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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, 2004 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 3,365,419 shares
- ------------------------------------ ----------------
(Title of class) (Outstanding at January 25, 2005)
PEOPLES BANCORP
AND SUBSIDIARIES
Page
Number
Part I Financial Information:
Item 1. Consolidated Condensed Financial Statements
Consolidated Condensed Balance Sheets
as of December 31, 2004 and September 30, 2004....................3
Consolidated Condensed Statements of Income for the three
months ended December 31, 2004 and 2003...........................4
Consolidated Condensed Statements of Cash Flows for the
three months ended December 31, 2004 and 2003.....................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. Unregistered Sales of Equity 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
Dec. 31, 2004 Sept. 30, 2004
(Unaudited)
ASSETS
Cash and due from financial institutions $ 7,840,547 $ 6,270,919
Short-term interest-bearing deposits 2,645,552 4,653,901
------------- -------------
Total cash and cash equivalents 10,486,099 10,924,820
Interest-bearing time deposits 3,269,046 3,071,046
Securities available for sale 94,893,268 95,681,497
Securities held to maturity
(approximate market value $1,038,588 and $1,144,383) 1,008,276 1,111,754
Loans:
Loans 363,395,358 362,119,727
Less: Allowance for loan losses 1,961,249 1,958,569
------------- -------------
Net loans 361,434,109 360,161,158
Loans held for sale 45,000 293,750
Premises and equipment 6,740,471 6,369,290
Federal Home Loan Bank of Indianapolis stock, at cost 4,786,900 4,736,500
Goodwill 2,330,198 2,330,198
Other intangible assets 436,514 470,975
Other assets 6,572,113 6,294,312
------------- -------------
Total assets $492,001,994 $491,445,300
============= =============
LIABILITIES
NOW and savings deposits $166,354,858 $166,792,843
Certificates of deposit 201,632,606 204,032,011
------------- -------------
Total deposits 367,987,464 370,824,854
Short-term borrowings 6,629,148 3,321,460
Federal Home Loan Bank advances 50,100,000 50,100,000
Other liabilities 1,991,106 2,207,426
------------- -------------
Total liabilities 426,707,718 426,453,740
------------- -------------
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--3,365,419 and
3,367,803 shares 3,365,419 3,367,803
Additional paid-in capital 5,954,393 6,002,637
Retained earnings 56,226,617 55,711,953
Accumulated other comprehensive loss (252,153) (90,833)
------------- -------------
Total stockholders' equity 65,294,276 64,991,560
------------- -------------
Total liabilities and stockholders' equity $492,001,994 $491,445,300
============= =============
See notes to consolidated condensed financial statements.
3
PEOPLES BANCORP
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three months ended
December 31,
2004 2003
------------ ------------
Interest Income:
Loans $ 5,760,427 $ 5,964,739
Securities 798,680 745,478
Other interest and dividend income 124,174 133,825
------------ ------------
6,683,281 6,844,042
------------ ------------
Interest Expense:
NOWand savings deposits 312,743 306,209
Certificates of deposit 1,490,079 1,576,600
Short-term borrowings 10,493 9,836
Federal Home Loan Bank advances 705,874 763,930
------------ ------------
2,519,189 2,656,575
------------ ------------
Net Interest Income 4,164,092 4,187,467
Provision for losses on loans 29,850 41,196
------------ ------------
Net Interest Income After Provision
for Losses on Loans 4,134,242 4,146,271
------------ ------------
