FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
March 31, 1999 Commission
File Number 000-18991
PEOPLES BANCORP
212 WEST SEVENTH STREET
AUBURN, IN 46706
Indiana 35-1811284
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
Registrant's telephone number, including area code: (219) 925-2500
--------------
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ______
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
Common stock, par value $1 per share 3,220,248 shares
- ------------------------------------ ----------------
(Title of class) (Outstanding at April 21, 1999)
<PAGE>
PEOPLES BANCORP
AND SUBSIDIARY
Page
Number
Part I Financial Information:
Item 1. Consolidated Financial Statements
Consolidated Statement of Financial Condition
as of March 31, 1999 and September 30, 1998..........................3
Consolidated Statement of Income for the three and six
months ended March 31, 1999 and 1998.................................4
Consolidated Statement of Changes in Stockholders'
Equity for the three and six months ended March 31, 1999.............5
Consolidated Statement of Cash Flows for the
six months ended March 31, 1999 and 1998.............................6
Notes to Consolidated Financial Statements.........................7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................9-17
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K....................................18
Signatures....................................................................19
<PAGE>
PART I. FINANCIAL INFORMATION
PEOPLES BANCORP
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
ASSETS
March 31, September 30,
1999 1998
------------ -------------
Cash 3,234,369 $ 3,567,625
Short-term interest-bearing deposits 6,308,410 -
------------ ------------
Total cash and cash equivalents 9,542,779 3,567,625
Interest-bearing deposits 5,318,000 718,000
Securities available for sale 17,722,423 21,877,758
Securities held to maturity
approximate market value $616,650 and $4,716,777) 602,810 4,695,993
Mortgage-backed securities 317,044 372,282
Loans:
Loans 280,308,374 267,605,591
Less: Allowance for loan losses 969,467 947,008
------------ ------------
Net loans 279,338,907 266,658,583
Premises and equipment 2,326,179 2,396,878
Federal Home Loan Bank of Indianapolis stock, at cost 2,217,700 2,217,700
Other assets 2,489,673 2,431,962
------------ ------------
Total assets $319,875,515 $304,936,781
============ ============
LIABILITIES
Bank overdraft $ - $ 1,171,306
NOW and savings deposits 84,328,569 75,428,503
Certificates of deposit 181,895,628 173,116,777
Reverse Repurchase Agreements 3,268,972 4,202,653
Federal Home Loan Bank advances 4,000,000 5,000,000
Advances by borrowers for taxes and insurance 928 998
Other liabilities 1,181,530 1,345,917
------------ ------------
Total liabilities 274,675,627 260,266,154
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, par value $1;
Authorized and unissued -- 5,000,000 shares - -
Common stock, par value $1;
Authorized--7,000,000 shares:
Issued and outstanding--3,242,898 and
3,280,684 shares 3,242,898 3,280,684
Additional paid-in capital 2,298,019 3,020,798
Retained earnings--substantially restricted 39,644,779 38,272,422
Accumulated other comprehensive income 14,192 96,723
------------ ------------
Total stockholders' equity 45,199,888 44,670,627
------------ ------------
Total liabilities and stockholders' equity $319,875,515 $304,936,781
============ ============
See notes to consolidated financial statements.
