SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
__x__ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended DECEMBER 31, 1999
_____ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File No. 000-24169
________PEOPLES BANCORP, INC.__________
(Exact name of registrant as specified in its Charter)
_____MARYLAND_____ ___52-2027776___
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
100 SPRING AVENUE, CHESTERTOWN, MARYLAND 21620
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (410) 778-3500
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange
TITLE OF EACH CLASS ON WHICH REGISTERED
None None
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK
(Title of Class)
Check whether the small business issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12
months (or for such shorter period that the small business issuer was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes __X__ No_____
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the small business issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]
State small business issuer's revenues for its most recent fiscal year:
$10,176,220.
The aggregate market value of the Common Stock held by non-affiliates of the
small business issuer on December 31, 1999, was $23,468,138. This calculation
is based upon an estimation by the Company's Board of Directors of fair market
value of the Common Stock of $37.50 per share. There is not an active trading
market for the Common Stock and it is not possible to identify precisely the
market value of the Common Stock.
On March 28, 2000, 851,155 shares of the small business issuer's common stock
were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Annual report to Shareholders for the year ended December 31,1999,
is incorporated by reference in this Form 10-KSB in Part II Item 5, Item 6, and
Item 7. The Company's Proxy Statement for Annual Meeting of Shareholders to be
held on April 26, 2000, is incorporated by reference in this Form 10-KSB in Part
III, Item 9, Item 10, Item 11, and Item 12.
THIS REPORT CONTAINS STATEMENTS WHICH CONSTITUTE FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND
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, AMOUNG 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 THE 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.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Peoples Bancorp, Inc. (the "Company") was incorporated as a Maryland
corporation on December 10, 1996. The Company acquired Peoples Bank of Kent
County, Chestertown, Maryland (the "Bank") on March 24, 1997. 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's holding company structure can assist the bank in
maintaining its required capital ratio because the Company may, subject to
compliance with debt guidelines implemented by the Board of Governors of the
Federal Reserve System (the "Board of Governors" or the "Federal Reserve"),
borrow money and contribute the proceeds to the bank as primary capital. The
holding company structure also permits greater flexibility in issuing stock for
cash, property, or services and in reorganization transactions. Moreover,
subject to certain regulatory limitations, a holding company can purchase shares
of its own stock, which the bank may not do without regulatory approval. A
holding company may also engage in certain nonbanking activities which the Board
of Governors has deemed to be closely related to banking and proper incidents to
the business of a bank holding company. These activities include making or
servicing loans and certain types of leases; performing certain data processing
services; acting as a fiduciary or investment or financial advisor; acting as a
management consultant for other depository institutions; providing courier,
appraisal, and consumer financial counseling services; providing tax planning
and preparation services; providing check guaranty and collection agency
services; engaging in limited real estate investment activities; underwriting,
brokering, and selling credit life and disability insurance; engaging in certain
other limited insurance activities; providing discount brokerage services;
underwriting and dealing in certain government obligations and money market
instruments and providing portfolio investment advice; acting as a futures
commission merchant with respect to certain financial instrument transactions;
providing foreign exchange advisory and transactional services; making
investments in certain corporations for projects designed primarily to promote
community welfare; and owning and operating certain healthy savings and loans
associations. Although the Company has no present intention of engaging in any
of these services, if circumstances should lead the Company's management to
believe that there is a need for these services in the Bank's marketing area and
that such activities could be profitably conducted, the management of the
Company would have the flexibility of commencing these activities upon filing
notice thereof with the Board of Governors.
LOCATION AND SERVICE AREA
The Bank is a full service bank offering a variety of services to
satisfy the needs of consumer and commercial customers in the area. The
principal services offered by the Bank include most types of loans, including
commercial, consumer and real estate loans.
The Company operates from five branches located throughout Kent
County. The Company draws most of its customer deposits and conducts most of its
lending transactions from within its primary service area, which encompasses
Kent and Queen Anne's Counties, Maryland.
The principal components of Kent County's economy are agriculture and
light industry. The County is also growing as a tourist and retirement area.
The tourist business is centered primarily in Chestertown and Rock Hall. There
is a large retirement community, Heron Point, located in Chestertown. The
seafood business, once prominent, is in decline. There are three health-care
facilities located in Chestertown. Agriculture and agricultural-related
businesses are the largest overall employers in the county. There are several
light industry companies. The largest industrial employers are Chestertown
Foods and KRM, Inc., the holding company for Dixon Valve and Coupling.
BANKING SERVICES
The Bank offers a full range of deposit services that are typically
available in most banks and savings and loan associations, including checking
accounts, NOW accounts, savings accounts and other time deposits of various
types, ranging from daily money market accounts to longer-term certificates of
deposit. The transaction accounts and time certificates are tailored to the
Bank's principal market area at rates competitive to those offered in the area.
In addition, the Bank offers certain retirement account services, such as
Individual Retirements Accounts ("IRAs"). All deposits are insured by the
Federal Deposit Insurance Corporation (the "FDIC") up to the maximum amount
allowed by law (generally, $100,000 per depositor subject to aggregation rules).
The Bank solicits these accounts from individuals, businesses, associations and
organizations, and governmental authorities.
The Company, through the Bank, also offers a full range of short- to
medium-term commercial and personal loans. Commercial loans include both
secured and unsecured loans for working capital (including inventory and
receivables), business expansion (including acquisition of real estate and
improvements), and purchase of equipment and machinery. Consumer loans include
secured and unsecured loans for financing automobiles, home improvements,
education, and personal investments. The Company also originates mortgage loans
and real estate construction and acquisition loans. These lending activities
are subject to a variety of lending limits imposed by state and federal law.
The Bank may not make any loans to any director, officer, or employee (except
for commercial loans to directors who are not officers or employees) unless the
loans are approved by the Board of Directors of the Bank. The Board of
Directors must review any such loans every six months.
Other bank services include cash management services, safe deposit
boxes, travelers checks, direct deposit of payroll and social security checks,
and automatic drafts for various accounts. The Company is associated with a
regional network of automated teller machines that may be used by Bank customers
throughout Maryland and other regions. The Company also offers credit card
services through a correspondent bank. The Company sells non-insured investment
products for a fee.
COMPETITION
The Company faces strong competition in all areas of its operations.
The competition comes from entities operating in Kent and Queen Anne's Counties,
Maryland and includes branches of some of the largest banks in Maryland and
surrounding states. Its most direct competition for deposits historically has
come from other commercial banks, savings banks, savings and loan associations,
and credit unions operating in its service areas. The banks compete for
deposits with money market mutual funds and corporate and government securities.
The banks compete with these same banking entities for loans, as well as
mortgage banking companies and other institutional lenders. The competition for
loans varies from time to time depending on certain factors. These factors
include, among others, the general availability of lendable funds and credit,
general and local economic conditions, current interest rate levels, conditions
in the mortgage market, and other factors which are not readily predictable.
EMPLOYEES
As of December 31, 1999, the Bank employed 63.5 full-time equivalent
employees. The Company's operations are conducted through the Bank.
Consequently, the Company does not have separate employees. None of the
employees of the Bank are represented by any collective bargaining unit.
Relations with employees are considered to be good.
SUPERVISION AND REGULATION
Banks and bank holding companies 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.
THE COMPANY
Because it owns the outstanding common stock of the Bank, the Company
is a bank holding company within the meaning of the federal Bank Holding Company
Act of 1956 (the "BHCA"). Under the BHCA, the Company is subject to periodic
examination by the Federal Reserve and is required to file periodic reports of
its operations and such additional information as the Federal Reserve may
require. The Company's and the Bank's activities are limited to banking,
managing or controlling banks, furnishing services to or performing services for
its subsidiaries, or engaging in any other activity that the Federal Reserve
determines to be so closely related to banking or managing and controlling banks
as to be a proper incident thereto.
INVESTMENTS, CONTROL, AND ACTIVITIES. With certain limited exceptions,
the BHCA requires every bank holding company to obtain the prior approval of the
Federal Reserve before (i) acquiring substantially all the assets of any bank,
(ii) acquiring direct or indirect ownership or control of any voting shares of
any bank if after such acquisition it would own or control more than 5% of the
voting shares of such bank (unless it already owns or controls the majority of
such shares), or (iii) merging or consolidating with another bank holding
company.
In addition, and subject to certain exceptions, the BHCA and the
Change in Bank Control Act, together with regulations thereunder, require
Federal Reserve approval (or, depending on the circumstances, no notice of
disapproval) prior to any person or company acquiring "control" of a bank
holding company, such as the Company. Control is conclusively presumed to exist
if an individual or company acquires 25% or more of any class of voting
securities of the bank holding company. Because the Company's Common Stock is
registered under the Securities Exchange Act of 1934, under Federal Reserve
regulations control will be rebuttably presumed to exist if a person acquires at
least 10% of the outstanding shares of any class of voting securities of the
Company. The regulations provide a procedure for challenge of the rebuttable
control presumption.
Under the BHCA, the Company is generally prohibited from engaging in,
or acquiring direct or indirect control of more than 5% of the voting shares of
any company engaged in nonbanking activities, unless the Federal Reserve, by
order or regulation, has found those activities to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
Some of the activities that the Federal Reserve has determined by regulation to
be proper incidents to the business of banking include making or servicing
loans and certain types of leases, engaging in certain insurance and discount
brokerage activities, performing certain data processing services, acting in
certain circumstances as a fiduciary or investment or financial advisor, owning
savings associations, and making investments in certain corporations or projects
designed primarily to promote community welfare. During 1999, Congress enacted
the Financial Modernization Act, which has expanded the powers of financial
institutions. This legislation allows ownership in other financial service
industries, including the securities and insurance industries.
SOURCE OF STRENGTH; CROSS-GUARANTEE. In accordance with Federal
Reserve policy, the Company is expected to act as a source of financial
strength to its bank and to commit resources to support the Bank in
circumstances in which the Company might not otherwise do so. Under the BHCA,
the Federal Reserve may require a bank holding company to terminate any activity
or relinquish control of a nonbank subsidiary (other than a nonbank subsidiary
of a bank) upon the Federal Reserve's determination that such activity or
control constitutes a serious risk to the financial soundness or stability of
any subsidiary depository institution of the bank holding company. Further,
federal bank regulatory authorities have additional discretion to require a bank
holding company to divest itself of any bank or nonbank subsidiary if the agency
determines that divestiture may aid the depository institution's financial
condition. The Bank may be required to indemnify, or cross-guarantee, the FDIC
against losses it incurs with respect to any other bank controlled by the
Company, which in effect makes the Company's equity investments in healthy bank
subsidiaries available to the FDIC to assist any failing or failed bank
subsidiary of the Company.
THE BANK
GENERAL. The Bank operates as a state nonmember banking association
incorporated under the laws of the State of Maryland. It is subject to
examination by the FDIC and the State Bank Commissioner. Deposits in the Bank
are insured by the FDIC up to a maximum amount (generally $100,000 per
depositor, subject to aggregation rules). The Commissioner and FDIC regulate or
monitor all areas of the Bank's operations, including security devices and
procedures, adequacy of capitalization and loss reserves, loans, investments,
borrowings, deposits, mergers, issuances of securities, payment of dividends,
interest rates payable on deposits, interest rates or fees chargeable on loans,
establishment of branches, corporate reorganizations, maintenance of books and
records, and adequacy of staff training to carry on safe lending and deposit
gathering practices. The FDIC requires the Bank to maintain certain capital
ratios and imposes limitations on the Bank's aggregate investment in real
estate, bank premises, and furniture and fixtures. The Bank is required by the
FDIC and the Commissioner to prepare quarterly reports on the bank's financial
condition.