Other Income:
Trust income 88,778 108,027
Loan servicing 52,844 51,975
Net gains/(loss) on sale of loans (7,646) 21,721
Gains/(loss) on sale of securities 10,469 (7,014)
Fees and service charges 292,707 286,367
Other income 106,724 95,290
------------ ------------
543,876 556,366
------------ ------------
Other Expense:
Salaries and employee benefits 1,664,996 1,593,246
Net occupancy expenses 208,904 202,561
Equipment expenses 169,052 209,315
Data processing expense 259,761 199,978
Deposit insurance expense 13,475 14,257
Other expenses 650,915 515,911
------------ ------------
2,967,103 2,735,268
------------ ------------
Income Before Income Tax 1,711,015 1,967,369
Income tax expense 596,790 690,930
------------ ------------
Net Income $ 1,114,225 $ 1,276,439
============ ============
Basic Income Per Common Share $ 0.33 $ 0.38
Diluted Income Per Common Share $ 0.33 $ 0.37
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: 2004 2003
------------ ------------
Net income $ 1,114,225 $ 1,276,439
Items not requiring (providing) cash
Provision for loan losses 29,850 41,196
Investment securities amortization net 126,571 120,984
Loans originated for sale (811,000) (2,711,050)
Proceeds from sale of loans held for sale 1,052,104 2,418,771
(Gain)/loss on sale of loans 7,646 (21,721)
Amortization of net loan origination fees (114,096) (145,309)
Depreciation and amortization 177,212 194,116
Change in
Interest receivable 326,485 94,577
Interest payable 6,030 (7,201)
Other adjustments (905,940) 272,593
------------ ------------
Net cash provided by operating activities 1,009,087 1,533,395
------------ ------------
Investing Activities:
Net change in interest bearing deposits (198,000) 15
Purchases of securities available for sale (9,008,223) (16,995,020)
Proceeds from sales of securities available for sale 3,193,394 2,983,335
Proceeds from maturities of securities available for sale6,249,966 4,577,774
Proceeds from maturities of securities held to maturity 107,358 352,494
Net changes in loans (1,188,705) (5,116,437)
Purchase of premises and equipment (548,393) (285,696)
Purchase of FHLB stock - (21,400)
Other investing activities 125,511 337,036
------------ ------------
Net cash used in investing activities (1,267,092) (14,167,899)
------------ ------------
Financing Activities:
Net change in
Noninterest bearing, interest bearing demand,
money market and saving deposits (437,985) 2,594,343
Certificates of deposit (2,399,405) (4,536,718)
Short-term borrowings 3,307,688 214,836
Proceeds from FHLB advances - -
Repayment of FHLB advances - -
Cash dividends (600,386) (582,162)
Purchase of common stock (50,628) (635,132)
------------ ------------
Net cash used in financing activities (180,716) (2,944,833)
------------ ------------
Net change in Cash and Cash Equivalents (438,721) (15,579,337)
Cash and Cash Equivalents, Beginning of Year 10,924,820 35,161,821
------------ ------------
Cash and Cash Equivalents, End of Year $10,486,099 $19,582,484
============ ============
Interest paid $ 2,513,159 $ 2,663,776
Income tax paid - 34,366
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, 2004 filed
with the Securities and Exchange Commission. The consolidated condensed balance
sheet of the Company as of September 30, 2004 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, 2004, are not necessarily indicative of those expected for
the remainder of the year.
2. CASH DIVIDEND
A cash dividend of $0.18 per common share was declared on November 16, 2004
payable on January 20, 2005, to stockholders of record as of January 3, 2005.
