<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
AMENDMENT #1 TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(B)
OR 12(G) OF THE SECURITIES ACT OF 1934
PEOPLES BANCORP, INC.
- --------------------------------------------------------------------------------
(Name of Small Business Issuer in Its Charter)
MARYLAND 52-2027776
- -------------------------------------------- --------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
100 SPRING AVENUE, CHESTERTOWN, MARYLAND 21620
- -------------------------------------------- --------------------------
(Address of Principal Executive (Zip Code)
(410) 778-3500
---------------------------
(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
------------------- ------------------------------
<S> <C>
None Not Applicable
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
</TABLE>
Securities to be registered under Section 12(g) of the Act:
Common Stock
- --------------------------------------------------------------------------------
(Title of Class)
- --------------------------------------------------------------------------------
(Title of Class)
<PAGE> 2
INTRODUCTION
Peoples Bancorp, Inc. (the "Company") was incorporated under the laws of the
State of Maryland on December 10, 1996. The Company acquired Peoples Bank of
Kent County, Chestertown, Maryland (the "Bank") on March 24, 1997. As a small
business issuer, the Company has elected alternative disclosure Model 2.
INFORMATION REQUIRED
IN REGISTRATION STATEMENT
PART I
DESCRIPTION OF BUSINESS
GENERAL
The Company was organized to become the holding company for the Bank under the
federal Bank Holding Company Act of 1956, as amended. Currently, the Bank is the
Company's only subsidiary and the Company's only business is its investment in
all of the issued and outstanding shares of the Bank's voting common stock.
The Company, as a bank holding company, upon receipt of appropriate regulatory
approvals, is permitted to own and control additional banks and to engage in,
directly or indirectly, certain non-bank activities as may be approved by the
Board of Governors of the Federal Reserve System.
See "Supervision and Regulation".
The Bank is a state-chartered commercial banking association which was organized
in 1910. The Bank is a full-service commercial bank offering a variety of
services to satisfy the needs of consumers and commercial customers in the area.
The Bank offers all customary commercial bank loan and deposit services,
including commercial, consumer and real estate loans; and checking accounts,
money market accounts, savings accounts and certificates of deposit. The Bank
operates through its main office in Chestertown, and branches in Chestertown,
Galena, and Rock Hall, Maryland
EMPLOYEES
The Bank employs 52 full-time and 13 part-time employees.
Some of the Bank's employees are also employed by the Company, but they are not
compensated by the Company.
Relations with employees are considered to be good.
<PAGE> 3
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under both federal
and state law. These laws and regulations are intended to protect depositors,
not stockholders. To the extent that the following information describes
statutory and regulatory provisions, it is qualified in its entirety by
reference to the particular statutory and regulatory provisions. Any change in
the applicable law or regulation may have a material effect on the business and
prospects of the Company and the Bank.
General. As a bank holding company, the Company is subject to the regulation and
supervision of the Board of Governors of the Federal Reserve System ("Federal
Reserve") under the Bank Holding Company Act of 1956, as amended (the "BHCA").
Under the BHCA, bank holding companies may not, in general, directly or
indirectly, acquire the ownership or control of more than 5% of the voting
shares or substantially all of the assets of any company, including a bank,
without the prior approval of the Federal Reserve. The BHCA also restricts the
types of activities in which a bank holding company and its subsidiaries may
engage. Generally, activities are limited to banking and activities found by the
Federal Reserve to be so closely related to banking as to be a proper incident
thereto. The BHCA allows the Federal Reserve to approve an application by a bank
holding company to acquire shares of a bank or bank holding company located
outside the acquiror's principal state of operations.
The Bank is subject to supervision and examination by applicable federal and
state banking agencies. The Bank is chartered under the laws of the State of
Maryland as a commercial bank and is not a member of the Federal Reserve System.
Therefore, the Bank is subject to the regulations of and supervision by the
Federal Deposit Insurance Corporation ("FDIC") and the office of the Maryland
State Bank Commission (the "Commissioner"). The Bank is also subject to various
requirements and restrictions under federal and state law, including
requirements to maintain reserves against deposits, restrictions on the types
and amounts of loans that may be granted and the interest that may be charged
thereon and limitations on the types of investments that may be made and the
types of services that may be offered. Various consumer laws and regulations
also affect the operations of the Bank. In addition to the impact of regulation,
commercial banks are affected significantly by the actions of the Federal
Reserve as it attempts to control the money supply and credit availability in
order to influence the economy.
Payment of Dividends. The Company will be a legal entity separate and distinct
from the Bank. The principal source of cash flow of the Company, including cash
flow to pay dividends on its stock or principal and interest on debt, is
dividends from the Bank. There are statutory and regulatory limitations on the
payment of dividends by the Bank to the Company, as well as by the Company to
its shareholders.
The Bank may generally pay dividends on its stock provided payment of such
dividends is in compliance with applicable law and regulation. Maryland law
allows for the payment of dividends from the Bank's undivided profits or, with
the approval of the Commissioner, from the Bank's surplus in excess of 100% of
its required capital stock.
If, in the opinion of the applicable federal bank regulatory authority, a
depository institution or
<PAGE> 4
a holding company is engaged in or is about to engage in an unsafe or unsound
practice (which, depending on the financial condition of the depository
institution or holding company, could include the payment of dividends), such
authority may require, after notice and hearing (except in the case of an
emergency proceeding where there is no notice or hearing) , that such
institution or holding company cease and desist from such practice. The federal
banking agencies have indicated that paying dividends that deplete a depository
institution's or holding company's capital base to an inadequate level would be
such an unsafe and unsound banking practice.
In addition, under the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"), a FDIC-insured depository institution may not pay any dividend
if payment would cause it to become undercapitalized or once it is
undercapitalized. See "FDICIA". The payment of dividends by the Company and the
Bank may also be affected or limited by other factors, such as the requirement
to maintain adequate capital above regulatory guidelines.
Transactions with Affiliates. There are various legal restrictions on the extent
to which the Company and any future nonbank subsidiaries can borrow or otherwise
obtain credit from the Bank. There also are legal restrictions on the following:
investments in the securities of and purchases of assets from the Company and
any of its future nonbank subsidiaries; a bank's loans or extensions of credit
to third parties collateralized by the securities or obligations of the Company
and any of its future nonbank subsidiaries; the issuance of guaranties,
acceptances and letters of credit on behalf of the Company and any of its future
nonbank subsidiaries; and certain bank transactions with the Company and any of
its future nonbank subsidiaries, or with respect to which the Company and
nonbank subsidiaries, act as agent, participate or have a financial interest.
Subject to certain limited exceptions, the Bank may not extend credit to the
Company or to any other affiliate in an amount which exceeds 10% of the Bank's
capital stock and surplus and may not extend credit in the aggregate to such
affiliates in an amount which exceeds 20% of its capital stock and surplus.
Further, there are legal requirements as to the type, amount and quality of
collateral which must secure such extensions of credit by the Bank to the
Company or to such other affiliates. Also, extensions of credit and other
transactions between the Bank and the Company or such other affiliates must be
on terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to the Bank as those prevailing
at the time for comparable transactions with non-affiliated companies. Also, the
Company and its subsidiaries are prohibited from engaging in certain tying
arrangements in connection with any extension of credit, lease or sale of
property or furnishing of services.
Capital Adequacy. The federal banking agencies have adopted risk-based capital
guidelines for banks and bank holding companies. The minimum guideline for the
ratio of total capital ("Total Capital") to risk-weighted assets (including
certain off-balance-sheet items, such as standby letters of credit) is 8%, and
the minimum ratio of Tier I Capital (defined below) to risk-weighted assets is
4%. At least half of the Total Capital must be composed of common stock,
minority interests in the equity accounts of consolidated subsidiaries,
noncumulative perpetual preferred stock and a limited amount of cumulative
perpetual preferred stock, less goodwill and certain other intangible assets
("Tier 1 Capital"). The remainder may consist of subordinated debt, other
preferred stock and a limited amount of loan loss reserves. If a bank holding
company has consolidated assets of less than $150 million, the capital adequacy
of the institution is
<PAGE> 5
generally determined at the bank-level only without consolidating the balance
sheets of the bank holding company and any of its bank subsidiaries. Because the
Company has consolidated assets of less than $150 million, the applicable
capital ratios are those ratios that exist at the Bank. At December 31, 1997,
the Bank's Tier 1 Risk Based Capital and Total Risk Based Capital ratios were
17.5% and 18.5%, respectively.
In addition, the federal banking agencies have established minimum leverage
ratio guidelines for bank holding companies. Their guidelines provide for a
minimum ratio of Tier 1 Capital to average assets, less goodwill and certain
other intangible assets (the "Leverage Ratio"), of 3% for banks that meet
certain specific criteria, including having the highest regulatory rating. All
other banks generally are required to maintain a Leverage Ratio of at least 3%,
plus an additional cushion of 100 to 200 basis points. The Bank's Leverage Ratio
at December 31, 1997 was 13.4%. The guidelines also provide that banks
experiencing internal growth or making acquisitions will be expected to maintain
strong capital positions substantially above the minimum supervisory levels
without significant reliance on intangible assets. Furthermore, the Federal
Reserve has indicated that it will consider a "tangible Tier 1 Capital leverage
ratio" (deducting all intangibles) and other indicia of capital strength in
evaluating proposals for expansion or new activities.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including the termination of deposit insurance by the
FDIC, and to certain restrictions on its business. See "FDICIA".
All of the federal banking agencies have adopted regulations that would add an
additional risk-based capital requirement based upon the amount of an
institution's exposure to interest rate risk, but these regulations are not
currently applicable to the Bank. In addition, bank regulators continue to
indicate their desire generally to raise capital requirements applicable to
banking organizations beyond their current levels. However, the management of
the Bank is unable to predict whether and when higher capital requirements would
be imposed and, if so, at what levels and on what schedule.
Holding Company Structure and Support of the Bank. Because the Company is the
parent holding company of the Bank, its right to participate in the assets of
any subsidiary upon the latter's liquidation or reorganization is subject to the
prior claims of the subsidiary's creditors (including depositors in the case of
bank subsidiaries) except to the extent that the Company may itself be a
creditor with recognized claims against the subsidiary.
Under Federal Reserve policy, the Company is expected to act as a source of
financial strength to, and commit resources to support, the Bank. This support
may be required at times when, absent such Federal Reserve policy, the Company
may not be inclined to provide it. In addition, any capital loans by a bank
holding company to any of its subsidiary banks are subordinate in right of
payment to deposits and to certain other indebtedness of such subsidiary bank.
In the event of a bank holding company's bankruptcy, any commitment by the bank
holding company to a federal bank regulatory agency to maintain the capital of a
subsidiary bank will be assumed by the bankruptcy trustee and entitled to a
priority of payment.
<PAGE> 6
Under the Federal Deposit Insurance Act (the "FDIA"), a depository institution
insured by the FDIC can be held liable for any loss incurred by, or reasonably
expected to be incurred by, the FDIC after August 9, 1989 in connection with (i)
the default of a commonly-controlled FDIC-insured depository institution or (ii)
any assistance provided by the FDIC to any commonly controlled FDIC-insured
depository institution "in danger of default." "Default" is defined generally as
the appointment of a conservator or receiver and "in danger of default" is
defined generally as the existence of certain conditions indicating that a
default is likely to occur in the absence of regulatory assistance. The FDIC's
claim for damages is superior to claims of shareholders of the insured
depository institution or its holding company but is subordinate to claims of
depositors, secured creditors and holders of subordinated debt (other than
affiliates) of the commonly controlled insured depository institution. The Bank
and Company are subject to these cross-guarantee provisions.
FDICIA. The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), which was enacted on December 19, 1991, substantially revised the
depository institution regulatory and funding provision of the FDIA and made
revisions to several other federal banking statutes. Among other things, FDICIA
requires the federal banking regulators to take "prompt corrective action" in
respect of FDIC-insured depository institution that do not meet minimum capital
requirements. FDICIA established five capital tiers: "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized"
and "critically undercapitalized." Under applicable regulations, a FDIC-insured
depository institution is defined to be well capitalized if it maintains a
Leverage Ratio of at least 5%, a risk adjusted Tier 1 Capital Ratio of at least
6% and a Total Capital Ratio of at least 10% and is not subject to a directive,
order or written agreement to meet and maintain specific capital levels. An
insured depository institution is defined to be adequately capitalized if it
meets all of its minimum capital requirements as described above. In addition,
an insured depository institution will be considered undercapitalized if it
fails to meet any minimum required measure, significantly undercapitalized if it
is significantly below such measure and critically undercapitalized if it fails
to maintain a level of tangible equity to total assets of at least 2%. An
insured depository institution may be deemed to be in a capitalization category
that is lower than is indicated by its actual capital position if it receives an
unsatisfactory examination rating.