Under FDICIA, all insured institutions must undergo periodic on-site
examination by their appropriate banking agency. The cost of examinations of
insured depository institutions and any affiliates may be assessed by the
appropriate agency against each institution or affiliate as it deems necessary
or appropriate. Insured institutions are required to submit annual reports to
the FDIC and the appropriate agency (and state supervisor when applicable).
FDICIA also directs the FDIC to develop with other appropriate agencies a method
for insured depository institutions to provide supplemental disclosure of the
estimated fair market value of assets and liabilities, to the extent feasible
and practicable, in any balance sheet, financial statement, report of condition,
or other report of any insured depository institution. FDICIA also requires the
federal banking regulatory agencies to prescribe, by regulation, standards for
all insured depository institutions and depository institution holding companies
relating, among other things, to: (i) internal controls, information systems,
and audit systems; (ii) loan documentation; (iii) credit underwriting; (iv)
interest rate risk exposure; and (v) asset quality.
TRANSATIONS WITH AFFILIATES AND INSIDERS. The Bank is subject to
Section 23A of the Federal Reserve Act, which places limits on the amount of
loans or extensions of credit to, or investment in, or certain other
transactions with, affiliates and on the amount of advances to third parties
collateralized by the securities or obligations of affiliates. In addition,
most of these loans and certain other transactions must be secured in prescribed
amounts. The Bank is also subject to Section 23B of the Federal Reserve Act
which, among other things, prohibits an institution from engaging in certain
transactions with certain affiliates unless the transactions are on terms
substantially the same, or at least as favorable to such institution or its
subsidiaries, as those prevailing at the time for comparable transactions with
nonaffiliate companies. The Bank is subject to certain restrictions on
extensions of credit to executive officers, directors, certain principal
shareholders, and their related interests. Such extensions of credit (i) must
be made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
third parties, and (ii) must not involve more than the normal risk of repayment
or present other unfavorable features.
BRANCHING. Under Maryland law, the Bank may open branches state-wide,
subject to the prior approval of the Commissioner and the FDIC. Maryland law
permits banking organizations in other states to acquire Maryland banking
organizations, as long as such states grant similar privileges for acquiring
banking organizations in their states to banking organizations in Maryland, by
opening a de novo branch, by acquiring an existing branch from a Maryland
depository institution, or as a result of an interstate merger with a Maryland
banking organization.
COMMUNITY REINVESTMENT ACT. The Community Reinvestment Act requires
that each insured depository institution shall be evaluated by its primary
federal regulator with respect to its record in meeting the credit needs of its
local community, including low- and moderate-income neighborhoods, consistent
with the safe and sound operation of those institutions. These factors are also
considered in evaluating mergers, acquisitions, and applications to open a
branch or facility. The Bank received a satisfactory rating in its most recent
evaluation.
OTHER REGULATIONS. Interest and certain other charges collected or
contracted for by the Bank are subject to state usury laws and certain federal
laws concerning interest rates. Loan operations are also subject to certain
federal laws applicable to credit transactions, such as the federal Truth-In-
Lending Act governing disclosures of credit terms to consumer borrowers, the
Home Mortgage Disclosure Act of 1975 requiring financial institutions to provide
information to enable the public and public officials to determine whether a
financial institution is fulfilling its obligation to help meet the housing
needs of the community it serves, the Equal Credit Opportunity Act prohibiting
discrimination on the basis of race, creed, or other prohibited factors in
extending credit, the Fair Credit Reporting Act of 1978 governing the use and
provision of information to credit reporting agencies, the Fair Debt Collection
Act governing the manner in which consumer debts may be collected by collection
agencies, and the rules and regulations of the various federal agencies charged
with the responsibility of implementing such federal laws. The deposit
operations of the Bank are also subject to the Right to Financial Privacy Act,
which imposes a duty to maintain confidentiality of consumer financial records
and prescribes procedures for complying with administrative subpoenas of
financial records, and the Electronic Funds Transfer Act and Regulation E issued
by the Federal Reserve Board to implement that act, which governs automatic
deposits to and withdrawals from deposit accounts and customers' rights and
liabilities arising from the use of automated teller machines and other
electronic banking services.
DEPOSIT INSURANCE
The deposits of the Bank are currently insured to a maximum of
$100,000 per depositor, subject to certain aggregation rules. The FDIC
establishes rates for the payment of premiums by federally insured banks and
thrifts for deposit insurance. Separate insurance funds (BIF and SAIF) are
maintained for commercial banks and thrifts, with insurance premiums from the
industry used to offset losses from insurance payouts when banks and thrifts
fail. The FDIC premiums range from $.00 to $.31 per $100 in deposits.
The assessment rate for the Bank is currently $1,000 for each six-
month period. In addition to the FDIC assessment, banks are required to pay an
assessment to the Financing Corporation (FICO) to service the interest on its
bond obligations. Any increase in deposit insurance premiums for banks will
increase the Bank's cost of funds, and there can be no assurance that such costs
can be passed on to the Bank's customers.
DIVIDENDS
The principal source of the Company's cash revenues comes from
dividends received from the Bank. The amount of dividends that may be paid by
the Bank to the Company depends on the Bank's earnings and capital position and
is limited by federal and state laws, regulations, and policies. The Federal
Reserve has stated that bank holding companies should refrain from or limit
dividend increases or reduce or eliminate dividends under circumstances in which
the bank holding company fails to meet minimum capital requirements or in which
earnings are impaired.
The Company's ability to pay any cash dividends to its shareholders in
the future will depend primarily on the Bank's ability to pay dividends to the
Company. In order to pay dividends to the Company, the Bank must comply with
the requirements of all applicable laws and regulations. Under Maryland law,
the Bank must pay a cash dividend only from the following, after providing for
due or accrued expenses, losses, interest, and taxes: (i) its undivided profits,
or (ii) with the prior approval of the Commissioner, its surplus in excess of
100% of its required capital stock. Under FDICIA, the Bank may not pay a
dividend if, after paying the dividend, the Bank would be undercapitalized. See
"Capital Regulations" below. See Item 5 for a discussion of dividends paid by
the Bank in the past two years.
In addition to the availability of funds from the Bank, the future
dividend policy of the Company is subject to the discretion of the Board of
Directors and will depend upon a number of factors, including future earnings,
financial condition, cash needs, and general business conditions. If dividends
should be declared in the future, the amount of such dividends presently cannot
be estimated and it cannot be known whether such dividends would continue for
future periods.
CAPITAL REGULATIONS
The federal bank regulatory authorities have adopted risk-based
capital guidelines for banks and bank holding companies that are designed to
make regulatory capital requirements more sensitive to differences in risk
profile among banks and bank holding companies, account for off-balance sheet
exposure, and minimize disincentives for holding liquid assets. The resulting
capital ratios represent qualifying capital as a percentage of total risk-
weighted assets and off-balance sheet items. The guidelines are minimums, and
the regulators have noted that banks and bank holding companies contemplating
significant expansion programs should not allow expansion to diminish their
capital ratios and should maintain ratios well in excess of the minimums. The
current guidelines require all bank holding companies and federally regulated
banks to maintain a minimum risk-based total capital ratio equal to 8%, of which
at least 4% must be Tier 1 capital. Tier 1 capital includes common shareholders'
equity before the unrealized gains and losses on securities available for sale,
qualifying perpetual preferred stock, and minority interests in equity accounts
of consolidated subsidiaries, but excludes goodwill and most other intangibles,
and excludes the allowance for loan and lease losses. Tier 2 capital includes
the excess of any preferred stock not included in Tier 1 capital, mandatory
convertible securities, hybrid capital instruments, subordinated debt and
intermediate term-preferred stock, and general reserves for loan and lease
losses up to 1.25% of risk-weighted assets.
Under the guidelines, banks' and bank holding companies' assets are
given risk-weights of 0%, 20%, 50%, and 100%. In addition, certain off-balance
sheet items are given credit conversion factors to convert them to asset
equivalent amounts to which an appropriate risk-weight will apply. These
computations result in the total risk-weighted assets. Most loans are assigned
to the 100% risk category, except for first mortgage loans fully secured by
residential property and, under certain circumstances, residential construction
loans, both of which carry a 50% rating. Most investment securities are
assigned to the 20% category, except for municipal or state revenue bonds, which
have a 50% rating, and direct obligations of or obligations guaranteed by the
United States Treasury or United States Government agencies, which have a 0%
rating.
The federal bank regulatory authorities have also implemented a
leverage ratio, which is Tier 1 capital as a percentage of average total assets
less intangibles, to be used as a supplement to the risk-based guidelines. The
principal objective of the leverage ratio is to place a constraint on the
maximum degree to which a bank holding company may leverage its equity capital
base. The minimum required leverage ratio for top-rated institutions is 3%, but
most institutions are required to maintain an additional cushion of at least 100
to 200 basis points.
FDICIA established a capital-based regulatory scheme designed to
promote early intervention for troubled banks and requires the FDIC to choose
the least expensive resolution of bank failures. This capital-based regulatory
framework contains five categories for compliance with regulatory capital
requirements, including "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized." To qualify as a "well capitalized" institution, a bank must
have a leverage ratio of no less than 5%, a Tier 1 risk-based ratio of no less
than 6%, and a total risk-based capital ratio of no less than 10%, and the bank
must not be under any order or directive from the appropriate regulatory agency
to meet and maintain a specific capital level. As of December 31, 1999, the
Company and the Bank were qualified as "well capitalized." See "Item 6.
Management's Discussion and Analysis or Plan of Operation - Capital." These
capital guidelines can affect the Company in several ways. If a bank begins to
grow at a rapid pace, capital infusion may be needed to boost capital. This
could impact the Company's ability to pay dividends. Rapid growth, deterioration
of the loan portfolio performance, poor earnings or a combination of these
factors could change the current capital positions. Risk-based capital
guidelines incorporate a measure for market risk to cover all positions located
in an institution's trading account and foreign exchange or commodity positions.
Banks and holding companies with significant exposure to market risk are
required to measure the risk and hold capital commensurate with that risk. These
guidelines have no effect on the Bank or the Company since they do not engage
in, or plan to engage in, the activities of trading accounts, foreign exchange
or commodity positions.
RECENT LEGISLATIVE DEVELOPMENTS
Periodically, the Federal and state legislatures consider bills with
respect to the regulation of financial institutions. Some of these proposals
could significantly change the regulation of banks and the financial services
industry. The Company cannot predict if such proposals will be adopted or the
affect to the Company.
