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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] Annual report pursuant Section 13 of the Securities
Exchange Act of 1934, for the fiscal year ended
December 31, 2000, 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 Number: 333-30640
PEOPLES FIRST, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-3028825
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
24 SOUTH THIRD STREET, OXFORD, PA 19363
(Address of principal executive office) (Zip Code)
610-932-9294
(Registrant's Telephone Number, including area code)
Securities registered under section 12(b) of the Act:
Not Applicable
Securities registered under section 12(g) of the Act:
Title of each class Name of each exchange
on which registered
COMMON STOCK, Par Value None
$1.00 per share
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the bank was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[ X ] Yes [ ]No
Indicate by check mark if disclosure of delinquent filers
pursuant to item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of January 31, 2001, the aggregate market value of the
3,040,047 shares of Common Stock of the Registrant outstanding
on such date, held by non-affiliates of the Registrant, was
approximately $41,205,994. This figure is based on the last
known sales price, prior to January 31, 2001, reported to the
Registrant of $18.50 per share for Common Stock. Although
directors, officers and five percent beneficial owners of the
Registrant were assumed to be "affiliates" of the Registrant for
purposes of this calculation, the classification is not to be
interpreted as an admission of such status.
Documents Incorporated by Reference
Portions of the Registrant's definitive proxy statement,
dated April 4, 2001, are incorporated by reference in Part III
of this Form 10-K.
Forward Looking Statements
Except for historical information, this report may be
deemed to contain "forward looking" statements regarding Peoples
First, Inc. Examples of forward looking statements include, but
are not limited to, (i) projections or statements regarding
future earnings, expenses, net interest income, other income,
earnings or loss per share, asset mix and quality, growth
prospects, capital structure and other financial terms, (ii)
statements of plans and objectives of management or the Board of
Directors, and (iii) statements of assumptions, such as economic
conditions in Peoples market areas. Such forward looking
statements can be identified by the use of forward looking
terminology such as "believes", "expects", "may", "intends",
"will", "should", "anticipates", or the negative of any of the
foregoing or other variations thereon or comparable terminology,
or by discussion of strategy.
No assurance can be given that the future results covered
by forward-looking statements will be achieved. Such statements
are subject to risks, uncertainties, and other factors that
could cause actual results to differ materially from future
results expressed or implied by such forward-looking statements.
Important factors that could impact Peoples operating results
include, but are not limited to, (i) the effects of changing
economic conditions in Peoples market areas and nationally, (ii)
credit risks of commercial, real estate, consumer and other
lending activities, (iii) significant changes in interest rates,
(iv) changes in federal and state banking laws and regulations
which could impact Peoples operations, (v) funding costs, and
(vi) other external developments which could materially affect
Peoples business and operations.
Item 1 - Business
Peoples First, Inc.
Peoples First, Inc. is a bank holding company which was
incorporated under the laws of the Commonwealth of Pennsylvania
on July 27, 2000, through acquisition of all the outstanding
stock of The Peoples Bank of Oxford.
Peoples provides commercial banking and trust services
through its wholly owned subsidiary The Peoples Bank of Oxford.
The consolidated financial statements include Peoples and the
Bank. All significant inter-company accounts and transactions
have been eliminated. Peoples' primary source of operating
funds is dividends received from the Bank. Peoples' expenses
consist of minimal operating expenses. Dividends paid to
stockholders consist of dividends declared and paid to Peoples
by the Bank.
As of December 31, 2000, Peoples had total assets of
$337,643,000 and total stockholders' equity of $41,204,000.
The Peoples Bank of Oxford
The Peoples Bank of Oxford is a state-chartered commercial
banking institution, which was incorporated under the laws of
the Commonwealth of Pennsylvania, on December 19, 1913. The
bank's deposits are insured by the Federal Deposit Insurance
Corporation (FDIC).
As of December 31, 2000, the Bank had total assets of
$337,623,000, total deposits of $267,093,000 and total
stockholders' equity of $41,179,000. At year end, December 31,
2000, the Bank had 136 full-time employees and 21 part-time
employees.
The Bank's Corporate Headquarters, Trust Department and
full service Main Office are located at 24 South Third Street,
Oxford, Pennsylvania. The Bank has seven offices and seven
ATMs. These offices serve a predominately rural agricultural
area, which includes southern Chester County, Pennsylvania and
to a lesser extent southern Lancaster County, Pennsylvania and
northern Cecil County, Maryland. The Bank's Operations Center,
located at 125 Peoples Drive, Oxford, Pennsylvania, opened in
August of 2000.
The Bank provides a broad range of retail and commercial
banking services, investment services and trust services for its
customers, which are primarily individuals and small to medium
sized farms and businesses. These services include providing
various types of demand, savings and time deposit accounts,
making secured and unsecured consumer, real estate and
commercial loans, sale of investment products and safe deposit
box rentals. Additionally retail customers can access their
account information, pay bills, transfer funds, and access
information regarding bank services via their personal computer
using online banking. The Bank provides its customers with
access to invest in mutual funds, annuities, insurance and
various other financial instruments via the INVEST Financial
Corporation. In addition, the Bank also provides trust and
investment services to individuals, small businesses and
charitable organizations through its Trust Department. These
services include investment management, estate settlement and
maintenance of securities and accounting records for various
types of trust relationships.
On April 10, 2000, the Bank purchased Gee, Wilmerding &
Associates, an investment counseling firm located in Rosemont,
Pennsylvania. As of January 1, 2001, the name of Gee,
Wilmerding & Associates was changed to Wilmerding & Associates.
Wilmerding is a Registered Investment Advisor providing counsel
to individuals, trusts, estates, endowments, foundations, and
corporate clients. At year-end, December 31, 2000, Wilmerding
had seven full-time employees.
The Bank's business is not seasonal in nature nor is the
Bank involved in operations in foreign countries. Management
does not separately allocate expenses, including the cost of
funding loan demand, between the commercial, retail, mortgage
banking and trust operations. As a result, discrete information
is not available and segment reporting would not be meaningful.
The operations of Gee, Wilmerding & Associates are not material
to the consolidated financial statements.
Competition
There is strong competition in Peoples' service area for
banking business among commercial banks, thrift institutions,
other financial institutions and financial intermediaries. In
addition to commercial banks, federal and state savings and loan
associations, savings banks and credit unions actively compete
in Peoples' market area providing a wide variety of banking
services. Mortgage banking firms, finance companies, insurance
companies, leasing companies, brokerage companies and financial
affiliates of industrial companies provide additional
competition for loans and various financial services. Peoples
also currently competes for interest-bearing funds with a number
of other financial intermediaries which offer a diverse range of
investment alternatives including brokerage firms and mutual
funds. Many competitors have substantially greater financial
resources and larger branch systems than those of Peoples.
There are nine full service commercial banks and two
savings banks with branches in the southern Chester County
portion of Peoples' designated market area. Peoples maintains
the majority of the market share in the Oxford area and has now
gained the largest market share in the Avondale-West Grove area;
in the remainder of the market area Peoples continues to grow
the size of its market share. Peoples is also subject to
competition from banks outside of its service area for various
financial services.
In consumer transactions, Peoples believes that it is able
to compete effectively by offering low cost checking accounts,
comparable banking hours and competitive rates on its interest
bearing accounts. In competing with other banks and financial
institutions, Peoples seeks to provide personalized services
through management's knowledge and awareness of Peoples' service
area, customers and borrowers.
With respect to commercial transactions, Peoples' legal
lending limit to a single borrower is generally lower than the
other larger commercial lenders. Management believes that
Peoples' legal lending limit is sufficient to handle the credit
requirements of its target market. In addition, Peoples will
participate in commercial loans with other financial
institutions if necessary, in order to accommodate a customer's
needs.
Peoples has not engaged in any material research activities
relating to the development of new services or the improvement
of existing bank services. However, marketing activities have
occurred that enable Peoples to remain competitive, which
include the addition of new services, additional branches and
improvements to services currently offered.
Peoples believes it is and will continue to be competitive
in regard to interest rates and product offerings, while
maintaining its profit margins and stable capital structure.
Loan and Deposit Structure
At December 31, 2000, total loans, net of unearned income,
equaled $225,784,000 with an additional $40,171,000 in standby
letters of credit, unused lines of credit and commitments to
extend credit. Peoples has a significant concentration of
residential and commercial mortgage loans collateralized by
properties located in southern Chester County. Approximately
$37,796,000 in loans was outstanding to real estate investors;
included in this category is a diverse group of properties and
borrowers: $17,955,000 is collateralized by mortgages on
commercial properties (stores, offices and convenience centers,
etc.), about $10,359,000 are mortgage loans on one to four
family rental properties, $3,736,000 are mortgages on mobile
home parks, $2,234,000 are secured by multifamily rental
properties and approximately $3,512,000 is outstanding on land
development projects. These figures do not include mortgages on
one to four family owner-occupied properties. Similarly,
approximately, $13,212,000 in unused commitments were
outstanding to real estate investors. Of those commitments,
$3,025,000 are collateralized by commercial properties,
$6,450,000 are secured by one to four family rental properties,
$862,000 are secured by mobile home parks and $2,778,000 are
secured by land development projects. These figures do not
include conventional mortgages on one to four family owner-
occupied properties.
Peoples also has a significant portion of loans outstanding
to the agricultural sector totaling $43,676,000. Approximately
$23,564,000 of these loans are outstanding to the mushroom
industry, which represents 10.4% of total loans, and about
$20,112,000 is outstanding to other segments of the farm
community. Likewise, unused commitments to the mushroom
industry totaled $3,826,000, with $2,399,000 outstanding for
other agricultural loans.
At December 31, 2000, Peoples' total deposits equaled
$267,088,000, of which 22.9% were non-interest bearing deposits
and 77.1% were interest bearing deposits. Although Peoples'
deposits are primarily generated from southern Chester County,
there is no concentration of deposits in one person or group of
persons that if withdrawn would have a material adverse effect
on Peoples. Peoples has no brokered deposits. However, it
should be noted that the liquidity position of any bank could be
tightened in the event a substantial portion of the bank's
depositors decided to withdraw their funds from the bank within
a short period of time.
Regulation
Peoples is subject to extensive regulation and examination
by the Federal Reserve, the Pennsylvania Department of Banking,
and the Federal Deposit Insurance Corporation (FDIC). Peoples'
deposit accounts are insured up to the maximum legal limits by
the FDIC. Peoples is not a member of the Federal Reserve
System.
Federal and state banking laws regulate many aspects of
Peoples' business including, but not limited to, capital
requirements, amount of reserves for deposits, loans and
investments Peoples may make, acceptable collateral that may be
taken and consumer protection laws.
Peoples is subject in the course of its activities to a
growing number of federal, state and local environmental laws
and regulations. Peoples does not anticipate that compliance
with environmental laws and regulations will have any material
effect on capital expenditures, earnings or on the competitive
position of Peoples.
Landmark legislation in the financial services area was
signed into law on November 12, 1999. The Gramm-Leach-Bliley
Act dramatically changed certain banking laws that had been in
effect since the early part of the 20th century. The most
radical changes are that the separation between banking and the
securities businesses mandated by the Glass-Steagall Act has now
been removed, and the provisions of any state law that prohibits
affiliation between banking and insurance entities have been
preempted. Accordingly, the legislation now permits firms
engaged in underwriting and dealing in securities, and insurance
companies, to own banking entities, and permits bank holding
companies (and in some cases, banks) to own securities firms and
insurance companies. The provisions of federal law that
preclude banking entities from engaging in non-financially
related activities, such as manufacturing, have not been
changed. For example, a manufacturing company cannot own a bank
and become a bank holding company, and a bank holding company
cannot own a subsidiary that is not engaged in financial
activities, as defined by the regulators.
The new legislation creates a new category of bank holding
company called a "financial holding company". In order to avail
itself of the expanded financial activities permitted under the
new law, a bank holding company must notify the Federal Reserve
that it elects to be a financial holding company. A bank
holding company can make this election if it, and all its bank
subsidiaries, are well capitalized, well managed, and have at
least a satisfactory Community Reinvestment Act rating, each in
accordance with the definitions prescribed by the Federal
Reserve and the regulators of the subsidiary banks. Once a bank
holding company makes such an election, and provided that the
Federal Reserve does not object to such election by such bank
holding company, the financial holding company may engage in
financial activities (i.e., securities underwriting, insurance
underwriting, and certain other activities that are financial in
nature as to be determined by the Federal Reserve) by simply
giving a notice to the Federal Reserve within thirty days after
beginning such business or acquiring a company engaged in such
business. This makes the regulatory approval process to engage
in financial activities much more streamlined than it was under
prior law.
The intent and scope of the act is positive for the
financial services industry, and is an attempt to modernize
federal banking laws and make U.S. institutions competitive with
those from other countries. While the legislation makes
significant changes in U.S. banking law, such changes may not
directly affect Peoples' business unless it decides to avail
itself of new opportunities available under the new law.
Peoples does not expect any of the provisions of the new Act to
have a material adverse effect on its existing operation, or to
significantly increase its costs.
Item 2 - Properties
The principal banking office and executive offices of
Peoples are located at 24 South Third Street, Oxford,
Pennsylvania, 19363. Peoples owns the office building, which
consists of approximately 21,000 square feet. In addition,
Peoples owns an adjacent parking lot, which consists of
approximately 33,000 square feet, providing parking for
customers and employees.
Peoples owns a limited service branch office, located at
3400 Baltimore Pike, Oxford, in East Nottingham Township,
Pennsylvania, which consists of approximately 2,400 square feet.
This location previously housed the electronic data processing
operations, which moved to the Operations Center in August 2000.
Renovations are currently underway to expand this facility to a
full service branch, with a January 2001 completion date.
The Avon Grove Office, a full service branch, is located at
565 East Baltimore Pike in Avondale, Pennsylvania. The office
consists of approximately 3,800 square feet. Peoples has a
long-term lease on the land with rental payments in 2000
totaling $16,900. The lease term expires in March 2008 and
provides for eight renewal options of five years each.
The Longwood Office, a full service branch, is located at
900 East Baltimore Pike in Kennett Square, Pennsylvania. The
office consists of approximately 3,800 square feet. The rental
payments on the long-term land lease totaled $50,875 in 2000.
The lease term expires in 2015 and provides for one five year
renewal option and an additional renewal option of four years
and three hundred and sixty-four days.
The Jennersville Office, a full service branch, is located
at Old Baltimore Pike and Route 796 in Penn Township, Chester
County, Pennsylvania. Peoples has a long-term land lease which
expires in 2017 and provides for one five year renewal option
and an additional renewal option of four years and eleven
months. Rental payments in 2000 totaled $35,000.
The West Kennett Office, a new full service branch
scheduled to open in January 2001, is located at 920 West
Cypress Street, Kennett Square, Pennsylvania. The office will
consist of approximately 3,800 square feet. The rental payment
on the long-term land lease totaled $24,375 in 2000. Peoples
has a long-term land lease which expires in 2020 and provides
for one five year renewal options and an additional renewal
option of four years and eleven months.
