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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
June 30,2002 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 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 3,455,361 shares
(Title of class) (Outstanding at August 13, 2002)
1
PEOPLES BANCORP
AND SUBSIDIARIES
Page
Number
Part I Financial Information:
Item 1. Consolidated Condensed Financial Statements
Consolidated Condensed Balance Sheets
as of June 30, 2002 and September 30, 2001.......................3
Consolidated Condensed Statements of Income for the three
and nine months ended June 30, 2002 and 2001......................4
Consolidated Condensed Statements of Comprehensive Income for the
three and nine months ended June 30, 2002 and 2001................5
Consolidated Condensed Statements of Cash Flows for the
nine months ended June 30, 2002 and 2001..........................6
Notes to Consolidated Condensed Financial Statements............7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................9-16
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....16-18
Part II. Other Information
Item 1. Legal Proceedings................................................19
Item 2. Changes in Securities and Use of Proceeds........................19
Item 3. Defaults Upon Senior Securities..................................19
Item 4. Submission of Matters to a Vote of Security Holders..............19
Item 5. Other Information................................................19
Item 6. Exhibits and Reports on Form 8-K.................................19
Signatures....................................................................20
2
PART I. FINANCIAL INFORMATION
PEOPLES BANCORP
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
June 30, September 30,
2002 2001
------------- -------------
Cash and due from financial institutions $ 16,394,462 $ 8,908,922
Short-term interest-bearing deposits 4,512,047 9,573,685
------------- -------------
Total cash and cash equivalents 20,906,509 18,482,607
Interest-bearing time deposits 3,820,047 3,455,798
Securities available for sale 50,795,937 29,611,558
Securities held to maturity
pproximate market value $4,333,707 and $6,417,965) 4,199,556 6,274,122
Loans:
Loans 391,936,804 405,522,489
Less: Allowance for loan losses 2,073,914 1,894,787
------------- -------------
Net loans 389,862,890 403,627,702
Premises and equipment 6,135,501 5,777,095
Federal Home Loan Bank of Indianapolis stock, at cost 4,405,000 4,391,500
Goodwill 2,330,198 2,330,198
Other Intangible assets 781,236 884,940
Other assets 5,311,527 4,577,293
------------- -------------
Total assets $488,548,401 $479,412,813
============= =============
LIABILITIES
NOW and savings deposits $153,700,352 $141,546,063
Certificates of deposit 222,895,108 226,933,526
------------- -------------
Total deposits 376,595,460 368,479,589
Reverse repurchase agreements 3,893,444 4,383,723
Federal Home Loan Bank advances 45,100,000 45,092,965
Other liabilities 2,684,004 3,402,985
------------- -------------
Total liabilities 428,272,908 421,359,262
------------- -------------
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--3,460,831 and
3,506,348 shares 3,460,831 3,506,348
Additional paid-in capital 8,090,169 8,498,348
Retained earnings 49,032,409 46,500,707
Accumulated other comprehensive income (282,894) (129,683)
Unearned ESOP shares - (281,450)
Unearned RRP shares (25,022) (40,719)
------------- -------------
Total stockholders' equity 60,275,493 58,053,551
------------- -------------
Total liabilities and stockholders' equity $488,548,401 $479,412,813
============= =============
See notes to consolidated condensed financial statements.
