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Annual Compensation | Long Term Compensation Awards | All Other | |||||
Compensation2,3,4,5,6 | |||||||
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| Securities Underlying |
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| Restricted | Options/Stock |
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Name and |
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| Other Annual | Stock | Appreciation Rights |
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Principal Position | Year | Salary | Bonus | Compensation1 | Awards | ("SARS") (in shares) | |
Tony W. Wolfe | 2003 | $206,828 | $0 | $-- | -- | $0/0 | $12,237 |
President and Chief Executive Officer of | 2002 | 207,840 | 0 | -- | -- | 10,000/07 | 11,827 |
the Company and the Bank | 2001 | 205,260 | 0 | -- | -- | 9,393/08 | 11,488 |
Joseph F. Beaman, Jr. | 2003 | $152,214 | $0 | $-- | -- | $0/0 | $7,963 |
Executive Vice President and Corporate | 2002 | 148,509 | 3,750 | -- | -- | 4,000/07 | 7,963 |
Secretary of the Company; Executive Vice | 2001 | 144,465 | 0 | -- | -- | 4,981/08 | 7,791 |
President, Chief Administrative Officer and | |||||||
Secretary of the Bank | |||||||
Lance A. Sellers | |||||||
Executive Vice President and Assistant | 2003 | $150,031 | $0 | $-- | -- | $0/0 | $7,648 |
Corporate Secretary of the Company; | 2002 | 140,994 | 0 | -- | -- | 7,000/07 | 7,164 |
Executive Vice President and Chief | 2001 | 130,595 | 0 | -- | -- | 4,821/08 | 6,601 |
Banking Officer of the Bank | |||||||
A. Joseph Lampron | |||||||
Excecutive Vice President, Chief Financial | 2003 | $111,593 | $0 | $-- | -- | $0/0 | $5,871 |
Officer and Corporate Treasurer of the | 2002 | 101,751 | 10,000 | -- | -- | 6,000/07 | 5,283 |
Company; Executive Vice President and | 2001 | 7,692 | 5,000 | -- | -- | 4,138/09 | 385 |
Chief Financial Officer of the Bank | |||||||
William D. Cable | |||||||
Executive Vice President and Assistant | 2003 | $118,135 | $0 | $-- | -- | $0/0 | $5,977 |
Corporate Treasurer of the Company; | 2002 | 110,814 | 0 | -- | -- | 6,000/07 | 5,572 |
Executive Vice President and Chief | 2001 | 103,131 | 0 | -- | -- | 3,519/08 | 5,189 |
Operations Officer of the Bank | |||||||
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
(a) | (b) | (c) | |
Equity compensation plans approved by security holders | 198,6791 | $14.582 | 55,592 |
Equity compensation plans not approved by security holders | 0 | 0 | 0 |
Total | 198,679 | $14.58 | 55,592 |
Name | Shares Acquired on Exercise (#) | Value Realized ($) | Number of Securities Underlying Unexercised Options/SARs at Fiscal Year End1, 2 | Value of Unexercised In-the-Money Options/SARs at Fiscal Year End3 | ||
Exercisable | Unexercisable | Exercisable | Unexercisable | |||
Tony W. Wolfe | 0 | $0 | 25,342/0 | 11,230/0 | $414,376/$0 | $183,619/$0 |
Joseph F. Beaman Jr. | 0 | $0 | 13,853/0 | 5,187/0 | $226,515/$0 | $84,821/$0 |
Lance A. Sellers | 0 | $0 | 12,141/0 | 6,812/0 | $198,522/$0 | $111,392/$0 |
A. Joseph Lampron | 0 | $0 | 4,758/0 | 5,380/0 | $42,441/$0 | $47,990/$0 |
William D. Cable | 0 | $0 | 7,583/0 | 5,369/0 | $123,992/$0 | $87,789/$0 |
![](https://capedge.com/proxy/DEF 14A/0001093672-04-000024/graph.jpg)
A-1 | ||
SELECTED FINANCIAL DATA | ||||||||||||||||
Dollars in Thousands Except Per Share Amounts | ||||||||||||||||
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||
Summary of Operations | ||||||||||||||||
Interest income | $ | 34,854 | 36,624 | 41,898 | 40,859 | 32,302 | ||||||||||
Interest expense | 12,749 | 15,777 | 23,027 | 19,432 | 14,790 | |||||||||||
Provision for loan losses | 6,744 | 5,432 | 3,545 | 1,879 | 425 | |||||||||||
Net interest income after provision for loan losses | 15,361 | 15,415 | 15,326 | 19,548 | 17,087 | |||||||||||
Non-interest income | 5,926 | 6,491 | 8,263 | 3,915 | 3,380 | |||||||||||
Non-interest expense | 18,228 | 16,758 | 16,752 | 15,509 | 13,832 | |||||||||||
Income before taxes | 3,059 | 5,148 | 6,837 | 7,954 | 6,635 | |||||||||||
Income taxes | 1,055 | 1,712 | 2,262 | 2,576 | 2,093 | |||||||||||
Net income | $ | 2,004 | 3,436 | 4,575 | 5,378 | 4,542 | ||||||||||
Selected Year-End Balances | ||||||||||||||||
Assets | $ | 674,032 | 645,638 | 619,505 | 519,002 | 432,435 | ||||||||||
Available for sale securities | 79,460 | 71,736 | 84,286 | 71,565 | 62,498 | |||||||||||
Loans, net | 542,404 | 519,122 | 484,517 | 406,226 | 335,274 | |||||||||||
Mortgage loans held for sale | 587 | 5,065 | 5,339 | 1,564 | 1,685 | |||||||||||
Interest-earning assets | 639,501 | 608,619 | 586,496 | 490,449 | 411,734 | |||||||||||
Deposits | 549,802 | 515,739 | 490,223 | 450,073 | 376,634 | |||||||||||
Interest-bearing liabilities | 550,357 | 527,192 | 515,989 | 420,594 | 339,243 | |||||||||||
Shareholders' equity | $ | 48,554 | 48,605 | 45,401 | 43,039 | 37,998 | ||||||||||
Shares outstanding* | 3,135,202 | 3,133,547 | 3,218,714 | 3,218,714 | 3,218,950 | |||||||||||
Selected Average Balances | ||||||||||||||||
Assets | $ | 660,644 | 624,796 | 575,142 | 469,536 | 417,387 | ||||||||||
Available for sale securities | 72,072 | 77,414 | 84,549 | 66,218 | 60,642 | |||||||||||
Loans | 539,559 | 507,879 | 454,371 | 374,226 | 324,651 | |||||||||||
Interest-earning assets | 625,764 | 592,947 | 545,945 | 447,645 | 396,606 | |||||||||||
Deposits | 533,704 | 499,224 | 481,289 | 408,210 | 363,637 | |||||||||||
Interest-bearing liabilities | 540,243 | 516,314 | 472,435 | 373,167 | 326,164 | |||||||||||
Shareholders' equity | $ | 49,914 | 48,257 | 47,432 | 42,852 | 39,348 | ||||||||||
Shares outstanding* | 3,133,687 | 3,151,975 | 3,218,714 | 3,218,714 | 3,218,950 | |||||||||||
Profitability Ratios | ||||||||||||||||
Return on average total assets | 0.30 | % | 0.55 | % | 0.80 | % | 1.15 | % | 1.09 | % | ||||||
Return on average shareholders' equity | 4.01 | % | 7.12 | % | 9.65 | % | 12.55 | % | 11.54 | % | ||||||
Dividend payout ratio | 62.56 | % | 36.58 | % | 28.14 | % | 23.39 | % | 23.84 | % | ||||||
Liquidity and Capital Ratios (averages) | ||||||||||||||||
Loan to deposit | 101.10 | % | 101.73 | % | 94.41 | % | 91.67 | % | 89.28 | % | ||||||
Shareholders' equity to total assets | 7.56 | % | 7.72 | % | 8.25 | % | 9.13 | % | 9.43 | % | ||||||
Per share of common stock* | ||||||||||||||||
Basic net income | $ | 0.64 | 1.09 | 1.42 | 1.67 | 1.41 | ||||||||||
Diluted net income | $ | 0.63 | 1.09 | 1.42 | 1.67 | 1.41 | ||||||||||
Cash dividends | $ | 0.40 | 0.40 | 0.40 | 0.39 | 0.34 | ||||||||||
Book value | $ | 15.49 | 15.51 | 14.11 | 13.37 | 11.81 | ||||||||||
*Shares outstanding and per share computations have been restated to reflect a 10% stock dividend during second quarter | ||||||||||||||||
2000 and the 3 for 2 stock split during first quarter 1999. |
A-2 | ||
Introduction
A-3 | ||
A-4 | ||
A-5 | ||
Table 1- Average Balance Table | ||||||||||||||||||||||||||||
December 31, 2003 | December 31, 2002 | December 31, 2001 | ||||||||||||||||||||||||||
(Dollars in Thousands) | Average Balance | Interest | Yield / Rate | Average Balance | Interest | Yield / Rate | Average Balance | Interest | Yield / Rate | |||||||||||||||||||
Interest-earning Assets: | ||||||||||||||||||||||||||||
Loans | $ | 539,559 | 28,700 | 5.32 | % | $ | 507,879 | 30,256 | 5.96 | % | $ | 454,371 | 35,210 | 7.75 | % | |||||||||||||
Interest rate swap agreements | - | 1,522 | 3.22 | % | - | 509 | 1.16 | % | - | - | - | |||||||||||||||||
Loan fees | - | 1,310 | 0.28 | % | - | 1,274 | 0.29 | % | - | 1,302 | 0.33 | % | ||||||||||||||||
Total Loans | 539,559 | 31,532 | 5.84 | % | 507,879 | 32,039 | 6.31 | % | 454,371 | 36,512 | 8.04 | % | ||||||||||||||||
Investments - taxable | 49,082 | 2,186 | 4.45 | % | 63,792 | 3,726 | 5.84 | % | 64,469 | 4,160 | 6.45 | % | ||||||||||||||||
Investments - nontaxable* | 22,990 | 1,228 | 5.34 | % | 13,622 | 929 | 6.82 | % | 20,080 | 1,381 | 6.88 | % | ||||||||||||||||
Federal funds sold | 5,981 | 58 | 0.98 | % | 3,356 | 45 | 1.34 | % | 3,776 | 127 | 3.36 | % | ||||||||||||||||
Other | 8,152 | 174 | 2.14 | % | 4,298 | 201 | 4.68 | % | 3,249 | 187 | 5.74 | % | ||||||||||||||||
Total interest-earning assets | 625,764 | 35,178 | 5.62 | % | 592,947 | 36,940 | 6.23 | % | 545,945 | 42,367 | 7.76 | % | ||||||||||||||||
Cash and due from banks | 12,587 | 11,351 | 12,273 | |||||||||||||||||||||||||
Other assets | 30,575 | 27,103 | 22,266 | |||||||||||||||||||||||||
Allowance for loan losses | (8,282 | ) | (6,607 | ) | (5,342 | ) | ||||||||||||||||||||||
Total assets | $ | 660,644 | 624,795 | 575,142 | ||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||||||
NOW accounts | $ | 75,757 | 688 | 0.91 | % | 60,757 | 628 | 1.03 | % | 38,584 | 413 | 1.07 | % | |||||||||||||||
Regular savings accounts | 21,131 | 75 | 0.35 | % | 21,908 | 95 | 0.44 | % | 22,670 | 178 | 0.78 | % | ||||||||||||||||
Money market accounts | 58,134 | 556 | 0.96 | % | 72,170 | 1,282 | 1.78 | % | 65,846 | 2,373 | 3.60 | % | ||||||||||||||||
Time deposits | 310,991 | 8,157 | 2.62 | % | 285,133 | 10,358 | 3.63 | % | 299,815 | 17,827 | 5.95 | % | ||||||||||||||||
FHLB borrowings | 59,305 | 2,597 | 4.38 | % | 60,956 | 2,659 | 4.36 | % | 42,533 | 2,118 | 4.98 | % | ||||||||||||||||
Demand notes payable to U.S. Treasury | 710 | 7 | 0.99 | % | 811 | 12 | 1.46 | % | 897 | 33 | 3.64 | % | ||||||||||||||||
Trust preferred securities | 14,000 | 668 | 4.77 | % | 14,000 | 735 | 5.25 | % | 499 | 30 | 6.08 | % | ||||||||||||||||
Other | 215 | 1 | 0.47 | % | 579 | 8 | 1.38 | % | 1,592 | 54 | 3.39 | % | ||||||||||||||||
Total interest-bearing liabilities | 540,243 | 12,749 | 2.36 | % | 516,314 | 15,777 | 3.06 | % | 472,435 | 23,026 | 4.87 | % | ||||||||||||||||
Demand deposits | 67,690 | 59,256 | 54,374 | |||||||||||||||||||||||||
Other liabilities | 2,800 | 2,326 | 3,486 | |||||||||||||||||||||||||
Shareholders' equity | 49,971 | 48,257 | 47,432 | |||||||||||||||||||||||||
Total liabilities and shareholder's equity | $ | 660,704 | 626,153 | 577,727 | ||||||||||||||||||||||||