3. EARNINGS PER COMMON SHARE
Earnings per share were computed as follows:
Three Months Ended December 31,
2004 2003
-------------------------------------------------------------------------
Weighted Weighted
Average Per-Share Average Per-Share
Income Shares Amount Income Shares Amount
----------------------------------- -------------------------------------
Basic Earnings Per Share
Income available to common stockholders $1,114,225 3,367,082 $0.33 $1,276,439 3,402,938 $0.38
Effect of Dilutive Securities
Stock options 24,335 36,169
Diluted Earnings Per Share
Income available to common stockholders
----------------------------------- -------------------------------------
and assumed conversions $1,114,225 3,391,417 $0.33 $1,276,439 3,439,107 $0.37
=================================== =====================================
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, 2004
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
December 31,
----------------------------
2004 2003
Net Income
As Reported $1,114,225 $ 1,276,439
Less: Total stock-based employee
compensation cost determined
under the fair value based
method, net of income taxes - 8,670
------------ -------------
Pro forma net income $1,114,225 $ 1,267,769
============ =============
Earnings per share:
Basic - as reported $ 0.33 $ 0.38
Basic - pro forma $ 0.33 $ 0.37
Diluted - as reported $ 0.33 $ 0.37
Diluted - pro forma $ 0.33 $ 0.37
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, 2004
are shown below. Unrealized losses on federal agency, state and municipal, and
mortgage-backed securities are caused by interest rate fluctuations in the
market. Twenty-three securities within these classifications 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 had recovered in excess of $300,000 in
value during the year ended September 30, 2004, and management believes based on
the advice of the broker, and current economic trends, the value will continue
to recover. However, due to the uncertainty of the timing of this recovery, the
loss on the security was recognized in the income statement for the year ended
September 30, 2004. The change reflected below, is for the change in value for
only the past three months.
Less than 12 Months 12 Months or Longer Total
---------------------- ---------------------- ----------------------
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
----------- ---------- ----------- ---------- ----------- -----------
Federal agencies $49,135,265 $322,281 $1,471,895 $ 31,042 $50,607,160 $353,323
State and municipal 3,353,171 25,666 1,741,956 63,070 5,095,127 88,736
Mortgage backed securities 2,970,638 54,448 4,744,113 55,350 7,714,751 109,798
Marketable equity securities 3,948,083 31,859 - - 3,948,083 31,859
----------- ---------- ----------- ---------- ----------- -----------
Total temporarily impaired $59,407,157 $434,254 $7,957,964 $149,462 $67,365,121 $583,716
=========== ========== =========== ========== =========== ===========
6. STOCK REPURCHASES
The following table details common stock repurchases made by the Company during
the three months ended December 31, 2004 pursuant to a repurchase plan approved
by the board of directors in February, 2003 whereby the Company may repurchase
up to 300,000 shares of its common stock during the two years ending February,
2005. To date, a total of 103,589 shares have been repurchased under the plan.
8
PEOPLES BANCORP
AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
Total Maximum
Numer of Number of
Total Average Shares Purchased Shares that
Number of Price as Part of May yet
Shares Paid Publicly be Purchased
Period Purchased Per Share Announced Plan Under the Plan
- --------------------------------------------------------------------------------
October 1-31, 2004 - $ - - 198,795
November 1-30, 2004 650 21.32 650 198,145
December 1-31, 2004 1,734 21.21 1,734 196,411
---------- ----------
Total 2,384 $ 19.98 2,384
========== ======= ==========
Note 7. Recent Accounting Pronouncements.
- ------------------------------------------
In December, 2004, the Financial Accounting Standards Board (FASB) issued an
amendment to SFAS 123 (SFAS 123R) which eliminates the ability to account for
share-based compensation transactions using Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees, and generally requires that
such transactions be accounted for using a fair value-based method. SFAS 123R
will be effective for the Company beginning July 1, 2005. SFAS123R applies to
all awards granted after the required effective date and to awards modified,
repurchased, or cancelled after that date. The cumulative effect of initially
applying this Statement, if any, is recognized as of the required effective
date.
As of the required effective date, the Company will apply SFAS 123R using a
modified version of prospective application. Under that transition method,
compensation cost is recognized on or after the required effective date for the
portion of outstanding awards for which the requisite service has not yet been
rendered, based on the grant-date fair value of those awards calculated under
SFAS 123 for either recognition or pro forma disclosures. For periods before the
required effective date, a company may elect to apply a modified version of
retrospective application under which financial statements for prior periods are
adjusted on a basis consistent with the pro forma disclosures required for those
periods by SFAS 123.
As of December 31, 2004, all options granted were fully vested. We are currently
evaluating the effect of the recognition and measurement provisions of SFAS 123R
but we currently believe the adoption of SFAS 123R will not result in a material
impact on the Company's results of operations or financial condition should
additional grants be made in future periods.
