U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(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, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Exchange Act
For the transition period from ______ to ______
Commission file number: 0-25217
PEOPLES BANKCORP, INC.
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(Exact Name of Small Business Issuer as Specified in its Charter)
New York 16-1560886
- ------------------------------- -----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
825 State Street, Ogdensburg, New York 13669
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(Address of Principal Executive Offices)
(315) 393-4340
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Registrant's Telephone Number, Including Area Code
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X ] No [ ]
As of August 5, 1999, the issuer had 134,390 shares of
Common Stock issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition
as of June 30, 1999 (unaudited)
and December 31, 1998 . . . . . . . . . . . . . . . 3
Consolidated Statements of Income for the Three and Six
Months Ended June 30, 1999 and 1998
(unaudited) . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1999 and
1998 (unaudited). . . . . . . . . . . . . . . . . 5-6
Notes to Consolidated Financial Statements. . . . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations. . . . . . . . . . . . . . . . . . .8-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . .12
Item 2. Changes in Securities. . . . . . . . . . . . . . . .12
Item 3. Defaults Upon Senior Securities. . . . . . . . . . .12
Item 4. Submissions of Matters to a Vote of Security
Holders. . . . . . . . . . . . . . . . . . . . . .12
Item 5. Other Information. . . . . . . . . . . . . . . . . .12
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . .12
SIGNATURES
2
PART I - FINANCIAL INFORMATION
PEOPLES BANKCORP, INC.
Consolidated Statements of Financial Condition
June 30, 1999 and December 31, 1998
(In thousands)
June 30, December 31,
1999 1998
--------- ------------
ASSETS (Audited)
------
Cash and Cash Equivalents:
Cash and due from banks $ 1,149 $ 1,194
Interest-bearing deposits with other banks 919 1,281
------- -------
Total Cash and Cash Equivalents 2,068 2,475
Securities held-to-maturity (fair value of
$1,499 (unaudited) at June 30, 1999 and
$2,069 at December 31, 1998) 1,500 2,057
Loans, net of deferred fees 21,237 19,984
Less allowance for loan losses 166 169
------- -------
Net loans $21,071 $19,815
Premises and equipment, net 455 434
Federal Home Loan Bank stock, at cost
required by law 139 139
Accrued interest receivable 141 151
Other assets 6 3
------- -------
TOTAL ASSETS $25,380 $25,074
======= =======
LIABILITIES AND EQUITY
Liabilities:
Deposits:
Demand accounts - non-interest bearing $ 715 $ 642
Savings and club accounts -interest 3,018 2,806
bearing 16,972 16,453
Time certificates -interest bearing
NOW and money market accounts -interest
bearing 1,714 2,293
------- -------
Total deposits $22,419 $22,194
======= =======
Advance payments by borrowers for property
taxes and insurance 3 3
Other liabilities 270 266
------- -------
Total liabilities $22,692 $22,463
======= =======
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, 134,390 shares issued
and outstanding at June 30, 1999 and
December 31, 1998 1 1
Additional paid-in capital 1,000 1,000
Retained earnings 1,794 1,717
Accumulated other comprehensive income -- --
Loan to employee stock ownership plan (107) (107)
------- -------
Total stockholders' equity $ 2,688 $ 2,611
------- -------
Total liabilities and stockholders'
equity $25,380 $25,074
======= =======
See accompanying notes to consolidated financial statements.
3
PEOPLES BANKCORP, INC.
Consolidated Statements of Income
For the Three and Six Months Ended June 30, 1999 and 1998
(In thousands)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -----------------
1999 1998 1999 1998
------ ------ ----- ------
Interest income:
Loans $403 $356 $814 $ 727
Securities 15 70 41 127
Other short-term investments 34 17 58 28
---- ---- ---- ----
Total interest income 452 443 913 882
Interest expense:
Deposits 254 264 508 522
---- ---- ---- ----
Total interest expense 254 264 508 522
---- ---- ---- ----
Net interest income 198 179 405 360
Provision for loan losses -- 3 11 3
Net interest income after
provision for loan losses 198 176 394 357
---- ---- ---- ----
Non-interest income:
Service charges 7 9 15 14
Net gain on sale of securities -- 1 -- 1
Other 5 (1) 12 7
---- ---- ---- ----
Total non-interest income 12 9 27 22
Non-interest expenses:
Salaries and employee benefits 74 63 146 140
Directors fees 14 9 24 22
Building, occupancy and
equipment 13 13 27 27
Data processing 8 7 16 15
Postage and supplies 6 9 11 12
Deposit insurance premium 3 4 6 7
Insurance 2 3 4 5
Other 30 36 63 53
---- ---- ---- ----
Total non-interest expenses 150 144 297 281
Income before income tax
expense 60 41 124 98
Income tax expense 26 12 47 26
---- ---- ---- ----
Net income $ 34 $ 29 $ 77 $ 72
==== ==== ==== ====
Earnings per share
Basic and diluted $.25 N/A $.57 N/A
---- ----
Weighted average shares
outstanding 134 N/A 134 N/A
---- ----
See accompanying notes to consolidated financial statements.
