Notes to
Consolidated Condensed Financial Statements
(Unaudited
at December 31, 2007 and 2006)
1.
Principles
of Consolidation
The
consolidated condensed financial statements include the accounts of Peoples
Bancorp (“the Company”), and its wholly owned subsidiary, Peoples Federal
Savings Bank of DeKalb County (“the Bank”). As of October 1, 2007, First Savings
Bank, a former subsidiary of the Company was merged into the Bank. In the
opinion of management, all significant intercompany accounts and transactions
have been eliminated in consolidation.
2. Basis
of Presentation
The
consolidated condensed statement of financial condition at September 30, 2007
has been derived from the audited financial statements at that date, which were
included in Peoples Bancorp’s Annual Report on Form 10-K.
The
accompanying consolidated condensed financial statements as of December 31, 2007
and for the three month periods ended December 31, 2007 and 2006 have been
prepared by Peoples Bancorp without an audit and do not include information or
footnotes necessary for complete presentation of financial condition, results of
operations, and cash flows in conformity with accounting principles generally
accepted in the United States. These consolidated condensed financial statements
should be read in conjunction with the financial statements and notes thereto
included in Peoples Bancorp’s 2007 Annual Report on Form 10-K for the year ended
September 30, 2007. However, in the opinion of management, all adjustments,
consisting of only normal recurring items, necessary for the fair presentation
of the financial statements have been made. The results for the three month
period ended December 31, 2007 are not necessarily indicative of the results
that may be expected for the entire year.
Goodwill
Goodwill
is the excess of the purchase price over the fair value of the assets and
liabilities of companies acquired through business combinations accounted for
under the purchase method. Goodwill is evaluated at the business unit level,
which for Peoples Bancorp is the Bank. At December 31, 2007 goodwill totaled
$2.3 million.
Income
Taxes
The
Company’s effective tax rate differs from the statutory 34% federal tax rate
primarily because of the existence of municipal securities and bank owned life
insurance, the earnings of which are exempt from federal income
taxes.
The
Company, or one of its subsidiaries, files income tax returns in the U.S.
federal and Indiana jurisdictions. With few exceptions, the Company is no longer
subject to U.S. federal, state and local examinations by tax authorities for
years before 2004.
PEOPLES
BANCORP AND SUBSIDIARIES
Notes to
Consolidated Condensed Financial Statements
(Unaudited
at December 31, 2007 and 2006)
The
Company adopted the provisions of the Financial Accounting Standards Board
(FASB) Interpretation No. 48 (FIN 48),
Accounting for Uncertainty in Income
Taxes – an interpretation of FASB Statement No. 109
, on October 1, 2007.
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, and disclosure and transition. As a result of the implementation of FIN
48, the Company did not identify any uncertain tax positions that it believes
should be recognized in the financial statements.
Stock
Compensation
The
Company has a stock-based employee compensation plan, which is described more
fully in Notes to Financial Statements included in the September 30, 2007 Annual
Report on Form 10-K. The Company accounts for this plan under the recognition
and measurement principles of SFAS 123R,
Share-Based Payment
, and
related interpretations. No stock-based employee compensation cost is reflected
in net income, as all options granted under the plan were fully vested at
September 30, 2007.
3. Dividends
on Common Stock
As of
December 31, 2007, Peoples Bancorp had declared a quarterly cash dividend of
$.19 per share for the first quarter of 2008, payable January 17,
2008.
4. Earnings
Per Share
The
following table sets forth the computation of basic and diluted earnings per
share:
|
|
|
Three
Months Ended December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Income
|
|
|
Weighted
Average
Shares
|
|
|
Per-Share
Amount
|
|
|
Income
|
|
|
Weighted
Average
Shares
|
|
|
Per-Share
Amount
|
|
|
Basic
Earnings per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income available to common stockholders
|
|
$
|
787,803
|
|
|
|
3,105,962
|
|
|
$
|
0.25
|
|
|
$
|
800,436
|
|
|
|
3,202,179
|
|
|
$
|
0.25
|
|
|
Effect
of Dilutive Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
0
|
|
|
|
869
|
|
|
|
|
|
|
|
0
|
|
|
|
2,845
|
|
|
|
|
|
|
Diluted
Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
available to common stockholders and assumed conversions
|
|
$
|
787,803
|
|
|
|
3,106,831
|
|
|
$
|
0.25
|
|
|
$
|
800,436
|
|
|
|
3,205,024
|
|
|
$
|
0.25
|
|
For the
three-month periods ended December 31, 2007 and 2006, options to purchase 16,000
shares and 23,000 shares, respectively, of common stock, at an exercise price of
$21.50 per share were outstanding but were not included in the computation of
diluted earnings per share because the options were anti-dilutive.