ITEM 2. DESCRIPTION OF PROPERTY
The Company owns its main office facility located at 100 Spring Avenue
in Chestertown, Maryland 21620. The original building is approximately 16,000
square feet. The main office is also a full service branch. The Company also
maintains branches at the following locations, each of which is owned by the
Company:
____________LOCATION ______________ APPROXIMATE SQUARE FOOTAGE
600 Washington Avenue, Chestertown, Maryland 21620 3,500
166 North Main Street, Galena, Maryland 21635 2,000
21337 Rock Hall Avenue, Rock Hall, Maryland 21661 2,000
31905 River Road, Millington, Maryland 21651 see comment below
The Millington branch is currently housed in a temporary trailer. A
permanent facility is planned for the year 2000.
Proof and bookkeeping operations are centralized at the Washington
Avenue Branch.
Each branch has a manager that also serves as its loan officer. All
offices participate in normal day-to-day banking operations.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company
or the Bank or any of their properties are subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the shareholders of the
Company during the fourth quarter of 1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Articles of Incorporation authorize it to issue up to
1,000,000 shares of the common stock.
As of March 28, 2000, there were approximately 575 holders of record
of the common stock and 851,155 shares of Common Stock issued and outstanding.
There is no established public trading market in the stock, and there is no
likelihood that a trading market will develop in the near future. The
development of a trading market may be inhibited because a large portion of the
Company's shares is held by insiders. Transactions in the common stock are
infrequent and are negotiated privately between the persons involved in those
transactions.
All outstanding shares of common stock of the Company are entitled to
share equally in dividends from funds legally available, when, as, and if
declared by the Board of Directors. The Company paid dividends of $.99 per
share in 1999, and $.93 per share in 1998.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
BUSINESS OF THE COMPANY
Peoples Bancorp, Inc. (the "Company") was incorporated as a Maryland
corporation on December 10, 1996. The Company acquired Peoples Bank of Kent
County, Chestertown, Maryland (the "Bank") on March 24, 1997. 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 was incorporated as a Maryland corporation on December 10,
1996, to become a bank holding company by acquiring all of the capital stock of
the Bank. The Bank was incorporated under the laws of the State of Maryland in
1910. The Bank is a full-service commercial bank offering a variety of services
to satisfy the needs of consumers and small-to-medium-sized businesses and
professional enterprises. The Bank operates five branches located entirely in
Kent County, Maryland. The Bank draws most of its customer deposits and
conducts the bulk of its lending business within its primary service 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 offers a full range of deposit services that are typically
available in most banks and savings and loan associations, including checking
accounts, NOW accounts, savings accounts and other time deposits of various
types, ranging from daily money market accounts to longer-term certificates of
deposit. In addition, the Bank offers certain retirement account services, such
as Individual Retirement Accounts. The Bank also offers a full range of short-
to medium-term commercial and personal loans. The Bank originates mortgage
loans and real estate construction and acquisition loans, as well as secondary
fixed rate and adjustable rate mortgages. These loans generally have a demand
feature. Other Bank services include cash management services, safe deposit
boxes, traveler's checks, direct deposit of payroll and social security checks,
and automatic drafts for various accounts.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's financial condition and
results of operations should be read in conjunction with the Company's financial
statements and related notes and other statistical information included
elsewhere herein.
OVERVIEW
Consolidated income of the Company is derived primarily from operation
of the Bank. The 1999 net income was $1,784,061 compared to $1,782,896 for
1998. This produced a return on average equity of 10.72% and return on average
assets of 1.36% for 1999, compared to returns of 11.11% and 1.46%, respectively
for 1998.
RESULTS OF OPERATIONS
The Company reported net income of $1,784,061, or $2.09 per share, for
the year ended December 31, 1999, which was an increase of $1,165, or 0.07%,
over the net income of $1,782,896, or $2.06 per share, for the year ended
December 31, 1998.
Net interest income increased $106,995, or 1.95%, to $5,589,035 in
1999, from $5,482,040 in 1998. This increase in net interest income was the
result of an increase in interest revenue of $237,497 while interest expense
increased by $130,502. Net interest income increased primarily because the
balance of interest-earning assets grew faster than the balance of deposits and
borrowed funds. The yield on interest-earning assets decreased to 7.75% in
1999, from 8.12% in 1998, while the combined effective rate on deposits and
borrowed funds decreased to 3.98% from 4.16% for the same period.
The provision for loan losses was $51,039 in 1999, an increase of
$25,198 from the $25,841 provision in 1998. The increased provision is the
result of a $48,433 increase in net charge-offs for 1999, creating a net charge-
off of $48,851. The allowance as a percentage of gross loans was 1.01% for both
years.
Noninterest income and noninterest expense increased by 9.55% and
6.44%, respectively during 1999, compared to 1998. Discussion of these items is
presented later under their respective headings.
NET INTEREST INCOME
The primary source of income for the Company is net interest income,
which is the difference between revenue on interest-earning assets, such as
investment securities and loans, and interest incurred on interest-bearing
sources of funds, such as deposits and borrowings. The level of net interest
income is determined primarily by the average balance of interest-earning assets
and funding sources and the various rate spreads between the interest-earning
assets and the Company's funding sources. The table "Average Balances,
Interest, and Yield" which follows shows the Company's average volume of
interest-earning assets and interest-bearing liabilities for 1999 and 1998, and
related income/expense and yields. Changes in net interest income from period
to period result from increases or decreases in the volume of interest-earning
assets and interest-bearing liabilities, and increases or decreases in the
average rates earned and paid on such assets and liabilities. The volume of
interest-earning assets and interest-bearing liabilities is affected by the
ability to manage the earning-asset portfolio (which includes loans), and the
availability of particular sources of funds, such as noninterest bearing
deposits. The table "Analysis of Changes in Net Interest Income" shows the
amount of net interest income change from rate changes and from activity
changes.
The key performance measure for net interest income is the "net margin
on interest-bearing assets," or net interest income divided by average interest-
earning assets. The Company's net interest margin for 1999 was 4.55% compared
to 4.80% for 1998. Management of the Company expects to maintain the net margin
on interest-earning assets. The net margin may decline, however, if competition
increases, loan demand decreases, or the cost of funds rises faster than the
return on loans and securities. Although such expectations are based on
management's judgment, actual results will depend on a number of factors that
cannot be predicted with certainty, and fulfillment of management's expectations
cannot be assured.
AVERAGE BALANCES, INTEREST, AND YIELD
For the Year Ended For the Year Ended
DECEMBER 31, 1999 DECEMBER 31, 1998
Average Average
BALANCE INTEREST YIELD BALANCE INTEREST YEILD
ASSETS
Federal funds sold 6200989 308346 4.97% 5766933 308291 5.35%
Investment securities:
U.S. Treasury 6388585 358780 5.62% 13786945 806432 5.85%
U.S. Government Agency 21650467 1144556 5.29% 6005619 323880 5.39%
Other 378843 28450 7.51% 361466 26232 7.26%
Total investment securities
28417895 1531786 5.39% 20154030 1156544 5.74%
Loans:
Demand and time 15834331 1440871 9.10% 14728796 1328998 9.02%
Mortgage 70555654 5929864 8.40% 72048388 6196039 8.60%
Installment 3052374 335145 10.98% 2940206 326931 11.12%
Total loans 89442359 7705880 8.62% 89717390 7851968 8.75%
Allowance for loan losses 904006 897395
Total loans, net of allowance
88538353 7705880 8.70% 88819995 7851968 8.84%
Total interest-earning assets
123157237 9546012 7.75% 114740958 9316803 8.12%
Noninterest-bearing cash 3219714 2996352
Premises and equipment 3124444 2615467
Other assets 1539853 1613737
Total asset 131041248 9546012 7.28% 121966514 9316803 7.64%
Liabilities and Stockholders' Equity
Interest-bearing Deposits
Savings & NOW deposits 30163647 733106 2.43% 28287997 700456 2.48%
Money market & supernow
10386352 279618 2.69% 9481124 263814 2.78%
Other time deposits 52335889 2750637 5.26% 49059920 2692545 5.49%
Total interest-bearing deposits
92885888 3763361 4.05% 86829041 3656815 4.21%
Borrowed funds 6009358 174813 2.91% 4727614 150857 3.19%
Total interest-bearing liabilities
98895246 3938174 3.98% 91556655 3807672 4.16%
Noninterest-bearing deposits
14884589 13669913
113779835 3938174 3.46% 105226568 3807672 3.62%
Other liabilities 622943 688181
Stockholders' equity 16638470 16051765
Total liabilities and stockholders equity
131041248 121966514
Net interest spread 3.77% 3.96%
Net interest income 5607838 5509131
Net margin on interest-earning assets 4.55% 4.80%
Interest on tax-exempt loans are reported on fully taxable equivalent basis.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
Year ended December 31, Year ended December 31,
1999 compared with 1998 1998 compared with 1997
variance due to variance due to
Total Rate Volume Total Rate Volume
EARNING ASSETS
Federal funds sold 55 -23149 23204 243819 -12700 256519
Investment securities:
U. S. Treasury -447652 -149 -432748 -453386 11414 -464800
U. S. Government Agency 820676 -23043 843719 89851 -14242 104093
State, county, and municipals 0 0 0 -9123 0 -9123
Other 2218 957 1261 25434 23131 2303
Loans:
Demand and time 111873 12119 99754 -60221 -153167 92946
Mortgage -266175 -137802 -128373 523964 30895 493069
Installment 8214 -4258 12472 61853 -4070 65923
Total interest revenue 229209 -190080 419289 422191 -118739 540930
INTEREST-BEARING LIABILITIES
Savings and NOW deposits 32650 -13794 46444 -5111 -19446 14335
Money market and supernow 15804 -9398 25202 54784 11771 43013
Other time deposits 58092 -121702 179794 68571 29875 38696
Other borrowed funds 23956 -16944 40900 44567 -7026 51593
Total interest expense 130502 -161838 292340 162811 15174 147637
Net interest income 98707 -28242 126949 259380 -133913 393293
Interest on tax-exempt loans are reported on fully taxable equivalent basis.
The variance that is both rate/volume related is reported with the rate
variance.
COMPOSITION OF LOAN PORTFOLIO
Because loans are expected to produce higher yields than investment
securities and other interest-earning assets (assuming that loan losses are not
excessive), the absolute volume of loans and the volume as a percentage of total
earning assets is an important determinant of net interest margin. Average
loans, net of the allowance for loan losses, were $88,538,353 and $88,819,995
during 1999 and 1998, respectively, which constituted 71.89% and 77.41% of
average interest-earning assets for the respective periods. At December 31,
1999, the Company's loan to deposit ratio was 80.32% compared to 82.10% at
December 31, 1998, while the 1999 average loans to average deposits were 82.15%.
The Company extends loans primarily to customers located in and near Kent, Queen
Anne's and Cecil Counties, Maryland. There are no industry concentrations in
the Company's loan portfolio. The Company does, however, have a substantial
portion of its loans in real estate and its performance will be influenced by
the real estate market in the region.
The following table sets forth the composition of the Company's loan
portfolio as of December 31, 1999 and 1998, respectively.
