TABLE OF CONTENTS
1 Corporate Profile
2 Financial Highlights
3 Letter to Shareholders and Friends
4 New Growth Spurs Excitement
5 Board of Directors
6 Executive Officers and Branch Managers
7 Independent Auditor's Report
8 Statement of Management's Responsibility
9 Selected Consolidated Financial Data
10-16 Management's Discussion and Analysis
17-20 Consolidated Financial Statements
21-32 Notes to Consolidated Statement
Cover Photos
Depicts 75 years of growth starting in 1925
<PAGE>
Corporate Profile
Peoples Bancorp (the "Company') is a holding company formed in 1990. Its stock
is traded on the NASDAQ National Market System under the symbol PFDC.
The Company's primary assets are Peoples Federal Savings Bank of Dekalb County
("Peoples") and First Savings Bank ("First Savings"). Peoples was formed in
1925. The Company has grown to assets of more than $459 million with the
addition of First Savings Bank to the holding company.
Peoples' main office is located in Auburn, Indiana with full service offices in
Avilla, two branches in Columbia City, Garrett, Kendallville, LaGrange, and
Waterloo. On February 29, 2000 a merger was completed with Three Rivers
Financial Corp., which added First Savings Bank to the holding company. First
Savings operates six offices in Howe and Middlebury, Indiana and Union,
Schoolcraft, and Three Rivers, Michigan.
The Banks' financial services include mortgages, trusts, consumer banking, and
individual retirement accounts.
Both Peoples and First Savings are members of the
Federal Home Loan Bank System, and their deposits are are insured by the Federal
Deposit Insurance Corp.
Executive Officers of Bancorp
Roger J. Wertenberger
Chairman of the Board
Maurice F. Winkler, III
Executive Officer and President
Deborah K. Stanger
Treasurer
Independent Auditors
Olive LLP
201 North Illinois Street
Indianapolis, IN 46204
Legal Counsel
Manatt, Phelps & Phillips
1501 M Street NW
Suite 700
Washington, D.C. 20005
Transfer Agent
Fifth Third Bank
Corporate Trust Services
38 Fountain Square Plaza
Cincinnati, OH 45263
Tel: 513-579-5320
800-837-2755
Annual Meeting
The annual meeting of stockholders of Peoples Bancorp will be held
Wednesday, January 10, 2001, at 2:00 p.m. at Ramada Limited, 306 Touring Drive,
Auburn, Indiana 46706.
Corporate Information
Form 10-K Report.
A copy of the Company's 10-K, including financial statements as filed with
the Securities and Exchange Commission, will be furnished without charge to
stockholders of the company upon request to the Secretary, Peoples Bancorp, 212
West 7th ST., P.O. Box 231, Auburn, Indiana 46706. As of the close of business
on September 30, 2000 the Company had approximately 1,500 stockholders.
<PAGE>
FINANCIAL HIGHLIGHTS
---------------------------------------------------------------------
2000 1999
----------- ----------
(dollars in thousands except per share data)
Operating Results:
Net Interest Income $ 14,098 $ 11,766
Provision for Loan Losses 160 89
Dividends Per Share 0.53 0.49
Average Equity to Average Assets 13.53% 14.12%
At Year End:
Assets $459,908 $327,563
Loans 392,085 270,523
Allowance for Loan Losses 1,650 1,005
Deposits 352,856 270,994
Stockholders' Equity 57,300 45,456
Book Value Per Share 15.64 14.28
Common Stock Information
---------------------------------------------------------------------
Market Price
----------------------- Dividends
Low High Per Share
---------- -----------
Fiscal 2000
1st QTR $15.63 $17.13 $ 0.13
2nd QTR 13.44 17.13 0.13
3rd QTR 12.88 15.00 0.13
4th QTR 13.75 17.38 0.14
Fiscal 1999
1st QTR $19.50 $20.88 $ 0.12
2nd QTR 19.75 20.63 0.12
3rd QTR 18.50 20.00 0.12
4th QTR 15.50 19.13 0.13
The price of PFDC stock traded on NASDAQ on November 26, 2000 was $14.88
Graphs on this page show total assets, deposits, book value, and total loans for
the last five years in line graph format.
<PAGE>
To Our Stockholders and Friends:
We are pleased to report that Fiscal 2000 was another excellent earning
year for Peoples Bancorp. Earnings for the year totaled $4,547,954.
This past year has been a period of significant achievements.
Our preparation for the transition to the new millennium intended and
ensured no interruption of service to our valued customers.
We completed the merger of Three Rivers Financial Corporation through a
stock transfer with Peoples Bancorp. This transition added six additional
banking offices to our total.
We completed and opened the new Waterloo Branch. We are pleased with the
new facility and the corresponding asset growth.
In Fiscal 2000, due to the reduced valuation placed on Financial Stocks, we
were able to repurchase 289,794 shares at an average price of $14.09. This will
enhance the book value and earnings per share in the future.
On October 25, 2000 Peoples celebrated its 75th Anniversary. We take great
pride in our long-standing commitment to our customers and the communities in
which they live and work. This philosophy and attitude started 75 years ago when
the bank opened and continues to this day.
Effective January 2001, Dr. John Harvey, a valued and trusted friend of the
Company will retire from the Board of Directors after 22 years of service. Dr.
Harvey has made many contributions to the Board over the years and we're
fortunate he has agreed to serve as a Director Emeritus.
This is a challenging time to be in the Financial Services Business. Rising
interest rates have put pressure on net interest margins and are beginning to
slow the economy. This trend has clearly offset some of the benefits of our
strong loan growth.
For Peoples Bancorp, this fiscal year's results reflected the effects of
these and other factors influencing institutions throughout the banking
industry. For the year, we reported net income of $4,547,954, or $1.32 diluted
earnings per common share. This compared to $4,586,766 or $1.42 diluted earnings
per common share, for the prior fiscal year. Still, while the 2000 fiscal year
figures fell slightly below our record-breaking performance of previous years,
they represent solid results in a time of rising interest rates and changing
demand for financial products.
We appreciate the support and confidence of our shareholders and look
forward to continuing to serve our valued customers and communities. Since our
first cash dividend declared 12/15/87, the Board of Directors has increased the
dividend each year, as our profits grow we hope to continue this trend as a
reward to our loyal shareholders.
Sincerely
Roger J Wertenberger
Chairman of the Board
<PAGE>
NEW GROWTH SPURS EXCITEMENT
Economic Opportunities-The combination of Peoples Federal Savings Bank
(Peoples) and First Savings Bank (First Savings) this year extends the reach of
both institutions. Peoples gains nearby areas in southern Michigan, such as
Three Rivers, Schoolcraft, and Union, along with the Howe and Middlebury
communities in Indiana. Together, our organization is poised to capture an even
greater presence, such as in the strong home mortgage market. Peoples is ready
to help each customer, from first-time home buyers who may be moving into the
area or one of several new golf course/residential developments now under
construction, to established customers with other lifestyle goals in mind.
Peoples is also taking advantage of the growing tourism market by contributing
to the development of the Kendallville Windmill Museum; the $2.6 million
expansion of the Auburn Cord Duesenburg Museum; and the 351-acre World War II
museum, the only one of its kind in the nation, that just broke ground in
Auburn.
Growing Community Wal-Mart's 150-acre food storage facility, expected to
employ 250, is another testament to the potency of our local economy. But it is
only one example. Steel Dynamics is expected to begin construction in early 2001
of a new steel plant in Columbia City. American Axle, the biggest employer in
Three Rivers, and a Target Stores distribution facility both plan expansions.
The result of the growth is that our banks will continue to benefit as more jobs
are created in our service area.
And we're growing to keep pace. This year Peoples opened a new branch in
Waterloo, Indiana, which has attracted new ATM customers and bolstered our
agricultural business begun last year. The LaGrange office has also added an
ATM, and the Garrett office was recently remodeled.
Celebrating Tradition Peoples Federal Savings Bank celebrated its 75th
anniversary this fall and First Savings will celebrate 115 years in 2001. And
while we're looking ahead toward the next 75 years, Peoples is careful to
preserve the keystones that have made us successful thus far.
Sometimes tried and true methods work best. For example, our trust division
is growing dramatically (+64% this year and +55% annual increase over the past 3
years) because of the personal attention our staff gives to each customer, a
relationship that is missing from the automation at many other institutions. The
same management and personnel are in place to preserve continuity for the
customers of both banks. At the same time, new board members have been added to
drive the combined business forward.
Our commitment to customer service is what makes us a market leader.
Peoples is ready to meet the financial needs of northeast Indiana, and now
southern Michigan. We are planning for the continued growth in store for the
communities we serve. In fact, Peoples is an integral part of it. Through all of
this change, one guiding force remains. The commitment of the directors,
officers, and staff to serving the customers and stockholders of Peoples Bancorp
remains our sole reason for doing business.
<PAGE>
Board of Directors
Picture of Board of Directors Standing left to right: Russell A. Spice,
Erica D. Dekko, John C. Thrapp, Roger J. Wertenberger, Douglas D. Marsh, Maurice
F. Winkler, III, G. Richard Gatton, John C. Harvey, Steven R Olson, Jack L.
Buttermore, Jesse A. (Jack) Sanders, Lawrence R. Bowmar, Bruce S. Holwerda,
Robert D. Ball, (Not pictured Lloyd M. Cline).
Board of Directors
Roger J. Wertenberger - Chairman of the Board of the Bank,
Auburn, Indiana, Director since 1954.
Maurice F. Winkler, III - Chief Executive Officer and President of the Bank,
Auburn, Indiana, Director since 1993.
Erica D. Dekko - Financial Advisor for Dekko Financial
Services and director of Peoples Federal Savings Bank since
January, 2000. Director nominee for Peoples Bancorp 2001
election.
G. Richard Gatton - President and CEO of First Savings Bank of Three Rivers,
Michigan, Director since February 29, 2000.
John C. Harvey - Retired Physician, Auburn, Indiana. Director since 1979.
Bruce S. Holwerda - Vice President and Chief Operating Officer
Ambassador Steel Corporation, Auburn, Indiana Director since
1998.
Douglas D. Marsh - Chairman of the Board Applied Innovations, Inc., Chicago,
Illinois. Associate, Fairway Realtors, Inc., Auburn, Indiana.
Director since 1982.
Stephen R. Olson - Manager of Morton Buildings in Three
Rivers, Michigan and Director since February 29, 2000.
John C. Thrapp - Attorney, Thrapp & Thrapp, Kendallville, Indiana.
Director since 1990.