PEOPLES
BANCORP AND SUBSIDIARIES
Notes to
Consolidated Condensed Financial Statements
(Unaudited
at December 31, 2007 and 2006)
5.
Investment
Securities
The
following is a summary of available-for-sale and held to maturity
securities:
|
|
|
December
31, 2007
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Available-for-Sale
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury securities and obligations of U.S. Government corporations and
agencies
|
|
$
|
57,593,587
|
|
|
$
|
445,280
|
|
|
$
|
135,550
|
|
|
$
|
57,903,317
|
|
|
Mortgage-backed
securities
|
|
|
19,003,454
|
|
|
|
29,588
|
|
|
|
81,224
|
|
|
|
18,951,818
|
|
|
Obligations
of state and political subdivisions
|
|
|
12,963,998
|
|
|
|
27,104
|
|
|
|
67,890
|
|
|
|
12,923,212
|
|
|
Totals
|
|
$
|
89,561,039
|
|
|
$
|
501,972
|
|
|
$
|
284,664
|
|
|
$
|
89,778,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC
certificates
|
|
$
|
74,640
|
|
|
$
|
7,773
|
|
|
$
|
0
|
|
|
$
|
82,413
|
|
|
FNMA
certificates
|
|
|
152,702
|
|
|
|
327
|
|
|
|
6,478
|
|
|
|
146,551
|
|
|
GNMA
certificates
|
|
|
176,195
|
|
|
|
3,201
|
|
|
|
516
|
|
|
|
178,880
|
|
|
Totals
|
|
$
|
403,537
|
|
|
$
|
11,301
|
|
|
$
|
6,994
|
|
|
$
|
407,844
|
|
|
|
|
September
30, 2007
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Available-for-Sale
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury securities and obligations of U.S. Government corporations and
agencies
|
|
$
|
72,103,912
|
|
|
$
|
175,834
|
|
|
$
|
454,100
|
|
|
$
|
71,825,646
|
|
|
Mortgage-backed
securities
|
|
|
4,437,411
|
|
|
|
14,879
|
|
|
|
96,827
|
|
|
|
4,355,463
|
|
|
Obligations
of state and political subdivisions
|
|
|
10,560,571
|
|
|
|
14,710
|
|
|
|
156,570
|
|
|
|
10,418,711
|
|
|
Totals
|
|
$
|
87,101,894
|
|
|
$
|
205,423
|
|
|
$
|
707,497
|
|
|
$
|
86,599,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC
certificates
|
|
$
|
76,162
|
|
|
$
|
6,441
|
|
|
$
|
0
|
|
|
$
|
82,603
|
|
|
FNMA
certificates
|
|
|
158,601
|
|
|
|
336
|
|
|
|
7,943
|
|
|
|
150,994
|
|
|
GNMA
certificates
|
|
|
188,410
|
|
|
|
3,129
|
|
|
|
391
|
|
|
|
191,148
|
|
|
Totals
|
|
$
|
423,173
|
|
|
$
|
9,906
|
|
|
$
|
8,334
|
|
|
$
|
424,745
|
|
PEOPLES
BANCORP AND SUBSIDIARIES
Notes to
Consolidated Condensed Financial Statements
(Unaudited
at December 31, 2007 and 2006)
Loans
receivable consist of the following (in thousands):
|
|
|
December
31, 2007
|
|
|
|
September
30, 2007
|
|
Type
of Loan
|
|
|
Amount
|
|
Percent
of Total
|
|
|
|
Amount
|
|
Percent
of Total
|
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4
family units
|
|
|
$
|
281,172
|
|
|
|
79.6
|
%
|
|
|
|
$
|
286,022
|
|
|
81.1
|
%
|
|
Over
4 family units
|
|
|
|
2,125
|
|
|
|
0.6
|
%
|
|
|
|
|
2,128
|
|
|
0.6
|
%
|
|
Home
equity lines of credit
|
|
|
|
20,693
|
|
|
|
5.9
|
%
|
|
|
|
|
20,965
|
|
|
6.0
|
%
|
|
Commercial
real estate
|
|
|
|
31,816
|
|
|
|
9.0
|
%
|
|
|
|
|
23,362
|
|
|
6.6
|
%
|
|
Land
acquisition and development
|
|
|
|
3,507
|
|
|
|
1.0
|
%
|
|
|
|
|
3,683
|
|
|
1.0
|
%
|
|
Consumer
and other loans
|
|
|
|
13,431
|
|
|
|
3.8
|
%
|
|
|
|
|
15,816
|
|
|
4.5
|
%
|
|
Loans
on deposits
|
|
|
|
475
|
|
|
|
0.1
|
%
|
|
|
|
|
547
|
|
|
0.2
|
%
|
|
|
|
|
$
|
353,219
|
|
|
|
100.0
|
%
|
|
|
|
$
|
352,523
|
|
|
100.0
|
%
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undisbursed
portion of loans
|
|
|
|
1,161
|
|
|
|
|
|
|
|
|
|
1,574
|
|
|
|
|
|
Deferred
loan fees and discounts
|
|
|
|
840
|
|
|
|
|
|
|
|
|
|
885
|
|
|
|
|
|
|
|
|
|
2,001
|
|
|
|
|
|
|
|
|
|
2,459
|
|
|
|
|
|
Total
loans receivable
|
|
|
|
351,218
|
|
|
|
|
|
|
|
|
|
