the rate paid on average time deposit
balances of $234.6 million was 5.51%. Growth in this type of
funding source came primarily from southeastern Ohio markets
which the Company serves, but some funding was acquired from the
Russell Federal Acquisition as well as the Catlettsburg Federal
Acquisition. The largest rate increase occurred in average
interest-bearing demand deposits, which increased 18 basis
points to 3.46% on average deposit balances of $126.5 million in
1997, compared to 3.28% on average balances of $111.4 million in
1996. This combination increased interest expense costs by
$716,000 as customers continue to search for ways to maximize
their investments in banking products. Management expects
deposit pricing to be increasingly competitive in 1997.
In 1997, the Company continued its use of short-term borrowings
as a funding source. Historically the Company's cash management
services offered to a variety of business customers have
provided short-term funding, specifically overnight repurchase
agreements. In 1997, the Company's average balances of
overnight repurchase agreements increased $7.0 million (or
51.8%) to $20.4 million, due primarily to growth in balances
from existing customers and increased market penetration. The
average rate paid in 1997 on overnight repurchase agreements
totaled 4.43%, up 58 basis points from the prior year's average
rate of 3.85%. Interest costs on this product totaled $905,000
in 1997, up significantly from 1996's total of $519,000. These
rates are based on selected indices which increased in 1997.
Interest expense on average short-term Federal Home Loan Bank
("FHLB") advances in 1997 totaled $117,000, an average interest
rate of 5.79%. Average short-term FHLB balances totaled $2.0
million in 1997, compared to $12.3 million in 1996, when the
Company used this type of borrowing as a funding source for the
Southeastern Ohio Banking Center Acquisition. In 1996, the
average rate on these funding sources was 5.68%. As a result of
decreased use of this funding source in 1997, interest costs for
all short-term borrowings decreased $426,000 compared to the
prior year. Management plans to maintain access to short-term
FHLB borrowings as an appropriate funding source.
In 1997, interest expense on long-term borrowings modestly
increased to $1,911,000, up $274,000 (or 16.7%) compared to
1996. The rate paid on average long-term borrowings totaled
6.27% in 1997, an increase of 14 basis points over 1996's
average rate of 6.13%. The modest increase was commensurate
with the increase in the national prime rate in 1997. The
majority of the Company's long-term borrowings are fixed rate
FHLB borrowings.
Please refer to the "Average Balances and Analysis of Net
Interest Income" table included on page 28 for a complete
quantitative evaluation of the Company's net interest margin.
In 1997, the Company recorded a provision for loan losses of
$2,589,000, up from $1,965,000 in 1996. The increase was due
primarily to increased loan volume. In 1997, consumer credit
delinquencies as a percent of total consumer loans outstanding
improved. However, due to anticipated increased commercial loan
activity and the inherent risk associated with commercial loans,
management expects to maintain the current level of loan loss
provision in 1998.
Non-Interest Income
- -------------------
The Company's non-interest income is generated from four primary
sources: cost-recovery fees related to deposit accounts, income
derived from fiduciary activities, electronic banking revenues,
and income generated by the Company's insurance agency
subsidiaries. Non-interest income (excluding securities
transactions) from operations reached record levels in 1997,
totaling $5,966,000, an increase of 16.3% compared to 1996.
Several categories had strong growth compared to 1996.
Management continues to focus on non-interest income as a
primary source of cost-recovery.
In 1997, account service charge income related to deposits
increased $265,000 or 13.7% to $2,202,000. Several factors
contributed to this growth. A full year of cost-recovery fees
related to the $74 million growth in deposits assumed in the
Southeastern Ohio Banking Center Acquisition contributed to
increases in fee income. The Company's fee structure is based
on cost recoveries associated with services provided. In
addition, non-customer activity in the Company's network of
ATM's has increased and caused a corresponding increase in
ATM-related revenues.
The Company's Investment and Trust Division continued its strong
earnings trend. The fee structure for investment and fiduciary
activities is based primarily on the market value of assets
being managed, which totaled approximately $503 million at
December 31, 1997, an increase of over $65 million from the
previous year-end. Income from fiduciary activities totaled
$2,176,000, an increase of 14.7% compared to 1996. The
Investment and Trust Division will continue to build on its
leadership position in the Company's markets and will be a
significant contributor to the Company's net income.
Electronic banking has been a service offered to the Company's
customers for several years. Electronic banking services
include ATM cards, direct deposit services, and the Peoples
Connect Card, a debit card first introduced in 1996. Recently
the financial services industry has increased its focus on
electronic banking products as a method to enhance relationships
with the customer. In 1997, a combination of modifications in
the Company's fee schedule and increased volume related to these
products impacted the Company's non-interest income. In 1997,
total electronic banking revenue reached $476,000, up $357,000
(or 33.4%) compared to the same period a year earlier.
Increases are due primarily to revenues related to the debit
card program launched in late 1996.
In late 1995, First National Bank's subsidiaries, Northwest
Territory Life Insurance Agency, Inc. and Northwest Territory
Property and Casualty Insurance Agency, Inc. (the "Agencies"),
were awarded insurance agency powers in the State of Ohio. The
Agencies received Certificates of Qualification to provide full
life and property insurance product lines to consumers in Ohio.
These Agencies were the first in Ohio to be affiliated with a
financial institution. Although the Agencies' results of
operations did not have a material impact on 1997 results, they
are anticipated to produce income growth and long-term value to
the Company through internal development as well as external
affiliation and acquisition. Currently, the Agencies are
generating fee income on sales of annuities, mutual funds, and
other similar investment products, as well as life insurance
policies. Management intends to develop the Agencies' property
and casualty insurance product lines through both internal
development and acquisition of existing independent agencies.
Management will continue to explore new methods of enhancing
non-interest income in the future. Both traditional and
non-traditional financial service products are being analyzed
for inclusion in the product mix currently being offered by the
Company.
Non-Interest Expense
- --------------------
Operating efficiently and maintaining acceptable levels of
non-interest expense and operating efficiency are key
performance indicators for the Company in its strategic
initiatives. Several categories within non-interest expense
directly related to banking operations remained at levels
comparable to the prior year. In 1997, non-interest expense
totaled $19,265,000, an increase of 9.9% over the prior year.
This increase relates primarily to the Company's recent
acquisitions and related increased levels of non-interest
expense such as salaries and benefits, depreciation expense,
intangible amortization, etc. Management has initiated steps to
leverage non-interest expense associated with its recent market
expansion.
When comparing non-interest expense information from 1997 to
1996, it is important to note the changes to the Company's
non-interest expense levels related to acquisition activity.
Acquisitions, and the related salaries and employee benefits and
amortization of intangibles, comprise the majority of the
increase in non-interest expense in 1997. Non-operational items
have resulted in significant increases in 1997's non-interest
expense compared to the prior year. In particular, amortization
of intangibles totaled $1,138,000 in 1997 compared to $625,000
for the same period last year, an increase of $513,000 (or
82.1%).
Expenses for human resources also increased through the
acquisitions and corresponding expansion of the Company's
services and geographic area. For the year ended December 31,
1997, salaries and benefits expense increased $844,000 (or
11.2%) to $8,358,000 compared to 1996. The acquisitions
increased the number of employees due to the retention of many
customer service associates. At December 31, 1997, the Company
had 314 full-time equivalent employees, up from 304 full-time
equivalent employees at year-end 1996. The Company had 261
full-time equivalent employees at March 31, 1996, before the
combined impact of recent acquisition activity. Management
expects salaries and employee benefits to increase in 1998 due
to the pending West Virginia Banking Center Acquisition and
normal merit increases. Management will continue to strive to
find new ways of increasing efficiency and leveraging its
resources while concentrating on maximizing customer service.
Depreciation expense increased in 1997 due primarily to assets
purchased in the acquisitions and other investments in fixed
assets such as refurbishing several of the Company's
full-service banking offices. Depreciation on fixed assets
totaled $1,531,000 in 1997, compared to $1,356,000 in 1996, an
increase of $175,000 or 12.9%. Management expects future
depreciation expense to increase in 1997 due to construction
projects scheduled to be completed in the first quarter of 1998
on new full-service offices in Athens, Ohio, and Ashland,
Kentucky. Also, 1998 depreciation expense will be impacted by
increased fixed assets purchased in the West Virginia Banking
Center Acquisition.
Compared to 1996, data processing and software support and
maintenance costs increased $116,000 to $829,000 in 1997. These
costs are related to upgrades of existing software products as
well as expense for maintenance agreements for many of the
software systems used for product delivery and enhanced customer
service. The Company expanded its market area in 1997 and
continued to enhance its product-delivery technology to improve
customer service. Management believes technology is a key
factor for the Company's delivery methods and plans to continue
investment in technology to enhance customer service and improve
operating efficiencies.
Many categories within non-interest expense remained at levels
comparable to last year. Management believes that non-interest
expense was leveraged in 1997 to enhance customer service and
improve market share and will continue to focus on the Company's
efficiency ratio as a key indicator of performance. The
efficiency ratio is calculated as follows: operational
non-interest expense (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. Also, gains and losses on sales
of investment securities are not included in the calculation of
the Company's efficiency ratio. In 1997, the Company's
efficiency ratio totaled 51.06% compared to 53.76% for the same
periods last year. Management expects the efficiency ratio to
modestly improve in 1998 due to planned leveraging of the
Company's non-interest expense to generate net interest income
and other revenue streams.
The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB
25") and related interpretations in accounting for its employee
stock options instead of applying SFAS Statement No. 123
"Accounting for Stock Based Compensation". Under APB 25,
because the exercise price of the Company's stock options
granted is equal to the market price of the underlying stock on
the date of grant, no compensation expense is recognized. The
effect of applying the fair value method to the Company's
stock-based awards in 1997, 1996, and 1995 results in net income
and basic and diluted earnings per share that are not materially
different from amounts reported.