Peoples opened its operations center along Route 10 in
Lower Oxford Township, Chester County, Pennsylvania, in August
of 2000. As Peoples has continued to grow, additional support
personnel have been added, resulting in facilities that were
filled to capacity. This center has alleviated the overcrowding
and provided the space necessary to handle future growth.
Peoples owns the office building, which consists of
approximately 23,000 square feet.
Item 3 - Legal Proceedings
There are no pending legal proceedings to which Peoples is
party or to which its property is subject, which would in the
opinion of management, be material in relation to Peoples'
results of operations or financial condition.
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 4A - Executive Officers of the Registrant
The following sets forth information with respect to
executive officers of Peoples and the Bank. Each officer was
elected at the first meeting of the Board of Directors following
the 2000 Annual Meeting of Shareholders and will serve until the
first meeting of the Board of Directors following the 2001
Annual Meeting of Shareholders, at which time the Board of
Directors will elect officers for the following year. There are
no arrangements or understandings between Peoples or the Bank
and any person pursuant to which any such officers were
selected.
George C. Mason (age 65) is Chairman and Chief Executive
Officer of Peoples. He has been a Director of the Bank since
1972, has served as Chairman of the Board of the Bank since July
1973, and was named Chief Executive Officer of the Bank in March
1992. Mr. Mason also serves as a Director of HERCO, Inc.,
Hershey, Pennsylvania and Penn Mutual Insurance Co., West
Chester, Pennsylvania. Since October 1988, Mr. Mason has been
employed full time at the Bank.
Carl R. Fretz (age 70) is Vice Chairman of the Board and
Corporate Secretary of Peoples and has been a Director of the
Bank since 1965, Vice Chairman of the Board and Corporate
Secretary of the Bank since 1999 and previously served as
President of the Bank from 1973 to 1999. Mr. Fretz also serves
as director of Oxford Historical Society and is Chairman of
Oxford Mainstreet Inc. Mr. Fretz is the father-in-law of Jay L.
Andress, Senior Vice President of the Bank.
Hugh J. Garchinsky (age 50) is a Director and the President
of Peoples. He has been a Director of the Bank since 1997, and
became President of the Bank in 2000. Mr. Garchinsky joined the
Bank in October 1992 as Manager of Loan Operations, became a
Vice President in 1994, Senior Vice President in 1996, and
Executive Vice President in 1997.
David H. Acox, Jr. (age 52) joined the Bank as Trust
Officer in October 1989, became Vice President and Trust Officer
in March 1994 and Senior Vice President and Trust Officer in
April 1997. Mr. Acox is directly responsible for the Trust
Department.
Jay L. Andress (age 49) joined the Bank in August 1973,
became Vice President in charge of operations in March 1988, and
has been Senior Vice President of Operations since April 1997.
Mr. Andress is directly responsible for data processing,
facilities and technology development. Mr. Andress is the son-
in-law of Carl R. Fretz, Vice Chairman of the Board and
Corporate Secretary of Peoples and the Bank.
Gary R. Davis (age 46) joined the Bank in July 1994, became
Assistant Vice President in 1995, Vice President in 1997, Senior
Vice President in 1999 and currently directs the Bank's lending
and credit analysis functions.
Howard M. Mannheim (age 62) joined the Bank in June 1996,
and currently serves as Senior Vice President, Support Group
Manager. Mr. Mannheim is directly responsible for back office
operations and administrative functions.
Susan H. Reeves (age 47) Chief Financial Officer of
Peoples, joined the Bank in January 1984, became Vice President
and Auditor in 1991, Vice President and Chief Financial Officer
in 1996, and currently serves as Senior Vice President, Cashier
and Chief Financial Officer of the Bank. Mrs. Reeves is
directly responsible for the financial division of the Bank.
PART II
Item 5 - Market for Peoples Common Stock and Related Stockholder
Matters
The authorized capital stock of Peoples consists of
10,000,000 shares of common stock, par value $1.00 per share, of
which 3,040,047 shares were outstanding as of January 31, 2001.
There were approximately 754 stockholders of record as of
January 31, 2001. Peoples common stock is not listed or traded
on a recognized securities exchange. Peoples common stock is
traded in the over-the-counter market under the symbol PPFR and
trading in Peoples common stock is limited in volume.
The following table sets forth the high and low prices for
Peoples common stock for each quarterly period for the last two
years, however prices prior to July 27, 2000, the date of the
holding company formation, are for the Bank. Prices for the
sale of stock are based upon transactions reported by the
brokerage firm of F.J. Morrissey & Co., Inc. The quoted high
and low bid prices are limited to those transactions known by
management to have occurred and there may, in fact, have been
additional transactions of which management is unaware.
2000 1999
High Low High Low
First Quarter $26.75 $25.00 $36.00 $33.25
Second Quarter $24.75 $18.00 $35.25 $30.50
Third Quarter $19.00 $15.50 $31.00 $27.25
Fourth Quarter $18.50 $15.00 $28.25 $23.25
Holders of shares of common stock are entitled to receive
such dividends when, as, and if declared by Peoples' Board of
Directors, out of funds legally available for dividends.
Declaration of and payment of cash dividends by Peoples depends
upon dividend payments by the Bank, which is Peoples primary
source of revenue and cash flow. Peoples is a legal entity
separate and distinct from its subsidiaries. Accordingly, the
right of Peoples, and consequently the right of creditors and
shareholders of Peoples, to participate in any distribution of
the assets or earnings of any subsidiary is necessarily subject
to the prior claims of creditors of the subsidiary, except to
the extent that the claims of Peoples in its capacity as a
creditor may be recognized. Under Pennsylvania banking law, the
payment of dividends by the Bank is generally restricted to its
accumulated net earnings.
Peoples and the Bank have paid quarterly cash dividends on
its common stock since 1988. The following sets forth the cash
dividends paid per share on Peoples common stock during each of
the two years ended December 31, 2000. Information for periods
prior to July 22, 2000, represent dividends paid on the Bank's
common stock.
Per-Share Dividends
2000 1999
----- -----
First Quarter $0.11 $0.10
Second Quarter $0.11 $0.10
Third Quarter $0.12 $0.11
Fourth Quarter $0.12 $0.11
Peoples retains American Stock Transfer & Trust Company, 40
Wall Street, New York, New York, as its transfer and dividend
paying agent.
Item 6 - Selected Financial Data
Year Ended
December 31,
2000 1999 1998 1997 1996
INCOME STATEMENT DATA:
Net interest income $ 13,951 $ 12,819 $ 11,869 $ 10,951 $ 9,809
Provision for loan losses 465 451 685 787 504
Non-interest income 3,242 2,249 1,720 1,509 1,189
Non-interest expense 11,101 8,746 7,511 6,371 5,837
Income before income taxes 5,627 5,781 5,393 5,302 4,657
Income tax expense 1,565 1,704 1,606 1,650 1,512
Net income $ 4,062 $ 4,167 $ 3,787 $ 3,652 $ 3,145
======== ======== ======== ======== ========
BALANCE SHEET DATA (PERIOD END):
Total assets $337,643 $292,508 $265,472 $219,784 $195,855
Loans (net) 221,862 204,244 169,783 145,326 132,613
Investments - held-to-maturity 2,929 3,330 3,790 5,545 5,830
Investments - available-for-sale 50,114 44,934 45,691 35,752 33,258
Federal funds sold 18,015 1,095 13,909 12,900 6,100
Deposits 267,088 231,229 213,698 182,946 161,729
Long term debt 19,756 16,110 9,919 - -
Stockholders' equity 41,204 38,179 36,052 33,089 30,299
PER SHARE DATA:
Basic earnings $ 1.33 $ 1.39 $ 1.26 $ 1.22 $ 1.05
Cash dividends declared 0.46 0.42 0.37 0.33 0.26
Book value 13.50 12.74 12.03 11.04 10.11
Weighted average common shares outstanding 3,052 2,996 2,996 2,996 2,996
SELECTED RATIOS:
Return on average assets 1.30% 1.50% 1.56% 1.79% 1.67%
Return on average stockholders' equity 10.19% 11.17% 10.93% 11.47% 10.78%
Average equity to average assets 12.79% 13.42% 14.31% 15.58% 15.48%
Allowance for loan losses to
total loans at end of period 1.74% 1.61% 1.72% 1.64% 1.55%
Dividend payout ratio 34.39% 30.20% 29.51% 26.85% 25.12%
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion represents management's analysis
of the financial condition and results of operations of Peoples
First, Inc. and should be read in conjunction with the
accompanying financial statements and other financial data
included elsewhere in this report.
Forward-Looking Statements
Except for historical information, this report may be
deemed to contain "forward-looking" statements regarding Peoples
First, Inc. ("Peoples"). Examples of forward-looking statements
include, but are not limited to, (a) projections or statements
regarding future earnings, expenses, net interest income, other
income, earnings or loss per share, asset mix and quality,
growth prospects, capital structure and other financial terms,
(b) statements of plans and objectives of management or the
Board of Directors, and (c) statements of assumptions, such as
economic conditions in Peoples' market areas. Such forward-
looking statements can be identified by the use of forward-
looking terminology such as "believes," "expects," "may,"
"intends," "will," "should," "anticipates," or the negative of
any of the foregoing or other variations thereon or comparable
terminology, or by discussion of strategy.
No assurance can be given that the future results covered
by forward-looking statements will be achieved. Such statements
are subject to risks, uncertainties, and other factors that
could cause actual results to differ materially from future
results expressed or implied by such forward-looking statements.
Important factors that could impact Peoples' operating results
include, but are not limited to, (i) the effects of changing
economic conditions in Peoples' market areas and nationally,
(ii) credit risks of commercial, real estate, consumer and other
lending activities, (iii) significant changes in interest rates,
(iv) changes in federal and state banking laws and regulations
which could impact Peoples' operations, (v) funding costs and
(vi) other external developments which could materially affect
Peoples' business and operations.
On April 10, 2000, The Peoples Bank of Oxford, (the
"Bank"), issued 56,918 shares of common stock, with a fair value
of $1.4 million, to acquire all of the outstanding common stock
of Gee, Wilmerding & Associates, Inc., an investment firm. The
company is a wholly owned subsidiary of the Bank and the
transaction has been accounted for as a pooling of interests.
Revenues for the year ended December 31, 2000, totaled $808,000.
Periods prior to January 1, 2000, have not been restated as the
adjustments are considered to be immaterial.
On July 27, 2000, Peoples First, Inc., a Pennsylvania
business corporation, completed the reorganization of The
Peoples Bank of Oxford into the holding company form of
ownership. In the reorganization, the Bank became a wholly-
owned banking subsidiary of Peoples First, Inc.
The consolidated financial statements include Peoples
First, Inc. and its wholly-owned subsidiary, The Peoples Bank of
Oxford. All significant inter-company accounts and transactions
have been eliminated. Currently, the only asset of Peoples is
its investment in the Bank.
Overview
In 2000, Peoples recorded net income of $4,062,000, a
decrease of 2.52% from net income of $4,167,000 in 1999. Net
income was $3,787,000 in 1998. A fourth quarter write-down of
$326,000 on a held-to-maturity security resulted in the $105,000
decline in earnings in 2000. Actual net interest income
increased $1,132,000 in 2000 compared to 1999 and increased
$950,000 in 1999 compared to 1998. These increases were due
primarily to the additional interest income earned on the higher
loan volume in 2000 and 1999. Basic earnings per share were
$1.33 in 2000, $1.39 in 1999 and $1.26 in 1998.
Return on average assets was 1.30% for 2000, compared with
1.50% in 1999 and 1.56% in 1998. Return on average equity for
2000 was 10.19% compared to 11.17% in 1999 and 10.93% in 1998.
During 2000, average interest-earning assets increased by
12.9% or $33,359,000, to $291,157,000. Average interest-bearing
liabilities increased $28,120,000 or 15.1%, to $214,490,000 for
the year. The growth in earning assets was the primary
contributor to the increase of $1,154,000 or 8.7% in fully tax
equivalent net interest income. The net interest margin
declined from 5.16% in 1999 to 4.97% in 2000. The compression
in the net interest margin is due to continued competition on
rates, added to the fact that interest-bearing liabilities have
increased as a percent of interest-earning assets and demand
deposits have decreased as a percentage of earning assets.
Non-interest income increased $993,000 or 44.2% in 2000
compared to an increase of $529,000 or 30.8% in 1999. The
increase in 2000 resulted from investment management fees, of
$808,000, from Peoples' investment counseling subsidiary, Gee,
Wilmerding & Associates, Inc., which was acquired in April 2000.
This was supplemented with a 48.5% increase in other income
resulting from the sale of mutual funds and annuities to our
customers and income from a life insurance investment. These
increases were partially offset with a decrease due to a write-
down of $326,000 on a held-to-maturity security. This was a
partial write-down which management believes is sufficient to
cover any possible losses. Management is optimistic that a
successful resolution can be worked out for the security without
any further loss.
Non-interest expenses increased $2,355,000 or 26.9% for
2000, compared to $1,235,000 or 16.4% for 1999. The 2000
increase was largely a result of increased salaries and employee
benefits by $1,482,000, professional fees by $214,000 and other
operating expenses by $223,000. The increased salaries and
employee benefits consisted of normal merit increases and to a
greater extent additions to staff, as Gee, Wilmerding &
Associates, Inc. expenses were combined with Peoples. Increases
in professional fees, legal and accounting fees, can be
attributed to expenses associated with the acquisition of the
investment counseling firm together with expenses related to the
formation of the holding company, Peoples First, Inc. Other
operating expenses increased as a result of expenses from the
Operations Center, occupied during the third quarter 2000; the
opening of a small branch in Jenners Pond; and the initiation of
the on-line banking program. The 1999 increase was primarily a
result of increased salary and benefit expense, due to staff
additions, resulting from expansion of current services and
products, an expanded marketing effort, a write-down on one of
the Bank's properties, and absorbing a full year of expenses
from the branch opened in 1998.
The following table sets forth selected quarterly financial
data and per share data.
Quarterly Financial Data
(In Thousands, Except Per Share Data)
2000 1999
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
Interest income $5,408 $5,759 $6,093 $6,209 $4,758 $4,863 $5,049 $5,146
Interest expense (2,001) (2,260) (2,542) (2,715) (1,653) (1,681) (1,755) (1,908)
Net interest income 3,407 3,499 3,551 3,494 3,105 3,182 3,294 3,238
Provision for loan losses (150) (105) (105) (105) (86) (60) (105) (200)
Non-interest income 814 856 916 656 468 516 590 675
Non-interest expense (2,497) (2,693) (2,786) (3,125) (2,015) (2,162) (2,138) (2,431)
Income before income taxes 1,574 1,557 1,576 920 1,472 1,476 1,641 1,282
Income tax expense (458) (458) (457) (192) (434) (436) (481) (353)
Net income $1,116 $1,099 $1,119 $ 728 $1,038 $1,040 $1,160 $ 929
===== ===== ===== ===== ===== ===== ===== =====
PER SHARE DATA:
Basic earnings (1) $ 0.36 $ 0.36 $ 0.37 $ 0.24 $ 0.35 $ 0.35 $ 0.38 $ 0.31
===== ===== ===== ===== ===== ===== ===== =====
Dividends declared $ 0.11 $ 0.11 $ 0.12 $ 0.12 $ 0.10 $ 0.10 $ 0.11 $ 0.11
===== ===== ===== ===== ===== ===== ===== =====
(1) Peoples has a simple capital structure. Basic earnings
per share represents income available to common
shareholders divided by the weighted average number of
common shares outstanding during the period.
