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 JUNE 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 851,965 SHARES OF COMMON STOCK ($10.00 PAR) OUTSTANDING AS OF
AUGUST 1, 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 7-8
Part II - Other Information
Item 1 Legal Proceedings 9
Item 2 Changes in Securities 9
Item 3 Defaults Upon Senior Securities 9
Item 4 Submission of Matters to a Vote of Security Holders 9
Item 5 Other Information 9
Item 6 Exhibits and Reports on Form 8-K 9
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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)
June 30 December 31,
1999 1998
ASSETS
Cash and due from banks $3,178 $3,006
Federal funds sold 2,833 7,244
Interest-bearing deposits 0 0
Investment securities available for sale 24,135 19,980
Investment securities held to maturity
(approximate fair value of $5,568
and $8,124) 5,568 5,590
Loans, less allowance for credit losses
of $913 and $909 89,349 88,184
Premises and equipment 3,155 3,034
Accrued interest income 951 913
Other Real Estate Owned 0 0
Deferred income taxes 272 141
Other assets 465 499
$129,906 $128,591
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing $13,318 $14,816
Interest-bearing 93,621 91,566
106,939 106,382
Fed Funds Purchased And Repurchase Agreements 5,922 5,367
Accrued interest payable 337 411
Accrued expenses 187 77
Other liabilities 147 73
113,532 112,310
Stockholders' equity
Common stock, par value $10 per share
authorized 876,000 shares, issued and
outstanding 852,055 shares as of June 30, 1999 8,521 8,582
Capital surplus 2,921 2,921
Retained earnings 5,128 4,768
16,570 16,271
Net unrealized gain on securities
available for sale (196) 10
16,374 16,281
$129,906 $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 three For the six
months ended months ended Year End
June 30 June 30 December
1999 1998 1999 1998 1998
Interest and dividend revenue
Loans, including fees $1,887 $1,948 $3,801 $3,876 $7,826
U.S. Treasury securities 119 201 270 426 806
Government Agencies Securites 246 76 437 140 324
Municipal Securities 0 0 0 0 0
Federal funds sold 90 63 159 110 308
Deposits with banks 0 0 0 0 0
Equity securities 7 7 14 13 26
Total interest and dividend
revenue 2,349 2,295 4,681 4,565 9,290
Interest expense
Deposit interest 994 941 1,979 1,857 3,808
Total interest expense 994 941 1,979 1,857 3,808
Net interest income 1,355 1,354 2,702 2,708 5,482
Provision for credit losses 23 25 22 35 26
Net interest income after provision
for credit losses 1,332 1,329 2,680 2,673 5,456
Other operating revenue
Service charges on deposit
accounts 138 119 268 231 493
Miscellaneous revenue 26 48 75 123 100
Total other operating revenue 164 167 343 354 593
Other expenses
Salaries and employee benefits 498 458 993 997 2,030
Occupancy 48 30 83 62 147
Furniture and equipment 46 25 85 53 135
Other operating 234 240 436 451 910
Total other expenses 826 753 1,597 1,563 3,222
Income before income taxes 670 743 1,426 1,464 2,827
Income taxes 241 272 516 538 1,044
Net income $429 $471 $910 $926 $1,783
Earnings per common share $0.50 $0.54 $1.06 $1.07 $2.06
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PEOPLES BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the six Months Ended
June 30
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $4,659 $4,628
Other revenue received 329 354
Cash paid for operating expenses (1,406) (2,049)
Interest paid (2,053) (1,848)
Taxes paid (401) (529)
1,128 556
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for premises, equipment, intangibles,
and construction in progress (196) (271)
Net customer loans repaid (advanced) (1,178) (3,173)
Proceeds from sales and maturities of securities
Available for sale 6,001 4,000
Held to maturity 20 17
Investment in securities available for sale (10,515) (2,012)
Proceeds from other real estate 0 23
(5,868) (1,416)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in time deposits 468 (678)
Net change in other deposits (940) 901
Net change in repurchase agreements 1,584 1,870
Cash paid to repurchase stock, net of proceeds (200) (232)
Dividends paid (411) (393)
501 (1,468)
NET INCREASE (DECREASE) IN CASH (4,239) 608
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 10,250 6,581
CASH AND EQUIVALENTS AT END OF PERIOD $6,011 $7,189
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
FROM OPERATING ACTIVITIES
Net income $910 $926
Adjustments
Depreciation and amortization 75 43
Provision for loan losses 22 35
Security discount accretion, net of premium
amortization 25 (6)
Decrease (increase) in accrued interest
receivable and other assets (6) (492)
Increase (decrease)
Deferred origination fees and costs, net (9) (29)
Accrued Interest payable and other liabilities 111 79
$1,128 $556
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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
June 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
annual report as of 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.
3. Comprehensive income
For the six months ended June 30, 1999 and 1998, total comprehensive income,
net of taxes, was $706,000 and $926,000 respectively.