9
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 18-21 of the annual
report for fiscal year 2004. 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, doubtful or loss. Credits with
delinquency levels of less than 60 days and risk ratings of satisfactory/monitor
or better are reviewed in the aggregate. Percentage
10
PEOPLES BANCORP
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
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 it to the carrying
value. If the implied fair value of goodwill is lower than its carrying amount,
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, 2004 were $492,001,994, an increase of $556,694
from September 30, 2004. Significant variations in the composition of assets
during that period consisted of the following items:
Totalnet loans increased by $1,272,951. The increase was due primarily to
the slow-down of mortgage loan refinancing due to the slight upturn in
interest rates. As refinancings have slowed, fewer loans are being paid off
and leaving the banks' portfolios. Loan sales have slowed considerably as
illustrated by the decrease on gains on sale of loans from $21,721 to a
loss of $7,646 for the three-month periods ended December 31, 2004 and
2003.
11
PEOPLES BANCORP
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Total liabilities were $426,707,718 at December 31, 2004 up from
$426,453,740 at September 30, 2004, due to a decrease in Certificates of
Deposit combined with an increase in short-term borrowings.
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, 2004, and September 30, 2004, cash and
short-term interest-bearing deposits totaled $10.5 million and $10.9 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 regulatory
capital position as a dollar amount and as a percentage of assets as of December
31, 2004.
12
PEOPLES BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
At December 31, 2004
------------------------------------------------
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) $43,408 22.4% $15,496 8.0% $19,371 10.0%
Tier 1 risk-based capital (1)
(to risk-weighted assets) $42,031 21.7% $ 7,748 4.0% $11,622 6.0%
Core Capital (1)
(to adjusted tangible assets) $42,031 11.3% $14,921 4.0% $18,651 5.0%
Core Capital (1)
(to adjusted total assets) $42,031 11.3% $ 7,461 2.0% N/A N/A
Tangible Capital (1)
(to adjusted total assets) $42,031 11.3% $ 5,595 1.5% N/A N/A
(1) as defined by regulatory agencies
The following table presents First Savings Bank's current regulatory capital
position as a dollar amount and as a percentage of assets as of December 31,
2004.
At December 31, 2004
------------------------------------------------
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) $13,755 22.6% $4,861 8.0% $6,079 10.0%
Tier 1 risk-based capital (1)
(to risk-weighted assets) $13,187 21.7% $2,431 4.0% $3,646 6.0%
Core Capital (1)
(to adjusted tangible assets) $13,187 11.7% $4,504 4.0% $5,630 5.0%
Core Capital (1)
(to adjusted total assets) $13,187 11.7% $2,252 2.0% N/A N/A
Tangible Capital (1)
(to adjusted total assets) $13,187 11.7% $1,689 1.5% N/A N/A
(1) as defined by regulatory agencies
13
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 $1,114,225 or $0.33 per basic share for the three
months ended December 31, 2004 as compared to $1,276,439 or $0.38 per basic
share for the same period in 2003. The decrease is primarily due to higher
non-interest expense this year versus last, partially offset by lower income tax
expense this year due to lower net income for the three-month period.
NET INTEREST INCOME
Net interest income was $4,164,092 for the three months ended December 31, 2004
as compared to $4,187,467 for the same period in 2003. Interest income decreased
$160,761 to $6,683,281, for the three months ended December 31, 2004 as compared
to the same period in 2003. The decrease was due to a combination of lower rates
earned and lower volumes of loans. While interest rates earned on investments
were higher than last year, volumes were lower. However, since rates increased
more than volumes decreased, this segment of interest income increased slightly
over last year. Interest expense decreased $137,386 to $2,519,189 for the three
months ended December 31, 2004 versus 2003 due to lower volumes of deposits and
borrowings.
