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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 1998
Commission File No. 333-4984
PCB BANCORP, INC.
(Exact Name of Registrant as Specified in its Charter)
Tennessee 62-1641671
(State or other jurisdiction of incorporation) (I.R.S. Employer
Identification Number)
300 Sunset Dr : Johnson City, Tennessee 37604
(Address of Principal Executive Office) (Zip Code)
(423) 915-2236
(Issuer's Telephone Number Including Area Code)
Securities Registered Pursuant to Section 12(b) or 12(g) of the Act:
None
Indicate by the check mark whether the Issuer: (1) has filed all reports
required 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 registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB
Yes X No
State issuer's revenues for its most recent fiscal year:
$ 6,674,227
The aggregate market value of the issuer's voting stock held by non-affiliates,
computed by reference the price at which the stock was sold as of February 9,
1999, is $16,898,050 for 675,922 shares, at an estimated $25.00 per share.
800,000
(Outstanding shares of the issuer's common stock as of February 9, 1999)
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
PCB Bancorp, Inc. (the "Company" or "PCB") is a registered bank
holding company which was incorporated under Tennessee law in May 1996. The
Company's activities are conducted through its wholly-owned subsidiary,
People's Community Bank (the "Bank"), a Tennessee state bank which began
business in December 1995. The Bank was acquired by the Company in a tax-free
share exchange in October of 1996, and after three years of operations, on
December 31, 1998, the Bank had grown to total assets of more than $91,560,000.
The Bank's primary trade area is Johnson City, Tennessee, which had a
population of 50,000 according to the 1990 Census. Current population is
estimated to be 54,000.
At the present time, the Bank operates a full service banking business
through it main office and branch locations in Johnson City. The Bank provides
such customary banking services as checking and savings accounts, various other
types of time deposits, safe deposit facilities and money transfers. It also
finances commercial transactions, makes secured and unsecured loans, and
provides other financial services to its customers. The Bank is not authorized
to provide trust services.
The Bank considers its primary market for loans and deposits to be
individuals, small-to-medium size businesses and professionals in Johnson City,
Tennessee. The Bank is actively soliciting business in this target market and
considers the potential growth opportunities to be favorable. No material
portion of the Bank's deposits have been obtained from any single person or
group of persons.
The Bank is subject to the regulatory authority of the Department of
Financial Institutions of the State of Tennessee and the Federal Deposit
Insurance Corporation ("FDIC").
The Bank has approximately 34 full-time employees (excluding
maintenance employees) as of December 31, 1998. Although the Bank has been in
existence only 36 months, the Bank believes that its staff possess a high
degree of experience and expertise. Coming primarily from other East Tennessee
banking institutions, staff members have banking experience ranging from one to
thirty years.
Competition
Competition for consumer demand and savings deposits is quite intense
in Washington County. Such competition is heightened by the fact that Tennessee
law now permits any bank or savings institution located in Tennessee to branch
in any county in Tennessee. The Bank currently competes in the Washington
County area with ten commercial banks and two savings institutions. The Bank
also competes generally with insurance companies, credit unions, and other
financial institutions, and institutions which have expanded into the
quasi-financial market, including some institutions that are much larger than
the Bank. Many of the institutions with which the Bank competes have been
located in Washington County for many years and have much greater resources and
deposit strength, as well as offering services such as securities investing and
trust services which the Bank does not provide to its customers.
Loans
Various types of secured and unsecured commercial, consumer and real
estate loans are offered by the Bank. The Bank's current policy is to make
loans primarily to borrowers who maintain depository relationships with the
Bank or reside or work in the Bank's market areas. Real estate loans usually
are made only when such loans are secured by real property located in
Washington County. In addition, the Bank purchases finance contracts for motor
vehicles.
The Bank provides each lending officer with written loan guidelines.
Lending authority is delegated by the Board of Directors to loan officers, each
of whom has limited authority to extend secured and unsecured credit. Any
credit in excess of $500,000 must have the approval of the Loan Committee of
the Board of Directors (the "Loan Committee"), which consists of both
management and non-management directors of the Bank.
Loan Review
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The Bank continually reviews its loan portfolio to determine
deficiencies and the corrective actions to be taken. The Bank grades its loans
with respect to quality and risk and requires each loan officer to assign a
grade when a loan is booked and to review loan grades annually. The Bank
contracts with an experienced loan review officer, who does not have loan
origination responsibilities and who conducts periodic reviews of all borrowers
with aggregate indebtedness in excess of $50,000. During 1998 approximately 58%
of the dollar amount of the Bank's loan portfolio was reviewed by loan review.
All the new loans are reviewed within three months of origin. The Bank's loan
review officer advises as to the quality, structure and renewability of the
loans and assigns each loan grade. Past due loans and technical exceptions are
reviewed at least weekly by an internal loan officer committee, and a summary
report of such loans is reviewed monthly by the Loan Committee.
Investment Policy
The Bank's general investment portfolio policy is to provide maximum
safety of funds invested to insure solvency and to balance risk taken in other
areas of funds management, to provide sufficient liquidity, to provide maximum
return on funds invested, to meet basic pledging requirements and to comply
with all laws and regulations. This policy is reviewed from time to time by
both the Bank's Investment Committee and the Board of Directors. Individual
transactions, portfolio composition and performance are reviewed and approved
monthly by the Board of Directors or a committee thereof. The President of the
Bank implements the policy and reports to the full Board of Directors on a
monthly basis information as to maturities, sales, purchases, resultant gains
or losses, average maturity, federal taxable equivalent yields and appreciation
or depreciation by investment category.
Monetary Policies
The result of operations of the Bank and the Company are affected by
credit policies of monetary authorities, particularly the Federal Reserve
Board. The instruments of monetary policy employed by the Federal Reserve Board
include open market operations in U.S. government securities, changes in the
discount rate on bank borrowings and changes in reserve requirements against
bank deposits. In view of changing conditions in the national economy and in
the money markets, as well as the effects of actions by monetary and fiscal
authorities, including the Federal Reserve Board, no prediction can be made as
to possible future changes in interest rates, deposit levels, loan demand or
the effect of such matters on the business and earnings of the Company.
Personnel
At December 31, 1998, the Company had approximately 34 full-time
equivalent employees. The Company is not a party to any collective bargaining
agreement and believes that its employee relations generally are good.
Supervision and Regulation
The Company and the Bank are subject to extensive regulation under
state and federal statutes and regulations. The discussion in this section,
which briefly summarizes certain of such statutes, does not purport to be
complete, and is qualified in its entirety by reference to such statutes. Other
state and federal legislation and regulations directly and indirectly affecting
banks and other financial institutions likely are to be enacted or implemented
in the future; however, such legislation and regulations and their effect on
the business of the Company and the Bank cannot be predicted.
PCB Bancorp, Inc.
The Company is a bank holding company subject to the supervision of
the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board") under the Bank Holding Company Act of 1956, as amended. As a bank
holding company, the Company is required to file annual reports with, and is
subject to examination by the Federal Reserve Board.
People's Community Bank.
The Bank is incorporated under the banking laws of the State of
Tennessee, and as such, is subject to the provisions of the Tennessee Banking
Act and the supervision of and the regular examination by the Tennessee
Department of Financial Institutions (the "Department"). The Bank is a member
of the FDIC and, therefore, also is subject to the provisions of the Federal
Deposit Insurance Act and to supervision and examination by the FDIC.
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Capital. The Federal Reserve Board and the FDIC have adopted final
risk-based capital guidelines for bank holding companies. The minimum
guidelines for the ratio of total capital ("Total Capital") to risk weighted
assets (including certain off-balance sheet activities, such as standby letters
of credit) is 8.00%. At least half of the Total Capital must be composed of
"Tier 1 or core capital," which consists of common stockholders' equity,
minority interests in the equity accounts of consolidated subsidiaries
non-cumulative perpetual preferred stock, less goodwill ("Tier 1 Capital"). The
remainder, Tier 2 Capital, may consist of subordinated debt, other preferred
stock, and a limited amount of loan loss reserves. At December 31, 1998, the
Company's risk-based Tier 1 Capital and risk-based Total Capital ratios were
12.1% and 13.3%, respectively. At December 31, 1997, the Company's risk-based
Tier 1 Capital and risk-based Total Capital ratios were 13.4% and 14.7%,
respectively.
In addition, the Federal Reserve Board has established minimum
leverage ratio guidelines for bank holding companies. These guidelines provide
for a minimum leverage ratio (Tier 1 Capital to total assets, less goodwill) of
4% to 5% for most bank holding companies. The Company's leverage ratio at
December 31, 1998 was 9.3% and at December 31, 1997 was 11.8%.
Failure to meet FDIC capital requirements can subject an FDIC-insured
state bank to a variety of enforcement remedies, including issuance of a
capital directive, termination of deposit insurance and a prohibition on the
taking of brokered deposits. Substantial additional restrictions cam be imposed
under the "prompt corrective action" regulations, as described below.
Payment of Dividends. The Company is a legal entity separate and
distinct from the Bank. The principal source of the Company's revenues,
however, is from dividends declared by the Bank. Under Tennessee law, the Bank
can only pay dividends out of its undivided profits, which at December 31, 1998
were approximately $296,573. This amount will be increased by the Bank's net
earnings and decreased by any losses. The Bank's ability to pay dividends also
may depend on its ability to meet minimum capital levels established from time
to time by FDIC. Under such regulations, FDIC-insured state banks are
prohibited from paying dividends, making other distributions or paying any
management fee to a parent if, after such payment, the Bank would fail to have
a risk-based Total Capital ratio of 8% and a Tier 1 leverage capital ratio of
4%. In 1998, the Bank paid a dividend of $12,000 to the Company to pay
operating expenses incurred.
Under Tennessee law, the Company may pay common stock dividends if,
after giving effect to the dividends, the Company can pay its debts as they
become due in the ordinary course of business and the Company's total assets
exceed its total liabilities. The payment of dividends by the Company also may
be affected or limited by certain factors, such as the requirements to maintain
adequate capital above regulatory guidelines. In addition, if, in the opinion
of the applicable regulatory authority, a bank holding company or a bank under
its jurisdiction is engaged in or is about to engage in an unsafe or unsound
practice (which, depending on the financial condition of the bank, could
include the payment of dividends), such authority may take supervisory actions
to prevent such action, including a cease and desist order prohibiting such
practice. In December 1998, the Company's Board of Directors approved the
declaration of a dividend of $0.05 per share of common stock to be paid in
January 1999 to shareholders of record as of December 31, 1998.