Return on Assets
- ----------------
For the year ended December 31, 1997, return on average assets
("ROA") was 1.29%, matching 1996's results. Increased income
streams from recent acquisitions were partially offset by
amortization of intangibles assumed in such purchases, resulting
in ROA levels identical to prior year. The Company's recent
thrift acquisitions also affect ROA performance. In general,
thrifts have produced lower returns on assets than commercial
banks. As management is successful in transitioning the
recently acquired thrifts to core competencies usually
associated with commercial banks, the thrifts will produce
greater returns.
In addition to thrift acquisitions, the Company's ROA will be
challenged in 1998 and future periods due to the West Virginia
Banking Center Acquisition and its related approximately $125
million in deposits. The Company will be challenged to employ
these new funding sources in a manner consistent with acceptable
return on investment in a short period of time. Since the
Company's asset base will increase significantly and earnings
streams will be spread over several quarters, management
anticipates that ROA levels will modestly decrease in 1998 as a
result of the acquisitions and corresponding asset growth.
Management plans to utilize pre-investment strategies in
anticipation of the West Virginia Banking Center Acquisition and
its associated deposits in order to maximize earnings streams
and mitigate the impact on the Company's performance ratios.
This pre-acquisition investment strategy of approximately $40
million is also designed to position the portfolio for future
earnings while maintaining adequate liquidity. Management views
the West Virginia Banking Center Acquisition as a vital part of
its strategic initiatives in the West Virginia market.
Return on Equity
- ----------------
Management recognizes that the Company's return on average
stockholders' equity ("ROE") is an important indicator of an
entity's financial performance. In 1997, ROE totaled 14.33%
compared to 14.43% in 1996. The Company is considered
"well-capitalized" under regulatory and industry standards, as
discussed in Note 11 of the Notes to the Company's Consolidated
Financial Statements.
In December 1997, in accordance with the agreement to purchase
Gateway Bancorp, the Company issued 365,472 shares of stock with
a value of approximately $15.35 million. As a result, this
increase in total equity will have a significant impact on
average equity in 1998. In addition, the Company's capital has
grown through retention of higher earnings over the last several
quarters and the recent growth in the markup of the Company's
equity due to net unrealized holding gains on the Company's
investment portfolio. Total equity for the Company increased
over $22.6 million for the year ended December 31, 1997. As a
result of the increased equity base of the Company, management
expects 1998 ROE to be below recent levels and will continue to
strive to find ways to leverage the capital of the Company in
1998 and beyond.
Federal Income Tax Expense
- --------------------------
Federal income taxes increased from $3,471,000 in 1996 to
$4,099,000 in 1997. This increase can be attributed to the
Company's higher pre-tax income and a modest decrease in
tax-exempt income compared to prior year. The Company's
effective tax rate for 1997 was 32.3%, up modestly from 1996's
effective tax rate of 31.2%, as a result of the growth in
pre-tax income and the Company's earnings now being taxed at the
federal statutory rate of 35% compared to 34% in 1996 and 1995.
Overview of Balance Sheet
- -------------------------
In 1997, the Company significantly grew its balance sheet
through acquisitions and internal growth. The Company's
acquisitions in 1997 combined to produce increased assets of
approximately $100 million. Internal asset growth was fueled
primarily by strong loan demand in the markets served by the
Company. Total assets increased $141.5 million (or 23.0%) to
$758.2 million at year-end 1997. Loan growth from the Company's
1997 acquisitions totaled approximately $42 million, while
growth from existing offices contributed over $57 million in
growth. In total, loans grew $99.2 million (or 23.4%) to $521.6
million and investment securities grew $26.5 million (or 17.9%)
to $174.3 million.
Total liabilities increased $118.9 million (or 21.2%) to $679.3
million at December 31, 1997. The majority of this growth
occurred in the Company's total deposits, which increased $106.4
million (or 21.1%) to $611.1 million at December 31, 1997. This
was due primarily to funds acquired in the Russell Federal
Acquisition, Baltimore Banking Center Acquisition, and
Catlettsburg Federal Acquisition. Increases in deposits for the
Company occurred primarily in interest-bearing deposits, while
non-interest bearing deposit balances grew nearly $1 million to
$64.2 million. Short-term borrowings increased $13.0 million
(or 66.8%) to $32.6 million, as balances in overnight repurchase
agreement for corporate customers grew sharply in the fourth
quarter of 1997. Long-term borrowings, comprised primarily of
FHLB borrowings with maturities greater than one year, declined
by $0.6 million (or 2.1%) to $28.6 million at December 31, 1997.
Stockholders' equity increased $22.6 million (or 40.3%) to $78.8
million at December 31, 1997. Equity growth occurred in the
fourth quarter of 1997 through the issuance of 365,472 shares of
Company stock valued at $15.35 million in accordance with the
Company's purchase of Gateway Bancorp. Normal equity growth
also occurred through retention of net income. The Company
purchased $327,000 of treasury shares in 1997 and also reissued
treasury shares through exercised stock options. At December
31, 1997, the Company did not have a treasury share balance.
Please see the Consolidated Statements of Stockholders' Equity
found on page 10 in this Report for additional information
regarding the changes in stockholders' equity.
Cash and Cash Equivalents
- -------------------------
The Company's cash and cash equivalents totaled $38.8 million at
December 31, 1997, an increase of $10.3 million compared to
year-end 1996. Increases in late December in the Company's
balances of overnight repurchase agreements created a temporary
increase in cash and cash equivalents at year-end 1997.
Management expects these funding sources to slowly decrease in
the first half of 1998, and as a result, cash and cash
equivalent balances should return to normal levels. Also, since
the acquisition date in December, 1997, Catlettsburg Federal has
maintained significant balances in short-term investments. The
Company intends to shift such assets into higher-yielding assets
to enhance profitability. This temporary situation also caused
a significant increase in cash and cash equivalents at December
31, 1997, compared to previous reporting periods.
Management expects the temporary increase in cash and cash
equivalents to reduce in early 1998 through expected modest
attrition of those funding sources. Those funds that are
determined to be long-term funding sources will be shifted into
higher-yielding assets such as loans or investment securities in
1998.
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 $174.3 million at year-end 1997,
up $26.5 million (or 17.9%) compared to December 31, 1996.
Growth occurred in 1997 through the Russell Federal Acquisition
and Catlettsburg Federal Acquisition, which contributed $6.5
million and $27.0 million, respectively, to total investment
securities at December 31, 1997. The majority of Russell
Federal's and Catlettsburg Federal's investment portfolios are
invested in US Treasury and US agencies securities, as well as
mortgage-backed securities. The Company's other subsidiaries
modestly decreased balances in investment securities in 1997 as
assets were shifted to higher-yielding assets such as loans.
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 December 31, 1997, the amortized cost of the
Company's investment securities totaled $170.7 million,
resulting in unrealized appreciation in the investment portfolio
of $3.6 million and a corresponding markup of the Company's
equity of $2.4 million.
At year-end, investments in US Treasury securities and
obligations of US government agencies and corporations totaled
$52.0 million, up $9.5 million since December 31, 1996.
Investments in mortgage-backed securities increased $15.6
million to $76.4 million at December 31, 1997. The Company's
balances in investment obligations of states and political
subdivisions of $25.7 million and corporate investments of $20.2
million remained relatively unchanged since year-end 1996.
In early 1998 and in anticipation of the West Virginia Banking
Center Acquisition and its associated approximate $125 million
in deposits, management plans to initiate 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 will total approximately $40 million
and increase the relative size of the investment portfolio in
1998. Management expects to retain the approximate $40 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 modestly
shrink due to expected loan demand and the shifting of maturing
investments to higher-yielding assets.
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.
Loans
- -----
The Company's lending is primarily focused in central and
southeastern Ohio, northern West Virginia, and northeastern
Kentucky markets, and consists principally of retail lending,
which includes single-family residential mortgages and other
consumer lending. The Company's loan volume grew in 1997 due to
acquisitions (Russell Federal and Catlettsburg Federal had $22.4
million and $19.6 million, respectively, at year-end 1997) and
internal growth primarily from further penetration in the
Company's southeastern Ohio markets, reflecting additional
credit opportunities in those markets. Total loans increased
$99.2 million (or 23.4%) to $521.6 million at December 31, 1997.
Growth occurred in all types of loans in 1997, in particular
real estate loans purchased in the Russell Federal and
Catlettsburg Federal acquisitions, and commercial loan growth at
Peoples Bank.
Real estate loans to the Company's retail customers (not
including real estate construction loans) continue to be the
largest portion of the loan portfolio, comprising 43.8% of the
Company's total loan portfolio. Total real estate loans reached
$228.7 million at December 31, 1997, up $53.2 million (or 30.3%)
since year-end 1996. The majority of real estate loan growth
occurred primarily through acquisitions. Internal loan growth
also occurred due to increases in the Company's balance of home
equity credit lines ("Equilines") in 1997. At December 31,
1997, Equiline balances totaled $17.1 million, up $1.6 million
(or 10.3%) since year-end 1996. 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.
Lending activity in the Russell Federal and Catlettsburg Federal
markets have historically centered on real estate loans.
Management expects to continue to penetrate those local markets
in 1998, providing increased loan activity. Mortgage lending
will remain a vital part of the Company's lending operation due
to the programs offered to customers, who continue to seek
quality real estate loan products in a competitive environment.
The largest internally generated loan growth for the Company in
1997 occurred in commercial, financial, and agricultural loans
("commercial loans"), which increased $31.0 million (or 24.2%)
to $159.0 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 in 1998.
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 core lending facilities of
the Company. In 1997, consumer loan balances increased $5.4
million (or 5.0%) to $114.3 million. The majority of the
Company's consumer loans are in the indirect lending area. At
December 31, 1997, the Company had indirect loan balances of
$70.4 million, up $2.1 million since year-end 1996. Management
is pleased with the recent performance and growth of the
Company's loan portfolio, which can be attributed to the
Company's commitment to quality customer service and the
continued strong 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 without sacrificing overall growth of the
portfolio. Management plans to continue its focus on the use of
this tiered system combined with controlled growth of the
indirect lending portfolio in 1998.