3
PEOPLES BANCORP
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three months ended Nine months ended
June 30, June 30,
---------- ---------- -----------------------
2002 2001 2002 2001
Interest Income:
Loans $7,380,660 $8,023,145 $22,942,109 $24,125,289
Securities 586,621 433,232 1,560,959 1,259,221
Other interest and dividend income 210,245 463,687 679,959 1,343,475
---------- ---------- ----------- -----------
8,177,526 8,920,064 25,183,027 26,727,985
---------- ---------- ----------- -----------
Interest Expense:
NOWand savings deposits 599,060 823,741 1,883,394 2,713,514
Certificates of deposit 2,467,086 3,390,228 8,068,136 10,158,572
Short-term borrowings 12,064 26,081 49,720 34,947
Federal Home Loan Bank advances 665,868 677,507 2,013,185 2,155,981
---------- ---------- ----------- -----------
3,744,078 4,917,557 12,014,435 15,063,014
---------- ---------- ----------- -----------
Net Interest Income 4,433,448 4,002,507 13,168,592 11,664,971
---------- ---------- ----------- -----------
Provision for losses on loans 55,473 60,850 259,090 117,514
---------- ---------- ----------- -----------
Net Interest Income After Provision
for Losses on Loans 4,377,975 3,941,657 12,909,502 11,547,457
---------- ---------- ----------- -----------
Other Income:
Trust income 44,099 45,008 132,725 154,806
Loan servicing 45,368 40,692 132,411 119,665
Net gains on sale of loans 77,928 61,577 369,904 82,406
Net gains on sale of securities - - 21,449 -
Fees and service charges 223,671 217,224 695,160 652,862
Other income 88,571 116,475 260,447 328,862
---------- ---------- ----------- -----------
479,637 480,976 1,612,096 1,338,601
---------- ---------- ----------- -----------
Other Expense:
Salaries and employee benefits 1,555,554 1,345,986 4,366,814 3,814,271
Net occupancy expenses 207,168 220,164 615,072 663,689
Equipment expenses 215,945 197,342 627,538 597,732
Data processing expense 224,399 195,376 620,130 560,048
Deposit insurance expense 16,628 17,039 50,049 51,317
Other expenses 496,780 464,547 1,523,368 1,509,847
---------- ---------- ----------- -----------
2,716,474 2,440,454 7,802,971 7,196,904
---------- ---------- ----------- -----------
Income Before Income Tax 2,141,138 1,982,179 6,718,627 5,689,154
Income tax expense 887,835 744,790 2,617,925 2,125,325
---------- ---------- ----------- -----------
Net Income $1,253,303 $1,237,389 $ 4,100,702 $ 3,563,829
========== ========== =========== -==========
Basic Income Per Common Share $ 0.36 $ 0.35 $ 1.19 $ 1.00
Diluted Income Per Common Share $ 0.36 $ 0.35 $ 1.18 $ 1.00
See notes to consolidated condensed financial statements.
4
PEOPLES BANCORP
PEOPLES BANCORP
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
----------------------- ---------------------
2002 2001 2002 2001
------------ ---------- ---------- ----------
Net Income $1,253,303 $1,237,389 $4,100,702 $3,563,829
Other comprehensive income, net of tax
Unrealized gains (losses) on securities available for sale:
Unrealized gains (losses) arising during the period, net of income
tax expense (benefit) of $131,829, $(115,242), $(91,996) and
$(102,498) 200,989 (175,699) (140,258) (156,270)
Less: Reclassification adjustment for gains included in net
income net of income tax of $0, $0, $8,496 and $0 - - 12,953 -
------------ ---------- ---------- ----------
200,989 (175,699) (153,211) (156,270)
------------ ---------- ---------- ----------
Comprehensive income $1,454,292 $1,061,690 $3,947,491 $3,407,559
============ ========== ========== ==========
See notes to consolidated condensed financial statements
5
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
June 30,
------------------------------
2002 2001
------------ -------------
Operating Activities:
Net income $ 4,100,702 $ 3,563,829
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 259,090 117,514
Depreciation and amortization 566,612 556,302
Amortization of premiums and discounts on
investment securities 117,987 (28,266)
Amortization of deferred loan fees (534,345) (292,619)
Loans originated for sale (17,312,864) (4,445,515)
Proceeds from sales of loans 17,499,168 4,078,921
Net (gain) loss on sales of loans (369,904) (82,406)
Change in:
Deferred income tax 96,638 183,583
Interest receivable (69,553) (239,911)