The Company's Support of the Bank. Under the Federal Reserve Board
policy, the Company is expected to act as a source of financial strength and to
commit resources to the Bank. Such support may be required at times when,
absent such Federal Reserve Board policy, the Company may not be inclined to
provide it.
Under the Financial Institutions Reform, Recovery, and Enforcement Act
of 1989 ("FIRREA"), a depository institution insured by the FDIC can be held
liable for any loss incurred by, or reasonably expected to be incurred by, the
FDIC in connection with (I) the default of a commonly controlled FDIC-insured
depository institution or (II) any assistance provided by the FDIC to any
commonly controlled FDIC-insured depository institution "in danger of default."
"Default" is defined generally as the appointment of a conservator or receiver
and "in danger of default" is defined generally as the existence of certain
conditions indicating that a default is likely to occur in the absence of
regulatory assistance.
Any capital loans by a bank holding company to any of its subsidiary
banks are subordinate in right or payment to deposits and to certain other
indebtedness of such subsidiary banks. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank must be assumed
by the bankruptcy trustee and entitled to a priority of payment over certain
other creditors.
Prompt Corrective Action
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The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") requires the Federal banking regulators to assign to each insured
institution one of five capital categories ("well-capitalized", "adequately
capitalized" or one of three under-capitalized categories) and to take
progressively more restrictive regulatory actions depending upon the assigned
category. Under the "prompt corrective action" regulations adopted pursuant to
FDICIA, in order to be considered "adequately capitalized", national banks must
have a risk-based Tier 1 Capital ratio of at least 4%, a risk-based Total
Capital ratio of 8% and a Tier 1 leveraged capital ratio of at least 4%.
Well-capitalized institutions are those which have a risk-based Tier 1 Capital
ratio above 6%, a risk-based Total Capital ratio above 10% and a Tier 1
leveraged capital ratio above 5%, and which are not subject to a written
agreement, order or capital directive to maintain capital at a specific level.
The Bank is considered a "well-capitalized" institution under these
definitions.
All institutions, regardless of their capital levels, are restricted from
making any capital distribution or paying any management fees that would cause
the institution to fail to satisfy the minimum levels to be considered
adequately capitalized. An institution that fails to meet the minimum level for
any relevant capital measure (an "undercapitalized institution") is: (I)
subject to increased monitoring by the appropriate federal banking regulator,
(II) required to submit an acceptable capital restoration plan within 45 days,
(III) subject to asset growth limits, and (IV) required to obtain prior
regulatory approval for acquisitions, branching, and new lines of business. The
capital restoration plan must include a guarantee by the institution's holding
company that the institution will comply with the plan until it has been
adequately capitalized on average for four consecutive quarters. Pursuant to
the guarantee, the institution's holding company would be liable up to the
lesser of 5% of the institutions total assets or the amount necessary to bring
the institution into capital compliance as of the date it failed to comply with
its capital restoration plan. If the controlling bank holding company fails to
fulfill its obligations under the Federal Bankruptcy Code, the appropriate
federal banking regulator could have a claim as a general creditor of the bank
holding company, and, if the guarantee were deemed to be a commitment to
maintain capital under the Federal Bankruptcy Code, the claim would be entitled
to priority in such bankruptcy proceeding over third-party creditors and
shareholders of the bank holding company.
The bank regulatory agencies have discretionary authority to
reclassify well-capitalized institutions as adequately capitalized or to impose
on adequately capitalized institutions requirements or actions specified for
undercapitalized institutions if the agency determines after notice and an
opportunity for hearing that the institution is in an unsafe or unsound
condition or is engaging in an unsafe or unsound practice, which can consist of
the receipt of an unsatisfactory examination rating if the deficiencies cited
are not corrected. A significantly undercapitalized institution, as well as any
restoration plan, may be subject to regulatory demands for recapitalization,
broader applications of restrictions on transactions with affiliates,
limitations on interest rates paid on deposits, asset growth and other
activities, possible placement of directors and officers, and restrictions on
capital distributions by any bank holding company controlling the institution.
Any company controlling the institution could also be required to divest the
institution or the institution could be required to divest subsidiaries. The
senior executive officers of a significantly undercapitalized institution may
not receive bonuses or increases in compensation without prior approval and the
institution is prohibited from making payments of principal or interest on its
subordinated debt. If an institution's ratio of tangible capital to total
assets falls below a level established by the appropriate federal banking
regulator (the "Critical capital level") , which may not be less than 2% nor
more than 65% of the minimum tangible capital level otherwise required, the
institution will be subject to conservatorship or receivership within 90 days
unless periodic determinations are made that forbearance from such action would
better protect the deposit insurance fund. Unless appropriate findings and
certifications are made by the appropriate federal bank regulatory agencies, a
critically undercapitalized institution must be placed in receivership if it
remains critically undercapitalized on average during the calendar quarter
beginning 270 days after the date it became critically undercapitalized.
Acquisition and Expansion. The Bank Holding Company Act requires any
bank holding company to obtain the prior approval of the Federal Reserve Board
before it may acquire substantially all the assets of any bank, or ownership or
control of any voting shares of any bank, if, after acquiring such shares, it
would own or control directly or indirectly, more than 5% of the voting shares
of such bank. Effective September 29, 1995, the Tennessee Bank Structure Act of
1974 was amended to, among other things, prohibit (subject to certain
exceptions) a bank holding company from acquiring a bank for which the home
state is Tennessee if, upon consummation, the company would directly or
indirectly control 30% or more of the total deposits in insured depository
institutions in Tennessee. As of December 31, 1998, the Company estimates it
held less than 1% of such deposits. Subject to certain exceptions, the
Tennessee Bank Structure Act prohibits a bank holding company from acquiring a
bank in Tennessee, which has been in operation for less than five years.
Tennessee banks may open additional branches in any county in the state.
The Reigle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "IBBEA") authorizes interstate acquisitions of banks and bank holding
companies without geographic limitation beginning one year after enactment. In
addition, beginning June 1, 1997, a bank may merge with a bank in another state
as long as neither of the states has opted out
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of interstate branching between the date of enactment of the IBBEA and May 31,
1997. The IBBEA further provides that states may enact laws permitting
interstate merger transactions prior to June 1, 1997. A bank may establish and
operate a de novo branch in a state in which the bank does not maintain a
branch if that state expressly permits de novo branching. Once a bank has
established branches in a state through an interstate merger transaction, the
bank may establish and acquire additional branches at any location in the state
where any bank involved in the interstate merger transaction could have
established or acquired branches under applicable federal or state law. A bank
that has established a branch in a state through de novo branching may
establish and acquire additional branches in such state in the same manner and
to the same extent as a bank having a branch in such state as a result of an
interstate merger. If a state opts out of interstate branching within the
specified time period, no bank in any other state may establish a branch in the
opting out of state, whether through an acquisition or de novo. Tennessee law
allows banks and bank holding companies in any state to acquire banks and bank
holding companies in Tennessee provided that the state in which such acquiror
is headquartered also permits Tennessee banks and bank holding companies to
acquire banks and bank holding companies in that state. Acquisitions of banks
or bank holding companies in Tennessee require the approval of the Commissioner
of Financial Institutions.
The Bank Holding Company Act also prohibits a bank holding company,
with certain exceptions, from acquiring more than 5% of the voting shares of
any company that is not a bank and from engaging in any business other than
banking or managing or controlling banks. The Federal Reserve Board is
authorized to approve ownership of shares by a bank holding company in any
company, the activities of which the Federal Reserve Board has determined to be
so closely related to banking or to managing or controlling banks as to be a
proper incident thereto. Certain activities have been found to be closely
related to banking by Federal Reserve Board regulations, including operating a
trust company, a mortgage company, finance company or factoring company,
performing data processing operations, providing investment advice, and
engaging in certain kinds of credit-related insurance activities.
FDIC Insurance Assessments; DIFA. The FDIC reduced the insurance
premiums it charges on bank deposits insured by the Bank Insurance Fund ("BIF")
to the statutory minimum of $2,000.00 for "well-capitalized" banks, effective
January 1, 1996. Premiums related to deposits assessed by the Savings
Association Insurance Fund ("SAIF"), including savings association deposits
acquired by banks, continued to be assessed at a rate of between 23 cents and 31
cents per $100.00 of deposits. On September 30, 1996, the Deposit Insurance
Funds Act of 1996 ("DIFA") was enacted and signed into law. DIFA provided for a
special assessment to recapitalize the SAIF to bring the SAIF up to statutory
required levels. The assessment imposed a one-time fee to banks that own
previously acquired thrift deposits of $.526 per $100 of thrift deposits they
held at March 31, 1995. This assessment did not apply to the Company. DIFA
further provides for assessments to be imposed on insured depository
institutions with respect to deposits insured by the BIF (in addition to
assessments currently imposed on depository institutions with respect to
SAIF-insured deposits) to pay for the cost of Financing Corporation ("FICO")
bonds. All banks will be assessed to pay the interest due on FICO bonds starting
on January 1, 1997. The Company expects the cost to the Company to be
immaterial.
Under the FDICIA, insurance of deposits may be terminated by the FDIC
upon finding that the institution has engaged in unsafe and unsound practices,
is in unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by a federal bank
regulatory agency.
The Bank Holding Company Act also prohibits a bank holding company,
with certain exceptions, from acquiring more than 5% of the voting shares of
any company that is not a bank and from engaging in any business other than
banking or managing or controlling banks. The Federal Reserve Board is
authorized to approve ownership of shares by a bank holding company in any
company, the activities of which the Federal Reserve Board has determined to be
so closely related to banking or to managing or controlling banks as to be a
proper incident thereto. Certain activities have been found to be closely
related to banking by Federal Reserve Board regulations, including operating a
trust company, mortgage company, finance company or factoring company;
performing data processing operations; providing investment advice; and
engaging in certain kinds of credit-related insurance activities.
