SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarter ended September 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM
__________________ TO _________________
Commission File Number: 0001060244
PEOPLES BANCORP, INC.
(Exact name of issuer as specified in its charter)
______MARYLAND_________ ____________52-2027776______________
(State of incorporation) (I.R.S. Employer Identification No.)
P. O. BOX 210, 100 SPRING STREET, CHESTERTOWN, MARYLAND 21620
(Address of principal executive offices)
______(410) 778-3500_______
(Issuer's telephone number)
______________________________NOT APPLICABLE____________________________________
(Former name,former address and former fiscal year,if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES___X___ NO ________
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
THE REGISTRANT HAS 851,155 SHARES OF COMMON STOCK ($10.00 PAR) OUTSTANDING AS OF
NOVEMBER 9, 1999.
Transitional Small Business Disclosure Format (check one) YES_____ NO___X___
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PEOPLES BANCORP, INC. AND SUBSIDIARY
FORM 10-QSB
INDEX
Part I - Financial Information
Page
Item 1 Financial Statements
Consolidated Statements of Condition 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operation 7-9
Part II - Other Information
Item 1 Legal Proceedings 10
Item 2 Changes in Securities 10
Item 3 Defaults Upon Senior Securities 10
Item 4 Submission of Matters to a Vote of Security Holders 10
Item 5 Other Information 10
Item 6 Exhibits and Reports on Form 8-K 10
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PEOPLES BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CONDITION
(Dollar Amounts In Thousands)
(unaudited)
September 30 December 31,
1999 1998
ASSETS
Cash and due from banks $2,575 $3,006
Federal funds sold 2,360 7,244
Interest-bearing deposits 0 0
Investment securities available for sale 27,659 19,980
Investment securities held to maturity
(approximate fair value of $2,556
and $5,625) 2,563 5,590
Loans, less allowance for credit losses
of $913 and $901 89,543 88,184
Premises and equipment 3,179 3,034
Accrued interest income 1,036 913
Other Real Estate Owned 0 0
Deferred income taxes 291 141
Other assets 523 499
$129,729 $128,591
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing $13,668 $14,816
Interest-bearing 93,462 91,566
107,130 106,382
Fed Funds Purchased And Repurchase Agreements 5,457 5,367
Accrued interest payable 350 411
Accrued expenses 154 77
Other liabilities 90 73
113,181 112,310
Stockholders' equity
Common stock, par value $10 per share
authorized 876,000 shares, issued and
outstanding 851,155 shares 8,512 8,582
Capital surplus 2,921 2,921
Retained earnings 5,343 4,768
16,776 16,271
Net unrealized gain on securities
available for sale (228) 10
16,548 16,281
$129,729 $128,591
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PEOPLES BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(Dollar Amounts in Thousands Except Per-Share Data)
For the For the
three months ended nine months ended Year End
September 30 September 30 December
1999 1998 1999 1998 1998
Interest and dividend revenue
Loans, including fees $1,918 $1,975 $5,762 $5,889 $7,826
U.S. Treasury securities 56 201 326 627 806
Government Agencies Securites 340 71 777 211 324
Municipal Securities 0 0 0 0 0
Federal funds sold 68 88 227 198 308
Deposits with banks 0 0 0 0 0
Equity securities 7 6 21 19 26
Total interest and dividend
revenue 2,389 2,341 7,113 6,944 9,290
Interest expense
Deposit and Repurchase Agreement 994 971 2,973 2,828 3,808
Total interest expense 994 971 2,973 2,828 3,808
Net interest income 1,395 1,370 4,140 4,116 5,482
Provision for credit losses 5 14 27 49 26
Net interest income after provision
for credit losses 1,390 1,356 4,113 4,067 5,456
Other operating revenue
Service charges on deposit
accounts 137 128 405 359 493
Miscellaneous revenue 20 21 95 102 100
Total other operating revenue 157 149 500 461 593
Other expenses
Salaries and employee benefits 525 503 1,563 1,496 2,030
Occupancy 43 34 126 96 147
Furniture and equipment 61 31 146 84 135
Other operating 218 212 652 663 910
Total other expenses 847 780 2,487 2,339 3,222
Income before income taxes 700 725 2,126 2,189 2,827
Income taxes 250 273 766 811 1,044
Net income $450 $452 $1,360 $1,378 $1,783
Basic earnings per common share $0.53 $0.53 $1.59 $1.58 $2.06