Net interest spread | $ | 22,429 | 3.26 | % | 21,163 | 3.17 | % | 19,341 | 2.89 | % | ||||||||||||||||||
Net yield on interest-earning assets | 3.58 | % | 3.57 | % | 3.54 | % | ||||||||||||||||||||||
Taxable equivalent adjustment | ||||||||||||||||||||||||||||
Investment securities | $ | 324 | 316 | 470 | ||||||||||||||||||||||||
Net interest income | $ | 22,105 | 20,847 | 18,871 | ||||||||||||||||||||||||
*Includes $9.4 million of U.S. government agency securities that are non-taxable for state income tax purposes. An effective tax rate of 6.90% was used to calculate the tax equivalent yield on these securities. |
A-6 | ||
Table 2 - Rate/Volume Variance Analysis-Tax Equivalent Basis | |||||||||||||||||||
December 31, 2003 | December 31, 2002 | ||||||||||||||||||
(Dollars in Thousands) | Changes in average volume | Changes in average rates | Total Increase (Decrease) | Changes in average volume | Changes in average rates | Total Increase (Decrease) | |||||||||||||
Interest Income: | |||||||||||||||||||
Loans: Net of unearned income | $ | 1,925 | (2,432 | ) | (507 | ) | 3,838 | (8,312 | ) | (4,474 | ) | ||||||||
Investments - taxable | (271 | ) | (916 | ) | (1,187 | ) | (42 | ) | (393 | ) | (435 | ) | |||||||
Investments - nontaxable | (1 | ) | (53 | ) | (54 | ) | (442 | ) | (10 | ) | (452 | ) | |||||||
Federal funds sold | 30 | (17 | ) | 13 | (10 | ) | (72 | ) | (82 | ) | |||||||||
Other | 34 | (61 | ) | (27 | ) | 67 | (52 | ) | 15 | ||||||||||
Total interest income | $ | 1,717 | (3,479 | ) | (1,762 | ) | 3,411 | (8,839 | ) | (5,428 | ) | ||||||||
Interest expense: | |||||||||||||||||||
NOW accounts | $ | 146 | (86 | ) | 60 | 233 | (17 | ) | 216 | ||||||||||
Regular savings accounts | (3 | ) | (17 | ) | (20 | ) | (5 | ) | (78 | ) | (83 | ) | |||||||
Money market accounts | (192 | ) | (534 | ) | (726 | ) | 170 | (1,261 | ) | (1,091 | ) | ||||||||
Time deposits | 809 | (3,010 | ) | (2,201 | ) | (703 | ) | (6,766 | ) | (7,469 | ) | ||||||||
FHLB Borrowings | (72 | ) | 10 | (62 | ) | 861 | (320 | ) | 541 | ||||||||||
Demand notes payable to U.S. Treasury | (1 | ) | (4 | ) | (5 | ) | (2 | ) | (19 | ) | (21 | ) | |||||||
Junior subordinated debentures | 0 | (67 | ) | (67 | ) | 765 | (60 | ) | 705 | ||||||||||
Other | (3 | ) | (4 | ) | (7 | ) | (24 | ) | (23 | ) | (47 | ) | |||||||
Total interest expense | $ | 684 | (3,712 | ) | (3,028 | ) | 1,295 | (8,544 | ) | (7,249 | ) | ||||||||
Net interest income | $ | 1,034 | 233 | 1,266 | 2,116 | (295 | ) | 1,821 | |||||||||||
A-7 | ||
Table 3 - Non-Interest Income | ||||||||||
(Dollars in Thousands) | 2003 | 2002 | 2001 | |||||||
Service charges | $ | 3,267 | 3,061 | 2,805 | ||||||
Other service charges and fees | 611 | 503 | 472 | |||||||
Gain (loss) on sale of securities | (53 | ) | 626 | 1,614 | ||||||
Mortgage banking income | 685 | 702 | 1,014 | |||||||
Insurance and brokerage commissions | 421 | 478 | 349 | |||||||
Loss on foreclosed and repossessed assets | (747 | ) | (1 | ) | (66 | ) | ||||
Gain on sale of loans | 479 | - | - | |||||||
Miscellaneous | 1,263 | 1,122 | 2,075 | |||||||
Total non-interest income | $ | 5,926 | 6,491 | 8,263 | ||||||
A-8 | ||
Table 4 - Non-Interest Expense | ||||||||||
(Dollars in Thousands) | 2003 | 2002 | 2001 | |||||||
Salaries and wages | $ | 7,733 | 7,376 | 7,230 | ||||||
Employee benefits | 2,367 | 2,193 | 1,885 | |||||||
Total personnel expense | 10,100 | 9,569 | 9,115 | |||||||
Occupancy expense | 3,390 | 3,143 | 2,984 | |||||||
Office supplies | 270 | 283 | 362 | |||||||
FDIC deposit insurance | 82 | 157 | 85 | |||||||
Professional services | 333 | 264 | 314 | |||||||
Postage | 217 | 221 | 231 | |||||||
Telephone | 333 | 315 | 333 | |||||||
Director fees and expense | 234 | 352 | 219 | |||||||
Marketing and public relations | 541 | 219 | 243 | |||||||
Merchant processing expense | - | 78 | 552 | |||||||
Consulting fees | 280 | 160 | 143 | |||||||
Taxes and licenses | 443 | 40 | 100 | |||||||
Other operating expense | 2,005 | 1,957 | 2,071 | |||||||
Total non-interest expense | $ | 18,228 | 16,758 | 16,752 | ||||||
A-9 | ||
A-10 | ||
Table 5 - Interest Sensitivity Analysis | |||||||||||||||||||
Total Within | Over One year | ||||||||||||||||||
(Dollars in Thousands) | Immediate | 1-3 months | 4-12 months | One year | & non-sensitive | Total | |||||||||||||
Interest-earning assets: | |||||||||||||||||||
Loans | $ | 443,885 | 3,006 | 12,164 | 459,055 | 93,071 | $ | 552,126 | |||||||||||
Mortgage loans available for sale | 587 | - | - | 587 | - | 587 | |||||||||||||
Investment securities | 3,000 | 1,267 | 1,069 | 5,336 | 74,124 | 79,460 | |||||||||||||
Federal funds sold | 2,369 | - | - | 2,369 | - | 2,369 | |||||||||||||
Interest-bearing deposit account -FHLB | 1,457 | - | - | 1,457 | - | 1,457 | |||||||||||||
Other interest-earning assets | - | - | - | - | 3,502 | 3,502 | |||||||||||||
Total interest-earning assets | $ | 451,298 | 4,273 | 13,233 | 468,804 | 170,697 | $ | 639,501 | |||||||||||
Interest-bearing liabilities: | |||||||||||||||||||
NOW, savings, and money market deposits | $ | 158,677 | - | - | 158,677 | - | $ | 158,677 | |||||||||||
Time deposits | 28,714 | 62,314 | 156,154 | 247,182 | 71,522 | 318,704 | |||||||||||||
Other short term borrowings | 543 | - | - | 543 | - | 543 | |||||||||||||
FHLB borrowings | - | 6,000 | - | 6,000 | 52,000 | 58,000 | |||||||||||||
Junior subordinated debentures | - | 14,433 | - | 14,433 | - | 14,433 | |||||||||||||
Total interest-bearing liabilities | $ | 187,934 | 82,747 | 156,154 | 426,835 | 123,522 | $ | 550,357 | |||||||||||
Interest-sensitive gap | $ | 263,364 | (78,474 | ) | (142,921 | ) | 41,969 | 47,175 | $ | 89,144 | |||||||||
Cumulative interest-sensitive gap | $ | 263,364 | 184,890 | 41,969 | 41,969 | 89,144 | |||||||||||||
Interest-earning assets as a percentage of interest-bearing liabilities | 240.14 | % | 5.16 | % | 8.47 | % | 109.83 | % |
A-11 | ||
Table 6 - Summary of Investment Portfolio | ||||||||||
(Dollars in Thousands) | 2003 | 2002 | 2001 | |||||||
Obligations of United States government | ||||||||||
agencies and corporations | $ | 34,517 | - | - | ||||||
Obligations of states and political subdivisions | 14,950 | 14,350 | 16,404 | |||||||
Mortgage backed securities | 24,920 | 52,386 | 63,382 | |||||||
Junior subordinated debentures | 5,000 | 5,000 | 4,500 | |||||||
Equity securities | 73 | - | - | |||||||
Total securities | $ | 79,460 | 71,736 | 84,286 | ||||||
A-12 | ||
Table 7 - Maturity Distribution and Weighted Average Yield on Investments | |||||||||||||||||||||||||||||||
After One Year | After 5 Years | ||||||||||||||||||||||||||||||
| One Year or Less | Through 5 Years | Through 10 Years | After 10 Years | Totals | ||||||||||||||||||||||||||
(Dollars in Thousands) |
| Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | ||||||||||||||||||||
Book value: | |||||||||||||||||||||||||||||||
United States Government agencies | $ | - | - | 9,993 | 3.10 | % | 24,553 | 4.42 | % | - | - | $ | 34,546 | 4.04 | % | ||||||||||||||||
States and political subdivisions | 1,301 | 7.29 | % | 4,646 | 6.32 | % | 4,367 | 4.76 | % | 4,140 | 7.13 | % | 14,454 | 6.17 | % | ||||||||||||||||
Mortgage backed securities | - | - | - | - | 7,231 | 3.54 | % | 17,680 | 4.28 | % | 24,911 | 4.07 | % | ||||||||||||||||||
Junior subordinated debentures | - | - | - | - | - | - | 5,000 | 5.40 | % | 5,000 | 5.40 | % | |||||||||||||||||||
Equity securities | - | - | - | - | - | - | 100 | 0.37 | % | 100 | 0.37 | % | |||||||||||||||||||
Total securities | $ | 1,301 | 7.29 | % | 14,639 | 4.12 | % | 36,151 | 4.29 | % | 26,920 | 4.91 | % | $ | 79,011 | 4.52 | % | ||||||||||||||
Table 8 - Loan Portfolio | |||||||||||||||||||||||||||||||
2003 | 2002 | 2001 | 2000 | 1999 | |||||||||||||||||||||||||||
(Dollars in Thousands) | Amount | % of Loans | Amount | % of Loans | Amount | % of Loans | Amount | % of Loans | Amount | % of Loans | |||||||||||||||||||||
Breakdown of loan receivables: | |||||||||||||||||||||||||||||||
Commercial | $ | 90,558 | 16.41 | % | 92,141 | 17.51 | % | 102,409 | 20.87 | % | 96,882 | 23.58 | % | 83,644 | 24.66 | % | |||||||||||||||
Real estate - mortgage | 332,730 | 60.26 | % | 322,987 | 61.36 | % | 277,737 | 56.61 | % | 229,260 | 55.79 | % | 190,921 | 56.29 | % | ||||||||||||||||
Real estate - construction | 110,392 | 19.99 | % | 80,552 | 15.30 | % | 82,791 | 16.88 | % | 58,939 | 14.34 | % | 39,340 | 11.60 | % | ||||||||||||||||
Consumer | 18,446 | 3.34 | % | 30,690 | 5.83 | % | 27,671 | 5.64 | % | 25,858 | 6.29 | % | 25,293 | 7.46 | % | ||||||||||||||||
Total loans | $ | 552,126 | 100.00 | % | 526,370 | 100.00 | % | 490,608 | 100.00 | % | 410,939 | 100.00 | % | 339,198 | 100.00 | % | |||||||||||||||
Less: Allowance for loan losses | $ | 9,722 | 7,248 | 6,091 | 4,713 | 3,924 | |||||||||||||||||||||||||
Net loans | $ | 542,404 | 519,122 | 484,517 | 406,226 | 335,274 | |||||||||||||||||||||||||
A-13 | ||
Table 9 - Maturity and Repricing Data for Loans | ||||||||||||||||
(Dollars in Thousands) | Within one year or less | After one year through five years | After five years | Total Loans | ||||||||||||
Commercial | $ | 84,013 | 5,758 | 787 | $ | 90,558 | ||||||||||
Real estate - mortgage | 261,849 | 39,983 | 30,898 | 332,730 | ||||||||||||
Real estate - construction | 106,447 | 3,693 | 252 | 110,392 | ||||||||||||
Consumer | 6,746 | 9,790 | 1,910 | 18,446 | ||||||||||||
Total loans | $ | 459,055 | 59,224 | 33,847 | $ | 552,126 | ||||||||||
Total fixed rate loans | $ | 14,071 | 58,887 | 33,847 | $ | 106,805 | ||||||||||
Total floating rate loans | 444,984 | 337 | - | 445,321 | ||||||||||||
Total loans | $ | 459,055 | 59,224 | 33,847 | $ | 552,126 | ||||||||||
- the Bank’s loan loss experience;
- the amount of past due and non-performing loans;
- specific known risks;
A-14 | ||
- the status and amount of other past due and non-performing assets;
- underlying estimated values of collateral securing loans;
- current and anticipated economic conditions; and
- other factors which management believes affect the allowance for potential credit losses.