The Company's credit card balances at December 31, 1997, were
$7.2 million, an increase of $0.2 million (or 2.6%) compared to
year-end 1996. 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 its credit card customers.
At December 31, 1997, the Company also had $6 million of term
federal funds sold invested with unaffiliated financial
institutions. These investments are classified as loans for
purposes of financial statement reporting and generate interest
income streams similar to federal funds sold. These investments
were made in late 1997 to enhance the Company's short-term net
interest income at a fixed rate. These investments are
scheduled to mature in the first quarter of 1998 and
reinvestment of these assets will be determined considering
interest rate, liquidity needs, and other factors.
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 $248.2 million (or 47.6%) of total
loans. At December 31,1996, these loans comprised 43.9% of
outstanding loans. At year-end 1997, commercial, financial, and
agricultural loans totaled $159.0 million (or 30.5%) of
outstanding loans, relatively unchanged since year-end 1996.
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 $20.6 million at December 31, 1997. It is
the Company's policy to obtain the underlying inventory as
collateral on these loans.
Allowance for Loan Losses
- -------------------------
The allowance for loan losses as a percentage of total loans
decreased from 1.63% at December 31, 1996 to 1.60% at year-end
1997, due primarily to significant loan growth. The total
dollar amount of the allowance increased $1,483,000 over the
same period to $8,356,000 at December 31, 1997. The Company's
1997 provision for loan losses totaled $2,589,000, while gross
chargeoffs were $1,917,000 and recoveries amounted to $521,000.
In 1996, the Company had gross chargeoffs of $2,329,000 and
recoveries of $511,000. The Company's provision for loan losses
increased in 1997 due primarily to loan growth.
A significant portion of the Company's chargeoffs in 1996
occurred in consumer lending. In 1997, the Company's consumer
loan chargeoffs decreased to $1,258,000, down $468,000 (or
27.1%) compared to 1996. Management had anticipated consumer
chargeoff activity to slow in 1997 due to implementation of
additional 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.
Financial services industry reports indicate that credit card
delinquencies and chargeoffs are reaching record levels. In
1997, the Company's credit card net chargeoffs followed this
basic industry pattern, increasing $87,000 to $246,000. Due to
increased credit card delinquencies, management increased its
allocation of the allowance to the credit card portfolio in 1997
to address this potential exposure and expects the rate of
credit card losses to remain comparable to 1997 in the upcoming
year.
Commercial loan chargeoffs totaled $354,000 and recoveries were
$124,000, resulting in a net chargeoff of $230,000 in 1997 (a
decrease of $76,000 compared to prior year). Real estate loan
chargeoffs and recoveries were insignificant in both 1997 and
1996 and continue to be lower than expected, demonstrating the
quality of the real estate loan portfolio.
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 0.33% at December 31, 1997,
compared to 0.39% at year-end 1996. Nonaccrual loans and those
loans 90 days past due totaled $1,220,000 and $462,000 at
December 31, 1997, compared to $999,000 and $621,000,
respectively, at year-end 1996. Management believes the current
nonperforming loan ratio is acceptable and reflects the overall
quality of the Company's loan portfolio.
At December 31, 1997, the Company had an insignificant amount of
loans that were considered impaired under Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan" ("SFAS No. 114"), as amended by SFAS No.
118. Management will continue to monitor the status of impaired
loans, as well as performing and non-performing loans, in order
to determine the appropriate level of the allowance for loan
losses.
Management 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 December 31, 1997. Management
expects 1998's loan loss provision to be comparable to 1997's,
due mostly to anticipated loan growth and industry predictions
of continued consumer credit delinquencies. Management believes
the current allowance for loan losses of 1.60% of total loans at
year-end 1997 to be adequate to absorb inherent losses in the
portfolio.
Funding Sources
- ---------------
The Company considers deposits, short-term borrowings, and
long-term borrowings when evaluating funding sources.
Traditional deposits continue to be the most significant source
of funds for the Company and the expansion of the deposit base
through deposit growth in the Company's existing markets as well
as acquisitions in 1997 sustained the asset growth of the
Company. In 1997, total deposits grew $106.4 million (or 21.1%)
to $611.1 million, with the majority of the growth occurring in
interest-bearing deposits, particularly time deposits.
Deposit growth in 1997 occurred primarily in the Russell Federal
Acquisition, the Baltimore Banking Center Acquisition, and the
Catlettsburg Federal Acquisition. At December 31, 1997, the
combined impact of those three acquisitions to the Company's
deposit base was an increase of $78.3 million. The majority of
those deposits are interest-bearing certificates of deposits
("CD's") and Individual Retirement Accounts ("IRA's"), as well
as savings deposits.
In addition to funding sources obtained through acquisitions,
the Company experienced significant internal deposit growth at
Peoples Bank and First National, particularly in
interest-bearing deposit accounts, which increased $15.5 million
(or 13.3%) to $131.9 million at December 31, 1997. Non-interest
bearing transaction accounts grew a modest $0.8 million to $64.2
million at year-end 1997, as many customers shifted their
deposits to interest-bearing transaction accounts to maximize
returns. 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. These
marketing programs were implemented in 1997 and widely accepted
in the Company's markets.
Time deposit balances grew in 1997 despite increased competition
for those deposits in the Company's established markets. In
mid-1997, the Company introduced aggressively priced 5-month and
10-month CD specials, which were well-received by many customers
and met volume goals in the third quarter of 1997. Later in the
year, management introduced a 7-month special designed to retain
maturing short-term CD's as well as provide a competitive
product in the Company's markets. The 7-month special was
discontinued in late 1997 as volume goals were reached.
Management expects CD's to continue to be a vital funding source
for the Company in the future. 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 interest rate asset/liability position and interest
rate risk factors in mid-1998.
Management believes 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.
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 $32.6 million at December 31, 1997, up $13.0 million (or
66.8%) since year-end 1996. The largest component and biggest
increase in short term borrowings at December 31, 1997, were
balances in corporate repurchase agreements, which grew $13.7
million (or 80.1%) to $30.7 million. The growth was due
primarily to increases in overnight repurchase agreement
balances from a significant commercial customer in late 1997.
Management expects these balances to slowly decrease in the
first half of 1998 and, as a result, overnight repurchase
agreement balances will correspondingly decrease to lower levels
and stabilize.
At December 31, 1997, the Company had a balance of $1.8 million
in short-term FHLB borrowings, down $0.8 million compared to
prior year-end. In general, the Company accesses this funding
source at various times to meet liquidity needs as they arise,
and will continue to access short-term FHLB borrowings as
necessary and appropriate in the future.
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. Total
long-term FHLB advances were $25.6 million at December 31, 1997,
a net decrease of $3.6 million (or 12.3%) since year-end 1996
(new advances totaled $2.0 million, maturities totaled $2.5
million, and scheduled principal paydowns were $3.1 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 were scheduled to begin on
the $3 million note in the first quarter of 1998 and continue
semi-annually over the next several years.
Effective December 12, 1997, the Company completed the Gateway
Bancorp Acquisition with a combination of cash and Company
stock. The cash portion totaled approximately $6.2 million and
was funded with internally generated sources (a dividend from
Gateway Bancorp after completion of the purchase).
In early 1998 and in anticipation of the West Virginia Banking
Center Acquisition and its associated approximate $125 million
in deposits, management plans to initiate a pre-acquisition
investment program of approximately $40 million to take
advantage of more favorable asset yields on selected investment
securities. Management expects to finance the pre-investment
strategy with short-term FHLB borrowings, and ultimately replace
such borrowings with the deposits acquired in the West Virginia
Banking Center Acquisition. As a result, future balances in
short-term borrowings will increase significantly by mid-1998
and decrease after completion of the West Virginia Banking
Center Acquisition.
Capital/Stockholders' Equity
- ----------------------------
For the year-ended December 31, 1997, the capital position of
the Company grew approximately $22.6 million (or 40.2%) to $78.8
million at year-end, due primarily to the equity issued in the
form of common shares of the Company in the acquisition of
Gateway Bancorp. In the Gateway Bancorp Acquisition, the
Company issued 365,472 shares at a market value of $42.00 per
share, or a total value of $15.35 million.
In 1997, the Company had net income of $8.6 million and paid
dividends of $2.6 million, a dividend payout ratio of 30.53% of
earnings, compared to 29.28% in the prior year. Retention of
the increased earnings also caused total equity to increase in
1997. Management believes recent dividends represent an
acceptable payout ratio for the Company and anticipates similar
payout ratios in future periods through quarterly dividends.
Equity growth was affected in 1997 by the adjustment for the net
unrealized holding gain on available-for-sale securities, net of
deferred income taxes, which increased $0.9 million to a net
gain of $2.4 million at year-end 1997, due to favorable changes
in interest rates relative to the Company's investment portfolio
yields. 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.
Detailed information concerning the Company's risk-based capital
ratios can be found in Note 11 of the Notes to the Consolidated
Financial Statements. At December 31, 1997, 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 of 14.34% at December 31,
1997, is well above the minimum standard of 8%. The Company's
Tier 1 capital ratio of 13.09% also exceeded the regulatory
minimum of 4%. The Leverage ratio at year-end 1997 was 9.29%
and also above the minimum standard of 4%. These ratios
increased in the fourth quarter due to the acquisition of
Gateway Bancorp, which had significant levels of capital as a
percentage of total assets. 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 West Virginia Banking Center Acquisition,
Peoples Bank's capital position will require an additional
capital injection to maintain well-capitalized risk-based
capital ratios. Management intends to use internally generated
sources to fund this increase in required equity while
maintaining adequate capital ratios at each of the Company's
banking subsidiaries.
