DEF 14A 1 proxy2002.txt PROXY STATEMENT FOR YEAR ENDED SEPTEMBER 30, 2002 PEOPLES BANCORP 212 West Seventh Street o Auburn, Indiana 46706-1723 Phone: (260)925-2500 o Fax: (260)925-1733 December 10, 2002 Dear Stockholder, You are cordially invited to attend the Annual Meeting of Stockholders of Peoples Bancorp, the holding company for Peoples Federal Savings Bank of DeKalb County ("Peoples") and First Savings Bank ("First Savings"). The meeting will be held at the Ramada Limited and Suites, located at 306 Touring Drive, Auburn, Indiana 46706, on Wednesday, January 8, 2003, at 2:00 p.m. local time. As described in the accompanying materials, the stockholders are being asked at the annual meeting to elect three Directors, and to approve the appointment of the Company's independent auditors. During the meeting, members of the Company's management will also report on operations and other matters affecting the Company, and will be available to respond to stockholders' questions. Your vote is very important regardless of the number of shares you own. On behalf of the Board of Directors, I urge you to mark, sign, and date your proxy card today and return it in the envelope provided, even if you plan to attend the Annual Meeting. This will not prevent you from voting in person, but will ensure that your vote is counted if you are unable to attend. Your continued support of and interest in Peoples Bancorp is sincerely appreciated. Sincerely, Roger J. Wertenberger Chairman of the Board PEOPLES BANCORP 212 West 7th Street Auburn, Indiana 46706 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS To Be Held on January 8, 2003 NOTICE IS HEREBY GIVEN that the annual meeting of the stockholders of Peoples Bancorp (the "Company"), will be held at the Ramada Limited and Suites, located at 306 Touring Drive, Auburn, Indiana, on Wednesday, January 8, 2003, at 2:00 p.m., local time (the "Meeting"), for the following purposes: 1. To elect three directors. 2. To approve the appointment of BKD LLP, independent certified public accountants, as the auditors of the Company for the fiscal year ending September 30, 2003. Execution of a proxy in the form enclosed also permits the proxy holder to vote, in his or her sole discretion, upon such other business as may properly come before the Meeting or any adjournment thereof. As of the date of mailing, the Board of Directors is not aware of any other matters that may come before the Meeting. The Board of Directors has selected November 30, 2002, as the record date for the Meeting. Only those stockholders of the Company of record at the close of business on that date will be entitled to notice of and to vote at the Meeting or any adjournment thereof. BY ORDER OF THE BOARD OF DIRECTORS Cheryl L. Taylor Corporate Secretary Auburn, Indiana December 10, 2002 PEOPLES BANCORP 212 West Seventh Street Auburn, Indiana 46706 Annual Meeting of Stockholders PROXY STATEMENT This proxy statement is furnished in connection with the solicitation of proxies by the Board of Directors of Peoples Bancorp (the "Company"), for use at the annual meeting of the stockholders of the Company to be held on Wednesday, January 8, 2003, and at any adjournments thereof (the "Meeting"). The Annual Report to Stockholders for the fiscal year ended September 30, 2002, and a form of proxy to be voted at the meeting are being furnished to stockholders with this Proxy Statement. The approximate date of mailing of this proxy statement is December 10, 2002. The close of business on November 30, 2002, has been selected as the record date for the determination of stockholders entitled to notice of and to vote at the annual meeting. On that date, 3,446,802 shares of the Company's Common Stock, par value $1.00 per share, were outstanding. Stockholders will be entitled to one vote for each share of the Company's Common Stock held by them of record at the close of business on the record date on any matter that may be presented for consideration and action by the stockholders. A plurality of the votes cast by stockholders in person or by proxy at the annual meeting will be necessary for approval of Proposal 1 described herein. A majority of the votes cast by stockholders in person or by proxy at the annual meeting will be necessary for approval of Proposal 2. All valid proxies received in response to this solicitation will be voted in accordance with the instructions indicated thereon by the stockholders giving such proxies. If no instructions are given, signed proxies will be voted in favor of the election of the directors named in this proxy statement and in favor of Proposal 2. Abstentions and broker non-votes (shares as to which a broker indicates that it does not have authority to vote) are counted for the purpose of determining the presence of a quorum for the transaction of business at the annual meeting. Abstentions and broker non-votes will have no effect on the outcome of the proposals presented herein, since such actions do not represent votes cast by stockholders. The Board of Directors does not know of any business, other than that described herein, to be presented for action at the annual meeting. However, if any other business is properly presented before the annual meeting and may properly be voted upon, the proxies solicited hereby will be voted on such matters in accordance with the best judgment of the proxy holders named therein. Any stockholder has the power to revoke his proxy at any time before it is voted at the annual meeting by giving written notice of such revocation (including the delivery of a duly executed proxy bearing a later date) to Cheryl L. Taylor, the Secretary of Peoples Bancorp, PO Box 231, 212 West 7th Street, Auburn, Indiana 46706, or upon request if the stockholder is present at the Meeting and chooses to vote in person. PROPOSAL 1 ELECTION OF DIRECTORS Three directors will be elected at the meeting to serve for a three-year period. Unless authority is withheld, all proxies received in response to this solicitation will be voted for the election of the nominees listed below. Each nominee has indicated a willingness to serve if elected. However, if any nominee becomes unable to serve, the proxies received in response to this solicitation will be voted for a replacement nominee selected in accordance with the best judgment of the proxy holders named therein. The