350,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for losses on loans
|
|
|
|
1,798
|
|
|
|
|
|
|
|
|
|
1,834
|
|
|
|
|
|
Net
loans
|
|
|
$
|
349,420
|
|
|
|
|
|
|
|
|
$
|
348,230
|
|
|
|
|
Total
comprehensive income for the three months ended December 31, 2007 and 2006 was
$1,262,144 and $1,039,764, respectively.
|
8.
|
Recent
Accounting Pronouncements
|
In
September 2006, the Financial Accounting Standards Board (FASB) issued Statement
No. 157,
Fair Value
Measurements.
This Statement defines fair value, establishes a framework
for measuring fair value and expands disclosures about fair value measurements.
This Statement establishes a fair value hierarchy about the assumptions used to
measure fair value and clarifies assumptions about risk and the effect of a
restriction on the sale or use of an asset. The standard is effective for fiscal
years beginning after November 15, 2007. The Company is currently evaluating and
has not yet determined the impact the new standard will have on its financial
condition and results of operations.
PEOPLES
BANCORP AND SUBSIDIARIES
Notes to
Consolidated Condensed Financial Statements
(Unaudited
at December 31, 2007 and 2006)
On
February 15, 2007 the FASB issued its Statement No. 159,
The Fair Value Option for Financial
Assets and Financial Liabilities-Including an Amendment of FASB Statement No.
115.
FAS 159 permits entities to elect to report most financial assets
and liabilities at their fair value with changes in fair value included in net
income. The fair value option may be applied on an instrument-by-instrument or
instrument class-by-class basis. The option is not available for deposits
withdrawable on demand, pension plan assets and obligations, leases, instruments
classified as stockholders’ equity, investments in consolidated subsidiaries and
variable interest entities and certain insurance policies. The new standard is
effective at the beginning of the Company’s fiscal year beginning October 1,
2008, and early application may be elected in certain circumstances. The Company
expects to first apply the new standard at the beginning of its 2009 fiscal
year. The Company is currently evaluating and has not yet determined the impact
the new standard is expected to have on its financial position and results of
operations.
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
General
Peoples
Bancorp (“the Company”) is a holding company which conducts business through its
wholly owned subsidiary, Peoples Federal Savings Bank of DeKalb County (“Peoples
Federal”). Peoples Federal is a federally chartered savings bank that provides
financial services to communities in northeast and north central Indiana and
southwest Michigan where it operates 15 full service branches. Peoples Federal
(“the Bank”) provides a broad range of financial services including checking
accounts, savings accounts, certificates of deposit, real estate mortgage loans,
agricultural loans, commercial loans, consumer loans, home equity loans and
trust services. Additionally, Peoples Federal provides property and casualty
insurance through its wholly owned subsidiary, Peoples Financial Services, Inc.
(“PFSI”).
Peoples
Bancorp invests in U.S. Treasury and federal government agency obligations,
obligations of municipal and other political subdivisions, and mortgage-backed
securities which are issued by federal agencies. Management determines the
appropriate classification of all such securities at the time of purchase in
accordance with FAS Statement No. 115,
Accounting for Certain Investments
in Debt and Equity Securities.
