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FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
December 31, 2003 Commission
File Number 000-18991
PEOPLES BANCORP
212 WEST SEVENTH STREET
AUBURN, IN 46706
Indiana 35-1811284
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
Registrant's telephone number, including area code: (260) 925-2500
--------------
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ______
Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act) Yes _____ No __X____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
Common stock, par value $1 per share 3,391,825 shares
- ------------------------------------ ----------------
(Title of class) (Outstanding at February 10, 2004)
1
PEOPLES BANCORP
AND SUBSIDIARIES
Page
Number
Part I Financial Information:
Item 1. Consolidated Condensed Financial Statements
Consolidated Condensed Balance Sheets
as of December 31, 2003 and September 30, 2003...................3
Consolidated Condensed Statements of Income for the three
months ended December 31, 2003 and 2002..........................4
Consolidated Condensed Statements of Cash Flows for the
three months ended December 31, 2003 and 2002....................5
Notes to Consolidated Condensed Financial Statements...........6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................8-17
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....17-19
Item 4. Controls and Procedures...........................................19
Part II. Other Information
Item 1. Legal Proceedings................................................20
Item 2. Changes in Securities and Use of Proceeds........................20
Item 3. Defaults Upon Senior Securities..................................20
Item 4. Submission of Matters to a Vote of Security Holders..............20
Item 5. Other Information................................................20
Item 6. Exhibits and Reports on Form 8-K.................................20
Signatures....................................................................21
Officer Certifications.....................................................22-25
2
PART I. FINANCIAL INFORMATION
PEOPLES BANCORP
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
December 31, 2003 Sept. 30, 2003
(Unaudited)
ASSETS
Cash and due from financial institutions $ 7,763,356 $ 8,467,367
Short-term interest-bearing deposits 11,819,128 26,694,454
------------- -------------
Total cash and cash equivalents 19,582,484 35,161,821
Interest-bearing time deposits 3,270,091 3,270,106
Securities available for sale 94,715,304 85,504,604
Securities held to maturity
(approximate market value $1,821,237
and $2,218,264) 1,765,448 2,116,827
Loans:
Loans 363,871,923 359,064,307
Less: Allowance for loan losses 1,995,155 2,110,946
------------- -------------
Net loans 361,876,768 356,953,361
Loans held for sale 314,000 -
Premises and equipment 6,464,161 6,322,532
Federal Home Loan Bank of Indianapolis
stock, at cost 4,575,400 4,518,700
Goodwill 2,330,198 2,330,198
Other intangible assets 574,360 608,822
Other assets 5,766,201 6,133,035
------------- -------------
Total assets $501,234,415 $502,920,006
============= =============
LIABILITIES
NOW and savings deposits $166,105,159 $163,510,816
Certificates of deposit 212,068,350 216,605,068
------------- -------------
Total deposits 378,173,509 380,115,884
Reverse repurchase agreements 2,864,489 2,649,653
Federal Home Loan Bank advances 54,100,000 54,100,000
Other liabilities 2,166,862 2,129,615
------------- -------------
Total liabilities 437,304,860 438,995,152
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, par value $1;
Authorized and unissued-5,000,000 shares - -
Common stock, par value $1;
Authorized--7,000,000 shares:
Issued and outstanding--3,395,038 and
3,421,895 shares 3,395,038 3,421,895
Additional paid-in capital 6,762,238 7,370,513
Retained earnings 54,007,393 53,302,385
Accumulated other comprehensive loss (235,114) (168,417)
Unearned RRP shares - (1,522)
------------- -------------
Total stockholders' equity 63,929,555 63,924,854
------------- -------------
Total liabilities and stockholders' equity $501,234,415 $502,920,006
============= =============
See notes to consolidated condensed financial statements.