A-15 | ||
Table 10 - Loan Risk Grade Analysis | |||||||||||||
Percentage of Loans | General Reserve | ||||||||||||
By Risk Grade | Percentage | ||||||||||||
Risk Grade | 2003 | 2002 | 2003 | 2002 | |||||||||
Risk 1 (Excellent Quality) | 11.36 | % | 8.92 | % | 0.15 | % | 0.15 | % | |||||
Risk 2 (High Quality) | 24.03 | % | 33.22 | % | 0.50 | % | 0.50 | % | |||||
Risk 3 (Good Quality) | 53.80 | % | 46.33 | % | 1.00 | % | 1.00 | % | |||||
Risk 4 (Management Attention) | 5.11 | % | 5.33 | % | 2.50 | % | 2.50 | % | |||||
Risk 5 (Watch) | 1.15 | % | 3.32 | % | 7.00 | % | 7.00 | % | |||||
Risk 6 (Substandard) | 2.43 | % | 1.98 | % | 12.00 | % | 12.00 | % | |||||
Risk 7 (Low Substandard) | 1.33 | % | 0.00 | % | 25.00 | % | 25.00 | % | |||||
Risk 8 (Doubtful) | 0.00 | % | 0.00 | % | 50.00 | % | 50.00 | % | |||||
Risk 9 (Loss) | 0.00 | % | 0.00 | % | 100.00 | % | 100.00 | % |
Table 11 - Analysis of Allowance for Loan Losses | ||||||||||||||||
(Dollars in Thousands) | 2003 | 2002 | 2001 | 2000 | 1999 | |||||||||||
Reserve for loan losses at beginning | $ | 7,248 | 6,091 | 4,713 | 3,924 | 4,137 | ||||||||||
Loans charged off: | ||||||||||||||||
Commercial | 1,179 | 3,737 | 842 | 857 | 485 | |||||||||||
Real estate - mortgage | 2,422 | 158 | 790 | 10 | 25 | |||||||||||
Real estate - construction | 251 | - | 51 | 36 | - | |||||||||||
Consumer | 630 | 546 | 675 | 255 | 195 | |||||||||||
Total loans charged off | $ | 4,482 | 4,441 | 2,358 | 1,158 | 705 | ||||||||||
Recoveries of losses previously charged off: | ||||||||||||||||
Commercial | 36 | 40 | 84 | 20 | 24 | |||||||||||
Real estate - mortgage | 18 | - | - | - | - | |||||||||||
Real estate - construction | 1 | 4 | 6 | - | - | |||||||||||
Consumer | 157 | 122 | 101 | 48 | 43 | |||||||||||
Total recoveries | $ | 212 | 166 | 191 | 68 | 67 | ||||||||||
Net loans charged off | $ | 4,270 | 4,275 | 2,167 | 1,090 | 638 | ||||||||||
Provision for loan losses | 6,744 | 5,432 | 3,545 | 1,879 | 425 | |||||||||||
Reserve for loan losses at end of year | $ | 9,722 | 7,248 | 6,091 | 4,713 | 3,924 | ||||||||||
Loans charged off net of recoveries, as | ||||||||||||||||
a percent of average loans outstanding | 0.79 | % | 0.84 | % | 0.48 | % | 0.29 | % | 0.20 | % |
A-16 | ||
Non-performing Assets
Table 12 - Non-performing Assets | ||||||||||||||||
(Dollars in Thousands) | 2003 | 2002 | 2001 | 2000 | 1999 | |||||||||||
Nonaccrual loans | $ | 4,343 | 4,602 | 3,756 | 5,421 | 2,866 | ||||||||||
Loans 90 days or more past due and still accruing | 271 | 239 | 655 | 545 | 645 | |||||||||||
Total non-performing loans | 4,614 | 4,841 | 4,411 | 5,966 | 3,511 | |||||||||||
All other real estate owned | 1,447 | 240 | 256 | 112 | 44 | |||||||||||
All other repossessed assets | 206 | 1,538 | 4 | 3 | - | |||||||||||
Total non-performing assets | $ | 6,267 | 6,619 | 4,671 | 6,081 | 3,555 | ||||||||||
As a percent of total loans at year end | ||||||||||||||||
Non-accrual loans | 0.79 | % | 0.87 | % | 0.77 | % | 1.32 | % | 0.84 | % | ||||||
Loans 90 days or more past due and still accruing | 0.05 | % | 0.05 | % | 0.13 | % | 0.13 | % | 0.19 | % | ||||||
Total non-performing assets | 1.14 | % | 1.26 | % | 0.95 | % | 1.48 | % | 1.05 | % |
A-17 | ||
Table 13 - Maturities of Time Deposits over $100,000 | ||||
(Dollars in Thousands) | 2003 | |||
Three months or less | $ | 39,345 | ||
Over three months through six months | 34,582 | |||
Over six months through twelve months | 50,623 | |||
Over twelve months | 47,047 | |||
Total | $ | 171,597 | ||
A-18 | ||
Table 14 - Contractual Obligations and Other Commitments | ||||||||||||||||
(Dollars in Thousands) | Within one year | One to Three Years | Three to Five Years | Five Years or More | Total | |||||||||||
Contractual Cash Obligations | ||||||||||||||||
Long-term borrowings* | $ | - | 5,000 | - | 47,000 | $ | 52,000 | |||||||||
Junior subordinated debentures | - | - | - | 14,433 | 14,433 | |||||||||||
Operating lease obligations | 672 | 1,244 | 737 | 1,953 | 4,606 | |||||||||||
Total | $ | 672 | 6,244 | 737 | 63,386 | $ | 71,039 | |||||||||
Other Commitments | ||||||||||||||||
Commitments to extend credit | $ | 36,939 | $ | 13,498 | $ | 14,169 | $ | 40,124 | $ | 104,730 | ||||||
Standby letters of credit | ||||||||||||||||
and financial guarantees written | 3,520 | 356 | - | - | 3,876 | |||||||||||
Total | $ | 40,459 | 13,854 | 14,169 | 40,124 | $ | 108,606 | |||||||||
*Excludes $6.0 million adjustable rate credit due to the FHLB, which matured in January 2004. |
A-19 | ||
Table 15 - Equity Ratios | ||||||||||
2003 | 2002 | 2001 | ||||||||
Return on average assets | 0.30 | % | 0.55 | % | 0.80 | % | ||||
Return on average equity | 4.01 | % | 7.12 | % | 9.65 | % | ||||
Dividend payout ratio | 62.56 | % | 36.58 | % | 28.14 | % | ||||
Average equity to average assets | 7.56 | % | 7.72 | % | 8.25 | % |
Table 16 - Quarterly Financial Data | |||||||||||||||||||||||||
2003 | 2002 | ||||||||||||||||||||||||
(Dollars in thousands, except per share amounts) | First | Second | Third | Fourth | First | Second | Third | Fourth | |||||||||||||||||
Total interest income | $ | 8,694 | 8,651 | 8,610 | 8,899 | $ | 9,089 | 9,138 | 9,345 | 9,052 | |||||||||||||||
Total interest expense | 3,238 | 3,216 | 3,193 | 3,101 | 4,607 | 4,127 | 3,639 | 3,404 | |||||||||||||||||
Net interest income | 5,456 | 5,435 | 5,417 | 5,798 | 4,482 | 5,011 | 5,706 | 5,648 | |||||||||||||||||
Provision for loan losses | 793 | 2,277 | 1,560 | 2,114 | 500 | 1,266 | 1,578 | 2,088 | |||||||||||||||||
Other income | 1,984 | 1,056 | 1,590 | 1,295 | 1,524 | 1,406 | 2,070 | 1,491 | |||||||||||||||||
Other expense | 4,447 | 4,175 | 4,821 | 4,785 | 4,215 | 4,193 | 4,194 | 4,156 | |||||||||||||||||
Income before income taxes | 2,200 | 39 | 626 | 194 | 1,291 | 958 | 2,004 | 895 | |||||||||||||||||
Income taxes | 782 | (52 | ) | 307 | 18 | 405 | 312 | 710 | 285 | ||||||||||||||||
Net earnings | $ | 1,418 | 91 | 319 | 176 | $ | 886 | 646 | 1,294 | 610 | |||||||||||||||
Basic earnings per share | $ | 0.45 | 0.03 | 0.10 | 0.06 | $ | 0.28 | 0.21 | 0.41 | 0.19 | |||||||||||||||
Diluted earnings per share | $ | 0.45 | 0.03 | 0.10 | 0.06 | $ | 0.28 | 0.20 | 0.41 | 0.19 | |||||||||||||||
A-20 | ||
Table 17 - Market Risk Table | ||||||||||||||||||||||
(Dollars In Thousands) | Principal/Notional Amount Maturing in Year Ended December 31, | |||||||||||||||||||||
Loans Receivable | 2004 |
|
| 2005 |
|
| 2006 |
|
| 2007 & 2008 |
|
| Thereafter |
|
| Total |
|
| Fair Value | |||
Fixed rate | $ | 21,215 | 19,986 | 14,178 | 22,270 | 29,156 | $ | 106,805 | $ | 106,172 | ||||||||||||
Average interest rate | 7.23 | % | 8.11 | % | 7.73 | % | 7.56 | % | 7.52 | % | ||||||||||||
Variable rate | $ | 196,574 | 55,321 | 38,759 | 73,755 | 80,912 | $ | 445,321 | $ | 445,321 | ||||||||||||
Average interest rate | 4.93 | % | 5.00 | % | 4.99 | % | 5.15 | % | 4.90 | % | ||||||||||||
Investment Securities | ||||||||||||||||||||||
Interest bearing cash | $ | - | - | - | - | 1,457 | $ | 1,457 | $ | 1,457 | ||||||||||||
Average interest rate | - | - | - | - | 1.21 | % | ||||||||||||||||
Federal funds sold | $ | 2,369 | - | - | - | - | $ | 2,369 | $ | 2,369 | ||||||||||||
Average interest rate | 1.28 | % | - | - | - | - | ||||||||||||||||
Securities available for sale | $ | 15,898 | 22,489 | 2,933 | 6,870 | 31,270 | $ | 79,460 | $ | 79,460 | ||||||||||||
Average interest rate | 3.70 | % | 4.66 | % | 4.37 | % | 4.42 | % | 4.64 | % | ||||||||||||
Nonmarketable equity securities | - | - | - | - | 4,217 | $ | 4,217 | $ | 4,217 | |||||||||||||
Average interest rate | - | - | - | - | 3.62 | % | ||||||||||||||||
Debt Obligations | ||||||||||||||||||||||
Deposits | $ | 242,739 | 48,672 | 7,860 | 21,769 | 228,762 | $ | 549,802 | $ | 551,115 | ||||||||||||
Average interest rate | 2.29 | % | 2.20 | % | 2.56 | % | 4.14 | % | 0.61 | % | ||||||||||||
Advances from FHLB | $ | 6,000 | - | 35,000 | - | 17,000 | $ | 58,000 | $ | 65,062 | ||||||||||||
Average interest rate | 1.14 | % | - | 4.08 | % | - | 6.08 | % | ||||||||||||||
Demand notes payable to U.S. Treasury | $ | 443 | - | - | - | - | $ | 443 | $ | 443 | ||||||||||||
Average interest rate | 0.74 | % | - | - | - | - | ||||||||||||||||
Junior subordinated debentures | $ | - | - | - | - | 14,433 | $ | 14,433 | $ | 14,433 | ||||||||||||
Average interest rate | - | - | - | - | 4.42 | % |
A-21 | ||
Table 18 - Interest Rate Risk | |||||
(Dollars in thousands) | |||||
Estimated Resulting Theoretical Net Interest Income | |||||
Hypothetical rate change (ramp over 12 months) | Amount | % Change | |||
+2% | $ 24,665 | 7.71% | |||
+1% | $ 23,662 | 3.33% | |||
0% | $ 22,899 | 0.00% | |||
-1% | $ 22,258 | -2.80% | |||
-2% | $ 21,560 | -5.85% | |||
Estimated Resulting Theoretical Market Value of Equity | |||||