The capital-based prompt corrective action provisions of FDICIA and their
implementing regulations apply to FDIC-insured depository institutions and are
not directly applicable to holding companies which control such institution.
However, the Federal Reserve has indicated that, in regulating bank holding
companies, it will take appropriate action at the holding company level based on
an assessment of the effectiveness of supervisory actions imposed upon
subsidiary depository institutions pursuant to such provisions and regulations.
Although the capital categories defined under the prompt corrective action
regulations are not directly applicable to the Company under existing law and
regulations, if the Company were placed in a capital category the Company
believes that it would qualify as "well capitalized" as of December 31, 1997.
FDICIA generally prohibits an FDIC-insured depository institution from making
any capital distribution (including payment of dividends) or paying any
management fee to its holding company if the depository institution would
thereafter be undercapitalized. Undercapitalized
<PAGE> 7
depository institutions are subject to restrictions on borrowing from the
Federal Reserve. In addition, undercapitalized depository institutions are
subject to growth limitations and are required to submit capital restoration
plans. A depository institution's holding company must guarantee the capital
plan, up to an amount equal to the lesser of 5% of the depository institution's
assets at the time it becomes undercapitalized or the amount of the capital
deficiency when the institution fails to comply with the plan. The federal
banking agencies may not accept a capital plan without determining, among other
things, that the plan is based on realistic assumptions and is likely to succeed
in restoring the depository institution's capital. If a depository institution
fails to submit an acceptable plan, it is treated as if it is significantly
undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets and cessation of receipt of deposits from correspondent banks. Critically
undercapitalized depository institutions are subject to appointment of a
receiver or conservator.
The Company and the Bank believe that at December 31, 1997, the Subsidiary Bank
was "well capitalized" under the criteria discussed above.
FDICIA contains numerous other provisions, including accounting, audit and
reporting requirements, termination of the "too big to fail" doctrine except in
special cases, limitations on the FDIC's payment of deposits at foreign
branches, new regulatory standards in such areas as asset quality, earnings and
compensation and revised regulatory standards for, among other things, powers of
state banks, real estate lending and capital adequacy. FDICIA also requires that
a depository institution provide 90 days prior notice of the closing of any
branches.
Various other legislation, including proposals to revise the bank regulatory
system and to limit the investments that a depository institution may make with
insured funds, is from time to time introduced in Congress.
Brokered Deposits. The FDIC has adopted regulations under FDICIA governing the
receipt of brokered deposits. Under the regulations, a bank cannot accept a
rollover or renew brokered deposits unless (i) it is well capitalized or (ii) it
is adequately capitalized and receives a waiver from the FDIC. A bank that
cannot receive brokered deposits also cannot offer "pass-through" insurance on
certain employee benefit accounts. Whether or not it has obtained such a waiver,
an adequately capitalized bank may not pay an interest rate on any deposits in
excess of 75 basis points over certain prevailing market rates specified by
regulation. There are no such restrictions on a bank that is well capitalized.
Because the Bank believes that it was "well capitalized" as of December 31,
1997, the Bank believes the brokered deposits regulation will have no material
effect on the funding or liquidity of the Bank.
FDIC Insurance Premiums. The Bank is required to pay semiannual FDIC deposit
insurance assessments. Under the current rate structure, the most financially
sound banks whose deposits are insured by the Bank Insurance Fund ("BIF") of the
FDIC pay no assessment. Each financial institution is assigned to one of three
capital groups -- well capitalized, adequately capitalized
<PAGE> 8
or undercapitalized -- and further assigned to one of three subgroups within a
capital group, on the basis of supervisory evaluations by the institution's
primary federal and, if applicable, state supervisors and other information
relevant to the institution's financial condition and the risk posed to the
applicable FDIC deposit insurance fund. The actual assessment rate applicable to
a particular institution (and any applicable refund) will, therefore, depend in
part upon the risk assessment classification so assigned to the institution by
the FDIC. The FDIC is authorized by federal law to raise insurance premiums in
certain circumstances. Any increase in premiums would have an adverse effect on
the Bank and the Company's earnings.
Under the FDIA, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe and unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by a federal bank
regulatory agency.
Depositor Preference. The Omnibus Budget Reconciliation Act of 1993 provides
that deposits and certain claims for administrative expenses and employee
compensation against an insured depository institution would be afforded a
priority over other general unsecured claims against such an institution,
including federal funds and letters of credit, in the "liquidation or other
resolution" of such an institution by any receiver.
Interstate Act. The Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 ("Interstate Act"), which was enacted on September 29, 1994, among other
things and subject to certain conditions and exceptions, (i) permits bank
holding company acquisitions, commencing one year after enactment, of banks of a
minimum age of up to five years as established by state law in any state, (ii)
permits mergers of national and state banks after May 31, 1997 across state
lines unless the state has opted out of the interstate bank merger provisions
(iii) permits branching de novo by national and state banks into other states if
the state has opted-in to this provision of the Interstate Act, and (iv) permits
certain interstate bank agency activities one year after enactment. Maryland has
opted in to the Interstate Act by permitting de novo branching effective
September 29, 1993, and by allowing out-of-state banks to acquire branches alone
beginning in 1997.
<PAGE> 9
CERTAIN STATISTICAL DATA
AVERAGE BALANCES, INTEREST, AND YIELDS
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1997 December 31, 1996
---------------------------------------- ----------------------------------------
Average Average
balance Interest Yield balance Interest Yield
------------ ---------- ----- ------------ ---------- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold $ 1,158,306 $ 64,472 5.57% $ 4,003,091 $ 218,388 5.46%
Interest-bearing deposits 0 0 0.00% 135,476 6,475 4.78%
Investment securities:
U. S. Treasury 21,847,352 1,259,818 5.77% 21,686,173 1,200,011 5.53%
U. S. Agency 4,156,745 234,029 5.63% 6,403,050 336,942 5.26%
State and municipal 104,640 9,123 8.72% 213,589 20,904 9.79%
Other 93,006 798 0.86% 76,187 4,184 5.49%
------------ ---------- ------------ ----------
Total investment securities 26,201,743 1,503,768 5.74% 28,378,999 1,562,041 5.50%
------------ ---------- ------------ ----------
Loans:
Demand and time 13,805,156 1,389,219 10.06% 13,022,811 1,291,997 9.92%
Mortgage 66,286,187 5,672,075 8.56% 58,958,482 5,198,531 8.82%
Installment 2,354,627 265,078 11.26% 2,391,835 267,641 11.19%
------------ ---------- ----- ------------ ---------- -----
Total loans 82,445,970 7,326,372 8.89% 74,373,128 6,758,169 9.09%
Allowance for loan losses 816,481 756,596
------------ ------------
Total loans, net of allowance 81,629,489 7,326,372 8.98% 73,616,532 6,758,169 9.18%
------------ ---------- ----- ------------ ---------- -----
Total interest-earning assets 108,989,538 8,894,612 8.16% 106,134,098 8,545,073 8.05%
------------ ---------- ----- ------------ ---------- -----
Noninterest-bearing cash 2,496,262 2,274,308
Bank premises and equipment 1,745,555 1,222,574
Other assets 1,467,368 1,859,612
------------ ------------
Total assets $114,698,723 $111,490,592
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits
Savings and NOW deposits $ 27,724,729 $ 705,567 2.54% $ 29,162,864 $ 735,146 2.52%
Money market 7,863,097 209,030 2.66% 7,591,874 186,008 2.45%
Other time deposits 48,346,940 2,623,974 5.43% 48,437,431 2,700,606 5.58%
------------ ---------- ----- ------------ ---------- -----
Total interest-bearing deposits 83,934,766 3,538,571 4.22% 85,192,169 3,621,760 4.25%
Noninterest-bearing deposits 11,686,894 -- 9,517,523 --
------------ ---------- ------------ ----------
Total deposits 95,621,660 3,538,571 3.70% 94,709,692 3,621,760 3.82%
Borrowed funds 3,182,718 106,290 3.34% 1,871,276 56,320 3.01%
------------ ---------- ----- ------------ ---------- -----
98,804,378 3,644,561 3.69% 96,580,968 3,678,080 3.81%
---------- ----- ---------- -----
Other liabilities 536,328 439,873
Stockholders' equity 15,358,017 14,469,751
------------ ------------
Total liabilities and
stockholders' equity $114,698,723 $111,490,592
============ ============
Net interest spread 4.47% 4.24%
===== =====
Net interest income $5,249,751 $4,866,993
========== ==========
Net margin on interest-earning assets 4.82% 4.69%
===== =====
</TABLE>
Interest on securities and loans exempt from Federal income taxes has been
reported on a tax-equivalent basis.
Loan interest includes fees totaling $237,088.
Nonaccrual loan balances are included above. Interest is reported on cash basis
unless principal recovery is doubtful.
<PAGE> 10
ANALYSIS OF CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December 31,
1997 Compared With 1996 1996 Compared With 1995
Variance Due To Variance Due To
----------------------------------------- -----------------------------------------
Total Rate Volume Total Rate Volume
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Interest-bearing deposits $ (6,475) -- (6,475) $ (13,957) 65 (14,022)
Federal funds sold (153,916) 1,409 (155,325) (75,970) (14,138) (61,832)
Investment securities:
U. S. Treasury 59,807 50,894 8,913 622,170 120,177 501,993
U. S. Agency (102,913) 15,243 (118,156) (115,210) 23,219 (138,429)
State and municipal (11,781) (1,115) (10,666) (8,165) 1,175 (9,340)
Other (3,386) (4,309) 923 (12,899) (943) (11,956)
Loans:
Demand and time 97,222 19,613 77,609 (84,451) (16,462) (67,989)
Mortgage 473,544 (172,760) 646,304 (195,094) (134,856) (60,238)
Installment (2,563) 1,601 (4,164) (20,914) (6,558) (14,356)
--------- --------- --------- --------- --------- ---------
Total interest income 349,539 (89,424) 438,963 95,510 (28,321) 123,831
--------- --------- --------- --------- --------- ---------
INTEREST-BEARING LIABILITIES
Savings and NOW deposits (29,579) 6,662 (36,241) (88,048) (47,096) (40,952)
Money market deposits 23,022 16,377 6,645 (59,901) (25,409) (34,492)
Other time deposits (76,632) (71,583) (5,049) 353,323 84,275 269,048
Securities sold under
agreements to repurchase 49,970 10,496 39,474 32,205 6,210 25,995
--------- --------- --------- --------- --------- ---------
Total interest expense (33,219) (38,048) 4,829 237,579 17,980 219,599
--------- --------- --------- --------- --------- ---------
Net interest income $ 382,758 $ (51,376) $ 434,134 $(142,069) $ (46,301) $ (95,768)
========= ========= ========= ========= ========= =========
</TABLE>
The rate/volume variance has been included with the rate variance.