3
PEOPLES BANCORP
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three months ended
December 31,
2003 2002
------------ -------------
Interest Income:
Loans $5,964,739 $7,110,032
Securities 745,478 673,859
Other interest and dividend income 133,825 249,343
------------ -------------
6,844,042 8,033,234
------------ -------------
Interest Expense:
NOWand savings deposits 306,209 425,102
Certificates of deposit 1,576,600 2,174,669
Short-term borrowings 9,836 18,617
Federal Home Loan Bank advances 763,930 805,200
------------ -------------
2,656,575 3,423,588
------------ -------------
Net Interest Income 4,187,467 4,609,646
Provision for losses on loans 41,196 206,485
------------ -------------
Net Interest Income After Provision
for Losses on Loans 4,146,271 4,403,161
------------ -------------
Other Income:
Trust income 108,027 62,435
Loan servicing 51,975 50,946
Net gains on sale of loans 21,721 179,812
Gains(losses) on sale of securities (7,014) 31,388
Fees and service charges 286,367 244,346
Other income 95,290 115,822
------------ -------------
556,366 684,749
------------ -------------
Other Expense:
Salaries and employee benefits 1,593,246 1,512,337
Net occupancy expenses 202,561 185,067
Equipment expenses 209,315 229,863
Data processing expense 199,978 232,871
Deposit insurance expense 14,257 15,918
Other expenses 515,911 562,311
------------ -------------
2,735,268 2,738,367
------------ -------------
Income Before Income Tax 1,967,369 2,349,543
Income tax expense 690,930 848,250
------------- ------------
Net Income $1,276,439 $1,501,293
============= ============
Basic Income Per Common Share $ 0.38 $ 0.44
Diluted Income Per Common Share $ 0.37 $ 0.43
See notes to consolidated condensed financial statements.
4
PEOPLES BANCORP
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
December 31,
---------------------------
Operating Activities: 2003 2002
------------ ------------
Net income $ 1,276,439 $ 1,501,293
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 41,196 206,485
Depreciation and amortization 194,116 188,703
Amortization of premiums and discounts
on investment securitie 120,984 163,028
Amortization of deferred loan fees (145,309) (192,388)
Loans originated for sale (2,711,050) (9,227,320)
Proceeds from sales of loans 2,418,771 8,726,832
Net gain on sales of loans (21,721) (179,812)
Change in:
Interest receivable 94,577 (92,223)
Interest payable (7,201) (96,146)
Other adjustments 356,882 (342,604)
------------ ------------
Net cash provided by operating activities 1,617,684 655,848
------------ ------------
Investing Activities:
Net change in interest-bearing time deposits 15 644,907
Purchases of investment securities held to maturity - -
Purchases of investment securities
available for sale (16,995,020) (15,520,050)
Proceeds from maturities of investment
securities held to maturity 352,494 (521,875)
Proceeds from maturities of securities
available for sale 4,577,774 7,493,053
Proceeds from sale of securities
available for sale 2,983,335 667,198
Net change in mutual funds - 6,762
Net change in loans (5,116,437) 7,481,120
Purchases of premises and equipment (285,696) (106,408)
Proceeds from sales of real estate owned 337,036 145,998
Purchase of FHLB stock (21,400) -
------------ ------------
Net cash provided by (used in) investing activities(14,167,899) 290,705
------------ ------------
Financing Activities:
Net change in:
NOW and savings accounts 2,594,343 1,101,234
Certificates of deposit (4,536,718) (2,348,109)
Short-term borrowings 214,836 1,108,618
Advances by borrowers for taxes and insurance (84,289) (244,619)
Proceeds from advances from FHLB - -
Payments on advances from FHLB - (1,000,000)
Cash dividends (582,162) (551,550)
Repurchase of common stock (635,132) (7,927)
------------ ------------
Net cash provided by (used in) financing activities (3,029,122) (1,942,353)
------------ ------------
Net Change in Cash and Cash Equivalents (15,579,337) (995,800)
Cash and Cash Equivalents, Beginning of Period 35,161,821 35,577,921
------------ ------------
Cash and Cash Equivalents, End of Period $19,582,484 $34,582,121
============ ============
Additional Cash Flows and Supplementary Information:
Interest paid $ 2,663,776 $ 3,410,210
Income tax paid 34,366 314,547
See notes to consolidated condensed financial statements.
5
PEOPLES BANCORP
AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The significant accounting policies followed by Peoples Bancorp (the Company)
and its wholly owned subsidiaries, Peoples Federal Savings Bank of DeKalb County
and First Savings Bank (the Banks), for interim financial reporting are
consistent with the accounting policies followed for annual financial reporting.
