FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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
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(State or other jurisdiction of incorporation or organization)
31-0987416
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(I.R.S. Employer Identification No.)
138 Putnam Street, P. O. Box 738, Marietta, Ohio
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(Address of principal executive offices)
45750
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(Zip Code)
Registrant's telephone number, including area code: (740) 373-3155
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Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's class of
Common Stock, as of May 1, 2000: 6,514,892.
Page 1 of 29 Pages
Exhibit Index Appears on Page 28
PART I - FINANCIAL INFORMATION
ITEM 1
The following Condensed Consolidated Balance Sheets, Condensed
Consolidated Statements of Income, Consolidated Statement of Shareholders'
Equity, and Consolidated Statements of Cash Flows of Peoples Bancorp Inc. (the
"Company") and subsidiaries, reflect all adjustments (which include normal
recurring accruals) necessary to present fairly such information for the periods
and dates indicated. Since the following condensed unaudited financial
statements have been prepared in accordance with instructions to Form 10-Q, they
do not contain all information and footnotes necessary for annual financial
statements in conformity with generally accepted accounting principles.
Operating results for the three months ended March 31, 2000, are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000. Complete audited consolidated financial statements with footnotes thereto
are included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated.
<PAGE>
<TABLE>
<CAPTION>
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31, December 31,
ASSETS 2000 1999
<S> <C> <C>
Cash and cash equivalents:
Cash and due from banks $ 32,365 $ 42,713
Interest-bearing deposits in other banks 618 1,038
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Total cash and cash equivalents 32,983 43,751
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Available-for-sale investment securities, at estimated fair value (amortized
cost of $338,366 and $340,082 at March 31, 2000 and
December 31, 1999, respectively) 324,268 328,306
Loans, net of unearned interest 672,736 659,833
Allowance for loan losses (10,628) (10,264)
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Net loans 662,108 649,569
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Bank premises and equipment, net 14,907 15,321
Other assets 40,021 38,503
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Total assets $ 1,074,287 $ 1,075,450
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LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 80,957 $ 83,267
Interest bearing 660,441 644,940
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Total deposits 741,398 728,207
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Short-term borrowings:
Federal funds purchased and securities sold under repurchase agreements 57,168 64,989
Federal Home Loan Bank term advances 16,200 22,450
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Total short-term borrowings 73,368 87,439
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Long-term borrowings 150,181 150,338
Accrued expenses and other liabilities 7,988 7,606
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Total liabilities 972,935 973,590
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Guaranteed preferred beneficial interests in junior subordinated debentures 28,994 28,986
Stockholders' Equity
Common stock, no par value, 12,000,000 shares authorized - 6,661,464 shares
issued at March 31, 2000 and 6,387,509 issued
at December 31, 1999, including shares in treasury 66,447 65,043
Accumulated comprehensive income, net of deferred income taxes (9,164) (7,654)
Retained earnings 17,863 26,241
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75,146 83,630
Treasury stock, at cost, 124,284 shares at March 31, 2000 and
398,662 shares at December 31, 1999 (2,788) (10,756)
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Total stockholders' equity 72,358 72,874
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Total liabilities and stockholders' equity $ 1,074,287 $ 1,075,450
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</TABLE>
<TABLE>
<CAPTION>
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data) Three Months Ended
March 31,
2000 1999
<S> <C> <C>
Interest income $ 20,112 $ 15,985
Interest expense 10,008 7,242
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Net interest income 10,104 8,743
Provision for loan losses 522 537
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Net interest income after provision for loan losses 9,582 8,206
Other income 2,129 1,844
Gain on securities transactions (11) ---
Other expenses 7,559 6,236
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Income before income taxes 4,141 3,814
Income taxes 1,279 1,184
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Net income $ 2,862 $ 2,630
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Basic earnings per share $0.43 $0.38
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Diluted earnings per share $0.43 $0.37
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Weighted average shares outstanding (basic) 6,602,504 6,979,409
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Weighted average shares outstanding (diluted) 6,705,526 7,140,949
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Cash dividends declared $932 $809
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Cash dividend per share $0.14 $0.12
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except share amounts)
Accumulated
Other
Common Stock Retained Treasury Comprehensive
Shares Earnings Stock Income Total
Amount
<S> <C> <C> <C> <C> <C> <C>
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Balance, December 31, 1999 6,387,509 $ 65,043 $ 26,241 $ (10,756) $ (7,654) $ 72,874
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Comprehensive income:
Net income 2,862 2,862
Other comprehensive income,
net of tax:
Unrealized losses on available-
for-sale securities (1,510) (1,510)
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Comprehensive 1,352
income
Exercise of common stock options
(reissued 7,542 treasury shares) (167) 223 56
Tax benefit from exercise of
stock options 11 11
Cash dividends declared (932) (932)
10% stock dividend (reissued
336,745 treasury shares) 269,597 1,469 (10,308) 8,839
Common stock issued under dividend
reinvestment plan 4,358 91 91
Purchase of treasury stock, 59,836 shares (1,094) (1,094)
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Balance, March 31, 2000 6,661,464 $ 66,447 $ 17,863 $ (2,788) $ (9,164) $ 72,358
=====================================================================================================================
Comprehensive Income:
Net unrealized depreciation arising during period, net of tax (1,517)
Less: reclassification adjustment for net losses included in net income, net of tax (7)
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Net unrealized depreciation on investment securities (1,510)
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</TABLE>
<PAGE>
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands) Three Months Ended
March 31,
2000 1999
Cash flows from operating activities:
Net income $ 2,862 $ 2,630
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 522 537
Loss on securities transactions 11 ---
Depreciation, amortization, and accretion 1,201 1,267
(Increase) decrease in interest receivable (393) 264
Decrease in interest payable (169) (157)
Deferred income taxes 268 (515)
Deferral of loan origination fees and costs (79) (85)
Other, net (432) 297
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Net cash provided by operating activities 3,791 4,238
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Cash flows from investing activities:
Purchases of available-for-sale securities (4,271) (558)
Proceeds from sales of available-for-sale securities 429 ---
Proceeds from maturities of available-for-sale securities 5,583 11,660
Net increase in loans (12,908) (6,644)
Expenditures for premises and equipment (156) (528)
Proceeds from sales of other real estate owned --- 53
Investment in tax credit fund (400) ---
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Net cash (used in) provided by investing
activities (11,723) 3,983
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Cash flows from financing activities:
Net decrease in non-interest bearing deposits (2,310) (4,990)
Net increase (decrease) in interest-bearing deposits 15,504 (2,162)
Net decrease in short-term borrowings (14,071) (1,218)
Payments on long-term borrowings (157) (157)
Cash dividends paid (764) (679)
Purchase of treasury stock (1,094) (407)
Proceeds from issuance of common stock 56 60
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Net cash used in financing activities (2,836) (9,553)
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Net decrease in cash and cash equivalents (10,768) (1,332)
Cash and cash equivalents at beginning of period 43,751 40,121
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Cash and cash equivalents at end of period $ 32,983 $ 38,789
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<PAGE>
NOTES TO FINANCIAL STATEMENTS
Basis of Presentation
The accounting and reporting policies of Peoples Bancorp Inc. and
Subsidiaries ("Peoples") conform to generally accepted accounting principles and
to general practices within the banking industry. Peoples considers all of its
principal activities to be financial services related. The preparation of the
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates. The consolidated financial statements include
the accounts of Peoples' parent company and its wholly-owned subsidiaries.
Significant intercompany accounts and transactions have been eliminated.
On January 13, 2000, Peoples declared a 10% stock dividend to be issued
March 14, 2000, to common shareholders of record at February 22, 2000. On May
13, 1999, Peoples declared a 10% stock dividend to be issued June 15, 1999, to
shareholders of record at May 28, 1999. Accordingly, all per share data reflects
the dividends.
1. Mergers and Acquisitions
In March 2000, Peoples consolidated its banking and thrift
subsidiaries, as well as reorganization of its insurance agencies. Management
believes these actions will enhance customer service, increase product
offerings, and add consistency to product delivery in all Peoples financial
service centers. In the consolidation effective Mach 10, 2000, Peoples merged
its banking and thrift subsidiaries, The Peoples Banking and Trust Company and
Peoples Bank FSB, with its national banking subsidiary, The First National Bank
of Southeastern Ohio. The resulting single banking entity was renamed "Peoples
Bank, National Association", and operates under the trade name "Peoples Bank".
While the consolidation is expected to provide some enhancement to future
shareholder return via added operating efficiencies, the primary focus is on
customer retention and market share growth by improving product and service
convenience and availability. Also, effective March 31, 2000, Peoples Bancorp
combined its life insurance agency and property and casualty agency into a
single entity as an operating subsidiary under Peoples Bank named `Peoples
Insurance Agency, Inc.'. The reorganization will provide enhanced opportunities
for Peoples' investment and insurance associates to meet customer needs as well
as increase market awareness through the more recognizable `Peoples' brand name.
The following text will include references to this merger and its
impact on Peoples' results of operations.
2. Accounting Pronouncements
In June 1998, Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), as amended by SFAS No. 137, Accounting for Derivative Instruments and
Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133
("SFAS No. 137"), which requires derivative instruments be carried at fair value
on the balance sheet. The statement continues to allow derivative instruments to
be used to hedge various risks and sets forth specific criteria to be used to
determine when hedge accounting can be used. The statement also provides for
offsetting changes in fair value or cash flows of both the derivative and the
hedged asset or liability to be recognized in earnings in the same period;
however, any changes in fair value or cash flow that represent the ineffective
portion of a hedge are required to be recognized in earnings and cannot be
deferred. For derivative instruments not accounted for as hedges, changes in
fair value are required to be recognized in earnings.
Peoples plans to adopt the provisions of this statement, as amended,
for its quarterly and annual reporting beginning January 1, 2001, the
statement's effective date. The impact of adopting the provisions of this
statement on Peoples' financial position, results of operations and cash flow
subsequent to the effective date is not currently estimable and will depend on
the financial position of Peoples as well as the nature and purpose of the
derivative instruments in use at that time.