Hypothetical rate change (immediate shock) | Amount | % Change | |||
+2% | $ 43,210 | 11.02% | |||
+1% | $ 40,934 | 5.17% | |||
0% | $ 38,921 | 0.00% | |||
-1% | $ 36,271 | -6.81% | |||
-2% | $ 36,733 | -5.62% |
A-22 | ||
Table 19 - Market and Dividend Data | ||||||||||
Cash Dividend | ||||||||||
2003 | Low Bid |
|
| High Bid |
|
| Per Share | |||
First Quarter | $ | 13.910 | $ | 15.100 | $ | 0.10 | ||||
Second Quarter | $ | 14.750 | $ | 18.250 | $ | 0.10 | ||||
Third Quarter | $ | 16.380 | $ | 19.000 | $ | 0.10 | ||||
Fourth Quarter | $ | 16.910 | $ | 20.820 | $ | 0.10 | ||||
Cash Dividend | ||||||||||
2002 | Low Bid | High Bid | Per Share | |||||||
First Quarter | $ | 14.450 | $ | 16.250 | $ | 0.10 | ||||
Second Quarter | $ | 16.050 | $ | 17.720 | $ | 0.10 | ||||
Third Quarter | $ | 12.860 | $ | 16.450 | $ | 0.10 | ||||
Fourth Quarter | $ | 13.170 | $ | 14.800 | $ | 0.10 |
A-23 | ||
A-24 | ||
Atlanta, Georgia
A-25 | ||
2003 |
|
| 2002 | ||||
Assets | |||||||
Cash and due from banks, including reserve requirements | |||||||
of $3,262,000 and $2,633,000 | $ | 18,413,786 | 13,803,665 | ||||
Federal funds sold | 2,369,000 | 1,774,000 | |||||
Cash and cash equivalents | 20,782,786 | 15,577,665 | |||||
Investment securities available for sale | 79,460,452 | 71,735,705 | |||||
Other investments | 4,216,973 | 4,345,573 | |||||
Mortgage loans held for sale | 587,495 | 5,064,635 | |||||
Loans, net | 542,403,922 | 519,121,840 | |||||
Premises and equipment, net | 12,537,230 | 15,620,977 | |||||
Cash surrender value of life insurance | 5,045,449 | 4,828,708 | |||||
Accrued interest receivable and other assets | 8,998,137 | 9,342,835 | |||||
$ | 674,032,444 | 645,637,938 | |||||
Liabilities and Shareholders’ Equity | |||||||
Deposits: | |||||||
Noninterest-bearing | $ | 72,420,923 | 67,398,458 | ||||
Interest-bearing | 477,381,309 | 448,340,497 | |||||
Total deposits | 549,802,232 | 515,738,955 | |||||
Demand notes payable to U. S. Treasury | 443,384 | 1,600,000 | |||||
Accrued interest payable and other liabilities | 2,799,932 | 2,189,821 | |||||
Federal Home Loan Bank advances | 58,000,000 | 63,071,429 | |||||
Junior subordinated debentures | 14,433,000 | 14,433,000 | |||||
Total liabilities | 625,478,548 | 597,033,205 | |||||
Commitments | |||||||
Shareholders’ equity: | |||||||
Preferred stock, no par value; authorized 5,000,000 shares; | |||||||
no shares issued and outstanding | - | - | |||||
Common stock, no par value; authorized 20,000,000 shares; | |||||||
3,135,202 and 3,133,547 shares issued and outstanding | 35,121,510 | 35,097,773 | |||||
Retained earnings | 12,844,524 | 12,094,363 | |||||
Accumulated other comprehensive income | 587,862 | 1,412,597 | |||||
Total shareholders’ equity | 48,553,896 | 48,604,733 | |||||
$ | 674,032,444 | 645,637,938 | |||||
A-26 | ||
2003 | 2002 | 2001 | ||||||||
Interest income: | ||||||||||
Interest and fees on loans | $ | 31,531,673 | 32,038,359 | 36,512,395 | ||||||
Interest on federal funds sold | 58,384 | 45,271 | 126,791 | |||||||
Interest and dividends on securities: | ||||||||||
U. S. Government agencies | 2,244,375 | 3,439,814 | 3,918,551 | |||||||
State and political subdivisions | 577,339 | 613,219 | 911,707 | |||||||
Other | 441,958 | 487,284 | 428,157 | |||||||
Total interest income | 34,853,729 | 36,623,947 | 41,897,601 | |||||||
Interest expense: | ||||||||||
Deposits | 9,476,208 | 12,364,245 | 20,790,136 | |||||||
Federal Home Loan Bank advances | 2,597,043 | 2,658,742 | 2,118,511 | |||||||
Other | 675,417 | 754,344 | 117,849 | |||||||
Total interest expense | 12,748,668 | 15,777,331 | 23,026,496 | |||||||
Net interest income | 22,105,061 | 20,846,616 | 18,871,105 | |||||||
Provision for loan losses | 6,743,900 | 5,431,600 | 3,545,322 | |||||||
Net interest income after provision for loan losses | 15,361,161 | 15,415,016 | 15,325,783 | |||||||
Other income: | ||||||||||
Service charges on deposit accounts | 3,266,949 | 3,060,581 | 2,805,492 | |||||||
Other service charges and fees | 610,591 | 503,165 | 471,998 | |||||||
Gain (loss) on sale of securities | (52,855 | ) | 625,616 | 1,613,992 | ||||||
Mortgage banking income | 685,343 | 702,290 | 1,014,043 | |||||||
Insurance and brokerage commissions | 420,762 | 477,765 | 348,582 | |||||||
Loss on foreclosed and repossessed assets | (746,543 | ) | (564 | ) | (65,630 | ) | ||||
Gain on sale of loans | 478,759 | - | - | |||||||
Miscellaneous | 1,262,883 | 1,121,762 | 2,074,427 | |||||||
Total other income | 5,925,889 | 6,490,615 | 8,262,904 | |||||||
Other expenses: | ||||||||||
Salaries and employee benefits | 10,099,811 | 9,569,016 | 9,115,496 | |||||||
Occupancy | 3,389,857 | 3,142,712 | 2,984,100 | |||||||
Other operating | 4,738,253 | 4,046,347 | 4,652,197 | |||||||
Total other expenses | 18,227,921 | 16,758,075 | 16,751,793 | |||||||
Earnings before income taxes | 3,059,129 | 5,147,556 | 6,836,894 | |||||||
Income tax expense | 1,055,538 | 1,712,000 | 2,261,542 | |||||||
Net earnings | $ | 2,003,591 | 3,435,556 | 4,575,352 | ||||||
Basic earnings per share | $ | 0.64 | 1.09 | 1.42 | ||||||
Diluted earnings per share | $ | 0.63 | 1.09 | 1.42 | ||||||
A-27 | ||
|
|
|
|
|
| Accumulated |
|
|
| |||||||
|
|
|
|
|
|
|
| Other |
|
|
| |||||
| Common Stock |
| Retained |
|
| Comprehensive |
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Shares |
|
| Amount |
|
| Earnings |
|
| Income (Loss | ) |
| Total |
| |
Balance, December 31, 2000 | 3,218,714 | $ | 36,407,798 | 6,627,533 | 3,688 | 43,039,019 | ||||||||||
Cash dividends declared ($0.40 per share) | - | - | (1,287,486 | ) | - | (1,287,486 | ) | |||||||||
Net earnings | - | - | 4,575,352 | - | 4,575,352 | |||||||||||
Change in accumulated other | ||||||||||||||||
comprehensive income (loss), net of tax | - | - | - | (925,782 | ) | (925,782 | ) | |||||||||
Balance, December 31, 2001 | 3,218,714 | 36,407,798 | 9,915,399 | (922,094 | ) | 45,401,103 | ||||||||||
Cash dividends declared ($0.40 per share) | - | - | (1,256,592 | ) | - | (1,256,592 | ) | |||||||||
Repurchase and retirement of common | ||||||||||||||||
stock | (85,500 | ) | (1,314,250 | ) | - | - | (1,314,250 | ) | ||||||||
Exercise of stock options | 333 | 4,225 | - | - | 4,225 | |||||||||||
Net earnings | - | - | 3,435,556 | - | 3,435,556 | |||||||||||
Change in accumulated other | ||||||||||||||||
comprehensive income (loss), net of tax | - | - | - | 2,334,691 | 2,334,691 | |||||||||||
Balance, December 31, 2002 | 3,133,547 | 35,097,773 | 12,094,363 | 1,412,597 | 48,604,733 | |||||||||||
Cash dividends declared ($0.40 per share) | - | - | (1,253,430 | ) | - | (1,253,430 | ) | |||||||||
Exercise of stock options | 1,655 | 23,737 | - | - | 23,737 | |||||||||||
Net earnings | - | - | 2,003,591 | - | 2,003,591 | |||||||||||
Change in accumulated other | ||||||||||||||||
comprehensive income (loss), net of tax | - | - | - | (824,735 | ) | (824,735 | ) | |||||||||
Balance, December 31, 2003 | 3,135,202 | $ | 35,121,510 | 12,844,524 | 587,862 | 48,553,896 | ||||||||||
A-28 | ||
2003 | 2002 | 2001 | |
Net earnings | $2,003,591 | 3,435,556 | 4,575,352 |
Other comprehensive income: | |||
Unrealized holding gains (losses) on securities available for sale | (419,147) | 2,951,843 | 97,560 |
Reclassification adjustment for (gains) losses on | |||
sales of securities available for sale included in net earnings | 52,855 | (625,616) | (1,613,992) |
Unrealized holding gains (losses) on derivative financial | |||
instruments qualifying as cash flow hedges | (284,000) | 1,498,000 | - |
Reclassification adjustment for gains on derivative financial | |||
instruments qualifying as cash flow hedges included in net earnings | (700,626) | - | - |
Total other comprehensive income (loss), | |||
before income taxes | (1,350,918) | 3,824,227 | (1,516,432) |
Income tax expense (benefit) related to other comprehensive income: | |||
Unrealized holding gains (losses) on securities available for sale | (163,258) | 1,149,742 | 38,000 |
Reclassification adjustment for (gains) losses on | |||
sales of securities available for sale included in net earnings | 20,587 | (243,677) | (628,650) |
Unrealized holding gains (losses) on derivative financial instruments | |||
qualifying as cash flow hedges | (110,618) | 583,471 | - |
Reclassification adjustment for gains on derivative financial | |||
instruments qualifying as cash flow hedges included in net earnings | (272,894) | - | - |
Total income tax expense (benefit) related to | |||
other comprehensive income | (526,183) | 1,489,536 | (590,650) |
Total other comprehensive income (loss), | |||
net of tax | (824,735) | 2,334,691 | (925,782) |
Total comprehensive income | $1,178,856 | 5,770,247 | 3,649,570 |
A-29 | ||
2003 | 2002 | 2001 | |