Certain Transactions by the Company with its Affiliates. There also
are various legal restrictions on the extent to which the Company and any
nonbank subsidiary can borrow or otherwise obtain credit from its bank
subsidiaries. An insured bank and its subsidiaries are limited in engaging in
"covered transactions" with its nonbank or nonsavings bank affiliates to the
following amounts: (I) in the case of any such affiliate, the aggregate amount
of covered transactions of the insured bank and its subsidiaries will not
exceed 10% of the capital stock and surplus of the insured bank; and (II) in
the case of all affiliates, the aggregate amount of the covered transactions of
the insured bank and its subsidiaries will not exceed 20% of the capital stock
and surplus of the Bank. "Covered Transactions" are defined by statute to
include a loan or extension of credit, as well as purchase of securities issued
by an affiliate, a purchase of assets (unless otherwise exempted by the Federal
Reserve Board),
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the acceptance of securities issued by the affiliate as a collateral for a loan
and the issuance of a guarantee, acceptance, or letter of credit on behalf of
an affiliate. Further, a bank holding company and its subsidiaries are
prohibited from engaging in certain tie-in arrangements in connection with any
extension of credit, lease or sale of property or furnishing of services.
Recent Banking Legislation.
In addition to the matters discussed above, FDICIA made other
extensive changes to the federal banking laws.
Standards for safety and Soundness. FDICIA requires the federal bank
regulatory agencies to prescribe, by regulation, standards for all insured
depository institutions and depository institution holding companies relating
to: (I) internal controls, information systems and audit systems; (II) loan
documentation; (III) credit underwriting; (IV) interest rate risk exposure; (V)
asset growth; and (VI) compensation, fees and benefits. The compensation
standards must prohibit employment contracts, compensation or benefit
arrangements, stock option plans, fee arrangements or other compensatory
arrangements that would provide excessive compensation, fees or benefits that
could lead to material financial loss, but (subject to certain exceptions) may
not prescribe specific compensation levels or ranges for directors, officers or
employees. In addition, the federal banking regulatory agencies would be
required to prescribe by regulation standards specifying: (I) maximum
classified assets to capital ratios; (II) minimum earnings sufficient to absorb
losses without impairing capital; and (III) to the extent feasible, a minimum
ratio of market value to book value for publicly-traded shares of depository
institutions and depository institution holding companies.
Brokered Deposits. FDICIA amends the Federal Deposit Insurance Act to
prohibit insured depository institutions that are not well-capitalized from
accepting brokered deposits unless a waiver has been obtained from the FDIC.
Deposit brokers will be required to register with the FDIC.
Consumer Protection Provisions. FDICIA seeks to encourage enforcement
of existing consumer protection laws and enacts new consumer-oriented
provisions including a requirement of notice to regulators and customers for
any proposed branch closing and provisions intended to encourage the offering
of "lifeline" banking accounts and lending in distressed communities. FDICIA
also requires depository institutions to make additional disclosures to
depositors with respect to the rate of interest and the terms of their deposit
accounts.
Miscellaneous. FDICIA extends the deadline for the mandatory use of
state-certified and state-licensed appraisers and authorizes acquisitions of
banks by savings associations on the same terms as savings associations may be
acquired by banks. With certain exceptions, state-chartered banks are limited
to the activities of national banks. Within nine months of the date of
enactment of FDICIA, the federal bank regulatory agencies are required to
biannually review risk-based capital standards to ensure that they adequately
address interest rate risk, concentration of credit risk and risks from
non-traditional activities.
FDICIA also made extensive changes in the applicable rules regarding
audit, examinations and accounting. FDICIA generally requires annual on-site
full-scope examinations by each bank's primary federal regulator. FDICIA also
imposes new responsibilities on management, the independent audit committee and
outside accountants to develop, approve or attest to reports regarding the
effectiveness of internal controls, legal compliance and off-balance-sheet
liabilities and assets.
Interest Rate Limitations. The maximum permissible rates of interest
on most commercial and consumer loans made by the Bank are governed by
Tennessee's general usury. Certain other usury laws affect limited classes of
loans, but the law referenced above are by far the most significant.
Tennessee's general usury law authorizes a floating rate of base prime rate
plus 4% per annum and also allows certain loan charges, generally on a more
liberal basis that does the general usury law.
Effect of Government Policies. The earnings and business of the
Company are and will be affected by the policies of various regulatory
authorities of the United States, especially by the Federal Reserve Board. The
Federal Reserve Board, among other functions, regulates the supply of credit
and deals with general economic conditions within the United States. The
instruments of monetary policy employed by the Federal Reserve Board for these
purposes influence in various ways the overall level of investments, loans,
other extensions of credit and deposits, and the interest rates paid on
liabilities and received on assets.
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ITEM 2. DESCRIPTION OF PROPERTY
The Company's main office is currently located at 300 Sunset Drive in
Johnson City, Tennessee in a two-story brick building owned by the Company. The
Company also operates two branch locations. One branch is located on 202 East
Main Street in Johnson City in a two-story brick building leased by the
Company. A second branch location is located at 2681 Boones Creek Road in
Johnson City, Tennessee in a custom-built, commercial-grade mobile unit.
ITEM 3. LEGAL PROCEEDINGS
From time to time the bank is named as a defendant in suits arising
from the ordinary conduct of its affairs. In the opinion of management, the
ultimate outcome of any litigation to which the Bank is a party as of the date
of this Form 10-KSB will not adversely affect its financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
No matter was submitted to a vote of security holders during the
fourth quarter of the Company's fiscal ending December 31, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The Company's common stock is not traded on an exchange nor is there a
known active trading market. Based solely on information made available to the
Company from a limited number of buyers and seller's, management of the Company
believes that the following table sets forth the high and low sales prices for
the Company's common stock during 1998 and 1997:
<TABLE>
<CAPTION>
1998 High Low
-------- --------
<S> <C> <C>
First Quarter............................... $ 16.00 $ 16.00
Second Quarter.............................. $ 18.00 $ 16.00
Third Quarter............................... $ 18.00 $ 18.00
Fourth Quarter.............................. $ 22.00 $ 20.00
<CAPTION>
1997 High Low
-------- --------
<S> <C> <C>
First Quarter............................... $ 13.25 $ 12.00
Second Quarter.............................. $ 13.25 $ 12.00
Third Quarter............................... $ 16.00 $ 16.00
Fourth Quarter.............................. $ 16.00 $ 16.00
</TABLE>
The most recent trade of the Company's common stock known to the Company
occurred on February 9, 1999 at a price of $25.00 per share (no stock has been
offered since that date). These sales are isolated transactions and, given the
small volume of trading in the Company's stock, may not be indicative of its
present value. As of March 16, 1999, there were approximately 385 holders of
record of the Company's common stock. The Company had declared a cash dividend
of $.05 per common stock share to shareholders of record as of December 31,
1998.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
The Bank represents virtually all of the assets of the Company. The Company's
consolidated results of operations are dependent primarily on net interest
income, which is the difference between the interest income earned on interest
- -earning assets, such as loans and investments, and the interest expense
incurred on interest-bearing liabilities, such as deposits and other
borrowings.
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<PAGE> 9
Financial Condition
The Bank, which was opened in December 1995, has experienced substantial growth
during 1997 and 1998. Total assets have grown $26.5 million or more than 62%
from December 1996 to December 1997 and an additional 33% since December 1997.
The growth in total assets has been funded by increases in deposits of $25.9
million from December 1996 to December 1997 and $21.9 million from December
1997 to December 1998. Loans have increased $27.3 million during 1997 and an
additional $8.8 million in 1998 and investment securities have decreased $1.5
million in 1997 and have increased $8.5 million in 1998. This growth and the
anticipated future growth will allow the Bank to satisfy its cash requirements.
It is not anticipated that it will be necessary to raise any additional funds.
Nonperforming Assets and Risk Elements
The Bank discontinues the accrual of interest on loans which become ninety days
past due. The Bank had loans totaling $31 thousand which were ninety days past
due as of December 31, 1997 and had loans totaling $144 thousand which were
past due at December 31, 1998. The Bank also had no concentrations of ten
percent or more of total loans in any single industry nor any geographical area
outside the immediate market area of the Bank.
Liquidity and Capital
Liquidity is adequate with cash and due form banks of $2.2 million and $2.1
million at December 31, 1997 and 1998, respectively, and federal funds sold of
$2.1 million and $6.6 million at December 31, 1997 and 1998, respectively. In
addition, investment securities repricing in one year or less were
approximately $2.8 million at December 31, 1997 and $65 thousand at December
31, 1998. Loans maturing in one year or less exceed $27.2 million at December
31, 1997 and exceed $28.1 million at December 31, 1998. There are no known
trends, demands, commitments, events or uncertainties that will result in or
that are reasonably likely to result in the registrant's liquidity decreasing
in a material way. Total equity capital at December 31, 1997 was $7.8 million
or 11.3% of total assets and at December 31, 1998 is $8.4 million or 9.2% of
total assets, which represents a strong capital position.
Results of Operations
In only its second year of operations, the Company had net income of $239,112
for the year ended December 31, 1997. For the year ended December 31, 1998, the
Company had net income of $552,556. The improvement resulted largely from
growth in earning assets generated by an increased customer base. The Company
anticipates, with the continued growth it is experiencing, an increased net
profit for the 1999 year.
Interest income and interest expense both increased dramatically because of the
increase in earning assets and deposits from December 31, 1997 to December 31,
1998. The growth in noninterest income reflects the increase in loans and
deposits.
The provision for loan losses has increased due to the increase in loans. The
allowance of $727,598 and $825,649 at December 31, 1997 and 1998, respectively
(approximately 1.25% or loans) is considered by management to be adequate to
cover losses inherent in the loan portfolio. Management evaluates the adequacy
of the allowance for loan losses periodically and makes provisions for loan
losses based on this evaluation. There are no known trends, events or
uncertainties that have had or that are reasonably expected to have a material
impact on the net revenues from continuing operations, other than the Bank's
anticipated growth in the number of customers.