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
SELECTED FINANCIAL DATA
The following data should be read in conjunction with the unaudited
consolidated financial statements and the management discussion and analysis
that follows.
For the Three Months
Ended March 31,
2000 1999
SIGNIFICANT RATIOS
Cash earnings to: (1)
Average tangible assets (2) 1.26% 1.45%
Average tangible equity (3) 24.93% 18.99%
Net income to:
Average total assets 1.08% 1.21%
Average stockholders' equity 15.85% 12.12%
Net interest margin (4) 4.25% 4.54%
Efficiency ratio (5) 55.92% 51.16%
Average shareholders' equity to average assets 6.84% 9.95%
Loans net of unearned interest to deposits
(end of period) 90.74% 81.27%
Allowance for loan losses to loans net of unearned
interest (end of period) 1.58% 1.72%
Cash dividends as a percentage of net income 32.56% 30.76%
Capital ratios:
Tier I capital ratio 12.58% 10.83%
Risk-based capital ratio 15.24% 12.27%
Leverage ratio 8.46% 7.41%
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PER SHARE DATA
Cash earnings: (1)
Basic $0.49 $0.44
Diluted $0.49 $0.43
Net income:
Basic $0.43 $0.38
Diluted $0.43 $0.37
Cash dividends per share $0.14 $0.12
Book value at end of period $11.07 $12.50
Market value per share at end of period (closing price) $16.63 $18.29
Weighted average shares outstanding:
Basic 6,602,504 6,979,409
Diluted 6,705,526 7,140,949
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(1) Excludes after-tax amortization of goodwill and core deposit intangibles.
(2) Total assets less goodwill and core deposit intangibles.
(3) Total stockholders' equity less goodwill and core deposit intangibles.
(4) Fully tax equivalent net interest income as a percentage of average earning
assets.
(5) Non-interest expense (less intangible amortization and indirect
operational expenses) as a percentage of fully tax equivalent net
interest income plus non-interest income. Nonrecurring items are
removed from this ratio.
<PAGE>
Introduction
The following discussion and analysis of the consolidated financial
statements of Peoples is presented to provide insight into management's
assessment of the financial results. Peoples' wholly-owned subsidiaries are
Peoples Bank, National Association ("Peoples Bank") and Northwest Territory Life
Insurance Company ("Northwest Territory"). Peoples Bank also operates Peoples
Insurance Agency, Inc. ("Peoples Insurance"), which offers a full set of life,
property, and casualty insurance products to customers in Peoples' markets.
Peoples Bank is a member of the Federal Reserve System and subject to
regulation, supervision, and examination by the Office of the Comptroller of the
Currency ("OCC"). Peoples Bank offers complete banking products and services
through 38 financial service locations and 25 ATM's in the states of Ohio, West
Virginia, and Kentucky. Peoples Bank provides an array of financial products and
services to customers, including traditional banking products such as deposit
accounts, lending products, credit and debit cards, corporate and personal trust
services, and safe deposit rental facilities. Peoples Insurance also offers
investment and insurance products. Peoples provides services through ordinary
walk-in offices, automated teller machines, and automobile drive-in facilities,
banking by phone, and also provide limited cash management services through
computer banking.
Peoples Bank also makes available other financial services via Peoples
Investments, which provides customer-tailored solutions for fiduciary needs,
investment alternatives, and asset management needs (securities are offered
exclusively through Raymond James Financial Services, member NASD/SIPC, an
independent broker/dealer located at Peoples Bank). Peoples Bank's e-banking
service is Peoples OnLine Connection, and can be found on the internet at
www.peoplesbancorp.com. Peoples common stock is traded through the Nasdaq
National Market System under the symbol PEBO.
The discussion and analysis should be read in conjunction with the
prior year-end audited consolidated financial statements and footnotes thereto
and the ratios, statistics, and discussions contained elsewhere in this Form
10-Q. References will be found in this Form 10-Q to transactions that have
impacted or will impact Peoples' results of operations.
On April 20, 1999, Peoples sold, through PEBO Capital Trust I (a
newly-formed subsidiary) $30.0 million of 8.62% Capital Securities ("Capital
Securities" or "Trust Preferred Securities"). The proceeds were used by the
Trust to purchase, from Peoples, Junior Subordinated Deferrable Interest
Debentures due May 1, 2029. In late April, 1999, Peoples invested $10.0 million
in Peoples Bank. The remaining proceeds were used for general corporate
purposes, including the repurchase of a portion of Peoples' outstanding common
shares.
On April 22, 1999, Peoples announced intentions to repurchase 5% of
Peoples' outstanding common shares (or 346,500 shares) from time to time in open
market or privately negotiated transactions ("1999 Stock Repurchase Program").
The 1999 Stock Repurchase Program was completed at December 31, 1999.
On December 10, 1999, Peoples announced intentions to repurchase 2.5%
of Peoples' outstanding common shares (or 165,000 shares) from time to time in
open market or privately negotiated transactions ("2000 Stock Repurchase
Program"). At May 5, 2000, Peoples had purchased approximately 60,000 treasury
shares under the 2000 Stock Repurchase Plan (or 36% complete).
The combination of the issuance of Capital Securities and the stock
repurchase programs has impacted and will continue to impact several key
performance indicators of Peoples' future financial results. The impact, where
significant, is discussed in the applicable sections of this Management's
Discussion and Analysis.
Results of Operations
Overview of the Income Statement
Peoples increased net income by $232,000 or 8.8%, to $2,862,000 in the
first quarter of 2000 from $2,630,000 in 1999's first quarter. Diluted cash
earnings per share for the quarter ended March 31, 2000, were $0.49, up $0.06
(or 14.0%) from $0.43 in diluted cash earnings per share in the first three
months of 1999. Cash earnings removes the after-tax impact of intangible
amortization expense. On January 13, 2000, Peoples declared a 10% stock dividend
to be issued March 14, 2000, to common shareholders of record at February 22,
2000. On May 13, 1999, Peoples declared a 10% stock dividend to be issued June
15, 1999, to shareholders of record at May 28, 1999. Accordingly, all per share
data reflects the dividends.
Return on tangible assets dropped to 1.26% in the first quarter of 2000
compared to 1.45% for the same period a year ago. Return on tangible assets is
defined as cash earnings as a percentage of average total assets minus goodwill
and core deposit intangibles. Return on tangible equity improved to 24.93% in
the first quarter of 1999 compared to 18.99% in the first quarter of 1999.
Return on tangible equity is defined as cash earnings as a percentage of average
total stockholders' equity minus goodwill and core deposit intangibles.
On a diluted basis, earnings per share reached $0.43 for the first
three months of 1999, up $0.06 (or 16.2%) compared to the previous year.
Peoples' core earnings increased due to strong net interest income growth and
additional revenue streams from recent market expansion. Return on average
equity in the first quarter of 1999 reached 15.85% compared to 12.12% for the
same period a year earlier. Return on average assets was 1.08% for the three
months ended March 31, 2000, compared to 1.21% a year earlier, due to planned
asset growth in mid-1999.
Net interest income in the first quarter of 2000 increased $1,361,000
(or 15.6%) to $10,104,000, due primarily to earning asset growth. The provision
for loan losses in the first quarter of 1999 totaled $522,000 compared to
$537,000 a year ago. Bolstered by growth in deposit account service charges and
insurance revenues, non-interest income increased $285,000 (or 15.5%) to
$2,129,000. In the first quarter of 2000, Peoples reported net losses on
securities transactions of $11,000. There were no gains or losses on securities
transactions in the first quarter of 1999. Non-interest expense increased
$1,323,000 (or 21.2%) to $7,559,000 due to a combination of costs related to
market expansion and acquisition, as well as interest expense from the issuance
of the Trust Preferred Securities reported in other expenses.
Peoples continues to grow through acquisitions accounted for as
purchase transactions. While acquisitions using stock are continually evaluated,
management is cognizant of not diluting shareholder ownership merely for the
sake of growth. Management believes a comparative approach to financial
reporting should include the discussion of "cash earnings", which removes the
after-tax impact of the amortization of intangibles on Peoples' results of
operations and facilitates comparison of Peoples with competitors making
acquisitions using pooling of interests accounting. Management uses cash
earnings as one of several ways to evaluate the impact of acquisitions on
profitability and Peoples' return on its investment. Recent acquisitions have
increased Peoples' 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. Return on tangible assets and return on
tangible equity removes the after-tax impact of intangible amortization expense
and the balance sheet impact of average intangibles. In the first quarter of
2000, intangible amortization expense totaled $571,000 ($400,000 after taxes)
compared to $657,000 ($456,000 after taxes) for the same period a year earlier.
Due to amortization of intangibles, average balance sheet intangibles decreased
to $19.9 million in the first quarter of 2000 compared to $21.8 million in the
first quarter of 1999.
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, borrowed funds such as Federal Home Loan Bank
("FHLB") borrowings and other wholesale funding sources such as national market
repurchase agreements. Net interest income remains the primary source of revenue
for Peoples. Changes in market interest rates, as well as adjustments in the mix
of interest-earning assets and interest-bearing liabilities, impact net interest
income.
During the second quarter of 1999, Peoples initiated an asset growth
strategy to offset the costs to service the Trust Preferred Securities, thereby
leveraging Peoples' increased regulatory capital levels ("Leverage Strategy").
The Leverage Strategy increased Peoples' earnings asset base approximately $150
million and was funded primarily by FHLB borrowings and other wholesale funding
sources. The Leverage Strategy was implemented throughout the second quarter of
1999 and was completed on June 30, 1999.