<PAGE> 11
INVESTMENT SECURITIES MATURITY DISTRIBUTION AND YIELDS
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------
1997 1996
----------------------- -----------------------
Carrying Yearend Carrying Yearend
Value Yield Value Yield
----------- ------- ----------- -------
<S> <C> <C> <C> <C>
Available for Sale
------------------
U. S. Treasury
One year or less $ 5,998,751 5.50% $ 7,002,501 5.59%
Over one through five years 5,525,627 5.84% 11,484,069 5.66%
----------- ---- ----------- ----
Total Treasury 11,524,378 5.67% 18,486,570 5.63%
----------- ---- ----------- ----
U.S. Government agency
One year or less 2,006,333 6.12% -- 0.00%
Over one through five years -- 0.00% 2,009,829 6.12%
----------- ---- ----------- ----
Total U.S. Government Agency 2,006,333 6.12% 2,009,829 6.12%
----------- ---- ----------- ----
Total debt securities 13,530,711 5.74% 20,496,399 5.68%
====
Federal Home Loan Bank stock 342,900 --
----------- -----------
Total available for sale $13,873,611 $20,496,399
=========== ===========
Held to maturity
----------------
U. S. Treasury
One year or less $ 1,999,799 5.96% $ -- 0.00%
Over one through five years 4,000,708 6.26% 6,000,630 6.16%
----------- ---- ----------- ----
Total Treasury 6,000,507 6.16% 6,000,630 6.16%
----------- ---- ----------- ----
U.S. Government agency
One year or less 500,000 5.32% 20,186 9.06%
Over one through five years 1,536,860 6.71% 2,054,244 5.09%
Over five through ten years 86,856 7.20% 108,860 7.20%
----------- ---- ----------- ----
Total U.S. Government Agency 2,123,716 6.40% 2,183,290 5.24%
----------- ---- ----------- ----
State and municipal
Over one through five years -- 0.00% 102,600 7.23%
Over five through ten years -- 0.00% 100,000 6.12%
----------- ---- ----------- ----
Total state and municipal -- 0.00% 202,600 6.68%
----------- ---- ----------- ----
Total held to maturity $ 8,124,223 6.22% $ 8,386,520 5.93%
=========== ==== =========== ====
</TABLE>
<PAGE> 12
COMPOSITION OF LOAN PORTFOLIO
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------
1997 1996
------------------------ ------------------------
Percent Percent
Amount of Total Amount of Total
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Commercial $12,789,753 14.75% $11,874,563 15.13%
Real estate - residential 33,503,212 38.64% 30,115,234 38.36%
Real estate - commercial 33,890,358 39.09% 31,034,261 39.53%
Construction 1,772,198 2.05% 1,462,471 1.86%
Consumer 4,741,988 5.47% 4,023,049 5.12%
----------- ------ ----------- ------
Total loans 86,697,509 100.00% 78,509,578 100.00%
====== ======
Less deferred loan origination fees 238,883 269,219
Less allowance for credit losses 875,716 794,087
----------- -----------
Net loans $85,582,910 $77,446,272
=========== ===========
</TABLE>
<PAGE> 13
LOAN MATURITY SCHEDULE AND SENSITIVITY TO CHANGES IN INTEREST RATES
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------------------
Over one
One year through Over five
or less five years years Total
----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Commercial $11,903,155 $ 886,598 $ -- $12,789,753
Real estate - residential 16,435,876 17,021,669 45,667 33,503,212
Real estate - commercial 23,514,594 9,912,790 462,974 33,890,358
Construction 1,772,198 -- -- 1,772,198
Consumer 2,928,943 1,813,045 -- 4,741,988
----------- ----------- -------- -----------
Total $56,554,766 $29,634,102 $508,641 $86,697,509
=========== =========== ======== ===========
Fixed interest rate $28,460,199 $23,560,758 $ 45,667 $52,066,624
Variable interest rate 28,094,567 6,073,344 462,974 34,630,885
----------- ----------- -------- -----------
Total $56,554,766 $29,634,102 $508,641 $86,697,509
=========== =========== ======== ===========
</TABLE>
<PAGE> 14
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
The Company has the following outstanding loan balances which were past
due 90 days or more as of December 31, 1997 and 1996, respectively. These
delinquent totals include nonaccrual loan balances.
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Demand and time $ -- $ --
Mortgage 829,827 649,888
Installment 12,356 13,784
-------- --------
$842,183 $663,672
======== ========
Nonaccrual loans $556,876 $174,630
======== ========
</TABLE>
<PAGE> 15
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
1997 1996
-------- ---------
<S> <C> <C>
Balance at beginning of year $794,087 $ 761,457
Loan losses:
Commercial -- 7,292
Real estate -- 9,978
Consumer 8,203 7,174
-------- ---------
Total loan losses 8,203 24,444
-------- ---------
Recoveries on loans previously charged off
Commercial -- 3,282
Real estate -- 25,724
Consumer 674 7,721
-------- ---------
Total loan recoveries 674 36,727
-------- ---------
Net loan losses 7,529 (12,283)
Provision for loan losses charged to expense 89,158 20,347
-------- ---------
Balance at end of year $875,716 $ 794,087
======== =========
Allowance for loan losses to loans outstanding
at end of year 1.01% 1.01%
Net charge-offs to average loans 0.01% (0.02)%
</TABLE>
<PAGE> 16
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1997 1996
---------------------- ---------------------
Percent Percent
Amount of Total Amount of Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Commercial $ 83,595 9.54% $169,446 21.34%
Real estate 515,350 58.85% 435,395 54.83%
Construction 0.00% 0.00%
Consumer 70,477 8.05% 66,089 8.32%
Commitments 14,111 1.61% 13,596 1.71%
General 192,183 21.95% 109,561 13.80%
-------- ------ -------- ------
Total $875,716 100.00% $794,087 100.00%
======== ====== ======== ======
</TABLE>
<PAGE> 17
DEPOSITS
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------
1997 1996
------------------------- -------------------------
Percent of Percent of
Amount deposits Amount deposits
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Demand deposit accounts $13,708,219 13.91% $11,077,187 11.55%
Money market accounts 9,455,226 9.59% 7,444,037 7.76%
Savings and NOW accounts 27,335,924 27.73% 29,817,791 31.10%
Time deposits less than $100,000 39,944,071 40.53% 40,633,095 42.37%
Time deposits of $100,000 or more 8,118,387 8.24% 6,919,831 7.22%
----------- ------ ----------- ------
Total deposits $98,561,827 100.00% $95,891,941 100.00%
=========== ====== =========== ======
</TABLE>
<PAGE> 18
MATURITIES OF CERTIFICATES OF DEPOSIT
AND OTHER TIME DEPOSITS OF $100,000 OR MORE
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------------------------------------
After six
After three through
Within three through twelve After twelve
months six months months months Total
------------ ----------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Certificates of deposit of $100,000
or more $1,360,729 $1,084,126 $614,683 $5,058,849 $8,118,387
========== ========== ======== ========== ==========
</TABLE>
<PAGE> 19
SHORT-TERM BORROWINGS
The Company has overnight repurchase agreements collateralized by
government agency securities owned by the Bank.
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Outstanding at December 31 $3,390,120 $3,881,705
Maximum outstanding balance 4,069,611 3,881,705
Average outstanding balance 3,399,467 2,784,391
Average rate paid 4.21% 3.64%
</TABLE>
<PAGE> 20
RETURNS AND OTHER SIGNIFICANT RATIOS
<TABLE>
<S> <C> <C>
Return on average assets 1.53% 1.37%
Return on average equity 11.42% 10.55%
Earnings per share $ 2.00 $ 1.74
Dividends per share $ 0.64 $ 0.80
Dividend payout ratio 31.95% 45.90%
Average equity to average assets 13.39% 12.98%
Capital ratios
Tier I 17.90% 21.30%
Total capital 18.89% 22.50%
</TABLE>
<PAGE> 21
INTEREST SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
December 31, 1997
----------------------------------------------------------------------------------
After three
Within but within After one
three twelve but within After
months months five years five years Total
------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Earning assets
Federal funds sold $ 2,604,868 $ -- $ -- $ -- $ 2,604,868
Investment securities
available for sale 3,998,764 4,003,906 5,509,863 342,900 13,855,433
held to maturity 2,499,799 5,503,876 120,548 -- 8,124,223
Loans 35,057,713 21,497,053 29,634,102 508,641 86,697,509
------------ ----------- ----------- ----------- ------------
Total earning assets $ 44,161,144 $31,004,835 $35,264,513 $ 851,541 $111,282,033
============ =========== =========== =========== ============
LIABILITIES
Interest-bearing liabilities
Money market $ 9,455,226 $ -- $ -- $ -- $ 9,455,226
Savings and NOW 27,335,924 -- -- -- 27,335,924
Certificates $100,000 and over 1,360,729 1,698,809 5,058,849 -- 8,118,387
Certificates under $100,000 5,603,430 13,106,492 21,234,149 -- 39,944,071
Securities sold under agreements
to repurchase 3,390,120 -- -- -- 3,390,120
------------ ----------- ----------- ----------- ------------
Total interest-bearing liabilities $ 47,145,429 $14,805,301 $26,292,998 $ -- $ 88,243,728
============ =========== =========== =========== ============
Period gap $ (2,984,285) $16,199,534 $ 8,971,515 $ 851,541 $ 23,038,305
Cumulative gap $ (2,984,285) $13,215,249 $22,186,764 $23,038,305 $ 23,038,305
</TABLE>
<PAGE> 22
DESCRIPTION OF PROPERTY
All of the Company's properties are owned by the Bank and are used in the Bank's
business. These include the Bank's main office at 100 Spring Avenue,
Chestertown, Maryland, which consists of approximately 12,000 square feet; a
branch office of the Bank at 600 Washington Avenue, Chestertown, Maryland, which
consists of approximately 3,500 square feet; a branch office of the Bank at 166
North Main Street, Galena, Maryland, which consists of approximately 2,000
square feet; and a branch office of the Bank at 21337 Rock Hall Avenue, Rock
Hall, Maryland, which consists of approximately 2,000 square feet.
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS
AND SIGNIFICANT EMPLOYEES
The individuals listed below are serving as directors, executive officers and
significant employees of the Company and the Bank:
Robert W. Clark, Jr., 48, 25459 Howell Point Road, Betterton, Maryland 21610,
was elected as a director of the Bank in 1997 and as a director of the Company
in 1998. Mr. Clark is a farmer.
LaMonte E. Cooke, 46, 24837 Langford Road, Chestertown, Maryland 21620, was
elected as a director of the Bank in 1997 and as a director of the Company in
1998. Mr. Cooke is Director of the Queen Anne's County Department of
Corrections.
Gary B. Fellows, 46, P.O. Box 270, Millington, Maryland 21651, was elected as a
director of the Bank in 1997 and as a director of the Company in 1998. Mr.
Fellows is a Senior Vice President and partner of Fellows, et al. Funeral Home.
Herman E. Hill, Jr., 52, 5376 Eastern Neck Road, Rock Hall, Maryland 21661, has
served as a director of the Company since 1997 and of the Bank since 1994. Mr.
Hill is a farmer in the area.
Elmer E. Horsey, 65, 19 Byford Court, Chestertown, Maryland 21620, has served as
a director of the Company since 1997 and of the Bank since 1983. Mr. Horsey is
the President of a company that manages private investments.
Arthur E. Kendall, 45, 21178 Sharp Street, Rock Hall, Maryland 21661, has served
as a director of the Company since 1997 and of the Bank since 1994. Mr. Kendall
is a retail grocer.
H. Lawrence Lyons, 45, 8630 Mt. Hope Road, Chestertown, Maryland 21620, has
served as an officer of the Company since 1997 and of the Bank since 1980. Mr.
Lyons currently serves as a Senior Vice President and Cashier of the Bank.
<PAGE> 23
P. Patrick McClary, 57, 660 Budds Landing Road, Cecilton, Maryland 21913, has
served as a director of the Company since 1997 and of the Bank since 1991. Mr.
McClary is the owner of a local real estate firm.
Robert A. Moore, 64, 23441 Cacaway Farm Lane, Chestertown, Maryland 21620, has
served as a director of the Company since 1997 and of the Bank since 1975. Mr.
Moore is currently the Secretary of the Company and the Bank. Mr. Moore operates
a local insurance agency.
E. Roy Owens, 65, 205 David Drive, Chestertown, Maryland 21620, has served as an
officer and director of the Company since 1997 and of the Bank since 1972. Mr.
Owens is currently the Chairman, President and Chief Executive Officer of the
Bank.
Alexander P. Rasin, III, 54, 205 Richard Drive, Chestertown, Maryland 21620, has
served as a director of the Company since 1997 and of the Bank since 1975. Mr.
Rasin is an attorney in the Chestertown area.
Stefan R. Skipp, 55, 924 Placid Court, Arnold, Maryland 21012, has served as a
director of the Company since 1997 and of the Bank since 1979. Mr. Skipp is an
attorney and public defender for the State of Maryland.
Thomas G. Stevenson, 50, 25209 Dugdale Lane, Chestertown, Maryland 21620, has
served as a director of the Company since 1997 and of the Bank since 1990. Mr.
Stevenson has also served as an officer of the Bank since 1984. Mr. Stevenson is
currently the Executive Vice President of the Bank.
Elizabeth A. Strong, 49, 22590 Goose Hollow Drive, Chestertown, Maryland 21620,
has served as a director of the Company since 1997 and of the Bank since 1995.
Ms. Strong is the owner of a local insurance agency.