COMPOSITION OF LOAN PORTFOLIO
December 31,
1999 1998
Percent Percent
Amount of total Amount of total
Commercial 14758561 16.46% 13989837 15.67%
Real estate - residential 33969212 37.88% 33348619 37.35%
Real estate - commercial 33425980 37.28% 34869397 39.05%
Construction 2208119 2.46% 2435864 2.73%
Consumer 5306435 5.92% 4645552 5.20%
Total loans 89668307 100.00% 89289269 100.00%
Less deferred origination fees 178404 203792
Less allowance for credit losses 903327 901139
Net loans 88586576 88184338
The following table sets forth the maturity distribution, classified
according to sensitivity to changes in interest rates, for selected components
of the Company's loan portfolio as of December 31, 1999.
LOAN MATURITY SCHEDULE AND SENSITIVITY TO CHANGES IN INTEREST RATES
DECEMBER 31, 1999
Over one Over
One year through five
or less five years years Total
Commercial 14082310 676251 0 14758561
Real estate - residential 11817193 22152019 0 33969212
Real estate - commercial 19181045 14244935 0 33425980
Construction 2193119 15000 0 2208119
Consumer 3219224 2087211 0 5306435
Total 50492891 39175416 0 89668307
Fixed interest rate 26992358 31667974 0 58660332
Variable interest rate 23500533 7507442 0 31007975
Total 50492891 39175416 0 89668307
As of December 31, 1999, $31,007,975, or 34.58%, of the total loans
were either variable rate loans or loans written on demand.
The Company has the following commitments, lines of credit, and
letters of credit outstanding as of December 31, 1999 and 1998, respectively.
1999 1998
Check loan lines of credit 406957 350035
Mortgage lines of credit 660285 5217816
Commercial lines of credit 6232129 8537798
Construction loan commitments 799129 969393
Standby letters of credit 683691 846861
Total 8782191 15921903
Loan commitments are agreements to lend to a customer as long as there
is no violation of any condition to the contract. Loan commitments may have
interest fixed at current rates, fixed expiration dates, and may require the
payment of a fee. Letters of credit are commitments issued to guarantee the
performance of a customer to a third party. Loan commitments and letters of
credit are made on the same terms, including collateral, as outstanding loans.
The Company'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 Company will incur by the funding of these
commitments.
LOAN QUALITY
The allowance for loan losses represents a reserve for potential
losses in the loan portfolio. The adequacy of the allowance for loan losses is
evaluated periodically based on a review of all significant loans, with a
particular emphasis on non-accruing, past due, and other loans that management
believes require attention. The determination of the reserve level rests upon
management's judgment about factors affecting loan quality and assumptions about
the economy. Management considers the year-end allowance appropriate and
adequate to cover possible losses in the loan portfolio; however, management's
judgment is based upon a number of assumptions about future events, which are
believed to be reasonable, but which may or may not prove valid. Thus, there
can be no assurance that charge-offs in future periods will not exceed the
allowance for loan loss or that additional increases in the loan loss allowance
will not be required.
For significant problem loans, management's review consists of
evaluation of the financial strengths of the borrowers and guarantors, the
related collateral, and the effects of economic conditions. The overall
evaluation of the adequacy of the total allowance for loan losses is based on an
analysis of historical loan loss ratios, loan charge-offs, delinquency trends,
and previous collection experience, along with an assessment of the effects of
external economic conditions. Although the Company has a history of low loan
charge-offs, its current policy is to maintain an allowance of approximately
1.00% of gross loans unless management's evaluation of the risk associated with
each loan indicates that the allowance should be higher. This allowance may be
increased for reserves for specific loans identified as substandard during
management's loan review. Generally, the Company will not require a negative
provision to reduce the allowance as a result of either net recoveries or a
decrease in loans. This may cause the allowance as a percentage of gross loans
to exceed the Company's target of 1.00%.
The table "Allocation of Allowance for Loan Losses" which follows
shows the specific allowance applied by loan type and also the general allowance
included in the December 31, 1999 and 1998, allowance for loan losses.
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
1999 1998
Commercial 176355 19.52% 101049 11.21%
Real estate - residential 231786 25.66 262023 29.08
Real estate - commercial 285509 31.61 360103 39.96
Consumer 78421 8.68 74641 8.28
General 131256 14.53 103323 11.47
Total 903327 100.00% 901139 100.00%
The provision for loan losses is a charge to earnings in the current
period to replenish the allowance and maintain it at a level management has
determined to be adequate. As of both December 31, 1999 and 1998, the allowance
for loan losses was 1.01%.
ALLOWANCE FOR LOAN LOSSES
1999 1998
Balance at beginning of year 901139 875716
Loan losses:
Commercial 9948 0
Mortgages 35382 0
Consumer 6798 2269
Total loan losses 52128 2269
Recoveries on loans previously charged off
Commercial 314 0
Mortgages 0 0
Consumer 2963 1851
Total loan recoveries 3277 1851
Net loan losses 48851 418
Provision for loan losses charged to expense 51039 25841
Balance at end of year 903327 901139
Allowance for loan losses to loans outstanding
at end of year 1.01% 1.01%
Net charge-offs to average loans 0.05% 0.00%
As a result of management's ongoing review of the loan portfolio,
loans are classified as nonaccrual when it is not reasonable to expect
collection of interest under the original terms. These loans are classified as
nonaccrual even though the presence of collateral or the borrower's financial
strength may be sufficient to provide for ultimate repayment. Interest on
nonaccrual loans is recognized only when received. A delinquent loan is
generally placed in nonaccrual status when it becomes 90 days or more past due.
When a loan is placed in nonaccrual status, all interest that been accrued on
the loan but remains unpaid is reversed and deducted from earnings as a
reduction of reported interest income. No additional interest is accrued on the
loan balance until the collection of both principal and interest becomes
reasonably certain.
The Company had nonperforming loans of $1,083,718 and $1,114,132 at
December 31, 1999 and 1998, respectively. Where real estate acquired by
foreclosure and held for sale is included with nonperforming loans, the result
comprises nonperforming assets. Nonperforming asset totals at December 31, 1999
and 1998 were the same as nonperforming loan totals. Loans are classified as
impaired when the collection of contractual obligations, including principal and
interest, is doubtful. Management has identified no significant impaired loans
as of December 31, 1999 or 1998.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The primary objective of asset/liability management is to ensure the
steady growth of the Company's primary source of earnings, net interest income.
Net interest income can fluctuate with significant interest rate movements. To
lessen the impact of these margin swings, the balance sheet should be structured
so that repricing opportunities exist for both assets and liabilities in roughly
equivalent amounts at approximately the same time intervals. Imbalances in
these repricing opportunities at any point in time constitute interest rate
sensitivity.
Liquidity represents the ability to provide steady sources of funds
for loan commitments and investment activities, as well as to provide sufficient
funds to cover deposit withdrawals and payment of debt and operating
obligations. These funds can be obtained by converting assets to cash or by
attracting new deposits.
Average liquid assets (cash and amounts due from banks, interest
bearing deposits in other banks, federal funds sold, and investment securities)
were 35.11% of average deposits for 1999, compared to 28.77% for 1998.
Interest rate sensitivity may be controlled on either side of the
balance sheet. On the asset side, management can exercise some control on
maturities. Also, loans may be structured with rate floors and ceilings on
variable rate notes and by providing for repricing opportunities on fixed rate
notes. The Company's investment portfolio, including federal funds sold,
provides the most flexible and fastest control over rate sensitivity since it
can generally be restructured more quickly than the loan portfolio.
On the liability side, deposit products can be restructured so as to
offer incentives to attain the maturity distribution desired. Competitive
factors sometimes make control over deposits more difficult and less effective.
Interest rate sensitivity refers to the responsiveness of interest-
bearing assets and liabilities to changes in market interest rates. The rate-
sensitive position, or gap, is the difference in the volume of rate-sensitive
assets and liabilities at a given time interval. The general objective of gap
management is to actively manage rate-sensitive assets and liabilities to reduce
the impact of interest rate fluctuations on the net interest margin. Management
generally attempts to maintain a balance between rate-sensitive assets and
liabilities as the exposure period is lengthened to minimize the overall
interest rate risk to the Company.
The asset mix of the balance sheet is continually evaluated in terms
of several variables; yield, credit quality, appropriate funding sources, and
liquidity. Management of the liability mix of the balance sheet focuses on
expanding the various funding sources.
The interest rate sensitivity position at December 31, 1999, is
presented in the table "Interest Sensitivity Analysis." The difference between
rate-sensitive assets and rate-sensitive liabilities, or the interest rate
sensitivity gap, is shown at the bottom of the table. The Company was
liability-sensitive for the first twelve month time horizon and asset-sensitive
thereafter. For asset-sensitive institutions, if interest rates should decrease,
the net interest margins should decline. Since all interest rates and yields do
not adjust at the same velocity, the gap is only a general indicator of rate
sensitivity.
INTEREST SENSITIVITY ANALYSIS
December 31, 1999 After three
Within but within After one
Three twelve but within After
Months months five years five years Total
ASSETS
Earning assets
Federal funds sold 6531009 0 0 0 6531009
Investment securities
available for sale 999060 6940620 20153473 0 28093153
held to maturity 0 1500418 9544 47902 1557864
Loans 34835950 15656941 39175416 0 89668307
Total earning assets 42366019 24097979 59338433 47902 125850333
LIABILITIES
Interest-bearing liabilities
Money market and Supernow 10476638 0 0 0 10476638
Savings and NOW deposits 31416655 0 0 0 31416655
Certificates $100,000 and over 1421843 3081713 5381937 0 9885493
Certificates under $100,000 7060531 13999885 21733037 3008 42796461
Securities sold under agreements
to repurchase 7132290 400000 101260 0 7633550
Total interest-bearing
liabilities 57507957 17481598 27216234 3008 102208797
Period gap -15141938 6616381 32122199 44894 23641536
Cumulative gap -15141938 -8525557 23596642 23641536 23641536
Ratio of cumulative gap to
total earning assets -12.03% -6.77% 18.75% 18.79% 18.79%
The table "Investment Securities Maturity Distribution and Yields"
shows that as of December 31, 1999, $9,440,098 of the investment portfolio
matures in one year or less. The balance of the debt securities mature within
five years except for two collateralized mortgage obligations. The funds
invested in federal funds sold provide liquidity. Other sources of liquidity
include letters of credit, overnight federal funds, and reverse repurchase
agreements available from correspondent banks. The total lines of credit
available from correspondent banks at December 31, 1999, was $8,000,000.
Additionally, the Company has an unused line of credit of approximately
$18,159,000 from the Federal Home Loan Bank of Atlanta, which is secured by the
residential mortgages of the Bank.
INVESTMENT SECURITIES MATURITY DISTRIBUTION AND YIELDS
1999 1998
Carrying Year-end Carrying Year-end
Value yield value yield
U. S. Treasury
One year or less 994690 4.87% 9525137 6.01%
Over one through five years 1001880 5.02% 2051251 5.41%
Total U.S. Treasury 1996570 4.94% 11576388 5.90%
U.S. Government agency
One year or less 8445408 4.92% 20222 8.84%
Over one through five years 19161137 5.65% 13549486 5.00%
Over ten years 47902 7.20% 69678 7.20%
Total U.S. Government agency 27654447 5.43% 13639386 5.02%
Total debt securities 29651017 5.39% 25215774 5.42%
Federal Home Loan Bank stock 385700 354800
Total securities 30036717 25570574
DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES
Average interest-bearing liabilities increased $7,339,091, or 8.01%,
to $98,895,746 in 1999, from $91,556,655 in 1998. Average interest-bearing
deposits increased $6,057,347, or 6.98%, to $92,886,388 in 1999, from
$86,829,041 in 1998, while average demand deposits increased $1,214,676, or
8.89% to $14,884,589 in 1999, from $13,669,913 in 1998 At December 31,1999,
total deposits were $110,293,638, compared to $107,410,703 at December 31, 1998,
an increase of 2.68%.