Securities
are classified as held-to-maturity when Peoples Bancorp has the positive intent
and ability to hold the security to maturity. Held-to-maturity securities are
stated at amortized cost and had a recorded value of $404,000 at December 31,
2007. Securities not classified as held-to-maturity are classified as
available-for-sale, which are stated at fair value and had a recorded value of
$89.8 million at December 31, 2007. The available-for-sale portfolio consists of
U.S. Treasury securities and obligations of U.S. Government corporations and
agencies ($57.9 million), certain municipal obligations ($12.9 million), and
mortgage backed securities ($19.0 million).
In
accordance with FAS 115, unrealized holding gains and losses deemed temporary on
available-for-sale securities are reported in a separate component of
stockholders’ equity, net of tax, and are not reported in earnings until
realized. Net unrealized holding losses on available-for-sale securities were
$285,000 at December 31, 2007, or $188,000 after considering the related
deferred tax asset.
Peoples
Bancorp has not been involved in making or investing in sub-prime mortgage
loans. Like all community banks, the Company has some exposure to falling
property values, especially in our residential mortgage and home equity
portfolios, but we are not aware of any specific weakness at this time that will
result in higher than normal charge-offs.
The
profitability of Peoples Bancorp is primarily dependent on its net interest
income and non-interest income. Net interest income is the difference between
interest income on interest-earning assets, principally loans and securities,
and interest expense on interest-bearing deposits, Federal Home Loan Bank
advances, and other borrowings. The Company’s non-interest income includes
deposit and loan servicing fees, trust fees, gains on sale of mortgage loans and
insurance commissions. Peoples Bancorp’s earnings also depend on the provision
for loan losses and non-interest expenses, such as employee compensation and
benefits, occupancy and equipment expense, deposit insurance premiums,
amortization of mortgage servicing rights and miscellaneous other expenses, as
well as federal income tax expense.
Forward-Looking
Information
Certain
statements contained in this quarterly report that are not historical facts,
including but not limited to statements that can be identified by the use of
forward-looking terminology such as “may”, “will”, “expect”, “anticipate”, or
“continue” or the negative thereof or other variations thereon or comparable
terminology are “forward-looking statements” within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21B of the Securities Act
of 1934, as amended. Actual results could differ materially from those indicated
in such statements due to risks, uncertainties and changes with respect to a
variety of market and other factors.
Changes in Financial
Condition
At
December 31, 2007, Peoples Bancorp’s total assets, deposits and stockholders’
equity amounted to $472.6 million, $339.4 million and $62.7 million,
respectively, compared to $469.2 million, $349.3 million and $62.0 million,
respectively, at September 30, 2007.
Net loans
receivable (excluding loans held for sale) increased $1.2 million to $349.5
million at December 31, 2007. The increase in loans receivable occurred in the
commercial real estate loan portfolio, which increased by $8.5 million between
September 30, 2007 and December 31, 2007. That increase, during that same
period, was primarily offset by a $4.9 million decrease in one to four family
real estate loans and a $1.0 million decrease in consumer and other
loans.
The
investment securities portfolio increased to $90.2 million at December 31, 2007
from $87.0 million at September 30, 2007. The increase was funded by an increase
in Federal Home Loan Bank borrowings. The amount of cash and due from depository
institutions decreased from $14.9 million to $12.4 million between September 30,
2007 and December 31, 2007.
Deposits
decreased from $349.3 million at September 30, 2007 to $339.4 million as of
December 31, 2007. Of the $9.9 million decrease, certificates of deposit
decreased $12.4 million to $201.4 million, money market accounts decreased $1.7
million to $31.3 million, while interest-bearing demand deposits increased $2.1
million to $44.6 million, savings deposits increased $1.8 million to $46.1
million and non-interest-bearing demand deposits increased $295,000 to $15.9
million. The decrease in balances in the certificates of deposit was due to the
Company making the decision not to match some of the rates in the marketplace
that could have retained those balances.
Additionally,
FHLB advances increased $12.0 million to $65.5 million at December 31, 2007 from
$53.5 million at September 30, 2007. This increase was used to fund the increase
in loans and investment securities and to offset the decrease in
deposits.
Stockholders’
equity increased from $62.0 million at September 30, 2007 to $62.7 million at
December 31, 2007. The increase is a result of net income of $788,000, a
decrease in unrealized loss on available for sale securities (net of tax) of
$474,000 and $8,000 from the exercise of stock options. Those increases were
partially offset by $590,000 of cash dividends declared and $28,000 used for the
repurchase of shares for treasury.
