FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission File No. 0-25217
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PEOPLES BANKCORP, INC.
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(Exact name of registrant as specified in its charter)
New York 16-1560886
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
825 State Street, Ogdensburg, New York 13669
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(Address of principal (Zip Code)
executive office)
Issuer's telephone number, including area code: (315) 393-4340
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of August 13, 2003, the latest practicable date, 134,035 shares of the
registrant's common stock, $.01 par value per share, were issued and
outstanding.
Transitional small business disclosure format (check one):
Yes [X] No [ ]
PART I. FINANCIAL STATEMENTS
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
June 30, 2003 (unaudited) and December 31, 2002...................... 3
Consolidated Statements of Income for the Three and
Six Ended June 30, 2003 (unaudited) and
June 30, 2002 (unaudited)............................................ 4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2003 (unaudited) and June 30, 2002
(unaudited).......................................................... 5
Notes to Unaudited Consolidated Financial Statements.................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................. 8
Item 3. Controls and Procedures...............................................10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...........................................11
Item 2. Changes in Securities and Use of Proceeds...................11
Item 3. Defaults Upon Senior Securities.............................11
Item 4. Submission of Matters to a Vote of Security Holders.........11
Item 5. Other Information...........................................11
Item 6. Exhibits and Reports on Form 8-K............................11
SIGNATURES
2
PART I. FINANCIAL STATEMENTS
PEOPLES BANKCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 2003 AND DECEMBER 31, 2002
(Dollars in thousands, except per share data)
June 30, December 31,
2003 2002
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ASSETS (Unaudited)
Cash and Cash Equivalents:
Cash and due from banks $ 9,042 $ 2,652
Interest-bearing deposits with other banks 516 1,739
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Total Cash and Cash Equivalents 9,558 4,391
Securities available-for-sale -- at fair value 2,900 6,051
Securities held-to-maturity (fair value of $14 at (unaudited)
June 30, 2003 and $877 at December 31, 2002) 14 865
Loans, net of deferred fees 16,104 17,070
Less - allowance for loan losses 380 380
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Net Loans 15,724 16,690
Premises and equipment, net 382 394
Federal Home Loan Bank stock, at cost - required by law 167 184
Accrued interest receivable 98 154
Other assets 2 39
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TOTAL ASSETS $ 28,845 $ 28,768
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand accounts - non-interest bearing $ 1,033 $ 801
Savings and club accounts - interest bearing 3,364 3,148
Time certificates - interest bearing 17,199 17,914
NOW and money market accounts - interest bearing 2,881 2,553
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Total Deposits 24,477 24,416
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Borrowed money 1,000 1,000
Advance payments by borrowers for property taxes and insurance 3 3
Other liabilities 208 121
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Total Liabilities 25,688 25,540
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Commitments and contingencies
Stockholders' Equity:
Preferred stock $.01 par value per share, 500,000 shares
authorized, no shares issued or outstanding -- --
Common stock of $.01 par value, 3,000,000 shares
authorized, 134,035 issued and 134,035 shares
outstanding at June 30, 2003 and December 31, 2002 1 1
Additional paid-in capital 1,048 1,041
Retained earnings - substantially restricted 2,173 2,206
Accumulated other comprehensive income 48 93
Loan to Employee Stock Ownership Plan (65) (65)
Common stock in treasury, at cost (3,470 shares at
June 30, 2003 and 3,470 shares December 31, 2002) (48) (48)
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Total Stockholders' Equity 3,157 3,228
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 28,845 $ 28,768
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See accompanying notes to consolidated financial statements.
3
PEOPLES BANKCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND JUNE 30, 2002
(Dollars in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- ----------------------------
2003 2002 2003 2002
-------- -------- -------- --------
(Unaudited)
Interest income:
Loans $ 289 $ 342 $ 598 $ 703
Securities 36 131 105 251
Other short-term investments 21 6 35 14
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Total interest income 346 479 738 968
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Interest expense:
Deposits 152 218 315 456
Borrowings 8 8 16 17
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Total interest expense 160 226 331 473
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Net interest income 186 253 407 495
Provision for loan losses 4 12 6 21
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Net interest income after provision
for loan losses 182 241 401 474
--------- --------- --------- ---------
Non-interest income:
Gain on sale of available for sale securities -- -- -- 11
Service charges 5 6 9 13
Other 5 9 13 13
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Total non-interest income 10 15 22 37
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Non-interest expense:
Salaries and employee benefits 96 86 193 171
Director fees 20 23 41 41
Building, occupancy and equipment 20 16 38 32
Data processing 12 11 24 22
Postage and supplies 6 9 11 14
Deposit insurance premium 1 1 3 2
Insurance 4 3 8 6
Other 91 43 144 65
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Total non-interest expense 250 192 462 353
--------- --------- --------- ---------
Income before income tax expense (58) 64 (39) 158
Income tax expense (9) 37 (6) 62
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Net income $ (49) $ 27 $ (33) $ 96
========= ========= ========= =========
Earnings per share
Basic $ (.36) $ .22 $ (.24) $ .77
Diluted $ (.35) $ .21 $ (.23) .73
Weighted average shares outstanding 132 132
See accompanying notes to consolidated financial statements.
