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 September 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.
- ----------------------------------------------------------------
(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 November 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 September 30, 1999 (unaudited)
and December 31, 1998 . . . . . . . . . . . . . . . 3
Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 1999 and 1998
(unaudited) . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the
Nine Months Ended September 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
September 30, 1999 and December 31, 1998
(In thousands)
September 30, December 31,
1999 1998
--------- ------------
ASSETS (Audited)
------
Cash and Cash Equivalents:
Cash and due from banks $ 710 $ 1,194
Interest-bearing deposits with other banks 164 1,281
------- -------
Total Cash and Cash Equivalents 874 2,475
Securities available-for-sale, at fair value 743 --
Securities held-to-maturity (fair value of
$2,115 (unaudited) at September 30, 1999 and
$2,069 at December 31, 1998) 2,125 2,057
Loans, net of deferred fees 23,030 19,984
Less allowance for loan losses 174 169
------- -------
Net loans $22,856 $19,815
Premises and equipment, net 469 434
Federal Home Loan Bank stock, at cost
required by law 139 139
Accrued interest receivable 151 151
Other assets 8 3
------- -------
TOTAL ASSETS $27,365 $25,074
======= =======
LIABILITIES AND EQUITY
Liabilities:
Deposits:
Demand accounts - non-interest bearing $ 722 $ 642
Savings and club accounts -interest
bearing 3,391 2,806
Time certificates -interest bearing 16,885 16,453
NOW and money market accounts -interest
bearing 1,684 2,293
------- -------
Total deposits $22,682 $22,194
======= =======
Advance payments by borrowers for property
taxes and insurance 2 3
Other liabilities 140 266
Borrowed money 1,800 --
------- -------
Total liabilities $24,624 $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 September 30, 1999 and
December 31, 1998 1 1
Additional paid-in capital 1,000 1,000
Retained earnings 1,848 1,717
Accumulated other comprehensive income (1) --
Loan to employee stock ownership plan (107) (107)
------- -------
Total stockholders' equity $ 2,741 $ 2,611
------- -------
Total liabilities and stockholders'
equity $27,365 $25,074
======= =======
See accompanying notes to consolidated financial statements.
3
PEOPLES BANKCORP, INC.
Consolidated Statements of Income
For the Three and Nine Months Ended September 30, 1999 and 1998
(In thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -----------------
1999 1998 1999 1998
------ ------ ----- ------
Interest income:
Loans $435 $400 $1,249 $1,127
Securities 36 41 77 168
Other short-term investments 12 12 70 40
---- ---- ------ ------
Total interest income 483 453 1,396 1,335
---- ---- ------ ------
Interest expense:
Deposits 256 269 764 791
Borrowings 10 -- 10 --
---- ---- ------ ------
Total interest expense 266 269 774 791
---- ---- ------ ------
Net interest income 217 184 622 544
Provision for loan losses 7 5 18 8
---- ---- ------ ------
Net interest income after
provision for loan losses 210 179 604 536
---- ---- ------ ----
Non-interest income:
Service charges 8 13 23 27
Net gain on sale of securities -- -- -- 1
Other 10 4 22 11
---- ---- ------ ----
Total non-interest income 18 17 45 39
---- ---- ------ ------
Non-interest expenses:
Salaries and employee
benefits 83 72 229 212
Directors fees 10 10 34 32
Building, occupancy and
equipment 15 15 42 42
Data processing 8 10 24 25
Postage and supplies 7 7 18 19
Deposit insurance premium 3 3 9 10
Insurance 2 2 6 7
Other 23 32 86 85
---- ---- ------ ----
Total non-interest expenses 151 151 448 432
---- ---- ------ ------
Income before income tax
expense 77 45 201 143
Income tax expense 24 12 71 38
---- ---- ------ ----
Net income $ 53 $ 33 $ 130 $105
==== ==== ====== ====
Earnings per share
Basic and diluted $.39 N/A $ .96 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
Nine Months Ended September 30, 1999 and 1998
(In thousands)
Nine Months Ended
September 30,
---------------------
1999 1998
-------- -------
Cash flows from operating activities:
Net income $ 130 $ 105
Adjustment to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 11 12
(Increase)decrease in accrued interest
receivable -- (7)
Provision for loan losses 18 8
Net gains on sales of securities -- (1)
Losses on sale - REO -- 10
Net amortization (accretion of
premium/discounts) -- (74)
Increase in other liabilities (126) 163
Deferred income taxes -- 6
(Increase) decrease in other assets (5) (98)
------- -------
Net cash provided (used) by
operating activities 28 124
------- -------
Cash flows from investing activities:
Net increase in loans (3,003) (3,208)
Proceeds from sales of securities
available-for-sale -- 712
Proceeds from maturities and principal
reductions of securities available-for-sale -- 18
Purchases of securities available-for-sale (743) --
Purchases of securities held-to-maturity (1,125) (2,957)
Proceeds from maturities and principal
reductions of securities held-to-maturity 1,001 4,527
Purchase of FHLB stock 0 (2)
Purchase of fixed assets (46) 30
------- -------
Net cash provided (used) by
investing activities (3,916) (880)
------- -------
Cash flows from financing activities:
Increase in deposits 488 848
Decrease in advance payments from borrowers (1) --
Borrowings from FHLB 1,800 --
------- -------
Net cash provided by
financing activities 2,287 848
Net increase (decrease) in cash and cash equivalents (1,601) 92
Cash and cash equivalents at beginning of period 2,476 1,227
------- -------
Cash and cash equivalents at end of period $ 874 $ 1,319
======= =======
5
PEOPLES BANKCORP, INC.