Distribution of Assets, Liabilities, and Stockholder's Equity
9
<PAGE> 10
<TABLE>
<CAPTION>
Amounts shown are in thousands.
Average Average
Balance Sheet Balance Sheet
1997 1998
------------- -------------
ASSETS
<S> <C> <C>
$ 2,799 Cash and Due from Banks $ 7,946
89 Federal Funds Sold 374
5,568 Investment Securities 6,292
26 Federal Home Bank Stock 205
45,313 Loans Receivable, net of Allowance for Loan Losses 61,977
305 Accrued Interest Receivable 415
2,088 Property and Equipment, Net of Accumulated Depreciation 3,054
64 Organization Costs, Net of Accumulated Amortization 29
27 Prepaid Expenses 59
219 Deferred Tax Asset 63
1 Other Assets 8
------------ ------------
$ 56,499 Total Assets $ 80,422
============ ============
Liabilities and Shareholder's Equity
Liabilities:
Deposits:
$ 19,078 Demand and Savings $ 31,713
29,083 Time Deposits 39,991
239 Federal Funds Purchased
338 Accrued Interest Payable 457
76 Accounts Payable and Other Liabilities 140
------------ ------------
$ 48,814 Total Liabilities $ 72,301
------------ ------------
Shareholder's Equity:
$ 800 Common Stock $ 800
7,200 Surplus Capital 7200
(315) Undivided Profit (Loss) 104
Unrealized Holding G/L-Equity 17
------------ ------------
$ 7,685 Total Shareholder's Equity $ 8,121
------------ ------------
------------ ============
$ 56,499 Total Liabilities and Shareholder's Equity $ 80,422
============ ============
</TABLE>
10
<PAGE> 11
Net Interest Earnings
As depicted in the table below there was a substantial growth in the 1998 year.
Since December 31, 1997, growth was primarily from the volume increase in
business. Any increases due to rate changes would have been insignificant.
<TABLE>
<CAPTION>
Dollar Average Interest
Average Increase Balances Earned
Yield from 1997 1998 or Paid
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Interest Earning Assets:
Loans:
8.58% $ 7,705 Commercial $ 33,873 $ 3,000
0.00% -- Real Estate Construction -- --
8.50% (249) Commercial Real Estate 46 13
8.03% 6,168 Residential Real Estate 13,350 1,097
8.93% 3,059 Installments 13,497 1,192
8.53% 116 Consumer Single Pay 1,683 147
0.00% 3 Loans Held for Sale 158 --
17.87% 69 Other 141 15
----- -------- -------- -------
8.55% $ 16,871 Totals $ 62,748 $ 5,464
===== ======== ======== =======
<CAPTION>
Dollar Average Interest
Average Increase Balances Earned
Yield from 1996 1997 or Paid
------- ---------- -------------- -------------
<S> <C> <C> <C> <C>
Interest Earning Assets:
Loans:
8.90% 17,841 Commercial 26,168 2,384
0.00% (194) Real Estate Construction -- --
8.50% (151) Commercial Real Estate 295 25
7.99% 6,286 Residential Real Estate 7,182 557
8.97% 6,185 Installments 10,438 875
9.28% 1,207 Consumer Single Pay 1,567 144
7.01% 78 Loans held for Sale 155 4
17.59% (1,125) Other 72 11
----- -------- ------ ------
8.76% 30,127 Totals 45,877 4,000
----- -------- ------ ------
<CAPTION>
Interest Bearing Liabilities:
Dollar Average Interest
Average Increase Balances Earned
Yield from 1997 1998 or Paid
------- ---------- -------- --------
<S> <C> <C> <C> <C>
2.23% 484 NOW Accounts 1,993 44
4.27% (4) Money Market Accounts 4,276 193
4.91% 9,820 Savings Accounts 17,598 847
5.64% 10,908 Certificates of Deposit 39,991 2,348
------ ------- ------- -----
4.53% 21,208 Totals 63,858 3,432
------ ------- ------- -----
4.03% Net Yield
</TABLE>
The Bank has $144 thousand of non-accruing loans from the date of inception
through December 31, 1998. In the calculation of changes of interest there are
not included in the interest income computations.
11
<PAGE> 12
<TABLE>
<CAPTION>
Dollar Average Interest
Average Increase Balances Earned
Yield from 1996 1997 or Paid
------- ------------ ---------- --------
<S> <C> <C> <C> <C>
2.23% 665 NOW Accounts 1,509 34
4.65% 1,154 Money Market Accounts 4,280 198
4.91% 6,750 Savings Accounts 7,778 381
5.94% 18,137 Certificates of Deposit 29,083 1,716
---- ------- ------ -----
4.84% 26,706 Totals 42,650 2,329
---- ------- ------ -----
3.92% Net Yield
</TABLE>
The Bank had $33 of non-accruing loans from the date of inception through
December 31, 1997.
Investment Portfolio
Held-to-Maturity:
<TABLE>
<CAPTION>
December 31, Average December 31, Average
1997 Yield U.S. Government & Government Agency: 1998 Yield
------------- -------- ------------------------------------------------ ------------ -------
<S> <C> <C> <C> <C>
1,997 5.92% Maturity within one year -- 0.00%
220 6.38% Maturity within one to five years -- 0.00%
500 7.41% Maturity within five to ten years 500 7.42%
----- ---- --- ----
2,717 6.23% Total Held-to-Maturity 500 7.42%
----- ---- --- ----
</TABLE>
Yields on State and Municipal Government securities do not reflect savings due
to tax-exemption status.
Available-for-Sale:
<TABLE>
<CAPTION>
December 31, Average December 31, Average
1997 Yield U.S. Government & Government Agency: 1998 Yield
------------ ------------ ------------------------------------------------ ------------ -------
<S> <C> <C> <C> <C>
800 5.81% Maturity within one year -- 0.00%
-- 0.00% Maturity within one to five years 2,210 6.08%
249 6.56% Maturity within five to ten years 758 6.52%
-- 0.00% After ten years 899 7.55%
State and Municipal Governments:
------------------------------------------------
-- 0.00% Maturity within one year 65 4.00%
156 4.25% Maturity within one to five years 832 4.19%
238 4.39% Maturity within five to ten years 2,891 4.35%
-- 0.00% After ten years 1,318 4.39%
0.00% Mortgage-Backed Securities 3,184 6.25%
----- ---- ------------------------------------------------ ------ ----
1,443 5.54% Total Available-for-Sale 12,157 5.53%
===== ==== ====== ====
</TABLE>
12
<PAGE> 13
Loan Portfolio
<TABLE>
<CAPTION>
December 31, Average December 31, Average
1997 Yield 1998 Yield
------------ ----------- ------------ --------
<S> <C> <C> <C> <C>
32,036 8.90% Commercial 34,250 8.58%
-- 0.00% Real Estate - Construction -- 0.00%
162 8.50% Real Estate - Commercial 155 8.50%
11,648 7.99% Real Estate - Mortgage 14,585 8.03%
11,744 8.97% Installment Loans 15,087 8.93%
2,291 9.28% Consumer 2,353 8.53%
213 7.01% Loans Held for Sale 380 0.00%
114 17.59% Other 139 17.87%
-------- ----- ------ -----
58,208 8.76% Total 66,949 8.56%
-------- ----- ------ -----
</TABLE>
The Bank had no foreign loans at December 31, 1998.
Summary of Loan Loss Experience
<TABLE>
<CAPTION>
1997 1998
--------- --------
<S> <C>
$ 382 Balance at Beginning of Period $ 728
----- -----
(11) Charge-Offs (22)
-- Recoveries 2
----- ----
(11) Net Recoveries (20)
----- ----
357 Additions Charged to Operations 118
===== =====
$ 728 Balance at the End of Period $ 826
===== =====
Ratio of net charge-offs during the period to
0.02% average Loans outstanding during the period 0.03%
</TABLE>
The allowance for loan loss represents 1.25% of the outstanding loan balance at
year-end. Management believes this amount will be sufficient to cover all loan
losses inherent in the loan portfolio.
Deposits
<TABLE>
<CAPTION>
December 31, Average December 31, Average
1997 Yield 1998 Yield
------------ ------------ ----------------- ------------
<S> <C> <C> <C>
$ 7,325 0.00% Non-interest bearing deposits $ 9,866 0.00%
1,522 2.23% NOW Accounts 2,786 2.23%
3,745 4.65% Money Market Accounts 3,856 4.27%
12,015 4.91% Savings deposits 29,535 4.91%
35,916 5.94% Time deposits 36,399 5.64%
----------- ---- ---------- ----
$ 60,523 4.84% Totals $ 82,442 4.53%
=========== ==== ========== ====
</TABLE>
The Bank had no foreign banking offices.
Return on Equity and Assets
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Return on Assets 0.69% 0.42%
Return on Equity 6.80% 3.11%
Dividend Payout Ratio 0.00% 0.00%
Equity to Assets Ratio 10.01% 13.60%
</TABLE>
Interest Sensitivity
The Company monitors and manages the pricing and maturity of its assets and
liabilities in order to diminish the potential adverse impact that changes in
interest rates could have on its net interest income. The principal monitoring
technique employed by the Company is the measurement of the Company's interest
sensitivity "gap", which is the positive or negative dollar difference between
assets and liabilities that are subject to interest rate repricing within a
given period of time. Interest rate sensitivity can be managed by repricing
assets or liabilities, selling available-for-sale securities, replacing an
asset or liability at maturity, or adjusting the interest rate during the life
of an asset or liability. Managing the amount of assets and
13
<PAGE> 14
liabilities repricing in this same time interval helps to hedge the risk and
minimize the impact on net interest income of rising or falling interest rates.
The Company evaluates interest sensitivity risk and then formulates guidelines
regarding asset generation and repricing, funding sources and pricing, and
off-balance sheet commitments in order to decrease interest sensitivity risk.
Asset/Liability Management
It is the objective of the Bank to manage assets and liabilities to provide a
satisfactory, consistent level of profitability within the framework of
established cash, loan, investment, borrowing and capital policies. Certain
officers of the Bank and the Bank's Investment and Asset/Liability Committees
are charged with the responsibility for developing and monitoring policies and
procedures that are designed to seek an acceptable composition of the
asset/liability mix. It is the overall philosophy of management to support
asset growth primarily through growth of core deposits, which include deposits
of all categories made by individuals, partnerships, and corporations.