Interest payable (114,155) 130,463
Other adjustments (637,283) 518,908
------------ -------------
Net cash provided by operating activities 3,602,093 4,060,803
------------ -------------
Investing Activities:
Net change in interest-bearing time deposits (364,250) 99,020
Purchases of investment securities held to maturity - (690,190)
Purchases of investment securities avilable for (32,401,843) (20,375,893)
Proceeds from maturities of investment
securities held to maturity 2,346,925 4,834,296
Proceeds from maturities of securities available 8,407,910 8,464,076
Proceeds from sale of securities available for sa2,236,488 687,467
Net change in mutual funds (227,784) 142,770
Net change in loans 14,220,154 (11,866,989)
Purchases of premises and equipment (961,258) (381,552)
Proceeds from sales of real estate owned 80,030 281,716
Purchase of FHLB stock (13,500) (157,100)
------------ -------------
Net cash used by investing activities (6,677,128) (18,962,379)
------------ -------------
Financing Activities:
Net change in:
NOW and savings accounts 12,132,003 1,312,568
Certificates of deposit (4,038,418) 13,692,406
Short-term borrowings (490,280) 3,723,671
Advances by borrowers for taxes and insurance (46,986) 131,595
Proceeds from advances from FHLB 2,000,000 5,790,000
Payments on advances from FHLB (2,000,000) (11,750,000)
Cash dividends (1,572,510) (1,522,694)
Repurchase of common stock (484,872) (2,226,024)
------------ -------------
Net cash provided by financing activities 5,498,937 9,151,522
------------ -------------
Net Change in Cash and Cash Equivalents 2,423,902 (5,750,054)
Cash and Cash Equivalents, Beginning of Period 18,482,607 18,846,807
------------ -------------
Cash and Cash Equivalents, End of Period $20,906,509 $13,096,753
============ =============
Additional Cash Flows and Supplementary Information:
Interest paid $12,128,590 $14,995,343
Income tax paid 3,171,965 1,884,469
See notes to consolidated condensed financial statements.
6
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'
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' Form 10-K annual report for September 30, 2001 filed
with the Securities and Exchange Commission. The consolidated condensed balance
sheet of the Company as of September 30, 2001 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 and nine
months ended June 30, 2002, are not necessarily indicative of those expected for
the remainder of the year.
2. CASH DIVIDEND
A cash dividend of $.15 per common share was declared on May 21, 2002 payable on
July 18, 2002, to stockholders of record as of July 1, 2002.
3. EARNINGS PER COMMON SHARE
Earnings per share were computed as follows:
Three Months Ended June 30,
2002 2001
Weighted Weighted
Average Per-Share Average Per-Share
Income Shares Amount Income Shares Amount
------------------------------- ------------------------------
Basic Earnings Per Share
Income available to common stockholders $1,253,303 3,452,806 $0.36 $1,237,389 3,500,581 $ 0.35
Effect of Dilutive Securities
Stock options 22,189 10,774
Diluted Earnings Per Share
Income available to common stockholders ---------- --------- ---------- ---------- --------- ---------
and assumed conversions $1,253,303 3,474,995 $0.36 $1,237,389 3,511,355 $ 0.35
========== ========= ========== ========== ========= =========
7
PEOPLES BANCORP
AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Nine Months Ended June 30,
2002 2001
-------------------------------------------------------------
Weighted Weighted
Average Per-Share Average Per-Share
Income Shares Amount Income Shares Amount
------------------------------ ------------------------------
Basic Earnings Per share
Income available to common stockholders $4,100,702 3,458,779 $1.19 $3,563,829 3,557,867 $1.00
Effect of Dilutive Securities
Stock options 22,189 13,532
Diluted Earnings Per Share
Income available to common stockholders ---------- --------- --------- ---------- --------- ---------
and assumed conversions $4,100,702 3,480,968 $1.18 $3,563,829 3,571,399 $1.00
========== ========= ========= ========== ========= =========
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 page 16of the annual
report for fiscal year 2001. 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").