Results of Operations
Net Interest Income and Net Interest Margin
Net interest income is the difference between interest
income earned on investments and loans, and interest expense
incurred on deposits and other liabilities. For analysis
purposes, net interest income is evaluated on a fully tax
equivalent (FTE) basis to facilitate comparison with interest
earned which is subject to federal taxation at the statutory tax
rate of 34%. The factors that affect net interest income
include changes in interest rates and changes in interest-
earning assets and interest-bearing liabilities. Net interest
income on an FTE basis increased by $1,154,000 or 8.7% to
$14,468,000 in 2000 from $13,314,000 in 1999. Comparatively,
net interest income (FTE) increased by $1,020,000 or 8.3% in
1999 from $12,294,000 in 1998.
The following table sets forth average balances, rates and
interest income and expense adjusted to an FTE basis, the
interest rate spread and the net interest margin. Following
that is the rate and volume analysis table that sets forth
changes in net interest income attributed to changes in rates
and changes in average balances of interest-earning assets and
interest-bearing liabilities.
AVERAGE BALANCES, RATES AND INTEREST INCOME AND EXPENSE
(In Thousands)
2000 1999 1998
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
ASSETS
Interest-earning assets:
Securities:
Taxable $ 40,543 $ 2,490 6.14% $ 37,201 $ 2,151 5.78% $ 34,897 $ 2,088 5.98%
Tax-exempt 10,295 829 8.05% 11,397 882 7.74% 9,662 788 8.16%
Total securities 50,838 3,319 6.53% 48,598 3,033 6.24% 44,559 2,876 6.45%
Interest-bearing due from
banks 9,638 609 6.32% 13,301 653 4.91% 9,256 491 5.30%
Federal funds sold 12,331 778 6.31% 9,374 465 4.96% 13,904 759 5.46%
Loans:
Taxable 210,913 18,589 8.81% 180,416 15,587 8.64% 156,327 14,362 9.19%
Tax-exempt 7,437 691 9.29% 6,109 573 9.38% 4,592 462 10.06%
Total loans 218,350 19,280 8.83% 186,525 16,160 8.66% 160,919 14,824 9.21%
Total interest-earning
assets 291,157 23,986 8.24% 257,798 20,311 7.88% 228,638 18,950 8.29%
Non-interest-earning assets 20,708 20,016 13,456
Total assets $311,865 $277,814 $242,094
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Savings and transaction
accounts $104,619 $ 3,292 3.15% $ 89,908 $ 2,153 2.39% $ 78,889 $ 2,065 2.62%
Time deposits 84,688 4,761 5.62% 78,566 3,892 4.95% 75,753 4,130 5.45%
Total interest-bearing
deposits 189,307 8,053 4.25% 168,474 6,045 3.59% 154,642 6,195 4.01%
Securities sold under
agreements to repurchase 5,580 267 4.78% 4,429 159 3.59% 2,797 109 3.90%
Long-term debt 19,603 1,198 6.11% 13,467 793 5.89% 5,850 352 6.02%
Total interest-bearing
liabilities 214,490 9,518 4.44% 186,370 6,997 3.75% 163,289 6,656 4.08%
Demand deposits 55,408 52,595 42,660
Other liabilities 2,092 1,556 1,505
Stockholders' equity 39,875 37,293 34,640
Total liabilities and
stockholders' equity $311,865 $277,814 $242,094
======== ======== ========
Net interest income $14,468 $13,314 $12,294
======= ======= =======
Interest rate spread 3.80% 4.13% 4.21%
==== ==== ====
Net interest margin 4.97% 5.16% 5.38%
==== ==== ====
Yields on tax-exempt assets have been computed on a fully
tax equivalent basis assuming a tax rate of 34%. For yield
calculation purposes, non-accruing loans are included in the
average loan balances. Interest income on loans includes
amortized fees and costs on loans totaling $139,000 for 2000,
$120,000 for 1999 and $225,000 for 1998.
Rate/Volume Analysis
(In Thousands)
2000 versus 1999 1999 versus 1998
Change Due To Change Due To
Rate Volume Total Rate Volume Total
Interest-earning assets:
Securities:
Taxable $ 134 $ 205 $ 339 $ (70) $ 133 $ 63
Tax-exempt 35 (88) (53) (40) 134 94
Interest-bearing due from banks 187 (231) (44) (36) 198 162
Federal funds sold 126 187 313 (69) (225) (294)
Loans 310 2,810 3,120 (882) 2,218 1,336
Total 792 2,883 3,675 (1,097) 2,458 1,361
Interest-bearing liabilities:
Savings and transaction accounts 676 463 1,139 (176) 264 88
Time deposits 525 344 869 (377) 139 (238)
Securities sold under
agreements to repurchase 53 55 108 (9) 59 50
Long-term debt 30 375 405 (8) 449 441
Total 1,284 1,237 2,521 (570) 911 341
Net interest income $ (492) $1,646 $1,154 $ (527) $1,547 $1,020
====== ===== ====== ======= ====== ======
Interest income is presented on a fully tax equivalent
basis, assuming a tax rate of 34%. The net change attributable
to the combination of rate and volume has been allocated to
change due to volume.
Tax equivalent interest income increased by $3,675,000
between 2000 and 1999, due to growth in interest-earning assets
contributing $2,883,000 in interest income, along with an
increase of $792,000 resulting from higher rates. The primary
components of this increase were the growth in average loans of
$31,825,000 positively impacting interest income by $2,810,000,
along with an increase of 17 basis points in the yield on loans
increasing interest income by $310,000. The growth in loans was
directly related to a continued emphasis on developing new
lending business. Total average securities grew by $2,240,000
and the corresponding yield increased 29 basis points. The
growth in securities increased interest income by $117,000, in
conjunction with the higher rates increasing the return by
$169,000. Average Federal funds sold increased by $2,957,000,
increasing income by $187,000, along with an increase in yield
of 135 basis points, the net result was an increase in interest
income of $313,000. Interest-bearing due from bank balances
declined by $3,663,000, decreasing income by $231,000, being
partially offset with a 141 basis point increase in rates,
resulting in a net decrease to income by $44,000.
Total interest-bearing liabilities grew by $28,120,000
between 2000 and 1999, increasing interest expense by $1,237,000
for 2000, along with a higher annualized rate up by 69 basis
points increasing interest expense by $1,284,000. Deposit
balances grew, as Peoples continues to expand within its market
area, with growth contributing $807,000 in interest expense.
Peoples remains competitive with rates and ran several
promotions on our CDs and remodeled Super NOW product. Overall,
the higher rates paid on deposits in 2000, increased interest
expense by $1,201,000. Peoples continued to borrow long-term
money from the Federal Home Loan Bank. Long-term debt averaged
$19,603,000 for the year. As a result, the growth in long-term
borrowings added $375,000 to interest expense.
Tax equivalent interest income increased by $1,361,000
between 1999 and 1998, due to growth in asset volume
contributing $2,458,000 in interest income, partially offset
with a reduction of $1,097,000 resulting from a decline in
rates. The primary components of this increase were the growth
in average loans of $25,606,000 positively impacting interest
income by $2,218,000, however, a decline of 55 basis points in
the yield on loans lowered interest income by $882,000. The
growth in loans was directly related to a continued emphasis on
developing new lending business and retaining more mortgage
loans in-house, instead of selling them on the secondary market.
Total average securities grew by $4,039,000 and the
corresponding yield decreased 21 basis points. The growth in
securities increased interest income by $267,000, but the
decline in rates reduced the return by $110,000. Average
Federal funds sold decreased by $4,530,000, decreasing income by
$225,000, along with a decrease in yield of 50 basis points, the
net result was a decrease in interest income of $294,000.
Interest-bearing due from bank balances grew by $4,045,000,
increasing income by $198,000, being partially offset with a 39
basis point decline in rate, resulting in a net increase to
income by $162,000.
Total interest-bearing liabilities grew by $23,081,000
between 1999 and 1998, increasing interest expense by $911,000
for 1999, along with a lower annualized rate on total interest-
bearing liabilities by 33 basis points decreasing interest
expense by $570,000. Deposit balances grew, as Peoples
continues to expand within its market area, with growth
contributing $403,000 in interest expense. Peoples remains
competitive with rates and ran several promotions to increase
deposits. Overall, the lower rates paid on deposits in 1999,
reduced interest expense by $553,000. Peoples continued to
borrow long-term money from the Federal Home Loan Bank. Long-
term debt averaged $13,467,000 for the year, and was matched
against a similar maturity and volume of customer mortgages
retained in-house. Matching these maturities enabled Peoples to
lock in a spread, along with a long-term interest income cash
flow, while managing the interest rate risk. As a result, the
growth in long-term borrowings at an overall lower rate added
$441,000 to interest expense.
The net interest margin is the ratio of net interest income
to interest-earning assets, reflecting a net yield on earning
assets. Peoples' net interest margin, on a tax equivalent
basis, for the years 2000, 1999 and 1998 was 4.97%, 5.16% and
5.38%, respectively. The compression in the net interest margin
in 2000, compared to 1999, resulted from an increase in yields
on interest-earning assets by 36 basis points being outpaced by
an increase in rates on interest-bearing liabilities, which
climbed 69 basis points. This compression on the margin is
reflected in the spread declining from 4.13% in 1999 to 3.80% in
2000. The monetary impact can also be seen in the rate change
analysis: Interest income increase attributed to rate change
was up $792,000 compared to an increase in interest expense
which was up $1,284,000. The compression in the margin in 1999,
resulted from a decline in yields on interest-earning assets by
41 basis points along with a non-proportional decline of only 33
basis points in costs on interest-bearing liabilities.
Provision for Loan Losses
The provision for loan losses and allowance for loan losses
are based on management's ongoing assessment of Peoples' credit
exposure and consideration of other relevant factors. The
allowance for loan losses is a valuation reserve that is
available to absorb future loan charge-offs. The provision for
loan losses is the amount charged to earnings on an annual
basis.
The provision for loan losses charged to earnings for the
years 2000, 1999 and 1998 was $465,000, $451,000 and $685,000,
respectively. The amount of the provision is based on several
factors, one of which is the amount of net charge-offs. Net
charge-offs for 1999 and 1998 amounted to $73,000 and $136,000,
whereas 2000 reflected net recoveries totaling $114,000. The
year 2000 reflected decreased charge-offs and increased
recoveries, along with a decreased percentage of non-performing
loans to total loans of .28% at year-end 2000, compared to .74%
and 1.56% at December 31, 1999 and 1998, respectively. The
higher provision in 1998 was due to the level of charge-offs and
a higher percentage of non-performing loans to total loans.
Contrarily, the decrease in the provision in 2000 and 1999
reflects the improvement in loan quality, yet still compensates
for the growth in the loan portfolio. The allowance for loan
losses as a percentage of total loans increased to 1.74% at
December 31, 2000, compared to 1.61% and 1.72% at December 31,
1999 and 1998, respectively.
Management makes regular assessments of the loan loss
reserve in relation to credit exposure to individual borrowers,
overall trends in the loan portfolio and other relevant factors
and believes the reserve is adequate to cover expected losses.
Non-Interest Income
With the continued compression of the net interest margin,
Peoples has been focusing on methods to increase non-interest
income. Non-interest income of $3,242,000 for 2000, increased
$993,000 or 44.2% for the year 2000 compared to 1999. Non-
interest income was $2,249,000 in 1999 compared to $1,720,000 in
1998.
Service charges on deposit accounts continued to grow with
income of $1,175,000, $1,077,000 and $787,000 for the years
2000, 1999 and 1998, respectively. The increase in service
charges on deposit accounts, reflects increased fees collected
on checks presented against non-sufficient funds. The overall
trend is consistent with the growth noted in deposit account
balances and especially growth in demand deposits, NOW and Super
NOW accounts, which has the most effect on Peoples' service
charge income.
The Trust Department received regulatory approval to
commence operations in October 1989. Since that time, the Trust
Department has continued to grow in size to current year end
fair value of assets under management totaling $96,997,000
compared to $77,043,000 in 1999 and $70,657,000 in 1998.
Likewise, income generated by the Trust Department also
continues to grow with income for the years 2000, 1999 and 1998
of $474,000, $414,000 and $357,000 respectively.
The Bank acquired a wholly owned subsidiary during April
2000, Gee, Wilmerding & Associates, Inc., an investment
management service. Gee, Wilmerding generated investment
management fees totaling $808,000 for the year 2000. The
transaction was accounted for as a pooling-of-interest, prior
years have not been restated because the adjustments would be
immaterial.
Income from mortgage banking activities totaled $186,000 in
2000, which was an increase of 37.8% or $51,000 compared to
1999. In addition to making and retaining mortgages on Peoples'
books, Peoples also acts as a broker in the secondary mortgage
market. Peoples sells individual loans and the related
servicing rights to correspondent banks and mortgage companies
and receives a fee for originating these loans. This year
Peoples has sought to expand that business by working more
closely with the local realtors. This contributed to an
approximate 18.7% increase in volume in mortgages sold. Peoples
plans to expand this business and related fee income. The
favorable interest rate environment in 1998 led to increased
mortgage loan and refinancing demand. This increased demand
resulted in more secondary mortgage origination fees collected
for the year 1998 totaling $189,000 compared to $135,000 in
1999.
Other income increased by $302,000 to $925,000 for 2000,
compared to $623,000 and $387,000 in 1999 and 1998,
respectively. This increase was primarily a result of
commissions received from Peoples' debit card; income from the
sales of investment products and services, which Peoples' began
to offer to its customers during the second quarter of 1999; and
income from a life insurance investment.
Peoples generally holds the securities in its portfolio
until maturity, which normally results in nominal securities
gains and losses. This year, Peoples wrote-down a held-to-
maturity security issue by $326,000. This was a partial write-
down of approximately 10.0%, with the remainder still on the
books. Peoples is optimistic that a successful resolution can
be worked out on the security without any further losses.
Non-Interest Expense
Non-interest expense increased $2,355,000 or 26.9% in 2000
to $11,101,000, up from $8,746,000 in 1999 and $7,511,000 in
1998. The increase for 2000 was primarily from increased
salaries and employee benefits, in addition to increased other
operating expenses, professional fees and smaller increases in
the remaining categories. Expenses for 2000 for Gee, Wilmerding
& Associates have been included in the appropriate categories,
prior years have not been restated due to immateriality.
