Back to GetFilings.com
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 31,2002 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 3,446,760 shares
- ------------------------------------ ----------------
(Title of class) (Outstanding at February 12, 2003)
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, 2002 and September 30, 2002..........................3
Consolidated Condensed Statements of Income for the three
months ended December 31, 2002 and 2001.................................4
Consolidated Condensed Statements of Comprehensive Income for
the three months ended December 31, 2002 and 2001.......................5
Consolidated Condensed Statements of Cash Flows for the
three months ended December 31, 2002 and 2001...........................6
Notes to Consolidated Condensed Financial Statements....................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................8-15
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....15-17
Item 4. Controls and Procedures........................................17-18
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
Officer Certifications.....................................................21-22
2
PART I. FINANCIAL INFORMATION
PEOPLES BANCORP
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
December 31, September 30,
2002 2002
-------------- --------------
Cash and due from financial institutions $ 8,792,684 $ 8,402,527
Short-term interest-bearing deposits 25,789,437 27,175,394
-------------- --------------
Total cash and cash equivalents 34,582,121 35,577,921
Interest-bearing time deposits 3,175,140 3,820,047
Securities available for sale 62,868,000 54,896,043
Securities held to maturity (approximate market
value $7,063,063 and $7,256,626) 6,996,829 7,142,556
Loans:
Loans 379,842,282 387,137,164
Less: Allowance for loan losses 2,092,540 2,117,400
-------------- --------------
Net loans 377,749,742 385,019,764
Loans held for sale 1,979,050 1,298,750
Premises and equipment 6,036,421 6,120,007
Federal Home Loan Bank of Indianapolis stock,
at cost 4,405,000 4,405,000
Goodwill 2,330,198 2,330,198
Other intangible assets 712,206 746,668
Other assets 4,878,953 5,103,301
-------------- --------------
Total assets $505,713,660 $506,460,255
============== ==============
LIABILITIES
NOW and savings deposits $158,633,596 $157,508,695
Certificates of deposit 220,079,668 222,427,776
-------------- --------------
Total deposits 378,713,264 379,936,471
Reverse repurchase agreements 4,301,392 3,192,774
Federal Home Loan Bank advances 58,100,000 59,100,000
Other liabilities 2,743,749 3,384,813
-------------- --------------
Total liabilities 443,858,405 445,614,058
-------------- --------------
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--3,446,760 and
3,447,186 shares 3,446,760 3,447,186
Additional paid-in capital 7,853,244 7,860,745
Retained earnings 50,734,953 49,785,154
Accumulated other comprehensive income (164,479) (227,098)
Unearned RRP shares (15,223) (19,790)
-------------- --------------
Total stockholders' equity 61,855,255 60,846,197
-------------- --------------
Total liabilities and stockholders' equity $505,713,660 $506,460,255
============== ==============
See notes to consolidated condensed financial statements.
3
PEOPLES BANCORP
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three months ended
December 31,
2002 2001
------------ ------------
Interest Income:
Loans $7,110,032 $7,930,080
Securities 673,859 495,251
Other interest and dividend income 249,343 248,882
------------ ------------
8,033,234 8,674,213
------------ ------------
Interest Expense:
NOWand savings deposits 425,102 683,658
Certificates of deposit 2,174,669 2,954,763
Short-term borrowings 18,617 24,435
Federal Home Loan Bank advances 805,200 687,919
------------ ------------
3,423,588 4,350,775
------------ ------------
Net Interest Income 4,609,646 4,323,438
Provision for losses on loans 206,485 143,623
------------ ------------
Net Interest Income After Provision
for Losses on Loans 4,403,161 4,179,815
------------ ------------
Other Income:
Trust income 62,435 45,724
Loan servicing 50,946 38,987
Net gains on sale of loans 179,812 148,242
Net gains on sale of securities 31,388 -
Fees and service charges 244,346 247,640
Other income 115,822 101,553
------------ ------------
684,749 582,146
------------ ------------
Other Expense:
Salaries and employee benefits 1,512,337 1,404,150
Net occupancy expenses 185,067 197,167
Equipment expenses 229,863 196,372
Data processing expense 232,871 182,365
Deposit insurance expense 15,918 16,783
Other expenses 562,311 520,967
------------ ------------
2,738,367 2,517,804
------------ ------------
Income Before Income Tax 2,349,543 2,244,157
Income tax expense 848,250 846,050
------------ ------------
Net Income $1,501,293 $1,398,107
============ ============
Basic Income Per Common Share $ 0.44 $ 0.40
Diluted Income Per Common Share $ 0.43 $ 0.40
See notes to consolidated condensed financial statements.