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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 32.04% at June 30, 1999 as compared to 27.19% 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, NationsBank and First
National Bank of Maryland.
Tier one capital ratios of the Bank, based on average assets for the six
months ended June 30, 1999 and 1998 were 17.00% and 17.14%, 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 June 30, 1999, the Bank's interest rate sensitivity, as measured by gap
analysis, showed the bank was liability-sensitive with a six month cumulative
gap, as a percentage of interest-earning assets, of 79.09%. 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 six months ended June 30, 1999, was $912,000, or $1.07
per share, compared to $926,000, or $1.07 per share, for the first six months of
1998. The primary reason net income decreased is due to an increase in Occupancy
and Furniture and Equipment expense which is the result of Main Office branch
expansion.
The Bank reviewed its loan portfolio and determined the allowance, at 1.01%
of gross loans, was adequate at June 30, 1999. At December 31, 1998, the
allowance was also 1.01% of gross loans. At June 30, 1999, there were five
nonaccruing mortgage loans totaling $193,000 and only 1.34% of the portfolio was
delinquent ninety days or more including nonaccruing loans.
The Bank employed sixty three full time equivalent employees during the
second 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 though the Most and Cirrus 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 ISSUES
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 ("Year 2000"). Testing should be complete by September 1999. The
Company also has a number of portable computers, all of which, due to their age,
are Year 2000 compliant. Management expects no significant additional costs to
get its systems Year 2000 compliant. The largest Year 2000 exposure to most
banks is the preparedness of the customers of the banks. Management is
addressing with its customers the possible consequences of not being prepared
for Year 2000. Statement enclosures have been mailed to every customer.
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. Management is attempting to reduce this exposure by
educating its customers. The Company's adopted a Comprehensive Plan that has
budgeted $20,000 to cover century date projects. Of this budgeted amount,
management has used $16,350.
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 $51,344, 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 Bancorp previously adopted a policy of purchasing stock from
existing stockholders.
During the present quarter 3,033 shares of stock were purchased.
Item 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The slate of directors proposed in the Proxy Statement dated
March 24,1999 were elected at the annual stockholders meeting
held on May 12, 1999. The selection of Rowles & Company as our
1999 independent auditing and accounting firm for tax purposes
was also approved at the meeting.
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 June
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: _August 13, 1999_ By:_/s/ E. Roy Owens_________________
E. Roy Owens
President and CEO
Date: _August 13, 1999_ By:_/s/ Thomas G. Stevenson___________
Thomas G. Stevenson
Executive Vice President
Chief Financial Officer
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PEOPLES BANCORP, INC.
FINANCIAL DATA SCHEDULE
ITEM JUNE 30
NUMBER 1999
9-03(1) Cash and due from banks 3,178
9-03(2) Interest-bearing deposits 0
9-03(3) Federal funds sold 2,833
9-03(4) Trading account assets
9-03(6) Investment and mortgage-backed securities
held for sale 24,135
9-03(6) Investment and mortgage-backed securities
held to maturity - carrying value 5,568
9-03(6) Investment and mortgage-backed securities
held to maturity - market value 5,568
9-03(7) Loans 90,262
9-03(7)(2) Allowance for losses 913
9-03(11) Total assets 129,906
9-03(12) Deposits 106,939
9-03(13) Short-term borrowings 5,922
9-03(15) Other liabilities 671
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 8,521
9-03(22) Other stockholders' equity 7,853
9-03(23) Total liabilities and stockholders' equity 129,906
PEOPLES BANCORP, INC.
FINANCIAL DATA SCHEDULE
(CONTINUED)
SIX MONTHS
ENDED
GUIDE JUNE 30
NUMBER 1998
9-04(1) Interest and fees on loans $3,801
9-04(2) Interest and dividends on investments $721
9-04-(4) Other interest income $159
9-04-(5) Total interest income $4,681
9-04-(6) Interest on deposits $1,979
9-04-(9) Total interest expense $1,979
9-04-(10) Net interest income $2,702
9-04-(11) Provision for loan losses $22
9-04-(13)(h) Investment securities gains/(losses) 0
9-04-(14) Other expenses $1,597
9-04(15) Income/loss before income tax $1,428
9-04(17) Income/loss before extraordinary items $910
9-04(18) Extraordinary items, less tax $0
9-04(19) Cumulative change in accounting principles $0
9-04(20) Net income or loss $910
9-04(21) Earnings per share - basic $1.06
9-04(21) Earnings per share - diluted $1.06
I.B.5 Net yield on interest earning assets 4.49
III.C.1(a) Loans on nonaccrual 193
III.C.1(b) Accruing loans past due 90 days or more 1,017
III.C.1(c) Troubled debt restructuring 0
III.C.2 Potential problem loans 3,080
IV.A.1 Allowance for loan loss - beginning of period 901
IV.A.2 Total chargeoffs 10
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