Robert D. Ball - Director Emeritus
Lawrence R. Bowmar - Director Emeritus
Jack L. Buttermore - Director Emeritus
Lloyd M. Cline - Director Emeritus
Jesse A. (Jack) Sanders - Director Emeritus
Russell A. Spice - Director Emeritus
<PAGE>
EXECUTIVE OFFICERS
Executive Officers of People's Federal Savings Bank
Roger J. Wertenberger - Chairman of the Board
Maurice F. Winkler, III - Chief Executive Officer and President
Donald E. Budd - Vice President-Trust Officer
Jeffery L. Grate - Vice President-Lending
Herma F. Fields - Vice President-Savings
Deborah K. Stanger - Vice President-Chief Financial Officer
Executive Officers of First Savings Bank
G. Richard Gatton - President and CEO
Jeffrey H. Gatton - Vice President Indiana Division
R. Orville Poling - Vice President-Lending
William F. Cody - Vice President-Lending
BRANCH MANAGERS
Branch Managers and Locations of People's Federal Savings Bank
Duwayne Anderson, Columbia City Downtown
123-129 S. Main St., Columbia City, IN 46725
April Haynes, Columbia City North
507 North Main St., Columbia City, IN 46725
Cindy Jollief, Avilla
105 North Main St., Avilla, IN 46710
Larry Kummer, Waterloo
625 Wayne St., Waterloo, IN 46793
Richard Lewton, LaGrange
114-118 South Detroit St., LaGrange, IN 46761
Clark Ream, Kendallville
116 West Mitchell St., Kendallville, IN 46755
Brenda Strohm, Garrett
1212 South Randolph St., Garrett, IN 46738
Maurice F. Winkler, III, President, Auburn
212 West Seventh St., Auburn, IN 46706
Branch Managers and Locations of First Savings Bank
G. Richard Gatton, President, Three Rivers
123 Portage Avenue, Three Rivers, MI 49093
Karen Bent, Schoolcraft
500 N. Grand, Schoolcraft, MI 49087
Mary Mihills, Three Rivers
1213 W. Michigan Ave., Three Rivers, MI 49093
Christy Linn, Union
15534 U.S. 12, Union, MI 49130
Jody Blake, Howe
303 Defiance St., Howe, IN 46746
Barbara Yoder, Middlebury
420 N. Main, Middlebury, IN 46540
<PAGE>
Independent Auditor's Report
To the Stockholders and
Board of Directors
Peoples Bancorp
Auburn, Indiana
We have audited the accompanying consolidated balance sheet of Peoples
Bancorp and subsidiaries as of September 30, 2000 and 1999, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended September 30, 2000. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements described above
present fairly, in all material respects, the consolidated financial position of
Peoples Bancorp and subsidiaries as of September 30, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 2000, in conformity with generally accepted
accounting principles.
Indianapolis, Indiana
October 27, 2000
<PAGE>
STATEMENT OF MANAGEMENT'S RESPONSIBILITY
The management of Peoples Bancorp is responsible for the preparation
and integrity of the consolidated financial statements and all other information
presented in this annual report. The consolidated financial statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis and therefore, include estimates based on management's'
judgment and estimates.
Management maintains a system of internal controls to meet its
responsibility for reliable financial information and the protection of assets.
This system includes proper segregation of duties, the establishment of
appropriate policies and procedures, and careful selection, training and
supervision of qualified personnel. In addition, both independent auditors and
management periodically review the system of internal controls and report their
findings to the Audit Committee of the Board of Directors.
The Committee is composed of non-management directors and meets
periodically with the independent auditors and management to review their
respective activities and responsibilities. Each has free and separate access to
the Committee to discuss accounting, financial reporting, internal control and
audit matters.
Management recognized that the cost of a system of internal controls
should not exceed the benefits derived and that there are inherent limitations
to be considered in the potential effectiveness of any system. However,
management believes that the Company's system of internal controls provides
reasonable assurance that financial information is reliable and that assets and
customer deposits are protected.
Roger J. Wertenberger
Chief Executive Officer
Maurice F. Winkler III
President
Deborah K. Stanger
Chief Financial Officer
<PAGE>
<TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
September 30
------------------------------------------------------------------
2000 1999 1998 1997 1996
-------------- ------------ ------------ ------------ ------------
Financial Condition Data:
<S> <C> <C> <C> <C> <C>
Total assets $459,908,211 $327,562,551 $304,936,781 $290,601,595 $280,011,850
Loans receivable, net 390,435,094 296,869,920 266,658,583 235,255,669 223,011,251
Investments and other
interest-earning assets 44,651,407 21,108,106 27,664,033 46,439,468 47,970,950
Deposits 352,855,715 270,522,938 248,545,280 241,790,139 235,081,440
Borrowed funds 47,182,393 10,239,739 9,202,653 3,162,400 -
Stockholders' equity 57,299,548 45,456,219 44,670,627 44,298,170 42,676,765
For Year Ended September 30
------------------------------------------------------------------
2000 1999 1998 1997 1996
-------------- ------------ ------------ ------------ ------------
Operating Data:
Interest income $ 30,425,367 $ 23,827,383 $ 22,954,202 $ 21,897,799 $ 21,736,000
Interest expense 16,327,846 12,061,198 12,087,265 11,467,559 11,229,590
-------------- ------------ ------------ ------------ ------------
Net interest income 14,097,521 11,766,185 10,866,937 10,430,240 10,506,410
Provision
for losses on loans 159,869 88,969 74,621 50,000 8,824
-------------- ------------ ------------ ------------ ------------
Net interest income
after provision
for losses on loans 13,937,652 11,677,216 10,792,316 10,380,240 10,497,586
Other income 1,280,830 853,719 757,682 644,164 640,928
Other expenses 7,770,839 5,459,293 4,746,908 4,228,452 5,930,049
-------------- ------------ ------------ ------------ ------------
Income before income taxes 7,447,643 7,071,642 6,803,090 6,795,952 5,208,465
Income tax expense 2,899,689 2,484,876 2,596,395 2,593,760 1,996,007
-------------- ------------ ------------ ------------ ------------
Net income $ 4,547,954 $ 4,586,766 $ 4,206,695 $ 4,202,192 $ 3,212,458
============== ============ ============ ============ ============
Net income per common share $1.33 $1.42 $1.25 $1.22 $0.91
============== ============ ============ ============ ============
Dividends per common share $0.53 $0.49 $0.45 $0.41 $0.37
============== ============ ============ ============ ============
Other Data:
Average yield
on all interest-earning assets 8.20% 7.63% 7.75% 7.76% 7.85%
Average cost
of all interest-bearing liabilities 5.06 4.45 4.79 4.80 4.79
------------ ----------- --------- ---------- ----------
Interest rate spread 3.14% 3.18% 2.96% 2.96% 3.06%
============ =========== ========= ========== ==========
Number of full service banking offices 14 8 7 7 6
Return on assets (net income divided by
average total assets) 1.20 1.44 1.40 1.47 1.15
Return on equity (net income divided
by average total equity) 8.66 10.19 9.31 9.69 7.50
Dividend payout ratio
(dividends per common share divided by
net income per common share) 39.85% 34.51% 36.00 33.61 40.66
Equity to assets ratio (average total equity
divided by average total assets) 13.53% 14.12% 15.08 15.22 15.37
</TABLE>
<PAGE>
General
Peoples Bancorp (the "Company") is an Indiana corporation organized in
October 1990 to become the thrift holding company for Peoples Federal Savings
Bank ("Peoples Federal"). Effective February 29, 2000 the Company purchased
Three Rivers Financial Corp. and its wholly owned subsidiary, First Savings Bank
("First Savings'). The Company is the sole stockholder of Peoples Federal and
First Savings(collectively Banks). Peoples Federal conducts business from its
main office in Auburn and in its seven full service offices located in Avilla,
Columbia City, Garrett, Kendallville, LaGrange, and Waterloo Indiana. Peoples
Federal offers a full range of retail deposit services and lending services to
northeastern Indiana. First Savings conducts business from its main office in
Three Rivers, Michigan and its 5 full service offices in Schoolcraft, and Union,
Michigan and Howe and Middlebury, Indiana. The Company's primary business
activity is being the holding company for Peoples Federal and First Savings.
Historically, the principal business of savings banks, including
Peoples Federal and First Savings, has consisted of attracting deposits from the
general public and making loans secured by residential real estate. Peoples
Federal's net earnings are contingent on the difference or spread between the
interest earned on its loans and investments and the interest paid on its
consumer deposits and borrowings. Prevailing economic conditions, government
policies, regulations, interest rates, and local competition also significantly
affect the Bank. First Savings earnings are affected by the same factors.
The Company's earnings are primarily dependent upon the earnings of the
Banks. Interest income is a function of the balance of loans and investments
outstanding during a given period and the yield earned on such loans and
investments. Interest expense is a function of the amounts of deposits and
borrowings outstanding during the same period and the rates paid on such
deposits and borrowings. The Banks' earnings are also affected by gains and
losses on sales of loans and investments, provisions for loan losses, service
charges, income from subsidiary activities, operating expenses and income taxes.
On a yearly basis, The Company updates its long-term strategic plan.
This plan includes, among other things, The Company's commitment to maintaining
a strong capital base and continuing to improve the organization's return on
assets through asset growth and controlling operating expenses. Continued
careful monitoring of interest rate risk is also cited as an important goal. As
a result, continued origination of short-term consumer and installment loans,
prime plus equity loans, adjustable rate mortgage loans, and fixed-rate real
estate loans with original terms of 15 years or less will be emphasized.
The following table sets forth the weighted average yield on
interest-earning assets and the weighted average rate on interest- bearing
liabilities for the years ending September 30, 2000, 1999, and 1998.
September 30
----------------------
2000 1999 1998
------ ------- ------
Weighted average interest rate on:
Loans 8.48% 7.72% 8.03%
Securities 7.28 6.95 6.02
Other interest-earning assets 4.61 6.05 6.58
Combined 8.20 7.63 7.75
Weighted average cost of:
NOW and savings deposits 3.32 2.81 2.85
Certificates of deposit 5.57 5.20 5.62
Borrowings 7.87 5.28 5.21
Combined 5.06 4.45 4.79
Interest rate spread 3.14 3.18 2.96
Net yield on weighted average
interest-earning assets 3.80 3.77 3.67
The following table sets forth the weighted average yield on
interest-earning assets and the weighted average rate of interest- bearing
liabilities at September 30, 2000, 1999 and 1998.
At September 30
------------------------------
2000 1999 1998
--------- --------- --------
Weighted average interest rate on:
Loans 8.15% 7.73% 7.98%
Securities 5.44 6.61 5.61
Other interest-earning assets 10.69 7.62 5.01
Combined 8.06 7.66 7.76
Weighted average cost of:
NOW and savings deposits 2.96 3.01 2.78
Certificates of deposit 6.11 5.19 5.72
Borrowings 6.42 6.33 5.22
Combined 5.12 4.50 4.84
Interest rate spread 2.94 3.16 2.92
Asset and Liability Management
The Banks, like other savings banks, are subject to interest rate risk
to the degree that their interest-bearing liabilities, primarily deposits with
short and medium-term maturities, mature or reprice more rapidly than its
interest-earning assets. Although having liabilities that mature or reprice more
frequently on average than assets will be beneficial in times of declining
interest rates, such an asset/liability structure will result in lower net
income during periods of rising interest rates, unless offset by other factors
such as noninterest income.
Historically, all of the Banks' real estate loans were made at fixed
rates. More recently, the Banks have adopted an asset and liability management
plan that calls for the origination of residential mortgage loans and other
loans with adjustable interest rates, the origination of 15-year or less
residential mortgage loans with fixed rates, and the maintenance of investments
with short to medium terms.
<PAGE>
The following table illustrates the projected maturities and the
repricing mechanisms of the major asset and liability categories of the Banks as
of September 30, 2000. Maturity and repricing dates have been stated to reflect
the contractual maturity and repricing dates. The information presented in the
following table is derived from information that is provided to the OTS in
"Schedule CMR: Maturity and Rate" filed as part of the Banks' September 30,
2000, quarterly reports. The data contained in the following report is the
contractual repricing information and does not contain any assumptions regarding
repricing.