Treasury share purchases were minimal in 1997, totaling
$327,000. The Company has established a pattern of purchasing
treasury shares for use in conjunction with its employee benefit
plans. Due to recent stock option exercises, the Company had no
treasury shares at December 31, 1997 for use in its employee
benefit plans. Future exercises will be issued from authorized
and unissued common shares, unless additional treasury shares
are purchased. At year-end 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 year ended December
31, 1997, the Company generated cash from operating and
financing investing activities of $12.2 million and $40.8
million, respectively. The Company used cash flows of $42.7
million in investing activities, primarily through lending
activity.
The major cash inflow in 1997 was the $32.3 million increase in
interest-bearing deposits. The CD special offered throughout
1997 generated significant cash flow and helped retain many
existing rate sensitive deposits. Major outlays of cash in 1997
included $59.0 million in loans. The Consolidated Statements of
Cash Flows presented on page 11 of the Company's financial
statements provides an analysis of cash flow activity.
Additionally, management considers that portion of the
investment securities and loan portfolios that matures within
one year as part of liquid assets. The Company's liquidity is
monitored by the ALCO, which establishes ranges of acceptable
liquidity. The current liquidity position is adequate to fund
off-balance sheet commitments and liabilities as they come due.
Please see additional discussion of off-balance sheet
commitments in Note 10 of the Notes to the Consolidated
Financial Statements.
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 in the same manner as companies in capital intensive
industries. 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 banks, monetary assets
typically exceed monetary liabilities and therefore, as prices
have increased over the past year, financial institutions
experienced a modest decline in the purchasing power of their
assets.
Interest Rate Sensitivity
- -------------------------
The following table presents the Company's interest rate sensitivity
position using the static gap method at December 31, 1997
(dollars in thousands):
0-3 0-12 Up to 5 Over
Months Months Years 5 Years
Interest earning assets:
- ------------------------
Investment securities
(all securities
available-for-sale):
Taxable $ 37,319 $ 48,332 $ 92,514 $ 150,670
Tax-exempt 849 2,265 6,118 23,621
- --------------------------------------------------------------------------
Total 38,168 50,597 98,632 174,291
- --------------------------------------------------------------------------
Federal funds sold 10,350 10,350 10,350 10,350
Loans 176,787 304,904 456,689 521,570
Interest-bearing
deposits with banks 6,908 7,008 7,008 7,008
- --------------------------------------------------------------------------
Total 232,213 372,859 572,679 713,219
- --------------------------------------------------------------------------
Interest-bearing liabilities:
- -----------------------------
Deposits 282,744 447,177 546,249 546,878
Federal funds purchased 82 82 82 82
Securities sold under
agreements to repurchase 30,729 30,729 30,729 30,729
Short-term Federal Home
Loan Bank borrowings 750 1,750 1,750 1,750
Long-term Federal Home
Loan Bank borrowings 722 8,304 21,392 25,577
Long-term borrowings 3,000 3,000 3,000 3,000
- --------------------------------------------------------------------------
Total 315,027 488,042 600,202 605,016
- --------------------------------------------------------------------------
Interest sensitivity $ (82,814) $(115,183) $ (27,523) $ 108,203
==========================================================================
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. Based on the static gap
presentation in the table above, the Company's interest rate
sensitivity at December 31, 1997, was liability sensitive in the
short-term and asset sensitive for periods over 5 years. In
theory, this means that if interest rates increase, the
Company's net income will increase in the long-term.
Conversely, if interest rates decline, so too will net income
over time. The opposite is true in the short-term.
The above table allocates interest rate sensitivity within
various time frames, based on the static gap method. Up to one
year, the Company is liability sensitive due primarily to
increases in funding sources, which are short-term, such as the
CD specials previously mentioned. The table indicates the
relative neutrality of the Company's interest rate sensitivity
in the five year cumulative period beginning December 31, 1997,
which theoretically insulates the Company from significant
increases or decreases in interest rates. 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 to
significant fluctuations in net interest income and the
resulting volatility of the Company's earning base.
As part of its asset/liability strategies, the Company may use
certain off-balance sheet derivatives to manage interest rate
risks. Please see Note 10 of the Notes to the Consolidated
Financial Statements for further information regarding these
off-balance sheet derivatives. In February 1995, the Company
paid a premium of $195,000 for interest rate floors with a total
notional value of $20 million. The interest rate floors require
the counter-party to pay the difference between the specified
floor rate and an index rate. The Company receives nothing if
the index rate exceeds the specified floor rate. The Company is
subject to the risk that the effect of changes in interest rates
will cause the Company to earn less than the current market
rates on the commercial loans associated with these floors.
These interest rate floors also subject the Company to the risk
that the counter-parties may fail to perform. To minimize this
credit risk, the Company only enters into these types of
transactions with high-quality, financially secure entities.
The exposure to credit risk is substantially less than the
notional principal amounts since only the interest rate
differential is received and the premium was paid at the
inception. In 1997, due to interest rates being below the
indexed "strike" rate on the interest rate floors for all of
1997, the Company experienced a modest enhancement to net
interest margin and net interest income. These agreements,
which expire in February 1998, did not materially affect net
income in 1997.
In August 1997, the Company entered into additional agreements
for similar interest rate floors. The Company paid a $46,500
premium for interest rate floors with a total notional value of
$20 million. In 1997 and in early 1998, due to interest rates
being above the indexed "strike" rate on the new interest rate
floors, the Company had no income streams related to these
interest rate floors. $10 million of the notional amount expire
in August 1999 and the remaining $10 million expire in August
2000. In a declining rate environment, these floors would
replace lost income streams on interest-earning assets (prime
rate based commercial loans) that would reprice to lower
interest rates.
In addition to traditional gap analysis, management also
analyzes the impact of maturing assets and liabilities relative
to the interest rates on those products. The following table
provides information about the Company's derivative financial
instruments and other financial instruments that are sensitive
to changes in interest rates. For loans, investment securities,
and liabilities with contractual maturities, the table presents
principal cash flows and related weighted average interest rates
by contractual maturities as well as estimated prepayments of
residential mortgages and mortgage-backed securities. For core
deposits (non-interest bearing demand deposits, interest-bearing
checking accounts, and savings accounts) that have no
contractual maturity, the following table presents principal
cash flows and, as applicable, related weighted average interest
rates based on the Company's historical experience and
statistical analysis. For interest rate floors, the table
presents notional amounts (as described in previous sections)
and weighted average interest rates by contractual maturity
date. A fundamental difference between the following table and
the previously discussed static gap analysis is that the
following table presents the financial instruments based on the
date of expected cash flows while a static gap analysis only
focuses on the repricing characteristics of the financial
instruments.
<TABLE>
PRINCIPAL/NOTIONAL AMOUNT MATURING IN:
<CAPTION> Fair
Value
(Dollars in Thousands) 1998 1999 2000 2001 2002 after Total 12/31/97
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rate sensitive assets:
- ----------------------
Fixed interest rate loans $ 68,336 $ 39,449 $ 27,989 $ 18,117 $ 11,045 $ 41,245 $206,181 $208,504
Average interest rate 9.35% 9.78% 9.49% 9.87% 9.76% 9.23% 9.48%
Variable interest rate loans $104,969 $ 31,063 $ 25,710 $ 21,797 $ 18,660 $113,190 $315,389 $315,389
Average interest rate 10.11% 8.43% 8.39% 8.44% 8.39% 8.59% 9.04%
Fixed interest rate
securities $ 39,252 $ 13,407 $ 14,471 $ 6,292 $ 12,213 $ 74,681 $160,318 $160,318
Average interest rate 6.12% 6.61% 6.28% 6.30% 6.56% 6.62% 6.45%
Variable interest rate
securities $ 202 $ 2,412 $ 590 $ 5,861 $ 505 $ 4,404 $ 13,973 $ 13,973
Average interest rate 6.31% 7.65% 7.76% 6.94% 7.34% 7.07% 7.07%
Other interest-earning assets $ 17,358 $ --- $ --- $ --- $ --- $ --- $ 17,358 $ 17,358
Average interest rate 6.50% --- --- --- --- --- 6.50%
- -------------------------------------------------------------------------------------------------------------------------
Rate sensitive liabilities:
- ---------------------------
Non-interest-bearing checking $ 17,984 $ 10,277 $ 7,707 $ 7,129 $ 5,010 $ 16,121 $ 64,229 $ 64,229
Average interest rate --- --- --- --- --- --- ---
Interest bearing checking $ 15,829 $ 37,395 $ 15,829 $ 12,003 $ 10,684 $ 40,166 $131,906 $131,906
Average interest rate 3.38% 4.29% 3.38% 3.38% 3.38% 3.38% 3.54%
Savings accounts $ 14,489 $ 7,244 $ 7,244 $ 7,878 $ 6,339 $ 47,360 $ 90,554 $ 90,554
Average interest rate 3.10% 3.10% 3.10% 3.10% 3.10% 3.10% 3.10%
Time deposits $224,715 $ 78,199 $ 10,638 $ 6,496 $ 3,740 $ 631 $324,418 $325,086
Average interest rate 5.49% 5.81% 5.62% 6.00% 5.46% 4.60% 5.58%
Fixed interest rate
borrowings $ 9,886 $ 3,681 $ 3,752 $ 2,837 $ 2,818 $ 4,185 $ 27,159 $ 27,259
Average interest rate 6.04% 6.14% 6.17% 6.05% 6.05% 6.46% 6.12%
Variable interest rate
borrowings $ 33,979 $ --- $ --- $ --- $ --- $ --- $ 33,979 $ 33,979
Average interest rate 5.05% --- --- --- --- --- 5.05%
- -------------------------------------------------------------------------------------------------------------------------
Rate sensitive derivative financial instruments:
- ------------------------------------------------
Interest rate floors
purchased $ 20,000 $ 10,000 $ 10,000 --- --- --- $ 40,000 $ 0.1
Average strike rate 7.00% 5.50% 5.25% --- --- --- --- ---
Forward rate 5.81% 5.81% 5.81% --- --- --- --- ---
=========================================================================================================================
</TABLE>
The table above indicates that the Company has a significant
amount of time deposits maturing in 1998 due primarily to
short-term CD specials offered in 1997. Management expects a
portion of these funds to remain with the Company as part of its
traditional funding sources. Other such funds that management
considers highly rate sensitive are expected to leave the
Company due to attrition. Also, management expects a portion of
the funds to be acquired in the second quarter of 1998 in the
West Virginia Banking Center Acquisition to replace some of the
more rate-sensitive time deposits in the table above.