4
PEOPLES BANCORP
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended
December 31,
---------------------
2002 2001
----------- ---------
Net Income $1,501,293 $1,398,107
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 $28,639 and $(206,826) (43,664) (315,330)
Less: Reclassification adjustment for gains included in net
income net of income tax of ($12,433) 18,955 -
----------- ----------
(62,619) (315,330)
----------- ----------
Comprehensive income $1,438,674 $1,082,777
=========== ==========
See notes to consolidated condensed financial statements
5
PEOPLES BANCORP
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
December 31,
------------------------------
2002 2001
------------ -------------
Operating Activities:
Net income $ 1,501,293 $ 1,398,107
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 206,485 143,623
Depreciation and amortization 188,703 185,391
Amortization of premiums and discounts on
investment securities 163,028 29,375
Amortization of deferred loan fees (192,388) (205,047)
Loans originated for sale (9,227,320) (6,837,325)
Proceeds from sales of loans 8,726,832 6,724,067
Net (gain) loss on sales of loans (179,812) (148,242)
Change in:
Deferred income tax 188,506 156,193
Interest receivable (92,223) 307,300
Interest payable (96,146) (70,827)
Other adjustments (531,110) (1,077,692)
------------ -------------
Net cash provided by operating activities 655,848 604,923
------------ -------------
Investing Activities:
Net change in interest-bearing time deposits 644,907 (462,056)
Purchases of investment securities held to maturity - -
Purchases of investment securities avilable for (15,520,050) (5,569,361)
Proceeds from maturities of investment
securities held to maturity (521,875) 992,414
Proceeds from maturities of securities available 7,493,053 859,338
Proceeds from sale of securities available for sale667,198 1,000,000
Net change in mutual funds 6,762 (171,170)
Net change in loans 7,481,120 1,855,624
Purchases of premises and equipment (106,408) (141,816)
Proceeds from sales of real estate owned 145,998 -
Purchase of FHLB stock - -
------------ -------------
Net cash used by investing activities 290,705 (1,637,027)
------------ -------------
Financing Activities:
Net change in:
NOW and savings accounts 1,101,234 15,175,906
Certificates of deposit (2,348,109) (1,946,383)
Short-term borrowings 1,108,618 (720,565)
Advances by borrowers for taxes and insurance (244,619) (279,564)
Proceeds from advances from FHLB - 2,000,000
Payments on advances from FHLB (1,000,000) (2,000,000)
Cash dividends (551,550) (525,952)
Repurchase of common stock (7,927) (157,912)
------------ -------------
Net cash provided by financing activities (1,942,353) 11,545,530
------------ -------------
Net Change in Cash and Cash Equivalents (995,800) 10,513,426
Cash and Cash Equivalents, Beginning of Period 35,577,921 18,482,607
------------ -------------
Cash and Cash Equivalents, End of Period $34,582,121 $28,996,033
============ =============
Additional Cash Flows and Supplementary Information:
Interest paid $ 3,410,210 $ 4,421,602
Income tax paid 314,547 1,059,800
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'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, 2002 filed
with the Securities and Exchange Commission. The consolidated condensed balance
sheet of the Company as of September 30, 2002 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, 2002, are not necessarily indicative of those expected for
the remainder of the year.