<PAGE>
PEOPLES BANCORP
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three months ended Six months ended
March 31, March 31,
---------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ----------- -----------
Interest Income:
Loans $5,390,933 $5,028,576 $10,750,169 $ 9,943,231
Securities 293,152 457,795 638,037 955,829
Mortgage-backed securities 8,437 11,266 17,499 22,767
Other interest and dividend income 172,978 227,598 305,477 447,271
---------- ---------- ----------- -----------
5,865,500 5,725,235 11,711,182 11,369,098
---------- ---------- ----------- -----------
Interest Expense:
Now and savings deposits 580,728 510,080 1,133,385 1,026,867
Certificates of deposit 2,279,495 2,406,497 4,667,040 4,852,239
Short-term borrowings 34,559 50,448 123,406 92,673
Federal Home Loan Bank Advances 60,200 - 75,451 -
---------- ---------- ----------- -----------
2,954,982 2,967,025 5,999,282 5,971,779
---------- ---------- ----------- -----------
Net Interest Income 2,910,518 2,758,210 5,711,900 5,397,319
Provision for losses on loans 10,275 2,542 41,217 7,663
---------- ---------- ----------- -----------
Net Interest Income After Provision
for Losses on Loans 2,900,243 2,755,668 5,670,683 5,389,656
---------- ---------- ----------- -----------
Other Income:
Trust income 34,890 28,897 43,028 45,755
Fees and service charges 147,554 106,426 289,935 218,096
Other income 30,356 41,789 69,449 71,912
---------- ---------- ----------- -----------
212,800 177,112 402,412 335,763
---------- ---------- ----------- -----------
Other Expense:
Salaries and employee benefits 735,218 563,071 1,330,620 1,193,711
Net occupancy expenses 123,560 82,284 202,485 151,241
Equipment expenses 111,336 88,776 216,681 148,315
Data processing expense 95,884 83,245 197,467 160,976
Deposit insurance expense 37,486 37,616 73,310 75,195
Other expenses 276,111 257,308 564,993 520,984
---------- ---------- ----------- -----------
1,379,595 1,112,300 2,585,556 2,250,422
---------- ---------- ----------- -----------
Income Before Income Tax 1,733,448 1,820,480 3,487,539 3,474,997
Income tax expense 664,850 700,215 1,334,650 1,329,545
---------- ---------- ----------- -----------
Net Income $1,068,598 $1,120,265 $2,152,889 $ 2,145,452
========== ========== =========== ===========
Basic Income Per Common Share $0.33 $0.33 $0.66 $0.63
Diluted Income Per Common Share $0.33 $0.33 $0.66 $0.63
Average Common Shares Outstanding 3,253,664 3,382,787 3,262,204 3,386,446
See notes to consolidated financial statements.
<PAGE>
PEOPLES BANCORP
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
Accumulated
Common Stock Retained Other
--------------------- Additional Earnings Comprehensive
Number Paid-in (Substantially Comprehensive Income
of Shares Amount Capital Restricted) Income Net of Tax Total
--------- ----------- ---------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, September 30,
1998 3,280,684 $3,280,684 $3,020,798 $38,272,422 $ - $96,723 $44,670,627
Unrealized gains (losses) on
securities available for sale - - - - (82,531) (82,531) (82,531)
Cash dividends
($.24 per share) - - - (780,532) - (780,532)
Repurchase of stock (37,786) (37,786) (722,779) - - (760,565)
Net income for the
six months ended
March 31, 1999 - - - 2,152,889 2,152,889 - 2,152,889
---------- ---------- ---------- ------------- ------------- ------------- ------------
Balances, March 31,
1999 3,242,898 $3,242,898 $2,298,019 $39,644,779 $2,070,358 $14,192 $45,199,888
========== ========== ========== ============= ============= ============= ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
PEOPLES BANCORP
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
Six months ended
March 31,
--------------------------
1999 1998
------------ -------------
Operating Activities:
Net income $2,152,889 $ 2,145,453
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 41,217 7,663
Depreciation and amortization 208,876 148,887
Amortization of premiums and discounts on
investment securities (33,488) (89,848)
Amortization of deferred loan fees (220,433) (184,568)
Change in:
Interest receivable 96,755 50,416
Interest payable 117,612 45,669
Other adjustments: (1,370,612) 178,597
------------ -------------
Net cash provided by operating activities 992,816 2,302,269
------------ -------------
Investing Activities:
Net change in interest-bearing deposits (4,600,000) (2,761,041)
Purchases of securities-held to maturity - -
Purchases of investment securities-avilable for sale (2,180,447) (4,067,539)
Proceeds from maturities of investment
securities-held to maturity 4,156,444 62,744
Proceeds from maturities of
securities-available for sale 6,400,000 6,625,000
Net change in mutual funds (182,284) -
Net change in loans (12,569,371) (9,802,623)
Purchases of premises and equipment (138,177) (768,729)
Proceeds from sales of real estate owned 22,369 41,853
------------ -------------
Net cash used by investing activities (9,091,466) (10,670,335)
------------ -------------
Financing Activities:
Net change in:
NOW and savings accounts 8,892,434 4,315,125
Certificates of deposit 8,660,580 3,639,121
Short-term borrowings (933,681) 956,078
FHLB advances (1,000,000) -
Net change in advances by borrowers for
taxes and insurance (70) 840
Cash dividends (784,893) (734,926)
Repurchase of common stock (760,566) (319,934)
------------ -------------
Net cash provided by financing activities 14,073,804 7,856,304
------------ -------------
Net Change in Cash and Cash Equivalents 5,975,154 (511,762)
Cash and Cash Equivalents, Beginning of Period 3,567,625 10,732,144
------------ -------------
Cash and Cash Equivalents, End of Period $9,542,779 $10,220,382
============ =============
Additional Cash Flows and Supplementary Information:
Interest paid $5,881,670 $ 5,926,110
Income tax paid 1,479,991 1,292,907
See notes to consolidated financial statements.