<TABLE>
At September 30, 2000
(Dollars in Thousands)
------------------------------------------------------------------------
3 Months More than 3 Months Over
Period to maturity or repricing or Less Thru 1 Year 1-3 Years 3-5 Years 5 Years Total
---------- ------------------ ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Adjustable rate loans $ 7,454 $ 17,992 $ 19,628 $ 26,455 $ - $ 71,529
Fixed rate loans 4,842 5,285 4,372 21,579 253,181 289,259
Investment securities 13,177 2,800 2,536 6,342 4,869 29,724
Consumer and other loans 19,229 4,506 6,285 8,660 3,310 41,990
---------- ----------------- ---------- ---------- ---------- ----------
Total Assets Subject to Repricing 44,702 30,583 32,821 63,036 261,360 432,502
---------- ----------------- ---------- ---------- ---------- ----------
Liabilities Subject to Repricing:
Certificates of deposit 57,352 67,985 88,166 7,667 - 221,170
N.O.W. and other transaction accounts 47,519 - - - - 47,519
Passbook accounts 43,727 - - - - 43,727
Money market accounts 40,440 - - - - 40,440
Borrowings 997 12,242 6,993 4,000 22,950 47,182
---------- ----------------- ---------- ---------- ---------- ----------
Total Liabilities Subject to Repricing 190,035 80,227 95,159 11,667 22,950 400,038
---------- ----------------- ---------- ---------- ---------- ----------
Excess (deficiency) of rate sensitive
assets over rate sensitive liabilities $(145,333) $ (49,644) $ (62,338) $ 51,369 $ 238,410 $32,464
========== ================= ========== ========== ========== ==========
Cumulative excess (deficiency) of rate
sensitive assets over rate sensitive $(145,333) $(194,977) $(257,315) $(205,946) $ 32,464 $32,464
========== ================= ========== ========== ========== =========
liabilities
As a % of Total Assets Subject to Repricing (33.60)% (45.08)% (59.49)% (47.62)% 7.51% 7.51%
</TABLE>
A negative interest rate gap leaves the Banks' earnings vulnerable to
periods of rising interest rates because during such periods, the interest
expense paid on liabilities will generally increase more rapidly than the
interest income earned on assets. Conversely, in a falling interest rate
environment, the total expense paid on liabilities will generally decrease more
rapidly than the interest income earned on assets. A positive interest rate gap
will have the opposite effect. The Company's management believes that the Banks'
interest rate gap in recent periods has generally been maintained within an
acceptable range in view of the prevailing interest rate environment.
The OTS issued a regulation, which uses a net market value methodology to
measure the interest rate risk exposure of thrift institutions. Under this OTS
regulation, an institution's "normal" level of interest rate risk in the event
of an assumed change in interest rates is a decrease in the institution's NPV in
an amount not exceeding 2% of the present value of its assets. Thrift
institutions with over $300 million in assets or less than a 12% risk-based
capital ratio are required to file OTS Schedule CMR. Data from Schedule CMR is
used by the OTS to calculate changes in NPV (and the related "normal" level of
interest rate risk) based upon certain interest rate changes (discussed below).
Institutions that do not meet either of the filing requirements are not required
to file OTS Schedule CMR, but may do so voluntarily. Under the regulation,
institutions that must file are required to take a deduction (the interest rate
risk capital component) from their total capital available to calculate their
risk-based capital requirement if their interest rate exposure is greater than
"normal". The amount of that deduction is one-half of the difference between (a)
the institution's actual calculated exposure to a 200 basis point interest rate
increase or decrease (whichever results in the greater pro forma decrease in
NPV) and (b) its "normal" level of exposure which is 2% of the present value of
its assets.
<PAGE>
Presented below, as of September 30, 2000 and 1999, is an analysis
performed by the OTS of Peoples Federal's interest rate risk as measured by
changes in NPV for instantaneous and sustained parallel shifts in the yield
curve, in 100 basis point increments, up and down 300 basis points. At September
30, 2000 and 1999, 2% of the present value of Peoples Federal's assets were
approximately $7.1 million and $6.5 million. Because the interest rate risk of a
200 basis point decrease in market rates (which was greater than the interest
rate risk of a 200 basis point increase) was $10.4 million at September 30, 2000
and $12.0 million at September 30, 1999, Peoples Federal would have been
required to make a deduction from its total capital available to calculate its
risk based capital requirement if the OTS's regulation had been enacted. The
decrease in interest rate risk from 1998 to 1999 is due to an improved match of
expected cash flows from assets and liabilities.
Interest RateRisk As of September 30, 2000
Changes Market Value
in Rates $ Amount $ Change % Change NPV Ratio Change
---------- -------- ------------- -------- ---------- --------
+300 bp 27,791 (15,947) -36% 8.45% (394)
+200 bp 33,519 (10,399) -24% 9.89% (250)
+100 bp 38,971 (4,547) -11% 11.23% (116)
0 bp 43,918 - - 12.39% -
-100 bp 47,197 3,279 7% 13.09% 70
-200 bp 48,238 4,230 10% 13.23% 84
-300 bp 49,283 5,365 12% 13.37% 98
Interest RateRisk As of September 30, 1999
Changes Market Value
in Rates $ Amount $ Change % Change NPV Ratio Change
---------- -------- ------------- -------- ---------- --------
+300 bp 23,070 (10,664) -45% 7.58% (536)
+200 bp 29,702 (12,032) -29% 9.61% (323)
+100 bp 36,101 (5,633) -13% 11.27% (147)
0 bp 41,734 - 0% 12.74% -
-100 bp 45,518 3,784 9% 13.67% 93
-200 bp 48,072 6,338 15% 14.26% 151
-300 bp 50,646 8,912 23% 14.83% 209
Presented below, as of September 30, 2000 and 1999, is the same analysis
performed by the OTS of First Savings' interest rate risk. At September 30, 2000
and 1999, 2% of the present value of First Savings' assets were approximately
$2.1 million. Because the interest rate risk of a 200 basis point decrease in
market rates (which was greater than the interest rate risk of a 200 basis point
increase) was $2.9 million at September 30, 2000. First Savings would have been
required to make a deduction from its total capital available to calculate its
risk based capital requirement if the OTS's regulation had been enacted.
Although First Savings was not part of the Company as of September 30, 1999,
this information has been provided for comparative purposes only.
Interest RateRisk As of September 30, 2000
Changes Market Value
in Rates $ Amount $ Change % Change NPV Ratio Change
---------- -------- ------------ -------- --------- --------
+300 bp 8,380 (4,867) -37% 8.25% (427)
+200 bp 10,364 (2,883) -22% 10.05% (247)
+100 bp 12,013 (1,234) -9% 11.49% (103)
0 bp 13,247 - - 12.52%
-100 bp 14,027 780 6% 13.13% 61
-200 bp 14,617 1,370 10% 13.57% 105
-300 bp 15,231 1,984 15% 14.01% 149
Interest RateRisk As of September 30, 1999
Changes Market Value
in Rates $ Amount $ Change % Change NPV Ratio Change
---------- -------- ------------ -------- --------- --------
+300 bp 8,880 (3,471) -28% 9.20% (301)
+200 bp 10,232 (2,119) -17% 10.42% 0
+100 bp 11,436 (914) -7% 11.46% 1
0 bp 12,351 12.21%
-100 bp 12,923 572 5% 12.65% 44
-200 bp 13,346 996 8% 13.27% 106
In evaluating the Banks' exposure to interest rate risk, certain
shortcomings, inherent in the method of analysis presented in the foregoing
table must be considered. For example, although certain assets and liabilities
may have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Further, in the event of a change in interest rates, prepayments
and early withdrawal levels could deviate significantly from those assumed in
calculating the table. Finally, the ability of many borrowers to service their
debt may decrease in the event of an interest rate increase. As a result, the
actual effect of changing interest rates may differ from that presented in the
foregoing table.
Interest Income
Net interest income decreases during periods when the spread is
narrowed between the Banks' weighted average rate at which new loans are
originated and its weighted average cost of liabilities. In addition, the Banks'
ability to originate and sell mortgage loans is affected by market factors such
as interest rates, competition, consumer preferences, the supply of and demand
for housing, and the availability of funds.
<PAGE>
The following table sets forth the weighted average yields earned on
the Banks' assets and the weighted average rate paid on deposits and borrowings.
<TABLE>
Years ended September 30
(Dollars in Thousands)
---------------------------------------------------------------------------------------
2000 1999 1998
---------------------------- ---------------------------- -----------------------------
Average Interest Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate Balance Paid Rate
------------ -------- ------ ----------- --------- ------ ----------- --------- ------
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans(1) $329,742 $27,974 8.48% $285,296 $22,028 7.72% $252,520 $20,266 8.03%
Investment securities(2) 20,576 1,498 7.28 17,447 1,213 6.95 33,665 2,025 6.02
Other interest-earning assets 20,683 954 4.61 9,684 586 6.05 10,069 663 6.58
----------- -------- ----------- -------- ------------ --------
Total interest-earning assets 371,001 30,426 8.20 312,427 23,827 7.63 296,254 22,954 7.75
-------- ------- -------
Allowance for loan losses (1,618) (977) (906)
Other assets 18,780 7,325 4,291
----------- ----------- ------------
Total Assets $388,163 $318,775 $299,639
=========== =========== ============
Interest-bearing liabilities:
NOW and savings deposits $ 99,730 $3,315 3.32 $ 85,866 $ 2,415 2.81 $74,516 $2,124 2.85
Certificates of deposit 197,877 11,016 5.57 177,194 9,221 5.20 171,963 9,670 5.62
Borrowings 25,363 1,997 7.87 8,046 425 5.28 5,623 293 5.21
----------- -------- ----------- -------- ------------ --------
Total interest-bearing liabilities 322,970 16,328 5.06 271,106 12,061 4.45 252,102 12,087 4.79
-------- -------- ---------
Other liabilities 12,691 2,664 2,332
Stockholders' equity 52,502 45,005 45,205
----------- ----------- ------------
Total Liabilities and
Stockholders' equity $388,163 $318,775 $299,639
=========== =========== ============
Net interest income/spread $14,098 3.14 $11,766 3.18 $10,867 2.96
======== ======== ========
Net yield on interest earning assets 3.80 3.77 3.67
</TABLE>
The Company has supplemented its interest income through purchases of
investment securities when appropriate. Such investments include US Government
securities, including those issued and guaranteed by the Federal Home Loan
Mortgage Corporation ("FHLMC"), the Federal National Mortgage Association
("FNMA"), and the Government National Mortgage Association ("GNMA"), and state
and local obligations. This activity (a) generates positive interest rate
spreads on large principal balances with minimal administrative expense; (b)
lowers the credit risk of the Bank's loan portfolio as a result of the
guarantees of full payment of principal and interest by FHLMC, FNMA, and GNMA;
(c) enables the Bank to use securities as collateral for financings in the
capital markets; and (d) increases the liquidity of the Bank.
In addition to changes in interest rates, changes in volume can have a
significant effect on net interest income. The following table describes the
extent to which changes in interest rates and changes in volume of interest
related assets and liabilities have affected the Banks' interest income and
expense for the periods indicated. For the purposes of this table, changes
attributable to both rate and volume, which cannot be separated, have been
allocated proportionately to the change due to volume and the change due to
rate.