The following table sets forth the deposits of the Company by category
as of December 31, 1999 and 1998, respectively.
DECEMBER 31,
1999 1998
Percent of Percent of
Amount deposits Amount deposits
Demand deposit accounts 15718391 14.25% 14816250 13.79%
Savings and NOW accounts 31416655 28.49 30020180 27.95
Money market and Supernow accounts 10476638 9.50 10156459 9.46
Time deposits less than $100,000 42796461 38.80 43627871 40.62
Time deposits of $100,000 or more 9885493 8.96 8789943 8.18
Total deposits 110293638 100.00% 107410703 100.00%
Core deposits, which exclude certificates of deposit of $100,000 or
more, provide a relatively stable funding source for the Company's loan
portfolio and other earning assets. The Company's core deposits increased
$1,787,385 during 1999. Deposits, and particularly core deposits, have been the
Company's primary source of funding and have enabled the Company to meet both
its short-term and long-term liquidity needs. Management anticipates that such
deposits will continue to be the Company's primary source of funding in the
future. The maturity distribution of the Company's time deposits over $100,000
at December 31, 1999 is shown in the following table.
MATURITIES OF CERTIFICATES OF DEPOSIT
AND OTHER TIME DEPOSITS OF $100,000 OR MORE
December 31, 1999
After six
After three through
Within three through twelve After twelve
Months six months months months Total
Certificates of deposit of $100,000
or more 1421843 1455400 1626313 5381937 9885493
Large certificate of deposit customers tend to be extremely sensitive
to interest rate levels, making these deposits less reliable sources of funding
for liquidity planning purposes than core deposits. Some financial institutions
partially fund their balance sheets using large certificates of deposit obtained
through brokers. These brokered deposits are generally expensive and are
unreliable as long-term funding sources. Accordingly, the Company does not
accept brokered deposits.
NONINTEREST INCOME
Noninterest income for 1999 was $649,011, compared to noninterest
income in 1998 of $592,458, an increase of $56,553 or 9.55%. Service charge
income has increased with the increased volume in deposits. During 1999, the
Company collected a full year of fees related to the new debit card product
introduced in 1998.
The following table presents the principal components of noninterest
income for the years ended December 31, 1999 and 1998, respectively.
NONINTEREST INCOME
1999 1998
Service charges on deposit accounts 497536 467497
Securities gains 0 0
Other noninterest revenue 151475 124961
Total noninterest income 649011 592458
Noninterest income as a percentage of average total assets 0.50% 0.49%
NONINTEREST EXPENSE
Noninterest expense increased by $205,665, or 6.44%, from $3,191,085
in 1998 to $3,396,750 in 1999. Other operating expenses have increased with the
growth in deposits and a full year of the costs of the Millington branch,
including rental of a temporary branch trailer. During 1999, the Company
completed renovations and refurbishing of the main office. As a result of
these and other acquisitions, depreciation increased in excess of $68,000.
The following table presents the principal components of noninterest
expense for the years ended December 31, 1999 and 1998, respectively.
NONINTEREST EXPENSE
1999 1998
Compensation and related expenses 2110767 2030624
Occupancy expense 188483 147218
Furniture and equipment expense 211151 135221
Advertising 27861 34331
Business Manager 22570 22377
Correspondent bank fees 36032 36434
Data processing 279309 243407
Deposit insurance 12118 11602
Director fees 87380 72556
Insurance 19318 22886
Office supplies 46043 42844
Other real estate holding costs 0 5887
Writedown of other real estate 0 18986
Postage 74307 69796
Printing and stationery 50219 56414
Professional fees 50067 75190
Public relations and contributions 40241 39342
Telephone 33437 32842
Other 107447 93128
Total noninterest expense 3396750 3191085
Noninterest expense as a percentage of
average total assets 2.59 2.62
CAPITAL
Under the capital guidelines of the Federal Reserve Board and the
FDIC, the Company and the bank are currently required to maintain a minimum
risk-based total capital ratio of 8%, with at least 4% being Tier 1 capital.
Tier 1 capital consists of common shareholders' equity, qualifying perpetual
preferred stock, and minority interests in equity accounts of consolidated
subsidiaries, less certain intangibles. In addition, the Company and the bank
must maintain a minimum Tier 1 leverage ratio (Tier 1 capital to total assets)
of at least 3%, but this minimum ratio is increased by 100 to 200 basis points
for other than the highest-rated institutions.
At December 31, 1999 and 1998, the Company and the Bank exceeded their
regulatory capital ratios, as set forth in the following table.
ANALYSIS OF CAPITAL
1999 1998
Required Consolidated Consolidated
Minimums Company Bank Company Bank
Total risk-based capital ratio 8.0% 17.9% 17.6% 17.9% 17.5%
Tier I risk-based capital ratio 4.0% 17.0% 16.7% 17.0% 16.6%
Tier I leverage ratio 3.0% 12.7% 12.5% 12.7% 12.4%
ACCOUNTING RULE CHANGES
FASB STATEMENT NO. 135, RESCISSION OF FASB STATEMENT NO. 75 AND
TECHNICAL CORRECTIONS, AMENDS FASB STATEMENT NO. 5 ACCOUNTING AND REPORTING BY
DEFINED BENEFIT PLANS, to exclude from its scope plans that are sponsored by and
provide benefits for the employees of one or more state or local governments.
The Statement is effective for financial statements issued for fiscal years
ending after February 15, 1999. It will have no effect on the financial
statements of the Company.
FASB Statement No. 136, TRAMSFERS OF ASSETS TO A NOT-FOR-PROFIT
ORGANIZATION OR CHARITABLE TRUST THAT RAISES OR HOLDS CONTRIBUTIONS FOR OTHERS,
is effective for fiscal years beginning after December 15, 1999. The Statement
establishes standards for transactions in which a donor makes a contribution by
transferring assets to a recipient organization that accepts the assets from the
donor and agrees to use those assets on behalf of another entity that is
specified by the donor. It will have no effect on the financial statements of
the Company.
FASB Statement No. 137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES - DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT NO. 133,
delays the effective date of FASB Statement No. 133 for one year, to fiscal
years beginning after June 15, 2000. The Company's security portfolio has
minimal derivative instruments. The implementation of this statement is
expected to have minimal impact on the Company's financial statements.
IMPACT OF INFLATION
Unlike most industrial companies, the assets and liabilities of
financial institutions such as the Company and the Bank are primarily monetary
in nature. Therefore, interest rates have a more significant effect on the
Company's performance than do the effects of changes in the general rate of
inflation and change in prices. In addition, interest rates do not necessarily
move in the same direction or in the same magnitude as the prices of goods and
services. As discussed previously, management seeks to manage the relationships
between interest sensitive assets and liabilities in order to protect against
wide interest rate fluctuations, including those resulting from inflation.
See "Liquidity and Interest Rate Sensitivity" above.
INDUSTRY DEVELOPMENTS
Certain recently enacted and proposed legislation could have an effect
on both the costs of doing business and the competitive factors facing the
financial institution industry. The Company is unable at this time to assess
the impact of this legislation on its financial condition or results of
operations.
ITEM 7. FINANCIAL STATEMENTS
In response to this Item, the information included on pages 7 through
12 of the Company's Annual Report to Shareholders for the year ended December
31, 1999, is incorporated herein by reference.
PART III
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS; COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers and persons who own more than ten
percent of the Company's Stock ("a Section 16 Insider") to file monthly reports
and an annual report with both the Securities and Exchange Commission and the
National Association of Securities Dealers. Based on a review of the reports
submitted to the Company, the Company believes that all Section 16(a) reporting
requirements applicable to the Company's directors, officers and 10%
Shareholders were satisfied , buy not on a timely basis because of
misunderstandings due to first time filings.
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or allocated for
services rendered to the Company in all capacities during the years ended
December 31, 1997, 1998and 1999 to the chief executive officer of the Company.
The Compensation of other members of executive management is not required to be
provided because the base compensation of each of such individuals does not
exceed $100,000.
SUMMARY COMPENSATION TABLE
Salary Bonus
Name and Principal Position Year ($) ($)
- -------------------------------- ------ -------- --------
E. Roy Owens,
Chairman and President and CEO...........1999 125,000 14,060
E. Roy Owens,
Chairman and President and CEO...........1998 122,000 18,915
E. Roy Owens,
Chairman and President and CEO...........1997 118,000 18,971
The Company has no employment agreements, termination of employment,
or change-in-control agreements or understandings with any of its directors,
executive officers or any other party.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENIFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 1999, certain
information concerning shares of the Common Stock of the Company beneficially
owned by ( i ) the chief executive officer of the company; ( ii ) all directors
and nominees for directors of the Company; ( iii) all directors and officers of
the Company as a group.
Amount and
Nature of Beneficial Percent of
Name and address of Beneficial Owner (11) Ownership (1) Class (1)
- ----------------------------------------- ------------- ----------
Directors:
Robert W. Clark, Jr 5,934(2) *
LaMonte E. Cooke 20 *
Gary B. Fellows 20 *
Herman E. Hill, Jr 4,570(3) **
Elmer E. Horsey 90,684(4) 10.57%
Arthur E. Kendall 2,031 *
P. Patrick McClary 5,226 *
Robert A. Moore 6,315(5) *
E. Roy Owens 4,130(6) *
Alexander P. Rasin, III 30,922(7) 3.60%
Stefan R. Skipp 31,800(8) 3.71%
Thomas G. Stevenson 11,085(9) 1.29%
Elizabeth A. Strong 139 *
William G. Wheatley 6,928(10) *
All Directors and Executive Officers of the Company (11)
as a group (15 persons) 200,214 23.52%
- -------------------------------
* Less than 1%
(1) Unless otherwise indicated, the named person has sole voting and investment
power with respect to all shares.
(2) Includes 2,664 shares owned by Mr. Clark's minor children and 401 shares
owned by Mr. Clark's wife.
(3) Includes 4,089 shares owned jointly by Mr. Hill and his wife and 165 shares
owned by Mr. Hill's wife.
(4) Includes 89,100 shares owned by Nylon Capital Shopping Center, Inc. for
which Mr. Horsey serves as President, but does not own any beneficial
interest, and 864 shares owned by Mr. Horsey's wife.
(5) Includes 5,310 shares owned jointly by Mr. Moore and his wife.
(6) Includes 1,365 shares owned jointly by Mr. Owens and his wife and 185
shares owned by Mr. Owens's wife.
(7) Includes 23,460 shares owned by a family trust and 1,422 shares owned by
Mr. Rasin's wife.
(8) Includes 9,000 shares owned by a family estate/trust account and 1,800
shares owned by Mr. Skipp's minor children.