Certain information and note disclosures normally included in the Company's
annual financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted. The consolidated condensed financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Form 10-K annual report for September 30, 2003 filed
with the Securities and Exchange Commission. The consolidated condensed balance
sheet of the Company as of September 30, 2003 has been derived from the audited
consolidated balance sheet of the Company as of that date. All adjustments,
which are in the opinion of management necessary for a fair presentation of the
results for the periods reported, consisting only of normal recurring
adjustments, have been included in the accompanying unaudited consolidated
condensed financial statements. The results of operations for the three months
ended December 31, 2003, are not necessarily indicative of those expected for
the remainder of the year.
2. CASH DIVIDEND
A cash dividend of $.17 per common share was declared on November 18, 2003
payable on January 22, 2004, to stockholders of record as of January 2, 2004.
3. EARNINGS PER COMMON SHARE
Earnings per share were computed as follows:
Three Months Ended December 31,
2003 2002
-------------------------------- --------------------------------
Weighted Weighted
Average Per-Share Average Per-Share
Income Shares Amount Income Shares Amount
-------------------------------- --------------------------------
Basic Earnings Per Share Income
available to common stockholders $1,276,439 3,402,938 $0.38 $1,501,293 3,446,883 $0.44
Effect of Dilutive Securities
Stock options 36,169 23,197
Diluted Earnings Per Share Income
available to common stockholders
-------------------------------- ---------------------------------
and assumed conversions $1,276,439 3,439,107 $0.37 $1,501,293 3,470,080 $0.43
================================ =================================
6
PEOPLES BANCORP
AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
4. STOCK OPTIONS
The Company has a stock-based employee compensation plan, which is described
more fully in Notes to Financial Statements included in the September 30, 2003
Annual Report to shareholders. The Company accounts for this plan under the
recognition and measurement principles of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. No stock-based employee
compensation cost is reflected in net income, as all options granted under the
plan had an exercise price equal to the market value of the underlying common
stock on the grant date. The following table illustrates the effect on net
income and earnings per share if the Company had applied the fair value
provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation.
Three months Ended Three months Ended
December 31, 2003 December 31, 2002
---------------------------------------
Net income, as reported $1,276,439 $1,501,293
Less: Total stock-based
employee compensation
cost determined under
the fair value based
method, net of income 8,670 16,091
taxes
---------------------------------------
Pro forma net income $1,267,769 $1,485,202
=======================================
Earnings per share:
Basic - as reported $ .38 $ .44
Basic - pro forma $ .37 $ .43
Diluted - as reported $ .37 $ .43
Diluted - pro forma $ .37 $ .43
7
PEOPLES BANCORP
AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
5. TEMPORARILY IMPAIRED INVESTMENT SECURITIES
The Company's temporarily impaired investment securities at December 31, 2003
are shown below. Unrealized losses on federal agency, state and municipal, and
mortgage-backed securities are caused by interest rate fluctuations in the
market. Only six securities have been in a loss position for more than one year.
Management has the ability to hold these securities until final maturity, at
which time the full face value will be realized. The marketable equity security
has been in a loss position for three years. Management believes this has been
in correlation to the downturn in the general economy and stock market. This
security has recovered almost $200,000 in value during the quarter ended
December 31, 2003, and management believes the value will continue to recover.
Less than 12 Months 12 Months or Longer Total
---------------------- --------------------- ----------------------
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
----------- ---------- ---------- ---------- ----------- ----------
Federal agencies $16,382,650 $174,441 $ - $ - $16,382,650 $174,441
State and municipal 2,316,937 78,630 - - 2,316,937 78,630
Mortgage backed securities 5,940,707 89,969 2,845,692 36,780 8,786,399 126,749
Marketable equity securities - - 3,887,243 565,945 3,887,243 565,945
----------- ---------- ---------- ---------- ----------- ----------
Total temporarily impaired $24,640,294 $343,040 $6,732,935 $602,725 $31,373,229 $945,765
=========== ========== ========== ========== =========== ==========
8
PEOPLES BANCORP
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q ("Form 10-Q") contains statements that
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements appear in a number of
places in this Form 10-Q and include statements regarding the intent, belief,
outlook, estimate or expectations of the Company, its directors or its officers
primarily with respect to future events and the future financial performance of
the Company. Readers of this Form 10-Q are cautioned that any such forward
looking statements are not guarantees of future events or performance and
involve risks and uncertainties, and that actual results may differ materially
from those in the forward looking statements as a result of various factors. The
accompanying information contained in this Form 10-Q identifies important
factors that could cause such differences. These factors include changes in
interest rates, loss of deposits and loan demand to other financial
institutions, substantial changes in financial markets, changes in real estate
values and the real estate market, regulatory changes, unanticipated conversion
expenses, increases in compensation and employee expenses, or unanticipated
results in pending legal proceedings.
