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 MARCH 31, 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 855,088 SHARES OF COMMON STOCK ($10.00 PAR) OUTSTANDING AS OF
MARCH 31, 1999.
Transitional Small Business Disclosure Format (check one) YES_____ NO__X__
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
PEOPLES BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Condition
(Dollar Amounts In Thousands)
(unaudited)
March 31 December 31,
1999 1998
ASSETS
Cash and due from banks $2,571 $3,006
Federal funds sold 7,766 7,244
Interest-bearing deposits 0 0
Investment securities available for sale 20,375 19,980
Investment securities held to maturity
(approximate fair value of $5,591
and $5,624) 5,575 5,590
Loans, less allowance for credit losses
of $900 and $901 88,088 88,184
Premises and equipment 3,067 3,034
Accrued interest income 999 913
Other Real Estate Owned 0 0
Deferred income taxes 187 141
Other assets 462 499
$129,090 $128,591
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing $13,341 $14,816
Interest-bearing 93,216 91,566
106,557 106,382
Fed Funds Purchased And Repurchase Agreements 5,514 5,367
Accrued interest payable 330 411
Accrued expenses 250 77
Other liabilities 56 73
112,707 112,310
Stockholders' equity
Common stock, par value $10 per share
authorized 876,000 shares, issued and
outstanding 855,088 shares as of
March 31, 1999 8,551 8,582
Capital surplus 2,921 2,921
Retained earnings 4,973 4,768
16,445 16,271
Net unrealized gain on securities
available for sale (62) 10
16,383 16,281
$129,090 $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 months ended Year End
March 31 December
1999 1998 1998
Interest and dividend revenue
Loans, including fees $1,914 $1,928 $7,826
U.S. Treasury securities 151 225 806
Government Agencies Securities 191 64 324
Municipal Securities 0 0 0
Federal funds sold 69 47 308
Deposits with banks 0 0 0
Equity securities 7 6 26
Total interest and dividend revenue 2,332 2,270 9,290
Interest expense
Deposit and Repurchase Agreement 985 916 3,808
Total interest expense 985 916 3,808
Net interest income 1,347 1,354 5,482
Provision for credit losses (1) 10 26
Net interest income after
provision for credit losses 1,348 1,344 5,456
Other operating revenue
Service charges on deposit accounts 130 112 493
Miscellaneous revenue 49 75 100
Total other operating revenue 179 187 593
Other expenses
Salaries and employee benefits 495 539 2,030
Occupancy 35 32 147
Furniture and equipment 39 28 135
Other operating 202 211 910
Total other expenses 771 810 3,222
Income before income taxes 756 721 2,827
Income taxes 275 266 1,044
Net income $481 $455 $1,783
Basic earnings per common share $0.56 $0.52 $2.06
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PEOPLES BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)
For the Three Months Ended
March 31
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $2,247 $2,514
Other revenue received 181 248
Cash paid for operating expenses (576) (712)
Interest paid (1,066) (917)
Taxes paid (254) (29)
532 1,104
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for premises, equipment, intangibles,
and construction in progress (60) (484)
Net customer loans repaid (advanced) 109 (961)
Proceeds from sales and maturities of securities
Available for sale 3,000 3,988
Held to maturity 15 8
Investment in securities available for sale (3,524) (1,001)
Proceeds from other real estate 0 2
(460) 1,552
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in time deposits 859 1,148
Net change in other deposits (1,713) (3,301)
Net change in Securities sold under
repurchase agreements 1,176 534
Proceeds from stock issued 1 1
Repurchase of stock (102) (52)
Dividends paid (206) (193)
15 (1,863)
NET INCREASE (DECREASE) IN CASH 87 793
CASH AND EQUIVALENTS AT BEGINGING OF PERIOD 10,250 6,581
CASH AND EQUIVALENTS AT END OF PERIOD $10,337 $7,374
RECONCILIATION OF NET INCOME TO NET CASH PROVICED
FROM OPERATING ACTIVITIES
Net income $481 $455
Adjustments
Depreciation and amortization 27 26
Provision for loan losses (1) 10
Security discount accretion, net of premium
Amortization 13 2
Loss (gains) on sales 0 0
Decrease (increase) in accrued interest
receivable and other assets (52) 385
Increase (decrease)
Deferred origination fees and costs, net (12) (17)
Accrued Interest payable and other liabilities 76 243
$532 $1,104
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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 March 31, 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 three months ended March 31, 1999 and 1998, total
comprehensive income, net of taxes, was $553,000 and $452,000 respectively.
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 30.45% at March 31, 1999 as compared to 27.86%
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 three months ended March 31, 1999 and 1998 were 16.79% and 17.12%,
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 March 31, 1999, the Bank's interest rate sensitivity, as
measured by gap analysis, showed the bank was liability-sensitive with a three
month cumulative gap, as a percentage of interest-earning assets, of 88.77%.