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.
FINANCIAL CONDITION
Total assets at June 30, 2002 were $488,548,401, an increase of $9,135,588 from
September 30, 2001. The increase consisted primarily of the growth in cash and
equivalents of $2,423,902 and investment securities of $19,109,813 partially
offset by a decrease in net loans of $13,764,812. This decrease in loans is due
to refinancing of the Company's loans by other institutions. Since the Company
keeps most of its loans in its portfolio, as opposed to selling them on the
secondary market, management has not been willing to lower rates to the same
extent as some competitors. The consequence being, that some loans are being
lost to competitors.
Total deposits were $376,595,460 at June 30, 2002, an increase of $8,115,871
since September 30, 2001.
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 June 30, 2002, and September 30, 2001, cash and
short-term interest-bearing deposits totaled $20.9 million and $18.5 million,
respectively.
10
PEOPLES BANCORP
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
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 June 30, 2002.
At June 30, 2002
------------------------------------------------
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) $40,512 20.3% $15,945 8.0% $19,931 10.0%
Tier 1 risk-based capital (1)
(to risk-weighted assets) $39,067 19.6% $ 7,972 4.0% $11,958 6.0%
Core Capital (1)
(to adjusted tangible assets) $39,067 10.7% $14,672 4.0% $18,341 5.0%
Core Capital (1)
(to adjusted total assets) $39,067 10.7% $ 7,336 2.0% N/A N/A
Tangible Capital (1)
(to adjusted total assets) $39,067 10.7% $ 5,502 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 June 30, 2002.
11
PEOPLES BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
At June 30, 2002
--------------------------------------------------
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) $11,570 18.2% $5,100 8.0% $6,375 10.0%
Tier 1 risk-based capital (1)
(to risk-weighted assets) $10,953 17.2% $2,550 4.0% $3,825 6.0%
Core Capital (1)
(to adjusted tangible assets) $10,953 9.6% $4,549 4.0% $5,686 5.0%
Core Capital (1)
(to adjusted total assets) $10,953 9.6% $2,274 2.0% N/A N/A
Tangible Capital (1)
(to adjusted total assets) $10,953 9.6% $1,706 1.5% N/A N/A
(1) as defined by regulatory agencies
SUMMARY OF RESULTS OF OPERATIONS
The Company had net income of $1,253,303 or $0.36 per share for the three months
and $4,100,702 or $1.19 per share for the nine months ended June 30, 2002 as
compared to $1,237,454 or $0.35 per share and $3,563,829 or $1.01 per share for
the same periods in 2001. The increase was due primarily to higher net interest
income due to a combination of higher volumes of both interest-bearing assets
and liabilities, and lower rates. This increase in net interest income was
partially offset by higher provision for loan losses due to higher delinquency
and non-performing loans levels, and current economic factors.
NET INTEREST INCOME
Net interest income was $4,433,448 for the three months and $13,138,592 for the
nine months ended June 30, 2002 as compared to $4,002,507 and $11,664,971 for
the same periods ended 2001. Interest income decreased $1,544,958 to $25,183,027
for the nine-month period, due to lower rates earned on loans and investments.
Interest expense decreased $3,048,579 to $12,014,435 due again to lower rates.
Volumes of both interest-earning assets and interest-bearing liabilities rose
during the period. However, since rates on deposits and borrowings fell at a
faster rate than rates on loans and investments, interest expense decreased more
than interest income, causing higher net interest income. Provision for loan
loss increased $141,576 to
12
PEOPLES BANCORP
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
$259,090 for the nine months ended June 30, 2002, due to higher delinquency and
non-performing loan levels, and current economic conditions.
The following table presents average balances and associated rates earned and
paid for all interest-earning assets and interest-bearing liabilities for the
nine months ended June 30, 2002 and 2001 (dollars in thousands).