CRITICAL ACCOUNTING POLICIES
The notes to the consolidated financial statements contain a summary of the
Company's significant accounting policies presented on pages 18-20 of the annual
report for fiscal year 2003. Certain of these policies are important to the
portrayal of the Company's financial condition, since they require management to
make difficult, complex or subjective judgments, some of which may relate to
matters that are inherently uncertain. Management believes that it's critical
accounting policies include determining the allowance for loan losses, ("ALL")
and accounting for goodwill.
ALLOWANCE FOR LOAN LOSSES
The ALL is a significant estimate that can and does change based on management's
assumptions about specific borrowers and applicable economic and environmental
conditions, among other factors. Management reviews the adequacy of the ALL on a
monthly basis. This review is based on specific identified risks or anticipated
losses in individual loans, a percentage factor based on the classification of
certain loans, and managements' analysis of overall economic conditions such as
employment, bankruptcy trends, property value changes and changes in delinquency
levels. Credits are evaluated individually based on degree of delinquency and/or
identified risk ratings of special mention or worse. Credits with delinquency
levels of less than 60 days and risk
9
PEOPLES BANCORP
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
ratings of satisfactory/monitor or better are reviewed in the aggregate.
Percentage factors applied to individual credits are based on risk rating, the
type of credit and estimated potential losses in the event liquidation becomes
necessary. Percentage factors applied to loans reviewed in the aggregate are
based solely on the type of credit. Anticipated losses on other real estate
owned are recognized immediately upon recording the asset.
The ALL also includes a component based on management's assumptions of changes
in risk in non-quantifiable areas such as market conditions, property values,
employment conditions and perceived changes in overall portfolio quality due to
changes in concentration, underwriting changes and both national and regional
trends.
External factors such as increases in unemployment, regional softness in
property values, increasing national numbers in bankruptcy, unsecured
delinquency and charge offs and internal factors such as the continuing increase
in the commercial loan portfolio may result in larger losses in current economic
conditions. Changes in loan concentration, delinquency and portfolio are
addressed through the variation in percentages used in calculating the reserve
for various types of credit as well as individual review of "high risk" credits
and large loans.
GOODWILL
Goodwill is annually tested for impairment. The impairment testing involves
estimating the implied fair value of goodwill and comparing to the carrying
value. If the implied fair value of goodwill is lower than its carrying amount,
a goodwill impairment is indicated and goodwill is written down to its implied
fair value. Subsequent increases in goodwill value are not recognized in the
financial statements.
FINANCIAL CONDITION
Total assets at December 31, 2003 were $501,234,415, a decrease of $1,685,591
from September 30, 2003. Significant variations in the composition of assets
consisted of the following items:
o Total loans increased by $4,923,407. The increase was due primarily to the
slow-down of mortgage loan refinancing due to the slight upturn in interest
rates. Loan sales have slowed considerably as illustrated by the decrease
on gains on sale of loans from $179,812 to $21,721 for the three-month
periods ended December 31, 2002 and 2003.
10
PEOPLES BANCORP
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
o Investment securities have increased by $8,859,321. This increase was
primarily funded from a decrease in short-term interest-bearing deposits.
Management has shifted funds from overnight deposits, primarily to callable
agency bonds in an effort to maintain liquidity while increasing yield
until the funds are needed to fund future loan growth.
Total liabilities were $437,304,860 at December 31, 2003 down from $438,995,152
at September 30, 2003, due primarily to a decrease in Certificates of Deposit,
partially offset by an increase in NOW and Savings deposits.
LIQUIDITY
The Company's most liquid assets are cash and interest-bearing deposits. The
levels of these assets are dependent on the Company's operating, financing, and
investing activities. At December 31, 2003, and September 30, 2003, cash and
short-term interest-bearing deposits totaled $19.6 million and $35.2 million,
respectively.
The Company's primary sources of funds are deposits, borrowings and the proceeds
from principal and interest payments on loans. While maturities and scheduled
amortization of loans are a predictable source of funds, deposit flows and
mortgage prepayments are greatly influenced by interest rates, economic
conditions and competition.