<PAGE>
PEOPLES BANCORP
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the three and six months ended March 31, 1999
and 1998, and at March 31, 1999 and 1998, is unaudited.)
1. BASIS OF PRESENTATION
The significant accounting policies followed by Peoples Bancorp (the Company)
and its wholly-owned subsidiary, Peoples Federal Savings Bank of DeKalb County,
(the Bank), for interim financial reporting are consistent with the accounting
policies followed for annual financial reporting. All adjustments which are, in
the opinion of management, necessary for a fair presentation of the results for
the periods reported, consisting only of normal recurring adjustments, have been
included in the accompanying unaudited consolidated condensed financial
statements. The results of operations for the three and six months ended March
31, 1999, are not necessarily indicative of those expected for the remainder of
the year.
2. CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
The Consolidated Statement of Financial Condition at September 30, 1998, has
been taken from the audited consolidated financial statements at that date.
3. CASH DIVIDEND
A cash dividend of $.12 per common share was declared on February 16, 1999,
payable on April 22, 1999, to stockholders of record as of April 1, 1999.
4. EARNINGS PER COMMON SHARE
Basic earnings per share have been computed based on the average common shares
outstanding during, and the earnings for, the periods presented. Diluted
earnings per share were calculated as if outstanding stock options at March 31,
1999 and 1998 had been exercised, and the exercise price used to repurchase
stock at the then current market price. The resulting number of shares was used
to calculate the diluted earnings per share, which did not differ from the basic
earnings per share number.
<PAGE>
PEOPLES BANCORP
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the three and six months ended March 31, 1999
and 1998, and at March 31, 1999 and 1998, is unaudited.)
5. COMMITMENTS TO FUND LOANS
Commitments to fund mortgage loans are as follows:
March 31, 1999 September 30, 1998
-------------------- --------------------
Amount Rate Amount Rate
----------- -------- ------------ -------
Adjustable rate $2,456,350 $2,776,050
Fixed rate 4,207,450 7.06% 3,970,570 7.22%
------------ ======= ------------ =======
$6,663,800 $6,746,620
============ ============
6. STOCK REPURCHASE PLAN
On May 17, 1997, the Company's board of directors authorized the repurchase of
up to 240,000 of the Company's outstanding shares of common stock . Such
purchases will be made subject to market conditions in the open market or
privately negotiated transactions. At March 31, 1999, the Company has
repurchased 174,744 shares of its outstanding stock under this plan.
7. RECLASSIFICATIONS
Certain amounts in the 1998 consolidated financial statements have been
reclassified to conform to the 1999 presentation.
8. COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income for the fiscal year beginning October 1, 1998.
The only comprehensive income item affecting the company is the net unrealized
gain on available for sale securities. This item is presented, net of tax, as
part of the Consolidated Statement of Changes in Stockholders' Equity.
<PAGE>
PEOPLES BANCORP
AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Total assets at March 31, 1999 were $319,875,515, an increase of $14,938,734
from September 30, 1998. The increase is attributable primarily to loans which
increased $12,680,324 to $279,338,907, cash and cash equivalents which increased
$5,978,154 to $9,542,779, and interest-bearing time deposits which increased
$4,600,000 to $5,318,000. These increases were partially offset by decreases in
investment securities.
Total deposits were $266,224,197 at March 31, 1999, an increase of $17,678,917
since September 30, 1998.
LIQUIDITY
As calculated for regulatory purposes, liquidity was 7.62% at March 31, 1999 as
compared to 9.42% at September 30, 1998. Liquidity and loan repayments may need
to be supplemented with borrowings from the Federal Home Loan Bank to meet loan
fundings and other obligations and expenditures.
CAPITAL RESOURCES
The following table presents Peoples Federal Savings Bank's current estimates of
its regulatory capital position as a dollar amount and as a percentage of assets
as of March 31, 1999.