Management considers this information vital to its analyses due
to the presentation of financial instruments based on the date
of the expected cash flows. Also, the data presents such cash
flows for the next five years and remaining years thereafter.
Management believes the Company's current mix of maturing assets
and liabilities, and the average interest yields and rates on
such financial instruments, combined with the impact of existing
off-balance sheet derivative instruments, provide an acceptable
level of market risk relative to interest rates. Management
believes the current balance sheet provides an acceptable level
of risk related to future earnings of the Company as well as
expected future cash flows.
Outlook for 1998
- ----------------
Results of operations in 1997 represent improved financial
performance through a combination of external growth and
enhanced core competencies. Management continues to challenge
its employees to identify critical banking processes and
re-engineer services to provide the customer with the highest
quality products and services. 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. Depending on financial
results, all of the Company's associates are subject to annual
incentive payouts based on success in these key performance
areas, which are designed to increase long-term value for the
shareholder's investment in the Company. The incentive plan's
focus is to enhance the earnings potential of the Company and
increase shareholder wealth based on several growth and
efficiency measurements, creating an environment where each
employee has a personal stake in the overall performance of the
Company.
The acquisitions in 1996 and 1997 have provided increased
funding sources and new markets for the Company. Many goals
have been established for future operations, most of which
target customer service enhancement as a means of increasing
shareholder value. 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. The acquisitions of 1997 are evidence of the Company's
commitment to value-added growth. As expected, the transition
of combining the new offices with existing full-service banking
centers went smoothly and customers in these markets responded
favorably to the change. Management is satisfied with the
retention of the acquired core deposits and looks forward to
continuing the development of Russell Federal, Baltimore Banking
Center, and Catlettsburg Federal in 1998 and future periods.
In early 1998, the Company merged Russell Federal under Gateway
Bancorp to unite the Company's northeast Kentucky operations.
The Company's management intends to introduce new products and
services to the customers of northeast Kentucky through its
three existing Catlettsburg Federal and Russell Federal offices.
Products will include non-interest bearing demand deposit
accounts, electronic banking, and other products and services.
At year-end 1997, neither Catlettsburg Federal nor Russell
Federal offered non-interest bearing deposit accounts to their
markets. Management intends to expand Catlettsburg Federal's
and Russell Federal's product offerings and focus on leveraging
existing resources and additional technological resources that
will enhance customer service and increase market penetration.
These strategies are designed to complement the product
offerings at the Company's thrifts to maximize the relationship
with current customers as well as increase the potential to
attract new customers in those markets.
Management is excited about the opportunity to expand the
Company's presence in northeast Kentucky and contiguous
metropolitan areas in West Virginia. The nearby Ashland,
Kentucky - Huntington, West Virginia metropolitan market
represents an opportunity to provide the Company's array of
financial products to many commercial and consumer customers
through the Company's network of offices and customer service
resources. In the first quarter of 1998, Catlettsburg Federal
will complete a new full-service office on Route 60 near
Interstate 64 in the Ashland, Kentucky, area. Management
intends to leverage the significant capital bases of
Catlettsburg Federal and Russell Federal through expansion of
product offerings, increased market penetration, customer
retention, and performance based growth opportunities.
Acquisitions and expansion of the Company's markets will be a
significant strategic initiative for the Company in 1998. Upon
completion of the West Virginia Banking Center Acquisition
announced in January, 1998, the Company will gain its first
physical presence in the state of West Virginia. The offices
are located in and near the communities of Point Pleasant and
New Martinsville along the Ohio River. The Company will assume
approximately $125 million in deposits and purchase
approximately $10.5 million in loans from this acquisition. The
acquisition is expected to be completed in the second quarter of
1998. Due to the large inflow of cash associated with the
acquisition, the Company will be challenged in 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. In order to remain
well-capitalized under risk-based capital ratios, the Company
will optimize internally available sources of equity within its
subsidiaries to provide sufficient capital for Peoples Bank to
support the significant increase in assets. In early 1998,
management plans to initiate a pre-acquisition investment
program to take advantage of more favorable asset yields on
selected investment securities. Management expects to retain
the approximate $40 million purchase of investment securities,
as appropriate, for long-term enhancement to net interest
income. Management intends to invest a significant portion of
the acquired deposits in loans in the new markets as well as
established markets.
The combined effect of the recent acquisitions for the Company
will impact financial performance in 1998. To the extent the
Company can integrate into current operations and redeploy
acquired assets into the Company's current asset mix, which has
produced acceptable levels of ROA, ROE, and earnings per share,
future financial performance 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.
Managing the delicate balance between expansion into new markets
and developing new products and services will also challenge the
Company in 1998 and in future years as the financial services
environment continues to change. The Company will continue to
research methods to provide electronic banking services to its
customers. The Company's successful debit card has been
well-received by many customers and should continue to generate
increasing revenue streams in 1998. Investments in technology
provide the opportunity to compete at higher levels than many
other financial institutions of similar size and enable the
Company to meet future customer service challenges. Electronic
banking continues to be a priority for many customers in the
Company's markets, and recently management has taken steps to
make "banking at home" a reality in 1998. In the first quarter
of 1998, the Company plans to introduce a PC-based cash
management/home banking product that will be offered for both
consumer and commercial customers. In the fourth quarter of
1997, management began testing the cash management product at
several "beta" sites, and the results were successful and
well-received by the users.
Management believes that "home banking" and "PC banking" are
future services that must be part of the Company's core service
delivery process. The Company is aware of changing consumer
preferences related to financial product delivery systems and
believes that PC banking will emerge as a significant financial
product delivery system for many of the Company's existing and
prospective customers in 1998 and in the future. Management
recognizes the importance of electronic banking to its customer
base and continues to focus efforts designed to enhance this
process and allow customers unlimited banking products and
services at their convenience.
All of the Company's offices are connected via a Wide Area
Network (WAN) that provides the infrastructure necessary to
cater to today's customer needs. The Company's associates are
linked with all offices to deliver prompt, efficient, quality
customer service. Management intends to continue to develop
this WAN in 1998 and expand its capabilities to include the
offices acquired in the West Virginia Banking Center Acquisition.
In addition to increased market penetration in Kentucky, the
Company intends to increase its market presence in southeastern
Ohio with the opening of a new full-service office in Athens,
Ohio, during the first quarter of 1998. Peoples Bank will open
a full-service banking facility in the newly renovated HDL
Center at 152 Union Street in downtown Athens, near the Ohio
University campus. The facility will be a full-service center,
including an ATM, a drive-through facility, and loans and
investment services. The Union Street office will complement
two existing full-service offices in Athens as well as offices
in nearby Nelsonville and The Plains. The expansion of Peoples
Bank's presence in Athens (in southeastern Ohio) represents a
strategic initiative designed to capture increased market share
in this area.
Many companies across various industries have dedicated efforts
to analyze the much-publicized "Year 2000" issue, which arises
because many existing computer programs recognize the last two
digits to identify the year in the date information field.
Management has implemented plans to address Year 2000 issues and
how it relates 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 Year 2000
compliant without additional significant costs to the Company.
Management plans to conduct tests on such applications in 1998.
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 limitations is
not expected to be material to the Company's results of
operations or financial position.
The Company's balance sheet growth and future leveraging of
equity is a management focus for 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. Loans for construction and
generation of low-income housing projects in southeastern Ohio
combined with expanded opportunities for construction of model
homes in various other geographic markets should provide
valuable future revenue streams. Management is comfortable with
the current loan to deposit ratio of 85.3% and anticipates the
loan to deposit ratio will increase in early 1998, and decrease
slightly throughout the year due to the increase in deposits
assumed through the West Virginia Banking Center Acquisition.
Management continues to strive for both traditional and
non-traditional methods to increase the Company's earnings and
strengthen the commitment to the communities it serves. As an
example, in 1996, Peoples Bank entered into an agreement to fund
a low-income housing project in a historical district of
Marietta, Ohio. As part of the understanding, Peoples Bank
agreed to fund the construction of the project and participate
as an equity contributor, as a limited partner to the project.
In summary, the Company will benefit from historic tax credits
and low-income housing tax credits over future periods.
Recent acquisitions and the announced purchase agreement reflect
the Company's commitment to expand its geographic customer
service area. Future acquisitions, if they occur, may not be
limited to 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.
The recent increase in loan balances has also spurred growth in
the Company's loan loss provision. As a result of anticipated
loan growth in 1998, management expects the loan loss provision
in the near-term to remain at or slightly above the 1997 level
and could be affected by delinquencies in all loan categories.
In 1997, consumer loan chargeoffs stabilized and management
expects the consumer loan portfolio to maintain this positive
trend in 1998. Management believes that the current allowance
for loan losses is adequate to cover potential chargeoffs as
they occur, based on the inherent risk in the loan portfolio.
Increasing non-interest income and controlling non-interest
expense are critical to the success of the Company and are
measured in the financial services industry by the efficiency
ratio. For the year ended December 31, 1997, the Company's
efficiency ratio was an improved 51.06%, compared to 53.76% for
the same period last year. In 1998, the Company will be
challenged to improve the efficiency ratio due to the impact of
recent acquisitions. Management expects to maintain similar
efficiency ratios in 1998. Management will continue to evaluate
and control the efficiency ratio as a method of enhancing
long-term shareholder value and will strive to optimize
efficiency ratio in 1998 through income growth and leveraging of
technology and existing delivery resources.