If the Company requires funds beyond its ability to generate them internally, it
has the ability to borrow funds from the FHLB of Indianapolis. While there are
regulatory and internal limits to the amount that may be borrowed from the FHLB,
the Company feels its current borrowing capacity will be sufficient to cover any
liquidity shortfalls it may encounter.
CAPITAL RESOURCES
The following table presents Peoples Federal Savings Bank's current estimates of
its regulatory capital position as a dollar amount and as a percentage of assets
as of December 31, 2003.
11
PEOPLES BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
At December 31, 2003
-----------------------------------------------
Required for To Be Well
Actual Adequate Capital(1) Capitalized (1)
Amount % Amount % Amount %
--------------- ----------------- -------------
(dollars in thousands)
Total risk-based capital (1)
(to risk-weighted assets) $43,471 20.3% $16,114 8.0% $20,142 10.0%
Tier 1 risk-based capital (1)
(to risk-weighted assets) $42,026 19.6% $ 8,057 4.0% $12,085 6.0%
Core Capital (1)
(to adjusted tangible assets) $42,026 10.6% $15,097 4.0% $18,872 5.0%
Core Capital (1)
(to adjusted total assets) $42,026 10.6% $ 7,549 2.0% N/A N/A
Tangible Capital (1)
(to adjusted total assets) $42,026 10.6% $ 5,662 1.5% N/A N/A
(1) as defined by regulatory agencies
The following table presents First Savings Bank's current estimates of its
regulatory capital position as a dollar amount and as a percentage of assets as
of December 31, 2003.
At December 31, 2003
------------------------------------------------
Required for To Be Well
Actual Adequate Capital(1) Capitalized (1)
Amount % Amount % Amount %
--------------- ------------------ -------------
(dollars in thousands)
Total risk-based capital (1)
(to risk-weighted assets) $13,033 20.5% $5,089 8.0% $6,361 10.0%
Tier 1 risk-based capital (1)
(to risk-weighted assets) $12,510 19.5% $2,545 4.0% $3,817 6.0%
Core Capital (1)
(to adjusted tangible assets) $12,510 10.4% $4,681 4.0% $5,851 5.0%
Core Capital (1)
(to adjusted total assets) $12,510 10.4% $2,341 2.0% N/A N/A
Tangible Capital (1)
(to adjusted total assets) $12,510 10.4% $1,755 1.5% N/A N/A
(1) as defined by regulatory agencies
12
PEOPLES BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
SUMMARY OF RESULTS OF OPERATIONS
The Company had net income of $1,276,439 or $0.38 per share for the three months
ended December 31, 2003 as compared to $1,501,293 or $0.44 per share for the
same period in 2002. The decrease for the three-month period is due to a
combination of lower net interest income partially offset by lower provision for
loan losses due to a large allowance established last year for a significant
loss discovered on a commercial loan. This decrease is combined with lower
non-interest income, primarily due to lower gains on sales of loans.
NET INTEREST INCOME
Net interest income was $4,187,467 for the three months ended December 31, 2003
as compared to $4,609,646 for the same period ended 2002. Interest income
decreased $1,189,192 to $6,844,042, due to a combination of lower rates earned
and lower volumes of loans. While interest rates earned on investments were
lower than last year, volumes were higher causing this segment of interest
income to increase over last year. Interest expense decreased $767,013 to
$2,656,575 for the three months due to lower rates and volumes of deposits and
borrowings.
Provision for loan loss decreased $165,289 to $41,196 for the three months ended
December 31, 2003 due to a significant loss being incurred on an outstanding
commercial loan during this period last year.
The following table presents average balances and associated rates earned and
paid for all interest-earning assets and interest-bearing liabilities for the
three months ended December 31, 2003 and 2002 (dollars in thousands).
13
PEOPLES BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
2003 2002
--------------------------- ---------------------------
Average Effective Average Effective
Balance Interest Rate Balance Interest Rate
-------- -------- -------- ------- -------- ----------
Loans $361,875 $5,965 6.59% $383,445 $7,110 7.42%
Securities 98,636 745 3.02% 61,555 674 4.38%
Other 16,894 134 3.17% 22,486 249 4.43%
-------- ------ -------- -------
Combined 477,405 6,844 5.73% 467,486 8,033 6.87%
-------- ------ -------- -------
NOW and savings
deposits 167,246 306 0.73% 161,924 425 1.05%
Certificates of deposit 214,297 1,577 2.94% 221,399 2,175 3.93%
Borrowings 56,719 774 5.46% 63,127 823 5.21%
-------- ------ -------- -------
Combined $438,262 2,657 2.43% $446,450 3,423 3.07%
-------- ------ -------- -------
Net interest income/
interest rate spread $4,187 3.30% $4,610 3.80%
====== ====== ======== =======
The following table illustrates the change in net interest income due to changes
in rates and average volumes for the three months ended December 31, 2003 (in
thousands).