At March 31, 1999
------------------------------------------------
Required for To Be Well
Actual Adequate Capital(1) Capitalized(1)
-------------- ------------- -------------------
Amount % Amount % Amount %
------- ----- ------- ----- ------- ------
Total risk-based capital (1)
(to risk-weighted assets) $37,984 22.6% $13,467 8.0% $16,833 10.0%
Tier 1 Capital (1)
to adjusted tangible assets) $37,036 11.8% $12,574 4.0% $18,861 6.0%
Tier 1 Capital (1)
to adjusted total assets) $37,036 11.8% $12,574 4.0% $15,718 5.0%
(1) as defined by regulatory agencies
<PAGE>
PEOPLES BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
SUMMARY OF RESULTS OF OPERATIONS
Peoples Bancorp and subsidiary had net income of $1,068,598 or $0.33 per share
and $2,152,889 or $.66 per share for the three and six months ended March 31,
1999 as compared to $1,120,265 or $0.30 per share and $2,145,452 or $.63 per
share for the same periods ended 1998. Income was substantially unchanged due to
higher net interest income being offset by higher operating expenses.
NET INTEREST INCOME
Net interest income was $2,900,243 and $5,670,683, for the three and six months
ended March 31, 1999 as compared to $2,755,668 and $5,389,656 for the same
periods ended 1998. Interest income increased $342,084 to $11,711,182 for the
six months primarily due to higher volumes of loans. Interest expense increased
$27,503 to $5,999,282 due to a combination of lower rates and higher volumes of
deposit accounts, and higher volumes of borrowings. Provision for loan loss
increased $33,554 to $41,217 for the six months ended March 31, 1999, reflecting
management's continued review of the loan portfolio.
The following table presents average balances and associated rates earned and
paid for all interest earning assets and interest bearing liabilities for the
six months ended March 31, 1999 and 1998. (dollars in thousands)
1999 1998
--------------------------- --------------------------
Average Interest Effective Average Interest Effective
Balance Yield Rate Balance Yield Rate
-------- -------- --------- -------- -------- --------
Loans $277,526 $10,750 7.75% $244,131 $ 9,943 8.15%
Securities 19,930 638 6.40% 33,184 956 5.76%
Mortgage-backed
securities 347 17 9.80% 471 23 9.77%
Other 9,555 306 6.41% 13,278 447 6.73%
-------- -------- -------- --------
Combined 307,358 11,711 7.62% 291,064 11,369 7.81%
-------- -------- -------- --------
NOW and savings
deposits 80,676 1,133 2.81% 72,209 1,027 2.84%
Certificates of deposit 176,008 4,667 5.30% 171,689 4,852 5.65%
Borrowings 7,919 199 5.03% 3,761 93 4.95%
-------- -------- -------- --------
Combined $264,603 5,999 4.53% $247,659 5,972 4.82%
-------- -------- -------- --------
Net interest income/
interest rate spread $5,712 3.09% $ 5,397 2.99%
======= ========= ======== ========
<PAGE>
PEOPLES BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The following table illustrates the change in net interest income due to changes
in rates and average volumes. (dollars in thousands)
Six months ended March 31, 1999 vs. 1998
Rate Volume Total
--------- -------- ---------
Loans $(505) $1,312 $ 807
Securities 97 (415) (318)
Mortgage-backed
securities - (5) (5)
Other (21) (121) (142)
-------- --------- -------
Total (429) 771 342
-------- --------- -------
NOW and savings deposits (11) 117 106
Certificates of deposit (304) 119 (185)
Short-term borrowings - 31 31
FHLB advances - 75 75
-------- --------- -------
Total (315) 342 27
-------- --------- -------
Net interest income $(114) $ 429 $ 315
======== ========= =======
NON-PERFORMING ASSETS AND SUMMARY OF LOAN LOSS EXPERIENCE
Non-performing assets at March 31, 1999 and September 30, 1998 are as
follows:(dollars in thousands)
March 31, 1999 September 30, 1998
Non-accruing loans $ 684 $ 729
Loans contractually past due 90 days
or more other than nonaccruing 90 23
Real estate owned 46 -
------- -------
$ 820 $ 752
======= =======
<PAGE>
PEOPLES BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
NON-PERFORMING ASSETS AND SUMMARY OF LOAN LOSS EXPERIENCE (CONT'D)
The following table analyzes the allowance for loan and REO losses for the six
months ended March 31, 1999 and 1998. (dollars in thousands)
Loans REO
------------- --------------
1999 1998 1999 1998
------ ------ ------ -------
Balance at 9/30 $947 $887 $ - $ -
Provision adjustment charged
(credited) to expense 41 8 6 -
Chargeoffs (28) (19) - -
Recoveries 9 18 - -
------ ------ ------ -------
Balance at 3/31 $969 $894 $ 6 $ -
====== ====== ====== =======
It is the Bank's policy to carry REO at net realizable value. After
repossession, appraised value is reduced for estimated repair and selling costs,
and the net amount is the carrying value of the property. Any changes in
estimated realizable value after the initial repossession, are charged to a
specific loss reserve account for REO. At present, all REO is carried at the
Bank's estimated realizable value.