Average Balances, Net
Interest Income and Yields Earned and Rates Paid
The
following table presents, for the periods indicated, the total dollar amount of
interest from average interest-earning assets and the resultant yields, as well
as the interest expense on average interest-bearing liabilities, expressed both
in thousands of dollars and rates, and the net interest margin. All average
balances are based upon daily balances.
|
|
|
Three
Months Ended December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Average
|
|
|
|
|
|
Yield
|
|
|
Average
|
|
|
|
|
|
Yield
|
|
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate(3)
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate(3)
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
receivable (1)
|
|
$
|
351,219
|
|
|
$
|
5,813
|
|
|
|
6.58
|
%
|
|
$
|
371,180
|
|
|
$
|
6,205
|
|
|
|
6.63
|
%
|
|
Investment
Securities (2)
|
|
|
83,341
|
|
|
|
884
|
|
|
|
4.22
|
%
|
|
|
93,793
|
|
|
|
963
|
|
|
|
4.07
|
%
|
|
Interest
Bearing Deposits
|
|
|
6,889
|
|
|
|
74
|
|
|
|
4.27
|
%
|
|
|
10,474
|
|
|
|
134
|
|
|
|
5.08
|
%
|
|
FHLB
stock
|
|
|
4,404
|
|
|
|
50
|
|
|
|
4.52
|
%
|
|
|
4,520
|
|
|
|
66
|
|
|
|
5.79
|
%
|
|
Total
interest-earning assets
|
|
|
445,853
|
|
|
|
6,821
|
|
|
|
6.07
|
%
|
|
|
479,967
|
|
|
|
7,368
|
|
|
|
6.09
|
%
|
|
Non-interest-earning
assets
|
|
|
17,518
|
|
|
|
|
|
|
|
|
|
|
|
18,500
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
463,371
|
|
|
|
|
|
|
|
|
|
|
$
|
498,467
|
|
|
|
|
|
|
|
|
|
|
Deposits
and Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing deposits
|
|
$
|
330,324
|
|
|
$
|
2,661
|
|
|
|
3.20
|
%
|
|
$
|
360,795
|
|
|
$
|
2,883
|
|
|
|
3.17
|
%
|
|
FHLB
advances
|
|
|
50,467
|
|
|
|
669
|
|
|
|
5.27
|
%
|
|
|
59,378
|
|
|
|
809
|
|
|
|
5.41
|
%
|
|
Other
Borrowings
|
|
|
895
|
|
|
|
6
|
|
|
|
2.67
|
%
|
|
|
617
|
|
|
|
4
|
|
|
|
2.57
|
%
|
|
Total
interest-bearing liabilities
|
|
|
381,686
|
|
|
|
3,336
|
|
|
|
3.48
|
%
|
|
|
420,790
|
|
|
|
3,696
|
|
|
|
3.48
|
%
|
|
Non-interest
bearing deposits
|
|
|
16,024
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,105
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
including non-interest-bearing demand deposits
|
|
|
397,710
|
|
|
|
3,336
|
|
|
|
3.34
|
%
|
|
|
431,895
|
|
|
|
3,696
|
|
|
|
3.40
|
%
|
|
Other
non-interest-bearing liabilities
|
|
|
2,642
|
|
|
|
|
|
|
|
|
|
|
|
2,887
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
400,352
|
|
|
|
|
|
|
|
|
|
|
|
434,782
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
63,019
|
|
|
|
|
|
|
|
|
|
|
|
63,685
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
463,371
|
|
|
|
|
|
|
|
|
|
|
$
|
498,467
|
|
|
|
|
|
|
|
|
|
|
Net
interest income; interest rate spread
|
|
|
|
|
|
$
|
3,485
|
|
|
|
2.59
|
%
|
|
|
|
|
|
$
|
3,672
|
|
|
|
2.61
|
%
|
|
Net
interest margin (4)
|
|
|
|
|
|
|
|
|
|
|
3.11
|
%
|
|
|
|
|
|
|
|
|
|
|
3.04
|
%
|
|
Average
interest-earning assets to average interest bearing
liabilities
|
|
|
|
|
|
|
|
|
|
|
117
|
%
|
|
|
|
|
|
|
|
|
|
|
114
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Average balances include nonaccrual balances.
|
|
|
(2)
Yield on investment securities is computed based on amortized
cost.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)
Annualized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4)
Net interest margin is net interest income divided by average
interest-earning assets.
|
|
|
|
|
|
|
|
|
|
Results of
Operations
Three
Months Ended December 31, 2007 Compared to Three Months Ended December 31,
2006
On a
consolidated basis, Peoples Bancorp had net income of $788,000 or $.25 per
diluted share for the three months ended December 31, 2007 compared to $800,000
or $.25 per diluted share for the same period in 2006.