William G. Wheatley, 45, 10950 St. James-Newtown Road, Worton, Maryland 21678,
has served as a director of the Company since 1997 and of the Bank since 1996.
Mr. Wheatley has also served as an officer of the Bank since 1985 and is
currently a Senior Vice President of the Bank.
All directors and officers are elected to serve until the next annual meeting of
the Company's shareholders and until their successors are elected and qualified.
There is no arrangement or understanding between any director or executive
officer and any other person pursuant to which he was or is to be selected to
his office or position. No director or executive officer has been, during the
past five years (i) involved in any bankruptcy or insolvency proceeding
involving such person or any partnership in which he was general partner at or
within two years before the time of such filing, or any corporation or business
association of which he was an executive officer at or within two years before
the filing of such proceeding, or (ii) convicted in a criminal proceeding
(excluding traffic violations and other minor offenses).
<PAGE> 24
REMUNERATION OF DIRECTORS AND OFFICERS
DIRECTOR COMPENSATION
Directors of the Bank meet twice monthly and receive $210 for each meeting
attended. Directors of the Bank also receive $130 for each Executive Committee
meeting attended and $85 for each other Committee meeting attended. Directors of
the Company receive $220 for each meeting attended.
EXECUTIVE COMPENSATION
For the fiscal year ended December 31, 1997, the three highest paid officers or
directors as a group received the annual remuneration shown below:
<TABLE>
<CAPTION>
Capacities in
Which Remuneration Aggregate
Identity of Group Was Received Remuneration
- ----------------- ------------------ --------------
<S> <C> <C>
Executive Officers and Executive Officers
Directors (3) and Directors $290,807.95(1)
</TABLE>
(1)Includes salary, bonuses, contributions to the Bank's 401(K) Plan and other
forms of compensation.
The Bank sponsors a 401(K) profit sharing plan for the benefit of its employees
with one year of service who have attained age 21. The Bank contributed $28,326
to the plan in 1997, $4,617.16 of which was for the benefit of the three
officers and directors in the group above.
The Bank has a defined benefit pension plan covering substantially all of the
employees. The benefits are based on years of service and the employee's highest
average rate of earnings for five consecutive years during the final 10 full
years before retirement. The Bank's funding policy is to contribute annually the
maximum amount that can be deducted for income tax purposes, determined using
the projected unit credit cost method. Assets of the plan are held in deposit
accounts at the Bank. The total vested accumulated benefit obligation of the
plan as of December 31, 1997 was $822,760.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
The Bank has had, and expects to have in the future, various loan and other
banking transactions in the ordinary course of business with the directors,
executive officers and principal shareholders of the Bank and the Company (or an
associate of such persons). All such transactions (i) have been and will be made
in the ordinary course of business; (ii) have been and will be made on
substantially the same terms, including interest rates and collateral on loans,
as those more prevailing at the time for comparable transactions with unrelated
persons; and (iii) in the opinion of management do not and will not involve more
than the normal risk of loss or
<PAGE> 25
present other unfavorable features. At December 31, 1997, the total dollar
amount of the outstanding balances of extensions of credit to directors,
executive officers, and any of their associations (excluding extensions of
credit which were less than $60,000 to any one such person and their
associations), was approximately $6,270,463.51 which represented approximately
39.6% of total shareholders' equity.
Outside of normal customer relationships, none of the directors or officers of
the Company or the Bank, and no shareholders holding over 5% of the Company's
common stock and no corporation or firm with which such persons or entities are
associated, currently maintains or has maintained since the beginning of the
last fiscal year, any significant business or personal relationship with the
Bank, other than such as arises by virtue of such position or ownership in the
Bank.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's common stock as of December 31, 1997 by each director
of the Company and all executive officers and directors of the Company as a
group. Except as otherwise indicated, the persons named in the table have sole
voting and investment power with respect to all shares of Company common stock
owned by them.
<TABLE>
<CAPTION>
Current Beneficial Ownership
--------------------------------------
Number of
Name and Address of Beneficial Owner Shares(1) Percent of Class
- ------------------------------------ --------- ----------------
<S> <C> <C>
Robert W. Clark, Jr. 43,295(2) 4.94%
25459 Howell Point Road
Betterton, MD 21610
LaMonte E. Cooke 20 .002%
24837 Langford Road
Chestertown, MD 21620
Gary B. Fellows 20 .002%
P.O. Box 270
Millington, MD 21651
Herman E. Hill, Jr. 5,570(3) .64%
5376 Eastern Neck Road
Rock Hall, MD 21661
Elmer E. Horsey 90,684(4) 10.35%
19 Byford Court
Chestertown, MD 26120
</TABLE>
<PAGE> 26
<TABLE>
<S> <C> <C>
Arthur E. Kendall 2,031 .23%
21178 Sharp Street
Rock Hall, MD 21661
P. Patrick McClary 5,136(5) .59%
660 Budds Landing Road
Cecilton, MD 21913
Robert A. Moore 6,135 .72%
23441 Cacaway Farm Lane
Chestertown, MD 21620
E. Roy Owens 4,121(6) .47%
205 David Drive
Chestertown, MD 21620
Alexander P. Rasin, III 66,966(7) 7.65%
205 Richard Drive
Chestertown, MD 21620
Stefan R. Skipp 31,800(8) 3.63%
924 Placid Court
Arnold, MD 21012
Thomas G. Stevenson 7,485(9) .85%
25209 Dugdale Lane
Chestertown, MD 21620
Elizabeth A. Strong 30 .003%
22590 Goose Hollow Drive
Chestertown, MD 21620
William G. Wheatley 6,918 .79%
10950 St. James-Newtown Road
Worton, MD 21678
Total of all Directors and Executive 270,391 30.85%
Officers as a Group (14 Persons)
</TABLE>
- -------------------
(1) In accordance with Rule 13d-3 promulgated pursuant to the Securities
Exchange Act of 1934, a person is deemed to be the beneficial owner of
a security for purpose of the rule if he or she has or shares voting or
investment power with respect to such security or has the right to
acquire such ownership within 60 days. As used herein, "voting power"
is the power to vote or direct the voting of shares, and "investment
power" is the power to dispose or direct the disposition of shares,
irrespective of any economic interest therein.
(2) Includes 27,330 shares held in the name of his mother, 10,311 shares
held in the name of his father, 2,499 shares in the name of dependent
children and 330 shares held in the name of his wife.
(3) Includes 1,200 shares held by the name of dependent children and 165
shares held in the name of his wife.
(4) Includes 864 shares held in the name of his wife and 89,100 shares held
in the name of Nylon Capital Shopping Center, Inc. over which Mr.
Horsey exercises voting control as President of the corporation.
(5) Includes 210 shares held in the name of dependent children.
(6) Includes 185 shares held in the name of his wife.
<PAGE> 27
(7) Includes 1,422 shares held in the name of his wife, 13,554 shares held
in the name of his mother, 2,754 shares held in the name of his
mother-in-law, and 46,920 shares held in the residuary trust created
under his father's will for which he and Martha F. Rasin are
co-trustees.
(8) Includes 900 shares held in the name of dependent children and 7,203
shares held in the Estate of Harriet and Phillip Skipp.
(9) Includes 4,500 shares held in the Stevenson family trust and 1,500
shares held in the Rohrbacher family partnership over which he
exercises voting control.
INTERESTS OF MANAGEMENT AND
OTHERS IN CERTAIN TRANSACTIONS
PRINCIPAL SHAREHOLDERS
To the knowledge of the Company, except as shown under "Security Ownership of
Management", no person or entity holds or shares the power to vote ten percent
(10%) or more of the Company's voting securities.
DESCRIPTION OF COMMON STOCK
The Company is authorized to issue 1,000,000 shares of common stock, the only
class of capital stock it is authorized to issue. The holders of Company common
stock will be entitled to one vote per share, and there is no cumulative voting
in the election of directors. Holders do not have preemptive rights.
The holders of Company common stock will be entitled to receive dividends as may
be declared by the Board of Directors of the Company with respect to the Company
common stock out of funds legal available therefor. In the event of liquidation,
dissolution or winding up of the affairs of the Company, the holders of
outstanding shares of Company common stock will be entitled to share pro rata,
according to their respective interests, in the Company assets and funds
remaining after payment, or for provision for payment, of all debts and other
liabilities of the Company.
The extent to which the Company can pay dividends to its shareholders is
dependent, to a large extent, on the level of debt service obligations of the
Company and any other corporate commitments.
DESCRIPTION OF ANTITAKEOVER MEASURES
At the Company's Annual Meeting held on April 29, 1998, shareholders of the
Company adopted two amendments to the Articles of Incorporation designed to have
anti-takeover effects. The first amendment added a new Article Seventh to the
Articles of Incorporation to provide that any proposed merger, share exchange,
consolidation, reverse stock split, sale, exchange, lease of all or
substantially all of the assets of the Company or any similar transaction
requires the affirmative vote of seventy-five percent (75%) of the outstanding
shares of the Company if the transaction has not been recommended to
shareholders by at least a majority of the Board of Directors. Any such
transaction recommended to shareholders by a majority of the Board of Directors
shall only be subject to the vote otherwise required under Maryland law.
<PAGE> 28
The second amendment made to the Articles of Incorporation was the adoption of a
new Article Eighth. This provision allows the Board of Directors to consider a
number of different factors, other than just price, in making any recommendation
to shareholders on a transaction as described in Article Seventh. This provision
also allows the Board of Directors to take a number of different actions if it
determines that an offer should be rejected, in order to further prevent the
possibility of an unwanted takeover offer.
PART II
MARKET PRICE OF AND DIVIDENDS
ON THE COMPANY'S COMMON STOCK
AND OTHER SHAREHOLDER MATTERS
There is currently no established trading market for the Company's securities.
Based on records that are available to Management, which may not include all
trades, the following is the range of trading prices for the periods shown:
<TABLE>
<CAPTION>
1997 1996 *
------------------ ------------------
High Low High Low
------ ------ ------ ------
<S> <C> <C> <C> <C>
First Quarter $25.00 $25.00 $25.00 $25.00
Second Quarter $30.00 $25.00 $25.00 $25.00
Third Quarter $30.00 $30.00 $25.00 $25.00
Fourth Quarter $31.65 $30.00 $25.00 $25.00
</TABLE>
* Restated to reflect 200% stock dividend in 1997.
As of December 31, 1997, there were approximately 576 holders of record of the
Company's Common Stock.
During the past two fiscal years, the Company has declared the following
dividends on its Common Stock
<TABLE>
<CAPTION>
1997 1996*+
---- ------
<S> <C> <C>
First Quarter -- .19
Second Quarter .21 .19
Third Quarter .21 .19
Fourth Quarter .21 .19
</TABLE>
* Prior to the acquisition of the Bank by the Company during the fourth quarter
of 1996, dividends were declared by the Bank. In 1997, all dividends were
declared by the Company.
+ Restated to reflect 200% stock dividend in 1997.
<PAGE> 29
There are statutory and regulatory limitations on the payment of dividends by
the Bank to the Company and by the Company to its shareholders. See "Description
of Business - Supervision and Regulation".
LEGAL PROCEEDINGS
From time to time, there are legal proceedings pending against the Company or
the Bank. In the opinion of Management, liabilities, if any, arising from such
proceedings presently pending would not have a material adverse effect on the
consolidated financial condition of the Company.
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There has been no change in the Company's independent accountant during either
of the two most recent fiscal years.
RECENT SALES OF UNREGISTERED SECURITIES;
USE OF PROCEEDS FROM REGISTERED SECURITIES
The only sale of unregistered securities by the Company within the past three
(3) years was the issuance of the Company's securities in exchange for the
securities of the Bank in connection with the formation of the Company as the
bank holding company of the Bank. The exchange was exempt from registration
under Section 3(a)(12) of the Securities Act of 1933.
The Company has not, within the past three (3) years, sold any securities in an
offering registered under the Securities Act of 1933.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Amended Articles of Incorporation provide as follows with regard
to liability of directors and officers:
"SIXTH:
To the maximum extent that Maryland law, in effect from time
to time, permits limitation of the liability of directors and
officers, no director or officer of the corporation shall be
liable to the corporation or its stockholders for money
damages. Neither the amendment nor repeal of this provision,
nor the adoption or amendment of any other provision of the
Articles of Incorporation or Bylaws inconsistent with this
provision, shall apply to or affect in any respect the
applicability of the preceding sentence with respect to any
act or failure to act which occurs prior to such amendment,
repeal or adoption."