Board of Directors unanimously recommends that stockholders vote "FOR" each of the named nominees to the Company's Board of Directors. The following table lists the directors and their terms for both Peoples Federal Savings Bank (the "Bank") and the Company. The table also sets forth the number of shares of the Company's Common Stock beneficially owned by the directors of the Company and by the directors and executive officers of the Company as a group as of November 30, 2002. NOMINEES FOR ELECTION AS DIRECTORS Present Shares of Director Term Common Stock Percent of Name Position Since Expires Beneficially owned Class (1) -------------------- ------------- ----- ------- ------------------ ---------- DIRECTORS CONTINUING IN OFFICE: Bruce S. Holwerda Director 1998 2004 1,500(2) * G. Richard Gatton Director 2000 2004 57,475(3) 1.67% Stephen R. Olson Director 2000 2004 16,542(4) .46% John C. Thrapp Director 1990 2005 27,257(7) .79% Roger J. Wertenberger Chairman of 1990 2005 137,379(8) 3.98% The Board NOMINEES FOR THREE YEAR TERM: Douglas D. Marsh Director 1990 2003 10,000(5) .29% Maurice F. Winkler III Director and 1993 2003 57,462(6) 1.66% President Erica D. Dekko Director 2001 2003 3,373(9) .10% All executive officers and directors of the Company and Bank as a group (10 persons) 9.10% * Under 0.1% 1. Computed based upon a total of 3,446,802 issued and outstanding shares of Common Stock as of November 30, 2002. 2. All of the shares owned by Mr. Holwerda are owned jointly with Mr. Holwerda's wife with shared voting and investment power. 3. Includes 23,760 shares of Common Stock subject to options exercisable within 60 days of the voting record date. Also, includes 17,404 shares of Common Stock for which Mr. Gatton shares voting or dispositive power with his spouse, and 16,311 shares he has voting and dispositive power. 4. Includes 5,049 shares of Common Stock subject to options exercisable within 60 days of the voting record date. Also, 11,139 shares owned by Mr. Olson with sole voting and investment power, 4,809 shares of Common Stock owned by the spouse of Mr. Olson for which Mr. Olson has no voting or dispositive power and which Mr. Olson disclaims beneficial ownership, and 594 shares that are owned by a partnership that Mr. Olson claims shared voting and investment power. 5. Of the shares owned by Mr. Marsh, 1,000 shares are held by Mr. Marsh with sole voting and investment power, and 9,000 shares are held by Mr. Marsh's wife with sole voting and investment power. 2 6. Of the shares owned by Mr. Winkler, 47,268 are held by Mr. Winkler with sole voting and investment power, 7,662 shares are held by Mr. Winkler's wife with sole voting and investment power, 2,532 shares are controlled by Mr. Winkler as Trustee under a Trust for the benefit of his children, for which he has sole voting and investment power. 7. Of the shares owned by Mr. Thrapp, 26,281 shares are held by Mr. Thrapp with sole voting and investment power, and 976 are held by Mr. Thrapp's wife with sole voting and investment power. 8. Of the shares owned by Mr. Wertenberger, 86,379 shares are held by Mr. Werternberger with sole voting and investment power, 48,000 shares are held by Mr. Wertenberger's wife with sole voting and investment power, and 3,000 shares are held jointly by Mr. Wertenberger's wife and mother-in-law with shared voting and investment power. 9. All of the shares owned by Ms. Dekko are owned directly with sole voting and investment power. The business experience during the past five years of each of the directors is as follows: Mr. Wertenberger has served as a director of Peoples since joining Peoples in 1954. Mr. Wertenberger became President of Peoples in January 1964 and Chairman of the Board in January 1979. Mr. Wertenberger serves as a director of Peoples Financial Services, Inc., Peoples service corporation subsidiary ("Peoples Financial"). Mr. Wertenberger became President, Director, and Chairman of the Board of the Company upon its inception in 1990. Mr. Wertenberger currently serves as Chairman of the Board and a director of the Company. Mr. Winkler was appointed to the Board of Directors of Peoples and the Company in June 1993. Mr. Winkler joined Peoples in 1979. From 1981 to 1985, he served as Peoples Controller and in December 1985 became Vice President-Operations. Mr. Winkler is the son-in-law of Roger J. Wertenberger. Mr. Winkler also serves as a director of Peoples Financial. Mr. Winkler assumed the duties of President and Chief Executive Officer of the Company, Peoples, and Peoples Financial effective October 1, 1996. Mr. Holwerda was elected a director of Peoples and the Company in 1998. Mr. Holwerda is co-owner of Ambassador Steel Corporation Auburn, Indiana, and serves as Vice President and Chief Operating Officer, positions he has held since 1990. Mr. Holwerda has worked at Ambassador Steel in various capacities since 1979. Mr. Gatton has served as President, Chief Executive Officer of Three Rivers Financial Corporation, and a director of First Savings since December 1990. From September 1988 to December 1990, Mr. Gatton served as President and Chief Executive Officer of First National Bank of Wabash, Indiana. Mr. Gatton has been involved in the banking industry since 1966. He also serves as President and a director of Alpha Financial, Inc. ("Alpha Financial"), a subsidiary of First Savings. Upon the merger of Three Rivers Financial Corporation into the Company, Mr. Gatton became a Director of the Company and retained his position as President and Chief Executive Officer of First Savings. Mr. Olson has served as Manager of Morton Buildings, Inc., a construction company located in Three Rivers, Michigan, since 1970. Mr. Olson is also on the Board of Directors of Camp Wakeshma, a non-profit summer youth camp. Mr. Olson became a Director of the Company upon the merger of Three Rivers Financial Corporation into the Company, March 2000. Ms. Dekko has served as a director of Peoples since January of 2000 and was elected as a Director of the Company January 2001. Ms. Dekko completed her MBA from Notre Dame in 2000. She is a Financial Advisor for Dekko Financial 3 Services. Ms. Dekko also serves as a director of Peoples Financial. Mr. Marsh has served as a Director of Peoples since 1982. He currently serves as Principal Broker of Castle One Realty in Auburn, Indiana, and Chairman