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PEOPLES BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended
September 30
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $7,008 $6,961
Other revenue received 502 603
Cash paid for operating expenses (2,429) (2,231)
Interest paid (3,034) (2,806)
Taxes paid (645) (633)
1,402 1,894
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for premises, equipment, intangibles,
and construction in progress (257) (411)
Net customer loans repaid (advanced) (1,370) (4,704)
Proceeds from sales and maturities of securities
Available for sale 6,525 6,997
Held to maturity 3,000 1,527
Investment in securities available for sale (14,598) (5,073)
Proceeds from other real estate - 189
(6,700) (1,475)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in time deposits 700 (60)
Net change in other deposits (981) (231)
Net change in repurchase agreements 1,119 2,557
Cash paid to repurchase stock, net of
proceeds of sale of 40 shares (231) (549)
Dividends paid (624) (601)
(17) 1,116
NET INCREASE (DECREASE) IN CASH (5,315) 1,535
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 10,250 6,581
CASH AND EQUIVALENTS AT END OF PERIOD $4,935 $8,116
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
FROM OPERATING ACTIVITIES
Net income $1,360 $1,378
Adjustments
Depreciation and amortization 113 77
Provision for loan losses 27 49
Security discount accretion, net of premium
Amortization 34 10
Decrease (increase) in accrued interest
Receivable and other assets (150) 193
Increase (decrease)
Deferred origination fees and costs, net (16) (28)
Accrued Interest payable and other liabilities 34 196
$1,402 $1,894
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PEOPLES BANCORP, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for the
interim financial information and with the instructions to Form 10-QSB and
Regulation S-X of the Securities and Exchange Commission. Accordingly, they do
not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results of the
quarters ended September 30, 1999 and 1998 are not necessarily indicative of the
results that may be expected for the years ending December 31, 1999 and 1998.
For further information, refer to the financial statements and footnotes
included in the Company's annual report for the year ended December 31, 1998.
2. Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks and overnight investments in federal funds
sold.
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PEOPLES BANCORP, INC. AND SUBSIDIARY
PART I FINANCIAL INFORMATION
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
This Report contains statements which constitute forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These statements appear in a number of
places in this Report and include all statements regarding the intent, belief or
current expectations of the Company, its directors or its officers with respect
to, among other things: (i) the Company's financing plans; (ii) trends affecting
the Company's financial condition or results of operations; (iii) the Company's
growth strategy and operating strategy; and (iv) the declaration and payment of
dividends. Investors are cautioned that any such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties, and
that actual results may differ materially from those projected in the forward-
looking statements as a result of various factors discussed herein and those
factors discussed in detail in the Company's filings with the Securities and
Exchange Commission.
The following discussion of the financial condition and results of
operations of the Registrant (the Company) should be read in conjunction with
the Company's financial statements and related notes and other statistical
information included elsewhere herein.
GENERAL
The Company was incorporated in Maryland on December 10, 1996 as a bank
holding company. Stock of a Maryland state bank with the name Peoples Bank of
Kent County, Maryland (the "Bank") was exchanged in March, 1997 for the
outstanding stock of the Company.
The Bank was established and incorporated in 1910. The Company currently
engages in no business other than owning and managing the Bank.
FINANCIAL CONDITION, LIQUIDITY AND SOURCES OF CAPITAL
The primary sources of liquidity of the Bank are from loan payments, short-
term investments, including federal funds sold, and cash and due from banks.