<PAGE> 30
The Company's By-Laws provide as follows with regard to indemnification of
directors and officers:
"Section 11. INDEMNIFICATION. To the maximum extent permitted
by Maryland law in effect from time to time, the Corporation
shall indemnify and shall pay or reimburse reasonable expenses
in advance of final disposition of a proceeding to, (1) any
individual who is a present or former director or officer of
the Corporation or (2) any individual who serves or has served
another corporation, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director or
officer of such corporation or as a partner or trustee of such
partnership, joint venture, trust or employee benefit plan at
the request of the Corporation. The Corporation may, with the
approval of its Board of Directors, provide such
indemnification and advancement of expenses to a person who
served a predecessor of the Corporation in any of the
capacities described in (1) or (2) above and to the employee
or agent of the Corporation or a predecessor of the
Corporation.
Neither the amendment nor repeal of this Section, nor the
adoption or amendment of any other provision of the By-laws or
charter of the Corporation inconsistent with this Section,
shall apply to or affect in any respect the applicability of
the preceding paragraph with respect to any act or failure to
act which occurred prior to such amendment, repeal or
adoption."
<PAGE> 31
PART F-S FOR
FINANCIAL STATEMENTS
[ROWLES & COMPANY,LLP LETTERHEAD]
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
PEOPLES BANCORP, INC.
CHESTERTOWN, MARYLAND
We have audited the accompanying balance sheets of Peoples Bancorp, Inc.
as of December 31, 1997, 1996 and 1995, and the related statements of income,
changes in stockholders' equity, and cash flows for the years then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Peoples
Bancorp, Inc. as of December 31, 1997, 1996, and 1995, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
/s/ Rowles & Company LLP
Salisbury Maryland
January 15, 1998
F-S 1
<PAGE> 32
PEOPLES BANCORP, INC. AND SUBSIDIARY
BALANCE SHEETS
DECEMBER 31,
ASSETS
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Cash and due from banks $ 3,976,505 $ 4,912,984 $ 4,427,093
Federal funds sold 2,604,868 1,163,607 2,973,733
Interest-bearing deposits - - 298,071
Securities available for sale 13,873,611 20,496,399 12,126,871
Securities held to maturity (market value of $8,136,502,
$8,384,388, and $12,744,221) 8,124,223 8,386,520 12,794,151
Loans, less allowance for loan losses of $875,716,
$794,087, and $761,457 85,582,910 77,446,272 73,749,617
Premises and equipment 2,337,662 1,200,497 1,198,004
Accrued interest receivable 990,132 1,017,688 923,194
Other real estate owned 345,069 224,500 563,086
Deferred income taxes 179,779 180,433 101,394
Other assets 307,572 224,610 133,156
------------- ------------- -------------
$ 118,322,331 $ 115,253,510 $ 109,288,370
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-S 2
<PAGE> 33
PEOPLES BANCORP, INC. AND SUBSIDIARY
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Deposits
Demand $ 13,708,219 $ 11,077,187 $ 9,235,907
Savings and NOW 27,335,924 29,817,791 28,419,240
Money market and Supernow 9,455,226 7,444,037 8,314,039
Other time 48,062,458 47,552,926 46,308,017
------------ ------------ -----------
98,561,827 95,891,941 92,277,203
Securities sold under repurchase agreements 3,390,120 3,881,705 2,278,816
Accrued interest payable 391,360 392,449 402,526
Other liabilities 124,519 76,028 89,992
Dividend payable - 365,000 335,800
------------ ------------ -----------
102,467,826 100,607,123 95,384,337
------------ ------------ -----------
Stockholders' equity
Common stock, par value $10 per share;
authorized 1,000,000 shares; issued and
outstanding 875,573 shares in
1997 and 292,000 shares in 1996 and 1995 8,755,730 2,920,000 2,920,000
Surplus 2,920,000 2,920,000 2,920,000
Undivided profits 4,167,590 8,822,783 7,996,776
------------ ------------ -----------
15,843,320 14,662,783 13,836,776
Unrealized gain (loss) on securities
available for sale,
net of income taxes 11,185 (16,396) 67,257
------------ ------------ -----------
15,854,505 14,646,387 13,904,033
------------ ------------ -----------
$ 118,322,331 $ 115,253,510 $ 109,288,370
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-S 3
<PAGE> 34
PEOPLES BANCORP, INC. AND SUBSIDIARY
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Interest revenue
Loans, including fees $ 7,304,892 $ 6,746,384 $ 7,044,594
U. S. Treasury securities 1,259,818 1,200,011 577,841
U. S. Government agency securities 234,029 336,942 452,152
State and municipal securities 6,244 14,275 19,878
Other securities 798 4,184 17,083
Federal funds sold 64,472 218,388 294,358
Time deposits - 6,475 20,432
----------- ----------- -----------
Total interest revenue 8,870,253 8,526,659 8,426,338
----------- ----------- -----------
Interest expense
Certificates of deposit of $100,000 or more 492,032 460,577 339,943
Other deposits 3,046,539 3,161,183 3,076,443
Borrowed funds 106,290 56,320 24,115
----------- ----------- -----------
Total interest expense 3,644,861 3,678,080 3,440,501
----------- ----------- -----------
Net interest income 5,225,392 4,848,579 4,985,837
Provision for loan losses 89,158 20,347 19,145
----------- ----------- -----------
Net interest income after provision for loan losses 5,136,234 4,828,232 4,966,692
----------- ----------- -----------
Other operating revenue
Service charges on deposit accounts 427,179 419,952 356,142
Securities gains (losses) 1,845 (3,960) 750
Other noninterest revenue 100,966 69,975 67,252
----------- ----------- -----------
Total other revenue 529,990 485,967 424,144
----------- ----------- -----------
Other expenses
Salaries 1,512,289 1,419,196 1,347,295
Employee benefits 357,029 365,981 342,190
Occupancy 131,520 143,638 136,050
Furniture and equipment 93,390 90,460 85,354
Other operating 819,156 870,871 815,619
----------- ----------- -----------
Total other expenses 2,913,384 2,890,146 2,726,508
----------- ----------- -----------
Income before income taxes 2,752,840 2,424,053 2,664,328
Income taxes 998,225 897,246 1,017,016
----------- ----------- -----------
Net income $ 1,754,615 $ 1,526,807 $ 1,647,312
=========== =========== ===========
Earnings per common share $ 2.00 $ 1.74 $ 1.88
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-S 4
<PAGE> 35
PEOPLES BANCORP, INC. AND SUBSIDIARY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Unrealized
Common stock Undivided gains (losses)
Shares Par value Surplus profits on securities
------ --------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 292,000 $ 2,920,000 $ 2,920,000 $ 6,991,864 $ (5,678)
Net income for 1995 - - - 1,647,312 -
Cash dividend, $.73 per share - - - (642,400) -
Change in unrealized gains (losses) on
securities available for sale - - - - 72,935
------- ----------- ----------- ----------- --------
Balance, December 31, 1995 292,000 2,920,000 2,920,000 7,996,776 67,257
Net income for 1996 - - - 1,526,807 -
Cash dividend, $.80 per share - - - (700,800) -
Change in unrealized gains (losses) on
securities available for sale - - - - (83,653)
------- ----------- ----------- ----------- --------
Balance, December 31, 1996 292,000 2,920,000 2,920,000 8,822,783 (16,396)
Stock split in the form of a 200% stock
dividend 584,000 5,840,000 - (5,840,000) -
Net income for 1997 - - - 1,754,615 -
Cash dividend, $.64 per share - - - (560,640) -
Repurchase of stock (427) (4,270) - (9,168) -
Change in unrealized gains (losses) on
securities available for sale - - - - 27,581
------- ----------- ----------- ----------- --------
Balance, December 31, 1997 875,573 $ 8,755,730 $ 2,920,000 $ 4,167,590 $ 11,185
------- ----------- ----------- ----------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-S 5
<PAGE> 36
PEOPLES BANCORP, INC. AND SUBSIDARY
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 8,879,088 $ 8,478,215 $ 8,321,034
Fees and commissions received 555,222 490,931 394,913
Interest paid (3,645,950) (3,688,157) (3,376,981)
Cash paid to suppliers and employees (2,438,801) (2,665,561) (2,708,874)
Income taxes paid (1,395,064) (1,002,462) (959,849)
----------- ----------- -----------
1,954,495 1,612,966 1,670,243
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investment
securities and certificates
of deposit
Held to maturity 260,477 10,404,972 10,081,872
Available for sale 7,002,695 298,000 3,500,000
Purchase of investment securities
Held to maturity - (7,018,266) -
Available for sale (342,900) (7,501,012) (12,016,895)
Loans made, net of principal collected (8,195,461) (3,750,885) 946,195
Purchases of premises, equipment, and software (1,293,383) (135,536) (173,516)
Proceeds from sale of other real estate owned and equipment 92,704 219,499 -
Purchases of other real estate owned (213,068) - (381,063)
----------- ----------- -----------
(2,688,936) (7,483,228) 1,956,593
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in
Time deposits 509,532 1,244,909 6,120,689
Other deposits 2,160,354 2,369,829 (5,793,898)
Securities sold under repurchase agreements (491,585) 1,602,889 1,575,836
Federal funds purchased - - (800,000)
Dividends paid (925,640) (671,600) (598,600)
Repurchase of stock (13,438) - -
----------- ----------- -----------
1,239,223 4,546,027 504,027
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 504,782 (1,324,235) 4,130,863
Cash and cash equivalents at beginning of year 6,076,591 7,400,826 3,269,963
----------- ----------- -----------
Cash and cash equivalents at end of year $ 6,581,373 $ 6,076,591 $ 7,400,826
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-S 6
<PAGE> 37
PEOPLES BANCORP, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS (Continued)
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Reconciliation of net income to net cash provided by
operating activities
Net income $ 1,754,615 $ 1,526,807 $ 1,647,312
Adjustments to reconcile net income to net
cash provided by
operating activities
Loss (gain) on sale of investment securities (1,845) 3,960 (750)
Amortization of premiums and accretion of discounts 11,614 12,167 (19,848)
Provision for loan losses 89,158 20,347 19,145
Depreciation and software amortization 112,454 113,066 96,206
Loss (gain) and writedowns on other real estate (204) 119,087 12,977
Deferred income taxes (16,721) (26,339) 27,872
Decrease (increase) in
Accrued interest receivable 27,556 (94,494) (69,079)
Other assets (9,732) (15,300) (84,382)
Increase (decrease) in
Deferred origination fees and costs, net (30,335) 33,883 (16,377)
Income taxes payable, net of refunds (15,118) (78,877) 29,295
Accrued interest payable (1,089) (10,077) 63,520
Other liabilities 34,142 8,736 (35,648)
----------- ----------- -----------
$ 1,954,495 $ 1,612,966 $ 1,670,243
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-S 7
<PAGE> 38
PEOPLES BANCORP, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies reflected in the financial
statements conform to generally accepted accounting principles and to general
practices within the banking industry. Management makes estimates and
assumptions that affect the reported amounts of assets, liabilities and
disclosures of commitments and contingent liabilities at the balance sheet date,
and revenues and expenses during the year.
HOLDING COMPANY FORMATION
On December 10, 1996, Peoples Bancorp, Inc. (the Company) was
incorporated in the State of Maryland to acquire the stock of Peoples Bank of
Kent County, Maryland (the Bank) and to engage in such other business activities
permitted for bank holding companies by law. The Bank's stockholders approved an
agreement for the exchange of shares on December 30, 1996. Each outstanding
share of Bank common stock was exchanged for one share of the Company's common
stock in March, 1997.
The Bank continues its banking business under the same name as a
wholly-owned subsidiary of the holding company. Comparative data in the
accompanying consolidated financial statements for 1996 and 1995 are those of
the Bank as predecessor of the Company.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and the Bank. Intercompany balances and transactions have been
eliminated.
F-S 8
<PAGE> 39
PEOPLES BANCORP, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are stated at face value, plus deferred origination costs, less
deferred origination fees and the allowance for loan losses.
Interest on loans is accrued based on the principal amounts outstanding.
Origination fees and costs are recorded as income over the estimated terms of
the loans. The accrual of interest is discontinued when any portion of the
principal or interest is ninety days past due and collateral is insufficient to
discharge the debt in full.