of the Board of Applied Innovations Inc. in Chicago, Illinois. From 1991 to 1996, Mr. Marsh served as Vice President of Sales for Superior Chaircraft, a division of JSJ Corporation, Grand Haven, Michigan. From 1976 to 1991, Mr. Marsh served as President and Chief Executive Officer of Garrett Industries of Hudson, Indiana. Mr. Marsh also serves as a director of Peoples Financial. Mr. Thrapp served as a Director and Officer of First Federal Savings and Loan Association of Kendallville which merged with Peoples in August 1990. Since 1962, Mr. Thrapp has been an attorney with the firm of Thrapp & Thrapp in Kendallville, Indiana. Executive Officers of the Company Who Are Not Directors The following table lists the executive officers of the Company. Name Age Position with Peoples Bancorp ------------------------ --- ------------------------------ Maurice F. Winkler, III 46 President and Chief Executive Officer Roger J. Wertenberger 70 Chairman of the Board Cheryl L. Taylor 52 Secretary Deborah K. Stanger 46 Treasurer Mrs. Stanger joined Peoples in 1989 as Controller. Mrs. Stanger was promoted to Vice President and Chief Financial Officer of Peoples Federal in 1996. Mrs. Stanger was named Treasurer of the Company in January 1999. Mrs. Stanger became the CFO of the Company in 2000. Ms. Taylor joined Peoples in April 1986. She has served in various capacities for Peoples and was promoted to insurance agent for Peoples Financial, Peoples's wholly owned subsidiary, in November 1991. In August of 2000, Ms. Taylor was promoted to Corporate Secretary for Peoples Bancorp. Corporate Governance and Other Matters The Board of Directors of the Company held twelve meetings during the fiscal year ended September 30, 2002. All directors have attended at least 75% of all Board of Directors' and committee meetings. Five regular members of the Board of Directors are members of the Executive Committee, which is permitted to act with any three members present in the absence of regularly scheduled Board meetings. The Executive Committee exercises all the authority of the Board of Directors to the extent permitted by the Company's Bylaws. The Executive Committee consists of Roger J. Wertenberger, Chairman, Maurice F. Winkler, John C. Thrapp, Erica D. Dekko, G. Richard Gatton and Douglas D. Marsh. This Committee meets when needed. One meeting was held during the fiscal year ended September 30, 2002. The Board of Directors has standing Budget, Audit, and Nominating Committees. 4 The Budget Committee establishes policies and objectives relating to compensation, reviews compensation costs, and recommends salaries, bonuses, and 401(k) contributions for all employees and executive officers. The members of the Budget Committee are: Bruce S. Holwerda, Chairman, Douglas D. Marsh, Stephen R. Olson, Erica D. Dekko and John C. Thrapp. The Budget Committee held four meetings during the fiscal year ended September 30, 2002. The Audit Committee reviews and approves the scope of the audit procedures employed by the Company's independent auditors and meets with the auditors to discuss the results of their examination of the Company's financial statements. The Committee reviews the operations of the Company's internal audits performed by management and the results of its audit procedures. In addition, the Committee reviews all reports prepared in connection with the Company's annual examinations by the regulatory authorities. The members of the Audit Committee are: Douglas D. Marsh, Chairman, Bruce S. Holwerda, Stephen R. Olson and Erica D. Dekko. The Committee held four meetings during the fiscal year ended September 30, 2002. The Nominating Committee meets when director vacancies occur and recommends individuals for nomination to the Company's Board of Directors and to the governing bodies of its subsidiary corporations. The Nominating Committee consists of the Board of Directors. The Committee held one meeting during the fiscal year ended September 30, 2002. The Nominating Committee does not consider nominees recommended by stockholders. Under the Company's Bylaws, however, nominations may be made by stockholders and voted upon at an annual meeting if made in writing and delivered to the Secretary of the Company at least 20 days prior to the date of the annual meeting. No nominations for directors except those made by the Nominating Committee or by the stockholders in accordance with the Bylaws shall be voted upon at the annual meeting. Securities Ownership of Certain Beneficial Owners There are no persons known to the Company who own beneficially more than 5% of the Company's common stock as of September 30, 2002. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and persons who own more than 10% of a registered class of the Company's equity securities, to file with the Securities and Exchange Commission ("SEC") initial reports of ownership and reports of changes in ownership of equity securities of the Company. Officers, directors and greater than 10% shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended September 30, 2002, all Section 16(a) filing requirements applicable to the Company's officers and directors were complied with. 5 Transactions With Certain Related Persons The Banks have followed the policy of offering loans to the Company's and the Banks'directors, officers and employees for the financing of their principal residences. These loans are made in the ordinary course of business on substantially the same terms and collateral, including interest rates, as those of comparable transactions prevailing at the time and do not involve more than the normal risk of collectibility or present other unfavorable features. The Banks grant consumer loans to directors, officers, and employees at rates and terms applicable to its other customers. The Banks have 24 executive officers and directors, and the aggregate total of loans outstanding to these individuals as of September 30, 2002, was $1,499,922. COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS Executive Compensation Summary of Cash and Certain Other Compensation The following table sets forth summary information concerning compensation paid or accrued by the Company to or on behalf of the Company's Chief Executive Officer. No other executive officers of the Company had an annual salary and bonus that exceeded $100,000 during each of the last