2. CASH DIVIDEND
A cash dividend of $.16 per common share was declared on November 19, 2002
payable on January 23, 2003, to stockholders of record as of January 2, 2003.
3. EARNINGS PER COMMON SHARE
Earnings per share were computed as follows:
Three Months Ended December 31,
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 $1,501,293 3,446,883 $ 0.44 $1,398,107 3,502,862 $ 0.40
Effect of Dilutive Securities
Stock options 23,197 10,774
Diluted Earnings Per Share
Income available to common stockholders ----------------------------------- -----------------------------------
and assumed conversions $1,501,293 3,470,080 $ 0.43 $1,398,107 3,513,636 $ 0.40
=================================== ===================================
7
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 17-18 of the annual
report for fiscal year 2002. 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
8
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. 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, 2002 were $505,713,660 a decrease of $746,595 from
September 30, 2002. Significant variations in the composition of assets
consisted of the following items:
o Total loans decreased by $7,270,022. This decrease has been due primarily
to the amount of refinancing activity in connection with the general
decline in interest rates. Management's philosophy from an interest rate
risk perspective is not to originate and keep the long-term lower rate
mortgage loans. Consequently, the Company has refinanced and sold loans in
the secondary market and gains on sales of loans have increased by $31,570
over the same period in 2002. Additionally, many customers have elected to
refinance their mortgage loans utilizing the services of various
competitors of the Company.
o Investment securities have increased by $7,826,320. This increase was
primarily funded from the inflow of cash related to the previously
mentioned decline in loans. Management
9
PEOPLES BANCORP
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
o has invested the funds that have come in primarily in callable agency bonds
in an effort to maintain liquidity to fund future loan growth.
Total liabilities were $443,858,405 at December 31, 2002 a decrease of
$1,755,653 from September 30, 2002. Significant variations in the composition of
liabilities consisted of the following items:
o Total deposits declined $2,978,860. This decline was primarily due to a
decrease in certificate of deposits. Management has elected to not be as
aggressive on pricing its certificates of deposit in order to manage
interest rate risk as considered appropriate.
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, 2002, and September 30, 2002, cash and
short-term interest-bearing deposits totaled $37.8 million and $39.4 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, 2002.
10
PEOPLES BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
At December 31, 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) $42,874 20.9% $16,393 8.0% $20,491 10.0%
Tier 1 risk-based capital (1)
(to risk-weighted assets) $41,429 20.2% $ 8,196 4.0% $22,752 6.0%
Core Capital (1)
(to adjusted tangible assets) $41,429 10.9% $15,168 4.0% $18,960 5.0%
Core Capital (1)
(to adjusted total assets) $41,429 10.9% $ 7,584 2.0% N/A N/A
Tangible Capital (1)
(to adjusted total assets) $41,429 10.9% $ 5,688 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, 2002.
At December 31, 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) $12,084 19.5% $4,971 8.0% $6,214 10.0%
Tier 1 risk-based capital (1)
(to risk-weighted assets) $11,477 18.5% $2,486 4.0% $3,728 6.0%
Core Capital (1)
(to adjusted tangible assets) $11,477 9.7% $4,759 4.0% $5,948 5.0%
Core Capital (1)
(to adjusted total assets) $11,477 9.7% $2,379 2.0% N/A N/A
Tangible Capital (1)
(to adjusted total assets) $11,477 9.7% $1,785 1.5% N/A N/A
(1) as defined by regulatory agencies
11
PEOPLES BANCORP
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
SUMMARY OF RESULTS OF OPERATIONS
The Company had net income of $1,501,293 or $0.44 per share for the three months
ended December 31, 2002 as compared to $1,398,107 or $0.40 per share for the
same period in 2001. The increase was due primarily to higher net interest
income due to the rates being paid on interest bearing liabilities declining at
a faster pace than the rates being earned on interest bearing assets. 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 $4,403,161 for the three months ended December 31, 2002
as compared to $4,179,815 for the same period ended 2001. Interest income
decreased $640,979 to $8,033,234 for the three-month period, due to lower rates
earned on loans and investments. Interest expense decreased $927,187 to
$3,423,588 due again to lower rates. Volumes of both interest-earning assets and
interest-bearing liabilities fell 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 $62,862 to
$206,485 for the three months ended December 31, 2002 due to higher delinquency
and non-performing loan levels, and current economic conditions, as well as a
significant loss being discovered on an outstanding commercial loan.