4
PEOPLES BANKCORP, INC.
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1999 and 1998
(In thousands)
Six Months Ended
June 30,
---------------------
1999 1998
-------- -------
Cash flows from operating activities:
Net income $ 77 $ 72
Adjustment to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 6 8
(Increase)decrease in accrued interest
receivable 10 (25)
Provision for loan losses 11 3
Net gains on sales of securities -- (1)
Net amortization (accretion of
premium/discounts) -- (56)
Increase in other liabilities 4 177
Deferred income taxes -- 6
(Increase) decrease in other assets (3) (6)
------- -------
Net cash provided (used) by
operating activities 105 178
------- -------
Cash flows from investing activities:
Net increase in loans (1,211) (2,033)
Proceeds from sales of securities
available-for-sale -- 712
Proceeds from maturities and principal
reductions of securities available-for-sale -- 18
Purchases of securities held-to-maturity (500) (2,957)
Proceeds from maturities and principal
reductions of securities held-to-maturity 1,001 3,505
Purchase of FHLB stock -- (2)
Purchase of fixed assets (27) --
------- -------
Net cash provided (used) by
investing activities (737) (757)
------- -------
Cash flows from financing activities:
Increase in deposits 225 591
------- -------
Net cash provided by
financing activities 591
Net increase (decrease) in cash and cash equivalents (407) 12
Cash and cash equivalents at beginning of period 2,475 1,227
------- -------
Cash and cash equivalents at end of period $ 2,068 $ 1,239
======= =======
5
PEOPLES BANKCORP, INC.
Consolidated Statements of Cash Flows, Continued
(In thousands)
June 30, June 30,
1999 1998
-------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Non-cash investing activities:
Additions to real estate owned $ -- $ --
Cash paid during the period for:
Interest 508 522
Income taxes 54 24
======= =======
See accompanying notes to consolidated financial statements.
6
PEOPLES BANKCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
NOTE 1 - PEOPLES BANKCORP, INC.
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
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.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
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.
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1999 AND DECEMBER
31, 1998
Total assets at June 30, 1999 amounted to $25.4 million, a
$300,000 increase from December 31, 1998's level of $25.1
million. The composition of the Company's balance sheet had
changed somewhat with cash and cash equivalents decreasing by
$400,000 from $2.5 million at December 31, 1998 to $2.1 million
at June 30, 1998, a decrease of 16%. In addition, net loans
rose by $1.3 million, or 6.6%, from $19.8 million at December
31, 1998 to $21.1 million at June 30, 1999. The growth in the
loan portfolio consisted primarily of a GNMA purchase. The
growth in the loan portfolio was financed by the funds received
from maturing securities and principal payments thereon. Total
liabilities at June 30, 1999 were up from December 31, 1998,
increasing by $229,000 to $22.7 million. Deposits, which
comprise the majority of total liabilities, amounted to $22.4
million at June 30, 1999, up from $22.2 million at December 31,
1998 for an increase of $225,000 with decreases in NOW accounts
being offset by increases in savings accounts demand and
certificates of deposit. Total stockholders' equity at June 30,
1998 amounted to $2.7 million as compared to $2.6 million at
December 31, 1998 with the increase attributable to the
retention of earnings from the period. At June 30, 1999 the
Association was in compliance with all applicable regulatory
capital requirements with total core and tangible capital of
$2.3 million (9.2% of adjusted total assets) and total
risk-based capital of $2.4 million (17.0%) of risk weighted
assets).
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE
30, 1999 AND 1998
NET INCOME. Net income for the three months ended June 30,
1999 amounted to $34,000 as compared to $29,000 for the three
months ended June 30, 1998 with the $5,000 increase attributable
to an increase in net interest income and non-interest income,
partially offset by an increase in non-interest expenses and
income tax expense. For the six months ended June 30, 1999, net
income amounted to $77,000 as compared to $72,000 for the first
half of fiscal year 1998 with the increase attributable to the
same factors.
8
NET INTEREST INCOME. Net interest income before provision
for loan losses increased from $179,000 for the three months
ended June 30, 1998 to $198,000 for the three months ended June
30,1999. The increase in net interest income was primarily due
to the combined effects of a $9,000 increase in interest income
and a $10,000 reduction in interest expense as compared to the
three months ended June 30, 1998. The increase in interest
income was primarily due to a $47,000 increase in interest from
loans which reflected the growth in the loan portfolio and a
$17,000 increase in interest from short-term investments
reflecting the higher balances of these types of investments
during the three months ended June 30, 1999 as compared to the
same period in 1998, partially offset by a decrease of $55,000
in interest income from securities due to a reduction in the
securities portfolio. Interest expense for the quarter ended
June 30, 1999 amounted to $254,000, a $10,000 decrease from the
same period in 1998 with the decrease attributable to a decrease
in prevailing interest rates.
For the six months ended June 30, 1999, net interest income
before provision for loan losses totaled $405,000 up from
$360,000 for the six months ended June 30, 1998. The $45,000
was due to the same factors discussed above with respect to the
second quarter.