Cash flows from operating activities: | |||
Net earnings | $ 2,003,591 | 3,435,556 | 4,575,352 |
Adjustments to reconcile net earnings to net | |||
cash provided by operating activities: | |||
Depreciation, amortization and accretion | 1,963,995 | 1,685,715 | 1,584,437 |
Provision for loan losses | 6,743,900 | 5,431,600 | 3,545,322 |
Deferred income tax benefit | (1,526,062) | (318,921) | (532,329) |
Loss (gain) on sale of investment securities | 52,855 | (625,616) | (1,613,992) |
Recognition of deferred gain on sale of derivative instruments | (700,626) | - | - |
Gain on sale of loans | (478,759) | - | - |
Loss (gain) on sale of other real estate and repossessions | 262,840 | (19,981) | 51,840 |
Writedown of other real estate and repossessions | 483,703 | - | - |
Change in: | |||
Cash surrender value of life insurance | (216,741) | (245,708) | - |
Other assets | 377,900 | (595,240) | 1,017,755 |
Other liabilities | (4,582) | 178,282 | (1,384,145) |
Mortgage loans held for sale | 4,477,140 | 274,296 | (3,775,231) |
Net cash provided by operating activities | 13,439,154 | 9,199,983 | 3,469,009 |
Cash flows from investing activities: | |||
Purchase of investment securities available for sale | (55,439,455) | (48,339,951) | (118,372,897) |
Proceeds from calls and maturities of investment securities | |||
available for sale | 27,158,675 | 28,609,785 | 22,714,408 |
Proceeds from sales of investment securities available for sale | 19,896,324 | 35,191,263 | 82,969,419 |
Investment in unconsolidated subsidiary | - | - | (433,000) |
Change in other investments | 28,600 | 257,200 | (2,203,900) |
Purchase of cash surrender value of life insurance | - | - | (4,583,000) |
Net change in loans | (31,533,937) | (42,113,346) | (82,092,812) |
Proceeds from sale of loans | 4,207,206 | - | - |
Purchases of premises and equipment | (1,913,876) | (2,614,380) | (3,652,961) |
Proceeds from sale of premises and equipment | - | 412,289 | 645,429 |
Proceeds from sale of derivative financial instruments | 1,254,000 | - | - |
Construction in progress | - | - | (100,633) |
Proceeds from sale of other real estate and repossessions | 1,502,891 | 488,647 | 60,310 |
Net cash used by investing activities | (34,839,572) | (28,108,493) | (105,049,637) |
Cash flows from financing activities: | |||
Net change in deposits | 34,063,277 | 25,515,766 | 40,149,847 |
Net change in demand notes payable to U. S. Treasury | (1,156,616) | 1,482,013 | (1,482,013) |
Proceeds from FHLB borrowings | 46,650,000 | 68,100,000 | 51,000,000 |
Repayments of FHLB advances | (51,721,429) | (73,242,857) | (4,142,856) |
Proceeds from issuance of junior subordinated debentures | - | - | 14,433,000 |
Transaction costs associated with junior subordinated debentures | - | (105,450) | (425,741) |
Cash dividends | (1,253,430) | (1,256,592) | (1,287,486) |
Proceeds from exercise of stock options | 23,737 | 4,225 | - |
Common stock repurchased | - | (1,314,250) | - |
Net cash provided by financing activities | 26,605,539 | 19,182,855 | 98,244,751 |
Net change in cash and cash equivalents | 5,205,121 | 274,345 | (3,335,877) |
Cash and cash equivalents at beginning of year | 15,577,665 | 15,303,320 | 18,639,197 |
Cash and cash equivalents at end of year | $20,782,786 | 15,577,665 | 15,303,320 |
A-30 | ||
2003 | 2002 | 2001 | ||||||||
Supplemental disclosures of cash flow information: | ||||||||||
Cash paid during the year for: | ||||||||||
Interest | $ | 12,975,587 | 16,006,155 | 23,068,630 | ||||||
Income taxes | $ | 2,093,000 | 2,235,500 | 3,209,000 | ||||||
Noncash investing and financing activities: | ||||||||||
Change in unrealized gain/loss on securities available for sale, net | $ | (223,621 | ) | 2,334,691 | (925,782 | ) | ||||
Change in unrealized gain/loss on derivative financial instruments, net | $ | (173,382 | ) | - | ||||||
Transfer of loans to other real estate and repossessions | $ | 3,382,633 | 2,077,057 | 256,439 | ||||||
Financed sales of other real estate | $ | 1,258,500 | - | - | ||||||
Financed sales of premises and equipment | $ | 3,729,932 | - |
A-31 | ||
A-32 | ||
A-33 | ||
A-34 | ||
2002 | 2001 | ||||
Net earnings | As reported | $ | 3,435,556 | 4,575,352 | |
Effect of grants, net of tax | (276,415) | (400,453) | |||
Effect of forfeitures, net of tax | 42,982 | - | |||
Proforma | $ | 3,202,123 | 4,174,899 | ||
Basic earnings per share | As reported | $ | 1.09 | 1.42 | |
Proforma | $ | 1.02 | 1.30 | ||
Diluted earnings per share | As reported | $ | 1.09 | 1.42 | |
Proforma | $ | 1.01 | 1.29 |
A-35 | ||
Net | Common | Per Share | ||||||||
Earnings | Shares | Amount | ||||||||
For the year ended December 31, 2003 | ||||||||||
Basic earnings per share | $ | 2,003,591 | 3,133,687 | $ | 0.64 | |||||
Effect of dilutive securities: | ||||||||||
Stock options | - | 27,099 | - | |||||||
Diluted earnings per share | $ | 2,003,591 | 3,160,786 | $ | 0.63 | |||||
For the year ended December 31, 2002 | ||||||||||
Basic earnings per share | $ | 3,435,556 | 3,151,975 | $ | 1.09 | |||||
Effect of dilutive securities: | ||||||||||
Stock options | - | 7,292 | - | |||||||
Diluted earnings per share | $ | 3,435,556 | 3,159,267 | $ | 1.09 | |||||
For the year ended December 31, 2001 | ||||||||||
Basic earnings per share | $ | 4,575,352 | 3,218,714 | $ | 1.42 | |||||
Effect of dilutive securities: | ||||||||||
Stock options | - | 10,215 | - | �� | ||||||
Diluted earnings per share | $ | 4,575,352 | 3,228,929 | $ | 1.42 | |||||
A-36 | ||
December 31, 2003 | |||||||||||||
Gross | Gross | Estimated | |||||||||||
Amortized |
| Unrealized | Unrealized | Fair | |||||||||
Cost | Gains | Losses | Value | ||||||||||
Mortgage-backed securities | $ | 24,911,000 | 96,142 | 87,282 | 24,919,860 | ||||||||
U.S. government agencies | 34,545,774 | 107,847 | 136,375 | 34,517,246 | |||||||||
State and political subdivisions | 14,454,137 | 559,907 | 64,137 | 14,949,907 | |||||||||
Trust preferred securities | 5,000,000 | - | - | 5,000,000 | |||||||||
Equity securities | 99,995 | - | 26,556 | 73,439 | |||||||||
Total | $ | 79,010,906 | 763,896 | 314,350 | 79,460,452 | ||||||||
December 31, 2002 | |||||||||||||
Gross |
|
| Gross |
|
| Estimated | |||||||
Amortized | Unrealized |
|
| Unrealized |
|
| Fair |
| |||||
Cost | Gains |
|
| Losses |
|
| Value | ||||||
Mortgage-backed securities | $ | 52,033,373 | 352,915 | - | 52,386,288 | ||||||||
State and political subdivisions | 13,886,496 | 468,367 | 5,446 | 14,349,417 | |||||||||
Trust preferred securities | 5,000,000 | - | - | 5,000,000 | |||||||||
Total | $ | 70,919,869 | 821,282 | 5,446 | 71,735,705 | ||||||||
Less than 12 Months | 12 Months or More | Total | |||||||||||||||||
Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized | ||||
Value |
|
| Losses |
|
| Value |
|
| Losses |
|
| Value |
|
| Losses | ||||
Mortgage-backed securities | $ | 11,510,389 | 87,282 | - | - | 11,510,389 | 87,282 | ||||||||||||
U. S. government agencies | 7,911,840 | 136,375 | - | - | 7,911,840 | 136,375 | |||||||||||||
State and political subdivisions | 2,267,965 | 64,137 | - | - | 2,267,965 | 64,137 | |||||||||||||
$ | 21,690,194 | 287,794 | - | - | 21,690,194 | 287,794 | |||||||||||||
A-37 | ||
Amortized | Estimated | |||
Cost | Fair Value | |||
Due within one year | $ | 1,300,970 | 1,320,167 | |
Due from one to five years | 14,639,241 | 14,925,512 | ||
Due from five to ten years | 28,920,000 | 28,895,514 | ||
Due after ten years | 9,139,700 | 9,325,960 | ||
Mortgage-backed securities | 24,911,000 | 24,919,860 | ||
Equity securities | 99,995 | 73,439 | ||
$ | 79,010,906 | 79,460,452 | ||
2003 | 2002 | ||
Commercial | $ | 90,557,643 | 92,141,135 |
Real estate - mortgage | 332,729,979 | 322,986,811 | |
Real estate - construction | 110,392,005 | 80,552,263 | |
Consumer | 18,446,562 | 30,689,537 | |
Total loans | 552,126,189 | 526,369,746 | |
Less allowance for loan losses | 9,722,267 | 7,247,906 | |
Total net loans | $ | 542,403,922 | 519,121,840 |
A-38 | ||
2003 | 2002 | 2001 | |||
Balance at beginning of year | $ | 7,247,906 | 6,090,570 | 4,713,227 | |
Amounts charged off | (4,481,548) | (4,441,007) | (2,358,320) | ||
Recoveries on amounts previously charged off | 212,009 | 166,743 | 190,341 | ||
Provision for loan losses | 6,743,900 | 5,431,600 | 3,545,322 | ||
Balance at end of year | $ | 9,722,267 | 7,247,906 | 6,090,570 | |
2003 | 2002 | |||
Land | $ | 1,915,954 | 2,474,452 | |
Buildings and improvements | 9,982,688 | 11,892,203 | ||
Furniture and equipment | 10,618,908 | 9,966,950 | ||
22,517,550 | 24,333,605 | |||
Less accumulated depreciation | 9,980,320 | 8,712,628 | ||
$ | 12,537,230 | 15,620,977 | ||
Depreciation expense was approximately $1,268,000, $1,260,000 and $1,337,000, for the years ended December 31, 2003, 2002 and 2001, respectively.