Management continually reviews the mix and delinquency status of its loan
portfolio and classifies those loans which it deems appropriate. As of March 31,
1999, asset balances and the corresponding allocation of the provision for loan
losses were as follows: (dollars in thousands)
Asset Allocation of
Balance Reserve
----------- --------------
Loss $ 22 $ 22
Doubtful - -
Substandard 928 186
Unclassified 318,926 761
---------- ---------
$319,876 $969
========== =========
<PAGE>
PEOPLES BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
NON-PERFORMING ASSETS AND SUMMARY OF LOAN LOSS EXPERIENCE (CONT'D)
The allowances for loan and real estate owned losses represent amounts available
to absorb future losses. Such allowances are based on management's continuing
review of the portfolios, historical charge-offs, current economic conditions,
and such other factors, which in management's judgment deserve recognition in
estimating possible losses. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the allowance
for loan losses. Such agencies may require additions to the allowances based on
their judgment about the information available to them at the time of their
examination. Provisions for losses are charged to earnings to bring the
allowances to levels considered necessary by management. Losses are charged to
the allowances when considered probable, or in the case of REO, at the time of
repossession. Management believes that the allowances are adequate to absorb
known and inherent losses in the portfolio. No assurance can be given, however,
that economic conditions which may adversely affect the Bank's markets or other
circumstances will not result in future losses in the portfolio.
The following table presents an allocation of the Bank's allowance for loan
losses at the dates indicated and the percentage of loans in each category to
total loans. (dollars in thousands)
Balance at end of period March 31,
applicable to: ---------------------------------
1999 1998
-------------- ----------------
Residential Mortgage Loans $885 91.1% $651 92.5%
Commercial Real Estate Loans 18 2.9% 10 2.1%
Commercial and Other Loans - - - -
Consumer Loans 56 6.0% 34 5.4%
Unallocated 10 199
------ ------- ------ -------
Total $969 100.0% $894 100.0%
====== ======= ====== =======
<PAGE>
PEOPLES BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
NON-INTEREST INCOME
The Company's non-interest income increased to $402,412 as compared to $335,763
for the same period one year ago. The increase was attributable to higher fee
income.
NON-INTEREST EXPENSE
Total non-interest expense for the three and six months ended March 31, 1999 was
$1,379,595 and $2,585,556 as compared to $1,112,300 and $2,250,422 for 1998. The
increase was due to increased equipment expenses due to the addition of new
mortgage loan processing software, ATM machines and other computer upgrades
being undertaken in anticipation of the year 2000, and increases in trust
expense and NOW department expense due to software upgrades which necessitate
higher support fees. Salaries and employee benefits increased $136,909 to
$1,330,620 due to the addition of a seventh branch office in April, 1998 and the
addition of extra loan officers to deal with a very high loan demand.
INCOME TAXES
Income taxes for the six months ended March 31,1999 were substantially unchanged
at $1,334,650 as compared to $1,329,545 for the same period last year.
YEAR 2000
The Bank began working on its Year 2000 conversion process in 1997 as part of a
project to update our information systems to a level that would allow us to
compete in the 21st century. As a result, the Bank began a comprehensive review
to identify all systems that would be affected, estimate cost projections, and
compile a schedule or plan of action. The Bank is on schedule by having all
internal & external mission critical systems tested and/or certified Year 2000
compliant.
The Bank's plan of action follows the FFIEC's suggested steps of Awareness,
Assessment, Renovation, Validation, and Implementation. The Bank's progress
toward completion of each step is as follows:
Awareness Phase
Starting in 1997, the Board of Directors assigned Year 2000 responsibility to
the Director of Information Services who developed a strategy to address all
internal and external systems. Routine periodic reports were furnished to the
board of directors and requests to purchase the necessary hardware and software
to completely upgrade all systems were approved by the Board of Directors. In
early 1998 the Board of Directors appointed a Y2K Steering Committee composed of
senior managers to monitor the Bank's Year 2000 efforts. The Steering Committee
meets quarterly, or more often if necessary. The Bank has completed this step.