three fiscal years. Summary Compensation Table Annual Compensation Other Annual All Other Name and Principal Position Year Salary Bonus Compensation(1) Compensation(2) --------------------------- ---- -------- ------- -------------- --------------- Maurice F. Winkler III 2002 $120,000 $10,800 $23,040 $3,811 President and 2001 $117,000 $7,020 $18,470 $3,510 Chief Executive Officer 2000 $100,000 $8,250 $15,200 $3,300 of Peoples Bancorp G. Richard Gatton 2002 $112,850 $7,000 $3,600 $2,734 Chief Executive Officer of 2001 $108,500 $7,500 $2,400 $23,875 First Savings Bank 2000 $104,500 $0 $1,400 $21,403 (1) The amount shown represents director's fees. (2) The amount shown represents that portion of the Bank's or First Savings Bank's 401K/ ESOP contribution allocated to the account of Mr. Winkler and Mr. Gatton. Option Exercises and Holdings On November 10, 1998, the Peoples Board of Directors adopted a Stock Option and Incentive Plan ("1998 Plan") which permits the granting of shares of the Company's Common Stock through incentive and non-qualified stock options, as well as stock appreciation rights. Stockholders approved the 1998 Plan on January 13, 1999. The Stock Option Committee administers the 1998 Plan. The members of the Stock Option Committee are Mr. Thrapp, Mr. Marsh, and Mr. Holwerda. 6 Under the 1998 Plan, the maximum number of shares of Common Stock that may be issued pursuant to awards granted under the 1998 Plan is 200,000 (subject to adjustment to prevent dilution). The 1998 Plan shall continue in effect for a term of ten (10) years following its adoption unless sooner terminated. A committee of two or more directors appointed by the Board administers the 1998 Plan. Pursuant to the 1998 Plan, officers, directors, key employees and consultants of the Company (or any Affiliate as defined in the 1998 Plan) may be granted options at an exercise price not less than 100% of the fair market value of the Company's Common Stock on the date of the grant. During fiscal 2002, no options were granted. At September 30, 2002, options to purchase 24,000 shares were outstanding under the 1998 Plan. In April 1996, Three Rivers Financial Corporation's Board of Directors adopted, and the stockholders approved, a Stock Option and Incentive Plan (the "Option Plan"). The purpose of the Option Plan is to provide additional incentive to directors and key employees by facilitating their purchase of the stock through incentive and non-qualified stock option, as well as stock appreciation rights. Under the Option Plan, 94,558 shares of the Company's Common Stock are reserved for issuance. During the fiscal year ended September 30, 2002, no options were granted or exercised. As of September 30, 2002, options to purchase 90,028 shares are outstanding under the Option Plan. The following sets forth certain information concerning unexercised options held at September 30, 2002 for G. Richard Gatton. AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED SEPTEMBER 30, 2002 AND FY END OPTION VALUES ------------------ ------------- --------- --------------- --------------------- Name Shares Value Number of Value of unexercised acquired Realized unexercised In-the-money options on exercise options at FY- at FY-end exercisable End exercisable (1) ------------------ ------------- --------- --------------- --------------------- G. Richard Gatton -0- $0.00 23,760 $151,113 ------------------ ------------- --------- --------------- --------------------- (1) The value of unexercised in-the-money options is the difference between $17.99, the closing price of the Common Stock on September 30, 2002, and $11.63 the exercise price of the options, multiplied by the number of exercisable and un-exercisable shares subject to the options, respectively. During fiscal 2002, the Company's Chief Executive Officer, Maurice F. Winkler III, did not own or exercise any stock options of the Company. Defined Benefit Pension Plan Both Banks maintain a defined benefit pension plan (the "Retirement Plan") for all eligible employees (the "Participants"). In order to be eligible to participate, an employee must attain age 21 and complete 1,000 hours of credited service during an eligibility computation period. The Retirement Plan is funded solely by Bank contributions and generally provides for vested benefits to Participants with 100% vesting after five years of credited service. Total Retirement Plan expenses for the fiscal year ended September 30, 2002, were $592,000. At September 30, 2002, the Retirement Plan was fully funded. 7 A Participant's benefit at normal retirement age (65) is dependent upon his total years of credited service and his average annual salary for the five consecutive years of highest salary during credited service. However, the benefit so determined is subject to proportionate reduction for credited service of fewer than 30 years at normal retirement age, and is also subject to actuarial reduction for commencement of benefit payment prior to normal retirement age. The Retirement Plan also provides a death benefit payment in the event of death prior to retirement. The table below shows estimated annual benefits (computed on the normal life annuity basis) payable under the Company's Retirement Plan to any employee upon retirement in 2002 at age 65 after selected periods of service. There is no benefit reduction for Social Security or other offset amounts. Remuneration Years of Service ----------------------------------------------------------------------- 10 Years 15 Years 20 Years 25 Years 30 Years 35 Years 40 Years 45 Years -------- -------- -------- -------- -------- -------- -------- -------- 50,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 75,000 15,000 22,500 30,000 37,500 45,000 52,500 60,000 67,500 100,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 150,000 30,000 45,000 60,000 75,000 90,000 105,000 120,000 135,000 200,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 250,000 50,000 75,000 100,000 125,000 150,000 175,000 200,000 225,000 Employee Stock Ownership Plan 401(k) Plan. On November 15, 1988, the Board of Directors of Peoples adopted an Employee Stock Ownership Plan (the "ESOP") which was approved by the stockholders on January 11, 1989. In August 1995, First Savings Bank's Board of Directors adopted an ESOP for the benefit of its employees. On May 1, 1999, the Peoples ESOP