Salaries and employee benefits increased $1,482,000 or
29.3%, in 2000 totaling $6,536,000 up from $5,054,000 in 1999.
Likewise, salaries and employee benefits increased $571,000 or
12.7% in 1999 compared to 1998. The increases were primarily
payroll and benefits expense incurred through normal merit
increases, bonuses and to a greater extent additions to staff as
Gee, Wilmerding & Associates expenses were combined with
Peoples. The number of full time equivalent (FTE) employees
rose from 110 in 1998 to 118 in 1999 and then to 136 in 2000.
Increases in payroll are anticipated, as Peoples continues to
grow in size, services and locations with additional staff being
added as required.
Occupancy expense increased by $147,000 or 27.4% to
$683,000 in 2000 after increasing from $536,000 in 1999 and
$472,000 in 1998. The increased expense in 2000 was attributed
to the Operations Center, which was completed and Peoples
occupied in June; combining Gee, Wilmerding expenses with
Peoples; along with regular repair and maintenance expenses.
Increases in occupancy expense are anticipated as Peoples
continues to grow and expand its facilities, including two
branch openings anticipated in 2001 along with the expansion and
renovation of the Oxford South Branch to be completed the first
quarter of 2001.
Furniture and equipment expense reflected an increase in
2000, to $574,000 or a 31.1% increase, compared to $438,000 in
1999 and $342,000 in 1998. The completed Operations Center
contributed to increasing depreciation expense, along with
expenses incurred to move the data center equipment from its
previous location. Furniture and equipment expense is
anticipated to increase in 2001, as a result of Peoples' desire
to keep current with technological advances and expands its
branch network.
Communication and supplies reflects an increase of $123,000
to $646,000 in 2000 from $523,000 in 1999 and $476,000 in 1998.
This increased expense correlates with a full year of increased
expenditures relating to a new Operations Center and business
growth.
Taxes, other than income, consist of the Pennsylvania Bank
Shares Tax which totaled $333,000 in 2000, $303,000 in 1999 and
$274,000 in 1998 and represents .84%, .81% and .79% of average
stockholders' equity, respectively.
Professional fees increased to $417,000 compared to
$203,000 in 1999 and $180,000 in 1998. The increase of $214,000
in 2000, can be attributed to increased legal and accounting
costs related to the acquisition of the investment counseling
firm totaling $67,000; the formation of the holding company,
totaling $64,000 and combining Gee, Wilmerding's expenses into
Peoples'. The level of expenditures in 1999 and 1998 were a
result of business growth and the accompanying complexities,
requiring additional outside expertise.
Other operating expense increased to $1,912,000 in 2000,
after increasing to $1,689,000 in 1999 from $1,284,000 in 1998.
The increase in 2000, was the result of various category
increases and decreases, the largest of which were an $80,000
debit card expense, as usage continues to increase; and a
$69,000 increase in computer and software costs as Peoples
utilizes advances in new technology. In addition, increases
were noted in marketing expense, and the added expenses of Gee,
Wilmerding & Associates. These are all a result of expanding
Peoples' marketing efforts, developing non-interest income and
business growth. Likewise, the increase in 1999 was not
represented by any single item, but was a net of various
category increases and decreases, the largest of which were a
$120,000 write-down on a parcel of land Peoples plans to sell;
and a $103,000 increase in marketing expense, as Peoples placed
more emphasis on promoting our services and targeting our
customer base. In addition, increases were noted in computer
and software costs, debit card expense, and other real estate
expenses, which were all a result of business growth, keeping
current in technological advances and ensuring Y2K compliance.
Income Taxes
Income tax expense was $1,565,000 for 2000 compared to
$1,704,000 for 1999 and $1,606,000 in 1998. Income tax expense
as a percentage of income before income taxes was 27.8%, 29.0%
and 29.8% for the years ended 2000, 1999 and 1998, respectively.
The decrease in 2000 and 1999 in the Bank's effective tax rate
away from the statutory rate of 34% is a result of tax credits
on an investment in a low income housing partnership, which
qualifies for federal tax credits; along with an additional
percentage of income derived from tax-exempt investments and
loans; and tax-exempt income on a life insurance investment.
These were partially offset by certain acquisition-related
expenses that are not deductible. Likewise, the higher
percentage of income from tax-exempt investments and loans to
total income attributed to the decline in income tax expense for
1999 compared to 1998.
Refer to Note 8 to the financial statements for further
analysis of income taxes.
Return on Average Equity and Average Assets
Return on average equity (ROE) and return on average assets
(ROA) are commonly used measures of bank profitability. ROE is
a measure of return on the capital invested by stockholders,
while ROA measures the overall return that a bank achieves on
its asset base.
Return on average equity is calculated by dividing net
income by average stockholders' equity. With net income
decreasing by 2.52%, Peoples' ROE decreased to 10.19% for 2000,
from 11.17% in 1999. Peoples' ROE for 1998 was 10.93%. Return
on average assets is derived by dividing net income by average
assets. Peoples' ROA for the years ended 2000, 1999 and 1998
was 1.30%, 1.50% and 1.56%, respectively
Financial Condition
Securities
The securities portfolio is a component of interest-earning
assets and is second in size only to Peoples loan portfolio.
Investment securities not only provide interest income; they
provide a source of liquidity, diversify the earning asset
portfolio and provide collateral for public funds and securities
sold under agreements to repurchase.
Peoples' securities are classified as either held-to-
maturity, available-for-sale or trading. Securities in the
held-to-maturity category are accounted for at amortized cost.
Available-for-sale securities are accounted for at fair value
with unrealized gains and losses, net of taxes, reported as a
separate component of comprehensive income. Peoples has no
securities classified as trading securities. In addition, there
have been no transfers of securities from available-for-sale to
held-to-maturity, nor were there any securities sold.
While Peoples generally intends to hold its investment
portfolio until maturity, a significant portion of the
investment portfolio is classified as available-for-sale, with
new purchases generally categorized as available-for- sale. Due
to changes in interest rates and the turnover in the portfolio,
the fair value of these securities improved this year. This
resulted in net unrealized gains at year-end of $184,000, an
increase of $690,000 since year-end 1999, which is reflected as
accumulated other comprehensive income of $122,000 in
stockholders' equity, net of deferred income taxes. The
accumulated other comprehensive loss at December 31, 1999
totaled $506,000 or $334,000, net of taxes.
Peoples wrote-down the held-to-maturity securities by
$326,000 due to financial problems of one issuer. Peoples is
optimistic that the balance of the securities held will be
received without additional losses and the write-down is
sufficient to cover projected losses.
The following tables set forth the composition of the
securities portfolio and the securities maturity schedule,
including weighted average yield, as of the dates indicated.
Securities
(In Thousands)
December 31,
2000 1999 1998
Held-to-maturity securities at amortized cost
State and political subdivisions $ 2,929 $ 3,330 $ 3,370
Corporate securities - - 420
Total held-to-maturity 2,929 3,330 3,790
Available-for-sale securities at fair value
U.S. Treasury securities 24,858 25,253 25,950
U.S. Government agencies 11,823 7,931 7,006
State and political subdivisions 6,805 7,327 8,761
Corporate securities 5,260 3,350 3,300
Equity securities 1,368 1,073 674
Total available-for-sale 50,114 44,934 45,691
Total Securities $53,043 $48,264 $49,481
======= ======= =======
Securities Maturity Schedule
December 31, 2000
(In Thousands)
Over 10 years
Less Than 1 Year 1-5 Years 5-10 Years or no Maturity Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
U.S. Treasury securities $10,716 5.82% $13,888 6.02% $ 254 5.59% $ - -% $24,858 5.93%
U.S. Government agencies 4,495 5.87% 5,505 6.86% 1,350 7.04% 473 6.25% 11,823 6.48%
State and political
subdivisions 285 6.57% 2,500 6.72% 3,517 6.54% 3,432 9.68% 9,734 7.69%
Corporate securities 1,549 6.70% 3,219 6.89% 492 6.67% - -% 5,260 6.81%
Equity securities - -% - -% - -% 1,368 6.94% 1,368 6.94%
Total $17,045 5.93% $25,112 6.39% $5,613 6.63% $5,273 8.66% $53,043 6.49%
======= ==== ======= ==== ====== ==== ====== ==== ======= ====
Held-to-maturity securities are accounted for at amortized
cost and available-for-sale securities are accounted for at fair
value.
Weighted average yields are calculated on a fully tax
equivalent basis assuming a tax rate of 34%.
At year-end 2000, securities totaled $53,043,000, including
$184,000 in net unrealized gains on available for sale
securities. Comparatively, securities totaled $48,264,000 at
year-end 1999, including $506,000 in net unrealized losses, and
$49,481,000 including $678,000 in net unrealized gains at year-
end 1998. At year-end 2000, the majority of the portfolio,
46.9%, is held in direct obligations of the U.S. Treasury, most
of which have relatively short maturities of less than five
years. Of the total investment portfolio, 79.5% matures in less
than five years with 32.1% maturing in less than one year, and
47.4% maturing in the one to five year category. The portfolio
is structured to provide a dependable flow of earnings, while
providing a consistent source of liquidity and meeting strict
risk standards. There is no issuer of securities in which the
aggregate book or fair value of that issuer, other than the
securities of the U.S. Treasury and Agencies, exceeds 10% of
stockholders' equity.
Loans
The loan portfolio comprises the major portion of Peoples'
earning assets as of December 31, 2000. Loans net of unearned
income at year-end 2000 were $225,784,000, an increase of
$18,197,000 or 8.8% from year-end 1999. The increase in loans
outstanding was primarily an increase of $13,403,000 or 8.4% in
real estate mortgages, which includes residential, commercial
and agricultural loans secured by real estate; and commercial,
financial and agricultural loans increasing $5,392,000 or 20.1%.
Loan growth was centered in commercial mortgages, while Peoples
emphasis continued in developing new lending business and
expanding the market. In addition, a home equity loan promotion
contributed to some of the growth in the mortgage portfolio.
The following tables set forth information on the
composition of Peoples' total loans, and contractual maturities
for commercial and construction loans as of the dates indicated.
Total Loans Outstanding
(In Thousands)
December 31,
2000 1999 1998 1997 1996
Commercial, financial and agricultural $ 32,239 $ 26,847 $ 24,545 $ 25,013 $ 25,449
Real estate - construction 10,667 10,675 6,552 8,463 9,552
Real estate - mortgage 173,124 159,721 134,950 109,278 94,780
Installment 10,378 11,000 7,395 5,512 5,486
Total 226,408 208,243 173,442 148,266 135,267
Less: unearned income (624) (656) (694) (524) (569)
Less: allowance for loan losses (3,922) (3,343) (2,965) (2,416) (2,085)
Net loans $221,862 $204,244 $169,783 $145,326 $132,613
======= ======== ======== ======== ========
Loan Maturities
Commercial and Construction Loans
December 31, 2000
(In Thousands)
1 Year Over
or Less 1-5 Years 5 Years Total
Commercial, financial and agricultural $14,947 $11,846 $5,425 $32,218
Real estate - construction 3,454 4,980 2,233 10,667
Total $18,401 $16,826 $7,658 $42,885
======= ======= ====== =======
Loans with a fixed interest rate $11,969 $4,973
Loans with variable interest rate 4,857 2,685
Total $16,826 $7,658
======= ======
Scheduled repayments for the maturity category in which the
payment is due are not reflected because such information is not
readily available.
Loan maturities do not include $21,000 in nonaccrual loans.
The composition of the loan portfolio, at year end 2000,
was approximately 14.2% commercial, financial, agricultural and
industrial loans, 4.7% real estate construction loans, 76.5%
real estate mortgages, which include commercial as well as
residential loans secured by real estate and 4.6% installment
loans.
Peoples has a significant concentration of residential and
commercial mortgage loans collateralized by properties located
in southern Chester County. Approximately $37,796,000 in loans
was outstanding to real estate investors; included in this
category is a diverse group of properties and borrowers:
$17,955,000 is collateralized by mortgages on commercial
properties (stores, offices and convenience centers, etc.),
about $10,359,000 are mortgage loans on 1-4 family rental
properties, $3,736,000 are mortgages on mobile home parks,
$2,234,000 are secured by multifamily rental properties and
approximately $3,512,000 is outstanding on land development
projects. These figures do not include mortgages on one to four
family owner-occupied properties.
Peoples also has a significant portion of loans outstanding
to the agricultural sector totaling $43,676,000. Approximately
$23,564,000 of these loans are outstanding to the mushroom
industry, which represents 10.4% of total loans, and about
$20,112,000 is outstanding to other segments of the farm
community.
Non-Performing Assets
Non-Performing Assets include loans on a non-accrual basis,
loans past due more than ninety days and still accruing,
troubled debt restructurings and Other Real Estate Owned (OREO).
These groups of assets represent the asset categories posing the
greatest risk of loss to Peoples. Non-accruing loans are loans
no longer accruing interest due to apparent financial
difficulties of the borrower. Peoples normally places loans
which are contractually past due 90 days or more on nonaccrual
status, unless the loan is considered by Management to be both
well secured and in the process of collection or secured by a
one to four family residential property. Troubled debt
restructurings result when an economic concession has been made
to a borrower taking the form of a reduction or deferral of
interest and/or principal. Peoples has no troubled debt
restructurings. OREO includes real estate obtained in
foreclosure or in lieu of foreclosure and is recorded at the
lower of the outstanding balance at the time of foreclosure or
fair value minus estimated costs to sell. Gains and losses on
the sale of other real estate owned and write-downs resulting
from periodic re-evaluations of the property are charged to
other operating expenses.
The following table sets forth Peoples non-performing
assets as of the dates indicated.
Non-Performing Assets
(In Thousands)
December 31,
2000 1999 1998 1997 1996
Non-accrual loans $ 453 $1,047 $1,700 $1,789 $ 802
Accruing loans 90 days past due 187 497 991 228 107
Total non-performing loans 640 1,544 2,691 2,017 909
OREO - 296 345 345 620
Total non-performing assets $ 640 $1,840 $3,036 $2,362 $1,529
===== ====== ====== ====== ======
Ratios:
Non-performing loans to total loans 0.28% 0.74% 1.56% 1.37% 0.67%
Non-performing assets to
total loans and OREO 0.28% 0.89% 1.75% 1.60% 1.13%
Allowance for loan losses to
non-performing loans 612.81% 216.52% 110.18% 119.78% 229.37%
Non-accrual Loans:
Interest income that would have been
recorded under original terms $ 52 $ 134 $ 211 $ 235 $ 86
Interest income recorded during
the year $ 25 $ 13 $ 39 $ 120 $ 13
There were no troubled debt restructurings for any of the
periods presented above. Nor are there any potential problem
loans not already included in the above balances.