(9) Includes 8,100 shares owned by three family trusts, and 1,500 shares owned
by a family partnership.
(10) Includes 6,843 shares owned jointly by Mr. Wheatley and his wife and 9
shares owned by Mr. Wheatley's wife.
(11) All directors and executive officers may be contacted at the Company's
corporate offices by addressing correspondence to the appropriate person,
care of Peoples Bancorp Inc., 100 Spring Avenue, P. O. Box 210,
Chestertown, Maryland 21620-0210.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past year the Bank has had banking transactions in the
ordinary course of its business with: ( i) its directors and nominees for
directors; (ii) its executive officers; (iii) its 5% or greater shareholders;
(iv) members of the immediately family if its directors, nominees for directors
or executive officers and 5% shareholders; and (v) the associates of such
persons on substantially the same terms, including interest rates, collateral,
and repayment terms on loans, as those prevailing at the same time for
comparable transactions with others. The extensions of credit by the Bank to
these persons have not and do not currently involve more than the normal risk of
collectibility or present other unfavorable features. At December 31, 1999, the
balance of the loans outstanding to directors, executive officers, owners of 5%
or more of the outstanding Common Stock, and their associates, including loans
guaranteed by such persons, aggregated $2,289,508, which represented
approximately 13.75% of the Company's equity capital accounts.
Alexander P. Rasin, III, a director of both the Company and the Bank,
is a partner of the law firm of Rasin, Wright and Wootton which performs legal
services for the Company and its subsidiaries. Management believes that the
terms of these transactions were at least as favorable to the Company as could
have been obtained elsewhere.
Robert A. Moore, a director of both the Company and the Bank, is
Chairman of Dukes-Moore Insurance Agency, Inc. an insurance brokerage firm
through which the Company and the Bank place various insurance policies. The
Company and the Bank paid total premiums for insurance policies placed by Dukes-
Moore Insurance Agency, Inc. in 1999 of $19,396. Management believes that the
terms of these transactions were at least as favorable to the Company as could
have been obtained elsewhere.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 of Registration Statement Form S-4,
File No. 33-99762).
3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2
of Registration Statement Form S-4, File No. 33-99762).
13 Annual Report to Shareholders for the year ended December 31,
1999.
21 Subsidiaries of the Company.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the year
ended December 31, 1999.
SIGNATURES
In accordance with 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.
(Registrant)
Date: __MARCH 28, 2000__ By:__/s/ E. ROY OWENS___________________
E. Roy Owens
President and Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date:__MARCH 28, 2000__ By:__/s/ ROBERT W. CLARK, JR.___________
Robert W. Clark, Jr., Director
Date:__MARCH 28, 2000__ By:__/s/ LAMONTE E. COOKE_______________
LaMonte E. Cooke, Director
Date:__MARCH 28, 2000__ By:__/s/GARY B. FELLOWS_________________
Gary B. Fellows, Director
Date:__MARCH 28, 2000__ By:__/s/ HERMAN E. HILL, JR.____________
Herman E. Hill, Jr., Director
Date:__MARCH 28, 2000__ By:__/s/ ELMER E. HORSEY________________
Elmer E. Horsey, Director
Date:__MARCH 28, 2000__ By:__/s/ARTHUR E. KENDALL_______________
Arthur E. Kendall, Director
Date:__MARCH 28, 2000__ By:__/s/ P. PATRICK MCCLEARY____________
P. Patrick McCleary, Director
Date:__MARCH 28, 2000__ By:__/s/ ROBERT A. MOORE________________
Robert A. Moore, Director
Date:__MARCH 28, 2000__ By:__/s/ E. ROY OWENS___________________
E. Roy Owens, President
and Chief Executive Officer
Date:__MARCH 28, 2000__ By:__/s/ ALEXANDER P. RASIN, III________
Alexander P. Rasin, III, Director
Date:__MARCH 28, 2000__ By:__/s/ STEFAN R. SKIPP________________
Stefan R. Skipp, Director
Date:__MARCH 28, 2000__ By:__/s/ THOMAS G. STEVENSON____________
Thomas G. Stevenson,
Executive Vice President
Date:__MARCH 28, 2000__ By:__/s/ ELIZABETH A. STRONG____________
Elizabeth A. Strong, Director
Date:__MARCH 28, 2000__ By:__/s/ WILLIAM G. WHEATLEY____________
William G. Wheatley, Director
EXHIBIT 13
ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED DECEMBER 31, 1999
BALANCE SHEETS
DECEMBER 31,
ASSETS
1999 1998 1997
Cash and due from banks 5070293 3006344 3976505
Federal funds sold 6531009 7244554 2604868
Securities available for sale 28478853 19980914 13873611
Securities held to maturity (market value of
$1,550,315,$5,624,558, and $8,136,502) 1557864 5589660 8124223
Loans, less allowance for loan losses of
$903,327,$901,139, and $875,716 88586576 88184338 85582910
Premises and equipment 3118979 3033957 2337662
Accrued interest receivable 972236 912965 990132
Other real estate owned 0 0 345069
Deferred income taxes 345954 153439 179779
Other assets 423839 484654 307572
135085603 128590825 118322331
The accompanying notes are an integral part of these financial statements.
LIABILITIES AND STOCKHOLDERS' EQUITY
1999 1998 1997
Deposits
Demand 15718391 14816250 13708219
Savings and NOW 31416655 30020180 27335924
Money market and Supernow 10476638 10156459 9455226
Other time 52681954 52417814 48062458
110293638 107410703 98561827
Securities sold under repurchase agreements 7633550 4338141 3390120
Accrued interest payable 346903 411077 391360
Other liabilities 163310 149559 124519
118437401 112309480 102467826
Stockholders' equity
Common stock, par value $10 per share; authorized 1,000,000 shares;
issued and outstanding 851,155 shares in 1999,858,208 shares
in 1998, and 875,573 shares in 1997 8511550 8582080 8755730
Surplus 2920866 2920866 2920000
Undivided profits 5546414 4767900 4167590
16978830 16270846 15843320
Accumulated other comprehensive income -330628 10499 11185
16648202 16281345 15854505
135085603 128590825 118322331
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
1999 1998 1997
INTEREST REVENUE
Loans, including fees 7687077 7824877 7304892
U. S. Treasury securities 358780 806432 1259818
U. S. Government agency securities 1144556 323880 234029
State and municipal securities 0 0 6244
Other securities 28450 26232 798
Federal funds sold 308346 308291 64472
Total interest revenue 9527209 9289712 8870253
INTEREST EXPENSE
Certificates of deposit of $100,000 or more 532889 485258 492032
Other deposits 3230472 3171557 3046539
Borrowed funds 174813 150857 106290
Total interest expense 3938174 3807672 3644861
Net interest income 5589035 5482040 5225392
PROVISION FOR LOAN LOSSES 51039 25841 89158
Net interest income after
provision for loan losses 5537996 5456199 5136234
OTHER OPERATING REVENUE
Service charges on deposit accounts 497536 467497 427179
Securities gains 0 0 1845
Other noninterest revenue 151475 124961 100966
Total other revenue 649011 592458 529990
OTHER EXPENSES
Salaries 1684771 1624243 1512289
Employee benefits 425996 406381 357029
Occupancy 188483 147218 131520
Furniture and equipment 211151 135221 93390
Other operating 886349 878022 819156
Total other expenses 3396750 3191085 2913384
Income before income taxes and cumulative
effect of a change in accounting method 2790257 2857572 2752840
INCOME TAXES 1006196 1043967 998225
Income before cumulative effect of a change
in accounting method 1784061 1813605 1754615
Cumulative effect of a change in the method
of accounting for organization costs, net
of income taxes of $15,820 0 -30709 0
NET INCOME 1784061 1782896 1754615
Earnings per common share
Income before cumulative effect of a change
in accounting method 2.09 2.09 2.00
Cumulative effect of a change in the method of accounting for
organization costs, net of income taxes 0 -0.03 0
EARNINGS PER COMMON SHARE 2.09 2.06 2.00
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1999
Accumulated
other
Common stock Undivided Comprehensive Comprehensive
Shares Par value Surplus profits income income
Balance, December 31, 1996
292000 2920000 2920000 8822783 -16396
Net income 0 0 0 1754615 0 1754615
Unrealized gain (loss) on investment securities available for sale net of income
taxes 0 0 0 0 27581 27581
Stock split in the form of a 200% stock dividend
584000 5840000 0 -5840000 0 0
Repurchase of stock
-427 -4270 0 -9168 0 0
Cash dividend, $.64 per share
0 0 0 -560640 0 0
Balance, December 31, 1997
875573 8755730 2920000 4167590 11185 1782196
Net income 0 0 0 1782896 0 1782896
Unrealized gain (loss) on investment securities available for sale net of income
taxes 0 0 0 0 -686 -686
Sale of stock
40 400 865.6 0 0 0
Repurchase of stock
-17405 -174050 0 -375693 0 0
Cash dividend, $.93 per share
0 0 0 -806893 0 0
Balance, December 31, 1998
858208 8582080 2920866 4767900 10499 1782210
Net income 0 0 0 1784061 0 1784061
Unrealized gain (loss) on investment securities available for sale net of income
taxes 0 0 0 0 -341127 -341127
Repurchase of stock
-7053 -70530 0 -160042 0 0
Cash dividend, $.99 per share
0 0 0 -845505 0 0
Balance, December 31, 1999
851155 8511550 2920866 5546414 -330628 1442934
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
1999 1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received 9485044 9352056 8879088
Fees and commissions received 648684 593310 555222
Interest paid -4002348 -3787955 -3645950
Cash paid to suppliers and employees -3238835 -3107187 -2438801
Income taxes paid -881955 -1154452 -1395064
2010590 1895772 1954495
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and calls of investment securities
Held to maturity 4030018 2532522 260477
Available for sale 6500000 8000000 7002695
Purchase of investment securities
available for sale -15594688 -14126651 -342900
Loans made, net of principal collected -427890 -2592176 -8195461
Purchases of premises, equipment,& software -269893 -807552 -1293383
Proceeds from sale of other real estate
owned and equipment 0 326083 92704
Purchases of other real estate owned 0 0 -213068
-5762453 -6667774 -2688936
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in
Time deposits 264140 4355356 509532
Other deposits 2618795 3491641 2160354
Securities sold under repurchase
agreements 3295409 1949900 -491585
Dividends paid -845505 -806893 -925640
Proceeds from stock issued 0 1266 0
Repurchase of stock -230572 -549743 -13438
5102267 8441527 1239223
NET INCREASE IN CASH AND CASH EQUIVALENTS 1350404 3669525 504782
Cash and cash equivalents at beginning of
year 10250898 6581373 6076591
Cash and cash equivalents at end of year 11601302 10250898 6581373
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF CASH FLOWS (Continued)
YEARS ENDED DECEMBER 31,
1999 1998 1997
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net income 1784061 1782896 1754615
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Loss (gain) on sale of investment securities 0 0 -1845
Amortization of premiums and accretion of
discounts 42493 20270 11614
Provision for loan losses 51039 25841 89158
Depreciation and software amortization 183427 162642 112454
Loss (gain) & writedowns on other real estate 0 18986 -204
Deferred income taxes 22392 26772 -16721
Decrease (increase) in
Accrued interest receivable -59271 77167 27556
Other assets -52965 -76363 -9732
Increase (decrease) in
Deferred origination fees and costs, net -25387 -35093 -30335
Income taxes payable, net of refunds 101849 -153077 -15118
Accrued interest payable -64174 19717 -1089
Other liabilities 27126 26014 34142
2010590 1895772 1954495
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies reflected in the accompanying
financial statements conform to generally accepted accounting principles and to
general practices within the banking industry.