The interest rate environment will play an important role in the
future earnings of the Company. Net interest income in 1997
reached record levels due to balance sheet growth and
maintenance of net interest margin. In 1998, management
anticipates pressure on net interest margin as growth of the
Company's balance sheet continues. Management expects the
Company's net interest margin to decrease slightly in 1998 due
to timing issues related to deploying acquired assets in the
West Virginia Banking Center Acquisition. The Company plans to
manage the interest costs of its funding sources in 1998 with
the expansion of the products offered in the Russell Federal and
Catlettsburg Federal markets. Non-interest bearing demand
deposits will be introduced in these offices in the first
quarter of 1998 as the Company increases its emphasis on
gathering non-interest expense funding sources in 1998.
Management believes non-interest bearing demand deposits are a
vital source of funds for the Company and intends to implement
marketing plans to heighten the awareness in those markets to
align the strategic initiatives of the Company.
Movements in interest rates continue to impact the performance
of financial institutions. However, the Company does not solely
manage its balance sheet based upon interest rate forecasts.
Through its ALCO, management evaluates the balance sheet and
monitors earnings performance, as well as effectiveness of its
liquidity policy. The ALCO also monitors net interest income,
sets pricing guidelines, and manages interest rate risk for the
Company. In 1998, the Company's focus is to continue to balance
external and internal growth, profitability, and customer
service to increase shareholder return. Recent strategic
initiatives create the base for future operations and customer
service opportunities, promising an exciting year in 1998 for
the Company's customers, associates, and shareholders. While
past results are not an indication of future earnings,
management feels the Company is positioned to maintain
performance of normal operations in 1998.
Comparison of 1996 to 1995
- --------------------------
The Company reported an increase in net income of 26.5%, to
$7,651,000 in 1996 from $6,050,000 in 1995. This increase in
earnings provided basic and diluted earnings per share of $2.23
and $2.20, respectively, for the year ended December 31, 1996,
compared to $1.74 and $1.73 in 1995. Net income in 1995 was
negatively impacted by an after-tax expense of $513,000, which
represented a non-recurring expense related to a voluntary early
retirement program offered to certain qualifying employees
(representing approximately 7% of the Company's employee base at
the time). For the year ended December 31, 1996, return on
average assets was 1.29%, an increase of 14 basis points from
1995's ratio of 1.15%. Return on stockholders' equity also
increased, reaching 14.43% in 1996 compared to 12.33% in 1995.
The primary reason for enhancements to the Company's performance
ratios was the increased income recognized in 1996 versus lower
net income in 1995 as a result of the early retirement program.
Asset growth also contributed to incremental increases in net
income in 1996 compared to 1995. In 1996, the Company grew its
balance sheet primarily through increased loan balances, funded
by the deposits assumed in the Southeastern Ohio Banking Center
Acquisition. Total assets increased $73.2 million or 13.5% to
$616.6 million at year-end 1996. Since December 31, 1995, the
Company's asset growth primarily occurred in interest earning
assets such as loans and investments securities. Loans grew
nearly $43 million (or 11.3%) to $422.4 million and investment
securities grew $16.0 million (or 12.2%) to $147.8 million.
In 1996, the Company recorded net interest income of
$25,431,000, an increase of 14.1% from 1995. Total interest
income reached $47,397,000 while interest expense totaled
$21,966,000. In 1996, net interest margin was 4.75%, an
increase of 7 basis points compared to 1995's 4.68%. The
increase can be attributed to the Company's loan growth of over
$40 million in 1996 as well as the assumption of approximately
$74 million in deposits related to the Southeastern Ohio Banking
Center Acquisition. These deposits were primarily utilized as
funding sources for 1996's loan growth and also allowed the
Company to pay off certain higher-cost borrowings, which
enhanced net interest margin in 1996 compared to the prior year.
The growth in loan volume produced an increase in total average
earning assets. Total average earning assets increased from
$493.1 million in 1995 to $550.4 million in 1996, an increase of
11.6%. From 1996 to 1995, the average yield associated with
total average earning assets modestly decreased, from 8.89% in
1995 to 8.74% in 1996. However, the decrease in 1996's average
asset yield was more than offset by a larger decrease in
interest costs as a percentage of average earning assets, which
fell to 3.99% in 1996 compared to 1995's rate of 4.21%. The
Southeastern Ohio Banking Center Acquisition allowed the Company
to quickly grow its balance sheet yet maintain competitive
pricing on its funding sources and decrease its cost of funding
sources compared to the prior year. In addition, the Company
had $10 million of brokered certificates of deposits mature in
mid-1996, which were replaced with lower interest rate funding
sources.
Non-interest income (excluding securities transactions) from
operations reached new levels in 1996, totaling $5,130,000, an
increase of 15.1% compared to 1995. Several categories had
strong growth compared to 1995. During 1996, the Company's
Investment and Trust Division continued its earnings trend and
provided a strong boost to non-interest income. Income from
fiduciary activities totaled $1,897,000 in 1996, an increase of
8.3% compared to 1995. Income related to account service
charges increased $372,000 (or 23.8%) over 1995 to $1,937,000 in
1996, due primarily to the increased deposit base acquired in
the Southeastern Ohio Banking Center Acquisition.
In 1996, non-interest expense totaled $17,522,000, an increase
of 4.2% over the prior year. In 1996, non-interest expense was
affected by a variety of sources, including a reduction in FDIC
insurance premiums and additional amortization of intangibles
and operational expense related to the Southeastern Ohio Banking
Center Acquisition. Salaries and employee benefits continued to
be the largest source of non-interest expense for the Company,
totaling $7,514,000 in 1996 compared to $7,836,000 in 1995
(increased by $777,000 due to impact of early retirement
program). Non-interest expense decreased in 1996 due to a
reduction in insurance premiums paid on Bank Insurance Fund
("BIF") deposits. In 1995, BIF related expense totaled $481,000
compared to $61,000 in 1996. In 1996, legislation was passed to
recapitalize the Savings Association Insurance Fund ("SAIF") and
affected the Company, due to small balances of "Oakar" deposits
held at Peoples Bank. The Company paid a one-time expense of
$40,000 to recapitalize the SAIF (the fund established to insure
the deposits of thrift institutions).
In 1996, several categories within non-interest expense remained
at levels comparable to 1995. As expected, net occupancy
expenses and depreciation expense on furniture and fixtures
increased slightly due to the Southeastern Ohio Banking Center
Acquisition's related fixed assets. The Company's increased
investment in technology and other customer-service enhancements
also impacted depreciation expense in 1996. Amortization of
intangibles totaled $419,000 in 1996 compared to $159,000 in
1995. This increase was due to the intangibles related to the
Southeastern Ohio Banking Center Acquisition.
"Safe Harbor" Statement under the Private Securities Litigation
Reform Act of 1995
- ---------------------------------------------------------------
The statements in this Annual Report 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.
====================
DIRECTORS
- ---------
George W. Broughton
Executive Vice President/Sales and Marketing, Broughton Foods Company
Wilford D. Dimit
Owner, First Settlement Square
Robert E. Evans
President and Chief Executive Officer, Peoples Bancorp Inc.
Barton S. Holl
Chairman of the Board, Logan Clay Products
Rex E. Maiden
Chairman of the Board, Maiden & Jenkins Construction Co.
Norman J. Murray
Retired, The Airolite Company
Paul T. Theisen
Attorney, Theisen, Brock, Frye, Erb, & Leeper Co., L.P.A.
Thomas C. Vadakin
Retired, Vadakin, Inc.
Joseph H. Wesel, Chairman
Chairman of the Board and Chief Executive Officer
Marietta Automotive Warehouse, Inc.
Directors Emeritus
- ------------------
Jewell Baker
William E. McKinney
Fred R. Price
James B. Stowe
OFFICERS
- --------
Robert E. Evans
President and Chief Executive Officer
Carol A. Schneeberger
Vice President, Operations
Rolland B. Swart
Vice President, Business Development
Charles R. Hunsaker
General Counsel
John W. Conlon
Chief Financial Officer
Jeffrey D. Welch
Treasurer
Mark F. Bradley
Controller
Ruth I. Otto
Corporate Secretary
Karen L. Mills
Assistant Corporate Secretary
Karen V. Clark
Auditor
Johanna Burke
Compliance Officer
Teresa A. Pyles
Security Officer
<PAGE>
THE PEOPLES BANKING AND TRUST COMPANY
=====================================
DIRECTORS
- ---------
Dave M. Archer
President, Pioneer Pipe, Inc.
George W. Broughton
Executive Vice President/Sales and Marketing, Broughton Foods Company
Wilford D. Dimit
Owner, First Settlement Square
Robert E. Evans
President and Chief Executive Officer
Brenda R. Jones, M.D.
Medical Director, Marietta Ophthalmology Associates, Inc.
Harold D. Laughlin
Owner, Laughlin Music and Vending
Rex E. Maiden
Chairman of the Board, Maiden & Jenkins Construction Co.
Norman J. Murray, Chairman
Retired, The Airolite Company
T. Pat Sauber
Owner, McDonald's Restaurants
Paul T. Theisen
Attorney, Theisen, Brock, Frye, Erb, & Leeper Co., L.P.A.
Thomas C. Vadakin
Retired, Vadakin, Inc.
Joseph H. Wesel, Chairman
Chairman of the Board, Marietta Automotive Warehouse, Inc.
Directors Emeritus
- ------------------
William E. McKinney
OFFICERS
- --------
Executive Officers
- ------------------
Robert E. Evans
President and Chief Executive Officer
David B. Baker
President, Investment and Trust Division
John W. Conlon
Chief Financial Officer and Treasurer
Larry E. Holdren
President, Retail and Banking Division
Robert A. McKnight
Executive Vice President, Commercial Lending
Joseph S. Yazombek
Executive Vice President, Consumer and Mortgage Lending
Banking and Lending
- -------------------
Susan L. Corcoran
Vice President/Sales Manager
John L. Cornett
Vice President, MGM Division
R. Joe Cowdery
Vice President
John O. Keirns
Vice President, Athens County Division
William L. Malster
Vice President
Jerald L. Post
Vice President
David M. Redrow
Vice President, Licking Co.