Total non-performing loans to total loans at year-ends
2000, 1999 and 1998 were .28%, .74% and 1.56%, respectively.
This decrease was primarily concentrated in one relationship,
which was paid during 2000, resulting in the reduced level of
non-accrual loans.
Total non-performing assets at year-end 2000 were $640,000,
a decrease of $1,200,000 or 65.2% since the beginning of the
year. Comparatively, non-performing assets decreased $1,196,000
or 39.4% from year-end 1998 to 1999. Collection of several
problem loans, during the course of the year, and the sale of
OREO properties led to the decrease in the percentage.
Total non-accrual loans at year end 2000 were $453,000, a
decrease of $594,000 since the beginning of the year.
Comparatively, non-accruing loans decreased $653,000 from year-
end 1998 to 1999.
Total loans past due ninety days or more at year end 2000
were $187,000, a decrease of $310,000 since the beginning of the
year. Comparatively, accruing loans 90 days past due decreased
$494,000 from year-end 1998 to 1999.
Peoples held no other real estate owned (OREO) at year-end
2000. Other real estate owned (OREO) at year-end 1999 totaled
$296,000 and consisted of three residential properties, which
were sold in 2000. Two of these properties Peoples was able to
recover the principal along with some of the expenses incurred;
the third property was sold with a relatively small loss. The
OREO at year-end 1998 totaled $345,000, and was comprised of two
commercial properties. One of these properties was written-down
by $41,000 in 1999, per current appraised value, and transferred
to Peoples fixed assets to use as storage space. The other
property was subsequently sold during 1999, with a small gain.
Allowance for Loan Losses
The allowance for loan losses is a reserve established
through charges to earnings in the form of a provision for loan
losses. Although Peoples maintains sound credit practices, some
loans deteriorate and must be charged off as losses. Management
has established a loan loss reserve that it believes is adequate
for estimated losses on its loan portfolio. In analyzing the
adequacy of the allowance, management makes regular assessments
of the loan portfolio, taking into consideration changes in the
nature and volume of the portfolio, effects of concentrations of
credit, current and projected economic and business conditions,
regulatory recommendations, repayment patterns on loans,
borrowers' financial condition, current charge-offs, trends in
volume and severity of past due loans and classified loans,
potential problem loans and supporting collateral. In addition,
various regulatory agencies, as part of their examination,
review the adequacy of the allowance and from time to time
Peoples may employ a third party to review the adequacy of the
reserve. Such agencies may recommend that Peoples change the
level of the reserve based on their judgments of information
available to them at the time of examination.
The following tables set forth information on the analysis
for loan losses and the allocation of the allowance for loan
losses as of the dates indicated.
Analysis of Allowance for Loan Losses
(In Thousands)
Year Ended
December 31,
2000 1999 1998 1997 1996
Beginning balance $3,343 $2,965 $2,085 $2,085 $1,695
Provision for loan losses 465 451 685 787 504
Loans charged-off
Commercial, financial
agricultural (7) (17) (294) (392) (118)
Real estate - construction - - - - -
Real estate - mortgage (35) (35) (38) (2) -
Installment (21) (83) (34) (71) (40)
Total charged-off (63) (135) (366) (465) (158)
Recoveries
Commercial, financial and agricultural - 48 170 3 38
Real estate - construction - - - - -
Real estate - mortgage 169 - - - -
Installment 8 14 60 6 6
Total recoveries 177 62 230 9 44
Net charge-offs 114 (73) (136) (456) (114)
Ending balance $3,922 $3,343 $2,965 $2,416 $2,085
===== ===== ===== ===== =====
Ratios:
Net charge-offs (recoveries) to average loans (0.05)% 0.04% 0.08% 0.32% 0.09%
Net charge-offs (recoveries) to
the provision for loan losses (24.52)% 16.19% 19.85% 57.94% 22.62%
Allowance for loan losses to total loans 1.74 % 1.61% 1.72% 1.64% 1.55%
Allocation of the Allowance for Loan Losses
(In Thousands)
December 31
2000 1999 1998 1997 1996
Percent Percent Percent Percent Percent
of Loan of Loan of Loan of Loan of Loan
Type to Type to Type to Type to Type to
Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
Commercial, financial
and agricultural $ 807 14.24% $ 695 12.89% $1,005 14.15% $ 604 16.87% $ 465 18.81%
Real estate
construction 55 4.71% 198 5.13% 111 3.78% 86 5.71% 97 7.06%
Real estate
mortgage 1,893 76.47% 1,378 76.70% 1,023 77.81% 1,055 73.70% 797 70.07%
Installment 352 4.58% 304 5.28% 236 4.26% 284 3.72% 264 4.06%
Unallocated 815 N/A 768 N/A 590 N/A 387 N/A 462 N/A
Total $3,922 100.00% $3,343 100.00% $2,965 100.00% $2,416 100.00% $1,695 100.00%
====== ====== ====== ====== ====== ====== ===== ====== ====== ======
At December 31, 2000, the allowance for loan losses to
total loans was 1.74% and was 1.61% and 1.72% at year-ends 1999
and 1998, respectively. See the "Provision for Loan Losses" for
information on the additions to the allowance. The percent of
net recoveries to average loans was .05% in 2000, compared to
net charge-offs of .04% and .08% in 1999 and 1998, respectively.
Management believes the allowance is adequate to cover the
inherent risks associated with Peoples' loan portfolio.
While allocations have been established for particular loan
categories, management considers the entire allowance to be
available to absorb losses in any category.
Deposits
Management believes that the development and retention of
deposits is the basis of sound growth and profitability. These
deposits provide the primary source of funding for loans and
investments. Peoples continued expansion within its market
area, and the enhancement of some deposit products, fueled the
growth in deposits. As of December 31, 2000, deposits totaled
$267,088,000, up $35,859,000 or 15.5% from year-end 1999.
Comparatively, total deposits grew $17,531,000 or 8.2% between
year-end 1999 and 1998.
The enhancement of the Super NOW accounts, an expanded
marketing program, increased public funds money and continued
business development contributed to the growth in the Bank's NOW
and Super NOW deposits by $24,654,000 or 88.6%, along with
growth of $6,210,000 in demand deposits and $5,873,000 in time
deposits. In comparison, last year savings deposits grew by
$5,894,000 or 15.7%, along with growth of $5,790,000 in time
deposits, $2,655,000 in demand deposits, $2,007,000 in money
market accounts and $1,185,000 in NOW and Super NOW deposits.
The following tables set forth information on the
composition of Peoples' deposits and time deposits of $100,000
or more as of the dates indicated.
Average Deposits by Major Classification
(In Thousands)
Year Ended December 31,
2000 1999 1998
Average Average Average
Balance Rate Balance Rate Balance Rate
Non-interest-bearing demand deposits $ 55,408 N/A $ 52,595 N/A $ 42,660 N/A
Interest-bearing deposits:
NOW and Super NOW 38,881 3.16% 27,157 1.81% 20,973 1.83%
Money market 22,171 4.34% 22,022 3.58% 21,261 3.92%
Savings 43,567 2.53% 40,729 2.15% 36,655 2.31%
Time 84,688 5.62% 78,566 4.95% 75,753 5.45%
Total $244,715 $221,069 $197,302
======== ======== ========
Time Deposits of $100,000 or More
Maturity Schedule
(In Thousands)
December 31, 2000 December 31, 1999
Time Other Time Other
Certificates Time Total Certificates Time Total
Three months or less $ 3,643 $ - $ 3,643 $ 7,056 $405 $ 7,461
Over three through six months 5,961 - 5,961 5,509 - 5,509
Over six through twelve months 6,554 - 6,554 4,875 192 5,067
Over twelve months 2,993 1,255 4,248 2,894 254 3,148
Total $19,151 $1,255 $20,406 $20,334 $851 $21,185
======= ====== ======= ======= ==== =======
Large dollar certificates of $100,000 or more, are
generally considered more volatile than other deposits.
Peoples' large dollar certificates and individual retirement
accounts (IRAs) totaled $20,406,000 at year-end 2000, reflecting
a decrease of $779,000, after increasing $2,981,000 in 1999 to
$21,185,000 from $18,204,000 at year end 1998. Added pressure
on rates, contributed to some of the decrease this year. Public
funds deposits from collected tax revenues were placed in other
interest-bearing accounts this year, instead of time deposits.
Borrowings
In 1998, for the first time, Peoples borrowed long-term
money from the Federal Home Loan Bank. During 1999, Peoples
borrowed an additional $6,500,000; and in 2000, borrowed an
additional $8,000,000 to bring the total to $19,756,000 after
payments at year end 2000. The initial increase in 1998
resulted from favorable long-term rates and an in-house program
that matched the long-term debt to similar maturity mortgages to
be held in Peoples' loan portfolio. During 1999 and the
beginning of 2000, the borrowings helped provide a funding
source when deposit growth was not keeping pace with loan
demand. Peoples will continue to target deposits as its primary
funding source, since deposits are generally less costly and
provide an opportunity to expand our customer relationships.
Interest Rate Sensitivity
The operations of Peoples do not subject it to foreign
currency risk or commodity price risk. Peoples does not utilize
interest rate swaps, caps or hedging transactions. In addition,
Peoples has no market risk sensitive instruments entered into
for trading purposes. However, Peoples is subject to interest
rate risk and employs several different methods to manage and
monitor the risk.
Rate sensitive assets and rate sensitive liabilities are
those whose rates or yields are subject to change within a
defined time period, due to maturity or a floating market rate.
The risk to Peoples results from interest rate fluctuations to
the extent that there is a difference between the amount of
Peoples' rate sensitive assets and the amount of interest
sensitive liabilities within specified periods. Peoples
monitors its rate sensitivity in order to reduce its
vulnerability to interest rate fluctuations while maintaining
adequate capital and acceptable levels of liquidity. Peoples'
asset and liability policy, along with monthly financial reports
and quarterly financial simulations, supplies management with
guidelines to evaluate and manage Peoples' rate sensitivity.
Gap analysis is one method used to monitor the imbalance
between repricing or maturing assets and liabilities within a
defined time frame in relation to total assets. When the gap is
positive, with interest rate sensitive assets repricing faster
than rate sensitive liabilities, net interest income usually
improves if interest rates increase. The opposite occurs in the
case of a negative gap. Intentional mismatching can improve the
net interest margin if interest rates move as predicted.
However, the net interest margin may suffer, if rates move
contrary to predictions.
The following table sets forth Peoples' interest
sensitivity analysis as of the date indicated.
Interest Sensitivity Analysis
December 31, 2000
(In Thousands)
Under 3 Months 6 Months 1 Year
3 through through through Over
Months 6 Months 1 Year 5 Years 5 Years
ASSETS:
Loans receivable $ 46,460 $ 7,948 $ 18,342 $108,036 $ 41,076
Securities 3,027 4,946 10,603 25,112 9,355
Federal funds sold 17,979 - - - -
Interest-earning deposits with banks 13,997 - - - -
Total interest-earning assets $ 81,463 $ 12,894 $ 28,945 $133,148 $ 50,431
======== ======== ======== ======== ========
LIABILITIES:
NOW and Super NOW $ 18,363 $ - $ - $ - $ 34,104
Money market 18,550 - - - 2,061
Savings 17,598 - - - 26,398
Time deposits 20,670 21,177 28,238 18,974 -
Securities sold under
agreement to repurchase 6,715 - - - -
Long-term debt 4,093 93 190 8,864 6,517
Total interest-bearing liabilities $ 85,989 $ 21,270 $ 28,428 $ 27,838 $ 69,080
======== ======== ======== ======== ========
Interest sensitivity gap $ (4,526) $ (8,376) $ 517 $105,310 $(18,649)
======== ======== ======== ======== ========
Cumulative sensitivity gap $ (4,526) $(12,902) $(12,385) $ 92,925 $ 74,276
======== ======== ======== ======== ========
As of December 31,1999:
Interest sensitivity gap $(26,000) $ (7,337) $ 2,393 $104,298 $ 12,634
======== ======== ======== ======== ========
Cumulative sensitivity gap $(26,000) $(33,343) $(30,950) $ 73,348 $ 60,714
======== ======== ======== ======== ========
As indicated in the Interest Sensitivity Analysis for
December 31, 2000, Peoples' cumulative one year gap was a
negative $12,385,000, which means liabilities will reprice
faster than assets. This negative position implies for the one-
year period, that the net interest margin should improve
providing a positive impact in a falling interest rate
environment or a negative effect on the net interest margin if
rates rise. The decrease in liability sensitivity is due to
increased rate sensitive loans and increased federal funds
position and interest-earning deposits with banks.
The Interest Sensitivity Analysis includes certain
assumptions on the repricing of NOW and savings accounts. These
accounts are less sensitive to interest rate changes and are
part of Peoples' core deposits. As a result Management has
estimated that 90% of money market accounts, 35% of NOW accounts
and 40% of savings accounts are interest rate sensitive, thereby
placing them in the "Under 3 Month" category and placing the
remainder in the "Over 5 Years" category.
Financial simulation is another tool to monitor interest
rate risk. Simulation presents a picture of the effect interest
rate changes have on net interest income. Assumptions and
estimates are used in the preparation of the simulation and
actual values may differ from those presented. In addition,
these simulations do not portray actions management might take
to changes in market rates. The following is an analysis of
possible changes in Peoples' net interest income, for a +/- 200
basis point rate shock over a one year period compared to a flat
or unchanged rate scenario.
Twelve-Month Projection
January 1-December 31, 2001 January 1-December 31, 2000
Net Interest Percent Net Interest Percent
Change in interest rates Income Change Income Change
+200 basis points $13,468 -2.9% $12,766 -0.7%
Flat rate $13,876 0.0% $12,854 0.0%
- -200 basis points $14,018 1.0% $12,864 0.1%
The percent change is expressed as the change in net
interest income as a percent of the base year's income. An
increase of 200 basis points would result in a 2.9% decrease in
net interest income, whereas a 200 basis point decrease would
result in a 1.0% increase in net interest income, for the
projected period using December 31, 2000. The change in risk
from last year is a result of increased interest-bearing
non-maturity deposits and the impact their related interest
sensitivity has on interest expense. The net interest income
risk position of Peoples is within the guidelines set by the
asset/liability policy.
The equity value at risk is the change in the net present
value of the portfolio, shocked +/-200 basis points. This
portrays the percentage of the value of equity lost from a
sudden change in interest rates, as compared to a flat or
unchanged environment. The following is an analysis of possible
changes in Peoples' economic value of equity for December 31,
2000 and 1999.
December 31, 2000 December 31, 1999
Present Percent Present Percent
Change in interest rates Value Change Value Change
+200 basis points $56,553 -2.9% $47,309 -10.8%
Flat rate $58,211 0.0% $53,015 0.0%
- -200 basis points $54,447 -6.5% $54,851 2.5%
The economic value of equity, using the projection for
December 31, 2000, would decrease with both increasing and
decreasing market rates with a higher risk in a 200 basis point
decrease. The change in the economic value of equity from last
year is primarily a result of increased interest-bearing
non-maturity deposits being matched with assets utilizing a
somewhat different interest sensitivity structure. The risk
position of Peoples is within the guidelines established by the
asset/liability policy.