Average liquid assets (cash and amounts due from banks, interest bearing
deposits in other banks, federal funds sold, and investment securities) compared
to average deposits were 32.90% at September 30, 1999 as compared to 30.82% at
the same period last year. Another source of liquidity is a secured line of
credit for $15,000,000 from the Federal Home Loan Bank as well as lines of
credit in the amount of $6,000,000 from correspondent banks, namely, Bank of
America and Allfirst Bank.
Tier one capital ratios of the Bank, based on average assets for the nine
months ended September 30, 1999 and 1998 were 16.92% and 16.74%, respectively.
Both are substantially in excess of regulatory minimum requirements. The Bank
expects that its current capital and short-term investments will satisfy the
Bank's cash requirements for the foreseeable future. However, no assurance can
be given in this regard as rapid growth, deterioration in loan quality or a
downturn in earnings, or a combination of these factors could change the Bank's
capital position in a relatively short period of time.
At September 30, 1999, the Bank's interest rate sensitivity, as measured by
gap analysis, showed the bank was liability-sensitive with a nine month
cumulative gap, as a percentage of interest-earning assets, of 24.45%. This
shows that the bank is fairly evenly matched where any rate change will affect
the same amount of both assets and liabilities. Generally, liability sensitivity
indicates that a higher dollar amount of liabilities re-price than assets and in
a declining rate environment net interest income increases. On the other hand,
if interest rates increase, then typically the net interest income should
decline. The bank controls this matching of assets to liabilities to minimize
interest rate risk while at the same time maximizing income.
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RESULTS AND PLAN OF OPERATION
Net income for the nine months ended September 30, 1999, was $1,360,000, or
$1.59 per share, compared to $1,378,000, or $1.58 per share, for the first nine
months of 1998. The primary reason net income decreased is due to an increase in
occupancy, furniture and equipment expenses. This is the result of our expansion
and renovation project at the Main Office. The annual compensation increase has
been offset by an increase in net interest income.
The Bank reviewed its loan portfolio and determined the allowance, at 1.01%
of gross loans, was adequate at September 30, 1999. At December 31, 1998, the
allowance was also 1.01% of gross loans. At September 30, 1999, there were
eight nonaccruing mortgage loans totaling $310,842.08 and one commercial loan
totaling $11,390.21, and only 1.02% of the portfolio was delinquent ninety days
or more including nonaccruing loans.
The Bank employed sixty-five full time equivalent employees during the
third quarter of 1999. The Company employs no employees outside those hired by
the Bank.
The Bank offers a variety of commercial banking services in its trade area,
which encompasses all of Kent County, northern Queen Anne's County and southern
Cecil County, Maryland. This primary service area is located between the
Chesapeake Bay and the western boundary of Delaware. The Bank emphasizes its
primary goal of meeting the banking needs of individuals and small to medium
sized business in its daily operations. The Bank offers a full range of deposit
services that are generally available in most banks and other similar
institutions, i.e., checking accounts, now accounts, savings accounts and other
time deposits of various types, ranging from daily money market accounts to
long-term certificates of deposit.
The Bank also offers a broad range of short and medium term commercial and
personal loans. The bank originates demand and balloon type mortgage loans to
fit may types of loan requests, i.e., real estate construction, acquisition,
home equity and a variety of commercial purposes. Loans originated to date are
anticipated to be held in the Bank's portfolio.
The Bank's services also include cash management opportunities, safe
deposit boxes, direct deposit of various types of needs, automatic transfers of
funds, as well as discount brokerage services and financial planning, along with
security sales and purchases, including mutual funds and annuities. The bank
also offers ATM services through the Cirrus, Star and Visa networks. The Bank
offers Master Card and Visa credit card services through a correspondent bank as
an agent for the Bank as well as debit card services.