An allowance for loan losses is maintained at a level deemed appropriate
by management to provide adequately for known and inherent risks in the loan
portfolio. The allowance is based upon a continuing review of past loan loss
experience, current economic conditions which may affect the borrowers' ability
to pay, and the underlying collateral value of the loans. If the current economy
or real estate market were to suffer a severe downturn, the estimate for
uncollectible accounts would need to be increased. Loans which are deemed to be
uncollectible are charged off and deducted from the allowance. The allowance for
loan losses is increased by the current year provision for loan losses and by
recoveries on loans previously charged off.
Loans are considered impaired when, based on current information,
management considers it unlikely that collection of principal and interest
payments will be made according to contractual terms. Generally, loans are not
reviewed for impairment until the accrual of interest has been discontinued.
PREMISES AND EQUIPMENT
Premises and equipment are recorded at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over
estimated useful lives of three to forty years.
F-S 9
<PAGE> 40
PEOPLES BANCORP, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The provision for income taxes includes taxes payable for the current
year and deferred income taxes. Deferred income taxes are provided for the
temporary differences between financial and taxable income.
The Bank recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
OTHER REAL ESTATE OWNED
Real estate obtained through foreclosure, or in the process of
foreclosure, is recorded at the lower of cost or net realizable value on the
date acquired. Losses incurred at the time of acquisition of the property are
charged to the allowance for loan losses. Subsequent reductions in the estimated
carrying value of the property and other expenses of owning the property are
included in other operating expense.
2. CASH AND EQUIVALENTS
The Bank normally carries balances with other banks that exceed the
federally insured limit. The average balances carried in excess of the limit,
including unsecured federal funds sold to the same banks, were $2,556,200 for
1997, $4,003,100 for 1996, and $6,231,203 for 1995.
Banks are required to carry noninterest-bearing cash reserves at
specified percentages of deposit balances. The Bank's normal amount of cash on
hand and on deposit with other banks is sufficient to satisfy the reserve
requirements.
F-S 10
<PAGE> 41
PEOPLES BANCORP, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
3. INVESTMENT SECURITIES
Investment securities are summarized as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Market
December 31, 1997 cost gains losses value
-------------------------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
Available for sale
U. S. Treasury $ 11,511,450 $ 23,675 $ 10,747 $ 11,524,378
U. S. Government agency 2,001,083 5,250 - 2,006,333
Federal Home Loan Bank stock 342,900 - - 342,900
------------ -------- -------- ------------
$ 13,855,433 $ 28,925 $ 10,747 $ 13,873,611
============ ======== ======== ============
Held to maturity
U. S. Treasury $ 6,000,508 $ 40,743 $ - $ 6,041,251
U. S. Government agency 2,003,167 - 32,156 1,971,011
Mortgage-backed securities 120,548 3,692 - 124,240
------------ -------- -------- ------------
$ 8,124,223 $ 44,435 $ 32,156 $ 8,136,502
============ ======== ======== ============
December 31, 1996
--------------------------
Available for sale
U. S. Treasury $ 18,520,423 $ 22,485 $ 56,338 $ 18,486,570
U. S. Government agency 2,002,756 7,073 - 2,009,829
------------ -------- -------- ------------
$ 20,523,179 $ 29,558 $ 56,338 $ 20,496,399
============ ======== ======== ============
Held to maturity
U. S. Treasury $ 6,000,630 $ 34,157 $ 6,657 $ 6,028,130
U. S. Government agency 2,004,543 - 44,762 1,959,781
State and municipal 202,600 11,489 - 214,089
Mortgage-backed securities 178,747 3,641 - 182,388
------------ -------- -------- ------------
$ 8,386,520 $ 49,287 $ 51,419 $ 8,384,388
============ ======== ======== ============
December 31, 1995
--------------------------
Available for sale
U. S. Treasury $ 10,012,869 $ 74,316 $ - $ 10,087,185
U. S. Government agency 2,004,428 35,258 - 2,039,686
------------ -------- -------- ------------
$ 12,017,297 $109,574 $ - $ 12,126,871
============ ======== ======== ============
Held to maturity
U. S. Treasury $ 6,497,177 $ 3,844 $ 22,430 $ 6,478,591
U. S. Government agency 5,605,634 55 41,221 5,564,468
State and municipal 223,120 15,447 - 238,561
Mortgage-backed securities 468,220 5,296 10,915 462,601
------------ -------- -------- ------------
$ 12,794,151 $ 24,642 $ 74,566 $ 12,744,221
============ ======== ======== ============
</TABLE>
F-S 11
<PAGE> 42
PEOPLES BANCORP, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
3. INVESTMENT SECURITIES (Continued)
Contractual maturities and the amount of pledged securities are shown
below. Actual maturities will differ from contractual maturities because issuers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Available for sale Held to maturity
Amortized Market Amortized Market
DECEMBER 31, 1997 cost value cost value
-------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Maturing
Within one year $ 8,002,670 $ 8,005,084 $ 2,499,799 $ 2,503,825
Over one to five years 5,509,863 5,525,627 5,503,876 5,508,438
Mortgage-backed -- -- 120,548 124,239
Federal Home Loan Bank stock 342,900 342,900 -- --
----------- ----------- ----------- -----------
$13,855,433 $13,873,611 $ 8,124,223 $ 8,136,502
=========== =========== =========== ===========
Pledged securities $ 6,510,783 $ 6,524,065 $ 4,500,708 $ 4,535,700
=========== =========== =========== ===========
December 31, 1996
--------------------------
Maturing
Within one year $ 7,004,429 $ 7,002,501 $ -- $ --
Over one to five years 13,518,750 13,493,898 8,107,773 8,099,740
Over five years -- -- 100,000 102,260
Mortgage-backed -- -- 178,747 182,388
----------- ----------- ----------- -----------
$20,523,179 $20,496,399 $ 8,386,520 $ 8,384,388
=========== =========== =========== ===========
Pledged securities $ 8,522,692 $ 8,497,194 $ 1,503,131 $ 1,505,709
=========== =========== =========== ===========
December 31, 1995
--------------------------
Maturing
Within one year $ -- $ -- $10,096,882 $10,061,809
Over one to five years 12,017,297 12,126,871 2,005,929 1,981,250
Over five years -- -- 223,120 238,561
Mortgage-backed -- -- 468,220 462,601
----------- ----------- ----------- -----------
$12,017,297 $12,126,871 $12,794,151 $12,744,221
=========== =========== =========== ===========
Pledged securities $ -- $ -- $ 6,499,140 $ 6,480,155
=========== =========== =========== ===========
</TABLE>
Investments are pledged to secure the deposits of federal and local
governments and as collateral on repurchase agreements.
F-S 12
<PAGE> 43
PEOPLES BANCORP, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
4. Loans and Allowance for Loan Losses
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Demand and time $14,726,493 $13,484,949 $14,194,605
Mortgage
Residential 33,503,210 30,115,234 30,620,610
Commercial 28,093,539 26,793,875 22,650,748
Farm 5,796,820 4,240,386 4,461,334
Construction 1,772,198 1,462,471 443,048
Installment 2,805,249 2,412,663 2,376,065
----------- ----------- -----------
86,697,509 78,509,578 74,746,410
----------- ----------- -----------
Deferred fees, net of deferred cost 238,883 269,219 235,336
Allowance for loan losses 875,716 794,087 761,457
----------- ----------- -----------
1,114,599 1,063,306 996,793
----------- ----------- -----------
$85,582,910 $77,446,272 $73,749,617
=========== =========== ===========
Final maturities of the loan portfolio
are as follows:
Within ninety days $35,057,713 $35,477,299 $36,015,006
Over ninety days to one year 21,497,053 17,212,075 16,532,240
Over one year to five years 29,634,102 25,317,822 21,575,523
Over five years 508,641 502,382 623,641
----------- ----------- -----------
$86,697,509 $78,509,578 $74,746,410
=========== =========== ===========
Transactions in the allowance for loan
losses were as follows:
Beginning of year $ 794,087 $ 761,457 $ 766,354
Provision charged to operations 89,158 20,347 19,145
Recoveries 674 36,727 22,205
----------- ----------- -----------
883,919 818,531 807,704
Loans charged off 8,203 24,444 46,247
----------- ----------- -----------
End of year $ 875,716 $ 794,087 $ 761,457
=========== =========== ===========
</TABLE>
Management has identified no significant impaired loans.
F-S 13
<PAGE> 44
PEOPLES BANCORP, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
4. Loans and Allowance for Loan Losses (Continued)
Loans on which the accrual of interest has been discontinued or reduced,
and the interest that would have been accrued at December 31, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Loan balances $ 556,876 $ 174,630 $ 179,447
Interest not accrued 36,388 1,495 2,092
Amounts past due 90 days or more at December 31, including
nonaccruing loans, are as follows:
Demand and time $ -- $ -- $ 13,978
Mortgage 829,827 649,888 238,839
Installment 12,356 13,784 12,816
----------- ----------- -----------
$ 842,183 $ 663,672 $ 265,633
=========== =========== ===========
Outstanding loan commitments, unused lines of credit, and
letters of credit as of December 31, are as follows:
Check loan lines of credit $ 302,355 $ 343,971 $ 243,916
Mortgage lines of credit 4,507,300 3,282,667 2,771,629
Commercial lines of credit 7,440,628 7,464,522 6,546,645
Undisbursed construction loan commitments 973,741 1,590,394 433,805
----------- ----------- -----------
$13,224,024 $12,681,554 $ 9,995,995
=========== =========== ===========
Standby letters of credit $ 887,134 $ 914,519 $ 1,453,375
=========== =========== ===========
</TABLE>
Loan commitments and lines of credit are agreements to lend to a
customer as long as there is no violation of any condition to the contract. Loan
commitments generally have interest rates fixed at current market rates, fixed
expiration dates, and may require payment of a fee. Lines of credit generally
have variable interest rates. Such lines do not represent future cash
requirements because it is unlikely that all customers will draw upon their
lines in full at any time.
Letters of credit are commitments issued to guarantee the performance of
a customer to a third party.
Loan commitments, lines of credit, and letters of credit are made on the
same terms, including collateral, as outstanding loans. The Bank's exposure to
credit loss in the event of nonperformance by the borrower is represented by the
contract amount of the commitment. Management is not aware of any accounting
loss the Bank will incur by the funding of these commitments.
The Bank lends to customers located primarily in and near Kent County,
Maryland. Although the loan portfolio is diversified, its performance will be
influenced by the economy of the region.
F-S 14
<PAGE> 45
PEOPLES BANCORP, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
5. PREMISES AND EQUIPMENT
A summary of premises and equipment and related depreciation expense is
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Land $ 745,976 $ 578,177 $ 457,353
Premises 1,097,604 1,090,066 1,225,316
Furniture and equipment 992,649 939,463 899,607
Construction in progress 1,032,129 74,647 780
---------- ---------- ----------
3,868,358 2,682,353 2,583,056
Accumulated depreciation 1,530,696 1,481,856 1,385,052
Net premises and equipment $2,337,662 $1,200,497 $1,198,004
========== ========== ==========
Depreciation expense $ 99,575 $ 111,231 $ 96,206
========== ========== ==========
</TABLE>
In October, 1997, the Bank purchased land in Millington, Maryland on
which it intends to construct a full service branch banking facility. Regulatory
approval was received from the State of Maryland on June 24, 1997, and the
Federal Deposit Insurance Corporation on July 29, 1997. Outstanding commitments
related to the main office expansion and remodeling program totaled $136,882.