Provision for loan loss decreased $11,346 to $29,850 for the three months ended
December 31, 2004 as compared to the same period the prior year reflecting
normal adjustments to the allowance for loan loss account.
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, 2004 and 2003 (dollars in thousands).
14
PEOPLES BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
2004 2003
----------------------------- --------------------------
Average Effective Average Effective
Balance Interest Rate Balance Interest Rate
--------- -------- ------- --------- -------- -------
Loans $360,202 $ 5,760 6.40% 361,875 $ 5,965 6.59%
Securities 96,124 799 3.32% 98,636 745 3.02%
Other 13,327 124 3.72% 16,894 134 3.17%
--------- -------- --------- --------
Combined 469,653 6,683 5.69% 477,405 6,844 5.73%
--------- -------- --------- --------
NOW and savings
deposits 171,478 313 0.73% 167,246 306 0.73%
Certificates of deposit 202,066 1,490 2.95% 214,297 1,577 2.94%
Borrowings 52,915 716 5.41% 56,719 774 5.46%
--------- -------- --------- --------
Combined $426,459 2,519 2.36% $438,262 2,657 2.43%
--------- -------- --------- --------
Net interest income/
interest rate spread $ 4,164 3.33% $ 4,187 3.30%
======== ======= ======== =======
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, 2004 (in
thousands).
Rate Volume Total
------------ ----------- -----------
Loans $ (176) $ (29) $ (205)
Securities 73 (19) 54
Other 23 (33) (10)
------------ ----------- -----------
Total (80) (81) (161)
------------ ----------- -----------
NOW and savings deposits - 7 7
Certificates of deposit 5 (92) (87)
Borrowings (7) (51) (58)
------------ ----------- -----------
Total (2) (136) (138)
------------ ----------- -----------
Net interest income $ (78) $ 55 $ (23)
============ =========== ===========
15
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, 2004 and September 30, 2004 (in thousands):
TYPE OF LOAN AMOUNT % AMOUNT %
---------- --------- ----------- ------
Residential: (Dollars in thousands)
Single family units $283,420 77.4% 288,453 78.8%
2-4 family units 1,592 0.4% 1,550 0.4%
Over 4 family units 2,308 0.6% 2,401 0.7%
Home Equity Lines of Credit 24,535 6.7% 23,227 6.3%
Commercial real estate 23,476 6.4% 22,447 6.1%
Land acquisition and
development 2,037 0.6% 1,683 0.5%
Consumer and other loans 28,357 7.7% 25,558 7.0%
Loans on deposits 618 0.2% 675 0.2%
---------- -------- --------- --------
366,343 100.0% 365,994 100.0%
---------- -------- --------- --------
Less:
Undisbursed portion
of loans 1,581 2,440
Deferred loan fees and
discounts 1,367 1,434
---------- ---------
2,948 3,874
---------- ---------
Total loans receivable 363,395 362,120
Allowance for losses
on loans 1,961 1,959
---------- ----------
Net loans $361,434 $360,161
========== ==========
Non-performing assets at December 31, 2004 and September 30, 2004 are as follows
(in thousands):
December 31, 2004 September 30, 2004
Non-accruing loans $ 423 $ 493
Loans contractually past due 90 days
or more other than nonaccruing - 26
Real estate owned (REO) 838 940
Restructured loans 970 922
------------ ------------
$ 2,231 $ 2,381
============ ============
16
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 the lower of cost or the net
realizable value less estimated costs to sell. 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, 2004 were
$44,000 and were incurred primarily due to residential REO and consumer loans.
The allowances for loan and REO 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 processes, 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, 2004,
was $543,876 as compared to $556,366 for the same period one year ago. The
decrease was attributable to a combination of decreases in gains on sales of
loans and trust income, partially offset by increased gains on sales of
securities. As mortgage interest rates have started to increase slightly, the
volume of loan refinancings has declined, and so loan sales has decreased
significantly. 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 increased significantly last year with the
acquisition of the trust accounts of First Federal Savings Bank of Huntington,
IN. As the year has progressed, some of these accounts have been lost to
competitors, causing this years income to decrease slightly.