YEAR 2000 READINESS DISCLOSURE
The following information is provided as a "Year 2000 Readiness Disclosure"
in compliance with the year 2000 information and Readiness Disclosure Act of
1998.
The year 2000 (Y2K) presents many potential problems for businesses and
individuals. In an effort to conserve hard drive space, programers wrote
programs that use only two digits to identify a year in the date field. Unless
corrected, these programs could read the year 2000 as the year 1900, and likely
would adversely affect any number of calculations that are made using the date
field. Financial institutions are highly computerized organizations, and the
Year 2000 issue represents a significant risk to the industry. The Company
faces the same risks as the industry. The potential risk of any major loan
system failure due to a Year 2000 issue could be that loan interest could not be
accurately calculated, billed and collected. A deposit system failure could
entail deposit interest and balances that could not be accurately calculated and
paid to customers. These failures could have a significant impact on the
operations and liquidity of a financial institution.
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The Company adopted a Year 2000 Plan (the Plan) on March 11, 1998. This
Plan is consistent with the mandates and guidelines set forth by the FDIC and
the FFIEC. Within the Company, a committee of senior managers was formed to
address this issue. The management committee identified five major phases of a
strategic plan: awareness, assessment, renovation, validation, and
implementation.
The awareness phase is a continuing effort to educate employees, customers,
and vendors of the impact of the Year 2000 issue. As of September 30, 1999, all
customers have been mailed information in the form of statement stuffers
explaining Year 2000 issues. Should large borrowers not sufficiently address
this issue, the Company may experience an increase in loan defaults. The amount
of potential loss from this issue is not quantifiable. Each manager has
addressed this issue with branch employees. All employees have attended
meetings to educate them of any potential problems and or questions customers
might ask. Any misunderstandings by employees or customers are to be directed
to H. Lawrence Lyons, Year 2000 Committee Chairman.
During the initial assessment phase, a detailed listing was compiled of all
hardware, software, equipment, and venders owned or used by the Company. All
manufactures, software providers, and vendors were requested to provide
information regarding their Year 2000 readiness. Any that were unable to send
us documentation, were evaluated by the committee, which determined if the bank
would continue their present relationship or seek a new source. This stage was
completed September 30, 1999.
The validation phase consisted of testing all hardware and software for
Year 2000 readiness. The Company uses a third-party data processor for most of
its accounting functions. The processor has implemented many changes in
preparation for the year 2000 (Y2K). On August 18 and 19, 1998, test
transactions were processed to validate changes made to the core banking system
of deposits and loans. The tests were a success and no Year 2000 problems were
indicated. The company also has a number of portable computers, all of which,
due to their age, are Y2K compliant. Because our current versions of software
will not be Y2K compliant, we will be transferring our Lotus and Word Perfect
files to Microsoft Word and Microsoft Excel. This will be done by the 15th of
November 1999.
Contingency planning for all mission critical functions was completed on
June 15, 1999. Management's current estimate of the worst case scenario that
may occur would be that the branches would function off-line for the time period
immediately following year-end 1999. This off-line processing would have
minimal impact if the length of time that this condition existed were limited.
To accommodate all branches, the bookkeeping department, located at Washington
Avenue Branch, will have a complete trial balance of all accounts for all
branches.
The Company approved an increase in the Comprehensive Plan's budget to
$20,000.00 from the original $12,500.00. This was done to cover the cost
associated with updating computers that were not Y2K compliant and a program
needed to update Telephone Banking. Of the budgeted amount $15,000.00 has been
used. Management expects no significant additional costs to get its systems Y2K
compliant.
MARKET RISK
Net interest income of the Company is one of the most important factors in
evaluating the financial performance of the Company. The Company uses interest
sensitivity analysis to determine the effect of rate changes. Net interest
income is projected over the one-year period to determine the effect of an
increase or decrease in the prime rate of 100 basis points. If prime were to
decrease 100 basis points, the Company would experience a decrease in net
interest income of $69,826, if all assets and liabilities maturing within that
period were adjusted for the rate change. The sensitivity analysis does not
consider the likelihood of these rate changes nor whether management's reaction
to this rate change would be to reprice its loans and deposits. This paragraph
contains certain forward-looking statements within the meaning of and made
pursuant to the safe harbor provisions of the Private Litigation Securities
Reform Act of 1995.