Consolidated Statements of Cash Flows, Continued
(In thousands)
Nine Months Ended
September 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 764 791
Income taxes 72 35
======= =======
See accompanying notes to consolidated financial statements.
6
PEOPLES BANKCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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.
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, the effect of certain recent
accounting pronouncements and the Company's projected effects
related to the year 2000 compliance issue.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1999 AND
DECEMBER 31, 1998
Total assets at September 30, 1999 amounted to $27.3
million, a $2.3 million 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 $1.6 million from $2.5 million at December 31,
1998 to $800,000 at September 30, 1999, a decrease of 64%. In
addition, net loans rose by $3.0 million, or 15%, from $19.8
million at December 31, 1998 to $22.8 million at September 30,
1999. The growth in the loan portfolio consisted primarily of a
GNMA purchase. The growth in the loan portfolio was financed by
advances from the FHLB and the funds received from maturing
securities and principal payments thereon. Total liabilities at
September 30, 1999 were up from December 31, 1998, increasing by
$2.1 million to $24.6 million. Deposits, which comprise the
majority of total liabilities, amounted to $22.7 million at
September 30, 1999, up from $22.2 million at December 31, 1998
for an increase of $500,000 with decreases in NOW accounts being
offset by increases in savings accounts demand and certificates
of deposit. Total stockholders' equity at September 30, 1999
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 September 30, 1999 the Association
was in compliance with all applicable regulatory capital
requirements with total core and tangible capital of $2.4
million (8.7% of adjusted total assets) and total risk-based
capital of $2.5 million (16.6%) of risk weighted assets).
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
NET INCOME. Net income for the three months ended
September 30, 1999 amounted to $53,000 as compared to $33,000
for the three months ended September 30, 1998 with the $20,000
increase attributable to an increase in net interest income and
non-interest income, partially offset by an increase in income
tax expense. For the nine months ended September 30, 1999, net
income amounted to $130,000 as compared to $105,000 for the
first nine months 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 $184,000 for the three months
ended September 30, 1998 to $217,000 for the three months ended
September 30,1999. The increase in net interest income was
primarily due to the combined effects of a $30,000 increase in
interest income and a $3,000 reduction in interest expense as
compared to the three months ended September 30, 1998. The
increase in interest income was primarily due to a $35,000
increase in interest from loans which reflected the growth in
the loan portfolio during the three months ended September 30,
1999 as compared to the same period in 1998, partially offset by
a decrease of $5,000 in interest income from securities due to a
reduction in the securities portfolio. Interest expense for the
quarter ended September 30, 1999 amounted to $266,000, a $3,000
decrease from the same period in 1998 with the decrease
attributable to a decrease in prevailing interest rates.
For the nine months ended September 30, 1999, net interest
income before provision for loan losses totaled $622,000 up from
$544,000 for the nine months ended September 30, 1998. The
$78,000 increase was due to the same factors discussed above
with respect to the third quarter.
PROVISION FOR LOAN LOSSES. For the three months ended
September 30, 1999, the Company made a $7,000 provision for loan
losses as compared to a provision of $5,000 for the same period
in 1998. For the nine months ended September 30, 1999, the
Company recorded a provision of $18,000 as compared to $8,000
for the first nine months of 1998. The higher provision in 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 September 30, 1999 amounted to $18,000 as compared
to $17,000 for the three months ended September 30, 1998 with
the increase attributable to an increase in overdraft fees.