2004 | $ | 247,181,867 | |||||
2005 | 47,558,684 | ||||||
2006 | 2,138,185 | ||||||
2007 | 14,123,076 | ||||||
2008 | 7,702,051 | ||||||
$ | 318,703,863 | ||||||
A-39 | ||
Maturity Date | Call Date | Rate | Rate Type | Amount | |||||||||
July 5, 2005 | October 5, 2000 and every three | ||||||||||||
months thereafter | 6.16 | % | Convertible | $ | 5,000,000 | ||||||||
March 30, 2010 | March 30, 2001 and every three | ||||||||||||
months thereafter | 6.02 | % | Convertible | 5,000,000 | |||||||||
March 30, 2010 | September 30, 2000 and every three | ||||||||||||
months thereafter | 5.88 | % | Convertible | 5,000,000 | |||||||||
May 24, 2010 | May 24, 2001 and every three | ||||||||||||
months thereafter | 6.49 | % | Convertible | 2,000,000 | |||||||||
January 10, 2011 | January 10, 2002 and every three | ||||||||||||
months thereafter | 4.20 | % | Convertible | 5,000,000 | |||||||||
May 2, 2011 | May 2, 2002 and every three | ||||||||||||
months thereafter | 4.055 | % | Convertible | 30,000,000 | |||||||||
January 26, 2004 | N/A | 1.14 | % | Adjustable | 6,000,000 | ||||||||
$ | 58,000,000 | ||||||||||||
A-40 | ||
2003 | 2002 | 2001 | ||
Current | $ | 2,581,600 | 2,030,921 | 2,793,871 |
Deferred | (1,526,062) | (318,921) | (532,329) | |
$ | 1,055,538 | 1,712,000 | 2,261,542 | |
2003 | 2002 | 2001 | ||
Pre-tax income at statutory rates (34%) | $ | 1,040,104 | 1,750,169 | 2,324,544 |
Differences: | ||||
Tax exempt interest income | (216,431) | (231,395) | (331,035) | |
Nondeductible interest and other expense | 18,668 | 24,088 | 56,330 | |
Cash surrender value of life insurance | (73,692) | (83,541) | - | |
State taxes, net of federal benefit | 270,493 | 230,088 | 228,147 | |
Other, net | 16,396 | 22,591 | (16,444) | |
$ | 1,055,538 | 1,712,000 | 2,261,542 | |
2003 | 2002 | ||
Deferred tax assets: | |||
Allowance for loan losses | $ | 3,566,467 | 2,468,399 |
Amortizable intangible assets | 209,849 | 247,405 | |
Accrued retirement expense | 332,575 | 214,038 | |
Income from non-accrual loans | 23,309 | 4,880 | |
Deferred gain on sale of cash flow hedges | 217,284 | - | |
Unrealized loss on cash flow hedges | 15,580 | - | |
Other | 25,047 | 19,040 | |
Total gross deferred tax assets | 4,390,111 | 2,953,762 | |
Deferred tax liabilities: | |||
Unrealized gains on available for sale securities | 175,098 | 317,769 | |
Unrealized gains on sale of cash flow hedges | 215,540 | 583,471 | |
Deferred loan fees | 1,103,661 | 1,178,321 | |
Premises and equipment | 421,316 | 321,637 | |
Deferred income from servicing rights | 142,848 | 273,160 | |
Total gross deferred tax liabilities | 2,058,463 | 2,674,358 | |
Net deferred tax asset | $ | 2,331,648 | 279,404 |
A-41 | ||
Beginning balance | $ | 9,272,000 | ||
New loans | 2,418,000 | |||
Repayments | (4,268,000) | |||
Ending balance | $ | 7,422,000 | ||
Year | |||||||
2004 | $ | 671,915 | |||||
2005 | 663,180 | ||||||
2006 | 580,746 | ||||||
2007 | 467,144 | ||||||
2008 | 269,879 | ||||||
Thereafter | 1,953,603 | ||||||
Total minimum obligation | $ | 4,606,467 | |||||
A-42 | ||
A-43 | ||
2003 | 2002 | |||||||||
Accumulated postretirement benefit obligation | $ | 222,541 | 209,706 | |||||||
Unrecognized transition obligation | - | |||||||||
Unrecognized gain (loss) | (52,203) | (37,956) | ||||||||
Net liability recognized | $ | 170,338 | 171,750 | |||||||
A-44 | ||
2003 | 2002 | 2001 | |||||||||||||||||
Shares | Weighted Average Option Price Per Share |
|
| Shares |
|
| Weighted Average Option Price Per Share |
|
| Shares |
|
| Weighted Average Option Price Per Share | ||||||
Outstanding, beginning of year | 198,679 | $ | 14.58 | 139,703 | $ | 14.82 | 77,598 | $ | 14.00 | ||||||||||
Granted during the year | - | - | 67,550 | $ | 14.10 | 62,105 | $ | 15.86 | |||||||||||
Forfeited during the year | - | - | (8,241 | ) | $ | 14.78 | - | - | |||||||||||
Exercised during the year | (1,655 | ) | $ | 14.34 | (333 | ) | $ | 12.69 | - | - | |||||||||
Outstanding, end of year | 197,024 | $ | 14.59 | 198,679 | $ | 14.58 | 139,703 | $ | 14.82 | ||||||||||
Number of shares exercisable | 128,983 | $ | 14.52 | 66,292 | $ | 14.49 | 27,709 | $ | 14.15 | ||||||||||
A-45 | ||
To Be Well | |||||||||||||||||||
| Capitalized Under | ||||||||||||||||||
| For Capital | Prompt Corrective | |||||||||||||||||
| Actual | Adequacy Purposes | Action Provisions | ||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||
(dollars inthousands) | |||||||||||||||||||
As of December 31, 2003: | |||||||||||||||||||
Total Capital (to Risk-Weighted Assets) | |||||||||||||||||||
Consolidated | $ | 69,294 | 11.75 | % | 47,187 | 8.00 | % | N/A | N/A | ||||||||||
Bank | $ | 65,421 | 11.13 | % | 47,042 | 8.00 | % | 58,802 | 10.00 | % | |||||||||
Tier 1 Capital (to Risk-Weighted Assets) | |||||||||||||||||||
Consolidated | $ | 61,914 | 10.50 | % | 23,594 | 4.00 | % | N/A | N/A | ||||||||||
Bank | $ | 58,041 | 9.87 | % | 23,521 | 4.00 | % | 35,282 | 6.00 | % | |||||||||
Tier 1 Capital (to Average Assets) | |||||||||||||||||||
Consolidated | $ | 61,914 | 9.37 | % | 26,424 | 4.00 | % | N/A | N/A | ||||||||||
Bank | $ | 58,041 | 8.80 | % | 26,382 | 4.00 | % | 32,977 | 5.00 | % | |||||||||
As of December 31, 2002: | |||||||||||||||||||
Total Capital (to Risk-Weighted Assets) | |||||||||||||||||||
Consolidated | $ | 68,208 | 12.01 | % | 45,449 | 8.00 | % | N/A | N/A | ||||||||||
Bank | $ | 66,479 | 11.73 | % | 45,337 | 8.00 | % | 56,671 | 10.00 | % | |||||||||
Tier 1 Capital (to Risk-Weighted Assets) | |||||||||||||||||||
Consolidated | $ | 61,122 | 10.76 | % | 22,725 | 4.00 | % | N/A | N/A | ||||||||||
Bank | $ | 59,393 | 10.48 | % | 22,668 | 4.00 | % | 34,003 | 6.00 | % | |||||||||
Tier 1 Capital (to Average Assets) | |||||||||||||||||||
Consolidated | $ | 61,122 | 9.78 | % | 24,989 | 4.00 | % | N/A | N/A | ||||||||||
Bank | $ | 59,393 | 9.52 | % | 24,943 | 4.00 | % | 31,179 | 5.00 | % |
2003 |
|
| 2002 |
|
| 2001 | ||||
Advertising | $ | 538,048 | 218,022 | 236,590 | ||||||
Merchant Processing | $ | - | 77,828 | 551,513 |
A-46 | ||
A-47 | ||
2003 | 2002 | ||||||||||||
Carrying | Estimated | Carrying | Estimated | ||||||||||
Amount | Fair Value | Amount | Fair Value | ||||||||||
(In thousands) | |||||||||||||
Assets: | |||||||||||||
Cash and cash equivalents | $ | 20,783 | 20,783 | 15,578 | 15,578 | ||||||||
Investment securities available for sale | 79,460 | 79,460 | 71,736 | 71,736 | |||||||||
Other investments | 4,217 | 4,217 | 4,346 | 4,346 | |||||||||
Mortgage loans held for sale | 588 | 588 | 5,065 | 5,065 | |||||||||
Loans, net | 542,403 | 541,770 | 519,122 | 520,601 | |||||||||
Cash surrender value of life insurance | 5,045 | 5,045 | 4,829 | 4,829 | |||||||||
Mortgage servicing rights | 371 | 371 | 709 | 709 | |||||||||
Derivative instruments | (40 | ) | (40 | ) | 1,498 | 1,498 | |||||||
Liabilities: | |||||||||||||
Deposits and demand notes payable | 550,245 | 551,558 | 517,339 | 518,898 | |||||||||
FHLB advances | 58,000 | 65,062 | 63,071 | 63,359 | |||||||||
Junior subordinated debentures | 14,433 | 14,433 | 14,433 | 14,433 |
A-48 | ||
2003 | 2002 | ||||||
Assets | |||||||
Cash | $ | 689,613 | 475,820 | ||||
Interest bearing time deposit | 2,000,000 | - | |||||
Investment in subsidiaries | 59,115,062 | 61,310,019 | |||||
Other investments | 788,439 | 815,000 | |||||
Other assets | 601,425 | 589,645 | |||||
$ | 63,194,539 | 63,190,484 | |||||
Liabilities and Shareholders’ Equity | |||||||
Accrued expenses | $ | 207,643 | 152,751 | ||||
Junior subordinated debentures | 14,433,000 | 14,433,000 | |||||
Shareholders’ equity | 48,553,896 | 48,604,733 | |||||
$ | 63,194,539 | 63,190,484 | |||||
2003 | 2002 | 2001 | ||||||||
Revenues: | ||||||||||
Dividends from subsidiaries | $ | 3,948,455 | 3,526,824 | 1,462,486 | ||||||
Interest and dividend income | 43,684 | - | - | |||||||
Total revenues | 3,992,139 | 3,526,824 | 1,462,486 | |||||||
Expenses: | ||||||||||
Interest | 667,526 | 757,733 | 30,333 | |||||||
Other operating expenses | 211,788 | 208,591 | 311,117 | |||||||
Total expenses | 879,314 | 966,324 | 341,450 | |||||||
Earnings before income tax benefit and equity in | ||||||||||
undistributed earnings of subsidiaries | 3,112,825 | 2,560,500 | 1,121,036 | |||||||
Income tax benefit | 277,200 | 320,800 | 131,900 | |||||||
Earnings before equity in undistributed | ||||||||||
earnings of subsidiaries | 3,390,025 | 2,881,300 | 1,252,936 | |||||||
Equity in undistributed earnings of subsidiaries | - | 554,256 | 3,322,416 | |||||||
Dividends paid in excess in earnings | (1,386,434 | ) | - | - | ||||||