Management of the Bank seeks to invest the largest portion of the Bank's assets
in consumer/installment, commercial, real estate and construction loans.
The Bank's asset/liability mix is monitored with a report reflecting the
interest-sensitive assets and interest-sensitive liabilities being prepared and
presented to the Bank's Investment Committee on a monthly basis. The objective
of this policy is to match interest-sensitive assets and liabilities so as to
minimize the impact of substantial movements in interest rates on the Bank's
earnings.
Gap analysis measures how the Bank is positioned for interest rate changes. An
analysis of rate sensitivity assets and liabilities as of December 31, 1998 and
December 31, 1997 are presented on the following pages.
As indicated in this table, the positive gap between rate sensitivity assets
and rate sensitive liabilities during the 0-3 month period would allow the
Company to reprice its assets faster than its liabilities in a rising interest
rate environment, which would have a positive effect on earnings. However, in a
decreasing interest rate interest rate environment, the Company would
experience a decrease in earnings. The negative gap between rate sensitive
assets and rate sensitive liabilities represents the liabilities repricing
faster than assets. In an increasing interest rate market, the opposite would
result. However, the Company's gap analysis is not a precise indicator of its
timing of maturities and repricing opportunities, without taking into
consideration that changes in interest rates do not affect all assets and
liabilities equally. Net interest income may be impacted by other significant
factors in a given interest rate environment, including changes in the volume
and mix of earning assets and interest-bearing liabilities.
14
<PAGE> 15
People's Community Bank
Rate Sensitivity Analysis (in 000)
December 31, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
3 Months 12 Months 60 Months
Assets RSA(1) FRA(2) RSA(1) FRA(2) RSA(1) FRA(2) NEA(3) Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and Due From Banks $ 2,046 $ 2,046
Federal Funds Sold 6,574 6,574 6,574 6,574
U.S. Treasury Securities --
U.S. Government Agencies 500 500 500 500
Available for Sale Securities 7,151 7,151 7,151 7,151
Municipal Securities 5,006 5,006 5,006 5,006
Federal Home Loan Bank Stock 266 266 266 266
Loans & Leases (net unearn disc.) 24,817 42,256 28,171 38,902 64,390 2,683 67,073
Allowance for Loan Losses
(825) (825)
Premises, Furn, Fixt, Equip
3,216 3,216
Other Assets
553 553
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 43,814 $42,756 $47,168 $39,402 $83,387 $ 3,183 $ 4,990 $ 91,560
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities & Capital RSL(4) FRL(5) RSL(4) FRL(5) RSL(4) FRL(5) NPL(6) Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Demand Deposits 9,866 9,866
NOW Accounts 2,786 2,786 2,786 2,786
Invest. Money Market Accounts 3,856 3,856 3,856 3,856
Regular Savings 29,535 29,535 29,535 29,535
Certificates of Deposit 9,780 26,619 23,643 12,756 36,399 36,399
Fed Funds Purch & Securities Repos -- --
Other Liabilities 752 752
Common Stock & Surplus 8,000 8,000
Undivided Profits 297 297
Unrealized Holding G/L on AFS Sec. 69 69
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL LIAB. & CAPITAL $ 16,422 $56,154 $59,820 $12,756 $72,576 $ - $18,915 $91,560
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
3 mo 12 mo 60 mo 3 mo 12 mo 60 mo
------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
RSA 43,814 47,168 83,387 RSL 16,422 59,820 72,576
FRA 42,756 39,402 3,183 FRL 56,154 12,756 --
NEA 4,990 4,990 4,990 NPL 10,618 10,618 10,618
EQUITY
8,366 8,366 8,366
------------------------------- -------------------------------
TOTAL $ 91,560 91,560 91,560 $ 91,560 $ 91,560 $ 91,560
=============================== ===============================
(1)RSA = RATE SENSITIVE ASSETS
RATE SENSITIVITY MEASURES: 3 mo 12 mo 60 mo (2)FRA = FIXED RATE ASSETS
- -----------------------------------------------------------------------
RSA/RSL 266.80% 78.85% 114.90% (3)NEA = NON EARNING ASSETS
RSA-RSL 27,392 (12,652) 10,811 (4)RSL = RATE SENSITIVE LIABILITIES
GAP/Equity 327.42% -151.23% 129.23% (5)FRL = FIXED RATE LIABILITIES
GAP/TA 29.92% -13.82% 11.81% (6)NPL = NON PAYING LIABILITIES
</TABLE>
15
<PAGE> 16
People's Community Bank
Rate Sensitivity Analysis (in 000)
December 31, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
3 Months 12 Months 60 Months
Assets RSA(1) FRA(2) RSA(1) FRA(2) RSA(1) FRA(2) NEA(3) Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and Due From Banks $ 2,147 $ 2,147
Federal Funds Sold 2,123 2,123 2,123 2,123
U.S. Treasury Securities --
U.S. Government Agencies 1,997 720 1,997 720 2,217 500 2,717
Available for Sale Securities 1,052 1,052 1,052 1,052
Municipal Securities 391 391 391 391
Federal Home Loan Bank Stock 81 81 81 81
Loans & Leases (net unearn disc.) 21,537 36,671 27,358 30,850 57,626 582 58,208
Allowance for Loan Losses (728) (728)
Premises, Furn, Fixt, Equip 2,298 2,298
Other Assets 566 566
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 27,181 $37,391 $33,002 $31,570 $63,490 $ 1,082 $ 4,283 $68,855
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Liabilities & Capital RSL(4) FRL(5) RSL(4) FRL(5) RSL(4) FRL(5) NPL(6) Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Demand Deposits 7,325 7,325
NOW Accounts 1,522 1,522 1,522 1,522
Invest. Money Market Accounts 3,745 3,745 3,745 3,745
Regular Savings 12,015 12,015 12,015 12,015
Certificates of Deposit 16,521 19,395 31,606 4,310 35,916 35,916
Fed Funds Purch & Securities Repos -- --
Other Liabilities 550 550
Common Stock & Surplus 8,000 8,000
Undivided Profits (221) (221)
Unrealized Holding G/L on AFS Sec. 3 3
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL LIAB. & CAPITAL $ 21,788 $ 31,410 $ 36,873 $ 16,325 $ 53,198 $ -- $ 15,654 $ 68,855
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
3 mo 12 mo 60 mo 3 mo 12 mo 60 mo
--------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
RSA 27,181 33,002 63,490 RSL 21,788 36,873 53,198
FRA 37,391 31,570 1,082 FRL 31,410 16,325 -
NEA 4,283 4,283 4,283 NPL 7,875 7,875 7,875
EQUITY 7,782 7,782 7,782
--------------------------------- -------------------------------
TOTAL $ 68,855 68,855 68,855 $ 68,855 $ 68,855 $ 68,855
================================= ===============================
<CAPTION>
(1)RSA = RATE SENSITIVE ASSETS
RATE SENSITIVITY MEASURES: 3 mo 12 mo 60 mo (2)FRA = FIXED RATE ASSETS
- ------------------------------------------------------------------------- (3)NEA = NON EARNING ASSETS
<S> <C> <C> <C> (4)RSL = RATE SENSITIVE
RSA/RSL 124.75% 89.50% 119.35% LIABILITIES
RSA-RSL 10,292 (5)FRL = FIXED RATE LIABILITIES
5,393 (3,871) (6)NPL = NON PAYING LIABILITIES
GAP/Equity 69.30% -49.74% 132.25%
GAP/TA 7.83% -5.62% 14.95%
</TABLE>
Year 2000 Report
People's Community Bank, like all other banks and financial institutions, is
currently in the process of addressing the Year 2000 issue. The issue arises
from the fact that many existing computer programs use only a two-digit field
to identify the year. These programs were designed without considering the
impact once the calendar year rolls over to "00". If not corrected, computer
applications could fail or create inaccurate results by or at the Year 2000.
Because we rely on computer systems, we are placing great emphasis on accessing
our Year 2000 risk, correcting any Year 2000 problems, and providing ample time
to adequately test our systems for Year 2000 readiness. The main phases
involved in the Year 2000 project are assessment, renovation, validation, and
implementation. A comprehensive review to assess the systems affected by this
issue has been determined and an implementation plan has been compiled. Our
Management and Board of Directors are involved in our business strategy. We are
working with our regulators to ensure that we take into consideration all
pertinent guidance on Year 2000 issues and stay within the timelines
established for dealing with Year 2000 issues.
Substantially all of the required modification and internal testing work has
been completed as of year-end 1998, with the remainder scheduled for completion
early in 1999. People's Community Bank is also addressing Year 2000 issues that
may exist outside its own technology activities, including its facilities and
business processes, external service providers, and other third parties with
which it interfaces. Significantly all of People's facilities and related
systems have been investigated, and modification is under way. Significant
third parties with which People's interfaces in regard to the Year 2000
problem, include customers, external service providers, technology vendors, the
financial market infrastructure including payment and clearing systems, and the
utility infrastructure on which all businesses depend. Unreadiness by these
parties could expose People's to the potential for loss, and impairment of
business processes and activities.
16
<PAGE> 17
People's Community Bank is creating contingency plans intended to address
perceived risks associated with its Year 2000 effort. These activities include
planning to mitigate any remaining risks associated with the remediation of
critical systems, business resumption planning to address the possibility of
systems failure, and resumption planning to address the possibility of failure
of systems or processes outside our control. Contingency planning and
preparations will continue throughout 1999.
People's Community Bank has determined that the Year 2000 issue may be critical
to its operation; however, Management does not believe customer readiness is or
will be material to its overall performance. Management also believes that the
total costs of becoming Year 2000 compliant will not be significant. Through
1998, expenditures for Year 2000 were immaterial, and as of this date, Year
2000 related expenditures are projected to be approximately $15,000.00.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements and Supplementary Data are attached hereto, and
are incorporated herein by reference.
PCB BANCORP, INC.
FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS' REPORT
For the Years Ended December 31, 1998 and 1997
PCB BANCORP, INC.
December 31, 1998 and 1997
17
<PAGE> 18
INDEX
-----
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Independent Auditors' Report 1
Consolidated Statements of Financial Condition 2
Consolidated Statements of Income 3 - 4
Consolidated Statements of Shareholders' Equity 5
Consolidated Statements of Cash Flows 6 - 7
Notes to the Financial Statements 8 - 27
</TABLE>
18
<PAGE> 19
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Audit Committee
PCB Bancorp, Inc.
Johnson City, Tennessee 37602
We have audited the accompanying consolidated statements of financial condition
of PCB Bancorp, Inc. and wholly-owned subsidiary People's Community Bank as of
December 31, 1998 and 1997, and the related consolidated statements of income,
shareholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of Bancorp's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 PCB Bancorp, Inc.
and wholly-owned subsidiary People's Community Bank at December 31, 1998 and
1997, and the results of its operations and its cash flows for the years then
ended, in conformity with generally accepted accounting principles.
BLACKBURN, CHILDERS AND STEAGALL, PLC
January 29, 1999
PCB BANCORP, INC.
AND WHOLLY-OWNED SUBSIDIARY
PEOPLE'S COMMUNITY BANK
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- ----------
ASSETS
<S> <C> <C>
Cash and Due from Banks $ 2,048,350 $ 2,151,092
Federal Funds Sold 6,574,000 2,123,000
Securities Held-to-Maturity 500,000 2,717,144
Securities Available-for-Sale 12,157,224 1,442,749
Loans Held for Sale 380,250 212,800
Loans Receivable, Net of Allowance for Loan Losses of $825,649
and $727,598, respectively 65,846,157 57,250,698
Accrued Interest Receivable 501,780 385,890
Premises and Equipment, Net of Accumulated Depreciation of
$405,602 and $194,200, respectively 3,217,238 2,299,369
Restricted Investments - Stock in Federal Home Loan Bank, Cost 265,700 80,600
Organization Costs, Net of Accumulated Amortization of $75,682
and $50,092, respectively 52,268 77,858
Other Assets 30,935 133,321
----------- -----------
Total Assets $91,573,902 $68,874,521
=========== ===========
</TABLE>
19
<PAGE> 20
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
LIABILITIES:
Deposits:
Demand Deposits $ 9,431,912 $ 6,833,897
Savings and NOW Deposits 35,977,968 17,281,809
Other Time Deposits 36,398,861 35,915,635
Accrued Interest Payable 404,921 495,335
Dividend Payable 40,000 --
Accounts Payable and Other Liabilities 941,206 546,508
----------- -----------
Total Liabilities 83,194,868 61,073,184
----------- -----------
SHAREHOLDERS' EQUITY:
Common Stock - $1 par value; 3,000,000 shares authorized;
800,000 shares issued and outstanding 800,000 800,000
Additional Paid-in Capital 7,200,000 7,200,000
Retained Earnings 310,456 (202,100)
Accumulated Other Comprehensive Income 68,578 3,437
----------- -----------
Total Shareholders' Equity 8,379,034 7,801,337
----------- -----------
Total Liabilities and Shareholders' Equity $91,573,902 $68,874,521
=========== ===========
</TABLE>
20
<PAGE> 21
PCB BANCORP, INC.
AND WHOLLY-OWNED SUBSIDIARY
PEOPLE'S COMMUNITY BANK
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
INTEREST INCOME:
Interest on Loans $ 5,464,044 4,000,251
Interest on Investments 362,324 334,357
Interest on Federal Funds Sold 310,390 73,669
----------- ----------
Total Interest Income 6,136,758 4,408,277
----------- ----------
INTEREST EXPENSE:
Interest on Interest Bearing Checking Accounts 44,420 33,789
Interest on Money Market Accounts 194,053 198,043
Interest on Passbook Accounts 863,478 381,449
Interest on Certificates of Deposit 2,331,038 1,715,783
Interest on Other Borrowed Funds 432 12,654
----------- ----------
Total Interest Expense 3,433,421 2,341,718
----------- ----------
Net Interest Income 2,703,337 2,066,559 Provision
for Loan Losses 118,398 356,453
----------- ----------
Net Interest Income after Provision for Loan Losses 2,584,939 1,710,106
----------- ----------
NON-INTEREST INCOME:
Service Charges 181,262 116,962
Loan Origination Fees 312,812 324,129
Net Gains from Sale of Loans 42,828 30,417
Net Realized Gain (Loss) on Sales and Calls of Securities (3,150) 1,167
Miscellaneous 3,717 18,919
----------- ----------
Total Non-Interest Income 537,469 491,594
----------- ----------
NON-INTEREST EXPENSES:
Salaries 1,104,177 869,605
Payroll Taxes 89,984 70,713
Employee Benefits 71,974 63,894
Occupancy Expense 79,904 56,864
Rental Expense 25,200 37,650
</TABLE>
21
<PAGE> 22
PCB BANCORP, INC.
AND WHOLLY-OWNED SUBSIDIARY
PEOPLE'S COMMUNITY BANK
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
NON-INTEREST EXPENSES (CONTINUED):
Furniture and Equipment Expense 33,217 32,127
Computer Equipment Expense 75,990 62,819
Stationery, Supplies and Printing 72,832 53,677
Postage, Express and Freight 54,505 34,187
Telephone Expense 42,904 28,480
Vehicle Expense 10,458 13,829
Outside Services 82,556 77,553
Teller Over and Short 821 817
Advertising and Promotion 93,449 129,784
Loan Collection Expense 12,905 8,249
Bank Security and Protection 2,596 664
FDIC Assessment 7,523 4,363
Insurance 31,031 16,158
Dues and Subscriptions 16,837 9,475
Franchise Tax Expense 20,720 19,320
Refunds and Reimbursements 2,599 2,924
Travel and Meetings 2,555 1,692
Contributions 6,372 4,565
Depreciation and Amortization 236,992 151,222
Directors' Fees 28,359 20,550
Miscellaneous Expenses 51,529 23,926
----------- ----------
Total Non-Interest Expenses 2,257,989 1,795,107
----------- ----------
Income Before Taxes 864,419 406,593
INCOME TAX PROVISION:
Income Tax Expense 311,863 167,481
----------- ----------
Net Income $ 552,556 239,112
=========== ==========
Net Income per Share $ .69 .30
=========== ==========
Net Income per Share - Assuming Dilution .64 .28
=========== ==========
</TABLE>
22
<PAGE> 23
PCB BANCORP, INC.
AND WHOLLY-OWNED SUBSIDIARY
PEOPLE'S COMMUNITY BANK
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-in Retained Comprehensive
Stock Capital Earnings Income Total
---------- --------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1997 $ 800,000 7,200,000 (441,212) 0 7,558,788
COMPREHENSIVE INCOME:
Net Income -- -- 239,112 -- 239,112
Other Comprehensive Income
Net of Tax:
Change In Unrealized
Gain (Loss) on Securities
Available-For-Sale, Net
of Deferred Income Tax
of $2,292 -- -- -- 3,437 3,437
---------
Total Comprehensive Income 242,549
---------
Cash Dividends -- -- -- -- --
---------- --------- -------- ----- ---------
Balances, December 31, 1997 800,000 7,200,000 (202,100) 3,437 7,801,337
COMPREHENSIVE INCOME:
Net Income -- -- 552,556 -- 552,556
Other Comprehensive Income
Net of Tax:
Change in Unrealized
Gain (Loss) on Securities
Available-For-Sale, Net
of Deferred Income Tax
of $43,428 -- -- -- 65,578
Less: Reclassification
Adjustment (3,437) 65,141
---------
Total Comprehensive Income 617,697
---------
Cash Dividends -- -- (40,000) -- (40,000)
---------- --------- ------- ------ ---------
Balances, December 31, 1998 $ 800,000 7,200,000 310,456 68,578 8,379,034
========== ========= ======= ====== =========
</TABLE>
23
<PAGE> 24
PCB BANCORP, INC.
AND WHOLLY-OWNED SUBSIDIARY
PEOPLE'S COMMUNITY BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 552,556 239,112
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided by Operating Activities:
Depreciation Expense 211,403 125,507
Amortization Expense 25,589 25,715
Provision for Loan Losses 118,398 356,453
Discount Accretion Net of Premium Amortization (16,564) (27,306)
Origination of Mortgage Loans Held for Sale (4,168,418) (2,594,495)
Proceeds from Mortgage Loans Sold 4,000,968 2,692,866
Gain on Sale of Property and Equipment -- (1,352)
Net Realized (Gains) Losses on Sales and Calls of Securities 3,150 (1,167)
Deferred Income Tax 209,847 167,481
(Increase) Decrease in Interest Receivable (115,890) (146,427)
(Increase) Decrease in Other Assets (5,209) 12,024
Increase (Decrease) in Accrued Interest Payable (90,414) 366,562
Increase (Decrease) in Other Liabilities 245,876 78,672
----------- ----------
Net Cash Provided by Operating Activities 971,292 1,293,645
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (Increase) Decrease in Federal Funds Sold (4,451,000) 1,155,000
Purchases of Held-to-Maturity Securities -- (500,000)
Purchases of Available-for-Sale Securities (2,097,002) (1,436,964)
Proceeds from Maturities and Calls of Held-to-Maturity Securities 2,220,000 3,501,875
Proceeds from Maturities and Calls of Available-For-Sale Securities 1,504,796 --
Purchases of Restricted Investments (185,100) (80,600)
Purchases of Premises and Equipment (1,129,271) (928,932)
Proceeds From Sale of Premises and Equipment -- 54,120
Loan Participations Bought (548,928) --
Loan Participations Sold 1,275,216 1,500,000
Net Increase in Loans (19,440,145) (29,230,701)
----------- ----------
Net Cash Used for Investing Activities (22,851,434) (25,966,202)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Deposits 21,777,400 25,656,336
----------- ----------
Net Cash Provided by Financing Activities 21,777,400 25,656,336
----------- ----------
Increase (Decrease) in Cash and Cash Equivalents (102,742) 983,779
</TABLE>
24
<PAGE> 25
PCB BANCORP, INC.