2002 2001
------------------------- ---------------------------
Average Effective Average Effective
Balance Interest Rate Balance Interest Rate
-------- -------- ------- -------- -------- ---------
Loans $397,027 $22,942 7.70% $389,546 $24,125 8.26%
Securities 43,193 1,561 4.82% 22,197 1,259 7.56%
Other 21,413 680 4.23% 23,697 1,344 7.56%
-------- -------- --------- -------
Combined 461,633 25,183 7.27% 435,440 26,728 8.18%
-------- -------- --------- -------
NOW and savings
deposits 154,890 1,883 1.62% 131,424 2,713 2.75%
Certificates of deposit 222,862 8,068 4.83% 231,609 10,159 5.85%
Borrowings 48,017 2,063 5.73% 45,879 2,191 6.37%
-------- -------- -----------------
Combined $425,769 12,014 3.76% $408,912 15,063 4.91%
-------- -------- --------- -------
Net interest income/
interest rate spread $13,169 3.51% $11,665 3.27%
======== ======= ======= ======
The following table illustrates the change in net interest income due to changes
in rates and average volumes (in thousands).
Rate Volume Total
--------- ------- --------
Loans $(1,650) $467 $(1,183)
Securities (188) 490 302
Other (544) (120) (664)
--------- ------ --------
Total (2,382) 837 (1,545)
--------- ------ --------
NOW and savings deposits (1,468) 638 (830)
Certificates of deposit (1,719) (372) (2,091)
Borrowings (239) 111 (128)
--------- ------ --------
Total (3,426) 377 (3,049)
--------- ------ --------
Net interest income $1,044 $460 $1,504
========= ====== ========
LOANS, NON-PERFORMING ASSETS AND SUMMARY OF LOAN LOSS EXPERIENCE
The following table presents the composition of the loan portfolio at June 30,
2002 and September 30, 2001 (in thousands):
13
PEOPLES BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
June 30, 2002 September 30, 2001
--------------------- --------------------
TYPE OF LOAN AMOUNT % AMOUNT %
----------- --------- ---------- ---------
Residential: (Dollars in thousands)
Single family units $319,163 80.2% $336,919 81.7%
2-4 family units 2,679 0.7% 3,243 0.8%
Over 4 family units 1,237 0.3% 1,452 0.4%
Commercial real estate 23,116 5.8% 21,906 5.3%
Land acquisition and
development 1,692 0.4% 1,938 0.5%
Consumer and other loans 49,202 12.4% 46,177 11.2%
Loans on deposits 1,068 0.3% 979 0.2%
----------- -------- ----------- --------
398,157 100.0% 412,614 100.0%
----------- -------- ----------- --------
Less:
Undisbursed portion
of loans 3,732 5,262
Deferred loan fees and
discounts 2,488 1,829
----------- -----------
6,220 7,091
----------- -----------
Total loans receivable 391,937 405,523
Allowance for losses
on loans 2,074 1,895
---------- -----------
Net loans $389,863 $403,628
========== ==========
Non-performing assets at June 30, 2002 and September 30, 2001 are as follows (in
thousands):
June 30, 2002 September 30, 2001
Non-accruing loans $ 922 $ 676
Loans contractually past due 90 days
or more other than nonaccruing 109 52
Real estate owned (REO) 431 117
Restructured loans 745 517
------------ ------------
$ 2,207 $ 1,362
============ ============
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. The increase in non-accrual loans since
September 30, 2001 is primarily due to increase in the 1 to 4 family portion of
the loan portfolio, and management believes the increase has been appropriately
considered in determining the
14
PEOPLES BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
adequacy of the allowance for loan and REO losses at June 30, 2002. Management
believes this increase is generally attributable to current economic conditions.
There have been no significant changes in potential problem loans since
September 30, 2001. Net charge-offs for the nine months ended June 30, 2002 are
$79,964 and have been incurred approximately equally in the consumer loan and
mortgage loan portfolios.