The Leverage Strategy and continued strong internal loan growth
generated additional net interest income in the first quarter of 2000. Net
interest income grew to $10,104,000 for the first three months of 2000, compared
to $8,743,000 for the same period a year earlier, an increase of $1,361,000 (or
15.6%). Total interest income reached $20,112,000 while interest expense totaled
$10,008,000. Included in interest income is $472,000 of tax-exempt income from
investments issued by and loans made to 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 Peoples' balance sheet. In the first quarter of
1999, net interest margin was 4.25% compared to 1999's first quarter ratio of
4.54%. The FTE yield on earning assets was 8.36% in the first quarter of 2000,
compared to 8.22% for the same period a year earlier. The ratio of interest
expense to earning assets increased 44 basis points to 4.12% for the three
months ended March 31, 2000. Net interest margin has compressed in 2000 due to
the impact of the Leverage Strategy, which significantly increased Peoples'
earning asset base in comparatively lower-yielding assets such as
mortgage-backed investment securities and other investments. Net interest margin
also faced downward pressure due to competitive pricing of loans and deposits in
Peoples' markets. Through its Leverage Strategy, Peoples increased net interest
income by $1,312,000, of which $1,296,000 of the increase was attributable to
volume increases, while declining rates offset interest income growth by $6,000.
Management continues to analyze methods to redeploy Peoples' assets to
an earning asset mix which will result in a net interest margin similar to
Peoples' ratios before the Leverage Strategy was initiated. Loan growth
continues to be strong and management anticipates that loan activity will remain
strong in the near term future, which will enable Peoples to expand its earning
asset base in these higher-yield assets. Due to increased competitive pressure
for deposits and recent rises in interest rates, management believes that any
enhancement to net interest margin through loan growth will be offset by
increased interest costs.
Average total earning assets reached $977.5 million in the first
quarter of 2000, a $179.8 million (or 22.5%) increase over 1999's first quarter.
Compared to the first quarter of 1999, average loans grew $92.5 million (or
16.2%) to $662.9 million for the three months ended March 31, 2000, and comprise
the largest earning asset component on Peoples' balance sheet. Due to Peoples'
Leverage Strategy and recent acquisitions, Peoples' average balances of
investment securities increased $84.7 million from $218.0 million in 1998 to
$302.7 million in 1999.
Yield on earning assets increased 14 basis points to 8.36% for the
first quarter of 2000. This increase is attributable to modestly higher loan
yields as well as enhancements to Peoples' yield on investment securities
through purchases of higher-yielding investments.
Deposit costs, which result from the largest dollar volume of Peoples'
interest-bearing liabilities in customer funding sources, increased 23 basis
points to 4.38% in the first quarter of 2000, due to increased costs of money
market and NOW accounts. Management expects deposit pricing to be increasingly
competitive and will continue to focus its efforts to increase balances in
non-interest bearing demand deposits, which grew, on average, $4.3 million to
$80.3 million in average balances for the three months ended March 31, 2000.
The cost of borrowed funds increased significantly, from 4.50% in the
first quarter of 1999 to 5.29% for the three months ended March 31, 2000. Costs
of borrowed funds have increased due to recent rises in interest rates as well
as repricing of certain Peoples' long-term FHLB borrowings that are fixed rate
borrowings for a specified period of time, and then reprice to current market
rates at the discretion of the FHLB.
In the first quarter of 2000, Peoples continued to use a combination of
short-term and long-term borrowings as funding sources to fuel loan growth.
Peoples' cash management services (offered to a variety of business customers)
have provided short-term funding, specifically from overnight repurchase
agreements. In the first quarter of 2000, Peoples' average balances of these
overnight repurchase agreements (excluding balances of national repurchase
agreements available through wholesale funding sources) remained stable at $29.0
million. The average rate paid in the first quarter of 2000 on overnight
repurchase agreements totaled 4.87%, up 72 basis points from the prior year's
first quarter average rate of 4.15%.
In late 1999 and continuing into the first quarter of 2000, Peoples
accessed national market repurchase agreements in effort to diversify its
short-term funding sources as well as take advantage of attractive short-term
financing rates. Peoples did not access this particular funding source in the
first quarter of 1999, while average national market repurchase agreements
totaled $32.1 million for the three months ended March 31, 2000, at an average
rate of 6.03%. Average national market repurchase agreements comprised the
largest component of Peoples' average short-term borrowings in the first quarter
of 2000.
Peoples also continued to use short-term FHLB advances as a source to
fund its operations and investments during the first quarter of 2000. Average
short-term FHLB balances increased from $0.9 million in the first quarter of
1999 to $10.6 million for the three months ended March 31, 2000. Interest costs
on this type of borrowing grew $147,000 (rate: 6.02%) compared to $11,000 (rate:
5.07%) in the first quarter of 1999. Management plans to maintain access to
short-term FHLB borrowings as an appropriate funding source.
Long-term borrowing costs, which represent the largest average volume
of borrowed fund costs, also increased compared to the first quarter of 1999.
The rate paid on average long-term borrowings totaled 4.63% in the first quarter
of 1999, compared to 5.13% for the three months ended March 31, 2000. The
majority of Peoples' long-term borrowings are fixed rate FHLB borrowings.
Management plans to maintain access to long-term FHLB borrowings as an
appropriate funding source.
The growth of Peoples' earning asset base through the Leverage Strategy
and internal loan growth will continue to impact net interest margin in 2000.
Management expects interest rate pressures on funding sources will continue to
challenge Peoples' net interest margin in 2000 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.
Management will continue to monitor the effects of net interest margin on the
performance of Peoples.
Provision for Loan Losses
In the first quarter of 2000, Peoples recorded a provision for loan
losses of $522,000, compared to $537,000 for the same period a year earlier. The
provision is based upon management's continuing evaluation of the adequacy of
the allowance for loan losses and is reflective of the quality of the portfolio
and overall management of the inherit credit risk.
Due primarily to expected continued loan generation, management
anticipates future provision expense will modestly increase for the remainder of
2000, dependent on loan delinquencies, portfolio risk, overall loan growth, and
general economic conditions in Peoples' markets. Further discussion can be found
later in this discussion under "Allowance for Loan Losses."
Non-Interest Income
Peoples' 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 insurance commissions. Non-interest
income from operations reached new levels in the first quarter of 2000, totaling
$2,129,000, an increase of $285,000 (or 15.5%) compared to 1999's first quarter.
All non-interest income categories had strong growth compared to last year,
reflecting management's focus on top-line revenue enhancement as a primary
source of cost-recovery.
Deposit account service charge income increased $113,000 (or 17.7%) to
$751,000 in the first quarter of 2000. Most of the increases are attributable to
volume increases as well as growth in Peoples' deposit service income generated
from business customers. Peoples' fee income generated from deposits is based on
recovery of costs associated with services provided.
The fee structure for investment and fiduciary activities is based
primarily on the market value of assets being managed, which totaled
approximately $560 million at March 31, 2000 (unchanged from year-end 1999).
Income from fiduciary activities totaled $698,000 in the first quarter of 2000,
up $32,000 (or 4.8%) over the same period a year earlier. Peoples continues to
build on its leadership position in its core markets and investment and
fiduciary services will be significant contributors to Peoples' non-interest
income streams.
Electronic banking, including ATM cards, direct deposit services, and
debit card services, is one of the many product lines offered by Peoples. For
the three months ended March 31, 2000, electronic banking revenues totaled
$282,000, an increase of $42,000 (or 17.5%) compared to the same period last
year. These increases are due primarily to growth in the number of debit card
users as well as corresponding volume increases in debit card usage. Management
will continue to focus on electronic banking as a source of revenue as the
financial services industry develops additional methods to provide electronic
commerce.
In addition to traditional sources of non-interest income, Peoples also
offers a complete line of insurance and investment products through Peoples
Investments and Peoples Insurance. Peoples' product offerings include credit
life and disability insurance, as well as life and property insurance to
consumers in Ohio and West Virginia. For the quarter ended March 31, 2000,
commissions on insurance and securities sales generated revenues totaling
$161,000, a $29,000 (or 22.0%) increase over the prior year. Peoples Investments
offers its customers asset management services, corporate bonds, municipal
bonds, portfolio evaluation, asset allocation, tax shelters, unit trusts,
common/preferred stocks, government securities, mutual funds, retirement
planning, estate planning, tax-exempt securities, annuities, and financial
planning services. Management believes these services are integral to Peoples'
relationship and needs-based sales philosophy.
Securities are offered exclusively through Raymond James Financial
Services, Member NASD/SIPC, an independent broker/dealer, located at many
Peoples sales offices. Investments and insurance products are not FDIC insured,
are not bank deposits, nor are they guaranteed by the financial institution, and
consequently are subject to risk and may lose value. Insurance products are
underwritten by various insurance companies and are made available through
licensed insurance agency affiliates of Peoples.
Peoples also recognized $90,000 of revenue related to an "exit fee" on
a large commercial credit. This income was reported as "other non-interest
income" in the first quarter of 2000.
Management will continue to explore new methods of enhancing
non-interest income. Other traditional and non-traditional financial service
products are analyzed regularly for potential inclusion in Peoples' product mix.
Non-Interest Expense
For the three months ended March 31, 2000, total non-interest expense
reached $6,988,000, up $1,409,000 (or 25.3%) compared to 1999's first quarter.
When comparing 2000 non-interest expense information to 1999, it is important to
consider that several categories within non-interest expense were directly
impacted by the costs (combination of debt service expenses and amortization of
associated capitalized issuance costs) associated with the Trust Preferred
Securities. Total costs in the first quarter of 2000 related to the Trust
preferred Securities were $655,000. Peoples did not have any expense related to
the Trust Preferred Securities in the first quarter of 1999.
Compared to 1999's first quarter, salaries and benefits expense
increased $389,000 (or 13.4%) to $3,293,000 for the first three months of 2000,
reflecting Peoples continuing effort to expand both inside and outside its
geographic markets. Acquisitions in previous years, new financial service center
openings, and increased customer service representatives for investment and
insurance services have increased the number of Peoples' employees. At March 31,
2000, Peoples had 383 full-time equivalent employees, compared to 356 full-time
equivalent employees at the end of the first quarter of 1999. Management will
continue to strive to find new ways of increasing efficiencies and leveraging
its resources while retaining key associates, effectively optimizing customer
service and return to shareholders.