PROVISION FOR LOAN LOSSES. For the three months ended June
30, 1999, the Company did not make any provision for loan losses
as compared to a provision of $3,000 for the same period in
1998. For the six months ended June 30, 1998, the Company
recorded a provision of $11,000 as compared to $3,000 for the
first half of 1998. The higher provision in the first quarter of
1999 reflected the level of charge-offs during that period.
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 Bank, the status of
past due principal and interest payments, general economic
conditions, particularly as such conditions relate to the Bank's
market area, and other factors related to the collectibility of
the Bank's loan portfolio. There can be no assurance that the
loan loss allowance of the Bank 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, 1999 amounted to $12,000 as compared to
$9,000 for the three months ended June 30, 1998 with the
increase attributable to an increase in overdraft fees.
NON-INTEREST EXPENSES. Non-interest expenses for the
second quarter of 1999 totaled $150,000 for a $6,000 or 4.17%
increase as compared to the second quarter of 1998. The
increased expense level was attributable to an $11,000 increase
in salaries and employee benefits due to increased salary levels
and the additional director fees payable for service on the
Company's Board. For the six months ended June 30, 1999, non-
interest expenses amounted to $297,000, up from $281,000 for the
six months ended June 30, 1998 with the $16,000 increase
attributable to an $11,000 increase in salaries and employee
benefits and a $5,000 increase in other expenses consisting
mainly of additional legal and SEC filing fees during 1999 due
to the Company's status as a public company.
INCOME TAX EXPENSE. Income tax expense for the three
months ended June 30, 1999 amounted to $26,000, a $14,000
increase from the same period in 1998 with the increase
primarily attributable to an increase in pre-tax income. The
Company's effective tax rates for the respective periods were
43.3% and 29.3%.
For the six months ended June 30, 1999, income tax expense
amounted to $47,000 as compared to $26,000 for the first half of
1998. The Company's effective tax rates for the respective 1999
and 1998 periods were 37.9% and 26.5%.
9
YEAR 2000 COMPLIANCE
A great deal of information has been disseminated about the
global computer problem that may occur in the year 2000 which
would affect the speed and accuracy of the data processing that
is essential to its operations. The Company is conducting a
thorough review of its internal systems as well as the efforts
of its outside data processing service provider. The progress
of the plan is monitored by its board of directors. The Company
does not expect to incur significant costs to replace existing
hardware or software. The greatest potential for problems,
however, concerns the data processing provided by its third
party service bureau. The service bureau with which the Company
operates is providing it with periodic updates of its compliance
progress. The Company has participated in the first and second
and third phases of testing. With respect to the Company's
teller/platform computer system, it has converted to a new
system that is year 2000 compliant. The Company has developed a
contingency plan to deal with the potential that its service
bureau is unable to bring its systems into compliance. The
Company believes that it would use manual systems as a
contingency plan if its current provider is unable to resolve
this problem in time. There can be no assurance in this regard,
however, and it is possible that as a result the Company could
experience data processing delays, errors or failures, all of
which could have a material adverse impact on its financial
condition and results of operations. The Company estimates that
its expenses related to year 2000 compliance will be
approximately $5,000.
The Company has also evaluated its non-information
technology systems (for example, its alarm system, its heating
and air conditioning system) to determine if such systems may
have embedded technology that could also be affected by the year
2000 problem. The Company has determined that the only system of
this type that could be affected is its alarm system. The
Company has been informed, however, by the vendor that the
system is year 2000 compliant and has been fully tested.
The Company has installed a new teller/platform computer
system. The costs of the new system will be approximately
$60,000. The installation of the new system is not a result of
Year 2000 compliance. As a result, such costs will be
capitalized.
Computer problems experienced by the Company's commercial
borrowers could have an adverse effect on their business
operations and their ability to repay their loans when due. The
Company has recently begun evaluating Year 2000 readiness of its
commercial loan applicants as part of the loan underwriting
process and is calling upon major existing borrowers to assess
their readiness and identify potential problems.
10
LIQUIDITY AND CAPITAL RESOURCES
The Association is required to maintain minimum levels of
liquid assets as defined by OTS regulations. This requirement,
which varies from time to time depending upon economic
conditions and deposit flows, is based upon a percentage of the
Association's deposits and short-term borrowings. The required
ratio at June 30, 1999 was 4%. For the month ended June 30,
1999 the Association was in compliance.
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, although
historically the Association has done this rarely. 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.
11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security-Holders
On May 18, 1999, the Annual Meeting of the Company's
stockholders was held. Two directors nominated were
elected to terms expiring in 2002 by the following
votes:
Robert E. Hentschel:
For: 115,712 Withheld: 25
Wesley L. Stitt:
For: 115,712 Withheld: 25
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K.
None.
12
SIGNATURES
In accordance with the requirements of the Securities
Exchange Act of 1934, the registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly
authorized.
PEOPLES BANKCORP, INC.
Date: August 16, 1999 By: /s/ Robert E. Wilson
---------------------------------
Robert E. Wilson
President and Chief Executive
Officer
(Duly Authorized and Principal
Executive, Accounting and
Financial Officer)
13