Net Interest Income.
Net
interest income decreased $192,000 for the quarter ended December 31, 2007 from
$3.7 million for the same period in 2006. Average interest earning assets
decreased $34.1 million to $445.9 million for the quarter ended December 31,
2007 from $480.0 million for the same three month period in 2006. During those
same periods, average interest-bearing liabilities decreased by $39.1 million to
$381.7 million for the first quarter in 2008 from $420.8 for the same period in
2007.
Interest
income, including FHLB stock dividends, decreased $547,000 to $6.8 million from
$7.4 million 2008 first quarter compared to the 2007 first quarter. This
happened primarily because of the $34.1 million decrease in average interest
earning assets mentioned above. Average loan yields decreased to 6.58% from
6.63%. The decrease in interest income was partially offset by decreases in
interest expense, which decreased to $3.3 million from $3.7 million. The average
balance of interest-bearing deposits decreased to $381.7 million for the 2008
first quarter from $420.8 million in the year earlier period. During those same
time periods, the average balance of FHLB advances decreased by $8.9 million to
$50.5 million from $59.4 million in the first quarter of 2007. The average cost
of those deposits increased to 3.20% from 3.17% while the average cost of FHLB
advances decreased from 5.41% to 5.27%.
Net
interest margin for the quarter ended December 31, 2007 was 3.11%, a 7 basis
point increase from the 2007 first quarter margin of 3.04%. Peoples Bancorp’s
average yield on interest earning assets decreased to 6.07% for the 2008 first
quarter, down from 6.09% for the same period in 2007, a decrease of 2 basis
points. However, during that same period, the cost of interest-bearing
liabilities remained the same at 3.48% for the 2008 quarterly period compared to
the same period in 2007. As a result, the Company’s interest rate spread has
compressed to 2.59% in the 2008 first quarter compared to 2.61% in the same 2007
quarterly period. Management anticipates that the actions taken by the Federal
Reserve in managing market interest rates will now allow the cost of funds to
decrease faster than the decrease in asset yields which should lead to slightly
better margins in the near future.
Provision for Loan Losses.
The
provision for loan losses was $9,000 in the first quarter of 2008 compared to
$4,000 for the first quarter of 2007. Provisions for loan losses are charged to
earnings to bring the total allowance for loan losses to the level deemed
appropriate by management based on the following factors: historical experience;
the volume and type of lending conducted by Peoples Bancorp; the amount of
non-performing assets; the amount of assets graded by management as substandard,
doubtful, or loss; industry standards; general economic conditions, particularly
as they relate to Peoples Bancorp’s market area; and other factors related to
the collectibility of Peoples Bancorp’s loan portfolio. Management has noted the
trend of increasing balances of non-performing assets, but believes the balance
of the allowance for loan losses is appropriate.
Non-performing
assets increased $500,000 to $2.5 million at December 31, 2007 compared to $2.0
million at September 30, 2007. The increase in the 2008 first quarter was
attributable to a $457,000 increase in the amount of loans exceeding 90 days
past due. That was due to a commercial credit falling more than 90 days past due
at December 31, 2007. Non-performing assets and asset quality ratios for Peoples
Bancorp were as follows (in $000’s) at December 31, 2007 and September 30,
2007:
|
|
|
December
31,
|
|
|
September
30,
|
|
|
|
|
2007
|
|
|
2007
|
|
|
|
|
(in
thousands)
|
|
|
Non-accrual
loans
|
|
$
|
1,460
|
|
|
$
|
1,003
|
|
|
Loans
over 90 days past due and still accruing
|
|
|
0
|
|
|
|
0
|
|
|
Total
non-performing loans
|
|
|
1,460
|
|
|
|
1,003
|
|
|
Real
estate owned (REO)
|
|
|
1,029
|
|
|
|
986
|
|
|
Total
non-performing assets
|
|
$
|
2,489
|
|
|
$
|
1,989
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses as a percentage of total loans
|
|
|
0.50
|
%
|
|
|
0.52
|
%
|
|
Allowance
for loan losses as a percentage of non-performing assets
|
|
|
71.31
|
%
|
|
|
92.21
|
%
|
|
Allowance
for loan losses as a percentage of non-performing loans
|
|
|
121.58
|
%
|
|
|
182.85
|
%
|
|
Total
non-performing assets as a percentage of total assets
|
|
|
0.53
|
%
|
|
|
0.42
|
%
|
|
Total
non-performing assets as a percentage of total loans
|
|
|
0.70
|
%
|
|
|
0.57
|
%
|
Of the
$1.5 million in non-accrual loans, $825,000 were 1-4 family residential loans,
$522,000 were commercial loans, $78,000 were commercial real estate loans and
$35,000 were consumer loans. The allowance for loan losses at December 31, 2007
was $1.8 million compared to $1.8 million at September 30, 2007. For the quarter
ended December 31, 2007, Peoples Bancorp charged off $56,000 of loans against
its allowance and realized $13,000 of recoveries from loans previously charged
off. During the same quarter in 2006 Peoples Bancorp charged off $16,000 in
loans and realized recoveries of $4,000.