Recent acquisitions and investments also impacted net occupancy
expenses, in particular depreciation expense. Net occupancy expense for the
three months ended March 31, 2000, totaled $507,000, an increase of $66,000 (or
15.0%) compared to the same period a year earlier. In the first quarter of 2000,
furniture and equipment expenses totaled $469,000, up $8,000 (or 1.8%) compared
to the first three months of 1999. These increases can be attributed primarily
to the depreciation of assets acquired through recent market expansion, such as
remodeling projects or new construction projects at several of Peoples Bank's
financial service centers (specifically the three Wal-Mart Financial Service
Centers opened in 1999 and early 2000, as well as other banking center
refurbishments), and increased depreciation of additional expenditures on
technology. Peoples increased investment in technology and other
customer-service enhancements will also impact depreciation expense in the
future.
In 1999 and continuing in 2000, Peoples embarked on several educational
sales programs designed to increase associates' knowledge of relationship sales
techniques and enhance Peoples' sales culture. The educational programs have
modestly increased non-interest expense compared to previous periods. Management
believes these types of investments are necessary to remain competitive in the
financial services industry and anticipates these programs will increase
customer service associates perception and understanding of the relationship
sales process.
Maintaining acceptable levels of non-interest expense and operating
efficiency are key performance indicators for Peoples in its strategic
initiatives. The financial services industry uses the efficiency ratio (total
non-interest expense less amortization of intangibles and non-recurring items as
a percentage of the aggregate of fully-tax equivalent net interest income and
non-interest income) as an important indicator of performance. Gains and losses
on sales of investment securities, as well as other nonrecurring charges, are
not included in the calculation of Peoples' efficiency ratio.
In the first quarter of 2000, Peoples reported an efficiency ratio of
55.92% compared to 51.16% in the first quarter of 1999. Peoples experienced a
period of transition in 1999 due to the Trust Preferred Securities issuance and
the implementation of the Leverage Strategy. As anticipated, these events
coupled with increased operational costs, impacted Peoples' efficiency ratio.
Management believes the interest cost associated with the 8.62%, 30-year fixed
rate Trust Preferred Securities is attractive low cost funding, considering the
current interest rate environment and provides Peoples with relatively low cost
long-term funding. Management anticipates the efficiency ratio will stabilize at
or near 55% in 2000 as Peoples leverages non-interest expense associated with
market expansion, continues to shift earning assets to higher-yielding assets
such as loans, and refines its sales processes to increase customer satisfaction
and revenues.
Return on Assets
After removing the impact of intangibles and corresponding
amortization, return on tangible assets decreased 19 basis points to 1.26% in
the first quarter of 2000 compared to the previous year. For the quarter ended
March 31, 2000, return on average assets ("ROA") was 1.08%, compared to 1.21% in
1999's first quarter. The Leverage Strategy implemented in the second quarter of
1999 significantly increased the asset base of Peoples and caused a reduction in
Peoples' tangible return on equity and ROA. Additional net interest income
streams from the Leverage Strategy were offset primarily by the Trust preferred
Securities costs, resulting in lower ROA levels than previous periods.
Management anticipates that ROA will stabilize at first quarter 2000
levels through the remainder of the year. Peoples will be challenged to employ
its asset base in a manner that will produce higher returns on assets.
Management believes that recent changes to Peoples' balance sheet, particularly
through the Trust Preferred Securities issuance and Leverage Strategy, will
direct Peoples' strategic focus to ratios such as return on tangible equity,
return on equity, cash earnings per share, and earnings per share.
Return on Equity
After removing the impact of intangibles and corresponding
amortization, return on tangible equity increased to 24.93% in the first quarter
of 2000 compared to 18.99% for the same period a year earlier. Peoples' return
on average stockholders' equity ("ROE") was 15.85% for the first three months of
2000 compared to 12.12% for the same period a year earlier. Using a portion of
the proceeds from the Trust Preferred Securities issuance to implement Peoples'
1999 Stock Repurchase Program and continuing in early 2000 with the 2000 Stock
Repurchase Plan, ROE was favorably impacted through the reduction in the number
of outstanding common shares. Future enhancements to ROE will depend on the
timing of common share repurchases and the availability of Peoples' common
shares.
Management views the issuance of the Trust Preferred Securities as an
opportunity to leverage Peoples' equity position and expects continued ROE
improvement into the latter part of 2000 and into 2001.
Peoples and its banking subsidiary, Peoples Bank, are considered
well-capitalized under regulatory and industry standards of risk-based capital
(as detailed in the Capital/Stockholders' Equity section of this Form 10-Q).
Such ratios were enhanced through the Trust Preferred Securities issuance in
mid-1999.
Income Tax Expense
Federal income taxes increased from $1,184,000 in the first quarter of
1999 to $1,279,000 for the first three months of 2000. Peoples' effective tax
rate for the first three months of 2000 was 30.9%, compared to 31.0% for the
same period a year earlier. The modest decrease can be attributed to
implementation of tax reduction strategies which reduce Peoples' tax burden and
lower Peoples' effective tax rate.
Peoples has invested and plans to make additional investments in
various tax credit pools over the next several years. Total investment in these
tax credit pools is not expected to exceed $5.0 million and is expected to
benefit Peoples' future results of operations through reductions in Peoples'
effective tax rate. Management continues to explore methods in which to decrease
Peoples' tax burden.
FINANCIAL CONDITION
Overview of Balance Sheet
Total assets were $1,074.3 million at March 31, 2000, a decrease of
$1.2 million compared to year-end 1999. Loan volumes continued to grow in the
first quarter of 2000, increasing $12.9 million (or 1.1%) to $672.7 million,
with most of the growth occurring primarily in the commercial loan area.
Total liabilities decreased $0.7 million (or 0.1%) to $972.9 million
from year-end 1999 to March 31, 2000. Due to growth of Peoples' interest bearing
deposits, particularly seasonal growth of certain money market accounts,
Peoples' total deposits increased $13.2 million (or 1.8%) to $741.4 million at
March 31, 2000. Peoples' total short-term borrowings decreased $14.1 million (or
16.1%) to $73.4 million at March 31, 2000.
The April, 1999 issuance of the Trust Preferred Securities is presented
as "Guaranteed Preferred Beneficial Interest in Junior Subordinated Debentures".
Peoples has classified the Trust Preferred Securities as "mezzanine" equity on
its balance sheet, net of amortized issuance costs of approximately $1.0
million.
Stockholders' equity totaled $72.4 million at March 31, 2000, compared
to $72.9 million at year-end 1999, a decrease of $0.5 million (or 0.7%). The
decrease in equity resulted from increases in Peoples' net unrealized losses on
available-for-sale securities, as well as the impact of the 2000 Stock
Repurchase Program. At December 31, 1999, Peoples had $7.7 million of net
unrealized losses on available for sale securities compared to $9.2 million of
unrealized losses on available for sale securities at March 31, 2000. At
year-end 1999, Peoples had a treasury share balance of $10.8 million, compared
to $2.8 million at March 31, 2000. This decrease occurred due to Peoples'
reissuance of treasury shares in connection with Peoples 10% stock dividend
issued to shareholders in the first quarter of 2000. Purchases of treasury
shares continue in the Peoples 2000 Stock Repurchase Plan, as well as other
repurchases of Peoples' common shares during the first quarter of 2000 which
funded Peoples' stock benefit plans and a deferred compensation plan that
permits Peoples' directors to acquire common shares through deferral of
directors fees.
Cash and Cash Equivalents
Cash and cash equivalents totaled $33.0 million at March 31, 2000, down
$10.8 million from year-end 1999. At March 31, 2000, the Company's balance of
cash and due from banks dropped $10.3 million to $32.4 million. At year-end
1999, Peoples retained additional cash reserves for potential customer
withdrawals related to the Y2K date change. In January 2000, management reduced
cash balances to normal operating levels. Normally, management directs liquid
funds into higher-yielding assets such as loans to meet loan demand in its
markets, as well as enhance profitability.
Management believes the current balance of cash and cash equivalents
adequately serves Peoples' liquidity and performance needs. Total cash and cash
equivalents fluctuate on a daily basis due to transactions in process and other
liquidity needs. Management believes the liquidity needs of Peoples are
satisfied by the current balance of cash and cash equivalents, readily available
access to traditional and non-traditional funding sources, and the portions of
the investment and loan portfolios that mature within one year. These sources of
funds should enable Peoples to meet cash obligations and off-balance sheet
commitments as they come due.
Investment Securities
Investment securities totaled $324.3 million at March 31, 2000, down
$4.0 million (or 1.2%) compared to year-end 1999. The decrease that occurred in
the first three months of 2000 was due primarily to prepayments of
mortgage-backed securities in the Company's investment portfolio and other
maturities.
All of the Company's investment securities are classified as
available-for-sale. Management believes the available-for-sale classification
provides flexibility for the Company in terms of selling securities as well as
interest rate risk management opportunities. At March 31, 2000, the amortized
cost of the Company's investment securities totaled $338.4 million, resulting in
unrealized depreciation in the investment portfolio of $14.1 million and a
corresponding decrease in the Company's equity of $9.2 million.
At March 31, 2000, investments in US Treasury securities and
obligations of US government agencies and corporations totaled $101.8 million,
up $1.1 million (or 1.1%) since year-end 1999. In the first quarter of 2000,
investments in mortgage-backed securities decreased $5.1 million (or 3.5%) to
$142.3 million at March 31, 2000, due primarily to maturities and prepayments.
Peoples' balances in investment obligations of states and political subdivisions
totaled $35.0 million at March 31, 2000, a quarterly decrease of $0.2 million
(or 0.57%). Other investments at March 31, 2000, totaled $45.2 million, an
increase of $0.2 million (or 0.4%) for the quarter ended March 31, 2000.