4
PEOPLES BANKCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2003 AND JUNE 30, 2002
(Dollars in thousands)
Six Months Ended
June 30,
-------------------------
2003 2002
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(Unaudited)
Cash flows from operating activities:
Net income $ (33) $ 96
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 12 11
Decrease (increase) in accrued interest receivable 56 (23)
Provision for loan losses 6 21
Net amortization (accretion) of premium/discounts (17) (18)
Increase in other liabilities 94 138
(Increase) Decrease in other assets 37 (2)
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Net cash provided by operating activities 155 223
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Cash flows from investing activities:
Net decrease in loans 960 1,284
Purchases of securities available-for-sale -- (3,250)
Proceeds from maturities and principal reductions
of securities available-for-sale 3,123 1,376
Purchases of securities held-to-maturity -- (600)
Proceeds from maturities and principal reductions
of securities held-to-maturity 851 1,255
(Purchase) Sale of FHLB stock 17 (21)
Purchase of fixed assets --
Sale of foreclosed real estate -- 76
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Net cash provided (used) by investing activities 4,951 120
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Cash flows from financing activities:
Increase in deposits 61 254
Borrowings from FHLB -- --
Repayments to FHLB -- --
Loan payment received from Employee Stock Ownership Plan -- --
Decrease in advance payments from borrowers for property
taxes and insurance -- --
Cash dividends paid on common stock -- --
Payments to acquire treasury stock -- (10)
Issuance of common stock upon exercise of options -- 16
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Net cash provided by financing activities 61 260
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Net increase in cash and cash equivalents 5,167 603
Cash and cash equivalents at beginning of period 4,391 2,048
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Cash and cash equivalents at end of period $ 9,558 $ 2,651
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(continued)
5
PEOPLES BANKCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2003 AND JUNE 30, 2002
(Dollars in thousands)
Six Months Ended
June 30,
-------------------------
2003 2002
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(Unaudted)
Supplemental Disclosure of Cash Flow Information:
Non-cash investing activities:
Loans transferred to real estate owned through foreclosure $ -- $ 70
Additions to real estate owned -- --
Treasury stock utilized for MRP -- --
Cash paid during the period for:
Interest 331 473
Income taxes -- 69
======== =========
6
PEOPLES BANKCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2003 and June 30, 2002
NOTE 1 - PEOPLES BANKCORP, INC.
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Peoples Bankcorp, Inc. (the "Company") was incorporated under the laws of the
State of New York for the purpose of becoming the holding company of Ogdensburg
Federal Savings and Loan Association (the "Association") in connection with the
Association's conversion from a federally chartered mutual savings and loan
association to a federally chartered capital stock savings and loan association.
On November 22, 1998, the Company commenced a subscription offering of its
shares in connection with the Association's conversion. The Company's offering
and the Association's conversion closed on December 28, 1998. A total of 134,390
shares were sold at $10.00 per share.
NOTE 2 - BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
- --------------------------------------------------------------
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-QSB and on the same basis as the Company's
audited financial statements. In the opinion of management, all adjustments,
consisting of normal recurring accruals, necessary to present fairly the
financial position, results of operations, and cash flows for the interim
periods presented have been included. The results of operations for such interim
periods are not necessarily indicative of the results expected for the full
year.
NOTE 3 - PLAN OF CONVERSION
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On July 23, 1998, the Association's Board of Directors formally approved a plan
("Plan") to convert from a federally chartered mutual savings and loan
association to a federally chartered stock savings and loan association subject
to approval by the Association's members and the Office of Thrift Supervision.
The Plan called for the common stock of the Association to be purchased by the
Company and the common stock of the Company to be offered to various parties in
a subscription offering at a price based upon an independent appraisal of the
Association. All requisite approvals were obtained and the conversion and the
Company's offering were consummated effective December 28, 1998.