Non-Interest Income
.
Total
non-interest income increased to $628,000 in the 2008 first quarter, compared
with $526,000 in the same period in 2007. The quarter to quarter increase is
mainly the result of increases in trust income, gains from the sale of mortgage
loans and fees and service charges in the 2008 first quarter compared to the
same quarter in 2007.
Trust Income.
Fees received
from trust activity increased $52,000 to $142,000 in the quarter ended December
31, 2007 compared to $90,000 for the quarter ended December 31,
2006. During the period ended December 31, 2007 the Company
recognized income of approximately $40,000 for a one time estate
transaction.
Loss on Sale of Securities.
Losses on sale of securities were $1,000 in the 2008 first quarter
compared to a gain of $1,000 during the same period in 2007.
Service Fees.
Fees and service
charges increased to $374,000 in the three month period ended December 31, 2007
from $345,000 in the same period in 2006. The increase was a result of a rise in
checking account income, ATM-debit card income and an increase in safe deposit
box rental income which was caused largely by the timing of payments that were
received.
Mortgage Banking Activity.
Total revenue from the sale and servicing of mortgage loans increased 17.6% to
$33,000 for the first quarter of 2008 from $28,000 for the same period of
2007.
Other Non-Interest Income.
Other sources of non-interest income include commissions received from the sale
of insurance products, fees earned from servicing mortgage loans sold, earnings
from bank-owned life insurance and REO activity. Other non-interest income
increased $18,000 to $80,000 due largely to gain on sale of REO earned during
the 2008 first quarter.
Non-interest Expense
.
Non-interest expense decreased to $2.9 million for the 2008 first quarter
compared to $3.0 million for the same period in 2007.
Compensation and Benefits.
Compensation and benefits decreased $128,000 to $1.7 million for the quarter
ended December 31, 2007 from $1.8 million for the same period in 2007. This was
caused largely by the reduced pension expenses related to the freezing of the
pension plan on August 1, 2007 and reduced directors fees associated with the
merger of the Company’s former subsidiary, First Savings Bank into Peoples
Federal on October 1, 2007. Those decreases were partially offset by an increase
in the Company’s health insurance costs.
Other Non-Interest Expenses.
Other non-interest expenses (including occupancy, equipment, data processing,
deposit insurance premiums, amortization of intangibles and other) increased by
$18,000 to $1.3 million for the quarter ended December 31, 2007 from $1.2
million for the same period in 2006. Other expenses increased $45,000 to
$631,000 for the three month period ended December 31, 2007 compared to $586,000
for the three month period ended December 31, 2006. Of the increase, $13,000 was
due to increased ATM/debit card and credit card expenses, $12,000 was due to the
timing of the Company’s annual employee recognition event, $10,000 was due to an
increase in legal fees and $8,000 came from an increase in management consulting
expenses.
The
efficiency ratio for the first quarter of 2008 was 70.2% compared to 71.3% for
the same period in 2007.
Peoples
Bancorp computes federal income tax expense in accordance with FASB Statement
No. 109, which resulted in an effective tax rate of 33.61% for the quarter ended
December 31, 2007 compared to 31.36% for the same period in 2006. The effective
tax rate is lower than the Company’s statutory 34% rate because it has
approximately $13.0 million invested in municipal securities, and $780,000 of
bank owned life insurance which are both exempt from federal tax.