Management may reduce investment securities in future periods as a
mechanism to fund higher-yielding investments such as loans. Management monitors
the earnings performance and liquidity of the investment portfolio on a regular
basis through Asset/Liability Committee ("ALCO") meetings. The group also
monitors net interest income, sets pricing guidelines, and manages interest rate
risk for the Company. Through active balance sheet management and analysis of
the investment securities portfolio, the Company maintains sufficient liquidity
to satisfy depositor requirements and the various credit needs of its customers.
Management believes the risk characteristics inherent in the investment
portfolio are acceptable based on these parameters.
Loans
Peoples' 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.
Gross loans totaled $672.7 million at March 31, 2000, an increase of
$12.9 million (or 2.0%) since year-end 1999. Retail loan growth occurred
primarily in Peoples' existing markets, while commercial lending activity
continues with selected customers outside Peoples' primary markets.
<PAGE>
The following table details total outstanding loans at the specified
dates:
(dollars in thousands) March 31, December 31,
2000 1999
---------- ---------
Commercial, financial, and agricultural $ 271,077 $ 272,219
Real estate, construction 18,419 14,067
Real estate, mortgage 259,928 252,427
Consumer 123,312 121,120
---------- ---------
Total loans $ 672,736 $ 659,833
========== =========
Peoples experienced loan growth in the first quarter of 2000 in
primarily real estate loans, which grew $11.9 million (or 4.4%) to $278.3
million (including construction loans) at March 31, 2000. Real estate loans
(including construction loans) account for the largest portion of the loan
portfolio, comprising 41.4% of Peoples' total loan portfolio. Included in real
estate loans are home equity credit lines ("Equilines"), which totaled $22.7
million at March 31, 2000, compared to $22.2 million at year-end. Management
believes the Equiline loans are a competitive product with an acceptable return
on investment after risk considerations. Residential real estate lending
continues to represent a major focus of Peoples' lending due to the lower risk
factors associated with this type of loan and the opportunity to provide
additional products and services to these consumers at reasonable yields to
Peoples.
At March 31, 2000, commercial, financial, and agricultural loans
("commercial loans") decreased $1.1 million (or 0.4%) from December 31, 1999, to
$271.1 million, or 40.3% of Peoples' total loan portfolio. Commercial loan
activity continued to be strong in the first quarter of 2000, as new credit
advances were offset by a $9 million payoff of a lodging industry loan outside
Peoples' primary lending markets. Economic conditions in Peoples' markets have
provided quality credit opportunities, particularly in southeastern and central
Ohio. Management will continue to focus on the enhancement and growth of the
commercial loan portfolio while maintaining appropriate underwriting standards
and risk/price balance. Management expects commercial loan demand to remain
strong into mid-2000. In addition to the anticipated in-market penetration,
Peoples will continue to selectively lend to customers outside its primary
markets.
Consumer lending continues to be a vital part of Peoples' core lending.
At March 31, 2000, consumer loan balances (excluding credit card loans)
increased $2.5 million (or 2.2%) to $117.0 million. The majority of Peoples'
consumer loans are in the indirect lending area, where volume increases were
experienced, combined with slower indirect loan payoffs. At March 31, 2000,
Peoples had indirect loan balances of $72.7 million, compared to $71.0 million
at year-end 1999.
Management is pleased with the performance and quality of Peoples'
consumer loan portfolio, which can be attributed to a commitment of high
customer service levels and the continued demand for indirect loans in the
markets served by Peoples. Lenders use a tiered pricing system that enables
Peoples to apply interest rates based on the corresponding risk associated with
the indirect loan. Although consumer debt delinquency has increased in the
financial services industry (due mostly to credit card debt), management's
actions to reinforce Peoples' pricing system and underwriting criteria have
tempered indirect lending delinquencies. Management plans to continue its focus
on the use of this tiered pricing system in the future, combined with controlled
growth of the indirect lending portfolio if economic conditions remain strong.
Peoples' credit card balances at March 31, 2000, totaled $6.4 million,
a decrease of $0.3 million since December 31, 1999. While management continues
to explore new opportunities to serve credit card customers, those plans do not
include the assumption of additional unnecessary risk merely for the sake of
growth.
Loan Concentration
At March 31, 2000, real estate lending (including both mortgage and
construction loans) totaled $278.3 million (or 41.3%) of total loans. Peoples'
lending is primarily focused in the local southeastern Ohio market and
contiguous mid-Ohio valley areas. Peoples' loan mix of retail lending, which
includes single-family residential mortgages and other consumer loan products,
is periodically reviewed for appropriate changes in mix.
At March 31, 2000, commercial loans totaled $271.1 million (or 40.3%)
of gross loans. Peoples' largest concentration of commercial loans is in credits
to lodging and lodging related companies, which comprised approximately 9.3% of
Peoples' outstanding commercial loans at March 31, 2000, down from 12.6% of
Peoples' outstanding commercial loans at year-end 1999 due to a payoff of a $9
million credit in the first quarter of 2000.
These lending opportunities have arisen due to recent growth in the
lodging industry as well as the need for additional travel-related services in
certain areas in or contiguous to Peoples' markets. In addition, Peoples was
able to selectively lend to creditors outside its market areas, applying
conservative underwriting parameters to mitigate risk. Lodging and lodging
related loan growth reflect Peoples' lenders' ability to respond to the needs of
customers in this segment of the economy based on financial, strength of the
underlying credit and guarantor, and customer relationship parameters.
Management believes Peoples' lodging and lodging related loans do not present
more than the normal amount of risk assumed in other types of lending.
In addition to lodging and lodging related companies, one of Peoples'
larger groups of commercial loans consists of automobile dealer floor plans,
which accounted for 8.2% of commercial loans at March 31, 2000 and at December
31, 1999.
Allowance for Loan Losses
The allowance for loan losses as a percentage of loans increased from
1.56% at December 31, 1999, to 1.58% at the end of the first quarter of 2000.
The balance in the allowance for loan losses increased $364,000, as net
chargeoffs decreased modestly compared to the first quarter of 1999.
The following table presents changes in the Company's allowance for
loan losses:
Three Months Ended
(dollars in thousands) March 31,
----------------------
2000 1999
--------- ---------
Allowance for loan losses, January 1 $ 10,264 $ 9,509
Chargeoffs 266 255
Recoveries 108 64
- --------------------------------------------------------------------------------
Net chargeoffs 158 191
- --------------------------------------------------------------------------------
Provision for loan losses 522 537
- --------------------------------------------------------------------------------
Allowance for loan losses, March 31 $ 10,628 $ 9,855
================================================================================
Management expects continued loan growth in 2000 and believes that
future provision expense will increase, although such increases will be
dependent on loan delinquencies, portfolio risk, overall loan growth, and
general economic conditions in Peoples' markets.
Peoples' consumer loan net chargeoffs continue to comprise the largest
portion total net chargeoffs, reaching $156,000 in the first quarter of 2000. In
comparison to 1999's first quarter, consumer loan net chargeoffs decreased
$21,000 (or 11.9%) due to decreased indirect and direct personal loan
chargeoffs. Peoples had insignificant commercial or real estate loan chargeoffs
in the first quarter of 2000, demonstrating the quality of the portfolio.
Nonperforming assets (which include loans 90 days or more past due,
those loans classified as nonaccrual loans, renegotiated loans, and other real
estate owned) as a percentage of outstanding assets were 0.22% at March 31,
2000, compared to 0.21% at year-end 1999. Nonaccrual loans and renegotiated
loans totaled $872,000 and $684,000 at March 31, 2000, compared to $1,109,000
and $747,000, respectively, at year-end 1999. Other real estate owned totaled
$261,000 at March 31, 2000, compared to $207,000 at year-end 1999. Management
believes the current level of nonperforming loans is below peer group levels and
is a reflection of the overall quality of Peoples' loan portfolio.
Management also evaluates Peoples' loan portfolio quality by monitoring
the amount of loans past due 90 days or more as an indicator of possible future
delinquent credits. At March 31, 2000, loans past due 90 days or more totaled
$505,000, compared to $249,000 at year-end 1999. Management believes the
balances of loans 90 days or more past due are reasonable and reflect the
overall quality of Peoples' loan portfolio.
Management continually monitors the loan portfolio through its Loan
Review Department and Loan Loss Committee to determine the adequacy of the
allowance for loan losses. This formal analysis determines the appropriate level
of the allowance for loan losses, allocation of the allowance among loan types
and the adequacy of the unallocated component of the allowance. The portion of
the allowance allocated among the various loan types represents management's
estimate of expected losses based upon specific allocations for individual
lending relationships and historical loss experience for each category of loans.
The individual loan reviews are based upon specific qualitative and quantitative
criteria, including the size of the loan and loan grades below a predetermined
level. The historical experience factor is based upon historical loss
experience, trends in losses and delinquencies, the growth of loans in
particular markets and industries, and known changes in economic conditions in
the particular lending markets.
Allowances for homogeneous loans (such as residential mortgage loans,
credit cards, personal loans, etc.) are collectively evaluated upon historical
loss experience, trends in losses and delinquencies, the growth of loans in
particular markets, and known changes in economic conditions in the particular
lending markets.
A loan is considered impaired when, based on current information and
events, it is probable that Peoples will be unable to collect the scheduled
payments of principal or interest when due according to the contractual terms of
the loan agreement. The measurement of potential impaired loan losses is
generally based on the present value of expected future cash flows discounted at
the loan's historical effective interest rate, or the fair value of the
collateral if the loan is collateral dependent. If foreclosure is probable,
impairment loss is measured based on the fair value of the collateral. At March
31, 2000, Peoples had an insignificant amount of loans that were considered
impaired. Management will continue to monitor the status of impaired loans,
including performing and non-performing loans. The allowance for loan losses is
deemed to be adequate to absorb losses inherent in the portfolio at March 31,
2000.