Net earnings | $ | 2,003,591 | 3,435,556 | 4,575,352 | ||||||
A-49 | ||
2003 | 2002 | 2001 | ||||||||
Cash flows from operating activities: | ||||||||||
Net earnings | $ | 2,003,591 | 3,435,556 | 4,575,352 | ||||||
Adjustments to reconcile net earnings to net | ||||||||||
cash provided by operating activities: | ||||||||||
Amortization | 17,742 | 16,668 | - | |||||||
Equity in undistributed earnings of subsidiaries | 1,386,434 | (554,256 | ) | (3,322,416 | ) | |||||
Deferred income tax benefit | (19,173 | ) | (27,991 | ) | (28,076 | ) | ||||
Change in: | ||||||||||
Accrued expenses | 54,892 | 49,708 | 63,630 | |||||||
Net cash provided by operating activities | 3,443,486 | 2,919,685 | 1,288,490 | |||||||
Cash flows from investing activities: | ||||||||||
Net change in interest bearing time deposit | (2,000,000 | ) | - | - | ||||||
Capital contributions to subsidiaries | - | - | (13,933,000 | ) | ||||||
Net cash used by investing activities | (2,000,000 | ) | - | (13,933,000 | ) | |||||
Cash flows from financing activities: | ||||||||||
Proceeds from junior subordinated debentures | - | - | 14,433,000 | |||||||
Transaction costs associated with trust preferred securities | - | (105,450 | ) | (425,741 | ) | |||||
Dividends paid | (1,253,430 | ) | (1,256,592 | ) | (1,287,486 | ) | ||||
Repurchase of common stock | - | (1,314,250 | ) | - | ||||||
Proceeds from exercise of stock options | 23,737 | 4,225 | - | |||||||
Net cash provided (used) by financing activities | (1,229,693 | ) | (2,672,067 | ) | 12,719,773 | |||||
Net change in cash | 213,793 | 247,618 | 75,263 | |||||||
Cash at beginning of year | 475,820 | 228,202 | 152,939 | |||||||
Cash at end of year | $ | 689,613 | 475,820 | 228,202 | ||||||
A-50 |
We appreciate the opportunity to partner with you - our friends, customers and shareholders - and look forward to many more productive years.
Despite the challenges faced by manufacturing companies and the resulting effect to our balance sheet and earnings stream, Peoples Bancorp recorded net income for fiscal year 2003 in the amount of $2.0 million, or $0.64 basic net income per share and $0.63 diluted net income per share. Recurring operations for the year generated net income amounting to $2.2 million, or $0.71 basic and diluted net income per share. These results represented a 26% decrease from net income from recurring operations for the prior year. You will find a discussion of the Company's f inancial performance on Page 3 in this Report.
Locally, we have continued to be challenged with an unemployment rate that is higher than the national average. Therefore, it is our belief that economic recovery on a regional basis will somewhat lag the national average.
An aggressive marketing and advertising campaign was launched last summer to attract new personal and small business relationships. The emphasis on the retail sector will serve to further diversify the Bank's book of business and increase core deposits. With interest rates at historic lows, our mortgage banking department was extremely successful in 2003 as customers chose this time to either originate or refinance their investment in real estate. Additionally, our West Lincoln and Catawba Valley Boulevard Offices opened in September and December of 2002, respectively. These banking offices will continue to enhance our corporate franchise and local communities.
The impact of the recently enacted Sarbanes-Oxley Act has had far reaching implications for us as we have worked throughout the year to implement its requirements. I wish to commend our Board of Directors for their untiring efforts and especially for their cooperation and commitment as we have prepared ourselves for compliance with all regulatory bodies. The Corporation's 2004 Proxy Statement outlines organizational changes to governing committees and required reporting that have been adopted by our corporate Board since the enactment of this legislation.
We have continued to seek additional visibility for the Bank's wholly-owned subsidiary, Peoples Investment Services, Inc., during recent months. The resources and investment choices that are available through this company and our financial advisors are being discovered by more and more area residents with increasing regularity. Securities are offered exclusively through Raymond James Financial Services, Inc., member NASD/SIPC, an independent broker/dealer and are not insured by the FDIC or any other Bank insur ance.
Despite the economic environment in which we have operated during the past year, common stock of Peoples Bancorp of North Carolina, Inc. increased in value by 33% and closed at $18.86 per share on December 31, 2003. Stock appreciation has continued into January and closed at $19.50 per share on January 26, 2004. Cash dividends totaled $1.3 million during 2003, or $0.40 per share. The Corporation's Dividend Reinvestment and Stock Purchase Plan provides an excellent and convenient means of increasing one's investment in Peoples Bancorp.
I wish to thank each officer and employee of Peoples Bancorp and Peoples Bank for the progress we have realized in continuing to move the organization forward in a less than desirable economic environment. Our team of banking professionals has been relentless in the pursuit of the efficient delivery of financial products that are backed by a quality of service that would rival any bank in the country. We insist on doing what is right for the customer and do so with a level of professionalism of which I am so proud.
Thank each of you, our shareholders and friends, for your continued loyalty and support of our efforts here at Peoples. Your recommendations and referrals are invaluable to us.
Sincerely,
/s/ Tony W. Wolfe
President and Chief Executive Officer
The Company's provision for loan losses amounted to $6.7 million for the year ended December 31, 2003, as compared to $5.4 million in 2002. The increase in the provision for loan losses reflected an increase in classified loans, which was the result of adverse business conditions in the Bank's market area. At December 31, 2003, the ratio between the allowance for loan losses and total outstanding loans was 1.76% as compared to 1.38% at December 31, 2002.
Non-interest income decreased 9% to $5.9 million during the year ended December 31, 2003 as compared to $6.5 million for the prior year. The decrease in non-interest income was largely due to the decrease in non-recurring income during 2003, which included net losses on the disposition of assets totaling $233,000, net of income tax expense. Net losses on disposition of assets included a $747,000 net loss on repossessed assets and a $53,000 loss on the sale of securities, which were partially offset by a $479,000 gain associated with the sale of the Bank's $3.7 mil lion credit card portfolio. In the year ended December 31, 2002 the Company had non-recurring gains on the sale of securities of $626,000. Non-interest expense increased 9% in 2003 to $18.2 million as compared to $16.8 million in 2002. The increase in non-interest expense included an increase of $531,000 or 6% in salaries and benefits expense primarily due to normal salary increases and increased employee insurance costs, an increase of $247,000 or 8% in occupancy expense, primarily due to expenses associated with two new branch offices opened in late 2002, and an increase in non-interest expenses other than salary, benefits and occupancy expenses. The increase in other non-interest expenses included an increase in consulting and advertising expense of $440,000 due to an aggressive marketing campaign started by the Bank in 2003.
The Company continued its modest growth in 2003, as total assets increased 4% or $28.4 million to a total of $674.0 million after growing 4% or $26.1 million in 2002. Loans g rew 5% to $552.1 million as of December 31, 2003 while deposits totaled $549.8 million, an increase of 7% from the prior year.
Shareholders' equity amounted to $48.6 million at December 31, 2003. The Company's shareholders' equity to total assets was 7.20% at December 31, 2003 as compared to 7.53% at December 31, 2002. The Company ended the year as a well-capitalized financial institution. Directors of Peoples Bancorp authorized cash dividends to shareholders in the amount of $.40 per share during 2003, which totaled $1.3 million.
Book value per share was $15.49 at December 31, 2003 as compared to $15.51 at December 31, 2002. Market value of Peoples Bancorp common stock closed at $18.86 per share on December 31, 2003 reflecting an increase in market value of 33% in 2003.