was amended to convert it into a 401(k) plan and during Fiscal 2002, First Savings employees ESOP was also amended to convert it into a 401(k) Plan. The 401(k) plan provides for employee contributions between 1% and 15% of salary on a pre-tax basis with matching employer contributions equal to 50% of a participant's contributions up to 6% of salary. The vesting schedule is the same as the vesting schedule under the ESOP. All shares originally contributed to the ESOP were allocated to participants' accounts under the 401(k) plan. Withdrawals under the 401(k) plan are permitted on the attainment of age 59 1/2 or hardship. Participants are allowed to choose from a variety of investment vehicles to invest their 401(k) accounts and in the absence of a choice by a participant are invested in a money market fund account. The ESOP maintained an account for each participant in the ESOP. The ESOP accounts were transferred into each participant's 401(k) plan account. With respect to shares of Common Stock allocated to a participant's account, each participant is entitled to direct the trustee as to the manner of voting such shares. If the Participant fails to so direct the trustee, such un-voted shares will be voted by the trustee only upon instructions from the committee. As of September 30, 2002, the 401(k) plan held 62,154 shares of Common Stock, 100% of which has been allocated to participant accounts. The Company contributed $99,494 for the benefit of participants under the 401(k) plan during the fiscal year ended September 30, 2002 and assumed expenses of $5,100 for 401(k) plan administration. 8 Insurance Plans The Peoples and First Savings officers and employees are provided with hospitalization, major medical, life, accidental death and dismemberment insurance and long-term disability insurance under group plans which are available generally and on the same basis to all full-time employees of the respective bank. Bonus Plan Both Peoples and First Savings have bonus plans for all employees. The plans do not apply to employees of subsidiaries or affiliates of the Banks. Under the plans, bonus money is made available to the extent of the net profits of the Bank up to 10% of an employee's base annual salary as defined in the plan. The determination of the amount of a bonus to be paid under the plan is made by the Board of Directors in its sole discretion, after consideration and recommendation by the Budget Committee, based on profitability of the Bank. During the fiscal year ended September 30, 2002, bonuses under this plans aggregating $216,744 were paid to employees of the Banks. Amounts allocated under the bonus plan are included in the Summary Compensation Table. Recognition and Retention Plan and Trust. In April 1996, the Three Rivers Financial Corporation's Board of Directors adopted, and the stockholders approved, the RRP as a means of providing the directors and employees of First Savings and Three Rivers Financial Corporation in a manner designed to encourage such persons to continue their service with First Savings and Three Rivers Financial Corporation. During fiscal year ended September 30, 2002, no shares of restricted stock were granted pursuant to the RRP. At September 30, 2002, grants relating to 3,514 shares were outstanding under the RRP. Employment Agreements Effective May 18, 2000, Mr. Maurice F. Winkler III, a director and Chief Executive Officer of the Company and President and Chief Executive Officer of Peoples entered into an employment agreement with the Company and Peoples. The employment agreement provides for full-time employment for a period of three years as President and Chief Executive Officer of the Company and Peoples. The agreement provides for a base salary of $120,000 per year subject to cost of living increases or decreases in certain circumstances. Additionally, upon a change in control of the Company or Peoples, as defined in the agreement, Mr. Winkler will receive 2.99 times his base salary plus 2.99 times the average amount of any bonus compensation earnings during the three year period prior to any change in control, plus certain other benefits as provided for in the agreement. In addition, Mr. Winkler will be eligible to receive such benefits as are made available to senior executives of Peoples. Effective February 29, 2000, upon the merger of Three Rivers Financial Corporation into the Company, Mr. G. Richard Gatton, a director of the Company and the President and Chief Executive Officer of First Savings entered into an employment agreement with the Company. The employment agreement provides for full-time employment for at least three years and a part-time employment for three years at a reduced salary. Each of these periods may be extended upon agreement of the parties. Mr. Gatton will receive a base salary of $112,850 under the employment agreement, which will be reduced to $75,000 upon entering the part-time phase of the agreement, if Mr. Gatton works full time for three years following the effective date and $60,000 if he does not. If Mr. Gatton works for the term provided in the employment agreement, he will receive additional retirement benefits equal to the lost retirement benefits he would 9 have received under the First Savings Bank retirement plan had he remained employed with First Savings Bank until age 65. Moreover, under the employment agreement, Mr. Gatton's unvested stock options will vest upon his termination of employment for any reason. Mr. Gatton will remain President and Chief Executive Officer of First Savings. Although the above-described employment agreements could increase the cost of any acquisition of control of the Company or Banks, management of the Company and the Banks do not believe that the terms thereof would have a significant anti-takeover effect. Director Compensation Directors of the Company received fees of $300 per month for serving as directors of the Company. Directors of Peoples currently receive $12,000 per year. For the fiscal year ended September 30, 2002, directors' fees for the Company, Peoples, and directors of the Company who also serve as directors of First Savings totaled $144,290. In addition, Directors Emeritus of Peoples are paid for each meeting at a monthly fee equal to the fee they received at the time of retirement from the Board. For the fiscal year ended September 30, 