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PEOPLES BANCORP, INC. AND SUBSIDIARY
PART II OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
Not applicable
Item 2 CHANGES IN SECURITIES
The Bank adopted a policy of purchasing stock from existing
stockholders.
During the present quarter 900 shares of stock were purchased.
Item 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
Item 5 OTHER INFORMATION
Not applicable.
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
1. Proxy Statement dated April 9, 1998, is incorporated by
reference.
2. Registration statement dated May 1, 1998, is incorporated by
reference.
b) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter ended
September 30, 1999.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PEOPLES BANCORP, INC.
Date: _________________ By:_________________________________
E. Roy Owens
President and CEO
Date: _________________ By:_________________________________
Thomas G. Stevenson
Executive Vice President
Chief Financial Officer
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PEOPLES BANCORP, INC.
FINANCIAL DATA SCHEDULE
ITEM SEPTEMBER 30
NUMBER 1999
9-03(1) Cash and due from banks 2,575
9-03(2) Interest-bearing deposits 0
9-03(3) Federal funds sold 2,360
9-03(4) Trading account assets
9-03(6) Investment and mortgage-backed securities
held for sale 27,659
9-03(6) Investment and mortgage-backed securities
held to maturity - carrying value 2,563
9-03(6) Investment and mortgage-backed securities
held to maturity - market value 2,556
9-03(7) Loans 90,456
9-03(7)(2) Allowance for losses 913
9-03(11) Total assets 129,729
9-03(12) Deposits 107,130
9-03(13) Short-term borrowings 5,457
9-03(15) Other liabilities 594
9-03(16) Long-term debt 0
9-03(19) Preferred stock - mandatory redemption 0
9-03(20) Preferred stock - no mandatory redemption 0
9-03(21) Common stock 8,512
9-03(22) Other stockholders' equity 8,036
9-03(23) Total liabilities and stockholders' equity 129,729
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FINANCIAL DATA SCHEDULE
(CONTINUED)
NINE MONTHS ENDED
GUIDE SEPTEMBER 30
NUMBER 1999
9-04(1) Interest and fees on loans $5,762
9-04(2) Interest and dividends on investments $1,124
9-04-(4) Other interest income $227
9-04-(5) Total interest income $7,113
9-04-(6) Interest on deposits $2,843
9-04-(9) Total interest expense $2,973
9-04-(10) Net interest income $4,140
9-04-(11) Provision for loan losses $27
9-04-(13)(h) Investment securities gains/(losses) 0
9-04-(14) Other expenses $2,487
9-04(15) Income/loss before income tax $2,126
9-04(17) Income/loss before extraordinary items $2,126
9-04(18) Extraordinary items, less tax $0
9-04(19) Cumulative change in accounting principles $0
9-04(20) Net income or loss $1,360
9-04(21) Earnings per share - basic $1.59
9-04(21) Earnings per share - diluted $1.59
I.B.5 Net yield on interest earning assets 4.48
III.C.1(a) Loans on nonaccrual 322
III.C.1(b) Accruing loans past due 90 days or more 607
III.C.1(c) Troubled debt restructuring 0
III.C.2 Potential problem loans 2,937
IV.A.1 Allowance for loan loss - beginning of period 901
IV.A.2 Total chargeoffs 15
IV.A.3 Total recoveries 0
IV.A.4 Allowance for loan loss - end of period 913
IV.B.1 Loan loss allowance allocated to domestic loans 913
IV.B.2 Loan loss allowance allocated to foreign loans 0
IV.B.3 Loan loss allowance - unallocated 0
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