<PAGE>
PEOPLES BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Assessment Phase
By July of 1997, management believed that all business processes and elements of
the Bank's internal information systems and embedded chip systems had been
identified and priorities set. Resource needs were identified, time frames
established, and contingency plans were reviewed. The Bank has completed this
step.
Renovation Phase
This phase includes hardware and software upgrades, system replacements, vendor
certification and associated changes. This phase also encompasses discussions
with and monitoring of outside servicers and third party software providers.
In 1997, the Bank began replacing all internal hardware and software as
necessary to upgrade to a Windows NT based operating system that would be Year
2000 compliant and meet the perceived technological challenges of the future. In
1997 the Bank also started to actively monitor our primary critical systems
provider's efforts to renovate their systems to be Year 2000 compliant. The Bank
has also made efforts to monitor other third party non-missions critical
vendors' progress in attaining Year 2000 compliance.
Internal Hardware - Since 1997, the Bank has replaced or scheduled to replace
its internal hardware. Management feels that all internal hardware will be Year
2000 complaint by October 30, 1999.
Internal Software - The Bank has received certification by the appropriate
vendors that all critical software utilized by our Wide Area Network as well as
the consumer lending, tellering, general ledger, trust, and FedLine areas are
Year 2000 compliant. The Bank has upgraded the consumer loan application
software, trust department software and our mortgage lending application
software. Vendor certified Year 2000 software to operate the check processing
system has been installed and tested. Management feels that all internal
software is Year 2000 compliant.
Any additional hardware or software acquisitions or replacements will be vendor
certified Year 2000 compliant before purchase.
As is our practice with all mission critical system upgrades we will test the
upgrades prior to replacement of current Year 2000 compliant hardware or
software. Management considers this phase complete.
<PAGE>
PEOPLES BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Validation/Testing Phase
Since June of 1998, the Bank has been conducting a systematic testing of all
internal computer hardware and software. Testing is completed by performing
extensive testing with the computer dates converted to potentially troublesome
dates such as January 1, 2000 or February 29, 2000. Internal testing of upgrades
will continue through June 30, 1999. This testing schedule allows time to
correct any discovered deficiencies before the end of 1999. This phase is
approximately 99% complete as of March 31, 1999.
Implementation Phase
Systems successfully tested will be certified as Year 2000 compliant. For any
system failing validation testing, the business impact must be assessed and a
contingency plan implemented. This phase is scheduled for completion by June 30,
1999.
Third Party Providers - BISYS provides the Bank with mainframe services in its
teller, general ledger, and commercial lending areas. BISYS has certified that
its systems are Year 2000 compliant. The Bank is 99% complete with the testing
of the interface between BISYS and the Bank and the software's performance when
encountering potentially troublesome dates such as January 3, 2000 and February
29, 2000. The Bank has reviewed the test results for all deposit and loan
transactions and additional testing will be conducted if necessary. All testing
will be completed by June 30, 1999.
Cost - The Bank believes that the Year 2000 issue will not pose significant
operational problems and is not anticipated to be material to its financial
position or results of operations in any given year. Year 2000 costs are not
always easy to separate from upgrades or changes in hardware/software for other
reasons. The Bank currently believes that all major expenditures relating to
year 2000 have been made and therefore, estimates that only $60,000 in Year 2000
cost will be incurred over the remaining 6 months.
Customer Awareness - The Bank has developed a customer awareness plan utilizing
statement stuffers, individualized responses to customer inquiries and lobby
information. The Bank has maintained a positive approach in responding to
inquiries.
Contingency Planning - A formal Year 2000 contingency plan has been developed
and approved by the board of directors. However, the plan will be reviewed and
its focus narrowed to more definitively address worse case scenarios based upon
the results of mock disaster testing.
The costs and completion dates for testing and corrections of Year 2000 problems
are based on management's best estimates, which were derived utilizing numerous
forward assumptions. However, there can be no guarantee that these estimates
will be achieved and actual results could differ materially from these
estimates. Specific factors that might cause such material differences include,
but are not limited to, the ability to locate and correct all relevant computer
programs, failure of a key third parties to meet expectations, and availability
and cost of key personnel.
<PAGE>
PART II. OTHER INFORMATION
PEOPLES BANCORP
AND SUBSIDIARY
Item 6. Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended March 31, 1999.
<PAGE>
PEOPLES BANCORP
AND SUBSIDIARY
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
(REGISTRANT)
Date: April 21, 1999 Maurice F. Winkler III
President and Chief Operating Officer
Date: April 21, 1999 Deborah K. Stanger
Vice President and Chief Financial Officer
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