6. OTHER TIME DEPOSITS
Included in other time deposits are certificates of deposit in amounts
of $100,000 or more. These certificates and their remaining maturities at
December 31, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Three months or less $1,360,729 $ 890,406 $1,197,575
Over three through twelve months 1,698,809 1,759,855 1,621,970
Over twelve months 5,058,849 4,269,570 3,526,259
---------- ---------- ----------
$8,118,387 $6,919,831 $6,345,804
========== ========== ==========
</TABLE>
7. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Bank has repurchase agreements that are collateralized by government
agency securities owned by the Bank. The following applied to these repurchase
agreements:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Maximum amount outstanding $4,069,611 $3,881,705 $2,278,816
Average amount outstanding 3,399,467 2,784,391 1,402,157
Average rate paid during the year 4.21% 3.64% 2.62%
Investment securities underlying the
agreements at year end
Carrying value 8,026,619 8,002,510 4,499,669
Estimated fair value 8,051,877 8,008,759 4,484,999
</TABLE>
F-S 15
<PAGE> 46
PEOPLES BANCORP, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
8. INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Current
Federal $ 896,997 $ 796,143 $ 807,040
State 117,949 127,442 182,104
----------- ----------- -----------
1,014,946 923,585 989,144
Deferred (16,721) (26,339) 27,872
----------- ----------- -----------
$ 998,225 $ 897,246 $ 1,017,016
=========== =========== ===========
Provision for loan losses $ (34,432) $ (7,858) $ 1,891
Other real estate loss provision 7,644 (35,263) (14,688)
Deferred loan origination fees and costs -- -- 26,024
Accrued pension costs 21,226 21,441 15,950
Depreciation 2,757 538 1,946
Discount accretion 8,218 1,755 (2,800)
Nonaccrual interest (13,476) 231 (451)
Deferred compensation (8,658) (7,183) --
----------- ----------- -----------
$ (16,721) $ (26,339) $ 27,872
=========== =========== ===========
The components of the net deferred
tax asset are as follows:
Deferred tax assets
Allowance for loan losses $ 207,383 $ 172,951 $ 165,093
Other real estate loss allowance 42,307 49,951 14,688
Accrued pension costs -- -- 3,459
Deferred compensation 15,841 7,183 --
Nonaccrual interest 14,053 577 808
Unrealized loss on investment
securities available for sale -- 10,383 --
----------- ----------- -----------
279,584 241,045 184,048
----------- ----------- -----------
Deferred tax liabilities
Depreciation 37,609 34,852 34,314
Discount accretion 15,996 7,778 6,023
Prepaid pension costs 39,208 17,982 --
Unrealized gain on investment
securities available for sale 6,992 -- 42,317
----------- ----------- -----------
99,805 60,612 82,654
----------- ----------- -----------
Net deferred tax asset $ 179,779 $ 180,433 $ 101,394
=========== =========== ===========
</TABLE>
F-S 16
<PAGE> 47
PEOPLES BANCORP, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
8. INCOME TAXES (Continued)
A reconciliation of the provisions for income taxes from statutory
federal rates to effective rates follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Tax at statutory federal income tax rate 34.0% 34.0% 34.0%
Tax effect of
Tax-exempt income (0.6) (0.5) (0.5)
State income taxes, net of federal benefit 2.8 3.3 4.6
Other, net 0.1 0.2 0.1
---- ---- ----
36.3% 37.0% 38.2%
==== ==== ====
</TABLE>
F-S 17
<PAGE> 48
PEOPLES BANCORP, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
9. PENSION
The Bank has a defined benefit pension plan covering substantially all
of the employees. Benefits are based on years of service and the employee's
highest average rate of earnings for five consecutive years during the final ten
full years before retirement. The Bank's funding policy is to contribute
annually the maximum amount that can be deducted for income tax purposes,
determined using the projected unit credit cost method. Assets of the plan are
held in deposit accounts at the Bank.
The following table sets forth the financial status of the plan at
December 31:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Accumulated benefit obligation
Vested $ 822,760 $ 725,064 $ 586,482
Nonvested 5,133 5,003 369
----------- ----------- -----------
$ 827,893 $ 730,067 $ 586,851
=========== =========== ===========
Plan assets at fair value $ 999,343 $ 870,686 $ 765,988
Projected benefit obligation 1,046,430 908,283 789,748
----------- ----------- -----------
Projected benefit obligation in
excess of plan assets (47,087) (37,597) (23,760)
Unrecognized net loss 217,287 159,702 97,212
Unamortized net asset from transition (49,396) (54,885) (60,374)
Unamortized prior service cost (19,281) (20,658) (22,035)
----------- ----------- -----------
Prepaid (accrued) pension expense
included in other assets (liabilities) $ 101,523 $ 46,562 $ (8,957)
=========== =========== ===========
Service cost $ 42,216 $ 40,508 $ 45,266
Interest cost 67,007 55,598 49,017
Expected return on assets (68,112) (59,619) (52,455)
Amortization of transition asset (5,489) (5,489) (5,489)
Amortization of prior service cost (1,377) (1,377) (1,377)
Amortization of loss 2,995 -- --
----------- ----------- -----------
Net pension expense $ 37,240 $ 29,621 $ 34,962
=========== =========== ===========
Discount rates 7.5% 7.5% 7.5%
Rate of increase in compensation level 5.0% 5.0% 5.0%
Long-term rate of return on assets 7.5% 7.5% 7.5%
</TABLE>
F-S 18
<PAGE> 49
PEOPLES BANCORP, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
10. PROFIT SHARING PLAN
The Bank has a profit sharing plan qualifying under section 401(k) of
the Internal Revenue Code that covers all employees with one year of service who
have attained age 21. The contributions to the plan for 1997, 1996, and 1995,
were $28,326, $42,153, and $44,929, respectively.
11. OTHER OPERATING EXPENSES
Other operating expenses consist of the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Advertising $ 26,443 $ 25,517 $ 27,217
Business Manager 30,104 21,547 --
Correspondent bank fees 37,802 34,562 29,041
Data processing 194,460 188,942 179,055
Directors' fees 59,341 58,713 56,563
FDIC assessment 11,364 2,000 107,803
Insurance 28,269 27,716 27,712
Office supplies 50,751 54,040 48,435
Other real estate holding costs -- 10,644 17,768
Writedown of other real estate (12,294) 121,711 12,977
Postage 68,509 62,005 56,972
Printing and stationery 39,963 31,188 30,531
Professional fees 83,701 42,410 59,887
Telephone 30,830 27,160 25,584
Other 169,913 162,716 136,074
--------- --------- ---------
$ 819,156 $ 870,871 $ 815,619
========= ========= =========
</TABLE>
F-S 19
<PAGE> 50
PEOPLES BANCORP, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
12. EARNINGS PER COMMON SHARE
Earnings per common share are determined by dividing net income by the
weighted average number of shares outstanding giving retroactive effect to stock
dividends.
13. RELATED PARTY TRANSACTIONS
In the normal course of banking business, loans are made to senior
officers and directors of the Bank as well as to companies and individuals
affiliated with those officers and directors. The terms of these transactions
are substantially the same as the terms provided to other borrowers entering
into similar loan transactions. In the opinion of management, these loans are
consistent with sound banking practices, are within regulatory lending
limitations, and do not involve more than normal risk of collectibility. The
total amount of such loans outstanding at December 31, 1997, 1996, and 1995, was
$5,582,424, $6,464,206, and $6,837,435, respectively.
14. LINES OF CREDIT
The Bank has unused lines of credit of $5,000,000 in unsecured overnight
federal funds and $1,000,000 in secured repurchase agreements at December 31,
1997. In addition, the Bank has an unused line of credit of $15,000,000 from the
Federal Home Loan Bank of Atlanta secured by residential mortgages.
F-S 20
<PAGE> 51
PEOPLES BANCORP, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
15. CAPITAL STANDARDS
The Federal Reserve Board and the Federal Deposit Insurance Corporation
have adopted risk-based capital standards for banking organizations. These
standards require ratios of capital to assets for minimum capital adequacy and
to be classified as well capitalized under prompt corrective action provisions.
As of December 31, 1997 and 1996, the capital ratios and minimum capital
requirements of the Bank are as follows:
<TABLE>
<CAPTION>
To be well
Actual Capital adequacy capitalized
------------------------ ---------------------------- -------------------------
(in thousands) Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1997
---------------------
Total capital
(to risk-weighted assets) $ 16,358 18.5% > $ 7,075 > 8.0% > $ 8,844 > 10.0%
- - - -
Tier 1 capital
(to risk-weighted assets) $ 15,482 17.5% > $ 3,537 > 4.0% > $ 5,306 > 6.0%
- - - -
Tier 1 capital
(to fourth quarter
average assets) $ 15,482 13.4% > $ 4,630 > 4.0% > $ 5,787 > 5.0%
- - - -
December 31, 1996
---------------------
Total capital
(to risk-weighted assets) $ 15,475 22.5% > $ 5,514 > 8.0% > $ 6,892 > 10.0%
- - - -
Tier 1 capital
(to risk-weighted assets) $ 14,663 21.3% > $ 2,757 > 4.0% > $ 4,135 > 6.0%
- - - -
Tier 1 capital
(to fourth quarter
average assets) $ 14,663 12.6% > $ 4,644 > 4.0% > $ 5,806 > 5.0%
- - - -
</TABLE>
Tier 1 capital consists of capital stock, surplus, and undivided
profits. Total capital includes a limited amount of the allowance for credit
losses. In calculating risk-weighted assets, specified risk percentages are
applied to each category of asset and off-balance sheet items.
Failure to meet the capital requirements could affect the Bank's ability
to pay dividends and accept deposits and may significantly affect the operations
of the Bank.
F-S 21
<PAGE> 52
PEOPLES BANCORP, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Bank's financial instruments are
summarized below. The fair values of a significant portion of these financial
instruments are estimates derived using present value techniques prescribed by
the FASB and may not be indicative of the net realizable or liquidation values.
Also, the calculation of estimated fair values is based on market conditions at
a specific point in time and may not reflect current or future fair values.
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
------------------------------- ------------------------------
Carrying Fair Carrying Fair
amount value amount value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financial assets
Cash and due from banks $ 3,976,505 $ 3,976,505 $ 4,912,984 $ 4,912,984
Federal funds sold 2,604,868 2,604,868 1,163,607 1,163,607
Investment securities (total) 21,997,834 22,010,113 28,882,919 28,880,787
Loans, net 85,582,910 85,401,762 77,446,272 77,456,683
Accrued interest receivable 990,132 990,132 1,017,688 1,017,688
Financial liabilities
Noninterest-bearing deposits $13,708,219 $13,708,219 $11,077,187 $11,077,187
Interest-bearing deposits and securities
sold under repurchase agreements 88,243,728 88,859,054 88,696,459 89,540,598
Dividend payable - - 365,000 365,000
Accrued interest payable 391,360 391,360 392,449 392,449
</TABLE>
The fair value of interest-bearing deposits with other financial
institutions is estimated based on quoted interest rates for certificates of
deposit with similar remaining terms.
The fair values of securities are estimated using a matrix that
considers yield to maturity, credit quality, and marketability.
The fair value of fixed-rate loans is estimated to be the present value
of scheduled payments discounted using interest rates currently in effect for
loans of the same class and term. The fair value of variable-rate loans,
including loans with a demand feature, is estimated to equal the carrying
amount. The valuation of loans is adjusted for possible loan losses.
The fair value of interest-bearing checking, savings, and money market
deposit accounts is equal to the carrying amount. The fair value of
fixed-maturity time deposits is estimated based on interest rates currently
offered for deposits of similar remaining maturities.
It is not practicable to estimate the fair value of outstanding loan
commitments, unused lines of credit, and letters of credit.
F-S 22
<PAGE> 53
PEOPLES BANCORP, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
17. PARENT COMPANY FINANCIAL INFORMATION
The balance sheet and statement of income and cash flows for Peoples
Bancorp, Inc. (Parent Only) follows:
<TABLE>
<CAPTION>
December 31,
BALANCE SHEET 1997
-----------
Assets
<S> <C>
Cash $ 303,860
Investment in Peoples Bank of Kent County 15,492,609
Organization costs 46,529
Other assets 12,707
-----------
Total assets $15,855,705
===========
Liabilities and Stockholders' Equity
Other liabilities $ 1,200
-----------
Stockholders' equity
Common stock, par value $10.00 per share;
authorized 1,000,000 shares; issued and
outstanding 875,573 shares 8,755,730
Additional paid-in capital 2,920,000
Retained earnings 4,167,590
Unrealized gain on securities available for sale, net
of income taxes 11,185
-----------
Total stockholders' equity 15,854,505
-----------
Total liabilities and stockholders' equity $15,855,705
===========
Year Ended December 31,
STATEMENT OF INCOME 1997
-----------
Interest revenue $ 10,432
Dividends from subsidiary 960,640
Equity in undistributed income of subsidiary 818,641
-----------
1,789,713
-----------
Expenses
Legal fees 34,917
Amortization of organization costs 8,211
Other 4,677
-----------
47,805
-----------
Income before income taxes 1,741,908
Income tax reduction 12,707
-----------
Net income $ 1,754,615
===========
</TABLE>
F-S 23
<PAGE> 54
PEOPLES BANCORP, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
17. PARENT COMPANY FINANCIAL INFORMATION (Continued)
<TABLE>
<CAPTION>
Year Ended December 31,
STATEMENT OF CASH FLOWS 1997
-----------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Interest and dividends received $ 971,072
Cash paid for operating expenses (38,394)
-----------
932,678
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for organization costs (54,740)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (560,640)
Repurchase of stock (13,438)
(574,078)
NET INCREASE IN CASH 303,860
Cash and equivalents at beginning of year --
-----------
Cash and equivalents at end of year $ 303,860
===========
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income $ 1,754,615
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
USED IN OPERATING ACTIVITIES
Undistributed net income of subsidiary (818,641)
Amortization 8,211
Increase (decrease) in
Accrued expenses 1,200
Taxes payable, net of refunds (12,707)
-----------
$ 932,678
===========
</TABLE>
F-S 24
<PAGE> 55
PART III
INDEX TO EXHIBITS
3(a) Articles of Incorporation
3(b) By-Laws of the Company
99 Form of Stock Certificate
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
PEOPLES BANCORP, INC.