2002, Director Emeritus fees totals $67,800. Directors are also eligible to receive awards under the Company's 1998 Stock Option and Incentive Plan. During 2002 there were no options granted nor were there any outstanding options. Audit Committee Report, Charter, and Independence Audit Committee Report. The Audit Committee reports as follows with respect to the audit of the Company's financial statements for the fiscal year ended September 30, 2002, included in the Company's Shareholder Annual Report accompanying this Proxy Statement. ("2002 Audited Financial Statements")" The Committee has reviewed and discussed the Holding Company's 2002 Audited Financial Statements with the Company's management. The Committee has discussed with its independent auditors (BKD LLP) the matters required to be discussed by Statement on Auditing Standards 61, which include, among other items, matters related to the conduct of the audit of the Holding Company's financial statements. BKD LLP did not use any employees other than its full-time permanent employees on its audit of the Company's 2002 Audited Financial Statements. The Committee has received written disclosures and the letter from the independent auditors required by Independence Standards Board Standard No.1 (which related to the auditor's independence from the Company and its related entities) and has discussed with the auditors the auditors' independence from the Company. The Committee considered whether the provision of services by its independent auditors, other than audit services including reviews of Forms 10-Q, is compatible with maintaining the auditors' independence. Based on review and discussions of the Company's 2002 Audited Financial Statements with management and with the independent auditors, the Audit Committee recommended to the Board of Directors that the Company's 2002 Audited Financial Statements be included in the Holding Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2002. 10 This Report respectfully submitted by the Audit Committee of the Company's Board of Directors. Audit Committee Members Douglas D. Marsh, Chairman Erica D. Dekko Stephen R. Olson Bruce S. Holwerda Audit Committee Charter. The Board of Directors has adopted a written charter for the Audit Committee, a copy of which is attached as Exhibit A. The Board of Directors reviews and approved changes to the Audit Committee Charter annually. Accountant's Fees Audit Services. The aggregate fees billed by BKD LLP for audit services relating to the audit of the 2001 Audited Financial Statements and for reviews of the Company's financial statements included in its Forms 10-Q for the year 2002 were $60,233. Financial Information System Design and Implementation Fees. BKD LLP did not bill the Company for any information technology services rendered during 2002. All Other Fees. BKD LLP billed the Company $39,812 for services other than those described above rendered during 2002. Independence of Audit Committee Members. The Company's Audit Committee is comprised of Douglas D. Marsh, Chairman, Erica D. Dekko, Stephen R. Olson and Bruce S. Holwerda. Each of these members meets the requirements for independence set forth in the Listing Standards of the National Association of Securities Dealers. Report of the Budget Committee The Budget Committee of the Banks establishes policies and objectives relating to compensation, reviews compensation costs, and recommends salaries and bonuses for all employees and executive officers. All decisions of the Budget Committee are subject to approval by the full Board of Directors. In fiscal 2002, the Board of Directors made no modifications to the Budget Committee's compensation recommendations. In recommending the salaries of the executive officers, the Budget Committee has access to and reviews compensation data for comparable financial institutions. The officers are also evaluated as to their performance during the year and compared to the Bank's performance. In making recommendations with respect to executive compensation, the Budget Committee attempts to achieve the following objectives while furthering a policy of cost containment by controlling expenses: 1. Provide compensation comparable to that which is offered by other similarly situated financial institutions in order to attract and retain talented executives who are critical to the Company's success; 2. Reward executive officers based upon their ability to achieve both short- and long-term strategic goals and to enhance shareholder value; and 11 3. Align the interests of the executive officers with the long-term interests of the stockholders by granting stock options and making ESOP contributions. At the present time, the Company's executive compensation program is comprised of base salary, annual incentive bonuses and long-term incentive bonuses in the form of ESOP contributions. Reasonable base salaries are awarded based on salaries paid by comparable financial institutions and individual performance. Annual incentive bonuses are tied to the Company's net income performance for the current fiscal year. The ESOP has a direct relation to the long-term enhancement of shareholder value. These plans are designed to motivate the employee to increase shareholder value. For fiscal year 2002, the Budget Committee recommended, and the Board of Directors approved, a salary of $120,000 and a bonus of $10,800 for Mr. Winkler. In addition, Mr. Winkler received long-term compensation in the form of a $3,811 match to his account under the 401(k) Plan. In recommending the salary and bonus amounts for Mr. Winkler, the Budget Committee considered the Company's financial performance, Mr. Winkler's operational performance, and levels of executive compensation at comparable financial institutions. Although Mr. Winkler's compensation is below the median level for the Company's peer group, the Budget Committee believes that the compensation awarded is consistent with the Company's efforts to reward performance and control expenses. Dated: September 18, 2002 BUDGET COMMITTEE Bruce S. Holwerda Douglas D. Marsh John C. Thrapp Erica D. Dekko Stephen R. Olson Compensation Committee Interlocks and Insider Participation No person who served as a member of the Budget Committee during the 2002 fiscal year has ever been an officer or employee of the Company or any of its subsidiaries, except for John Thrapp, who serves as Asst. Trust Officer of the Bank. During the 2002 fiscal year, no executive officer of the Company or the Banks served as a director or member of the compensation committee of another entity, one of whose directors or executive officers served as a director or member of the Budget Committee of the Company or the Bank. Performance Graph The following graph compares the yearly percentage change in the Company's cumulative total shareholder return on the Common Stock with (i) the cumulative total return of the NASDAQ market index and (ii) the cumulative total return of the SNL Midwest Thrift Index comprised of all mid-west publicly traded savings and loan associations and savings and loan holding companies over the periods indicated. The graph assumes an initial investment of $100 and reinvestment of dividends. The graph is not necessarily indicative of future price performance. 