<PAGE>
<TABLE>
Years ended September 30,
-----------------------------------------------------------------------------------------------
2000 vs 1999 1999 vs 1998 1998 vs 1997
--------------------------- ------------------------- -----------------------------------------
Increase Increase Increase
(Decrease) Total (Decrease) Total (Decrease) Total
Due to Increase Due to Increase Due to Increase
---------------- --------------- ---------------
Volume Rate (Decrease) Volume Rate (Decrease) Volume Rate (Decrease)
--------- ------ ---------- -------- ------ ---------- -------- ------ ----------
Interest income from:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans $2,302 $3,643 $5,945 $ 2,565 $(803) $1,762 $1,779 $(271) $1,508
Investment securities 60 225 285 (1,089) 277 (812) (83) 48 (35)
Other interest-earning assets (97) 465 368 (25) (52) (77) (445) 28 (417)
--------- ------ ---------- -------- ------ ---------- -------- ----- ----------
Total interest income 2,265 4,333 6,598 1,451 (578) 873 1,251 (195) 1,056
--------- ------ ---------- -------- ------ ---------- -------- ----- ----------
Interest expense from:
NOW and savings deposits 476 424 900 322 (22) 300 126 49 175
Certificates of deposit 680 1,115 1,795 288 (737) (449) 301 (33) 268
Borrowings 291 1,281 1,572 125 (2) 123 167 9 176
--------- ------ ---------- -------- ------ ---------- -------- ----- ----------
Total interest expense 1,447 2,820 4,267 735 (761) (26) 594 25 619
--------- ------ ---------- -------- ------ ---------- -------- ----- ----------
Net interest income (expense) $ 818 $1,513 $2,331 $ 716 $ 183 $ 899 $ 657 $(220) $ 437
========= ====== ========== ======== ====== ========== ======== ===== ==========
</TABLE>
Operating Expense
While operating expenses have increased, the increases have been due in
large part to the expansion of the Company's operations. The increases are
service related and consist of the following: appraisal and legal fees in
connection with loan originations, data processing due to automating manual
systems; and start up costs for new services. Operating expenses, as a
percentage of the Company's total assets were 1.69%, 1.67%, and 1.56% for fiscal
years ended September 30, 2000, 1999, and 1998, respectively.
The Company continuously seeks to reduce operating expenses. In this
regard, the budget committee of the Board of Directors monitors the Company's
current operating budget on at least a quarterly basis to ascertain that expense
levels remain within projected ranges and to establish competitive, as opposed
to aggressive, rates for the Company's various deposit accounts. The Company's
efforts to contain operating expense also include underwriting policies that
attempt to reduce potential losses and conservative expansion of personnel.
Liquidity and Capital Resources
The standard measure of liquidity for savings banks is the ratio of
cash and eligible investments to a certain percentage of net withdrawable
savings and borrowings due within one year. The minimum required ratio is
currently set by OTS regulation at 4%, of which 1% must be comprised of
short-term investments (i.e., generally with a term of less than one year).
Liquid assets consist of cash and eligible investments, which include certain
United States Treasury obligations, securities of various federal agencies,
certificates of deposit at insured banks, federal funds, and bankers'
acceptances. At September 30, 2000, Peoples Federal had liquid assets of
$9,105,085. This represents a ratio of liquid assets to total assets of 4.30%.
First Savings had liquid assets of $17,395,840 or a ratio of 30.68%.
The primary internal sources of funds for operations are principal and
interest payments on loans and new deposits. In addition, if greater liquidity
is required, the Banks can borrow from the FHLB. In the opinion of management,
the Banks' liquid assets are adequate to meet outstanding loan commitments and
other obligations.
During the year ended September 30, 2000 the merger with Three Rivers
Financial Corp was completed. This merger increased all asset, liability, and
equity balances substantially over last year. Combined operations of the two
banks contributed $3.5 million.
During the year ended September 30, 1999 cash and cash equivalents
increased over $2.1 million. This increase along with an increase in loans of
$29.9 million was funded by a decrease in investment securities of $9.1 million,
and increases in deposits of $22.3million and borrowings of $1.0 million.
Operations provided $4.3million.
<PAGE>
Results of Operations, Fiscal Year Ended September 30, 2000 Compared to Fiscal
Year Ended September 30, 1999
The Company's net interest income increased $2,331,336 to $14,097,521
for the fiscal year ended September 30, 2000. In addition to the merger with
Three Rivers, this increase was comprised of increased rates, and higher volumes
of loans offset by higher volumes of deposits. Interest on long-term debt
increased to $1,698,043 due to higher borrowing volumes by both Peoples Federal
and First Savings to fund loan demand.
Provision for loan losses increased $70,900 to $159,869 reflecting
adjustments due to management's continuing review of its loan portfolio.
Management's review of its loan portfolio is based on historical information,
review of specific loans, and general economic conditions.
Other income increased $427,111 to $1,280,830 due to higher volumes of
deposits generating additional fee income. Also, First Savings sells loans and
generates gains on these sales, which the Company did not have prior to the
merger. Fiduciary fees increased almost $80,000 to $204,940 due to higher fees
and the receipt of several estate settlement fees this year.
Total non-interest expense was $7,770,839 for the year ended September
30, 2000. Most of the increases in this area are attributable to the merger.
Salaries and employee benefits increased also, as a result of additional staff
to support the growth of the Company. Peoples Federal opened its eighth branch
office in August of 1999 in a small temporary facility. The permanent branch
opened in June 2000 necessitating additional staff members.
The effective tax rate for the Company for the years ended September
30, 2000 and 1999 was 38.9% and 35.1% respectively.
Results of Operations, Fiscal Year Ended September 30, 1999 Compared to Fiscal
Year Ended September 30, 1998
The Company's net interest income increased $899,248 to $11,766,185
for the fiscal year ended September 30, 1999. The increase was primarily
attributable to the increased volume of loans in 1999 versus 1998. Interest
expense decreased slightly due to lower rates paid on certificates of deposit
accounts. This decrease was almost entirely offset by increases due to higher
deposit volume, and higher borrowing volumes necessary to fund the loans.
Interest expense decreased $26,067 to $12,061,198.
Provision for loan losses increased $14,348 to $88,969 reflecting
adjustments due to management's continuing review of its loan portfolio.
Management's review of its loan portfolio is based on historical information,
review of specific loans, and general economic conditions.
Other income increased $96,037 to $853,719. This increase was a
combination of higher fiduciary fees collected this year and higher fees charged
on deposit accounts. Other income decreased due to last year's gains on
securities sold which were not repeated this year.
Total non-interest expense for the year was $5,459,293, an increase of
$712,385. This increase consisted of increased salaries and benefits of
$262,719, equipment and occupancy expense of $152,994, and other expenses of
$239,448. These increases were caused by additional personnel added to begin a
commercial and agricultural lending department, new equipment purchased in
anticipation of year 2000, and amortization of a low income housing investment
for tax losses.
The effective tax rate for the Company for the years ended September
30, 1999and 1998 was 35.1% and 38.2% respectively.
Impact of Inflation and Changing Prices
The consolidated financial statements and related data presented
herein have been prepared in accordance with generally accepted accounting
principles which require the measurement of financial condition and operating
results in terms of historical dollars or fair value without considering changes
in the relative purchasing power of money over time due to inflation.
Virtually all of the assets and liabilities of a financial institution
are monetary in nature. As a result, interest rates have a more significant
impact on a financial institution's performance than the effects of general
levels of inflation. Interest rates do not necessarily move in the same
direction or with the same magnitude as the prices of goods and services, since
such prices are affected by inflation. In a volatile interest rate environment,
liquidity and the maturity structure of the Bank's assets and liabilities are
critical to the maintenance of acceptable performance levels.
Current Accounting Issues
Accounting for Derivative Instruments and Hedging Activities. Statement
of Financial Accounting Standards ("SFAS") No. 133 requires companies to record
derivatives on the balance sheet at their fair value. SFAS No. 133 also
acknowledges that the method of recording a gain or loss depends on the use off
the derivative. If certain conditions are on the use of the derivative may be
specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, (b)
a hedge of the exposure to variable cash flows of a forecasted transaction, or
(c) a hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction.
o For a derivative designated as hedging the exposure to changes in the
fair value of a recognized asset or liability or a firm commitment
(referred to as a fair value hedge), the gain or loss is recognized in
earnings in the period of change together with the offsetting loss or
gain on the hedged item attributable to the risk of being hedged. The
effect of that accounting is to reflect in earnings the extent to
which the hedge is not effective in achieving offsetting changes in
fair value.
o For a derivative designated as hedging the exposure to variable cash
flows of a forecasted transaction (referred to as a cash flow hedge),
the effective portion of the derivative's gain or loss is initially
reported as a component of other comprehensive income (outstanding
earnings) and subsequently reclassified into earnings when the
forecasted transaction affects earnings. The ineffective proportion of
the gain or loss is reported as earnings immediately.
<PAGE>
o For a derivative designated as hedging the foreign operation of a net
investment in a foreign operation, the gain or loss is reported in
other comprehensive income (outside earnings) as part of the
cumulative translation adjustment. The accounting for a fair value
hedged described above applies to derivative designated as a hedge of
the foreign exposure of an unrecognized firm commitment or an
available-for-sale security. Similarly, the accounting for a cash flow
hedge described above applies to a derivative designated as a hedge of
the foreign currency exposure of a foreign-currency-denominated
forecasted transaction.
o For a derivative designated as a hedging instrument, the gain or loss
is recognized in earnings in the period of change
The new statement applies to all entities. If hedge accounting is elected
by the entity, the method of assessing the effectiveness of the hedging
derivative and the measurement approach of determining the hedge's
ineffectiveness must be established in the inception of the hedge.
SFAS No. 133 amends SFAS No.52 and supercedes SFAS Nos. 80, 105, and 119.
SFAS No. 107 is amended to include the disclosure provisions about the
concentrations of credit risk from SFAS No. 105. Several Emerging Issue Task
Force consensuses's are also changed or nullified by the provisions of SFAS No.
133.
SFAS No. 133 was to be effective for all fiscal years beginning after June
15, 1999. The implementation date was deferred, and SFAS No. 133 will now be
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000.