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.
RESULTS AND PLAN OF OPERATION
Net income for the three months ended March 31, 1999, was $481,000,
or $.56 per share, compared to $455,000, or $.52 per share, for the first three
months of 1997. The primary reason net income increased is due to an increase in
net interest income. The Bank has had growth in total assets of $499,000 as of
March 31, 1999 compared to March 31,1998.
Other operating expenses have also decreased $9,000 or 4.27% from
$211,000 for the first three months of 1998 to $202,000 for the first three
months ended March 31, 1999. During the first three months of 1998, the Company
incurred half of a nonrecurring type of expense of $19,000 on a foreclosed
property because of unexpected improvements that had to be made to help make the
property marketable.
The Bank reviewed its loan portfolio and determined the allowance,
at 1.01% of gross loans, was adequate at March 31, 1999. At December 31, 1998,
the allowance was also 1.01% of gross loans. At March 31, 1999, there were five
nonaccruing mortgage loans totaling $193,000 and only 1.37% of the portfolio was
delinquent ninety days or more including nonaccruing loans.
The Bank employed sixty three full time equivalent employees
during the first 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 year 2000 (Y2K) presents many potential problems for businesses
and individuals. In an effort to conserve hard drive space, programers wrote
programs that would not recognize the year 2000 correctly. This can cause
system failures for computers and other electronic equipment that have chip
components. Management has a Y2K committee, which reports to the Board
responsible for assessing progress in the Company's plans to minimize the
effects of the Y2K problem.
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). Testing should be complete by September 1999. The
Company also has a number of portable computers, all of which, due to their age,
are Y2K compliant. Management expects no significant additional costs to get
its systems Y2K 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 $4,341, 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.
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 3,120 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 INFORMANTION
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
March 31, 1999.
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: ___MAY 13, 1999___ By: ___ /s/ E. ROY OWENS
E. Roy Owens
President and CEO
Date: ___MAY 13, 1999___ By: ___/s/ THOMAS G. STEVENSON
Thomas G. Stevenson
Executive Vice President
Chief Financial Officer
PEOPLES BANCORP, INC,
FINANCIAL DATA SCHEDULE
ITEM MARCH 31
NUMBER 1999
9-03(1) Cash and due from banks 2,571
9-03(2) Interest-bearing deposits 0
9-03(3) Federal funds sold 7,766
9-03(4) Trading account assets
9-03(6) Investment and mortgage-backed securities
held for sale 20,375
9-03(6) Investment and mortgage-backed securities
held to maturity - carrying value 5,575
9-03(6) Investment and mortgage-backed securities
held to maturity - market value 5,591
9-03(7) Loans 88,988
9-03(7)(2) Allowance for losses 900
9-03(11) Total assets 129,090
9-03(12) Deposits 106,557
9-03(13) Short-term borrowings 5,514
9-03(15) Other liabilities 636
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 8,551
9-03(22) Other stockholders' equity 7,832
9-03(23) Total liabilities and stockholders' equity 129,090
PEOPLES BANCORP, INC.
FINANCIAL DATA SCHEDULE
(CONTINUED)
THREE MONTHS ENDED
GUIDE MARCH 31
NUMBER 1999
9-04(1) Interest and fees on loans $1,914
9-04(2) Interest and dividends on investments $349
9-04-(4) Other interest income $69
9-04-(5) Total interest income $2,332
9-04-(6) Interest on deposits $945
9-04-(9) Total interest expense $985
9-04-(10) Net interest income $1,347
9-04-(11) Provision for loan losses ($1)
9-04-(13)(h) Investment securities gains/(losses) 0
9-04-(14) Other expenses $771
9-04(15) Income/loss before income tax $756
9-04(17) Income/loss before extraordinary items $481
9-04(18) Extraordinary items, less tax $0
9-04(19) Cumulative change in accounting principles $0
9-04(20) Net income or loss $481
9-04(21) Earnings per share - basic $0.56
9-04(21) Earnings per share - diluted $0.56
I.B.5 Net yield on interest earning assets 4.64
III.C.1(a) Loans on nonaccrual 193
III.C.1(b) Accruing loans past due 90 days or more 1,023
III.C.1(c) Troubled debt restructuring 0
III.C.2 Potential problem loans 2,981
IV.A.1 Allowance for loan loss - beginning of period 901
IV.A.2 Total chargeoffs 0
IV.A.3 Total recoveries 0
IV.A.4 Allowance for loan loss - end of period 900
IV.B.1 Loan loss allowance allocated to domestic loans 900
IV.B.2 Loan loss allowance allocated to foreign loans 0
IV.B.3 Loan loss allowance - unallocated 0