As a
result of the above factors, income for the quarter ended December 31, 2007 was
$788,000 compared to income of $800,000 for the comparable period in 2007. On a
per share basis, basic and diluted earnings per share for the three months ended
December 31, 2007 were $0.25 and $0.25, respectively, compared to basic and
diluted earnings per share of $0.25 and $0.25, respectively, for the quarter
ended December 31, 2007.
Liquidity and Capital
Resources
As a
regulated financial institution, Peoples Federal is required to maintain
appropriate levels of “liquid” assets to meet short-term funding
requirements.
Peoples
Bancorp generated $2.3 million of cash from operating activities during the
first three months of fiscal 2008. The Company’s cash from operating activities
resulted from net income for the period, adjusted for various non-cash items,
including the provision for loan losses, depreciation and amortization of
mortgage servicing rights, FHLB stock dividends, gain on sales of securities,
loans and property, plant and equipment, and changes in loans available for
sale, interest receivable and other assets, and other liabilities.
The
primary investing activity of Peoples Bancorp is the origination of loans, which
is funded with cash provided by operations, proceeds from the amortization and
prepayments of existing loans, the sale of loans, proceeds from the sale or
maturity of securities, borrowings from the FHLB, and customer
deposits.
At
December 31, 2007, Peoples Bancorp had $1.4 million in outstanding loan
commitments and loans in process to be funded generally within the next six
months and an additional $40.0 million committed under existing consumer and
commercial lines of credit and standby letters of credit. Also, the total amount
of certificates of deposit that are scheduled to mature by December 31, 2008 is
$146.8 million. Peoples Bancorp believes that it has adequate resources to fund
commitments as they arise and that it can adjust the rate on savings
certificates to retain deposits in changing interest rate environments. If
Peoples Bancorp requires funds beyond its internal funding capabilities,
advances from the FHLB of Indianapolis are available.
Peoples
Federal is required to maintain specified amounts of capital pursuant to
regulations promulgated by the OTS. The capital standards generally require the
maintenance of regulatory capital sufficient to meet a tangible capital
requirement, a core capital requirement, and a risk-based capital requirement.
The following table sets forth the Bank’s compliance with each of the capital
requirements at December 31, 2007.
|
|
|
|
Core
Capital
|
|
|
Risk-Based
Capital
|
|
|
|
|
|
Adequately
|
|
|
Well
|
|
|
Adequately
|
|
|
Well
|
|
|
|
|
|
Capitalized
|
|
|
Capitalized
|
|
|
Capitalized
|
|
|
Capitalized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory
capital
|
|
$
|
57,665
|
|
|
$
|
57,665
|
|
|
$
|
59,440
|
|
|
$
|
59,440
|
|
|
Minimum
required regulatory capital
|
|
|
18,803
|
|
|
|
23,503
|
|
|
|
19,154
|
|
|
|
23,943
|
|
|
Excess
regulatory capital
|
|
$
|
38,862
|
|
|
$
|
34,162
|
|
|
$
|
40,286
|
|
|
$
|
35,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory
capital as a percentage of assets (1)
|
|
|
12.3
|
%
|
|
|
12.3
|
%
|
|
|
24.8
|
%
|
|
|
24.8
|
%
|
|
Minimum
capital required as a percentage of assets
|
|
|
4.0
|
%
|
|
|
5.0
|
%
|
|
|
8.0
|
%
|
|
|
10.0
|
%
|
|
Excess
regulatory capital as a percentage of assets
|
|
|
8.3
|
%
|
|
|
7.3
|
%
|
|
|
16.8
|
%
|
|
|
14.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Core
capital is computed as a percentage of adjusted total assets of $470.1
million. Risk-based capital is co
mputed
as a percentage of total risk-weighted assets of $239.4
million.
|
|
|
|
|
|
|
Critical Accounting
Policies
Peoples
Bancorp has established various accounting policies which govern the application
of accounting principles generally accepted in the United States in the
preparation of its financial statements. The significant accounting policies of
Peoples Bancorp are described in the footnotes to the consolidated financial
statements included in the Company’s Annual Report on Form 10-K. Certain
accounting policies involve significant judgments and assumptions by management,
which have a material impact on the carrying value of certain assets and
liabilities; management considers such accounting policies to be critical
accounting policies. Those policies, which are identified and discussed in
detail in the Company’s Annual Report on Form 10-K, include the Allowance for
Loan Losses and accounting for goodwill. There have been no material changes in
assumptions or judgments relative to those critical policies during the first
quarter of 2008.