<PAGE>
<TABLE>
PEOPLES BANCORP AND SUBSIDIARIES
Consolidated Balance Sheet
September 30
-------------------------------
2000 1999
--------------- --------------
Assets
<S> <C> <C>
Cash and due from banks $ 10,073,895 $ 4,838,115
Interest-bearing deposits 8,772,912 834,134
-------------- --------------
Total cash and cash equivalents 18,846,807 5,672,249
Interest-bearing time deposits 3,163,940
Investment securities
Available for sale 18,203,268 16,932,913
Held to maturity (fair value of $10,355,222 and $921,651) 10,276,887 867,559
-------------- --------------
Total investment securities 28,480,155 17,800,472
Loans, net of allowance for loan losses of $1,649,948 and $1,005,119 390,435,094 296,869,920
Premises and equipment 6,149,802 2,285,889
Federal Home Loan Bank of Indianapolis stock, at cost 4,234,400 2,473,500
Other assets 8,598,013 2,460,521
-------------- --------------
Total assets $459,908,211 $327,562,551
============== ==============
Liabilities
NOW and savings deposits $131,685,994 $ 94,186,160
Certificates of deposit 221,169,721 176,336,778
Short-term borrowings -- 3,039,739
Federal Home Loan Bank advances 47,182,393 7,200,000
Other liabilities 2,570,555 1,343,655
-------------- --------------
Total liabilities 402,608,663 282,106,332
-------------- --------------
Commitments and Contingencies
Stockholders' Equity
Preferred stock, $1 par value
Authorized and unissued--5,000,000 shares
Common stock, $1 par value
Authorized--7,000,000 shares
Issued and outstanding--3,662,641 and 3,183,717 shares 3,662,641 3,183,717
Additional paid-in capital 10,596,618 1,203,696
Retained earnings 43,815,516 41,282,725
Unearned ESOP (351,494) --
Unearned RRP (90,706) --
Accumulated other comprehensive income (333,027) (213,919)
-------------- --------------
Total stockholders' equity 57,299,548 45,456,219
-------------- --------------
Total liabilities and stockholders' equity $459,908,211 $327,562,551
============== ==============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
PEOPLES BANCORP AND SUBSIDIARIES
Consolidated Statement of Income
Year Ended September 30
-----------------------------------
2000 1999 1998
----------- ----------- -----------
Interest Income
Loans $27,974,178 $22,028,006 $20,271,263
Investment securities 1,497,452 843,675 1,793,778
Other interest and dividend income 953,737 955,702 889,161
----------- ----------- -----------
30,425,367 23,827,383 22,954,202
----------- ----------- -----------
Interest Expense
Deposits
NOW and savings deposits 3,314,937 2,423,709 2,124,060
Certificates of deposit 11,016,168 9,221,122 9,669,669
Short-term borrowings 298,698 135,842 198,113
Long-term debt 1,698,043 280,525 95,423
----------- ----------- -----------
16,327,846 12,061,198 12,087,265
----------- ----------- -----------
Net Interest Income 14,097,521 11,766,185 10,866,937
Provision for loan losses 159,869 88,969 74,621
----------- ----------- -----------
Net Interest Income After
Provision for Loan Losses 13,937,652 11,677,216 10,792,316
----------- ----------- -----------
Other Income
Fiduciary activities 204,940 125,255 98,246
Fees and service charges 810,938 547,455 455,089
Net realized gains (losses) on sales of (57,961) -- 73,541
available-for-sale securities
Other income 322,913 181,009 130,806
----------- ----------- -----------
Total other income 1,280,830 853,719 757,682
----------- ----------- -----------
Other Expenses
Salaries and employee benefits 3,968,745 2,771,597 2,508,878
Net occupancy expense 575,253 376,420 319,856
Equipment expense 594,777 473,952 377,522
Data processing expense 481,046 461,310 403,291
Deposit insurance expense 90,013 149,564 150,359
Other expenses 2,061,005 1,226,450 987,002
----------- ----------- -----------
Total other expenses 7,770,839 5,459,293 4,746,908
----------- ----------- -----------
Income Before Income Tax 7,447,643 7,071,642 6,803,090
Income tax expense 2,899,689 2,484,876 2,596,395
----------- ----------- -----------
Net Income $ 4,547,954 $ 4,586,766 $ 4,206,695
=========== =========== ===========
Basic Earnings per Share $1.33 $1.42 $1.25
Diluted Earnings per Share 1.32 1.42 1.25
Weighted Average Shares Outstanding 3,429,165 3,226,894 3,370,468
See notes to consolidated financial statements.
<PAGE>
<TABLE>
PEOPLES BANCORP AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
Unearned Accumulated
Additional Recognition Other
Common Stock Paid-in Comprehensive Retained Unearned and Comprehensive
---------------------- ESOP Retention
Outstanding Amount Capital Income Earnings Shares Plan Income Total
---------- ---------- ------------ --------- ----------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances October 1, 1997 3,391,986 $3,391,986 $ 5,263,589 $35,573,293 $ 69,302 $44,298,170
Comprehensive income
Net income -- -- -- $4,206,695 4,206,695 -- 4,206,695
Other comprehensive income,
net of tax
Unrealized gains on securities,
net of reclassification 27,421 27,421 27,421
adjustment
----------
Comprehensive income $4,234,116
==========
Cash dividends ($0.45 per share) -- -- -- (1,507,566) -- (1,507,566)
Repurchase of common stock (111,302) (111,302) (2,242,791) -- -- (2,354,093)
--------- ---------- ------------ ------------ -------- ----------- -------- ------------
Balances September 30, 1998 3,280,684 3,280,684 3,020,798 38,272,422 96,723 44,670,627
Comprehensive income
Net income -- -- -- $4,586,766 4,586,766 -- 4,586,766
Other comprehensive income,
net of tax
Unrealized losses on securities (310,642) (310,642) (310,642)
----------
Comprehensive income $4,276,124
==========
Cash dividends ($0.49 per share) -- -- -- (1,576,463) -- (1,576,463)
Repurchase of common stock (96,967) (96,967) (1,817,102) -- -- (1,914,069)
--------- ---------- ------------ ------------ -------- ----------- --------- -----------
Balances September 30, 1999 3,183,717 3,183,717 1,203,696 41,282,725 (213,919) 45,456,219
Comprehensive income
Net income -- -- -- $4,547,954 4,547,954 -- 4,547,954
Other comprehensive income,
net of tax
Unrealized losses on securities
net of reclassification (119,108) 119,108) (119,108)
adjustment
----------
Comprehensive income $4,428,846
==========
Stock issued in purchase of 758,858 758,858 13,060,586 -- $(392,353) $(135,116) -- 13,291,975
subsidiary
Cash dividends ($0.53 per share) -- -- -- (1,886,276) -- -- -- (1,886,276)
ESOP shares earned -- -- 36,133 -- 40,859 -- -- 76,992
RRP shares earned -- -- -- -- -- 44,410 -- 44,410
Stock options exercised 9,860 9,860 90930 -- -- -- -- 100,790
Repurchase of common stock (289,794) (289,794) (3,794,727) (128,887) -- -- -- (4,213,408)
-------- ----------- ------------ ------------ --------- ----------- --------- -----------
Balances September 30, 2000 3,662,641 $3,662,641 $10,596,618 $43,815,516 $(351,494) $ (90,706)$(333,027) $57,299,548
========= =========== ============ ============ ========= =========== ========= ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
PEOPLES BANCORP AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Year Ended September 30
----------------------------------------
2000 1999 1998
------------ ------------ --------------
Operating Activities
<S> <C> <C> <C>
Net income $ 4,547,954 $ 4,586,766 $4,206,695
Adjustments to reconcile net income to net cash provided by operating
activities
Provision for loan losses 159,869 88,969 74,621
Depreciation and amortization 716,314 439,605 381,035
Investment securities accretion, net (32,263) (79,166) (40,769)
Loans originated for sale (2,488,250) -- --
Proceeds from sale of loans held for sale 2,531,064 -- --
(Gain) loss on sale of loans (42,814) -- --
Amortization of deferred loan fees (337,117) (426,077) (379,997)
Gain (loss) on sale of investment securities 57,961 -- (73,541)
ESOP shares earned 76,992 -- --
RRP compensation expense 44,410 -- --
Change in
Deferred income tax (251,814) (459,581) (138,060)
Interest receivable (114,101) (35,974) 44,804
Interest payable 81,568 179,596 32,522
Other adjustments (1,464,185) (17,390) 81,608
------------ ------------ -------------
Net cash provided by operating activities 3,485,588 4,276,748 4,188,918
------------ ------------ -------------
Investing Activities
Net change in interest-bearing deposits 794,005 718,000 258,000
Purchases of securities available for sale (2,177,572) (7,459,930) (3,625,859)
Proceeds from maturities and paydowns of securities held to maturity 1,850,548 4,216,989 4,203,955
Proceeds from maturities and paydowns of securities available for sale 1,297,068 11,980,245 10,597,951
Proceeds from sale of security available for sale 1,684,772 -- 2,661,344
Net change in mutual funds -- -- (2,896,947)
Net change in loans (19,907,906) (29,874,229) (31,212,564)
Purchases of premises and equipment (1,457,753) (328,616) (1,079,132)
Proceeds from sale of equipment -- -- 13,993
Proceeds from sales of real estate owned -- 143,566 115,026
Purchases of Federal Home Loan Bank of Indianapolis stock (281,700) (255,800) (155,500)
Cash received in acquisition 4,935,071 -- --
Other investing activities -- 33,349 (337,500)
------------ ------------ -------------
Net cash used by investing activities (13,263,467) (20,826,426) (21,457,233)
------------ ------------ -------------
Financing Activities
Net change in
NOW and savings deposits 9,552,898 18,795,930 4,885,569
Certificates of deposit 7,564,210 3,464,428 1,837,050
Short-term borrowings (3,039,739) (1,162,914) 1,040,253
Net change in advances by borrowers for taxes and insurance 358,481 -- (593)
Net change in bank overdraft -- (1,171,306) 1,171,306
Proceeds from Federal Home Loan Bank advances 36,700,000 2,200,000 5,000,000
Repayment of Federal Home Loan Bank advances (22,282,205) -- --
Cash dividends (1,788,590) (1,557,767) (1,475,696)
Repurchase of common stock (4,213,408) (1,914,069) (2,354,093)
Proceeds from stock options exercised 100,790 -- --
------------ ------------ -------------
Net cash provided by financing activities 22,952,437 18,654,302 10,103,796
------------ ------------ -------------
Net Change in Cash and Cash Equivalents 13,174,558 2,104,624 (7,164,519)
Cash and Cash Equivalents, Beginning of Year 5,672,249 3,567,625 10,732,144
------------ ------------ -------------
Cash and Cash Equivalents, End of Year $18,846,807 $ 5,672,249 $3,567,625
============ ============ =============
Additional Cash Flows and Supplementary Information:
Interest paid $16,276,150 $11,860,610 $12,054,743
Income tax paid 3,293,330 2,861,591 2,612,502
Fair value of net assets acquired in acquisition 13,291,975 - -
</TABLE>
See notes to consolidated financial statements.
<PAGE>
PEOPLES BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 -- Nature of Operations and Summary of Significant Accounting Policies
The accounting and reporting policies of Peoples Bancorp (Company), its
wholly owned subsidiaries, Peoples Federal Savings Bank of DeKalb County
(Peoples), First Savings Bank (First Savings) (collectively, "Banks"), Peoples'
wholly owned subsidiary, Peoples Financial Services, Inc. (Peoples Financial)
and First Savings wholly owned subsidiary, Alpha Financial, Inc. (Alpha) conform
to generally accepted accounting principles and reporting practices followed by
the thrift industry. The more significant of the policies are described below.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The Company is a thrift holding company whose principal activity is the
ownership and management of the Banks. The Banks operate under federal thrift
charters and provide full banking services, including trust services. As
federally-chartered thrifts, the Banks are subject to the regulation of the
Office of Thrift Supervision (OTS) and the Federal Deposit Insurance
Corporation.
The Company generates commercial, mortgage and consumer loans and receives
deposits from customers located primarily in north central and northeastern
Indiana and south central Michigan. The Companys' loans are generally secured by
specific items of collateral including real property and consumer assets.
Consolidation--The consolidated financial statements include the accounts
of the Company, the Banks, Alpha and Peoples Financial after elimination of all
material intercompany transactions.
Investment Securities--Debt securities are classified as held to maturity
when the Company has the positive intent and ability to hold the securities to
maturity. Securities held to maturity are carried at amortized cost. Debt
securities not classified as held to maturity and marketable equity securities
are classified as available for sale. Securities available for sale are carried
at fair value with unrealized gains and losses reported separately, net of tax,
in accumulated other comprehensive income. The Company holds no securities for
trading.