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 and nine months ended June 30,
2002, was $479,637 and $1,612,096 as compared to $480,976 and $1,338,601 for the
same periods one year ago. The increase was attributable to gains on sales of
loans by First Savings Bank. The current low interest rate environment has
encouraged mortgage loan refinancing, increasing the volume of loans being sold.
Fees and service charges increased due to higher volumes of deposit accounts.
These increases were partially offset by a slight decrease in trust income for
People's Federal Savings Bank due to estate fees received on settlement of
estates during the first quarter of last year that did not occur this year.
NON-INTEREST EXPENSE
Total non-interest expense for the three and nine months ended June 30, 2002 was
$2,716,474 and $7,802,971 as compared to $2,440,454 and $7,196,904 for the same
periods in 2001. Salaries and employee benefits increased $552,543 to $4,366,814
due to higher pension funding requirements this year, and the early termination
of the Employee Stock Ownership Plan (ESOP), at First Savings.
15
PEOPLES BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
INCOME TAXES
Income tax expense increased to $2,617,925 from $2,125,325 due to higher pretax
income. The effective tax rate for the nine months ended June 30, 2002 and 2001
was 39.0% and 37.4%.
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 June
30, 2002 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 March 31, 2002 and 2001. 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. Presented below as of March 31, 2002 and 2001 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 200 basis points.
Peoples Federal Savings Bank
Interest Rate Risk As of March 31, 2002
(dollars in thousands)
Changes Market Value
in Rates $ Amount $ Change % Change NPV Ratio Change
- ------------------------------------------------------------------------
+200 bp 44,165 (12,039) -21% 11.81% (257)
+100 bp 50,454 (5,751) -10% 13.18% (120)
0 bp 56,205 - - 14.38% -
- -100 bp 58,979 2,775 5% 14.89% 51
- -200 bp N/A N/A N/A N/A N/A
16
PEOPLES BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Peoples Federal Savings Bank
Interest Rate Risk As of March 31, 2001
(dollars in thousands)
Changes Market Value
in Rates $ Amount $ Change % Change NPV Ratio Change
- ------------------------------------------------------------------------
+200 bp 39,532 (11,148) -22% 10.97% (250)
+100 bp 45,505 (5,175) -10% 12.34% (112)
0 bp 50,680 - - 13.47% -
- -100 bp 52,978 2,298 5% 13.90% 43
- -200 bp 53,537 2,857 6% 13.92% 45
Presented below are the same tables for First Savings:
First Savings Bank
Interest Rate Risk As of March 31, 2002
(dollars in thousands)
Changes Market Value
in Rates $ Amount $ Change % Change NPV Ratio Change
- ------------------------------------------------------------------------
+200 bp 14,434 (1,348) -9% 12.78% (84)
+100 bp 15,317 (464) -3% 13.37% (25)
0 bp 15,781 - - 13.62% -
-100 bp 15,709 (72) 0% 13.45% (17)
-200 bp N/A N/A N/A N/A N/A
First Savings Bank
Interest Rate Risk As of March 31, 2001
(dollars in thousands)
Changes Market Value
in Rates $ Amount $ Change % Change NPV Ratio Change
- ------------------------------------------------------------------------
+200 bp 13,530 (459) -3% 12.10% (15)
+100 bp 13,916 (73) -1% 12.31% 6
0 bp 13,989 - - 12.25% -
- -100 bp 13,659 (330) -2% 11.86% (39)
- -200 bp 12,934 (1,055) -8% 10.29% (109)
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,
17
PEOPLES BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
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.
18
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. Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
June 30, 2002.
19
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. Each of the undersigned signatures certifies pursuant
to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) This Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in this Report fairly presents, in all material
respects, the financial condition and result of operations of the
Registrant.
Date: August 13, 2002 Maurice F. Winkler III
Chief Executive Officer
Date: August 13, 2002 Deborah K. Stanger
Principal Financial and
Accounting Officer
20