AND WHOLLY-OWNED SUBSIDIARY
PEOPLE'S COMMUNITY BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents (102,742) 983,779
(Brought Forward)
Cash and Cash Equivalents, Beginning of Year 2,151,092 1,167,313
----------- ----------
Cash and Cash Equivalents, End of Year $ 2,048,350 2,151,092
=========== ==========
SUPPLEMENTAL DISCLOSURES:
Cash Paid during the Year for Interest $ 3,523,835 1,975,156
=========== ==========
</TABLE>
25
<PAGE> 26
PCB BANCORP, INC.
AND WHOLLY-OWNED SUBSIDIARY
PEOPLE'S COMMUNITY BANK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES:
Basis of Consolidation
The consolidated financial statements include the accounts of PCB
Bancorp, Inc. (Company), a one-bank holding company, formed on October
1, 1996 and its wholly-owned subsidiary People's Community Bank
(Bank). All material intercompany balances and transactions have been
eliminated in consolidation.
Nature of Operations
People's Community Bank is a state-chartered bank formed on December
15, 1995. On October 1, 1996 the Bank became a wholly owned subsidiary
of PCB Bancorp, Inc., a one bank holding company. People's Community
Bank provides a variety of banking services to individuals and
businesses in Upper East Tennessee through its main office on Sunset
Drive and branch locations in Boones Creek and on Main Street in
Johnson City. Its primary deposit products are demand deposits,
savings deposits and certificates of deposit; and its primary lending
products are commercial business, real estate mortgage and installment
loans. As a state bank, the Bank is subject to regulation by the
Tennessee State Banking Department and the Federal Deposit Insurance
Corporation.
Financial Reporting
The Company reports on the accrual basis of accounting for financial
purposes.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers
cash and cash equivalents as those amounts included in the statement
of financial condition as captioned "cash and due from banks". Federal
funds sold are not included as cash or cash equivalents.
Use of 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.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for losses on
loans. While management uses available information to recognize losses
on loans, future additions to the allowance may be necessary based on
changes in local economic conditions. In addition, regulatory
agencies, as an integral part of their examination process,
periodically review the Bank's allowances for losses on loans. Such
agencies may require the Bank to recognize additions to the allowances
based on their judgements about information available to them at the
time of their examination. Because of these factors, it is reasonably
possible that the allowances for losses on loans may change materially
in the near term. However, the amount of the change that is reasonably
possible cannot be estimated.
26
<PAGE> 27
PCB BANCORP, INC.
AND WHOLLY-OWNED SUBSIDIARY
PEOPLE'S COMMUNITY BANK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Investment Securities
Securities Held-to-Maturity: Debt securities that management has the
positive intent and ability to hold to maturity are reported at cost,
adjusted for amortization of premiums and accretion of discounts that
are recognized in interest income using methods approximating the
interest method over the period to maturity.
Securities Available-for-Sale: Debt securities not classified as
held-to-maturity are classified as available-for-sale. Securities
available-for-sale are carried at fair value with unrealized gains and
losses reported separately net of tax, through a separate component of
stockholder's equity. Gains and losses on sales of securities are
determined using the specific-identification method. The amortization
of premiums and the accretion of discounts are recognized in interest
income using methods approximating the interest method.
Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary
market are carried at the lower of cost or estimated market value in
the aggregate. Net unrealized losses are recognized through a
valuation allowance of charges to income.
Loans
Loans are stated at unpaid principal, less the allowance for loan
losses and net deferred loan fees and unearned discounts.
Unearned discounts on installment loans are recognized as income over
the term of the loans using a method that approximates the interest
method.
Loan origination and commitment fees, as well as certain direct
origination costs, are deferred and amortized as a yield adjustment
over the lives of the related loans using a method that approximates
the interest method. Amortization of the deferred loan fees is
discontinued when a loan is placed on nonaccrual status.
Interest income generally is not recognized on specific impaired loans
unless the likelihood of further loss is remote. Interest payments
received on such loans are applied as a reduction of the loan
principal balance. Interest income on other impaired loans is
recognized only to the extent of interest payments received.
27
<PAGE> 28
PCB BANCORP, INC.
AND WHOLLY-OWNED SUBSIDIARY
PEOPLE'S COMMUNITY BANK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Allowance for Loan Losses
The allowance for loan losses is maintained at a level which, in
management's judgement, is adequate to absorb credit losses inherent
in the loan portfolio. The amount of the allowance is based on
management's evaluation of the collectibility of the loan portfolio,
including the nature of the portfolio, credit concentrations, trends
in historical loss experience, specific impaired loans, economic
conditions, and other risks inherent in the portfolio. Allowances for
impaired loans are generally determined based on collateral values or
the present value of estimated cash flows. Although management uses
available information to recognize losses on loans, because of the
uncertainties associated with local economic conditions, collateral
values, and future cash flows on impaired loans, it is reasonably
possible that a material change could occur in the allowance for loan
losses in the near term. However, the amount of the change that is
reasonably possible cannot be estimated. The allowance is increased by
a provision for loan losses, which is charged to expense and reduced
by charge-offs, net of recoveries. Changes in the allowance relating
to impaired loans are charged or credited to the provision for loan
losses.
Premises and Equipment
Premises and equipment are stated at cost less any accumulated
depreciation. Depreciation is provided for using the straight-line
method over the useful lives of the assets. Maintenance and repairs
are expensed as incurred while major additions and improvements are
capitalized. Gains and losses on dispositions are included in current
operations.
Organization Costs
Organization costs are being amortized over 5 years using the
straight-line method.
Income Taxes
Income taxes are provided for the tax effects of the transactions
reported in the financial statements and consist of taxes currently
due plus deferred taxes related primarily to differences between the
depreciation for financial and income tax reporting. The deferred tax
assets and liabilities represent the future tax consequences of those
differences, which will either be taxable or deductible when the
assets and liabilities are recovered or settled. Deferred tax assets
and liabilities are reflected at income tax rates applicable to the
period in which the deferred tax assets or liabilities are expected to
be realized or settled. As changes in tax laws or rates are enacted,
deferred tax assets and liabilities are adjusted through the provision
for income tax.
28
<PAGE> 29
PCB BANCORP, INC.
AND WHOLLY-OWNED SUBSIDIARY
PEOPLE'S COMMUNITY BANK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Fair Values of Financial Instruments
Statement of Financial Accounting Standards (SFAS) No. 107,
Disclosures about Fair Value of Financial Instruments, requires
disclosure of fair value information about financial instruments,
whether or not recognized in the statement of financial condition. In
cases where quoted market prices are not available, fair values are
based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. In
that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be
realized in immediate settlement of the instruments. SFAS No. 107
excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying
value of the Bank.
The following methods and assumptions were used by the Bank in
estimating its fair value disclosures for financial instruments:
Cash and Cash Equivalents: The carrying amounts reported in
the statement of financial condition for cash and cash
equivalents approximate their fair value.
Investment securities: Fair values for investment securities
are based on quoted market prices, where available. If quoted
market prices are not available, fair values are based on
quoted market prices of comparable instruments.
Loans: For variable-rate loans that reprice frequently and
with no significant change in credit risk, fair values are
based on carrying amounts. The fair values for other loans
(for example, fixed rate commercial real estate and rental
property mortgage loans and commercial and industrial loans)
are estimated using discounted cash flow analysis, based on
interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality. Loan fair value
estimates include judgments regarding future expected loss
experience and risk characteristics. The carrying amount of
accrued interest receivable approximates its fair value.
Deposits: The fair values disclosed for demand deposits (for
example, interest-bearing checking accounts and passbook
accounts) are, by definition, equal to the amount payable on
demand at the reporting date (that is, their carrying
amounts). The carrying amounts of variable-rate, fixed-term
money market accounts and certificates of deposit approximate
their fair values. The fair values for fixed rate
certificates of deposit are estimated using a discounted cash
flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated
contractual maturities on such time deposits.
29
<PAGE> 30
PCB BANCORP, INC.
AND WHOLLY-OWNED SUBSIDIARY
PEOPLE'S COMMUNITY BANK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Fair Values of Financial Instruments (continued):
Accrued Interest: The carrying amount of accrued interest
approximates the fair values.
Off-Balance-Sheet Instruments: Fair values for
off-balance-sheet lending commitments are based on fees
currently charged to enter into similar agreements, taking
into account the remaining terms of the agreements and the
counterparties' credit standings.
Advertising
The Bank expenses advertising costs as they are incurred.
Net Income Per Share
Net income per share of common stock has been computed on the basis of
the weighted-average number of shares of common stock outstanding.
Comprehensive Income
In 1998, the Bank adopted Statement of Financial Accounting Standards
(SFAS) No. 130 - Reporting Comprehensive Income. Under SFAS No. 130,
comprehensive income is defined as the change in equity from
transactions and other events from nonowner sources. It includes all
changes in equity except those resulting from investments by
shareholders and distributions to shareholders. Comprehensive income
includes net income and certain elements of "other comprehensive
income" such as foreign currency transactions, accounting for future
contracts; employers accounting for pensions; and accounting for
certain investments in debt and equity securities.
The Bank has elected to report its comprehensive income in the
Statement of Shareholders' Equity. The only element of "other
comprehensive income" that the Bank has is the unrealized gain or
losses on available for sale securities. The 1997 financial statements
have been reclassified to reflect these changes in reporting format.
The component of the change in net unrealized gains on securities were
as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Unrealized holding gains arising during the year $ 114,298 $ 5,729
Reclassification adjustment for (gains)/losses
realized in net income (5,729) --
----------- ----------
Net unrealized holding gains before taxes 108,569 5,729
Tax effect (43,428) (2,292)
----------- ----------
Net change $ 65,141 $ 3,437
=========== ==========
</TABLE>
30
<PAGE> 31
PCB BANCORP, INC.