Amortization of premiums and accretion of discounts are recorded as
interest income from securities. Realized gains and losses are recorded as net
security gains (losses). Gains and losses on sales of securities are determined
on the specific-identification method.
Loans are carried at the principal amount outstanding. Interest income is
accrued on the principal balances of loans. The accrual of interest on impaired
loans is discontinued when, in management's opinion, the borrower may be unable
to meet payments as they become due. When interest accrual is discontinued, all
unpaid accrued interest is reversed when considered uncollectible. Interest
income is subsequently recognized only to the extent cash payments are received.
Certain loan fees and direct costs are being deferred and amortized as an
adjustment of yield on the loans.
<PAGE>
PEOPLES BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Allowance for loan losses is maintained to absorb loan losses based on
management's continuing review and evaluation of the loan portfolio and its
judgment as to the impact of economic conditions on the portfolio. The
evaluation by management includes consideration of past loss experience, changes
in the composition of the portfolio, the current condition and amount of loans
outstanding, and the probability of collecting all amounts due. Impaired loans
are measured by the present value of expected future cash flows, or the fair
value of the collateral of the loan if collateral dependent.
The determination of the adequacy of the allowance for loan losses is based
on estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. Management believes that, as of
September 30, 2000 the allowance for loan losses is adequate based on
information currently available. A worsening or protracted economic decline in
the area within which the Company operates would increase the likelihood of
additional losses due to credit and market risks and could create the need for
additional loss reserves.
Premises and equipment are carried at cost net of accumulated depreciation.
Depreciation is computed using accelerated and straight-line methods based
principally on the estimated useful lives of the assets. Maintenance and repairs
are expensed as incurred while major additions and improvements are capitalized.
Gains and losses on dispositions are included in current operations.
Federal Home Loan Bank stock is a required investment for institutions that
are members of the Federal Home Loan Bank system. The required investment in the
common stock is based on a predetermined formula.
Foreclosed assets are carried at the lower of cost or fair value less
estimated selling costs. When foreclosed assets are acquired, any required
adjustment is charged to the allowance for loan losses. All subsequent activity
is included in current operations.
Intangible assets are being amortized utilizing both straight-line and
accelerated methods over periods ranging from 7 to 20 years. Such assets are
periodically evaluated as to the recoverability of their carrying value.
Investment in limited partnerships is included in other assets. The Company
utilizes the equity method of accounting for these investments. At September 30,
2000 and 1999, these investments totaled $710,000 and $529,000.
Pension plan costs are based on actuarial computations and charged to
current operations. The funding policy is to pay at least the minimum amounts
required by ERISA.
Stock options are granted for a fixed number of shares to employees with an
exercise price equal to or greater than the fair value of the shares at the date
of grant. The Company accounts for and will continue to account for stock option
grants in accordance with APB Opinion No. 25, Accounting for Stock Issued to
Employees, and, accordingly, recognizes no compensation expense for the stock
option grants.
Income tax in the consolidated statement of income includes deferred income
tax provisions or benefits for all significant temporary differences in
recognizing income and expenses for financial reporting and income tax purposes.
The Company files consolidated income tax returns with its subsidiaries.
Earnings per share have been computed based upon the weighted average
common shares outstanding during each year. Unearned ESOP shares have been
excluded from the computation of average common shares outstanding.
Reclassifications of certain amounts in the prior years' consolidated
financial statements have been made to conform to the 2000 presentation.
Note 2 -- Restriction On Cash
The Banks are required to maintain reserve funds in cash and/or on deposit
with the Federal Reserve Bank. The reserves required at September 30, 2000,
totaled $1,184,000.
<PAGE>
PEOPLES BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 3 -- Investment Securities
September 30, 2000
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------
Available for sale
Federal agencies $ 8,649,598 1,058 $177,054 $ 8,473,602
State and municipal obligations 4,039,703 15,961 32,395 4,023,269
Mortgage-backed securities 1,611,353 3,419 14,025 1,600,747
Marketable equity securities 4,453,187 -- 347,537 4,105,650
----------- ---------- ---------- -----------
Total available for sale 18,753,841 20,438 571,011 18,203,268
----------- ---------- ---------- -----------
Held to maturity
Federal agencies 500,000 -- -- 500,000
State and municipal obligations 684,487 4,048 -- 688,535
Mortgage-backed securities 9,092,400 153,938 79,651 9,166,687
----------- ---------- ---------- -----------
Total held to maturity 10,276,887 157,986 79,651 10,355,222
----------- ---------- ---------- -----------
Total investment securities $29,030,728 $178,424 $650,662 $28,558,490
=========== ========== ========== ===========
September 30, 1999
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------
Available for sale
Federal agencies $ 7,268,786 $ -- $129,320 $ 7,139,466
State and municipal obligations 4,522,436 14,007 36,772 4,499,671
Marketable equity securities 5,495,920 -- 202,144 5,293,776
----------- ---------- ---------- -----------
Total available for sale 17,287,142 14,007 368,236 16,932,913
----------- ---------- ---------- -----------
Held to maturity
State and municipal obligations 609,852 8,596 -- 618,448
Mortgage-backed securities 257,707 45,496 -- 303,203
----------- ---------- ---------- -----------
Total held to maturity 867,559 54,092 -- 921,651
----------- ---------- ---------- -----------
Total investment securities $18,154,701 $ 68,099 $368,236 $17,854,564
=========== ========== ========== ===========
<PAGE>
PEOPLES BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The amortized cost and fair value of securities held to maturity and
available for sale at September 30, 2000, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because
issuers may have the right to call or prepay obligations with or without call or
prepayment penalties.
2000
-----------------------------------------------
Held to Maturity Available for Sale
----------------------- -----------------------
Maturity Distributions Amortized Fair Amortized Fair
at September 30 Cost Value Cost Value
----------- ----------- ----------- -----------
Within one year $ 65,000 $ 65,000 $ 651,586 $ 651,648
One to five years 424,487 428,535 7,812,553 7,671,173
Five to ten years 695,000 695,000 4,111,969 4,058,926
After ten years -- -- 113,193 115,124
----------- ----------- ----------- -----------
1,184,487 1,188,535 12,689,301 12,496,871
Mortgage-backed securities 9,092,400 9,166,687 1,611,353 1,600,747
Marketable equity securities -- -- 4,453,187 4,105,650
----------- ----------- ----------- -----------
$10,276,887 $10,355,222 $18,753,841 $18,203,268
=========== =========== =========== ===========
Securities with a carrying value of $19,936,000 and $7,300,000 were pledged
at September 30, 2000 and 1999 to secure Federal Home Loan Bank advances and
repurchase agreements.
Proceeds from sales of securities available for sale during 2000 and 1998
were $1,684,772 and $2,661,344. Gross gains of $74,900 in 1998 and gross losses
of $57,961 and $1,359 were realized on those sales. There were no sales of
securities during the year ended September 30, 1999. The income tax expense
(benefit) on the security gains/losses for the year ended September 30, 2000 and
1998 was $(22,958) and $29,130.
There were no sales of securities held to maturity during the three years
ended September 30, 2000.
Note 4 -- Loans and Allowance
<TABLE>
September 30
-------------------------
2000 1999
------------ ------------
<S> <C> <C>
Commercial, commercial mortgage and loans $ 21,112,108 $ 8,093,935
Real estate loans 331,424,271 269,021,724
Construction loans 9,739,859 6,997,963
Individuals' loans for household and other personal expenditures 36,152,324 17,462,457
------------ ------------
398,428,562 301,576,079
------------ ------------
Less:
Undisbursed portion of loans 4,340,973 2,307,327
Deferred loan fees and discounts 2,002,547 1,393,713
Allowance for loan losses 1,649,948 1,005,119
------------ ------------
7,993,468 4,706,159
------------ ------------
Total loans $390,435,094 $296,869,920
============ ============
</TABLE>
<TABLE>
Year Ended September 30 2000 1999 1998
------------- ------------ ------------
Allowance for loan losses
<S> <C> <C> <C> <C>
Balances, October 1 $1,005,119 $ 947,008 $886,567
Allowance acquired in merger 561,572 -- --
Provision for losses 159,869 88,969 74,621
Recoveries on loans 40,944 22,546 32,769
Loans charged off (117,556) (53,404) (46,949)
------------- ------------ ------------
Balances, September 30 $1,649,948 $1,005,119 $947,008
============= ============ ============
</TABLE>
<PAGE>
PEOPLES BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 5 -- Premises and Equipment
September 30
2000 1999
------------- -------------
Land $1,180,460 $ 438,238
Buildings 7,589,077 3,134,565
Equipment 4,188,408 2,351,581
------------- -------------
Total cost 12,957,945 5,924,384
Accumulated depreciation (6,808,143) (3,638,495)
------------- -------------
Net $6,149,802 $2,285,889
============= =============
Note 6 -- Deposits
September 30
2000 1999
------------- -------------
Demand deposits $87,959,048 $ 55,875,165
Savings deposits 43,726,946 38,310,995
Certificates and other time deposits
of $100,000 or more 29,479,700 20,820,333
Other certificates and time deposits 191,690,021 155,516,445
------------- -------------
$352,855,715 $270,522,938
============= =============
Certificates and other time deposits maturing in years ending September 30:
2001 $115,733,855
2002 73,843,697
2003 23,926,024
2004 3,791,721
2005 3,874,424
-------------
$221,169,721
=============
Note 7 -- Short-term Borrowings
Short-term borrowings at September 30, 1999 consist of securities sold
under agreement to repurchase totaling $3,039,739 and consist of obligations of
the Company to other parties. There were no short-term borrowings outstanding at
September 30, 2000. The obligations were secured by investment securities and
such collateral is held by a safekeeping agent. The maximum amount of
outstanding agreements at any month-end during 2000 totaled $7,568,000 and the
average of such agreements totaled $5,859,000.
Note 8 -- Federal Home Loan Bank Advances
Federal Home Loan Bank advances at September 30, 2000 and 1999 totaling
$47,182,393 and $7,200,000 and were at various rates maturing at various dates
through September 2010. The Federal Home Loan Bank advances are secured by first
mortgage loans and investment securities totaling $335,693,000. Advances are
subject to restrictions or penalties in the event of prepayment.
Weighted
Maturities in years ending September 30 Amount Average Rate
------------- ------------
2001 $13,242,927 6.78%
2002 1,998,796 5.09
2003 4,998,194 5.97
2004 2,000,000 6.49
2005 3,998,796 6.68
Thereafter 20,943,680 6.38
--------------
$47,182,393 6.42
==============
<PAGE>
PEOPLES BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 9 -- Loan Servicing
Loans serviced for others are not included in the accompanying consolidated
balance sheet. The unpaid principal balances of loans serviced for others
totaled $20,257,000 at September 30, 2000. The amount of mortgage servicing
rights capitalized is immaterial to the financial statements.