Upon consummation of the conversion, the Association established a liquidation
account in an amount equal to its retained earnings as reflected in the latest
statement of financial condition used in the final conversion prospectus. The
liquidation account will be maintained for the benefit of certain depositors of
the Association who continue to maintain their deposit accounts in the
Association after conversion. In the event of a complete liquidation of the
Association, such depositors will be entitled to receive a distribution from the
liquidation account before any liquidation may be made with respect to the
common stock.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company's assets consist primarily of its ownership of the Association. As
such, the following discussion relates primarily to the Association's financial
condition and results of operations. The Association's results of operations
depend primarily on net interest income, which is determined by (i) the
difference between rates of interest it earns on its interest-earning assets and
the rates it pays on interest-bearing liabilities (interest rate spread), and
(ii) the relative amounts of interest-earning assets and interest-bearing
liabilities.
The Association's results of operations are also affected by non-interest
expense, including primarily compensation and employee benefits, federal deposit
insurance premiums and office occupancy costs. The Association's results of
operations also are affected significantly by general and economic and
competitive conditions, particularly changes in market interest rates,
government policies and actions of regulatory authorities, all of which are
beyond its control.
FORWARD-LOOKING STATEMENTS
In addition to historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties.
Economic circumstances, the Company's operations and the Company's actual
results could differ significantly from those discussed in the forward-looking
statements. Some of the factors that could cause or contribute to such
differences are discussed herein but also include changes in the economy and
interest rates in the nation and the Company's market area generally. Some of
the forward-looking statements included herein are the statements regarding
management's determination of the amount and adequacy of the allowance for
losses on loans and the effect of certain recent accounting pronouncements.
CRITICAL ACCOUNTING POLICIES
Accounting policies involving significant judgments and assumptions by
management, which have, or could have, a material impact on the carrying value
of certain assets and impact income, are considered critical accounting
policies. The Company considers the allowance for loan losses to be its critical
accounting policy. There have been no significant changes in the methods or
assumptions used in the accounting policies that require material estimates and
assumptions.
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2003 AND DECEMBER 31, 2002
Total assets at June 30, 2003 amounted to $28.9 million, a $77,000 or .27%
increase from December 31, 2002's level of $28.8 million. The increase in total
assets was centered in a $5.2 million or 118% increase in cash and cash
equivalents, partially offset by a $1 million or 6.0% decrease in net loans and
a $4 million or 57.9% decrease in securities. Total liabilities at June 30, 2003
increased from $25.5 million at December 31, 2002 to $25.7 million. Deposits,
which comprise the majority of total liabilities, amounted to $24.5 million at
June 30, 2003, up from $24.4 million at December 31, 2002 for an increase of
$61,000, or .25% with increases in all categories of deposits other than time
certificates. Total stockholders' equity at June 30, 2003 amounted to $3.2
million as compared to $3.2 million at December 31, 2002. Retained earnings
decreased $33,000, while accumulated other comprehensive income decreased
$45,000 and paid in capital increased $7,000. At June 30, 2003 the Association
was in compliance with all applicable regulatory capital requirements with core
and tangible capital of $2.7 million (9.50% of adjusted total assets) and total
risk based capital of $2.8 million (24.11% of risk weighted assets).
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND JUNE
30, 2002
NET INCOME. Net income for the three months ended June 30, 2003 amounted to
($49,000) as compared to $27,000 for the three months ended June 30, 2002. The
$76,000 or 281% decrease was due to the combined effects of a $133,000 decrease
in interest income, a decrease in interest expense and an increase in
non-interest expense. For the six months ended June 30, 2003, net income
amounted to ($33,000) as compared to $96,000 for the six months ended June 30,
2002,with the $129,000 or 134% decrease attributable to the aforementioned
factors.
NET INTEREST INCOME. Net interest income before provision for loan losses
decreased by $67,000, or 26.4%, to $186,000 for the three months ended June 30,
2003 from $253,000 for the three months ended June 30, 2002.
8
The decrease in net interest income was primarily due to a $133,000 decrease in
interest income offset by a $66,000 decrease in interest expense. The decrease
in interest expense and interest income was reflective of interest rates
decreasing. For the six months ended June 30, 2003, net interest income before
provision for loan losses amounted to $407,000, down from $495,000 for the first
half of fiscal year 2002 for a decrease of $88,000 with the change due to the
aforementioned factors.
PROVISION FOR LOAN LOSSES. For the three months ended June 30, 2003, the Company
made a $4,000 provision for loan losses as compared to a provision of $12,000 or
the same period in 2002. The lower provision in 2003 reflected the level of
charge-offs during that period. For the six months ended June 30, 2003 the
Company made a $6,000 provision for loan losses as compared to a $21,000
provision for the same period in 2002.