2003 | 2002 | Change | |||||
Interest income | $ | 34,854 | 36,624 | -5% | |||
Interest expense | 12,749 | 15,777 | -19% | ||||
Net interest income after provision for loan losses | 15,361 | 15,415 | 0% | ||||
Non-interest income | 5,926 | 6,491 | -9% | ||||
Non-interest expense | 18,228 | 16,758 | 9% | ||||
Income taxes | 1,055 | 1,712 | -38% | ||||
Net income | $ | 2,004 | 3,436 | -42% | |||
Per Share | |||||||
Basic net income | $ | 0.64 | 1.09 | -42% | |||
Diluted net income | 0.63 | 1.09 | -42% | ||||
Cash dividends | 0.40 | 0.40 | 0% | ||||
Market price at December 31 | 18.86 | 14.14 | 33% | ||||
Book value at December 31 | 15.49 | 15.51 | 0% | ||||
At Year-end | |||||||
Loans, net | $ | 542,404 | 519,122 | 4% | |||
Mortgage loans held for sale | 587 | 5,065 | -88% | ||||
Available for sale securities | 79,460 | 71,736 | 11% | ||||
Assets | 674,032 | 645,638 | 4% | ||||
Deposits | 549,802 | 515,739 | 7% | ||||
Shareholders' equity | 48,554 | 48,605 | 0% | ||||
Key Performance Ratios | |||||||
Return on average assets | 0.30% | 0.55% | |||||
Return on average shareholders' equity | 4.01% | 7.12% | |||||
Dividend payout ratio | 62.56% | 36.58% | |||||
Average shareholders' equity to total average assets | 7.56% | 7.72% | |||||
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||
Summary of Operations | ||||||||||||||||
Interest income | $ | 34,854 | 36,624 | 41,898 | 40,859 | 32,302 | ||||||||||
Interest expense | 12,749 | 15,777 | 23,027 | 19,432 | 14,790 | |||||||||||
Net interest income | 22,105 |
|
| 20,847 |
|
| 18,871 |
|
| 21,427 |
|
| 17,512 | |||
Provision for loan losses | 6,744 | 5,432 | 3,545 | 1,879 | 425 | |||||||||||
Net interest income after provision for loan losses | 15,361 | 15,415 | 15,326 | 19,548 | 17,087 | |||||||||||
Non-interest income | 5,926 | 6,491 | 8,263 | 3,915 | 3,380 | |||||||||||
Non-interest expense | 18,228 | 16,758 | 16,752 | 15,509 | 13,832 | |||||||||||
Income before taxes | 3,059 | 5,148 | 6,837 | 7,954 | 6,635 | |||||||||||
Income taxes | 1,055 | 1,712 | 2,262 | 2,576 | 2,093 | |||||||||||
Net income | $ | 2,004 | 3,436 | 4,575 | 5,378 | 4,542 | ||||||||||
Selected Year-End Balances | ||||||||||||||||
Assets | $ | 674,032 | 645,638 | 619,505 | 519,002 | 432,435 | ||||||||||
Available for sale securities | 79,460 | 71,736 | 84,286 | 71,565 | 62,498 | |||||||||||
Loans, net | 542,404 | 519,122 | 484,517 | 406,226 | 335,274 | |||||||||||
Mortgage loans held for sale | 587 | 5,065 | 5,339 | 1,564 | 1,685 | |||||||||||
Interest-earning assets | 639,501 | 608,619 | 586,496 | 490,449 | 411,734 | |||||||||||
Deposits | 549,802 | 515,739 | 490,223 | 450,073 | 376,634 | |||||||||||
Interest-bearing liabilities | 550,357 | 527,192 | 515,989 | 420,594 | 339,243 | |||||||||||
Shareholders' equity | $ | 48,554 | 48,605 | 45,401 | 43,039 | 37,998 | ||||||||||
Shares outstanding* | 3,135,202 | 3,133,547 | 3,218,714 | 3,218,714 | 3,218,950 | |||||||||||
Selected Average Balances | ||||||||||||||||
Assets | $ | 660,644 | 624,796 | 575,142 | 469,536 | 417,387 | ||||||||||
Available for sale securities | 72,072 | 77,414 | 84,549 | 66,218 | 60,642 | |||||||||||
Loans | 539,559 | 507,879 | 454,371 | 374,226 | 324,651 | |||||||||||
Interest-earning assets | 625,764 | 592,947 | 545,945 | 447,645 | 396,606 | |||||||||||
Deposits | 533,704 | 499,224 | 481,289 | 408,210 | 363,637 | |||||||||||
Interest-bearing liabilities | 540,243 | 516,314 | 472,435 | 373,167 | 326,164 | |||||||||||
Shareholders' equity | $ | 49,914 | 48,257 | 47,432 | 42,852 | 39,348 | ||||||||||
Shares outstanding* | 3,133,687 | 3,151,975 | 3,218,714 | 3,218,714 | 3,218,950 | |||||||||||
Profitability Ratios | ||||||||||||||||
Return on average total assets | 0.30 | % | 0.55 | % | 0.80 | % | 1.15 | % | 1.09 | % | ||||||
Return on average shareholders' equity | 4.01 | % | 7.12 | % | 9.65 | % | 12.55 | % | 11.54 | % | ||||||
Dividend payout ratio | 62.56 | % | 36.58 | % | 28.14 | % | 23.39 | % | 23.84 | % | ||||||
Liquidity and Capital Ratios (averages) | ||||||||||||||||
Loan to deposit | 101.10 | % | 101.73 | % | 94.41 | % | 91.67 | % | 89.28 | % | ||||||
Shareholders' equity to total assets | 7.56 | % | 7.72 | % | 8.25 | % | 9.13 | % | 9.43 | % | ||||||
Per share of common stock* | ||||||||||||||||
Basic net income | $ | 0.64 | 1.09 | 1.42 | 1.67 | 1.41 | ||||||||||
Diluted net income | $ | 0.63 | 1.09 | 1.42 | 1.67 | 1.41 | ||||||||||
Cash dividends | $ | 0.40 | 0.40 | 0.40 | 0.39 | 0.34 | ||||||||||
Book value | $ | 15.49 | 15.51 | 14.11 | 13.37 | 11.81 | ||||||||||
*Shares outstanding and per share computations have been restated to reflect a 10% stock dividend during second quarter | ||||||||||||||||
2000 and the 3 for 2 stock split during first quarter 1999. |
Peoples Bancorp of North Carolina, Inc.
Newton, North Carolina:
We have audited the consolidated balance sheets of Peoples Bancorp of North Carolina, Inc. as of December 31, 2003 and 2002, and the related consolidated statements of earnings, changes in shareholders' equity, comprehensive income and cash flows for each of the three years in the period ended December 31, 2003. Such consolidated financial statements and our report thereon dated January 16, 2004, expressing an unqualified opinion (which are not included herein) are included in the proxy statement for the 2004 annual meeting of shareholders. The accompanying condensed consolidated balance sheets and consolidated statements of earnings are the responsibility of the Company's management. Our responsibility is to express an opinion on such consolidated balance sheets and consolida ted statements of earnings in relation to the complete consolidated financial statements.
In our opinion, the information set forth in the accompanying condensed consolidated balance sheets as of December 31, 2003 and 2002 and the related consolidated statements of earnings for each of the three years in the period ended December 31, 2003, is fairly stated in all material respects in relation to the basic consolidated financial statements from which it has been derived.
&n bsp; /s/ Porter Keadle Moore, LLP
Atlanta, Georgia
January 16, 2004
Assets | |||||||
2003 |
|
| 2002 | ||||
Cash and due from banks | $ | 18,413,786 | 13,803,665 | ||||
Federal funds sold | 2,369,000 | 1,774,000 | |||||
| |||||||
Cash and cash equivalents | 20,782,786 | 15,577,665 | |||||
Investment securities available for sale | 79,460,452 | 71,735,705 | |||||
Other investments | 4,216,973 | 4,345,573 | |||||
Mortgage loans held for sale | 587,495 | 5,064,635 | |||||
Loans, net | 542,403,922 | 519,121,840 | |||||
Premises and equipment, net | 12,537,230 | 15,620,977 | |||||
Cash surrender value of life insurance | 5,045,449 | 4,828,708 | |||||
Accrued interest receivable and other assets | 8,998,137 | 9,342,835 | |||||
| |||||||
$ | 674,032,444 | 645,637,938 | |||||
| |||||||
Liabilities and Shareholders' Equity | |||||||
Deposits: | |||||||
Noninterest-bearing | $ | 72,420,923 | 67,398,458 | ||||
Interest-bearing | 477,381,309 | 448,340,497 | |||||
| |||||||
Total deposits | 549,802,232 | 515,738,955 | |||||
| |||||||
Demand notes payable to U.S. Treasury | 443,384 | 1,600,000 | |||||
Accrued interest payable and other liabilities | 2,799,932 | 2,189,821 | |||||
Federal Home Loan Bank advances | 58,000,000 | 63,071,429 | |||||
Junior subordinated debentures | 14,433,000 | 14,433,000 | |||||
| |||||||
Total liabilities | 625,478,548 | 597,033,205 | |||||
| |||||||
Commitments | |||||||
Shareholders' equity: | |||||||
Preferred stock, no par value; authorized 5,000,000 shares; | |||||||
no shares issued and outstanding | _____ | _____ | |||||
Common stock, no par value, authorized 20,000,000 shares; | |||||||
3,135,202 and 3,133,547 shares issued and outstanding | 35,121,510 | 35,097,773 | |||||
Retained earnings | 12,844,524 | 12,094,363 | |||||
Accumulated other comprehensive income | 587,862 | 1,412,597 | |||||
| |||||||
Total shareholders' equity | 48,553,896 | 48,604,733 | |||||
| |||||||
$ | 674,032,444 | 645,637,938 | |||||
| |||||||
Refer to Appendix A of Peoples Bancorp of North Carolina, Inc. Proxy Statement, | |||||||
dated April 2, 2004, for a complete set of Consolidated Financial Statements. |
2003 |
|
| 2002 |
|
| 2001 | ||||
| ||||||||||
Interest income: | ||||||||||
Interest and fees on loans | $ | 31,531,673 | 32,038,359 | 36,512,395 | ||||||
Interest on federal funds sold | 58,384 | 45,271 | 126,791 | |||||||
Interest and dividends on securities: | ||||||||||
U.S. Government agencies | 2,244,375 | 3,439,814 | 3,918,551 | |||||||
State and political subdivisions | 577,339 | 613,219 | 911,707 | |||||||
Other | 441,958 | 487,284 | 428,157 | |||||||
| ||||||||||
Total interest income | 34,853,729 | 36,623,947 | 41,897,601 | |||||||
| ||||||||||
Interest expense: | ||||||||||
Deposits | 9,476,208 | 12,364,245 | 20,790,136 | |||||||
Federal Home Loan Bank advances | 2,597,043 | 2,658,742 | 2,118,511 | |||||||
Other | 675,417 | 754,344 | 117,849 | |||||||
| ||||||||||
Total interest expense | 12,748,668 | 15,777,331 | 23,026,496 | |||||||
| ||||||||||
Net interest income | 22,105,061 | 20,846,616 | 18,871,105 | |||||||
Provision for loan losses | 6,743,900 | 5,431,600 | 3,545,322 | |||||||
| ||||||||||
Net interest income after provision for loan losses | 15,361,161 | 15,415,016 | 15,325,783 | |||||||
| ||||||||||
Other income: | ||||||||||
Service charges on deposit accounts | 3,266,949 | 3,060,581 | 2,805,492 | |||||||
Other services charges and fees | 610,591 | 503,165 | 471,998 | |||||||
Gain (loss) on sale of securities | (52,855) | 625,616 | 1,613,992 | |||||||
Mortgage banking income | 685,343 | 702,290 | 1,014,043 | |||||||
Insurance and brokerage commissions | 420,762 | 477,765 | 348,582 | |||||||
Loss on foreclosed and repossessed assets | (746,543) | (564) | (65,630) | |||||||
Gain on sale of loans | 478,759 | ------ | ------ | |||||||
Miscellaneous | 1,262,883 | 1,121,762 | 2,074,427 | |||||||
| ||||||||||
Total other income | 5,925,889 | 6,490,615 | 8,262,904 | |||||||
| ||||||||||
Other expenses: | ||||||||||
Salaries and employee benefits | 10,099,811 | 9,569,016 | 9,115,496 | |||||||
Occupancy | 3,389,857 | 3,142,712 | 2,984,100 | |||||||
Other operating | 4,738,253 | 4,046,347 | 4,652,197 | |||||||
| ||||||||||
Total other expenses | 18,227,921 | 16,758,075 | 16,751,793 | |||||||
| ||||||||||
Earnings before income taxes | 3,059,129 | 5,147,556 | 6,836,894 | |||||||
Income tax expense | 1,055,538 | 1,712,000 | 2,261,542 | |||||||
| ||||||||||
Net earnings | $ | 2,003,591 | 3,435,556 | 4,575,352 | ||||||
| ||||||||||
Basic earnings per share | $ | .64 | 1.09 | 1.42 | ||||||
| ||||||||||
Diluted earnings per share | $ | .63 | 1.09 | 1.42 | ||||||
|