By: /s/ E. Roy Owens
-----------------------
Date: April 28, 1998 E. Roy Owens
Chairman, President and
Chief Executive Officer
<PAGE> 1
Exhibit 3(a)
AMENDED
ARTICLES OF INCORPORATION
OF
PEOPLES BANCORP, INC.
The undersigned, E. Roy Owens, whose post office address is P.O. Box
210, Chestertown, Maryland 21620-0210, being at least eighteen years of age does
under, and by virtue of the general laws of the State of Maryland, authorizing
the formation of corporations, hereby adopts these Amended Articles of
Incorporation, as Incorporator, without shareholder approval, no stock being
outstanding or having been subscribed for, and prior to the organizational
meeting of the Board of Directors and does hereby state as follows:
FIRST:
The name of the corporation is Peoples Bancorp, Inc.
SECOND:
The purposes for which the corporation is formed are:
To engage in any or all lawful business for which corporations may be
organized under the Maryland General Corporation Law.
THIRD:
The address of the principal office of the corporation in this state is Peoples
Bancorp, Inc., 100 Spring Avenue, Chestertown, Maryland 21620, P. O. Box 210,
Chestertown, Maryland 21620-0210. The name of the resident agent of the
corporation in this state is Mr. E. Roy Owens, and the address of the resident
agent is 100 Spring Avenue, Chestertown, Maryland 21620, P. O. Box 210,
Chestertown, Maryland 21620-0210.
FOURTH:
The total number of shares of capital stock which the corporation shall have
authority to issue is one million (1,000,000) shares, $10.00 par value, all of
one class of common stock, having an aggregate par value of Ten Million Dollars
($10,000,000).
<PAGE> 2
FIFTH:
The number of directors of the corporation shall be twelve (12). The number of
directors may be increased or decreased in accordance with the bylaws of the
corporation. The names and addresses of the directors, who shall act as such
until the next annual meeting of the stockholders of the corporation or until
their successors are duly elected and qualified are:
Olin S. Davis, Jr.
33960 Sassafras Coldwell Road
Galena, MD 21635
Herman E. Hill, Jr.
5376 Eastern Neck Road
Rock Hall, MD 21661
Elmer E. Horsey
19 Byford Court
Chestertown, MD 26120
Arthur E. Kendall
21178 Sharp Street
Rock Hall, MD 21661
P. Patrick McClary
660 Budds Landing Road
Cecilton, MD 21913
Robert A. Moore
23441 Cacaway Farm Lane
Chestertown, MD 21620
E. Roy Owens
205 David Drive
Chestertown, MD 21620
Alexander P. Rasin, III
205 Richard Drive
Chestertown, MD 21620
Stefan R. Skipp
924 Placid Court
Arnold, MD 21012
<PAGE> 3
Thomas G. Stevenson
25209 Dugdale Lane
Chestertown, MD 21620
Elizabeth A. Strong
22590 Goose Hollow Drive
Chestertown, MD 21620
William G. Wheatley
10950 St. James-Newtown Road
Worton, MD 21678
SIXTH:
To the maximum extent that Maryland law, in effect from time to time permits
limitation of the liability of directors and officers, no director or officer of
the corporation shall be liable to the corporation or its stockholders for money
damages. Neither the amendment nor repeal of this provision, nor the adoption or
amendment of any other provision of the Articles of Incorporation or Bylaws
inconsistent with this provision, shall apply to or affect in any respect the
applicability of the preceding sentence with respect to any act or failure to
act which occurs prior to such amendment, repeal or adoption.
IN WITNESS WHEREOF, the undersigned incorporator of Peoples Bancorp, Inc., who
executed the foregoing Articles of Incorporation, hereby acknowledges the same
to be his act and further acknowledges that, to the best of his knowledge, the
matters and facts set forth herein are true in all material respects under the
penalties of perjury.
Dated this 10th day of December, 1996.
By: /s/ E. Roy Owens
-----------------------------------
E. Roy Owens, Incorporator
<PAGE> 1
EXHIBIT 3(b)
BY-LAWS OF
PEOPLES BANCORP, INC.
ARTICLE I
TITLE AND SEAL
Section 1. The title of this Corporation shall be "Peoples Bancorp, Inc." (the
"Corporation").
Section 2. The corporate seal of the Corporation shall have inscribed thereon
the name of the Corporation and the year of its creation.
ARTICLE II
STOCKHOLDERS
Section 1. The annual meeting of the stockholders of the Corporation shall be
held at the place appointed for that purpose of the last Wednesday in March of
each year for the purpose of electing the Board of Directors to manage the
affairs of the Corporation for the ensuing year and for the transaction of
general business. A written notice of the time and place of said meeting shall
be mailed to each shareholder at least ten (10) days prior thereto. A majority
of the shares of the outstanding stock shall be represented at any meeting to
constitute a quorum.
Section 2. At any time in the interval between annual meetings, special meetings
of the shareholders may be called by the President, or by a majority of the
Board of Directors, upon ten days written or printed notice, stating the place,
day and hour of such meeting, and the business proposed to be transacted
thereat; such notice shall be given to each shareholder or member by leaving the
same with him, or at his residence or usual place of business, or by mailing it,
postage prepaid, and addressed to him at his address as it appears upon the
books of the Corporation; and no business shall be transacted at such meeting
except that especially named in the notice.
Section 3. The Directors may fill any vacancy in their number which may have
occurred since the annual election, by death, resignation or otherwise, by
electing a stockholder to fill such vacancy until the next annual meeting of the
stockholders, a majority of the whole number of Directors as then constituted
concurring in such election.
Section 4. Stockholders may vote either in person or by proxy, but no proxy
which is dated more than eleven months before the meeting at which it is offered
shall be accepted unless such proxy shall on its face name a longer period for
which it is to remain in force. Every proxy shall be in writing subscribed by a
stockholder, or by his duly authorized attorney, and shall be dated; but need
not be sealed, witnessed or acknowledged.
<PAGE> 2
Section 5. At every meeting of the stockholders, every stockholder shall be
entitled to one vote for each share of voting stock registered in their name on
the books of the Corporation on the date for the determination of voting rights
thereat. Upon demand of the stockholders holding ten (10%) percent of the shares
present in person or by proxy and entitled to vote, the votes for Directors, or
upon any question before a meeting, shall be by ballot; and except in cases in
which it is by statute, by the charter, or by these By-Laws otherwise provided,
a majority of the votes cast shall be sufficient to elect and pass any measure.
ARTICLE III
DIRECTORS AND OFFICERS.
Section 1. The affairs of the Corporation shall be managed by a Board of not
less than seven nor more than twelve Directors, who shall hold office for one
year and until their successors have been elected and have qualified; a majority
of whom shall constitute a quorum for the transaction of business.
Section 2. It shall be the duty of the Directors, at their first meeting after
their election, to qualify as Directors by taking and subscribing the oath of
office as prescribed by law. It shall then be their duty to elect the necessary
officers to serve for the next ensuing twelve months.
Section 3. The Chairman of the Board, if one is elected, shall preside at all
meetings of the Board of Directors and decide points of order, and shall have
one vote in the decision of all questions to be decided by the Board. He shall
call special meetings upon proper notice, when in his judgment it may be seen
necessary to do so, or when requested by any three Directors to call any special
meeting. The President, in the absence of an elected Chairman of the Board,
shall have all the duties of such office, and, additionally, shall superintend
and direct the general management of the Corporation. It shall be his duty to
transfer any property belonging to the Corporation and which the Directors have
determined to transfer, or which may be necessary to be transferred in the
regular course of business, by signing, executing and acknowledging in the name
and under the seal of the Corporation such conveyances or releases as may be
necessary and proper to carry out the engagements and business of the
Corporation. It shall be his duty to perform such other duties as representative
of the Corporation as he may legally be called on to do by resolution of the
Board of Directors.
Section 4. The duties of the Executive Vice-President, if one be elected, shall
be the same as those of the President, to be exercised only in the absence of
the President, or when the President is unable to attend to the same. The duties
of the Vice-President shall be the same as those of the Executive
Vice-President, to be exercised only in the absence of the President and
Executive Vice-President, or when the President and Executive Vice-President are
unable to attend to the same.
Section 5. The Counsel shall have such powers and perform such duties as the
Board of Directors may prescribe.
<PAGE> 3
Section 6. The duties of the Secretary shall be to record in a book to be
provided for that purpose all the proceedings, minutes and resolutions of each
meeting of the stockholders and Directors.
Section 7. The Board of Directors may elect any other officers and prescribe
appropriate duties for such officers.
Section 8. The Board may create an Executive Committee of its own members and
define its duties, subject to the provisions of law.
Section 9. The Board may create such other Committees as it deems advisable, and
define their duties.
Section 10. At any meeting of the stockholders called for the purpose, any
Director may, by the vote of a majority of the shares of stock outstanding and
entitled to vote, be removed from office, with or without cause, and another may
be elected in place of the person so removed, to serve for the remainder of his
term.
Section 11. Indemnification. To the maximum extent permitted by Maryland law in
effect from time to time, the Corporation shall indemnify and shall pay or
reimburse reasonable expenses in advance of final disposition of a proceeding
to, (1) any individual who is a present or former director or officer of the
Corporation or (2) any individual who serves or has served another corporation,
partnership, joint venture, trust, employee benefit plan or any other enterprise
as a director or officer of such corporation or as a partner or trustee of such
partnership, joint venture, trust or employee benefit plan at the request of the
Corporation. The Corporation may, with the approval of its Board of Directors,
provide such indemnification and advancement of expenses to a person who served
a predecessor of the Corporation in any of the capacities described in (1) or
(2) above and to the employee or agent of the Corporation or a predecessor of
the Corporation.
Neither the amendment nor repeal of this Section, nor the adoption or
amendment of any other provision of the By-laws or charter of the Corporation
inconsistent with this Section, shall apply to or affect in any respect the
applicability of the preceding paragraph with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption.
ARTICLE IV
AMENDMENT
These By-Laws may be changed or amended at any general meeting of the
stockholders, or at any special meeting or extraordinary meeting thereof legally
called, a majority always concurring in any such change or amendment.
Adopted this 11th day of December, 1996.
<PAGE> 1
EXHIBIT (99)
LOGO PEOPLES BANCORP, INCORPORATED
COMMON STOCK COMMON STOCK
PEOPLES BANCORP, INCORPORATED
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
CUSIP 70978T 10 7
THIS CERTIFIES THAT
is the registered holder of
Shares of the fully paid and nonassessable Common Stock of the above named
Corporation transferable only on the books of the Corporation by the holder
hereof in person or by Attorney upon surrender of this Certificate properly
endorsed.
In witness whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this ________ day of ________________ A.D. _______.
- ---------------------------------- --------------------------------
Signature Signature
(reverse side)
The following abbreviations, when used in the insciption on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT -.....Custodian.....
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors
JT TEN - as joint tenants with right of
survivorship and not as tenants Act............................
in common (State)
Additional abbreviations may also be used though not in the above list.
</TABLE>
For value received, _____________________________________ hereby sell,
assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------------------------
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- -------------------------------------------------------------------------
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
---------------------------------------------
- --------------------------------------------------------------------------------
Attorney to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated
----------------------------
----------------------------------
In presence of
- ----------------------------------