Peoples Bancorp, Inc. is a one-bank holding company. Its subsidiary,
Peoples Bank of Kent County, Maryland, is a financial institution operating
primarily in Kent and Queen Anne's Counties. The Bank offers deposit services
and loans to individuals, small businesses, associations, and government
entities. Other services include direct deposit of payroll and social security
checks, automatic drafts from accounts, automated teller machine services, cash
management services, safe deposit boxes, money orders, and travelers cheques.
The Bank also offers credit card services and discount brokerage services
through a correspondent.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. These estimates and assumptions may affect the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from these estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and the Bank. Intercompany balances and transactions have been
eliminated.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EPUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks, and federal funds sold. Generally,
federal funds are purchased and sold for one-day periods.
INVESTMENT SECURITIES
As securities are purchased, management determines if the securities
should be classified as held to maturity or available for sale. Securities
which management has the intent and ability to hold to maturity are recorded at
amortized cost which is cost adjusted for amortization of premiums and accretion
of discounts to maturity, or over the expected life of mortgage-backed
securities. Securities which may be sold before maturity are classified as
available for sale and carried at fair value with unrealized gains and losses
included in stockholders' equity on an after tax basis.
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. When the accrual of interest is
discontinued, loans are reviewed for impairment.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
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.
PREMISIS 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 ten years for furniture and equipment and ten to forty
years for premises.
ORGANIZATION COSTS
In 1998, the Company adopted Statement of Position 98-5 of the
Accounting Standards Executive Committee of the American Institute of Certified
Public Accountants, Reporting on the Costs of Start-up Activities, which
requires that start-up costs and organization costs be expensed as incurred.
During 1998, the Company wrote off organization costs totaling $46,529, all of
which were incurred prior to 1998. Prior to 1998, organization costs were
amortized over five years.
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 DUE FORM BANKS
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 $7,917,469 for
1999, $6,264,394 for 1998, and $2,556,200 for 1997.
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.
NOTES TO FINANCIAL STATEMENTS
3. INVESTMENT SECURITIES
Investment securities are summarized as follows:
Amortized Unrealized Unrealized Market
DECEMBER 31, 1999 cost gains losses value
Available for sale
U. S. Treasury 2023474 0 26904 1996570
U. S. Government agency 26608654 0 512071 26096583
Federal Home Loan Bank stock 385700 0 0 385700
29017828 0 538975 28478853
Held to maturity
U. S. Government agency 1500418 0 7237 1493181
Mortgage-backed securities 57446 94 406 57134
1557864 94 7643 1550315
December 31, 1998
Available for sale
U. S. Treasury 7542235 34018 0 7576253
U. S. Government agency 12066821 25248 42208 12049861
Federal Home Loan Bank stock 354800 0 0 354800
19963856 59266 42208 19980914
Held to maturity
U. S. Treasury 4000135 40178 0 4040313
U. S. Government agency 1501793 0 7448 1494345
Mortgage-backed securities 87732 2168 0 89900
5589660 42346 7448 5624558
December 31, 1997
Available for sale
U. S. Treasury 11511450 23675 10747 11524378
U. S. Government agency 2001083 5250 0 2006333
Federal Home Loan Bank stock 342900 0 0 342900
13855433 28925 10747 13873611
Held to maturity
U. S. Treasury 6000508 40743 0 6041251
U. S. Government agency 2003167 0 32156 1971011
Mortgage-backed securities 120548 3692 0 124240
8124223 44435 32156 8136502
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.
Available for sale Held to maturity
DECEMBER 31, 1999 Amortized Market Amortized Market
cost value cost value
Maturing
Within one year 8014319 7939680 1500418 1493181
Over one to five years 20617809 20153473 0 0
Mortgage-backed 0 0 57446 57134
Federal Home Loan Bank stock 385700 385700 0 0
29017828 28478853 1557864 1550315
Pledged securities 13548951 13318834 1500418 1493181
December 31, 1998
Maturing
Within one year 5503818 5525001 4000135 4040313
Over one to five years 14105238 14101113 1501793 1494345
Mortgage-backed 0 0 87732 89900
Federal Home Loan Bank stock 354800 354800 0 0
19963856 19980914 5589660 5624558
Pledged securities 4990118 5013830 4773410 4798827
December 31, 1997
Within one year 8002670 8005084 2499799 2503825
Over one to five years 5509863 5525627 5503876 5508438
Mortgage-backed 0 0 120548 124239
Federal Home Loan Bank stock 342900 342900 0 0
13855433 13873611 8124223 8136502
Pledged securities 6510783 6524065 4500708 4535700
Investments are pledged to secure the deposits of federal and local
governments and as collateral on repurchase agreements.
NOTES TO FINANCIAL STATEMENTS
4. LOANS ALLOWANCE FOR LOAN LOSSES
Major classifications of loans are as follows:
1999 1998 1997
Commercial 14758561 13989837 12789753
Real estate
Residential 33969212 33348619 33503212
Commercial 33425980 34869397 33890358
Construction 2208119 2435864 1772198
Consumer 5306435 4645552 4741988
89668307 89289269 86697509
Deferred fees, net of deferred costs 178404 203792 238883
Allowance for loan losses 903327 901139 875716
1081731 1104931 1114599
88586576 88184338 85582910
Final maturities of the loan portfolio are as follows:
Within ninety days 34835950 32701883 35057713
Over ninety days to one year 15656941 19670478 21497053
Over one year to five years 39175416 36916908 29634102
Over five years 0 0 508641
89668307 89289269 86697509
Transactions in the allowance for loan losses were as follows:
Beginning of year 901139 875716 794087
Provision charged to operations 51039 25841 89158
Recoveries 3277 1851 674
955455 903408 883919
Loans charged off 52128 2269 8203
End of year 903327 901139 875716
Management has identified no significant impaired loans.
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:
1999 1998 1997
Loan balances 285767 486235 556876
Interest not accrued 7250 45822 36388
Amounts past due 90 days or more at December 31, including nonaccruing
loans, are as follows:
Demand and time 141927 15030 0
Mortgage 935135 1096517 829827
Installment 6656 2585 12356
1083718 1114132 842183
Outstanding loan commitments, unused lines of credit, and letters of
credit as of December 31, are as follows:
Check loan lines of credit 406957 350035 302355
Mortgage lines of credit 660285 5217816 4507300
Commercial lines of credit 6232129 8537798 7440628
Undisbursed construction loan commitments 799129 969393 973741
8098500 15075042 13224024
Standby letters of credit 683691 846861 887134
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.
NOTES TO FINANCIAL STATEMENTS
5. PREMISES AND EQUIPMENT
A summary of premises and equipment and related depreciation expense
is as follows:
1999 1998 1997
Land 1071288 1056945 745976
Premises 2398662 1217687 1097604
Furniture and equipment 1374796 1074747 992649
Construction in progress 94484 1326531 1032129
4939230 4675910 3868358
Accumulated depreciation 1820251 1641953 1530696
Net premises and equipment 3118979 3033957 2337662
Depreciation expense 178297 116113 99575
Outstanding commitments related to the main office expansion and
remodeling program totaled $39,184 and $136,882 as of December 31, 1998 and
1997, respectively.
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:
1999 1998 1997
Three months or less 1421843 1513812 1360729
Over three through twelve months 3081713 1784086 1698809
One to five years 5381937 5492045 5058849
9885493 8789943 8118387
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:
1999 1998 1997
Maximum amount outstanding 7633550 5975986 4069611
Average amount outstanding 5929207 3733386 3399467
Average rate paid during the year 3.59% 4.04% 4.21%
Investment securities underlying agreements at year-end
Carrying value 12531892 9500000 8026619
Estimated fair value 12333100 9546847 8051877
NOTES TO FINANCIAL STATEMENTS
7. INCOME TAXES
The components of income tax expense, including taxes related to the
change in accounting method for origination costs, are as follows:
1999 1998 1997
Current
Federal 896820 873060 896997
State 86984 128315 117949
983804 1001375 1014946
Deferred 22392 26772 -16721
1006196 1028147 998225
The components of the deferred income tax expense are as follows:
Provision for loan losses -2520 -9980 -34432
Other real estate loss provision 0 42307 7644
Prepaid pension costs 26640 16105 21226
Depreciation -1852 10049 2757
Discount accretion -5622 -5979 8218
Charitable contributions -1448 0 0
Nonaccrual interest 14896 -3643 -13476
Deferred compensation -11425 -9989 -8658
Organization costs 3723 -12098 0
22392 26772 -16721
The components of the net deferred tax asset are as follows:
Deferred tax assets
Allowance for loan losses 219883 217363 207383
Other real estate loss allowance 0 0 42307
Deferred compensation 37255 25830 15841
Nonaccrual interest 2800 17696 14053
Organization costs 8375 12098 0
Charitable contributions accrued 1448 0 0
Unrealized loss on investment securities
available for sale 208347 0 0
478108 272987 279584
Deferred tax liabilities
Depreciation 45806 47658 37609
Discount accretion 4395 10017 15996
Prepaid pension costs 81953 55313 39208
Unrealized gain on investment securities
available for sale 0 6560 6992
132154 119548 99805
Net deferred tax asset 345954 153439 179779
NOTES TO FINANCIAL STATEMENTS
8. INCOME TAXES (CONTINUED)
A reconciliation of the provisions for income taxes from statutory
federal rates to effective rates follows:
1999 1998 1997
Tax at statutory federal income tax rate 34% 34% 34%
Tax effect of
Tax-exempt income -0.4 -0.5 -0.6
State income taxes, net of federal benefit 2.2 3 2.8
Other, net 0.3 0.1 0.1
36.1% 36.6% 36.3%
9. 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 1999, 1998, and 1997,
were $34,291, $31,184, and $28,326, respectively.