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, 2002 and 2001 (dollars in thousands).
2002 2001
---------------------------- ----------------------------
Average Effective Average Effective
Balance Interest Rate Balance Interest Rate
-------- -------- --------- -------- -------- ---------
Loans $383,445 $7,110 7.42% $404,832 $7,930 7.84%
Securities 61,555 674 4.38% 36,973 495 5.36%
Other 22,486 249 4.43% 24,035 249 4.14%
-------- -------- -------- --------
Combined 467,486 8,033 6.87% 465,840 8,674 7.45%
-------- -------- -------- --------
NOW and savings
deposits 161,924 425 1.05% 149,898 684 1.83%
Certificates of deposit 221,399 2,175 3.93% 225,960 2,955 5.23%
Borrowings 63,127 823 5.21% 49,260 712 5.78%
-------- -------- -------- --------
Combined $446,450 3,423 3.07% $425,118 4,351 4.09%
-------- -------- -------- --------
Net interest income/
interest rate spread $4,610 3.80% $4,323 3.36%
======== ======= ======== =========
12
PEOPLES BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The following table illustrates the change in net interest income due to changes
in rates and average volumes (in thousands).
Rate Volume Total
------------ ----------- -----------
Loans $ (413) $ (407) $ (820)
Securities (50) 229 179
Other 16 (16) -
------------ ----------- -----------
Total (447) (194) (641)
------------ ----------- -----------
NOW and savings deposits (319) 60 (259)
Certificates of deposit (721) (59) (780)
Borrowings (60) 171 111
------------ ----------- -----------
Total (1,100) 172 (928)
------------ ----------- -----------
Net interest income $ 653 $ (366) $ 287
============ =========== ===========
LOANS, NON-PERFORMING ASSETS AND SUMMARY OF LOAN LOSS EXPERIENCE
The following table presents the composition of the loan portfolio at December
31, 2002 and September 30, 2002 (in thousands):
December 31, 2002 September 30, 2002
------------------- -------------------
TYPE OF LOAN AMOUNT % AMOUNT %
---------- ------- ---------- -------
Residential: (Dollars in thousands)
Single family units $304,453 79.0% $313,908 80.0%
2-4 family units 2,646 0.7% 2,554 0.7%
Over 4 family units 3,144 0.8% 3,473 0.9%
Commercial real estate 19,395 5.0% 20,366 5.2%
Land acquisition and
development 1,503 0.4% 1,513 0.4%
Consumer and other loans 53,126 13.8% 49,756 12.7%
Loans on deposits 938 0.2% 1,041 0.3%
---------- ------- ---------- -------
385,205 100.0% 392,611 100.0%
---------- ------- ---------- -------
Less:
Undisbursed portion
of loans 3,009 3,821
Deferred loan fees and
discounts 2,355 1,653
---------- ----------
5,364 5,474
---------- ----------
Total loans receivable 379,841 387,137
Allowance for losses
on loans 2,093 2,117
---------- --------
Net loans $377,750 $385,020
========== ==========
13
PEOPLES BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Non-performing assets at December 31, 2002 and September 30, 2002 are as follows
(in thousands):
December 31, 2002 September 30, 2002
Non-accruing loans $ 997 $ 676
Loans contractually past due 90 days
or more other than nonaccruing 149 52
Real estate owned (REO) 435 117
Restructured loans 879 517
------------ ------------
$ 2,460 $ 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, 2002, 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 adequacy of the allowance for loan and REO losses
at December 31, 2002. Management believes this increase is generally
attributable to current economic conditions. Net charge-offs for the three
months ended December 31, 2002 are $264,273 and were incurred primarily due to
the commercial loan loss mentioned earlier in this report 10-Q.