Funding Sources
Peoples considers a number of alternatives, including but not limited
to deposits, short-term borrowings, and long-term borrowings when evaluating
funding sources. Traditional deposits continue to be the most significant source
of funds for Peoples, totaling $741.4 million, or 76.8% of Peoples' funding
sources at March 31, 2000.
Non-interest bearing deposits remain a core funding source for Peoples.
At March 31, 2000, non-interest bearing balances totaled $81.0 million, a $2.3
million (or 2.8%) decrease compared to year-end 1999. Management intends to
continue to focus on maintaining its base of lower-costing funding sources,
through product offerings that benefit customers who increase their relationship
with Peoples by using multiple products and services.
Interest-bearing deposits totaled $660.4 million at March 31, 2000, an
increase of $15.5 million (or 2.4%) compared to year-end 1999. Interest-bearing
transaction accounts were the largest growth component of Peoples' deposits,
increasing $16.8 million (or 7.8%) to $231.5 million at March 31, 2000. In the
first quarter of 2000, Peoples experienced attrition of some short-term
certificates of deposit as rate sensitive customers withdrew funds to invest in
products providing a higher yield. In efforts to increase Peoples' competitive
position to retain and grow deposits, management began offering a 17-month
"special" CD in the second quarter of 2000, which offers attractive rates of
return for customers. Management will continue to emphasize deposit-gathering in
the future by offering special "relationship accounts" (both non-interest
bearing and interest-bearing) based on other products and services offered by
Peoples. Management will also concentrate on balancing deposit growth with
adequate net interest margin to meet Peoples' strategic goals.
In addition to traditional deposits, Peoples accesses both short-term
and long-term borrowings to fund its operations and investments. Peoples'
short-term borrowings consist of federal funds purchased, corporate deposits
held in overnight repurchase agreements, wholesale funds such as term repurchase
agreements, and various FHLB borrowings. At March 31, 2000, short-term
borrowings totaled $73.4 million, a decrease of $14.1 million (or 16.1%) over
year-end 1999. The largest component of Peoples' short-term borrowing at March
31, 2000, was overnight repurchase agreements with corporate customers, which
totaled $29.3 million, a quarterly decrease of $1.1 million (or 3.8%). At the
end of the first quarter of 2000, Peoples had total short-term, national market
repurchase agreement balances of $27.8 million, a decrease of $6.2 million (or
18.2%) compared to year-end 1999. Peoples also had $16.2 million of overnight
borrowings with the FHLB at March 31, 2000, a quarterly decrease of $6.3 million
(or 27.8%). Short-term FHLB advances and short-term, national market repurchase
agreements were accessed heavily at the end of 1999 to fund Peoples' Y2K cash
reserves for potentially large customer deposit withdrawals. Such borrowings
were repaid in the early weeks of January 2000. In general, Peoples accesses
these funding sources at various times to balance liquidity needs.
In addition to traditional deposits and short-term borrowings, Peoples
maintains long-term borrowing capacity with the FHLB. Long-term FHLB advances
remained unchanged since year-end 1999, totaling $147.9 million at March 31,
2000. Peoples' long-term FHLB advances are primarily 10-year borrowings, with
fixed rate features for periods of two, three, or four years, depending on the
specific advance. Each advance has the opportunity to reprice after its initial
fixed rate period (at the discretion of the FHLB), and Peoples has the option to
prepay any repriced advance without penalty, or allow the borrowing to reprice
to a LIBOR based, variable product. Management plans to maintain access to
long-term FHLB borrowings as an appropriate funding source.
Peoples also has a long-term note with an unaffiliated financial
institution. The original principal balance of the note was $3.0 million and was
used to finance an acquisition in early 1997. At March 31, 2000, the balance was
2.3 million, a decrease of $0.1 million since year-end 1999. Principal payments
began in 1998 and continue semi-annually over the next three years.
Capital/Stockholders' Equity
During the quarter ended March 31, 2000, stockholders' equity decreased
$0.5 million (or 0.7%) to $72.4 million. This decrease resulted from continued
treasury stock purchases as well as increased net unrealized holding losses on
available-for-sale securities. In the first quarter of 2000, Peoples had net
income of $2.9 million and paid dividends of $0.9 million, a dividend payout
ratio of 32.56% of earnings, compared to a ratio of 30.76% for the same period a
year earlier. Management believes recent dividends represent an acceptable
payout ratio for Peoples and anticipates similar payout ratios in future periods
through quarterly dividends.
At March 31, 2000, the adjustment for the net unrealized holding loss
on available-for-sale securities, net of deferred income taxes, totaled $9.2
million, an increase of $1.5 million since year-end 1999. Since all the
investment securities in Peoples' portfolio are classified as
available-for-sale, both the investment and equity sections of Peoples' balance
sheet are more sensitive to the changing market values of investments. The
changes in market value of Peoples' investment portfolio directly impacted
Peoples' stockholders' equity. Management believes Peoples' capital continues to
provide a strong base for profitable growth.
Peoples 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. At
March 31, 2000, Peoples' and Peoples Bank's risk-based capital ratios were above
the minimum standards for a well-capitalized institution. Peoples' risk-based
capital ratio of 14.24% at March 31, 2000, is well above the well-capitalized
standard of 10%. Peoples' Tier 1 capital ratio of 12.58% also exceeded the
well-capitalized minimum of 6%. The Leverage ratio at March 31, 2000, was 8.46%
and also above the well-capitalized standard of 5%.
On December 10, 1999, Peoples announced intentions to repurchase 2.5%
of Peoples' outstanding common shares (or 165,000 common shares) from time to
time in open market or privately negotiated transactions under the 2000 Stock
Repurchase Program. The timing of the purchases and the actual number of common
shares purchased have depended and will depend on market conditions. The 2000
Stock Repurchase Program will expire December 31, 2000. At May 5, 2000, Peoples
had purchased approximately 60,000 treasury shares under the 2000 Stock
Repurchase Plan (or 36% complete). at a weighted average price of approximately
$16.77 per share.
In June 1998, Peoples implemented a formal plan to purchase treasury
shares for use in its stock option plans. The formal plan serves as the basis
for treasury purchases in anticipation of Peoples' projected stock option
exercises and is based upon specific criteria related to market prices, as well
as the number of common shares expected to be reissued under Peoples' stock
option plans. Under the plan, Peoples is currently authorized to repurchase
18,150 common shares each quarter. During the first quarter of 2000, Peoples
purchased 18,150 treasury shares at a weighted-average price of $19.06 per
share, totaling $0.3 million. Management expects to purchase similar share
amounts in future quarters for use in its stock option plans. Future changes, if
any, to Peoples' systematic share repurchase program may be necessary to respond
to the number of common shares expected to be reissued for Peoples' stock option
plans. Management intends to continue its systematic quarterly treasury share
program.
Peoples also maintains the Peoples Bancorp Inc. Deferred Compensation
Plan ("Deferred Compensation Plan") for the directors of Peoples and its
subsidiaries. The Deferred Compensation Plan is designed to recognize the value
to Peoples of the past and present service of its directors and encourage their
continued service through implementation of a deferred compensation plan. As a
result and in accordance with accounting regulations, the account balances
invested in Peoples common shares are reported as treasury stock in Peoples'
financial statements. At March 31, 2000, the Deferred Compensation Plan and its
participants were entitled to $0.9 million of Peoples common shares, which is a
reduction to the equity balance of Peoples. Management does not expect the
Deferred Compensation Plan to have a material impact on future financial
statements or results of operations of Peoples.
Liquidity and Interest Rate Sensitivity
The objective of Peoples' asset/liability management function is to
maintain consistent growth in net interest income within Peoples' policy
guidelines. This objective is accomplished through management of Peoples'
balance sheet liquidity and interest rate risk ("IRR") exposure based on changes
in economic conditions, interest rate levels, and customer preferences.
Interest Rate Risk
The most significant market risk resulting from Peoples' normal course
of business, extending loans and accepting deposits, is interest rate risk.
Interest rate risk is the potential for economic loss due to future interest
rate changes which can impact both the earnings stream as well as market values
of financial assets and liabilities. Peoples' management has charged the
Asset/Liability Committee ("ALCO") with the overall management of Peoples' and
Peoples Bank's balance sheets and off-balance sheet transactions related to the
management of interest rate risk. The ALCO strives to keep Peoples focused on
the future, anticipating and exploring alternatives, rather than simply reacting
to change after the fact.
To this end, the ALCO has established an IRR management policy that
sets the minimum requirements and guidelines for monitoring and controlling the
level and amount of interest rate risk. The objective of the interest rate risk
policy is to encourage management to adhere to sound fundamentals of banking
while allowing sufficient flexibility to exercise the creativity and innovations
necessary to meet the challenges of changing markets. The ultimate goal of these
policies is to optimize net interest income within the constraints of prudent
capital adequacy, liquidity, and safety.
The ALCO relies on different methods of assessing IRR including
simulating net interest income, monitoring the sensitivity of the net present
market value of equity or economic value of equity, and monitoring the
difference or gap between maturing or rate-sensitive assets and liabilities over
various time periods. The ALCO places emphasis on simulation modeling as the
most beneficial measurement of interest rate risk do to its dynamic measure. By
employing a simulation process that projects the impact of potential changes in
interest rates and balance sheet structures and by establishing limits on
changes in net income and net market value, the ALCO is better able to evaluate
the possible risks associated with alternative strategies.
The simulation process starts with a base case simulation which
represents projections of current balance sheet growth trends. Base case
simulation results are prepared under a flat interest rate forecast and at least
two alternative interest rate forecasts, one rising and one declining, assuming
parallel yield curve shifts. Comparisons showing the earnings variance from the
flat rate forecast illustrate the risks associated with the current balance
sheet strategy. When necessary, additional balance sheet strategies are
developed and simulations prepared. These additional simulations are run with
the same interest rate forecasts used with the base case simulation and/or using
non-parallel yield curve shifts. The additional strategies are used to measure
yield curve risk, prepayment risk, basis risk, and index lag risk inherent in
the balance sheet. Comparisons showing the earnings and equity value variance
from the base case provide the ALCO with information concerning the risks
associated with implementing the alternative strategies. The results from model
simulations are reviewed for indications of whether current interest rate risk
strategies are accomplishing their goal and, if not, suggest alternative
strategies that could. The policy calls for periodic review by the ALCO of
assumptions used in the modeling.