David L. Batten
Assistant Vice President
Joseph P. Flinn
Assistant Vice President
John A. King
Assistant Vice President
Cathleen S. Knox
Assistant Vice President
Betty L. Reynolds
Assistant Vice President
Larry P. Smith
Assistant Vice President
Stuart C. Goldsberry
Private Banking Manager
Donald L. Harris
Commercial Banking Officer
Deborah L. Roberts
Commercial Banking Officer/Credit Analyst
Sondra K. Herlan
Personal Banker
Cathy J. Linscott
Personal Banker
Beverly C. Mellinger
Personal Banker
Jonathan T. Schenz
Personal Banker
Operations
- ----------
Charles R. Hunsaker
Vice President and General Counsel
Mark F. Bradley
Controller
Julie I. Giffin
Assistant Vice President, Account Services
Mary Ann Mitchell
Assistant Vice President
Stephen L. Nulter
Assistant Vice President, Information Systems
Lisa H. Slimmer
Accounting Manager
Karen L. Mills
Secretary to the Board
Ruth I. Otto
Assistant Secretary to the Board
Teresa A. Pyles
Security Officer
Investment and Trust Division
- -----------------------------
David B. Baker
President, Investment and Trust Division
Rose N. Haas
Vice President and Senior Investment Officer
Jeffrey D. Welch, CPA
Vice President
Beth Ann Worthington
Vice President, Personal Trust Officer
Ronald L. Close
Financial Planning Officer
John R. Davis
Financial Consultant and Trust Officer
Richard J. Flanagan
Assistant Investment Officer
Joy L. Bowen
Assitant Trust Officer, Estate Manager
Janet L. Gregory
Assistant Trust Officer
Lori O'Connor
Assitant Trust Officer, Retirement Services Manager
Kelly A Sheppard
Assistant Trust Officer
Tina M. Weckbacher
Assistant Trust Officer
<PAGE>
THE FIRST NATIONAL BANK OF SOUTHEASTERN OHIO
============================================
DIRECTORS
- ---------
Larry J. Armstrong
Armstrong and Smith, C.P.A.
Carl Baker, Jr.
Co-Owner, B & N Coal Company
Robert E. Evans
President and Chief Executive Officer, Peoples Bancorp Inc.
Wilfred O. Hill
Retired, Oil and Gas
Charles R. Hunsaker
General Counsel
H. Clayton John
Vice Chairperson
James D. McKinney
Retired Superintendent, Morgan County Schools
Carol A. Schneeberger, Chairperson
Vice President, Operations, Peoples Bancorp Inc.
Paul T. Theisen
Attorney, Theisen, Brock, Frye, Erb, & Lepper Co., L.P.A.
Rick D. Turner
President and Chief Executive Officer
Directors Emeritus
- ------------------
Marcus Gant
OFFICERS
- --------
Rick D. Turner
President and Chief Executive Officer
Kenneth E. Shafer
Executive Vice President and Cashier
Catherine R. Ogle
Vice President, Lending
Thomas D. Hesson
Assistant Vice President, Operations
Michael J. Schramm
Assistant Vice President, Manager, McConnelsville Office
Tori J. Allen
Personal Banking Officer
Cheryl L. Hanson
Loan Officer, Manager, Chesterhill Office
Teresa A. Pyles
Security Officer
Ruth I. Otto
Secretary to the Board
Karen L. Mills
Assistant Secretary to the Board
Charles R. Hunsaker
General Counsel
<PAGE>
RUSSELL FEDERAL SAVINGS BANK
============================
DIRECTORS
- ---------
David B. Baker
Executive Vice President, The Peoples Banking and Trust Company
Charles M. Daniels
Attorney-at-Law
Robert E. Evans, Chairman
President and Chief Executive Officer, Peoples Bancorp Inc.
Dr. Lewis E. Franz
Dentist
John T. Lawson
Retired, Lawson's Hardware
James D. McConnell
Senior Staff Engineer, AK Steel
Norman R. Menshouse
Executive Vice President, Russell Federal Savings Bank
Carol A. Schneeberger
Vice President, Operations, Peoples Bancorp Inc.
RobRoy Walters
President and Chief Executive Officer, Gateway Bancorp, Inc.
Joseph H. Wesel
Chairman of the Board, Marietta Automotive Warehouse, Inc.
Joseph S. Yazombek
Executive Vice President, The Peoples Banking and Trust Company
OFFICERS
- --------
RobRoy Walters
President and Chief Executive Officer
Norman R. Menshouse
Executive Vice President
Ronald L. Fraley
Vice President, Treasurer and Secretary to the Board
Shirley A. Menshouse
Vice President and Corporate Secretary
<PAGE>
CATLETTSBURG FEDERAL SAVINGS BANK
=================================
DIRECTORS
- ---------
David B. Baker
Executive Vice President, The Peoples Banking and Trust Company
Hunter E. Clark
Retired President, Ross Furniture
Harold Freedman
President, Freedman's Department Store
John H. Fugeman
Retired President and CEO, Catlettsburg Federal Savings Bank
Robert E. Evans
President and Chief Executive Officer, Peoples Bancorp Inc.
Charles M. Hedrick
Assistant Treasurer, Cash Management, Ashland, Inc.
Rebecca R. Jackson
President and Chief Executive Officer, Catlettsburg Federal Savings Bank
Norman R. Menshouse
Executive Vice President, Russell Federal Savings Bank
Carol A. Schneeberger
Vice President, Operations, Peoples Bancorp Inc.
RobRoy Walters, Chairman
President and Chief Executive Officer, Gateway Bancorp, Inc.
Joseph H. Wesel
Chairman of the Board, Marietta Automotive Warehouse, Inc.
OFFICERS
- --------
Rebecca R. Jackson
President and Chief Executive Officer
RobRoy Walters
Secretary and Treasurer
Carl A. Stanley
Vice President
Pamela G. Howard
Assistant Secretary and Treasurer
<PAGE>
DIRECTORY
=========
Peoples Bancorp Inc.
- --------------------
Corporate Offices 138 Putnam Street, (740) 374-6136
P.O. Box 738
Marietta, OH 45750
The Peoples Banking and Trust Company
- -------------------------------------
Marietta, Ohio
Office 138 Putnam Street* (740) 373-3155
Motor Bank Second & Scammel Streets*
Office & Motor Bank Frontier Shopping Center*
Kroger Office Washington Center,
Pike & Acme Streets*
Athens, Ohio
Office & Motor Bank 1 North Court Street* (740) 593-7761
Athens Mall Office & Motor Bank 801 East State Street*
HDL Center Office & Motor Bank Union Street*
Ohio University*
Baltimore, Ohio
Office & Motor Bank 120 N. Main Street (740) 862-4174
Belpre, Ohio
Office & Motor Bank 1902 Washington Boulevard* (740) 423-7516
Motor Bank 510 Washington Boulevard
Gallipolis, Ohio
Office & Motor Bank 352 Second Avenue (740) 446-0909
Licking County, Ohio
Lending Office 1915 Newark-Granville Road (740) 587-0909
Lowell, Ohio
Office & Motor Bank 300 Main Street (740) 896-2369
Middleport, Ohio
Office & Motor Bank 97 North Second Street (740) 992-6661
Nelsonville, Ohio
Office 35 Public Square (740) 753-1955
Motor Bank Washington Street
Pomeroy, Ohio
Office Court & Second Streets (740) 992-2133
Motor Bank Lynn & Second Streets
Reno, Ohio
Office & Motor Bank State Route 7 (740) 374-6131
Rutland, Ohio
Office & Motor Bank Salem Street (740) 742-2888
The Plains, Ohio
Office & Motor Bank 70 North Plains Road, (740) 797-4547
Suite 101*
The First National Bank of Southeastern Ohio
- --------------------------------------------
Caldwell, Ohio
Office & Motor Bank 415 Main Street (740) 732-5654
Chesterhill, Ohio
Office & Motor Bank Marion Street (740) 554-5281
McConnelsville, Ohio
Office & Motor Bank 68 South Kennebec (740) 962-2999
Catlettsburg Federal Savings Bank
- ---------------------------------
Catlettsburg, Kentucky
Office 2717 Louisa Street (606) 739-4126
Ashland, Kentucky
Office & Motor Bank 1410 Eagle Drive (606) 928-7800
(Cedar Knoll) *
Grayson, Kentucky
Office & Motor Bank 380 S. Carol Malone Blvd. (606) 474-5139
Russell Federal Savings Bank
- ----------------------------
Russell, Kentucky
Office & Motor Bank 404 Ferry Street (606) 836-8141
Northwest Territory Insurance Agencies, Inc.
- --------------------------------------------
Northwest Territory Life Insurance Agency, Inc.
Office, Caldwell, Ohio 415 Main Street (740) 732-5654
Northwest Territory Property and Casualty Insurance Agency, Inc.
Office, Caldwell, Ohio 415 Main Street (740) 732-5654
* Denotes ATM location for 24 Hour Banking Convenience
In Athens, Ohio University is served exclusively by Peoples
Bancorp ATMs in three locations: Baker Center, Boyd Hall
& Nelson Commons
EXHIBIT 21
----------
PEOPLES BANCORP INC. ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1997
Subsidiaries of Peoples Bancorp Inc.
- ------------------------------------
The following are the only subsidiaries of Peoples Bancorp Inc.:
Jurisdiction
of
Name of Subsidiary Incorporation
- ------------------------------------------------- -------------
The Peoples Banking and Trust Company Ohio
The First National Bank of Southeastern
Ohio ("First National Bank") United States
Northwest Territory Life Insurance
Agency, Inc. (Subsidiary of First
National Bank) Ohio
Northwest Territory Property & Casualty
Life Insurance Agency, Inc. (Subsidiary
of First National Bank) Ohio
Gateway Bancorp, Inc. ("Gateway") Ohio
Catlettsburg Federal Savings Bank
("Subsidiary of Gateway") United States
Russell Federal Savings Bank
("Subsidiary of Gateway") United States
The Northwest Territory Life Insurance Company Arizona
EXHIBIT 23
----------
PEOPLES BANCORP INC. ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1997
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual
Report (Form 10-K) of Peoples Bancorp Inc. of our report dated
February 6, 1998, included in the 1997 Annual Report to
Shareholders of Peoples Bancorp Inc.