Liquidity and Capital Resources
Liquidity represents Peoples ability to efficiently manage
cash flows to support customers' loan demand, withdrawals by
depositors, the payment of operating expenses, as well as the
ability to take advantage of business and investment
opportunities as they arise. Liquidity is essential to
compensate for fluctuations in the balance sheet and provide
funds for growth.
The primary source of liquidity is Peoples' growing core
deposit base. A loyal customer base and a strong capital
position provide a stable foundation from which to work. The
stability of the core deposits are reflected in a comparison of
year end balances to yearly averages. Core deposits at year-end
2000 totaled $246,682,000 and averaged $225,776,000 for the
year, this is consistent with the increase in deposits for the
year. Likewise, year end 1999 core deposits totaled
$210,044,000 and averaged $202,684,000 for the year.
Other sources of liquidity are available from investments
in federal funds sold and interest bearing balances from the
Federal Home Loan Bank, which combined totaled $32,011,000 at
year end 2000 and securities maturing in one year or less, which
totaled $17,045,000 at year end 2000. These sources provide
Peoples with adequate resources to meet its short-term liquidity
requirements. Longer-term liquidity needs might be met by
selling securities available-for-sale, which would include 91.9%
of the portfolio, excluding equity holdings, selling loans or
raising additional capital. In addition, Peoples has
established federal funds lines of credit with other commercial
banks and with the Federal Home Loan Bank of Pittsburgh which is
a reliable source for short and long-term funds.
Peoples' loan to deposit ratio, for 2000, was maintained at
an average of 89.2% and ended the year at 84.5% compared to an
average of 84.4% in 1999, ending the year at 89.8%. The average
loan to deposit ratio was 81.6% in 1998.
Peoples' financial statements do not reflect various
commitments which are made in the normal course of business and
which may involve some liquidity risk. These commitments
consist mainly of unfunded loans and letters of credit made
under the same standards as on-balance sheet instruments.
Unused commitments, at December 31, 2000 totaled $40,171,000.
This consisted of $12,531,000 in commercial real estate,
construction, and land development loans, $3,925,000 in home
equity lines of credit, $5,870,000 in standby letters of credit
and the remainder in other unused commitments. Because these
instruments have fixed maturity dates, and because many of them
will expire without being drawn upon, they do not generally
present any significant liquidity risk to Peoples. Any amounts
actually drawn upon, management believes can be funded in the
normal course of operations.
Peoples is not aware of any known trends or any known
demands, commitments, events or uncertainties, which would
result in the liquidity increasing or decreasing in a material
way.
The greater the capital resources, the more likely Peoples
will be able to meet its cash obligations and unforeseen
expenses. Peoples' strong capital position has resulted from
the sale of stock and retained earnings. The dividend payout
ratio was 34.39% in 2000, compared to 30.20% and 29.51% in years
1999 and 1998, respectively. Stockholders' equity at the end of
2000 totaled $41,204,000, an increase of $3,025,000 or 7.9% over
year end 1999. The increase was a result of net income
supplemented with a $456,000 unrealized gain on securities
available-for- sale, net of taxes, and reduced by the dividend
payout of $1,397,000 and $228,000 in treasury stock purchases.
Likewise, stockholders' equity at the end of 1999 totaled
$38,179,000, an increase of $2,127,000 or 5.9% over year-end
1998. The increase was a result of increased earnings partially
offset with a $782,000 unrealized loss on securities available-
for-sale, net of taxes, reduced by the dividend payout of
$1,258,000.
On April 10, 2000, The Peoples Bank of Oxford issued 56,918
shares of common stock, with a fair value of $1.4 million, to
acquire all of the outstanding common stock of Gee, Wilmerding &
Associates, Inc., an investment firm. The company is a wholly
owned subsidiary of The Peoples Bank of Oxford and the
transaction has been accounted for as a pooling of interests.
Revenues for this subsidiary for the year ended December 31,
2000, totaled $808,000.
A stock repurchase plan was approved by the Board of
Directors on October 13, 2000. This plan expires in April 2001
and allows a repurchase of up to $1,000,000 in Peoples stock.
As of December 31, 2000, 13,161 shares had been repurchased at a
cost of $228,000.
The following table sets forth Peoples capital ratios as of
the dates indicated.
Capital Ratios
(In Thousands)
December 31,
2000 1999 1998
Tier I capital
Total stockholders' equity $ 41,082 $ 38,513 $ 35,604
Tier II capital
Allowance for loan losses (1) 2,919 2,617 2,199
Total risk-based capital $ 44,001 $ 41,130 $ 37,803
======== ======== ========
Risk adjusted assets (including
off-balance sheet exposure) $232,553 $208,649 $175,138
======== ======== ========
Capital ratios:
Leverage 17.67% 13.26% 13.93%
Tier I risk-based capital 18.92% 18.46% 20.33%
Total risk-based capital 12.59% 19.71% 21.58%
(1) Allowance for loan losses is limited to the lesser of the
balance of the allowance for loan losses or 1.25% of risk-
adjusted assets for Tier II Capital calculations.
Peoples had a leverage ratio of 12.59%, a Tier I capital to
risk-based assets of 17.67%, and a Total capital to risk-based
assets of 18.92% at year-end 2000. These ratios clearly show
that Peoples exceeds the federal regulatory minimum requirements
for a "well capitalized bank". The minimum regulatory
requirements of a "well capitalized bank" for the leverage
ratio, Tier I and Total risk-based capital ratios are 5.00%,
6.00% and 10.00%, respectively.
Peoples is not under any agreement with the regulatory
authorities nor is it aware of any current recommendations by
the regulatory authorities, that if implemented would have a
material effect on Peoples capital, liquidity or its operations.
Construction is underway on the West Kennett Branch and the
expansion of the Oxford South Office, which are anticipated to
open the first quarter of 2001. In addition Peoples has plans
to construct a new branch in Rising Sun, Maryland. This office
is anticipated to open the fourth quarter of 2001. These
projects will be funded through Peoples' available capital.
Initially the added expense of these facilities may lower net
income, but it is anticipated that over time the costs will be
offset by increased revenues from new business.
Inflation
The impact of inflation upon banks differs from the impact
upon non-financial institutions. The majority of assets and
liabilities of a bank are monetary in nature and therefore
change with movements in interest rates. The exact impact of
inflation on Peoples is difficult to measure. Inflation may
cause operating expenses to increase at a rate not matched by
increased earnings. Inflation may also affect the borrowing
needs of consumers, thereby affecting growth of Peoples' assets.
Inflation may also affect the general level of interest rates,
which could have an effect on Peoples' profitability. However,
as discussed previously, Peoples strives to manage its interest
sensitive assets and liabilities offsetting the effects of
inflation.
Item 7A - Quantitative and Qualitative Disclosures About Market
Risk
Incorporated by reference from Part II, Item 7
"Management's Discussion and Analysis of Financial Conditions
and Results of Operations-Interest Rate Sensitivity" of this
Form 10-K.
Item 8 - Financial Statements and Supplementary Data
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Peoples First, Inc.
Oxford, Pennsylvania
We have audited the accompanying consolidated balance
sheets of Peoples First, Inc. and its subsidiary as of
December 31, 2000 and 1999, and the related consolidated
statements of income, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 2000.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing
standards generally accepted in the United States of America.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of Peoples First, Inc. and its subsidiary as
of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America.
Beard Miller Company LLP
Reading, Pennsylvania
January 12, 2001
PEOPLES FIRST, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2000 1999
(In Thousands)
ASSETS
Cash and due from banks $ 12,773 $ 21,517
Interest-bearing deposits with banks 13,996 4,216
Federal funds sold 18,015 1,095
Securities available for sale 50,114 44,934
Securities held to maturity, fair value 2000 $ 2,929; 1999 $ 3,330 2,929 3,330
Loans, net of allowance for loan losses 2000 $ 3,922; 1999 $ 3,343 221,862 204,244
Bank premises and equipment, net 9,557 5,935
Accrued interest receivable and other assets 8,397 7,237
Total assets $337,643 $292,508
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand, non-interest bearing $ 61,194 $ 54,984
NOW and Super NOW 52,467 27,813
Money market funds 20,371 21,907
Savings 43,997 43,339
Time 89,059 83,186
Total deposits 267,088 231,229
Securities sold under agreements to repurchase 6,700 4,750
Long-term debt 19,756 16,110
Accrued interest payable and other liabilities 2,895 2,240
Total liabilities 296,439 254,329
STOCKHOLDERS' EQUITY
Common stock, par value $ 1.00 per share; authorized 10,000,000
shares; issued 3,053,208 shares and 2,996,290 shares at
December 31, 2000 and 1999, respectively 3,053 2,996
Surplus 16,172 16,197
Retained earnings 22,085 9,320
Accumulated other comprehensive income (loss) 122 (334)
Treasury stock, at cost 13,161 shares (228) -
Total stockholders' equity 41,204 38,179
Total liabilities and stockholders' equity $337,643 $292,508
======== ========
See Notes to Consolidated Financial Statements.
PEOPLES FIRST, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2000 1999 1998
(In Thousands, Except Per Share Data)
Interest income:
Loans receivable, including fees $ 19,045 $ 15,965 $ 14,667
Securities:
Taxable 2,490 2,151 2,088
Tax-exempt 547 582 520
Other 1,387 1,118 1,250
Total interest income 23,469 19,816 18,525
Interest expense:
Deposits 8,053 6,045 6,195
Short-term borrowings 267 159 109
Long-term debt 1,198 793 352
Total interest expense 9,518 6,997 6,656
Net interest income 13,951 12,819 11,869
Provision for loan losses 465 451 685
Net interest income after
provision for loan losses 13,486 12,368 11,184
Other income:
Service charges on deposit accounts 1,175 1,077 787
Income from fiduciary activities 474 414 357
Mortgage banking activities 186 135 189
Other income 925 623 387
Impairment of securities (326) - -
Investment management fees 808 - -
Total other income 3,242 2,249 1,720
Other expenses:
Salaries and employee benefits 6,536 5,054 4,483
Occupancy 683 536 472
Furniture and equipment 574 438 342
Communications and supplies 646 523 476
Taxes, other than income 333 303 274
Professional fees 417 203 180
Other 1,912 1,689 1,284
Total other expenses 11,101 8,746 7,511
Income before income taxes 5,627 5,871 5,393
Income tax expense 1,565 1,704 1,606
Net income $ 4,062 $ 4,167 $ 3,787
========== ========= ===========
Basic earnings per share $ 1.33 $ 1.39 $ 1.26
========== ========= ===========
Weighted average number of shares outstanding 3,052 2,996 2,996
========== ========= ===========
See Notes to Consolidated Financial Statements.
PEOPLES FIRST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 2000, 1999 and 1998
Accumulated
Other
Common Retained Comprehensive Treasury
Stock Surplus Earnings Gain (Loss) Stock Total
(In Thousands)
Balance, December 31, 1997 $2,996 $16,200 $13,742 $ 151 $ - $33,089
Comprehensive income:
Net income - - 3,787 - - 3,787
Net change in unrealized gains
(losses) on securities available
for sale, net of taxes - - - 297 - 297
Total comprehensive income 4,084
Cash dividends declared, $.373
per share - - (1,118) - - (1,118)
Cash paid in lieu of fractional
shares - (3) - - - (3)
Balance, December 31, 1998 2,996 16,197 16,411 448 - 36,052
Comprehensive income:
Net income - - 4,167 - - 4,167
Net change in unrealized gains
(losses) on securities
available for sale, net
of taxes - - - (782) - (782)
Total comprehensive income 3,385
Cash dividends declared, $ .42
per share - - (1,258) - - (1,258)
Balance, December 31, 1999 2,996 16,197 19,320 (334) - 38,179
Comprehensive income:
Net income - - 4,062 - - 4,062
Net change in unrealized gains
(losses) on securities
available for sale, net
of taxes - - - 456 - 456
Total comprehensive income 4,518
Cash dividends declared, $ .46
per share - - (1,397) - - (1,397)
Common stock issued in acquisition 57 (25) 100 - - 132
Purchase of treasury stock - - - - (228) (228)
Balance, December 31, 2000 $3,053 $16,172 $22,085 $ 122 $(228) $41,204
====== ======= ======= ===== ===== =======
See Notes to Consolidated Financial Statements.
PEOPLES FIRST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 2000 1999 1998
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,062 $ 4,167 $ 3,787
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 639 506 342
Amortization of securities premium (discount), net (13) (5) (2)
Impairment of securities 326 - -
Provision for loan losses 465 451 685
Earnings on life insurance (205) (66) -
Deferred income taxes (325) (145) (176)
(Increase) decrease in other assets (894) (276) 480
Increase (decrease) in other liabilities 620 (33) 501
Net cash provided by operating activities 4,675 4,599 5,617
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest bearing
deposits with banks (9,780) 8,349 (8,262)
Net (increase) decrease in federal funds sold (16,920) 12,814 (1,009)
Securities available for sale:
Proceeds from maturities 14,117 12,605 22,441
Purchases (18,593) (13,028) (31,924)
Securities held to maturity, proceeds from maturities 75 460 1,750
Net increase in loans receivable (18,083) (34,912) (25,142)
Purchase of premises and equipment (4,101) (951) (1,581)
Purchase of life insurance - (3,500) -
Net cash used in investing activities (53,285) (18,163) (43,727)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in non-interest bearing demand, NOW,
Super NOW, money market funds and savings deposits 29,986 11,741 27,703
Net increase in time deposits 5,873 5,790 3,049
Proceeds from long-term debt 8,000 6,500 10,000
Repayments of long-term debt (4,354) (309) (81)
Net increase in securities sold under agreements
to repurchase 1,950 1,190 1,525
Dividends paid and cash in lieu of fractional shares (1,361) (1,228) (1,093)
Purchase of treasury stock (228) - -
Net cash provided by financing activities 39,866 23,684 41,103
Increase (decrease) in cash and due from banks (8,744) 10,120 2,993
Cash and due from banks:
Beginning of year 21,517 11,397 8,404
End of year $ 12,773 $ 21,517 $ 11,397
============ =========== ===========
Interest paid $ 9,224 $ 6,987 $ 6,760
============ =========== ===========
Income taxes paid $ 2,148 $ 1,888 $ 1,562
============ =========== ===========
See Notes to Consolidated Financial Statements.
1 SUMMARY OF ACCOUNTING POLICIES
Nature of operations and basis of presentation:
The consolidated financial statements include the accounts
of Peoples First, Inc. and its wholly owned subsidiary, The
Peoples Bank of Oxford (Bank) and its subsidiary (collectively
"Peoples"). All material intercompany transactions have been
eliminated. Peoples First, Inc. was formed July 27, 2000 and is
subject to regulation of the Federal Reserve Bank.