12 COMPARISON OF THE FIVE YEAR CUMULATIVE TOTAL RETURN AMONG PEOPLES BANCORP, THE NASDAQ MARKET INDEX, AND THE SNL MIDWEST THRIFT INDEX The graph shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act or under the Exchange Act, except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts. PROPOSAL 2 APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors has appointed the firm of BKD LLP, independent certified public accountants, to audit the consolidated financial statements of the Company for the fiscal year ending September 30, 2003. A proposal to approve the appointment of BKD LLP, will be presented to the Company's stockholders at the Meeting. Representatives of BKD LLP, are expected to be present at the Meeting and to be available to respond to appropriate questions. The representatives will also be provided an opportunity to make a statement, if they desire. The Board of Directors unanimously recommends that stockholders vote "FOR" the appointment of BKDLLP. 13 COSTS OF SOLICITATION The costs of this proxy solicitation will be paid by the Company. To the extent necessary, proxies may be solicited by personnel of the Company in person or by telephone, telegram or other means. Company personnel will not receive any additional compensation for solicitation of proxies unless such solicitation requires such persons to work overtime. If deemed necessary, the Company may retain a proxy solicitation firm. The Company will request record holders of shares beneficially owned by others to forward this proxy statement and related materials to the beneficial owners of such shares and will reimburse such record holders for their reasonable expenses incurred therewith. FORM 10-K ANNUAL REPORT THE COMPANY WILL PROVIDE (WITHOUT CHARGE) TO ANY STOCKHOLDER SOLICITED HEREBY A COPY OF ITS 2002 ANNUAL REPORT ON FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE COMMISSION UPON THE WRITTEN REQUEST OF SUCH STOCKHOLDER. REQUESTS SHOULD BE DIRECTED TO THE COMPANY'S SECRETARY, 212 WEST 7TH STREET, AUBURN, INDIANA 46706. OTHER MATTERS The management does not know of any other matters to be presented for action by the stockholders at the annual meeting. If, however, any other matters not now known are properly brought before the meeting, the persons named in the accompanying proxy will vote such proxy in accordance with their judgment on such matters. STOCKHOLDERS' PROPOSALS All proposals of stockholders to be presented for consideration at the next annual meeting and included in the proxy statement must be received by the Company no later than October 7, 2003. December 10, 2002 PEOPLES BANCORP 14 Exhibit A Peoples Bancorp Audit Committee of the Board of Directors - Charter June 18, 2002 1. PURPOSE The Audit Committee is a committee of the Board of Directors. The primary function of the Audit Committee is to assist the Board of Directors in fulfilling its oversight responsibilities by reviewing: 1. The financial information which will be provided to shareholders, governmental or regulatory bodies, the public, and others. 2. The Company's auditing, accounting, and financial reporting process. 3. The systems of internal controls related to finance, accounting, legal compliance, regulatory compliance and ethics that management and the Board of Directors have established. 4. The audit process. Consistent with this function, the Audit Committee should encourage continuous improvement of, and foster adherence to, the Company's policies, procedures, and practices at all levels. The Audit Committee's primary duties and responsibilities are to: 1. Serve as an independent and objective party to monitor the Company's financial reporting process and internal control system. 2. Review and appraise the audit efforts of the Company's independent accountants and the internal auditors. 3. Provide an open avenue of communication among the independent accountants, financial and senior management, internal auditors, and the Board of Directors. The Audit Committee will primarily fulfill these responsibilities by carrying out the activities enumerated in Section IV of this Charter. II. COMPOSITION The Audit Committee will be comprised of three or more directors as determined by the Board. Each member will be independent of the management of the Company and free of any relationship that, in the opinion of the Board of Directors, would interfere with their exercise of independent judgment as a Committee member. 15 All members of the Committee shall have a working familiarity with basic finance and accounting practices, and at least one member of the Committee shall have accounting or related financial management expertise. Committee members may enhance their familiarity with finance and accounting by participating in educational programs conducted by the Company or an outside consultant. The members of the Committee and a Chairman shall be elected by the Board annually. The duties and responsibilities of a member of the Audit Committee are in addition to those duties set out for a member of the Board of Directors. III. MEETINGS The Committee shall meet at least four times annually, or more frequently as circumstances dictate. As part of its job to foster open communication, the Committee should meet at least annually with management, the internal auditors, and the independent accountants in separate executive sessions to discuss any matters that the Committee or each of these groups believe should be discussed separately. The Committee may ask members of management or others to attend meetings and provide pertinent information as necessary. In addition, the Committee or at least the Chair of the Committee should meet with the independent accountants and management, either in person or by phone, quarterly to review the Company's financial statements. This review should be done prior to the Company's 10-Q or 10-K filing and its public release of earnings. This discussion should include a discussion of significant adjustments, management judgments and accounting estimates, significant new accounting policies, and disagreements with management. 