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
on historical experience, the volume and type of lending conducted by the
Association, the status of past due principal and interest payments, general
economic conditions, particularly as such conditions relate to the Association's
market area, and other factors related to the collectibility of the
Association's loan portfolio. There can be no assurance that the loan loss
allowance of the Association will be adequate to cover losses on nonperforming
assets in the future.
NON-INTEREST INCOME. Non-interest income for the three months ended June 30,
2003 amounted to $10,000 as compared to $15,000 for the three months ended June
30, 2002 with the decrease due to a $5,000 decrease in service charges and other
non interest income combined. For the six months ended June 30, 2003,
non-interest income amounted to $22,000 as compared to $37,000 for the six
months ended June 30, 2002 with the decrease due to an $11,000 decrease in gains
on sales of available for sale securities and a $4,000 decrease in service
charges.
NON-INTEREST EXPENSES. Non-interest expenses for the second quarter of 2003
totaled $250,000, up from $192,000 for the second quarter of 2002 with the
increase mainly due to a $48,000 increase in other non-interest expenses and a
$10,000 increase in salaries and employee benefits. For the six months ended
June 30, 2003, non-interest expenses totaled $462,000 which was a $109,000
increase as compared to the first half of fiscal year 2002. The increase in the
first half of fiscal year 2003 was due to the aforementioned factors.
INCOME TAX EXPENSE. Income tax expense for the three months ended June 30, 2003
amounted to $9,000, a $46,000 decrease from the same period in 2002 with the
increase primarily attributable to an increase in pre-tax income. The Company's
effective tax rates for the respective periods were (15)% and 57.81%. For the
six months ended June 30, 2003, income tax expense amounted to $6,000, down from
$62,000 for the same period in 2002 with the increase primarily due to the
increased level of pre-tax income. The Company's effective tax rates for the
first half of fiscal years 2003 and 2002 were (15)% and 39.24%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Association is required to maintain levels of liquid assets consistent with
its safe and sound operation. The Association believes its level of liquid
assets are sufficient for its needs.
The Association's primary sources of funds are deposits, repayment of loans and
mortgage-backed securities, maturities of investments and interest-bearing
deposits, funds provided from operations. The Association is also able to obtain
advances from the Federal Home Loan Bank of New York. While scheduled repayments
of loans and mortgage-backed securities and maturities of investment securities
are predicable sources of funds, deposit flows and loan prepayments are greatly
influenced by the general level of interest rates, economic conditions and
competition. The Association uses its liquidity resources principally to fund
existing and future loan commitments, to fund maturing certificates of deposit
and demand deposit withdrawals, to invest in other interest-earning assets, to
maintain liquidity, and to meet operating expenses.
9
Item 3. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, management of the
Company carried out an evaluation, under the supervision and with the
participation of the Company's principal executive officer and principal
financial officer, of the effectiveness of the Company's disclosure controls and
procedures. Based on this evaluation, the Company's principal executive officer
and principal financial officer concluded that the Company's disclosure controls
and procedures are effective in ensuring that information required to be
disclosed by the Company in reports that it files or submits under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. It should be noted that the design of the
Company's disclosure controls and procedures is based in part upon certain
reasonable assumptions about the likelihood of future events, and there can be
no reasonable assurance that any design of disclosure controls and procedures
will succeed in achieving its stated goals under all potential future
conditions, regardless of how remote, but the Company's principal executive and
financial officers have concluded that the Company's disclosure controls and
procedures are, in fact, effective at a reasonable assurance level.
In addition, there have been no changes in the Company's internal control
over financial reporting (to the extent that elements of internal control over
financial reporting are subsumed within disclosure controls and procedures)
identified in connection with the evaluation described in the above paragraph
that occurred during the Company's last fiscal quarter, that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1 . Legal Proceedings
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None.
ITEM 2. Changes in Securities and Use of Proceeds
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Not applicable.
ITEM 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
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None.
ITEM 5. Other Information
-----------------
None.
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibits:
31 Rule 13a-14(a) Certification
32 Section 1350 Certifications
Reports on Form 8-K:
The Company filed a Current Report on Form 8-K on
May 14, 2003, announcing that it had entered into an Agreement and Plan of
Merger dated May 6, 2003, with Community Bank System, Inc. and
PB Acquisition Corp.
10
SIGNATURES
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In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
PEOPLES BANKCORP, INC.
Date: August 13, 2003 By:/s/Robert E. Wilson
-----------------------------------------
Robert E. Wilson
President and Chief Executive Officer
(Duly Authorized and Principal Executive,
Accounting and Financial Officer)
11