Peoples First, Inc. is a one-bank holding company
headquartered in Oxford, Pennsylvania and provides full banking
services, including trust services through its subsidiary, The
Peoples Bank of Oxford. The Bank operates under a state bank
charter and is subject to regulation of the Pennsylvania
Department of Banking and the Federal Deposit Insurance
Corporation. The areas served by the Bank are principally
Chester County and southern Lancaster County, Pennsylvania.
On April 10, 2000, Peoples issued 56,918 shares of common
stock, with a fair value of $ 1.4 million, to acquire all of the
outstanding common stock of Gee, Wilmerding & Associates, Inc.
("GWA"), an investment firm. GWA is a wholly owned subsidiary
of the Bank and the transaction has been accounted for as a
pooling of interests. Periods prior to January 1, 2000 have not
been restated due to immateriality.
Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Presentation of cash flows:
For purposes of reporting cash flows, cash and cash
equivalents are defined as those accounts included in the
balance sheet caption "Cash and due from banks."
Securities:
Securities classified as available for sale are those
securities that Peoples intends to hold for an indefinite period
of time but not necessarily to maturity. Any decision to sell a
security classified as available for sale would be based on
various factors, including significant movement in interest
rates, changes in maturity mix of Peoples' assets and
liabilities, liquidity needs, regulatory capital considerations
and other similar factors. Securities available for sale are
carried at fair value. Unrealized gains and losses are reported
in other comprehensive income, net of the related deferred tax
effect. Realized gains or losses, determined on the basis of
the cost of the specific securities sold, are included in
earnings. Premiums and discounts are recognized in interest
income using a method that approximates the interest method over
the period to maturity. Equity securities are comprised of
stock in the Federal Home Loan Bank, Federal Reserve Bank and
Atlantic Central Banker's Bank and are carried at cost.
Bonds, notes and debentures for which Peoples has the
positive intent and ability to hold to maturity are reported at
cost, adjusted for premiums and discounts that are recognized in
interest income using the interest method over the period to
maturity.
Management determines the appropriate classification of
debt securities at the time of purchase and re-evaluates such
designation as of each balance sheet date.
Loans receivable:
Loans generally are stated at their outstanding unpaid
principal balances, net of an allowance for loan losses and any
deferred fees or costs. Interest income is accrued on the
unpaid principal balance. Loan origination fees, net of certain
direct origination costs, are deferred and recognized as an
adjustment of the yield (interest income) of the related loans.
The Bank is generally amortizing those amounts over the
contractual life of the loan.
The accrual of interest is discontinued when the
contractual payment of principal or interest has become 90 days
past due or management has serious doubts about further
collectability of principal or interest, even though the loan is
currently performing. A loan may remain on accrual status if it
is in the process of collection and is either guaranteed or well
secured. When a loan is placed on nonaccrual status, unpaid
interest credited to income in the current year is reversed and
unpaid interest accrued in prior years is charged against the
allowance for loan losses. Interest received on nonaccrual
loans generally is either applied against principal or reported
as interest income, according to management's judgment as to the
collectability of principal. Generally, loans are restored to
accrual status when the obligation is brought current, has
performed in accordance with the contractual terms for a
reasonable period of time and the ultimate collectability of the
total contractual principal and interest is no longer in doubt.
Allowance for loan losses:
The allowance for loan losses is established through
provisions for loan losses charged against income. Loans deemed
to be uncollectible are charged against the allowance for loan
losses, and subsequent recoveries, if any, are credited to the
allowance.
The allowance for loan losses is maintained at a level
considered adequate to provide for losses that can be reasonably
anticipated. Management's periodic evaluation of the adequacy
of the allowance is based on Peoples' past loan loss experience,
known and inherent risks in the portfolio, adverse situations
that may affect the borrower's ability to repay, the estimated
value of any underlying collateral, composition of the loan
portfolio, current economic conditions, and other relevant
factors. This evaluation is inherently subjective as it
requires material estimates that may be susceptible to
significant change, including the amounts and timing of future
cash flows expected to be received on impaired loans.
A loan is considered impaired when, based on current
information and events, it is probable that Peoples will be
unable to collect the scheduled payments of principal or
interest when due according to the contractual terms of the loan
agreement. Factors considered by management in determining
impairment include payment status, collateral value and the
probability of collecting scheduled principal and interest
payments when due. Loans that experience insignificant payment
delays and payment shortfalls generally are not classified as
impaired. Management determines the significance of payment
delays and payment shortfalls on a case-by-case basis, taking
into consideration all of the circumstances surrounding the loan
and the borrower, including the length of the delay, the reasons
for the delay, the borrower's prior payment record, and the
amount of the shortfall in relation to the principal and
interest owed. Impairment is measured on a loan by loan basis
for commercial and construction loans by either the present
value of expected future cash flows discounted at the loan's
effective interest rate, the loan's obtainable market price, or
the fair value of the collateral if the loan is collateral
dependent.
Large groups of smaller balance homogeneous loans are
collectively evaluated for impairment. Accordingly, Peoples
does not separately identify individual consumer and residential
loans for impairment disclosures.
Premises and equipment:
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation expense is calculated principally on
the straight-line method over the respective assets estimated
useful lives.
Peoples follows the policy of charging the costs of
advertising to expense as incurred. Advertising expense was
$ 286,000, $ 250,000 and $ 147,000 in 2000, 1999 and 1998,
respectively.
Income taxes:
Deferred income tax assets and liabilities are determined
based on the differences between financial statement carrying
amounts and the tax basis of existing assets and liabilities.
These differences are measured at the enacted tax rates that
will be in effect when these differences reverse. As changes in
tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
Earnings per common share:
Peoples has a simple capital structure. Basic earnings per
share represents income available to common stockholders divided
by the weighted average number of common shares outstanding
during the period.
Off-balance sheet financial instruments:
In the ordinary course of business, Peoples has entered
into off-balance sheet financial instruments consisting of
commitments to extend credit, letters of credit and commitments
to sell loans. Such financial instruments are recorded in the
balance sheets when they become receivable or payable.
Trust assets:
Assets held by Peoples in a fiduciary capacity for
customers are not included in the financial statements since
such items are not assets of Peoples. Trust income is reported
on the accrual method.
Comprehensive income:
Accounting principles generally require that recognized
revenue, expenses, gains and losses be included in net income.
Although certain changes in assets and liabilities, such as
unrealized gains and losses on available for sale securities,
are reported as a separate component of the equity section of
the balance sheet, such items, along with net income, are
components of comprehensive income.
The components of other comprehensive income (loss) and
related tax effects are as follows:
Years Ended December 31,
2000 1999 1998
(In Thousands)
Unrealized holding gains (losses) on available
for sale securities $ 690 $ (1,184) $ 450
Less reclassification adjustment for
gains realized in income - - -
Net unrealized gains (losses) 690 (1,184) 450
Income tax effect (234) (402) 153
Net of tax amount $ 456 $ (782) $ 297
======== =========== =======
Segment reporting:
Peoples acts as an independent community financial service
provider and offers traditional banking and related financial
services to individual, business and government customers.
Through its branch and automated teller machine network, the
Bank offers a full array of commercial and retail financial
services, including the taking of time, savings and demand
deposits; the making of commercial, consumer and mortgage loans;
and the providing of safe deposit services. Peoples also
performs personal, corporate, pension and fiduciary services
through its Trust Department.
Management does not separately allocate expenses, including
the cost of funding loan demand, between the commercial, retail,
mortgage banking and trust operations of Peoples. As such,
discrete information is not available and segment reporting
would not be meaningful. The operations of Gee, Wilmerding &
Associates are not material to the consolidated financial
statements.
Recently issued accounting standards:
In June 1998, the Financial Accounting Standards Board
issued Statement No. 133, (as amended by Statement Nos. 137 and
138), "Accounting for Derivative Instruments and Hedging
Activities". This Statement and its amendments establish
accounting and reporting standards for derivative instruments
and hedging activities, including certain derivative instruments
embedded in other contracts, and requires that an entity
recognize all derivatives as assets or liabilities in the
balance sheet and measure them at fair value. The Statement
requires that changes in the fair value of derivatives be
recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part
of a hedge transaction and, if it is, the type of hedge
transaction. Peoples adopted the Statement on January 1, 2001.
The adoption of the Statement did not have a significant impact
on the financial condition or results of operations of Peoples.
In September 2000, the Financial Accounting Standards Board
issued Statement No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities". This Statement replaces SFAS No. 125 of the same
name. It revises the standards of securitizations and other
transfers of financial assets and collateral and requires
certain disclosures, but carries over most of the provisions of
SFAS No. 125 without reconsideration. SFAS No. 140 is effective
for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001.
The Statement is effective for recognition and reclassification
of collateral and for disclosures relating to securitization
transactions and collateral for fiscal years ending after
December 15, 2000. This Statement is to be applied
prospectively with certain exceptions. Other than these
exceptions, earlier or retroactive application of its accounting
provision is not permitted. The adoption of the Statement is
not expected to have a significant impact on Peoples.
2 SECURITIES
The amortized cost and fair value of securities were as
follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In Thousands)
December 31, 2000:
Available for sale:
U.S. Treasury securities $ 24,697 $ 177 $ 16 $ 24,858
U.S. Government agencies 11,842 19 38 11,823
States and political subdivisions 6,788 25 8 6,805
Corporate securities 5,235 38 13 5,260
Equity securities 1,368 - - 1,368
Total $ 49,930 $ 259 $ 75 $ 50,114
========== ======= ====== ========
Held to maturity,
States and political subdivisions $ 2,929 $ - $ - $ 2,929
========== ======= ====== ========
December 31, 1999:
Available for sale:
U.S. Treasury securities $ 25,482 $ 14 $ 243 $ 25,253
U.S. Government agencies 8,089 - 158 7,931
States and political subdivisions 7,404 13 90 7,327
Corporate securities 3,392 18 60 3,350
Equity securities 1,073 - - 1,073
Total $ 45,440 $ 45 $ 551 $ 44,934
========== ======= ======= ========
Held to maturity,
States and political subdivisions $ 3,330 $ - $ - $ 3,330
========== ======= ======= ========
There were no sales of securities during the years ended
December 31, 2000, 1999 and 1998. During the year ended
December 31, 2000, Peoples wrote down a security to its fair
value which it deemed to be other than temporarily impaired by
$ 326,000. The tax benefit applicable to this write-down was
$ 111,000.
Securities with an amortized cost of $ 32,716,000 and
$ 33,353,000 at December 31, 2000 and 1999, respectively, were
pledged to secure public deposits, securities sold under
agreements to repurchase and for other purposes as required or
permitted by law.
The amortized cost and fair value of securities as of
December 31, 2000, by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities or
call dates because borrowers may have the right to prepay
obligations with or without call or prepayment penalties.
Securities Available Securities Held
For Sale To Maturity
Amortized Fair Amortized Fair
Cost Value Cost Value
(In Thousands)
Due in one year or less $ 17,044 $ 17,045 $ - $ -
Due after one year through five years 24,908 25,112 - -
Due after five years through ten years 5,610 5,613 - -
Due after ten years 1,000 976 2,929 2,929
Equity securities 1,368 1,368 - -
$ 49,930 $ 50,114 $ 2,929 $ 2,929
========= ========== ======= =======
3 LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
The components of loans receivable at December 31 were as
follows:
2000 1999
(In Thousands)
Commercial, financial and agricultural $ 32,239 $ 26,847
Real estate, construction 10,667 10,675
Real estate, mortgage 173,124 159,721
Installment loans to individuals 10,378 11,000
226,408 208,243
Less:
Deferred fees, net 624 656
Allowance for loan losses 3,922 3,343
$221,862 $204,244
======== ========
The following table presents changes in the allowance for
loan losses:
Years Ended December 31,
2000 1999 1998
(In Thousands)
Balance, beginning $3,343 $2,965 $2,416
Provision for loan losses 465 451 685
Recoveries 177 62 230
Loans charged off (63) (135) (366)
Balance, ending $3,922 $3,343 $2,965
====== ====== ======
The recorded investment in impaired loans, not requiring an
allowance for loan losses was $ 140,000 and $ 26,000 at
December 31, 2000 and 1999, respectively. The recorded
investment in impaired loans requiring an allowance for loan
losses was $ 313,000 and $ 1,021,000 at December 31, 2000 and
1999, respectively. The related allowance for loan losses
associated with these loans was $ 49,000 and $ 239,000 at
December 31, 2000 and 1999, respectively. For the years ended
December 31, 2000, 1999 and 1998, the average recorded
investment in these impaired loans was $ 522,000, $ 1,134,000
and $ 1,760,000, respectively. The interest income recognized,
representing cash collected, on these impaired loans was
$ 25,000, $ 13,000 and $ 39,000 in 2000, 1999 and 1998,
respectively.
4 PREMISES AND EQUIPMENT
Components of premises and equipment at December 31 are as
follows:
2000 1999
(In Thousands)
Land $ 1,008 $1,008
Buildings and improvements 7,525 4,737
Furniture and equipment 2,755 2,940
Construction in progress 1,115 450
12,403 9,135
Less accumulated depreciation 2,846 3,200
$ 9,557 $5,935
======= ======
Peoples leases land and office space under various
operating leases. The leases expire in 2008 through 2020. All
leases provide for various renewal options. The minimum rental
commitments under the leases are as follows (in thousands):
Year ended December 31:
2001 $ 262
2002 265
2003 226
2004 187
2005 186
2006 and thereafter 2,514
$ 3,640
=========
Rental expense was $ 203,000, $ 102,000 and $ 91,000 for
the years ended December 31, 2000, 1999 and 1998, respectively.
5 DEPOSITS
Aggregate time deposits in denominations of $ 100,000 or
more were $ 20,406,000 at December 31, 2000 and $ 21,185,000 at
December 31, 1999.
At December 31, 2000, the scheduled maturities of time
deposits are as follows (in thousands):
2001 $70,084
2002 8,061
2003 3,611
2004 1,884
2005 5,419
$89,059
=======
6 BORROWINGS
Information concerning securities sold under agreements to
repurchase is summarized as follows:
2000 1999
(In Thousands)
Average balance during the year $5,580 $4,429
Average interest rate during the year 4.78% 3.59%
Maximum month-end balance during the year $8,115 $5,900
Securities sold under agreements to repurchase which are
classified as secured borrowings, generally mature within one
day from the transaction date. Securities sold under agreements
to repurchase are reflected at the amount of cash received in
connection with the transaction. Peoples monitors the fair
value of the underlying securities on a daily basis.