Rate Volume Total
------- ------- ---------
Loans $(762) $(383) $(1,145)
Securities (75) 146 71
Other (61) (54) (115)
------- ------- ---------
Total (898) (291) (1,189)
------- ------- ---------
NOW and savings deposits (133) 14 (119)
Certificates of deposit (530) (68) (598)
Borrowings 43 (92) (49)
------- ------- ---------
Total (620) (146) (766)
------- ------- ---------
Net interest income $(278) $(145) $(423)
======= ======= =========
14
PEOPLES BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
LOANS, NON-PERFORMING ASSETS AND SUMMARY OF LOAN LOSS EXPERIENCE
The following table presents the composition of the loan portfolio at December
31, 2003 and September 30, 2003 (in thousands):
December 31, 2003 September 30, 2003
------------------- ------------------
TYPE OF LOAN AMOUNT % AMOUNT %
-------- ---------- -------- ---------
Residential: (Dollars in thousands)
Single family units $288,991 78.4% $301,265 82.7%
2-4 family units 1,861 0.5% 1,797 0.5%
Over 4 family units 3,345 0.9% 2,593 0.7%
Commercial real estate 21,461 5.8% 14,750 4.1%
Land acquisition and
development 1,328 0.4% 1,480 0.4%
Consumer and other loans 50,977 13.8% 41,748 11.5%
Loans on deposits 709 0.2% 521 0.1%
-------- ---------- -------- ---------
368,672 100.0% 364,154 100.0%
-------- ---------- -------- ---------
Less:
Undisbursed portion
of loans 3,294 3,467
Deferred loan fees and
discounts 1,506 1,623
-------- --------
4,800 5,090
-------- --------
Total loans receivable 363,872 359,064
Allowance for losses
on loans 1,995 2,111
-------- --------
Net loans $361,877 $356,953
======== ========
Non-performing assets at December 31, 2003 and September 30, 2003 are as follows
(in thousands):
December 31, 2003 September 30, 2003
Non-accruing loans $1,066 $1,127
Loans contractually past due 90 days
or more other than nonaccruing 58 90
Real estate owned (REO) 1,290 854
Restructured loans 1,470 1,912
------------ ------------
$3,884 $3,983
============ ============
15
PEOPLES BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
It is the Company's policy to carry REO at net realizable value. After
repossession, appraised value is reduced for estimated repair and selling costs,
and the net amount is the carrying value of the property. Any changes in
estimated realizable value after the initial repossession, are charged to a
specific loss reserve account for REO. Net charge-offs for the three months
ended December 31, 2003 were $114,000 and were incurred primarily due to a
charge-off related to non-residential REO during the quarter.
The allowances for loan and real estate owned losses represent amounts available
to absorb losses inherent in the portfolio. Such allowances are based on
management's continuing review of the portfolios, historical charge-offs,
current economic conditions, and such other factors, which in management's
judgment deserve recognition in estimating losses. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the allowance for loan losses. Such agencies may require
additions to the allowances based on their judgment about the information
available to them at the time of their examination. Provisions for losses are
charged to earnings to bring the allowances to levels considered necessary by
management. Losses are charged to the allowances when considered probable, or in
the case of REO, at the time of repossession. Management believes that the
allowances are adequate to absorb known and inherent losses in the portfolio. No
assurance can be given, however, that economic conditions which may adversely
affect the Company's markets or other circumstances will not result in future
losses in the portfolio.
NON-INTEREST INCOME
The Company's non-interest income for the three months ended December 31, 2003,
was $556,366 as compared to $684,749 for the same period one year ago. The
decrease was attributable to decreases in gains on sales of loans. As mortgage
interest rates have started to increase slightly, the volume of loan
refinancings has declined, and so loan sales has decreased significantly. Gains
on sales of loans decreased $158,091 to $21,721 for the quarter ended December
31, 2003. Management anticipates that the refinancing volume will continue at a
much slower pace this year than last, which may negatively impact non-interest
income. Trust income, however, increased $45,492 to $108,027 for the quarter
ended December 31, 2003. This increase is due to the increased volume of trust
assets administered due to the merger of the trust department of First Federal
of Huntington, IN. This increased fee income should partially offset the loss of
loan sales gains.