The following table is provided to show the earnings at risk and value
at risk positions of Peoples as of March 31, 2000:
Earnings and Value at risk at March 31, 2000:
(Dollars in Thousands)
Immediate Estimated Estimated
Interest Rate Increase (Decrease) Increase (Decrease) in
Change in Net Interest Economic Value
(in Basis Points) Income of Equity
- ----------------- --------------------- ------------------------
400 -- -- $ (7,391) (7.4)%
300 $ (3,654) (8.5)% (5,860) (5.9)
200 (2,425) (5.6) (4,132) (4.2)
100 (1,207) (2.8) (2,186) (2.2)
(100) 837 1.9 1,273 1.3
(200) 1,665 3.9 2,710 2.7
(300) $ 2,485 5.8% 4,329 4.4
(400) -- -- $ 6,142 6.2%
The interest risk analysis shows that Peoples is liability sensitive.
This means that downward moving interest rates favorably impact net interest
income. Inherent within the risk analysis are a large number of interrelated
assumptions. As with all estimates, actual performance could vary; however,
management believes that the analysis is reasonable in the aggregate. The ALCO
believes it is beneficial to monitor interest rate risk for both the short and
long-term. Therefore, to effectively evaluate and act on projections from model
simulations, management through its ALCO established limits on changes in net
interest income and the value of the balance sheet. To monitor the short-term
exposure IRR, the ALCO has limited the earnings at risk to no more than 10% from
base case for each 1% shift in interest rates. To monitor the long-term exposure
IRR, management has limited the negative impact to Peoples' economic value of
equity to not more than 40% when interest rates shift 2% and 75% when rates
shift 4%, respectively.
For an assessment of the current interest rate risk position, the ALCO
reviews static gap measures for specific time periods focusing on one year
cumulative gap. Based on historical trends and performance, the ALCO has
determined that the ratio of the one year cumulative gap should be within 15% of
earning assets. At March 31, 2000, both the earnings at risk and the change in
economic value of equity were within policy. While interest rates are currently
trending higher and this could potentially have a negative impact to net
interest income, the magnitude of this impact will be substantially less then
demonstrated in the above table. The rate shock scenarios are used in the
modeling process as a stress test to net interest earnings. Management believes
that actual changes in interest rates will occur more gradually, allowing for
appropriate adjustments in ALCO strategies.
Liquidity
Maintenance of a sufficient level of liquidity is a primary objective
of the ALCO. Liquidity, as defined by the ALCO, is the ability to meet
anticipated and unanticipated operating cash needs, loan demand, and deposit
withdrawals, without incurring a sustained negative impact on profitability. It
is Peoples' policy to manage liquidity so that there is no need to make
unplanned sales of assets or to borrow funds under emergency conditions. The
ALCO's policy for liquidity management sets limits on the net liquid position of
Peoples and the concentration of non core funding sources.
The main source of liquidity for Peoples comes through deposit growth.
Liquidity is also provided from cash generated from assets such as maturities,
principal payments and income from loans and investment securities. During the
quarter ended March 31, 2000, cash provided by financing activities decreased
$2.8 million due to a reduction in short term borrowings, while outflows from
investing activity totaled $11.7 million. The majority of the increase in cash
outflows from investing activities occurred as a result of the growth in
Peoples' loan portfolio. When appropriate, Peoples takes advantage of external
sources of funds such as advances from the FHLB, national market repurchase
agreements, and brokered funds. These external sources often provide attractive
interest rates and flexible maturity dates which enables Peoples to match
funding with contractual maturity dates of assets. Securities in the investment
portfolio that are available for sale can be utilized as an additional source of
liquidity.
The net liquidity position of Peoples is calculated by subtracting
volatile liabilities, non core deposits and brokered funds, from liquid assets,
short-term investments and unpledged available-for-sale securities. At year-end
1999, the net liquidity position of Peoples was $132.8 million or 11.43% of
total assets. At March 31, 2000, the net liquidity position of Peoples was
$110.8 million or 10.35% of total assets. The change can be attributed to
redirection of maturities in the investment portfolio to fund loan growth. The
liquidity position at March 31, 2000 and year-end 1999 were within Peoples'
policy limit of -10% of total assets. The ALCO believes Peoples has sufficient
liquidity to meet current obligations to borrowers, depositors, debt holders,
and others.
Effects of Inflation on Financial Statements
Substantially all of the Company's assets relate to banking and are
monetary in nature. Therefore they are not impacted by inflation to the same
degree as companies in capital intensive industries in a replacement cost
environment. During a period of rising prices, a net monetary asset position
results in loss in purchasing power and conversely a net monetary liability
position results in an increase in purchasing power. In the banking industry,
typically monetary assets exceed monetary liabilities. Therefore as prices have
recently increased, financial institutions experienced a decline in the
purchasing power of their net assets.
Future Outlook
Results of operations in the first quarter of 2000 represent enhanced
financial performance through a combination of external growth and a focus on
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.
With the consolidation of Peoples' three banking subsidiaries into
Peoples Bank, NA, management will focus many efforts on the integration of
Peoples' various sales processes, products, and services in future periods. The
transition to a unified banking entity has allowed Peoples to focus on a
marketing program based on establishing consistent brand awareness of Peoples in
its markets. The primary focus of the consolidation was customer retention and
market share growth through improved product and service convenience and
availability, achieved by placing more of Peoples' associates in customer
service positions and lessen the administrative duties experienced with three
separate banking charters. The consolidation also allows Peoples' customers to
access all 38 offices, 25 ATM's, and internet banking system, and connects the
northeastern Kentucky markets with contiguous Ohio and West Virginia markets,
providing enhanced synergies and customer service opportunities in the
Huntington, West Virginia - Ashland, Kentucky greater metropolitan area.
Management strives to enhance revenue streams by reorganizing and
revitalizing its sales management process. Areas of focus will include
enhancement of non-interest income streams, including asset management fees
(such as fiduciary fees, insurance revenues, etc.), electronic banking revenues,
low income housing tax credits, and other investments. Peoples Bank will
continue to offer a wide array of banking products and services, while two new
operating divisions have been created to allow associates to better focus on
customer needs: Peoples Investments will provide customer-tailored solutions for
fiduciary needs, investment alternatives, and other asset management
capabilities; and Peoples Insurance will provide a full set of life, property
and casualty insurance products and services. Management plans to continue
Peoples' investment in sales expertise and relationship building skills of
Peoples' customer service representatives as the sales process evolves. These
investments in customer service enhancements represent Peoples' strategic
initiatives designed to increase current and potential customer relationships
with Peoples.
Near the end of the first quarter of 2000, Peoples Bank announced
expansion of its market presence in Parkersburg, West Virginia, with the
upcoming opening of its fourth sales office in Wood County. The office will be
located at 3411 Emerson Avenue and, after renovations and refurbishments, will
be open to customers in October 2000. Although remodeling plans are incomplete
at this time, management plans to renovate the existing structure to create an
environment for easy delivery of all financial services offered by Peoples. An
ATM will also offer 24-hour banking convenience. The Emerson Avenue office is on
the north side of Parkersburg and will complement Peoples Bank's sales office in
the nearby Vienna Wal-Mart supercenter, which opened in mid-1999. Peoples Bank
also has a full-service office at 2107 Pike Street in Parkersburg and in the
recently opened Wal-Mart supercenter in the Patriot Center just south of
Parkersburg.
Management recognizes the importance of electronic financial services
to its customer base and continues to focus efforts designed to enhance this
process and allow customers almost unlimited banking products and services at
their convenience. Continuing Peoples' emphasis on electronic product delivery
and expanding delivery choices for Peoples' customers, Peoples Bank has offered
a fully integrated internet banking system ("Internet Banking System" or
"Peoples OnLine Connection") since late 1999 and has over 1,500 users. Peoples
OnLine Connection allows customers to perform online transactions, pay bills,
view account history, stop payment, open accounts, change address, reorder
checks, purchase savings bonds and complete other financial transactions.
Peoples OnLine Connection is an on-line service that offers real time
transaction capability and portability for the customer. In March, Peoples
announced improvements to its electronic banking services at
www.peoplesbancorp.com through the transformation of the Company website to a
`portal', which provides a variety of links to internet users, including banking
online using Peoples OnLine Connection.
Peoples Bank's new portal provides a `one-stop' shop for internet
users, who will now be able to access their banking records through Peoples
OnLine Connection, review local and national weather forecasts, access timely
stock quotes, read up-to-date news stories, see sports scores and other
entertainment articles, and much more. At peoplesbancorp.com, links are also
provided to a national shopping mall, increasing virtual shopping access to all
peoplesbancorp.com visitors, giving Peoples' clients a natural extension for
timely information from around the world. In the future, Peoples pans to develop
electronic links to local retailers, providing e-commerce capabilities to
merchants by allowing internet users to shop online at their stores without
leaving their homes. Management believes the new peoplesbancorp.com has enhanced
Peoples' connection with customers and redefined the methods in which financial
service products and other information can be delivered. Management believes the
e-commerce capabilities of peoplesbancorp.com are unlimited, and continue to
balance high levels of personal service, security, and confidentiality that
clients expect from Peoples.
Mergers and acquisitions remain a viable strategic option for the
continued growth of Peoples' operations and scope of customer service. Future
acquisitions, if they occur, may not be limited to specific geographic location
or proximity to current markets. Management will continue to focus its energies
on review and research of possible mergers, consolidations, banking center
purchases, or insurance agency acquisitions as a means of acquiring sales
centers that complement existing company locations and sales strategies.