1V. RESPONSIBILITIES AND DUTIES In meeting its responsibilities, the audit committee is expected to: 1. Provide an open avenue of communication between the internal auditors, the independent accountant, and the Board of Directors. 2. Confirm and assure the objectivity of the internal auditor. 3. Confirm and assure the independence of the independent accountant, including a review of management consulting services provided by the independent accountant and related fees. 4. Review and update the Committee's charter annually. 5. Recommend to the Board of Directors the independent accountants to be nominated, approve the compensation of the independent accountant, and review and approve, if applicable, the discharge of the independent accountants. 6. Review and concur in the appointment, replacement, reassignment, or dismissal of the internal auditor. 7. Review the qualifications of the Internal Auditor to specific areas within the audit plan. 16 8. Review with the independent auditor and internal auditor the coordination of audit efforts to assure completeness of coverage, reduction of redundant efforts, and the effective use of audit resources. 9. Inquire of management, the internal auditor, and the independent accountant about significant risks or exposures and assess the steps management has taken to minimize such risk to the Company. 10. Consider, in consultation with the independent accountant and the internal auditor, the audit scope and plan of the internal auditors and the independent accountant. Determine if the internal auditor and independent accountants are utilizing a risk-based approach. 11. Consider and review with the independent accountant and the director of internal auditing: (a) the adequacy of the company's internal controls including computerized information system controls and security. (b) any related significant findings and recommendations of the independent accountant and internal auditing together with management responses thereto; and (c) the status of previous audit recommendations and management's follow up on those recommendations. 12. Review with management and the independent accountant at the completion of the annual audit: (a) the company's annual financial statements and related footnotes; (b) the independent accountant's audit of the financial statements and his or her report thereon; (c) any significant changes required in the independent accountant's audit plan; (d) any serious difficulties or disputes with management encountered during the course of the audit; and (e) other matters related to the conduct of the audit which are to be communicated to the committee under generally accepted auditing standards. 13. Review with management and the internal auditor: (a) Regular internal audit reports to management prepared by the internal auditor, including significant findings and management's responses to those findings. A summary of findings from completed internal audits should be reviewed prior to the meeting. (b) Any difficulties encountered in the course of their audits, including any restrictions on the scope of their work or access to required information. (c) Any changes required in the planned scope of their audit plan. (d) The internal audit department budget and staffing 17 (e) The Internal Audit Policy 14. Review filings with the SEC and other published documents containing the Company's financial statements and consider whether the information contained in these documents is consistent with the information contained in the financial statements. 15. Review with management and the independent accountant the interim financial report before it is filed with the SEC and other regulators. 16. Review with management, and if necessary, with the Company's counsel, any legal matter that could have a significant impact on the Company's financial statements. 17. Review legal and regulatory matters that may have a material impact on the financial statements, related company compliance policies, and programs and reports received from regulators. 18. Meet with the internal auditor, the independent accountant, and management in separate executive sessions to discuss any matters that the committee or these groups believe should be discussed privately with the Audit Committee. 19. Report Committee actions to the Board of Directors with such recommendations as the committee may deem appropriate. 20. Prepare a letter for inclusion in the annual report that describes the Committee's composition and responsibilities, and how they were discharged. 21. Conduct or authorize, if necessary, investigations into any matters within the Committee's scope of responsibilities. The Committee shall be empowered to retain independent counsel, accountants, or others to assist in the conduct of any investigation. 22. Perform such other functions as assigned by law, the Company's charter or bylaws, or the Board of Directors. 23. Advise financial management and the independent auditor that they are expected to provide a timely analysis of significant current financial reporting issues and practices. 24. Provide that financial management and the independent auditor discuss with the audit committee their qualitative judgments about the appropriateness, not just the acceptability, of accounting principles and financial disclosure practices used or proposed to be adopted by the Company and, particularly, about the degree of aggressiveness or conservatism of its accounting principles and underlying estimates. 25. Determine as regards to new transactions or events, the auditor's reasoning for the appropriateness of the accounting principles and disclosure practices adopted by the Company. As Adopted by the Board of Directors June 18, 2002 18