16
PEOPLES BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Peoples Federal Savings Bank has reached an agreement with First Federal Savings
Bank of Huntington, IN, and has started to administer First Savings trust
accounts. Regulatory approval is expected to be received shortly.
NON-INTEREST EXPENSE
Total non-interest expense for the three months ended December 31, 2003 was
$2,735,268 as compared to $2,738,367 for the same period in 2002. Salaries and
employee benefits increased $80,909 to $1,593,246 for the quarter ended December
31, 2003 due to regular salary increases.
Equipment and occupancy expense remained virtually unchanged from the prior year
at $411,876 for the quarter ended December 31, 2003. Data Processing expense
decreased $32,893 for the quarter ended December 31, 2003 as compared to the
comparable prior year period.due to the conversion of First Savings Bank to the
Bisys operating service in April of 2003.
INCOME TAXES
Income tax expense decreased to $690,930 from $848,250 for the three months
ended December 31, 2003 and 2002 due to lower pretax income. The effective tax
rate for the three months ended December 31, 2003 and 2002 was 35.1% and 36.1%.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The OTS has 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. Institutions which
do not meet either of the filing requirements are not required to file OTS
Schedule CMR, but may do so voluntarily. Both Peoples Federal Savings Bank and
First Savings Bank file Schedule CMR. However, results calculated from the
December 31, 2003 schedule CMR are not yet available from the OTS. Therefore,
the tables presented below present the results of this analysis for Peoples
Federal and First Savings as of September 30, 2003 and 2002. 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
17
PEOPLES BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued )
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. Presented below as of September 30, 2003 and
2002 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 100 basis points.
Peoples Federal Savings Bank
- ------------------------------------------------------------------------
Interest Rate Risk As of September 30, 2003
(dollars in thousands)
- ------------------------------------------------------------------------
Changes Market Value
in Rates $ Amount $ Change % Change NPV Ratio Change
- ------------------------------------------------------------------------
+300 bp 42,468 (11,450) -21% 11.30% (224)
+200 bp 48,414 (5,503) -10% 12.57% (97)
+100 bp 52,878 (1,039) -2% 13.45% (10)
0 bp 53,918 - - 13.55% -
- -100 bp 54,222 305 1% 13.48% (7)
Peoples Federal Savings Bank
- ------------------------------------------------------------------------
Interest Rate Risk As of September 30, 2002
(dollars in thousands)
- ------------------------------------------------------------------------
Changes Market Value
in Rates $ Amount $ Change % Change NPV Ratio Change
- ------------------------------------------------------------------------
+200 bp 48,233 (2,760) -5% 13.52% (37)
+100 bp 55,814 266 0% 14.06% 18
0 bp 55,548 - - 13.88% -
- -100 bp 55,354 (194) 0% 13.72% (17)
Presented below are the same tables for Firs t Savings:
First Savings Bank
- -------------------------------------------------------------------------
Interest Rate Risk As of September 30, 2003
(dollars in thousands)
- ------------------------------------------------------------------------
Changes Market Value
in Rates $ Amount $ Change % Change NPV Ratio Change
- ------------------------------------------------------------------------
+300 bp 14,284 (643) -4% 12.02% (3)
+200 bp 14,904 (22) 0% 12.34% 29
+100 bp 15,101 175 1% 12.33% 28
0 bp 14,927 - - 12.05% -
- -100 bp 14,404 (523) -4% 11.51% (54)
18
PEOPLES BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
First Savings Bank
------------------------------------------------------------------------
Interest Rate Risk As of September 30, 2002
(dollars in thousands)
- ------------------------------------------------------------------------
Changes Market Value
in Rates $ Amount $ Change % Change NPV Ratio Change
- ------------------------------------------------------------------------
+200 bp 15,344 753 5% 12.13% 81
+100 bp 15,451 860 6% 12.06% 74
0 bp 14,591 - - 11.32% -
- -100 bp 13,573 (1,054) -7% 10.44% (88)
In evaluating Peoples Federal's and First Savings' exposure to interest rate
risk, certain shortcomings, inherent in the method of analysis presented in the
foregoing tables 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 tables.