Note 10 -- Income Tax
Year Ended September 30
2000 1999 1998
------------ ----------- -----------
Income tax expense
Currently payable
Federal $2,507,946 $2,326,871 $2,054,730
State 643,557 617,586 679,725
Deferred
Federal (240,696) (278,965) (110,448)
State (11,118) (180,616) (27,612)
----------- ----------- -----------
Total income tax expense $2,899,689 $2,484,876 $2,596,395
=========== =========== ===========
Reconciliation of federal statutory to actual tax expense
Federal statutory income tax at 34% $2,532,199 $2,404,353 $2,313,044
Tax exempt interest (63,492) (102,618) (104,677)
Nondeductible expenses 4,189 2,853 4,600
Effect of state income taxes 417,410 288,400 430,395
Effect of low income housing credits (87,978) (140,700) (15,482)
Other 97,361 32,588 (31,485)
----------- ----------- -----------
Actual tax expense $2,899,689 $2,484,876 $2,596,395
=========== =========== ===========
A cumulative net deferred tax asset is included in other assets. The
components of the asset are as follows:
September 30
2000 1999
----------- -----------
Assets
Allowance for loan losses $ 671,240 $ 427,176
Loan fees 556,504 528,296
Net unrealized losses on securities available for sale 217,546 140,310
Other 262,678 23,141
----------- -----------
Total assets 1,707,968 1,118,923
----------- -----------
Liabilities
Depreciation 118,766 20,192
State income tax 63,081 59,300
Other 127,246 --
Tax bad debt reserves in excess of base year 833,792 803,398
FHLB of Indianapolis stock dividend 84,278 84,278
----------- -----------
Total liabilities 1,227,163 967,168
----------- ------------
$ 480,805 $ 151,755
=========== ===========
Retained earnings at September 30, 2000, include approximately $8,102,000
for which no deferred income tax liability has been recognized. This amount
represents an allocation of income to bad debt deductions as of June 30, 1988
for tax purposes only. Reduction of amounts so allocated for purposes other than
tax bad debt losses or adjustments arising from carryback of net operating
losses would create income for tax purposes only, which income would be subject
to the then current corporate income tax rate. The unrecorded deferred income
tax liability on the above amount was approximately $2,755,000 at September 30,
2000.
<PAGE>
PEOPLES BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 11 -- Other Comprehensive Income
<TABLE>
Year Ended September 30, 2000
---------------------------------
Before-Tax Tax Net-of-Tax
Amount Benefit Amount
---------- ---------- -----------
Unrealized losses on securities
<S> <C> <C> <C>
Unrealized holding losses arising during the year $(255,192) $(101,081) $(154,111)
Less: reclassification adjustment for losses realized in net income (57,961) (22,958) (35,003)
---------- ---------- -----------
Net unrealized gains $(197,231) $ (78,123) $(119,108)
========== ========== ===========
Year Ended September 30, 1999
---------------------------------
Before-Tax Tax Net-of-Tax
Amount Benefit Amount
---------- ---------- -----------
Unrealized losses on securities
Unrealized holding losses arising during the year $(514,393) $(203,751) $(310,642)
========== ========== ============
Year Ended September 30, 1998
----------------------------------
Before-Tax Tax Net-of-Tax
Amount Expense Amount
---------- ---------- ------------
Unrealized gains on securities
Unrealized holding gains arising during the year $118,947 $47,115 $ 71,832
Less: reclassification adjustment for gains realized in net income 73,541 29,130 44,411
---------- ---------- -----------
Net unrealized gains $ 45,406 $17,985 $ 27,421
========== ========== ===========
</TABLE>
Note 12 -- Commitments and Contingent Liabilities
In the normal course of business there are outstanding commitments and
contingent liabilities, such as commitments to extend credit, which are not
included in the accompanying consolidated financial statements. The Company's
exposure to credit loss in the event of nonperformance by the other party to the
financial instruments for commitments to extend credit is represented by the
contractual or notional amount of those instruments. The Company uses the same
credit policies in making such commitments as it does for instruments that are
included in the consolidated balance sheet.
Financial instruments whose contract amount represents credit risk at
September 30, 2000 and 1999 consisted of commitments to extend credit totaling
$36,748,000 and $18,416,000.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Company upon extension of credit, is based on management's
credit evaluation. Collateral held varies, but may include residential real
estate, income-producing commercial properties, or other assets of the borrower.
The Company has employment agreements with two officers, which include
provisions for payment to them of three years' salary in the event of their
termination in connection with any change in ownership or control of the
Company, other than by agreement. The agreements have terms of three years,
which may be extended annually for successive periods of one year.
The Company and subsidiaries are also subject to possible claims and
lawsuits, which arise, primarily in the ordinary course of business. It is the
opinion of management that the disposition or ultimate determination of such
possible claims or lawsuits will not have a material adverse effect on the
consolidated financial position of the Company.
Note 13 -- Dividends and Capital Restrictions
Without prior approval, current regulations allow Peoples and First Savings
to pay dividends to the Company not exceeding net profits (as defined) for the
current calendar year to date plus those for the previous two years. At
September 30, 2000, such limitations totaled $3,459,000. The Banks normally
restrict dividends to a lesser amount because of the need to maintain adequate
capital structures.
<PAGE>
PEOPLES BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 14 -- Regulatory Capital
The Banks are subject to various regulatory capital requirements
administered by the federal banking agencies and are assigned to a capital
category. The assigned capital category is largely determined by ratios that are
calculated according to the regulations. The ratios are intended to measure
capital relative to assets and credit risk associated with those assets and
off-balance sheet exposures of the entity. The capital category assigned to an
entity can also be affected by qualitative judgments made by regulatory agencies
about the risk inherent in the entity's activities that are not part of the
calculated ratios.
There are five capital categories defined in the regulations, ranging from
well capitalized to critically undercapitalized. Classification of a bank in any
of the undercapitalized categories can result in actions by regulators that
could have a material effect on a bank's operations. At September 30, 2000, the
Banks are categorized as well capitalized and met all subject capital adequacy
requirements. There are no conditions or events since September 30, 2000 that
management believes have changed the Banks' classification.
<TABLE>
Peoples' actual and required capital amounts and ratios are as follows:
September 30,.2000
---------------------------------------------------------------------------
Required for Adequate To Be Well
Actual Capital 1 Capitalized(1)
---------------------------------------------------------------------------
September 30 Amount Ratio Amount Ratio Amount Ratio
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total risk-based capital (1) (to risk-weighted $39,099,000 19.9% $15,740,000 8.0% $19,675,000 10.0%
assets)
Tier 1 risk-based capital(1) (to risk-weighted 38,041,000 19.3% 7,870,000 4.0% 11,805,000 6.0%
assets)
Core capital (1) (to adjusted total assets) 38,041,000 10.9% 10,488,000 3.0% 17,479,000 5.0%
Core capital (1) (to adjusted tangible assets) 38,041,000 10.9% 6,992,000 2.0% N/A N/A
Tangible capital (1) (to adjusted total assets) 38,041,000 10.9% 5,244,000 1.5% N/A N/A
</TABLE>
<TABLE>
September 30, 1999
---------------------------------------------------------------------------
Required for Adequate To Be Well
Actual Capital 1 Capitalized(1)
---------------------------------------------------------------------------
September 30 Amount Ratio Amount Ratio Amount Ratio
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total risk-based capital (1) (to risk-weighted $36,705,000 20.5% $14,335,000 8.0% $17,918,000 10.0%
assets)
Tier 1 risk-based capital (1) (to risk-weighted 35,726,000 19.9% 7,168,000 4.0% 10,751,000 6.0%
assets)
Core capital (1) (to adjusted total assets) 35,726,000 11.1% 9,678,000 3.0% 16,130,000 5.0%
Core capital (1) (to adjusted tangible assets) 35,726,000 11.1% 6,452,000 2.0% N/A N/A
Tangible capital (1) (to adjusted total assets) 35,726,000 11.1% 4,839,000 1.5% N/A N/A
</TABLE>
<TABLE>
First Savings' actual and required capital amounts and ratios are as follows:
September 30, 2000
---------------------------------------------------------------------------
Required for Adequate To Be Well
Actual Capital 1 Capitalized(1)
---------------------------------------------------------------------------
September 30 Amount Ratio Amount Ratio Amount Ratio
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total risk-based capital (1) (to risk-weighted $10,439,000 17.7% $4,707,000 8.0% $5,884,000 10.0%
assets)
Tier 1 risk-based capital (1) (to risk-weighted 9,877,000 16.8% 2,353,000 4.0% 3,530,000 6.0%
assets)
Core capital (1) (to adjusted tangible assets) 9,877,000 9.6% 3,085,000 3.0% 5,142,000 5.0%
Core capital (1) (to adjusted total assets) 9,877,000 9.6% 2,057,000 2.0% N/A N/A
Tangible capital (1) (to adjusted total assets) 9,877,000 9.6% 1,543,000 1.5% N/A N/A
</TABLE>
(1) As defined by regulatory agencies
<PAGE>
PEOPLES BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 15 -- Employee Benefit Plans
The Banks are participants in a pension fund known as the Financial
Institutions Retirement Fund (FIRF). This plan is a multi-employer plan;
separate actuarial valuations are not made with respect to each participating
employer. According to FIRF administrators, the market value of the fund's
assets exceeded the value of vested benefits in the aggregate as of June 30,
1999, the date of the latest actuarial valuation. Pension expense was $7,036 and
$3,884 for 1999 and 1998. This plan provides pension benefits for substantially
all of the Company's employees.
A profit sharing plan is maintained for the benefit of substantially all of
Company employees and allows for both employee and Company contributions. The
Company contribution consists of a matching contribution of 50 percent of
employee contributions, up to 6 percent of eligible employee compensation. The
Company contribution to the plan was $80,500 and $24,600 for 2000 and 1999.
In connection with the acquisition of Three Rivers Financial Corporation
(Three Rivers) in 2000, the Company assumed both the Employee Stock Ownership
Plan (ESOP) and Recognition and Retention Plan (RRP) of Three Rivers. At the
date of the merger, the ESOP had debt payable to Three Rivers of $422,000 and
unearned shares totaling 50,082. With the merger, the ESOP is now obligated to
repay the outstanding debt to the Company. Accordingly, the balance of shares
that are collateral for the debt have been reflected as a reduction to
stockholders' equity. Unearned ESOP shares totaled 39,681 at September 30, 2000
and had a fair value of $575,000. Shares are released to participants
proportionately as the loan is repaid. Dividends on allocated shares are
recorded as dividends and charged to retained earnings. Dividends on unallocated
shares will be applied to the principal and interest due on the loan.
Compensation expense is recorded in an amount equal to the fair market
value of the stock at the time shares are committed to be released. The expense
under the ESOP was $77,000 for 2000. At September 30, 2000, the ESOP had 41,761
allocated and 39,938 suspense shares.
Effective with the merger, the Company continued the RRP under which Three
Rivers had previously granted awards to various directors, officers and
employees of the Three Rivers and First Savings. These awards generally vest at
a rate of 20 percent per year on the anniversary dates of each grant. The
expense under the RRP was $44,410 for 2000.
Note 16 -- Stock Option Plan
Under the Company incentive stock option plan approved in 1998, which is
accounted for in accordance with Accounting Principles Board Opinion (APB) No.
25, Accounting for Stock Issued to Employees, and related interpretations, the
Company grants selected executives and other key employees stock option awards
which vest and become fully exercisable at the end of five years of continued
employment. During 1999, the Company authorized the grant of options for up to
200,000 shares of the Company's common stock. The exercise price of each option,
which has a ten-year life, was equal to or greater than the market price of the
Company's stock on the date of grant; therefore, no compensation expense was
recognized.