Long-term debt consists of loans from the Federal Home Loan
Bank of Pittsburgh (FHLB). These loans are primarily fixed rate
loans. Approximately $ 8.3 million of the loans have scheduled
monthly principal and interest payments. $ 11.5 million are
payable in full at maturity. The weighted-average interest
rates on these borrowings is 6.07% and scheduled maturities are
as follows:
2001 $ 375
2002 398
2003 422
2004 447
2005 1,098
Thereafter 17,016
$ 19,756
=========
The Bank has a maximum borrowing capacity with the FHLB of
approximately $ 85,242,000, of which $ 19,756,000 was
outstanding at December 31, 2000.
7 PENSION PLAN
Peoples has a 401(k) plan covering substantially all
employees. Peoples matches the amount an employee has deducted
from the employee's pay up to a maximum of 6% of the employee's
gross pay. Additional discretionary contributions are
determined annually by the Board of Directors. Peoples'
contributions are expensed as the cost is incurred, funded
currently, and amounted to $ 358,000 in 2000, $ 321,000 in 1999
and $ 273,000 in 1998, including additional discretionary
contributions of $ 90,000, $ 80,000 and $ 62,000, respectively.
8 INCOME TAXES
The components of the provision for federal income taxes
are as follows:
Years Ended December 31,
2000 1999 1998
(In Thousands)
Current $1,890 $1,849 $1,782
Deferred (325) (145) (176)
$1,565 $1,704 $1,606
====== ====== ======
Income tax expense of Peoples is less than the amounts
computed by applying statutory federal income tax rates to
income before income taxes because of the following:
Percentage Of Income
Before Income Taxes
Years Ended December 31,
2000 1999 1998
Tax at statutory rates 34.0 % 34.0 % 34.0 %
Tax exempt interest income, net of interest expense disallowance (5.1) (4.8) (4.4)
Earnings on life insurance (1.2) (0.4) -
Other 0.1 0.2 0.2
Effective tax rates 27.8 % 29.0 % 29.8 %
==== ==== ====
The components of the deferred tax assets and liabilities
are as follows:
December 31,
2000 1999
(In Thousands)
Deferred tax assets:
Allowance for loan losses $ 1,206 $ 1,010
Unrealized losses on securities available for sale - 171
Impairment of securities 111 -
Other 110 64
1,427 1,245
Deferred tax liabilities:
Accumulated depreciation 219 198
Accretion on securities 21 15
Unrealized gains on securities available for sale 63 -
303 213
Net deferred tax assets $ 1,124 $ 1,032
======= =======
9 TRANSACTIONS WITH EXECUTIVE OFFICERS AND DIRECTORS
Certain directors and executive officers of Peoples, their
families and their affiliates are customers of the Bank. Any
transactions with such parties, including loans and commitments,
were in the ordinary course of business at normal terms,
including interest rates and collateralization, prevailing at the
time and did not represent more than normal risks. At
December 31, 2000 and 1999, such loans amounted to $ 3,364,000
and $ 2,664,000, respectively. During 2000, new loans to such
related parties totaled $ 2,785,000 and repayments aggregated
$ 2,085,000.
10 REGULATORY MATTERS AND STOCKHOLDERS' EQUITY
Peoples and the Bank are subject to various regulatory
capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary
actions by regulators that, if undertaken, could have a direct
material effect on Peoples' financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt
corrective action, Peoples must meet specific capital guidelines
that involve quantitative measures of Peoples' assets,
liabilities and certain off-balance sheet items as calculated
under regulatory accounting practices. Peoples' capital amounts
and classification are also subject to qualitative judgments by
the regulators about components, risk weightings and other
factors.
Quantitative measures established by regulation to ensure
capital adequacy require Peoples to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier 1 capital
(as defined in the regulations) to risk-weighted assets, and of
Tier 1 capital to average assets. Management believes, as of
December 31, 2000, that Peoples meets all capital adequacy
requirements to which it is subject.
As of December 31, 2000, the most recent notification from
the federal regulatory agencies has categorized Peoples and the
Bank as well capitalized under the regulatory framework for
prompt corrective action. There are no conditions or events
since that notification that management believes have changed
Peoples' or the Bank's category.
The Bank's actual capital amounts and ratios are also
presented in the table:
Minimum
To Be Well
Minimum Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(In Thousands)
As of December 31, 2000:
Total capital (to risk weighted assets) $43,976 18.91% $18,603 8.00% $23,254 10.00%
Tier 1 capital (to risk weighted assets) 41,057 17.66 9,301 4.00 13,952 6.00
Tier 1 capital (to average assets) 41,057 12.59 13,048 4.00 16,311 5.00
As of December 31, 1999:
Total capital (to risk weighted assets) $41,130 19.71% $16,694 8.00% $20,868 10.00%
Tier 1 capital (to risk weighted assets) 38,513 18.46 8,347 4.00 12,518 6.00
Tier 1 capital (to average assets) 38,513 13.26 11,059 4.00 13,824 5.00
Peoples' ratios do not differ significantly from the Bank's
ratios presented above.
The Bank is required to maintain average cash reserve
balances in vault cash or with the Federal Reserve Bank. The
amount of these restricted cash reserve balances with the
Federal Reserve Bank at December 31, 2000 was approximately
$ 750,000.
Under Pennsylvania banking law, the Bank is subject to
certain restrictions on the amount of dividends that it may
declare without prior regulatory approval. At December 31, 2000,
$ 21,833,000 of retained earnings were available for dividend
declaration without prior regulatory approval, subject to
regulatory requirements discussed above.
Common stockholders may participate in a dividend
reinvestment plan, which provides that additional shares of
common stock may be purchased with reinvested dividends at
prevailing market prices. To the extent that shares are not
available in the Treasury or open market, Peoples has reserved
100,000 shares of common stock to be issued under the plan.
11 OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
The Bank is a party to financial instruments with off-
balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments
include commitments to extend credit and letters of credit.
Those instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the
balance sheets.
The Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for
commitments to extend credit and letters of credit is represented
by the contractual amount of those instruments. The Bank uses
the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
A summary of the Bank's financial instrument commitments is
as follows:
December 31,
2000 1999
(In Thousands)
Commitments to extend credit:
Loan origination commitments $12,531 $ 5,941
Unused home equity lines of credit 3,925 3,654
Unused business lines of credit 17,845 26,116
$34,301 $35,711
======= =======
Stand-by letters of credit $ 5,870 $ 4,689
======= =======
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require
payment of a fee. Since some of the commitments are expected to
expire without being drawn upon, the total commitment amount
does not necessarily represent future cash requirements. The
Bank evaluates each customer's credit worthiness on a case-by-
case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the customer and generally
consists of real estate.
Standby letters of credit are conditional commitments
issued by the Bank to guarantee the performance of a customer to
a third party. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending
loans to customers. The Bank holds collateral, when deemed
necessary, supporting those commitments.
12 CONCENTRATIONS OF CREDIT RISK
The Bank operates primarily in Chester County and southern
Lancaster County, Pennsylvania and, accordingly, has extended
credit primarily to commercial entities and individuals in this
area whose ability to honor their contracts is influenced by the
region's economy. These customers are also the primary
depositors of the Bank. The loan portfolio is well diversified,
however, extensions of credit to real estate investors and
developers and the mushroom industry, comprise 15% and 10%,
respectively, of the loan portfolio at December 31, 2000. The
Bank is limited in extending credit by legal lending limits to
any single borrower or group of borrowers.
13 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Management uses its best judgment in estimating the fair
value of Peoples' financial instruments; however, there are
inherent weaknesses in any estimation technique. Therefore, for
substantially all financial instruments, the fair value
estimates herein are not necessarily indicative of the amounts
Peoples could have realized in a sales transaction on the dates
indicated. The estimated fair value amounts have been measured
as of their respective year ends and have not been re-evaluated
or updated for purposes of these financial statements subsequent
to those respective dates. As such, the estimated fair values
of these financial instruments subsequent to the respective
reporting dates may be different than the amounts reported at
each year end.
The following information should not be interpreted as an
estimate of the fair value of Peoples since a fair value
calculation is only provided for a limited portion of Peoples'
assets and liabilities. Due to a wide range of valuation
techniques and the degree of subjectivity used in making the
estimates, comparisons between Peoples' disclosures and those of
other companies may not be meaningful. The following methods
and assumptions were used to estimate the fair values of
Peoples' financial instruments at December 31, 2000 and 1999:
For cash and due from banks, interest-bearing deposits with
banks and federal funds sold, the carrying amount is a
reasonable estimate of fair value.
For securities, fair value equals quoted market price, if
available. If a quoted market price is not available, fair
value is estimated using quoted market prices for similar
securities.
The fair value of loans is estimated by discounting the
future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for
the same remaining maturities.
The fair value of accrued interest receivable and accrued
interest payable is the carrying amount.
The fair value of demand deposits, savings accounts and
certain money market deposits is the amount payable on demand at
the reporting date. The fair value of fixed-maturity
certificates of deposit is estimated using the rates currently
offered for deposits for similar remaining maturities.
The fair value of securities sold under agreements to
repurchase approximate their carrying amount.
The fair value of long-term debt is estimated by
discounting future cash flows using current rates at which
similar debt with similar maturities could be obtained from the
FHLB.
The fair value of commitments to extend credit and for
outstanding letters of credit is estimated using the fees
currently charged to enter into similar agreements.
The estimated fair value of Peoples' financial instruments
were as follows:
December 31, 2000 December 31, 1999
Carrying Fair Carrying Fair
Amount Value Amount Value
(In Thousands)
Financial assets:
Cash and due from banks, interest-bearing
deposits with banks and federal funds sold $ 44,784 $ 44,784 $ 26,828 $ 26,828
Securities 53,043 53,043 48,264 48,264
Loans receivable, net 221,862 228,092 204,244 203,529
Accrued interest receivable 2,008 2,008 1,614 1,614
Financial liabilities:
Deposits 267,088 267,833 231,229 230,812
Securities sold under agreements to repurchase 6,700 6,700 4,750 4,750
Long-term debt 19,756 20,053 16,110 15,782
Accrued interest payable 1,299 1,299 1,005 1,005
Off-balance sheet financial instruments:
Commitments to extend credit and outstanding
letters of credit - - - -
14 PEOPLES FIRST, INC. (PARENT COMPANY ONLY) FINANCIAL
INFORMATION
Balance Sheet December 31,
2000
(In Thousands)
Assets:
Cash $ 5
Investment in Bank subsidiary 41,179
Other assets 385
Total assets $ 41,569
=========
Liabilities and stockholders' equity
Other liabilities $ 365
Stockholders' equity 41,204
$ 41,569
=========
STATEMENT OF INCOME For The Period
July 27, 2000 To
December 31, 2000
(In Thousands)
Dividends from bank subsidiary $1,033
Equity in undistributed earnings of bank
subsidiary 475
Other expenses 74
Income before income taxes 1,434
Income taxes (benefit) (25)
Net income $1,459
======
STATEMENT OF CASH FLOW For The Period
July 27, 2000 To
December 31, 2000
Cash flows from operating activities:
Net income $1,459
Deferred income taxes (20)
Equity in undistributed earnings of bank
subsidiary (475)
(Increase) in other assets (365)
Net cash provided by operating
activities 599
Cash flows from financing activities:
Purchase of treasury stock (228)
Cash dividends paid (366)
Net cash used in financing
activities (594)
Increase in cash 5
Cash:
Beginning -
Ending $ 5
======
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
PART III
Item 10 - Directors and Executive Officers of Peoples and the
Bank
The information relating to executive officers of Peoples
is included under Item 4A in Part I of this Form 10-K. The
information required by this item relating to directors of
Peoples is incorporated by reference to that portion of Proposal
I captioned "Election of Directors" located in the definitive
proxy statement to be used in connection with Peoples' 2001
Annual Meeting of Shareholders (the "Proxy Statement"). The
information required by this item relating to compliance with
Section 16(a) of the Securities Exchange Act of 1934 is
incorporated by reference to the sectioned captioned "Section 16
Reporting" in the Proxy Statement.
Item 11 - Executive Compensation
The information required by this item is incorporated by
reference to the sections captioned "General Information About
the Board of Directors" through "Compensation Committee
Interlocks and Insider Participation" in the Proxy Statement.
Item 12 - Security Ownership of Certain Beneficial Owners and
Management
The information required by this item is incorporated by
reference to the sections captioned "Principal Beneficial Owners
of Common Stock" and "Nominees for Election as Directors" in the
Proxy Statement.
Item 13 - Certain Relationships and Related Transactions
The information required by this item is incorporated by
reference to the sections captioned "Certain Indebtedness" and
"Certain Transactions" in the Proxy Statement.
PART IV
Item 14 - Exhibits, Financial Statements and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
Independent Auditor's Report
Consolidated Balance Sheets as of December 31, 2000 and
December 31, 1999.
Consolidated Statements of Income for the years ended
December 31, 2000, 1999 and 1998.
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998.
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 2000, 1999 and 1998.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange
Commission are not required under the related instruction, or
are inapplicable or pertain to items as to which the required
disclosures have been made elsewhere in the Financial Statements
and Notes thereto, and therefore have been omitted.
3. Exhibits
3.1 Articles of Incorporation of Peoples First, Inc.
(Incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-4,
No. 333-30640.)
3.2 Bylaws of Peoples First, Inc. (Incorporated by
reference to Exhibit 3.2 to the Registrant's
Registration Statement on Form S-4, No. 333-30640.)
10.1 Lease Agreement, dated December 7, 1994, between Beiler
Campbell, Inc. and The Peoples Bank of Oxford.
(Incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the
period ended September 30, 2000.)
10.2 Employment Agreement, dated January 1, 1996, between
The Peoples Bank of Oxford and George C. Mason.
(Incorporated herein by reference to Exhibit 10.2 of
the Registrant's Quarterly Report on Form 10-Q for the
period ended September 30, 2000.)
21 List of Subsidiaries
23 Consent of Auditors
(b) Reports on Form 8-K filed during the last quarter of the
period covered by this report.
None
SIGNATURE
Pursuant to the requirements of Section 13 of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PEOPLES FIRST, INC.
Date : March 20, 2001 By: /s/ George C. Mason
George C. Mason
Chief Executive Officer,
Chairman of the Board and
Director
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
/s/ George C. Mason Date: March 20, 2001
George C. Mason
Chief Executive Officer,
Chairman of the Board and Director
/s/ Carl R. Fretz Date: March 20, 2001
Carl R. Fretz
Vice Chairman, Corporate Secretary
and Director
/s/ Hugh J. Garchinsky Date: March 20, 2001
Hugh J. Garchinsky
President
/s/ Susan H. Reeves Date: March 20, 2001
Susan H. Reeves
Senior Vice President,
Chief Financial Officer and Cashier
/s/ Ben S. Beiler Date: March 20, 2001
Ben S. Beiler
Director
_______________________ Date:
Arthur A. Bernardon
Director
_______________________ Date:
Clyde L. Cameron
Director
________________________ Date:
Ross B. Cameron, Jr.
Director
/s/ Emidio Frezzo, Jr. Date: March 20, 2001
Emidio Frezzo, Jr.
Director