ITEM 4. CONTROLS AND PROCEDURES
As of December 31, 2003, an evaluation was carried out under the supervision and
with the participation of the Company's management, including our President and
Chief Executive Officer and our Secretary and Treasurer, of the effectiveness of
our disclosure controls and procedures (as defined in Exchange Act Rules
13a-14(c) and 15d- 14(c) under the Securities Exchange Act of 1934). Based on
their evaluation, our President and Chief Executive Officer and our Chief
Financial Officer have concluded that the Company's disclosure controls and
procedures are, to the best of their knowledge, effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms. Subsequent to the date of their evaluation, our President Chief
Executive Officer and our Chief Financial Officer have concluded that there were
no significant changes in the Company's internal controls or in other factors
that could significantly affect its internal controls, including any corrective
actions with regard to significant deficiencies and material weaknesses.
19
PART II. OTHER INFORMATION
PEOPLES BANCORP
AND SUBSIDIARIES
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other information
None
Item 6. Exhibits
Exhibit 31.1 Certification of Chief Executive Officer pursuant to
section 302 of the Sarbanes-Oxley Act of 2002 Exhibit 31.2
Certification of Chief Financial Officer pursuant to section 302 of
the Sarbanes-Oxley Act of 2002
Exhibit 32.1 Certification of Chief Executive Officer pursuant to
section 906 of the Sarbanes-Oxley Act of 2002 Exhibit 32.2
Certification of Chief Financial Officer pursuant to section 906 of
the Sarbanes-Oxley Act of 2002
Reports on Form 8-K
A Form 8-K was filed on November 26, 2003 regarding the annual
financial results of Peoples Bancorp for the period ended September 30, 2003.
20
PEOPLES BANCORP
AND SUBSIDIARIES
SIGNATURES
Under the requirements of the Securities Exchange Act of 1934, the Registrant
has duly caused this Report to be signed on its behalf by the undersigned
thereunto duly authorized.
Date: February 10, 2004 /s/Maurice F. Winkler, III
Chief Executive Officer
Date: February 10, 2004 /s/Deborah K. Stanger
Principal Financial and
Accounting Officer
21
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER DISCLOSURE PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Maurice F. Winkler, III, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Peoples Bancorp
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e))[and internal controls and procedures
for financial reporting (as defined n Exchange Act Rules 13a-15(f) and
15d-15(f))] for the registrant, and have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared.
b. Designed such internal controls and procedures for financial
reporting, or caused such internal controls and procedures for
financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and;
d. Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and;
5. The Registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors:
a. All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
February 10, 2004 /s/Maurice F. Winkler, III
President and Chief Executive Officer
22
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER DISCLOSURE PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Deborah K. Stanger, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Peoples Bancorp
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e))[and internal controls and procedures
for financial reporting (as defined n Exchange Act Rules 13a-15(f) and
15d-15(f))] for the registrant, and have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared.
b. Designed such internal controls and procedures for financial
reporting, or caused such internal controls and procedures for
financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and;
d. Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and;
5. The Registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors:
a. All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
February 10, 2004 /s/Deborah K. Stanger
Vice President-Chief Financial Officer
23
Exhibit32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of
Chapter 63 of Title 18 of the United States Code), each of the undersigned
officers of Peoples Bancorp, (the "Company") does hereby certify with respect to
the Quarterly Report of the Company on form 10=Q for the period ended June 30,
2003 (the "Report") that:
1. The Report fully complies with the requirements of Sections 13(a) or 15(d) of
the Securities Exchange Act of 1934; and 2. The information contained in the
Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
February 10, 2004 /s/Maurice F. Winkler, III
Chief Executive Officer
24
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of
Chapter 63 of Title 18 of the United States Code), each of the undersigned
officers of Peoples Bancorp, (the "Company") does hereby certify with respect to
the Quarterly Report of the Company on form 10=Q for the period ended June 30,
2003 (the "Report") that:
1. The Report fully complies with the requirements of Sections 13(a) or 15(d) of
the Securities Exchange Act of 1934; and 2. The information contained in the
Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
February 10, 2004
/s/Deborah K. Stanger
Chief Financial Officer
25