NON-INTEREST EXPENSES. Non-interest expenses for the third
quarter of 1999 and 1998 totaled $151,000. For the nine months
ended September 30, 1999, non-interest expenses amounted to
$448,000, up from $432,000 for the nine months ended September
30, 1998 with the $16,000 increase attributable to a $17,000
increase in salaries and employee benefits and a $1,000 overall
decrease the remainder of the non-interest expenses.
INCOME TAX EXPENSE. Income tax expense for the three
months ended September 30, 1999 amounted to $24,000, a $12,000
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
31.2% and 26.7%.
For the nine months ended September 30, 1999, income tax
expense amounted to $71,000 as compared to $38,000 for the nine
months ended September 30, 1998. The Company's effective tax
rates for the respective 1999 and 1998 periods were 35.3% and
26.6%.
9
YEAR 2000 READINESS DISCLOSURE
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 has conducted 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 evaluated 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 September 30, 1999 was 4%. For the month ended
September 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. 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.
PENDING LEGISLATION
President Clinton is expected to shortly sign into law
legislation which could have a far-reaching impact on the financial
services industry. The Gramm-Leach-Bliley ("G-L-B") Act authorizes
affiliations between banking, securities and insurance firms and
authorizes bank holding companies and national banks to engage in
a variety of new financial activities. Among the new activities
that will be permitted to bank holding companies and national bank
subsidiaries are securities and insurance brokerage, securities
underwriting and certain forms of insurance underwriting. Bank
holding companies will have broader insurance underwriting powers
than national banks and may engage in merchant banking activities
after the adoption of implementing regulations. Merchant banking
activities may also become available to national bank subsidiaries
after five years. The Federal Reserve Board, in consultation with
the Department of Treasury, may approve additional financial
activities. The G-L-B Act, however, prohibits future affiliations
between existing unitary savings and loan holding companies, like
the Company, and firms which are engaged in commercial activities
and prohibits the formation of new unitary holding companies.
The G-L-B Act imposes new requirements on financial
institutions with respect to customer privacy. The G-L-B Act
generally prohibits disclosure of customer information to non-
affiliated third parties unless the customer has been given the
opportunity to object and has not objected to such disclosure.
Financial institutions are further required to disclose their
privacy policies to customers annually. Financial institutions,
however, will be required to comply with state law if it is more
protective of customer privacy than the G-L-B Act. The G-L-B Act
directs the federal banking agencies, the National Credit Union
Administration, the Secretary of the Treasury, the Securities and
Exchange Commission and the Federal Trade Commission, after
consultation with the National Association of Insurance
Commissioners, to promulgate implementing regulations within six
months of enactment. The privacy provisions will become effective
six months thereafter.
The G-L-B Act contains significant revisions to the Federal
Home Loan Bank System. The G-L-B Act imposes new capital
requirements on the Federal Home Loan Banks and authorizes them to
issue two classes of stock with differing dividend rates and
redemption requirements. The G-L-B Act deletes the current
requirement that the Federal Home Loan Banks annually contribute
$300 million to pay interest on certain government obligations in
favor of a 20% of net earnings formula. The G-L-B Act expands the
permissible uses of Federal Home Loan Bank advances by community
financial institutions (under $500 million in assets) to include
funding loans to small businesses, small farms and small agri-
businesses. The G-L-B Act makes membership in the Federal Home
Loan Bank voluntary for federal savings associations.
The G-L-B Act contains a variety of other provisions including
a prohibition against ATM surcharges unless the customer has first
been provided notice of the imposition and amount of the fee. The
G-L-B Act reduces the frequency of Community Reinvestment Act
examinations for smaller institutions and imposes certain reporting
requirements on depository institutions that make payments to non-
governmental entities in connection with the Community Reinvestment
Act. The G-L-B Act eliminates the SAIF special reserve and
authorizes a federal savings association that converts to a
national or state bank charter to continue to use the term
"federal" in its name and to retain any interstate branches.
The Company is unable to predict the impact of the G-L-B Act
on its operations at this time. Although the G-L-B Act reduces the
range of companies with which the Company may affiliate, it may
facilitate affiliations with companies in the financial services
industry.
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
None.
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: November 12, 1999 By: /s/ Robert E. Wilson
---------------------------------
Robert E. Wilson
President and Chief Executive
Officer
(Duly Authorized and Principal
Executive, Accounting and
Financial Officer)
13