Although the Company has elected to follow APB No. 25, SFAS No. 123
requires pro forma disclosures of net income and earnings per share as if the
Company had accounted for its employee stock options under that Statement. The
fair value of each option grant was estimated on the grant date using a present
value calculation with the following assumptions:
September 30
2000 1999
--------------- -------------
Risk-free interest rates 5.78% - 5.85% 5.02%
Dividend yields 2.48% 2.48%
Volatility factors of expected
market price of common stock 19.50 19.52
Weighted-average expected life of the options 4.5 years 10 years
Under SFAS No. 123, compensation cost is recognized in the amount of the
estimated fair value of the options and amortized to expense over the options'
vesting period. The pro forma effect on net income and earnings per share of
this statement are as follows:
September 30
2000 1999
-------------- ------------
Net income As reported $4,547,954 $4,586,766
Pro forma $4,247,537 $4,563,646
Basic earnings per share As reported $ 1.33 $ 1.42
Pro forma $ 1.24 $ 1.41
Diluted earnings per share As reported $1.32 $1.42
Pro forma $ 1.23 $ 1.41
<PAGE>
PEOPLES BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following is a summary of the status of the Company's stock option plan
and changes in that plan as of and for the years ended September 30, 2000 and
1999.
<TABLE>
September 30
2000 1999
------------------------ ----------------------
Weighted- Weighted-
Average Average
Shares Exercise Price Shares Exercise Price
-------- -------------- -------- --------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 30,000 $21.50 -- $ --
Granted in connection with the merger 93,911 11.78 30,000 21.50
Exercised (9,861) 11.16 -- --
Forfeited/expired (3,801) 11.97 -- --
-------- -------------- -------- -------------
Outstanding, end of year 110,249 14.43 30,000 $21.50
======== ============== ======== ============
Options exercisable at year end 59,056 --
Weighted-average fair value of options
granted during the year $5.29 $5.78
</TABLE>
As of September 30, 2000, other information by exercise price for options
outstanding is as follows:
Weighted-
Number Average
of Remaining
Exercise Price Shares Contractual Life Exercisable
---------------- ------------- ------------------- -------------
$11.16 53,757 5.5 years 45,381
$13.05 21,740 7.0 years 5,774
$13.78 4,752 8.0 years 1,901
$21.50 30,000 8.5 years 6,000
------------ -----------
110,249 59,056
=========== ===========
Note 17 -- Earnings Per Share
Earnings per share (EPS) were computed as follows:
Year Ended September 30, 2000
--------------------------------
Weighted
Average Per-Share
Income Shares Amount
---------- --------- ----------
Basic Earnings Per Share
Net income available to common stockholders $4,547,954 3,429,165 $1.33
Effect of Dilutive Securities
Stock options and RRP awards 10,617
---------- ---------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversions $4,547,954 3,439,792 $1.32
========== =========
Options to purchase 30,000 shares of common stock at $21.50 per share were
outstanding at September 30, 2000, but were not included in the computation of
diluted EPS because the options' exercise price was greater than the average
market price of the common shares.
Year Ended September 30, 1999
-------------------------------------
Weighted Average Per-Share
Income Shares Amount
---------- ---------------- ---------
Basic and Diluted Earnings Per Share $4,586,766 3,226,894 $1.42
========== ================ =========
Options to purchase 30,000 shares of common stock at $21.50 per share were
outstanding at September 30, 1999, but were not included in the computation of
diluted EPS because the options' exercise price was greater than the average
market price of the common shares.
Year Ended September 30, 1998
-------------------------------------
Weighted Average Per-Share
Income Shares Amount
---------- ---------------- ---------
Basic and Diluted Earnings Per Share $4,206,695 3,370,468 $1.25
========== ================ =========
<PAGE>
PEOPLES BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 18 -- Acquisition
On February 29, 2000, the Company acquired Three Rivers, the holding
company of First Savings, through the exchange of 758,858 shares of newly issued
Company common stock. First Savings is a federally chartered savings bank with
branches located in Southern Michigan and Northern Indiana. Three Rivers was
merged into the Company and First Savings will maintain its existing federal
charter as a subsidiary of Peoples Bancorp. The combination was accounted for
under the purchase method of accounting. First Savings' results of operations
are included in the Company's consolidated income statement beginning March 1,
2000. The purchase had a recorded acquisition cost of $13,423,000 and goodwill
of $2,518,000. Goodwill will be amortized over 15 years utilizing the
straight-line method. Additionally, a core deposit intangible totaling
$1,154,000 was recognized and will be amortized over eight years using a 125%
declining balance method.
The following pro forma information discloses the results of
operations as though the merger had taken place at the beginning of each
year.
Year Ended September 30
---------------------------------
2000 1999
------------ -------------
Net Interest Income $15,788,003 $15,135,955
============= =============
Net Income $4,582,382 $4,850,475
============= =============
Net Income per Share--Combined
Basic $1.25 $1.23
Diluted $1.23 1.23
Note 19 -- Fair Values of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument:
Cash and Cash Equivalents--The fair value of cash and cash equivalents
approximates carrying value.
Interest-bearing Deposits--The fair value of interest-bearing time
deposits approximates carrying value.
Securities and Mortgage-backed Securities--Fair values are based on
quoted market prices.
Loans--For both short-term loans and variable-rate loans that reprice
frequently and with no significant change in credit risk, fair values are based
on carrying values. The fair value for other loans is estimated using discounted
cash flow analyses using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality.
Interest Receivable/Payable--The fair values of interest receivable/
payable approximate carrying values.
FHLB Stock--Fair value of FHLB stock is based on the price at which it
may be resold to the FHLB.
Deposits--The fair values of noninterest-bearing,interest-bearing demand
and savings accounts are equal to the amount payable on demand at the balance
sheet date. The carrying amounts for variable rate, fixed-term certificates of
deposit approximate their fair values at the balance sheet date. Fair values
for fixed-rate certificates of deposit are estimated using a discounted cash
flow calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities on such
time deposits.
Short-term borrowings--The fair value of short-term borrowings
approximates carrying value.
Federal Home Loan Bank advances--The fair value of these borrowings is
estimated using a discounted cash flow calculation, based on current rates for
similar advances.
Advances by Borrowers for Taxes and Insurance--The fair value of advances
by borrowers for taxes and insurance approximates carrying value.
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
September 30
--------------------------------------------------
2000 1999
------------------------- ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ------------ ------------ ------------
Assets
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 18,846,807 $ 18,846,807 $ 5,672,249 $ 5,672,249
Interest-bearing time deposits 3,163,940 3,163,940 -- --
Investment securities available for sale 18,203,268 18,203,268 16,932,913 16,932,913
Investment securities held to maturity 10,276,887 10,355,222 867,559 921,651
Loans 392,085,042 388,349,000 297,875,039 295,533,000
Interest receivable 2,268,143 2,268,143 1,822,340 1,822,340
Stock in FHLB 4,234,400 4,234,400 2,473,500 2,473,500
Liabilities
Deposits 352,855,715 327,116,000 270,522,938 269,541,000
Short-term borrowings -- -- 3,039,739 3,039,739
Federal Home Loan Bank advances 47,182,393 47,039,000 7,200,000 7,074,000
Interest payable 534,985 534,985 483,289 483,289
</TABLE>
<PAGE>
PEOPLES BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 20 -- Quarterly Results of Operations (Unaudited)
<TABLE>
Provision Average Earnings
Quarter Interest Interest Net Interest For Net Shares Per
Ending Income Expense Income Loan Losses Income Outstanding Share
------- ----------- ----------- ------------ ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Dec 99 $ 6,206,469 $ 3,179,448 $ 3,027,021 $ 28,789 $1,159,686 3,141,106 $0.37
Mar 00 7,068,880 3,674,240 3,394,640 50,914 1,127,621 3,320,494 0.34
Jun 00 8,392,934 4,538,683 3,854,251 42,508 1,239,027 3,662,455 0.34
Sep 00 8,757,084 4,935,475 3,821,609 37,658 1,021,620 3,620,443 0.28
----------- ----------- ------------ ----------- ----------
$30,425,367 $16,327,846 $14,097,521 $159,869 $4,547,954
=========== =========== ============ =========== ==========
Dec 98 $ 5,845,682 $ 3,044,300 $ 2,801,382 $ 30,942 $1,084,291 3,270,559 $0.33
Mar 99 5,865,500 2,954,982 2,910,518 10,275 1,068,598 3,253,664 0.33
Jun 99 6,047,475 3,017,009 3,030,466 24,896 1,186,278 3,202,623 0.37
Sep 99 6,068,726 3,044,907 3,023,819 22,856 1,247,599 3,183,717 0.39
----------- ----------- ------------ ----------- ----------
$23,827,383 $12,061,198 $11,766,185 $ 88,969 $4,586,766
=========== =========== ============ =========== ==========
</TABLE>
Note 21 -- Condensed Financial Information (Parent Company Only)
Presented below is condensed financial information as to financial
position, results of operations and cash flows of the Company.
Condensed Balance Sheet
September 30
----------------------------
2000 1999
------------- -------------
Assets
Cash $ 1,503,374 $ 2,791,444
Securities purchased from
subsidiary under agreement to resell -- 2,308,904
Investment in subsidiaries 51,320,095 35,651,696
Securities available for sale 4,446,439 4,892,395
Securities held to maturity 115,000 150,000
Other assets 463,564 90,411
------------- -------------
Total assets $57,848,472 $45,884,850
============= =============
Liabilities
Dividends payable on common stock $ 510,064 $ 412,378
Other 38,860 16,253
------------- -------------
Total liabilities 548,924 428,631
------------- -------------
Stockholders' equity
Common stock 3,662,641 3,183,717
Additional paid-in capital 10,596,618 1,203,696
Retained earnings 43,815,516 41,282,725
Unearned ESOP (351,494) --
Unearned RRP (90,706) --
Accumulated other comprehensive income (333,027) (213,919)
------------- -------------
57,299,548 45,456,219
------------- -------------
Total liabilities and stockholders' equity $57,848,472 $45,884,850
============= =============
<PAGE>
PEOPLES BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Condensed Statement of Income
Year Ended September 30
2000 1999
------------ ------------
Income
Dividends from subsidiaries $1,700,000 $3,500,000
Interest on investments 279,179 394,487
Expenses (133,680) (79,901)
------------- -------------
Income before equity in undistributed income
of subsidiaries and income tax expense 1,845,499 3,814,586
Equity in undistributed income of subsidiaries 2,700,355 802,880
------------- -------------
Income before income tax 4,545,854 4,617,466
Income tax expense (benefit) (2,100) 30,700
------------- -------------
Net income $4,547,954 $4,586,766
============= =============
Condensed Statement of Cash Flows
Year Ended September 30
2000 1999
----------- -----------
Net cash provided by operating activities $1,903,899 $3,757,824
----------- -----------
Cash flows from investing activities
Purchases of securities available for sale (719,665) (905,698)
Proceeds from maturities of securities held to maturity 35,000 25,000
Proceeds from maturities and calls
of securities available for sale 1,085,000 1,480,245
Net change in mutual fund -- (20,742)
Net change in securities purchased under
agreement to resell 2,308,904 1,881,052
----------- -----------
Net cash provided by investing activities 2,709,239 2,459,857
----------- -----------
Cash flows from financing activities
Stock repurchased (4,213,408) (1,914,069)
Cash dividends (1,788,590) (1,557,765)
Proceeds from stock options exercised 100,790 ---
----------- -----------
Net cash used by financing activities (5,901,208) (3,471,834)
----------- -----------
Net change in cash (1,288,070) 2,745,847
Cash at beginning of year 2,791,444 45,597
----------- -----------
Cash at end of year $1,503,374 $2,791,444
=========== ===========