NOTES TO FINANCIAL STATEMENTS
10. 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:
1999 1998 1997
Change in plan assets
Fair value of plan assets at
beginning of year 1089666 999343 870686
Actual return on plan assets 35203 66559 63883
Employer contribution 113470 89208 92201
Benefits paid -22176 -65444 -27427
Fair value of plan at end of year 1216163 1089666 999343
Change in benefit obligation
Benefit obligation at beginning of year 1127629 1046430 908283
Service cost 48383 49741 42216
Interest cost 83671 75824 67007
Benefits paid -22176 -65444 -27427
Actuarial loss -133444 21078 56351
Benefit obligation at end of year 1104063 1127629 1046430
Funded status 112100 -37963 -47087
Unamortized prior service cost -16526 -17903 -19281
Unrecognized net loss 155048 242996 217287
Unamortized net obligation from transition -38418 -43907 -49396
Prepaid pension expense included in other
assets 212204 143223 101523
NOTES TO FINANCIAL STATEMENTS
10. PENSION (CONTINUED)
Net pension expense includes the following components:
1999 1998 1997
Service cost 48383 49741 42216
Interest cost 83671 75824 67007
Expected return on assets -86361 -76089 -68112
Amortization of transition asset -5489 -5489 -5489
Amortization of prior service cost -1377 -1377 -1377
Amortization of loss 5662 4898 2995
Net pension expense 44489 47508 37240
Assumptions used in the accounting for net pension expense were:
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%
NOTES TO FINANCIAL STATEMENTS
11. OTHER OPERATING EXPENSES
Other operating expenses consist of the following:
1999 1998 1997
Advertising 27861 34331 26443
Business Manager 22570 22377 30104
Correspondent bank fees 36032 36434 37802
Data processing 279309 243407 233099
Directors' fees 87380 72556 59341
FDIC assessment 12118 11602 11364
Insurance 19318 22886 28269
Office supplies 46043 42844 50751
Other real estate holding costs 0 5887 0
Writedown of other real estate 0 18986 -12294
Postage 74307 69796 68509
Printing and stationery 50219 56414 39963
Professional fees 50067 75190 83701
Public relations and contributions 40241 39342 39963
Telephone 33437 32842 30830
Other 107447 93128 91311
886349 878022 819156
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 credit risk. The total amount
of such loans outstanding at December 31, 1999, 1998, and 1997 was $3,455,990,
$3,605,424, and $5,582,424, respectively.
14. LINES OF CREDIT
The Bank has unused lines of credit of $5,000,000 in unsecured
overnight federal funds and $3,000,000 in secured repurchase agreements at
December 31, 1999. In addition, the Bank has an unused line of credit of
$18,158,560 from the Federal Home Loan Bank of Atlanta secured by residential
mortgages.
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, 1999, 1998, and 1997, the capital ratios and
minimum capital requirements of the Bank are as follows:
Minimum To be well
Actual capital adequacy capitalized
(in thousands) Amount Ratio Amount Ratio Amount Ratio
DECEMBER 31, 1999
Total capital
(to risk-weighted assets) 17546 17.6% 7990 8.0% 9987 10.%
Tier 1 capital
(to risk-weighted assets) 16643 16.7% 3995 4.0% 5992 6.0%
Tier 1 capital
(to fourth quarter
average assets) 16643 12.5% 5329 4.0% 6662 5.0%
DECEMBER 31, 1998
Total capital
(to risk-weighted assets) 16739 17.5% 7642 8.0% 9552 10.%
Tier 1 capital
(to risk-weighted assets) 15838 16.6% 3821 4.0% 5731 6.0%
Tier 1 capital
(to fourth quarter
average assets) 15838 12.4% 5102 4.0% 6377 5.0%
DECEMBER 31, 1997
Total capital
(to risk-weighted assets) 16358 18.5% 7075 8.0% 8844 10.%
Tier 1 capital
(to risk-weighted assets) 15482 17.5% 3537 4.0% 5306 6.0%
Tier 1 capital
(to fourth quarter
average assets) 15482 13.4% 4630 4.0% 5787 5.0%
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.
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.
December 31,
1999 1998 1997
Carrying Fair Carrying Fair Carrying Fair
Amount value amount value amount value
Financial assets
Cash and due from banks
5070293 5070293 3006344 3006344 3976505 3976505
Federal funds sold
6531009 6531009 7244554 7244554 2604868 2604868
Investment securities (total)
30036717 30029168 25570574 25605472 21997834 22010113
Loans, net 88586576 88667693 88184338 88303288 85582910 85401762
Accrued interest receivable
972236 972236 912965 912965 990132 990132
Financial liabilities
Noninterest-bearing deposits
15718391 15718391 14816250 14816250 13708219 13708219
Interest-bearing deposits and securities sold under repurchase agreements
102208797 102963699 96932594 97811411 88243728 88859054
Accrued interest payable
346903 346903 411077 411077 391360 391360
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.
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.
NOTES TO FINANCIAL STATEMENTS
17. PARENT COMPANY FINANCIAL INFORMATION
The balance sheets, statements of income, and cash flows for Peoples
Bancorp, Inc. (Parent Only) follow:
December 31,
BALANCE SHEETS 1999 1998 1997
Assets
Cash 323513 404939 303860
Investment in subsidiary 16312083 15838226 15492609
Organization costs 0 0 46529
Deferred income taxes 8375 12098 0
Other assets 4231 26082 12707
Total assets 16648202 16281345 15855705
Liabilities and Stockholders' Equity
Other liabilities 0 0 1200
Stockholders' equity
Common stock, par value $10.00 per share; authorized 1,000,000 shares;
issued and outstanding 851,155 shares in 1999, 858,208 shares
in 1998, and 875,573 shares in 1997 8511550 8582080 8755730
Additional paid-in capital 2920866 2920866 2920000
Retained earnings 5546414 4767900 4167590
Accumulated other comprehensive income -330628 10499 11185
Total stockholders' equity 16648202 16281345 15854505
Total liabilities and
stockholders' equity 16648202 16281345 15855705
Years Ended December 31,
STATEMENTS OF INCOME 1999 1998 1997
Interest revenue 16244 18456 10432
Dividends from subsidiary 970505 1486373 960640
Equity in undistributed income of subsidiary 814983 346303 818641
1801732 1851132 1789713
Expenses
Legal fees 8357 33080 34917
Amortization of organization costs 0 46529 8211
Other 9822 14100 4677
18179 93709 47805
Income before income taxes 1783553 1757423 1741908
Income tax reduction 508 25473 12707
Net income 1784061 1782896 1754615
NOTES TO FINANCIAL STATEMENTS
17. PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
Years Ended December 31,
STATEMENTS OF CASH FLOWS 1999 1998 1997
Cash flows from operating activities
Interest and dividends received 986749 1504829 971072
Tax refund received 26082 0 0
Cash paid for operating expenses -18179 -48380 -38394
994652 1456449 932678
Cash flows from investing activities
Cash paid for organization costs 0 0 -54740
Cash flows from financing activities
Dividends paid -845505 -806893 -560640
Repurchase of stock, net of stock sold -230573 -548477 -13438
-1076078 -1355370 -574078
Net increase (decrease) in cash -81426 101079 303860
Cash at beginning of year 404939 303860 0
Cash at end of year 323513 404939 303860
Reconciliation of net income to net cash
provided by operating activities
Net income 1784061 1782896 1754615
Adjustments to reconcile net income to net cash
used in operating activities
Undistributed net income of subsidiary -814983 -346303 -818641
Amortization 0 46529 8211
Deferred income taxes 3723 -12098 0
Increase (decrease) in
Accrued expenses 0 -1200 1200
Taxes payable, net of refunds 21851 -13375 -12707
994652 1456449 932678
NOTES TO FINANCIAL STATEMENTS
18. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(in thousands) Three Months Ended
except per share information December 31, September 30, June 30, March 30,
1999
Interest revenue 2457 2389 2349 2332
Interest expense 965 994 994 985
Net interest income 1492 1395 1355 1347
Provision for loan losses 24 5 23 -1
Net income 422 450 431 481
Comprehensive income 319 418 297 409
Earnings per share 0.50 0.53 0.50 0.56
1998
Interest revenue 2402 2323 2295 2270
Interest expense 980 971 941 916
Net interest income 1422 1352 1354 1354
Provision for loan losses -23 14 25 10
Net income 405 452 471 455
Comprehensive income 346 509 475 452
Earnings per share 0.48 0.52 0.54 0.52
1997
Interest revenue 2324 2223 2143 2180
Interest expense 918 928 905 894
Net interest income 1406 1295 1238 1286
Provision for loan losses 35 26 5 23
Net income 465 422 450 418
Comprehensive income 468 449 507 358
Earnings per share 0.53 0.48 0.51 0.48
THE FOLLOWING COMMENT IS REQUIRED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION.
"This statement has not been reviewed or confirmed for accuracy or relevance by
the Federal Deposit Insurance Corporation."
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
PEOPLES BANCORP, INC.
CHESTERTOWN, MARYLAND
We have audited the accompanying consolidated balance sheets of
Peoples Bancorp, Inc. and Subsidiary as of December 31, 1999, 1998, and 1997,
and the related consolidated 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. and Subsidiary as of December 31, 1999, 1998, and 1997,
and the results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
/s/ Rowles & Company, LLP
Salisbury Maryland
January 20, 2000
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
Peoples Bank of Kent County, Maryland, a state bank organized under
the laws of the State of Maryland.
FINANCIAL DATA SCHEDULE
Item December 31
Number 1999
9-03(1) Cash and due from banks 5070293
9-03(2) Interest-bearing deposits 0
9-03(3) Federal funds sold 6531009
9-03(4) Trading account assets
9-03(6) Investment and mortgage-backed securities
held for sale 28478853
9-03(6) Investment and mortgage-backed securities
held to maturity - carrying value 1557864
9-03(6) Investment and mortgage-backed securities
held to maturity - market value 1550315
9-03(7) Loans 89489903
9-03(7)(2) Allowance for losses 903327
9-03(11) Total assets 135085603
9-03(12) Deposits 110293638
9-03(13) Short-term borrowings 7633550
9-03(15) Other liabilities 510213
9-03(16) Long-term debt
9-03(19) Preferred stock - mandatory redemption
9-03(20) Preferred stock - no mandatory redemption
9-03(21) Common stocks 8511550
9-03(22) Other stockholders' equity 8136652
9-03(23) Total liabilities and stockholders' equity 135085603
FINANCIAL DATA SCHEDULE
(continued)
Year ended
Guide December 31
Number 1999
9-04(1) Interest and fees on loans 7687077
9-04(2) Interest and dividends on investments 1531786
9-04-(4) Other interest income 308346
9-04-(5) Total interest income 9527209
9-04-(6) Interest on deposits 3763361
9-04-(9) Total interest expense 3938174
9-04-(10) Net interest income 5589035
9-04-(11) Provision for loan losses 51039
9-04-(13)(h) Investment securities gains/(losses) 0
9-04-(14) Other expenses 3396750
9-04(15) Income/loss before income tax 2790257
9-04(17) Income/loss before extraordinary items 1784061
9-04(18) Extraordinary items, less tax
9-04(19) Cumulative change in accounting principles 0
9-04(20) Net income or loss 1784061
9-04(21) Earnings per share - primary 2.09
9-04(21) Earnings per share - full diluted 2.09
I.B.5 Net yield on interest earning assets 4.55%
III.C.1(a) Loans on nonaccrual 0
III.C.1(b) Accruing loans past due 90 days or more 797951
III.C.1(c) Troubled debt restructuring 0
III.C.2 Potential problem loans 0
IV.A.1 Allowance for loan loss - beginning of period 901139
IV.A.2 Total chargeoffs 51039
IV.A.3 Total recoveries 3277
IV.A.4 Allowance for loan loss - end of period 903327
IV.B.1 Loan loss allowance allocated to domestic loans 772071
IV.B.2 Loan loss allowance allocated to foreign loans
IV.B.3 Loan loss allowance - unallocated 131256