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.
14
PEOPLES BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
NON-INTEREST INCOME
The Company's non-interest income for the three months ended December 31, 2002,
was $684,749 as compared to $582,146 for the same period one year ago. The
increase was attributable to increases in gains on sales of loans and loan
servicing fees by First Savings Bank. The current low interest rate environment
has encouraged mortgage loan refinancing, increasing the volume of loans being
sold. Trust income also increased due to a one-time fee charged for conversion
of an account, as well as trust fee increases effective December 2002.
NON-INTEREST EXPENSE
Total non-interest expense for the three months ended December 31, 2002 was
$2,738,367 as compared to $2,517,804 for the same period in 2001. Salaries and
employee benefits increased $108,187 to $1,512,337 due to higher pension funding
requirements this year, the addition of a ninth branch office of Peoples Federal
in February 2002, and regular salary increases.
Equipment expense and data processing expense increased to $229,863 and $232,871
respectively from $197,167 and 182,365 due to additions and updates to
processing systems.
INCOME TAXES
Income tax expense remained stable at $848,250. The effective tax rate for the
three months ended December 31, 2002 and 2001 was 36.1% and 37.7%.
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, 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
15
PEOPLES BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
September 30, 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 September 30, 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 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)
- -200 bp - - - - -
Peoples Federal Savings Bank
Interest Rate Risk As of September 30, 2001
(dollars in thousands)
Changes Market Value
in Rates $ Amount $ Change % Change NPV Ratio Change
- -------------------------------------------------------------------
+200 bp 41,228 (11,541) -22% 11.16% (252)
+100 bp 47,564 (5,204) -10% 12.58% (110)
0 bp 52,768 - - 13.67% -
- -100 bp 54,761 1,993 4% 14.02% 35
- -200 bp 55,932 3,164 6% 14.18% 50
Presented below are the same tables for First Savings:
16
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)
- -200 bp - - - - -
First Savings Bank
Interest Rate Risk As of September 30, 2001
(dollars in thousands)
Changes Market Value
in Rates $ Amount $ Change % Change NPV Ratio Change
- -------------------------------------------------------------------
+200 bp 14,207 (354) -2% 12.82% (3)
+100 bp 14,580 19 0% 12.99% 15
0 bp 14,561 - - 12.85% -
- -100 bp 14,121 (440) -3% 12.36% (49)
- -200 bp 13,412 (1,149) -8% 11.65% (119)
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
Within the 90-day period prior to the filing date of this report, 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-
17
PEOPLES BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
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.
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
December 31, 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
Date: February 12, 2003 /S/Maurice F. Winkler III
Chief Executive Officer
Date: February 12, 2003 /S/Deborah K. Stanger
Principal Financial and Accounting Officer
20
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
statements 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 quarterly
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 quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant, and we have: a)
designed such disclosure controls and procedures 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 quarterly report is being prepared; b) evaluated the
effectiveness of the registrant's disclosure controls and procedures as of a
date within 90 days prior to the filing date of this quarterly report (the
"Evaluation Date"); and c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors: a) all significant deficiencies in the
design or operation of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses in
internal controls; and b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/S/Maurice F. Winkler III February 12, 2003
President and Chief Executive Officer
21
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
statements 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 quarterly
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 quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant, and we have: a)
designed such disclosure controls and procedures 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 quarterly report is being prepared; b) evaluated the
effectiveness of the registrant's disclosure controls and procedures as of a
date within 90 days prior to the filing date of this quarterly report (the
"Evaluation Date"); and c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors: a) all significant deficiencies in the
design or operation of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses in
internal controls; and b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/S/Deborah K.Stanger February 12, 2003
Vice President-Chief Financial Officer
22