Ultimately, acquisitions will depend upon financial service opportunities that
complement Peoples' core competencies and strategic intent. Management considers
mergers and acquisitions to be a viable method of enhancing Peoples' earnings
potential and will continue to pursue appropriate business opportunities.
Management continues to position Peoples for the future of financial
services without sacrificing a compatible focus on community-based values. Since
many products and services in the industry are easily copied, Peoples focus is
to deliver these products and services better, faster, and more efficiently than
competitors. Peoples' goal is to be a high-performing financial services
company, committed to community leadership, while focusing efforts to provide
shareholders at least a 15% annual return on their investment.
In 2000 and going forward, Peoples will work to achieve these goals by
growing the relationship of existing customers to optimize the client's
full-service connection, increasing market share in markets where Peoples does
not have significant presence; continuing to create a business environment where
clients can access traditional banking products and services, investment
services, and insurance products in the most convenient manner possible; working
to create a model that identifies new ways to fill customers' investment and
insurance needs; and expanding Peoples' e-commerce capabilities through
peoplesbancorp.com.. Management believes that Peoples can produce enhanced
future performance levels through integrated sales techniques and commitment to
the strategic initiatives outlined in this section, which are designed to
enhance customer service and increase future shareholder value.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995.
The statements in this Form 10-Q which are not historical fact are
forward looking statements that involve risks and uncertainties, including, but
not limited to, the interest rate environment, the effect of federal and state
banking and tax regulations, the effect of economic conditions, the impact of
competitive products and pricing, and other risks detailed in the Company's
Securities and Exchange Commission filings.
<PAGE>
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
The information called for by this item is provided under the caption
"Liquidity and Interest Rate Sensitivity" under Item 2 - Management's Discussion
and Analysis of Financial Condition and Results of Operations in this Form 10-Q,
and is incorporated herein by reference.
<PAGE>
<TABLE>
<CAPTION>
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST INCOME
(dollars in thousands) For the Three Months Ended March 31,
2000 1999
Average Yield/ Average Yield/
Balance Rate Balance Rate
ASSETS
<S> <C> <C> <C> <C>
Securities:
Taxable $ 290,461 6.83% $ 186,941 6.06%
Tax-exempt 33,346 7.70% 43,436 7.27%
- --------------------------------------------------------------------------------------------------------------
Total 323,807 6.92% 230,377 6.29%
Loans:
Commercial 280,544 9.07% 224,590 8.66%
Real estate 260,971 8.14% 235,672 8.40%
Consumer (net) 121,384 10.29% 110,171 10.48%
- --------------------------------------------------------------------------------------------------------------
Total 662,899 8.93% 570,433 8.90%
Less: Allowance for loan losses (10,463) (9,719)
- --------------------------------------------------------------------------------------------------------------
Net loans 652,436 9.07% 560,714 9.06%
Interest-bearing deposits 674 4.18% 2,166 3.97%
Federal funds sold 572 5.78% 4,427 4.93%
- --------------------------------------------------------------------------------------------------------------
Total earning assets 977,489 8.36% 797,684 8.22%
Other assets 78,671 74,105
- --------------------------------------------------------------------------------------------------------------
Total assets $ 1,056,160 $ 871,789
==============================================================================================================
LIABILITIES AND EQUITY
Interest-bearing deposits:
Savings $ 88,758 2.37% $ 98,426 2.40%
Interest-bearing demand deposits 219,938 3.91% 205,031 3.48%
Time 341,377 5.20% 326,696 5.10%
- --------------------------------------------------------------------------------------------------------------
Total 650,073 4.38% 630,153 4.15%
Borrowed funds:
Short-term 71,731 5.58% 29,950 4.18%
Long-term 150,190 5.16% 40,528 4.73%
- --------------------------------------------------------------------------------------------------------------
Total 221,921 5.29% 70,478 4.49%
Total interest bearing liabilities 871,994 4.61% 700,631 4.18%
Non-interest bearing deposits 80,323 76,073
Other liabilities 31,618 8,270
- --------------------------------------------------------------------------------------------------------------
Total liabilities 983,935 784,974
Stockholders' equity 72,225 86,815
- --------------------------------------------------------------------------------------------------------------
Total liabilities and equity $ 1,056,160 $ 871,789
- --------------------------------------------------------------------------------------------------------------
Interest income to earning assets 8.36% 8.22%
Interest expense to earning assets 4.11% 3.68%
- --------------------------------------------------------------------------------------------------------------
Net interest margin 4.25% 4.54%
==============================================================================================================
Interest income and yields presented on a fully tax-equivalent basis using a 35%
tax rate.
</TABLE>
<PAGE>
PART II
ITEM 1: Legal Proceedings.
None.
ITEM 2: Changes in Securities and Use of Proceeds.
None.
ITEM 3: Defaults upon Senior Securities.
None.
ITEM 4: Submission of Matters to a Vote of Security Holders.
On April 13, 2000, the Peoples Bancorp Inc. Annual Meeting of
Shareholders was held in the Mississippi Delta Room at the Hotel Lafayette in
Marietta, Ohio. The meeting was well-attended and over 94% of the outstanding
common shares were represented by proxy. No votes were placed in person. Voting
results were as follows:
Three Directors of the Company were re-elected to serve terms of
three years each (expiring in 2003): Carl Baker, Jr.; George W. Broughton; and
Wilford D. Dimit. In addition, Barton S. Holl retired as a Director of the
Company after serving for 10 years on Peoples Bancorp's Board of Directors and
23 years as a Director of Peoples Bank. Directors of the Company who continue to
serve after the 2000 Annual Meeting include Frank L. Christy, Robert E. Evans,
Rex E. Maiden, Paul T. Theisen, Thomas C. Vadakin and Joseph H. Wesel (Chairman
of the Board).
SHAREHOLDER VOTING RESULTS
- -----------------------------------------------
NOMINEE FOR WITHHELD
- --------------------- ----------- ----------
Carl Baker, Jr. 5,586,978 87,331
George W. Broughton 5,630,851 43,457
Wilford D. Dimit 5,633,145 41,164
ITEM 5: Other Information.
On May 11, 2000, the Company announced its quarterly dividend of $0.14
per share. The second quarter dividend payout of approximately $917,000 on an
estimated 6.55 million shares is payable July 3, 2000, to shareholders of record
June 15, 2000.
ITEM 6: Exhibits and Reports on Form 8-K.
a) Exhibits:
EXHIBIT INDEX
Exhibit
Number Description Exhibit Location
- ------------ ---------------------------------- --------------------------
11 Computation of Earnings Per Share. Page 29.
27 Financial Data Schedule. EDGAR electronic filing only.
b) Reports on Form 8-K: None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PEOPLES BANCORP INC.
Date: May 12, 2000 By:/s/ ROBERT E. EVANS
Robert E. Evans
President and Chief Executive Officer
Date: May 12, 2000 By:/s/ JOHN W. CONLON
John W. Conlon
Chief Financial Officer and Treasurer
<PAGE>
EXHIBIT INDEX
PEOPLES BANCORP INC. QUARTERLY REPORT ON FORM 10-Q
FOR PERIOD ENDED MARCH 31, 2000
Exhibit
Number Description Exhibit Location
- --------- ----------------------------------- -------------------------
11 Computation of Earnings Per Share. Page 29.
27 Financial Data Schedule. EDGAR electronic filing only.
EXHIBIT 11
PEOPLES BANCORP INC. AND SUBSIDIARIES
Computation of Earnings Per Share
(dollars in thousands, except share data)
For the Three Months
Ended March 31,
2000 1999
BASIC EARNINGS PER SHARE
EARNINGS:
Net income $2,862 $2,630
AVERAGE SHARES OUTSTANDING:
Weighted average Common Shares outstanding 6,602,504 6,979,409
- ------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE $0.43 $0.38
==============================================================================
DILUTED EARNINGS PER SHARE
EARNINGS:
Net income $2,862 $2,630
AVERAGE SHARES OUTSTANDING:
Weighted average Common Shares outstanding 6,602,504 6,979,409
Net effect of the assumed exercise of stock options
based on the treasury stock method 103,022 161,540
- ------------------------------------------------------------------------------
Total 6,705,526 7,140,949
DILUTED EARNINGS PER SHARE $0.43 $0.37
==============================================================================
Adjusted for 10% stock split issued March 14, 2000, to shareholders of record as
of February 22, 2000. Adjusted for 10% stock split issued June 15, 2000, to
shareholders of record as of May 28, 1999.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
*LEGEND: This schedule contains summary information extracted
from the Form 10-Q filed as of March 31, 2000.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 32,365
<INT-BEARING-DEPOSITS> 618
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 324,268
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 672,736
<ALLOWANCE> 10,628
<TOTAL-ASSETS> 1,074,287
<DEPOSITS> 741,398
<SHORT-TERM> 57,168
<LIABILITIES-OTHER> 7,988
<LONG-TERM> 150,181
0
0
<COMMON> 66,447
<OTHER-SE> 5,911
<TOTAL-LIABILITIES-AND-EQUITY> 1,047,287
<INTEREST-LOAN> 14,720
<INTEREST-INVEST> 4,526
<INTEREST-OTHER> 866
<INTEREST-TOTAL> 20,112
<INTEREST-DEPOSIT> 7,075
<INTEREST-EXPENSE> 10,008
<INTEREST-INCOME-NET> 10,104
<LOAN-LOSSES> 522
<SECURITIES-GAINS> (11)
<EXPENSE-OTHER> 7,559
<INCOME-PRETAX> 4,141
<INCOME-PRE-EXTRAORDINARY> 4,141
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,862
<EPS-BASIC> 0.43
<EPS-DILUTED> 0.43
<YIELD-ACTUAL> 4.54
<LOANS-NON> 872
<LOANS-PAST> 505
<LOANS-TROUBLED> 684
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 10,264
<CHARGE-OFFS> 266
<RECOVERIES> 108
<ALLOWANCE-CLOSE> 10,628
<ALLOWANCE-DOMESTIC> 9,635
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 993
</TABLE>