On January 11, 2005 Peoples Financial Services, the wholly owned insurance
agency subsidiary of Peoples Federal Savings Bank purchased the book of business
of Nagel Insurance Agency for $36,400. Management anticipates this will increase
the business of the insurance agency, and so enhance non-interest income in the
future.
17
PEOPLES BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
NON-INTEREST EXPENSE
Total non-interest expense for the three months ended December 31, 2004 was
$2,967,103 as compared to $2,735,268 for the same period in 2003. Salaries and
employee benefits increased $71,750 to $1,664,996 for the quarter ended December
31, 2004, due to regular salary increases.
Data processing expense increased $59,783 from the prior year to $259,761 for
the three months ended December 31, 2004 due to the addition of internet
banking, and other services to better serve customer needs.
Other expenses increased $135,004 to $650,915 due to small increases in
advertising, postage, loan expense, meals and entertainment expenses, and
charitable contributions over last year.
INCOME TAXES
Income tax expense decreased to $596,790 from $690,930 for the three months
ended December 31, 2004 and 2003 due to lower pretax income. The effective tax
rates for the three months ended December 31, 2004 and 2003 were 34.9% and 35.1%
respectively.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The OTS has issued a regulation, that 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 that
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, 2004 schedule CMR are not yet available from the OTS. Therefore,
the tables below present the results of this analysis for Peoples Federal and
First Savings as of September 30, 2004 and 2003. 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
18
PEOPLES BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
present value of its assets. Presented below as of September 30, 2004 and 2003
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 300 and down 100 basis points.
Peoples Federal Savings Bank
Interest Rate Risk As of September 30, 2004
(dollars in thousands)
Changes Market Value
in Rates $ Amount $ Change % Change NPV Ratio Change
- ------------------------------------------------------------------------
+300 bp 37,608 (17,540) -32% 10.40% (381)
+200 bp 44,829 (10,319) -19% 12.06% (215)
+100 bp 50,731 (4,417) -8% 13.32% (88)
0 bp 55,148 - - 14.20% -
- -100 bp 55,199 51 0% 14.10% (11)
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% 11.00% (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)
Presented below are the same tables for First Savings:
First Savings Bank
Interest Rate Risk As of September 30, 2004
(dollars in thousands)
Changes Market Value
in Rates $ Amount $ Change % Change NPV Ratio Change
- ------------------------------------------------------------------------
+300 bp 15,153 (2,015) -12% 13.32% (106)
+200 bp 16,242 (927) -5% 14.01% (37)
+100 bp 16,908 (260) -2% 14.35% (2)
0 bp 17,168 - - 14.38% -
- -100 bp 16,850 (319) -2% 13.97% (40)
19
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, 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)
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, 2004, 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.
20
PART II. OTHER INFORMATION
PEOPLES BANCORP
AND SUBSIDIARIES
Item 1. Legal Proceedings
None
Item 2. Unregistered Sales of Equity 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-Certification of Chief Executive Officer and 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, 2004 regarding the annual financial results
of Peoples Bancorp for the period ended September 30, 2004.
A Form 8-K was filed on December 17, 2004 regarding amendments to the Bylaws of
Peoples Bancorp.
21
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: January 25, 2005 /s/Maurice F. Winkler, III
Chief Executive Officer
Date: January 25, 2005
/s/Deborah K. Stanger
Principal Financial and
Accounting Officer
22
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. 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
c. 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.
January 25, 2005 /s/Maurice F. Winkler, III
President and Chief Executive Officer
23
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. 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
c. 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.
January 25, 2005 /s/Deborah K. Stanger
Vice President-Chief Financial Officer
24
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.
January 25, 2005 /s/Maurice F. Winkler, III
Chief Executive Officer
January 25, 2005 /s/Deborah K. Stanger
Chief Financial Officer
25