We also consent to the incorporation by reference in the
Registration Statements pertaining to the Amended and Restated
1993 Stock Option Plan of Peoples Bancorp Inc. (Form S-8, No.
33-67878), the 1995 Stock Option Plan of Peoples Bancorp Inc.
(Form S-8, No. 33-59569), and the Deferred Compensation Plan for
Directors of Peoples Bancorp Inc. and Subsidiaries (Form S-8,
No. 333-43629) of our report dated February 6, 1998, with
respect to the consolidated financial statements of Peoples
Bancorp Inc. and Subsidiaries incorporated by reference in the
Annual Report on Form 10-K for the year ended December 31, 1997.
/s/ ERNST & YOUNG LLP
Ernst & Young LLP
Charleston, West Virginia
March 26, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from
the Form 10-K filed as of December 31, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 21,473
<INT-BEARING-DEPOSITS> 7,008
<FED-FUNDS-SOLD> 10,350
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 174,291
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 521,570
<ALLOWANCE> 8,356
<TOTAL-ASSETS> 758,158
<DEPOSITS> 611,107
<SHORT-TERM> 32,561
<LIABILITIES-OTHER> 7,095
<LONG-TERM> 28,577
0
0
<COMMON> 50,001
<OTHER-SE> 28,817
<TOTAL-LIABILITIES-AND-EQUITY> 758,158
<INTEREST-LOAN> 43,451
<INTEREST-INVEST> 8,579
<INTEREST-OTHER> 1,806
<INTEREST-TOTAL> 53,836
<INTEREST-DEPOSIT> 22,282
<INTEREST-EXPENSE> 25,216
<INTEREST-INCOME-NET> 28,620
<LOAN-LOSSES> 2,589
<SECURITIES-GAINS> (28)
<EXPENSE-OTHER> 19,265
<INCOME-PRETAX> 12,704
<INCOME-PRE-EXTRAORDINARY> 8,605
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,605
<EPS-PRIMARY> 2.48
<EPS-DILUTED> 2.40
<YIELD-ACTUAL> 4.74
<LOANS-NON> 1,220
<LOANS-PAST> 462
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,873
<CHARGE-OFFS> 1,917
<RECOVERIES> 521
<ALLOWANCE-CLOSE> 8,356
<ALLOWANCE-DOMESTIC> 8,356
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,081
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains restated summary financial information extracted from
the Form 10-K filed as of December 31, 1996, and December 31, 1995.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 26,200 17,251
<INT-BEARING-DEPOSITS> 217 243
<FED-FUNDS-SOLD> 2,100 3,500
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 147,783 131,762
<INVESTMENTS-CARRYING> 0 0
<INVESTMENTS-MARKET> 0 0
<LOANS> 422,413 379,526
<ALLOWANCE> 6,873 6,726
<TOTAL-ASSETS> 616,635 543,430
<DEPOSITS> 504,692 429,077
<SHORT-TERM> 19,522 33,276
<LIABILITIES-OTHER> 7,028 6,461
<LONG-TERM> 29,200 23,142
0 0
0 0
<COMMON> 34,349 30,898
<OTHER-SE> 21,844 20,576
<TOTAL-LIABILITIES-AND-EQUITY> 616,635 543,430
<INTEREST-LOAN> 37,140 34,501
<INTEREST-INVEST> 8,607 6,881
<INTEREST-OTHER> 1,650 2,010
<INTEREST-TOTAL> 47,397 43,392
<INTEREST-DEPOSIT> 18,880 18,384
<INTEREST-EXPENSE> 21,966 20,777
<INTEREST-INCOME-NET> 25,431 22,615
<LOAN-LOSSES> 1,965 1,315
<SECURITIES-GAINS> 48 24
<EXPENSE-OTHER> 17,522 16,818
<INCOME-PRETAX> 11,122 8,639
<INCOME-PRE-EXTRAORDINARY> 7,651 6,050
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7,651 6,050
<EPS-PRIMARY> 2.23 1.74
<EPS-DILUTED> 2.20 1.73
<YIELD-ACTUAL> 4.75 4.73
<LOANS-NON> 999 482
<LOANS-PAST> 621 1,236
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 2,041
<ALLOWANCE-OPEN> 6,726 6,783
<CHARGE-OFFS> 2,329 1,803
<RECOVERIES> 511 431
<ALLOWANCE-CLOSE> 6,873 6,726
<ALLOWANCE-DOMESTIC> 6,873 6,726
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 873 150
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contaings restated summary financial information extracted
from the Form 10-Q filed as of September 30, 1997, June 30, 1997, and
March 31, 1997.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 JUN-30-1997 MAR-31-1997
<CASH> 27,072 22,389 23,329
<INT-BEARING-DEPOSITS> 583 836 1,200
<FED-FUNDS-SOLD> 0 3,300 15,000
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 149,209 147,856 146,912
<INVESTMENTS-CARRYING> 0 0 0
<INVESTMENTS-MARKET> 0 0 0
<LOANS> 484,183 467,445 448,860
<ALLOWANCE> 7,763 7,298 7,152
<TOTAL-ASSETS> 679,947 661,517 655,153
<DEPOSITS> 555,779 545,330 542,684
<SHORT-TERM> 24,579 19,775 17,959
<LIABILITIES-OTHER> 6,605 6,896 6,688
<LONG-TERM> 31,593 30,601 31,363
0 0 0
0 0 0
<COMMON> 34,399 34,442 34,438
<OTHER-SE> 26,992 24,473 22,021
<TOTAL-LIABILITIES-AND-EQUITY> 679,947 661,517 655,153
<INTEREST-LOAN> 31,848 20,758 10,181
<INTEREST-INVEST> 6,391 4,281 2,139
<INTEREST-OTHER> 1,284 845 442
<INTEREST-TOTAL> 39,523 25,884 12,762
<INTEREST-DEPOSIT> 16,321 10,640 5,230
<INTEREST-EXPENSE> 18,467 12,024 5,918
<INTEREST-INCOME-NET> 21,056 13,860 6,844
<LOAN-LOSSES> 1,905 1,229 588
<SECURITIES-GAINS> (31) (31) (29)
<EXPENSE-OTHER> 14,277 9,426 4,705
<INCOME-PRETAX> 9,251 6,054 2,940
<INCOME-PRE-EXTRAORDINARY> 6,285 4,127 2,002
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 6,285 4,127 2,002
<EPS-PRIMARY> 1.82 1.20 0.58
<EPS-DILUTED> 1.77 1.17 0.57
<YIELD-ACTUAL> 4.73 4.73 4.72
<LOANS-NON> 746 875 1,204
<LOANS-PAST> 428 580 776
<LOANS-TROUBLED> 0 0 0
<LOANS-PROBLEM> 0 0 0
<ALLOWANCE-OPEN> 6,873 6,873 6,873
<CHARGE-OFFS> 1,529 1,153 511
<RECOVERIES> 394 229 82
<ALLOWANCE-CLOSE> 7,763 7,298 7,152
<ALLOWANCE-DOMESTIC> 7,763 7,298 7,152
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 856 786 726
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains restated summary financial information extracted
from the Form 10-Q filed as of September 30, 1996, June 30, 1996, and
March 31, 1996.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> SEP-30-1996 JUN-30-1996 MAR-31-1996
<CASH> 27,315 25,647 17,680
<INT-BEARING-DEPOSITS> 193 247 1,479
<FED-FUNDS-SOLD> 0 0 11,800
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 153,709 152,079 156,559
<INVESTMENTS-CARRYING> 0 0 0
<INVESTMENTS-MARKET> 0 0 0
<LOANS> 417,072 398,823 383,696
<ALLOWANCE> 6,906 6,723 6,743
<TOTAL-ASSETS> 617,241 596,506 582,883
<DEPOSITS> 506,803 493,964 435,839
<SHORT-TERM> 18,478 22,614 67,523
<LIABILITIES-OTHER> 6,797 6,575 5,703
<LONG-TERM> 31,455 21,508 22,395
0 0 0
0 0 0
<COMMON> 34,263 34,139 31,100
<OTHER-SE> 19,445 17,706 20,323
<TOTAL-LIABILITIES-AND-EQUITY> 617,241 596,506 582,883
<INTEREST-LOAN> 27,379 17,946 8,790
<INTEREST-INVEST> 7,433 4,863 2,434
<INTEREST-OTHER> 275 232 92
<INTEREST-TOTAL> 35,087 23,041 11,316
<INTEREST-DEPOSIT> 13,917 9,060 4,345
<INTEREST-EXPENSE> 16,322 10,783 5,367
<INTEREST-INCOME-NET> 18,765 12,258 5,949
<LOAN-LOSSES> 1,380 795 360
<SECURITIES-GAINS> 26 26 26
<EXPENSE-OTHER> 12,890 8,312 4,013
<INCOME-PRETAX> 8,258 5,610 2,764
<INCOME-PRE-EXTRAORDINARY> 8,258 5,610 2,764
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 5,682 3,852 1,881
<EPS-PRIMARY> 1.65 1.12 0.55
<EPS-DILUTED> 1.64 1.11 0.54
<YIELD-ACTUAL> 4.63 4.77 4.72
<LOANS-NON> 1,008 652 939
<LOANS-PAST> 644 972 1,441
<LOANS-TROUBLED> 0 0 0
<LOANS-PROBLEM> 2,698 2,100 2,181
<ALLOWANCE-OPEN> 6,726 6,726 6,726
<CHARGE-OFFS> 1,578 1,009 431
<RECOVERIES> 378 211 88
<ALLOWANCE-CLOSE> 6,906 6,723 6,743
<ALLOWANCE-DOMESTIC> 6,906 6,723 6,743
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 150 150 150
</TABLE>