AND WHOLLY-OWNED SUBSIDIARY
PEOPLE'S COMMUNITY BANK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 2. INVESTMENTS:
The amortized costs of securities and their approximate fair values are as
follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------------------------------------ ------------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Amortized Unrealized Unrealized
Cost Gains Losses Fair Value Cost Gains Losses Fair Value
--------- ---------- ---------- ---------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available-for-Sale
U.S. Government -- -- -- -- 799,424 978 -- 800,402
Federal Agencies $ 3,847,337 26,641 5,195 3,868,783 246,786 1,835 -- 248,621
State and Municipal
Governments 5,006,120 98,604 -- 5,104,724 390,810 2,916 -- 393,726
Mortgage-Backed
Securities 3,189,469 3,105 8,857 3,183,717 -- -- -- --
----------- ------- ------ ---------- --------- ------ --- ---------
Total Available-for-Sale 12,042,926 128,350 14,052 12,157,224 1,437,020 5,729 0 1,442,749
----------- ------- ------ ---------- --------- ------ --- ---------
Held-to-Maturity
Federal Agencies 500,000 7,242 -- 507,242 2,717,144 12,831 417 2,729,558
----------- ------- ------ ---------- --------- ------ --- ---------
Total Held-to-Maturity 500,000 7,242 0 507,242 2,717,144 12,831 417 2,729,558
----------- ------- ------ ---------- --------- ------ --- ---------
Total Investment
Securities $12,542,926 135,592 14,052 12,664,466 4,154,164 18,560 417 4,172,307
=========== ======= ====== ========== ========= ====== === =========
</TABLE>
The amortized cost and market value of debt securities at December 31,
1998, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Held-to-maturity Available-for-sale
---------------------------- -----------------------------
Amortized Fair Amortized Fair
Cost Value Cost Cost Value Cost
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Amounts maturing in:
One year or less $ -- -- 65,000 65,182
After one year through five years -- -- 3,018,534 3,042,320
After five years through ten years 500,000 507,242 3,829,953 3,899,450
After ten years -- -- 1,939,970 1,966,555
Mortgage-Backed Securities -- -- 3,189,469 3,183,717
-------- ------- ---------- ----------
$500,000 507,242 12,042,926 12,157,224
======== ======= ========== ==========
</TABLE>
Accrued interest on investments at December 31, 1998 and 1997 was $144,637 and
$72,654, respectively. During 1998 and 1997 the bank received $3,724,796 and
$2,051,875 proceeds from sales and calls of securities with a carrying value of
$ 3,727,946 and $2,500,708 resulting in a realized loss of $3,150 and a gain of
$1,167 on sales and calls of securities, respectively.
31
<PAGE> 32
PCB BANCORP, INC.
AND WHOLLY-OWNED SUBSIDIARY
PEOPLE'S COMMUNITY BANK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 3. LOANS:
Loans at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Commercial $34,352,002 32,036,434
Commercial Real Estate 154,968 162,163
Residential Real Estate 14,607,152 11,648,275
Installment 15,088,966 11,749,454
Consumer 2,352,892 2,290,571
Other 138,682 114,159
----------- ----------
66,694,662 58,001,056
Allowance for Loan Losses (825,649) (727,598)
Unearned Discount on Mortgages and
Installment Loans (1,595) (5,997)
Net Deferred Loan Origination Fees (21,261) (16,763)
----------- ----------
$65,846,157 57,250,698
=========== ==========
</TABLE>
An analysis of the change in the allowance for loan losses follows:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Balance at Beginning of Year $ 727,598 382,122
Provision for Loan Losses 118,398 356,453
Loans Charged Off (22,291) (11,127)
Recoveries on Loans 1,944 150
----------- ----------
Balance at End of Year $ 825,649 727,598
=========== ==========
</TABLE>
A summary of loans by estimated maturity as of December 31, 1998 is as follows:
<TABLE>
<S> <C>
Maturity within one year $ 28,077,445
One to five years 35,851,878
Over five years 2,765,339
------------
$ 66,694,662
============
</TABLE>
Accrued interest receivable on loans at December 31, 1998 and 1997 was $357,145
and $313,236, respectively.
At December 31, 1998 and 1997, the total recorded investment in impaired loans,
amounted to approximately $0 and $31,988, respectively. The average recorded
investment in impaired loans amounted to approximately $0 and $11,126 for the
years ended December 31, 1998 and 1997, respectively. Interest income on
impaired loans of $2,288 was recognized for cash payments received in 1997.
32
<PAGE> 33
PCB BANCORP, INC.
AND WHOLLY-OWNED SUBSIDIARY
PEOPLE'S COMMUNITY BANK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 3. LOANS (CONTINUED):
The Bank has no commitments to loan additional funds to borrowers whose loans
have been modified.
The Bank services loans for others of $4,374,379 and $3,099,164 at December 31,
1998 and 1997 under loan participation agreements. The Bank receives no fees
for servicing these loans and no fees have been received in connection with the
origination of the loan participation agreements.
In the ordinary course of business, the Bank has and expects to continue to
have transactions, including borrowings, with certain of its officers,
executive directors, significant stockholders and their affiliates. In the
opinion of management, such transactions were on substantially the same terms,
including interest rates and collateral, as those prevailing at the time of
comparable transactions with other persons and did not involve more than a
normal risk of collectibility or present any other unfavorable features to the
Bank. Loans to such borrowers at December 31, 1998 and 1997 were $41,862 and
$53,097. During 1998, there were no additional loans to such related parties
and repayments amount to $11,235.
NOTE 4. PREMISES AND EQUIPMENT:
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Bank Building 1,420,335 1,181,654
Land 754,430 376,500
Land Improvements 263,058 113,958
Leasehold Improvements 47,210 47,210
Furniture and Equipment 646,440 483,066
Computer Equipment 454,836 273,768
Computer Software 36,531 7,142
Construction in Progress -- 10,271
----------- ----------
Total 3,622,840 2,493,569
Accumulated Depreciation 405,602 194,200
----------- ----------
Premises and Equipment - Net $ 3,217,238 2,299,369
=========== ==========
</TABLE>
Depreciation expense for the years ended December 31, 1998 and 1997 was
$211,403 and $125,507, respectively.
NOTE 5. OTHER ASSETS:
Other Assets at December 31 consisted of the following:
<TABLE>
1998 1997
----------- ----------
<S> <C> <C>
Deferred Tax Benefit -- 107,821
Prepaid Expense 20,291 25,500
Other Receivables 10,644 --
----------- ----------
$ 30,935 133,321
=========== ==========
</TABLE>
33
<PAGE> 34
PCB BANCORP, INC.
AND WHOLLY-OWNED SUBSIDIARY
PEOPLE'S COMMUNITY BANK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 6. DEPOSITS:
A summary of deposit account balances at December 31 is as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Regular Checking $ 2,573,984 2,070,987
Club Checking 15,533 1,637
Small Business Accounts 3,638,557 2,353,035
Commercial Checking 3,004,434 2,408,239
Primetime Checking 199,404 --
NOW Accounts 2,586,531 1,521,775
Money Market Accounts 3,856,406 3,744,603
Saving Accounts 29,535,031 12,015,431
Certificates of Deposit 36,398,861 35,915,634
----------- ----------
Total $81,808,741 60,031,341
=========== ==========
</TABLE>
At December 31, 1998, scheduled maturities of certificates of deposit are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 23,671,322
2000 7,888,478
2001 3,731,061
2002 986,000
2003 and Thereafter 122,000
-------------
$ 36,398,861
=============
</TABLE>
The aggregate amount of short-term jumbo certificates of deposit with a minimum
denomination of $100,000 was $11,033,273 and $13,228,838 at December 31, 1998
and 1997.
The Bank held deposits of approximately $1,280,164 and $1,766,494 for related
parties at December 31, 1998 and 1997.
NOTE 7. OTHER LIABILITIES:
Other Liabilities at December 31 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---------- -----------
<S> <C> <C>
Property Tax Payable $ 11,016 10,227
Payroll Taxes Payable 2,182 776
Miscellaneous Payables and Other Liabilities 660,264 516,447
Accrued State Franchise Tax 20,274 19,058
Deferred Income Tax 145,454 -
Current Income Tax 102,016 -
------- --------
$ 941,206 546,508
======= ========
</TABLE>
34
<PAGE> 35
PCB BANCORP, INC.
AND WHOLLY-OWNED SUBSIDIARY
PEOPLE'S COMMUNITY BANK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 8. ADVANCES FROM FEDERAL HOME LOAN BANK:
Effective June 13, 1997, People's Community Bank became members of the Federal
Home Loan Bank (FHLB) of Ohio. The Bank has been authorized to borrow up to
$2,000,000 and 1,612,000 from the FHLB at December 31, 1998 and 1997,
respectively. The Bank's total borrowing capacity is a component of both
capital stock and the member's most recent Qualified Thrift Lender rating and
access to borrowing is dependent upon submission of advance application. The
Bank has no outstanding advances from the FHLB at December 31, 1998 and 1997.
In addition, the bank has pledged $1,200,000 of their line of credit with the
FHLB to the State of Tennessee Collateral Pool to secure public funds on
deposit with the bank December 31, 1998.
NOTE 9. UNUSED LINES OF CREDIT:
The Bank entered into an open-ended unsecured line of credit with First American
Bank for $2,000,000 for federal fund purchases and daylight overdrafts. Funds
issued under this agreement are at the First American federal funds rate
effective at the time of borrowing. The line matured at May 1, 1998 and was
renewed for $1,500,000 maturing May 1, 1999. The Bank had not drawn on these
funds at December 31, 1998 and 1997.
NOTE 10. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK:
At December 31, the Bank had outstanding commitments for unused lines and
letters of credit that are not reflected in the accompanying financial
statements as follows:
<TABLE>
<CAPTION>
Variable Rate
------------------------------
1998 1997
------- ------
<S> <C> <C>
Lines of Credit $ 4,176,724 6,813,424
Letters of Credit 629,900 350,000
----------- ----------
Total $ 4,806,624 7,163,424
=========== ==========
</TABLE>
Commitments to extend credit are financial instruments with off-balance sheet
risk entered into by the Bank in the normal course of business to meet the
financing needs of its customers. These commitments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the statement of financial condition. The Bank is at risk from
the possible inability of borrowers to meet the terms of their contracts and
from movements in interest rates. The Bank's exposure to credit loss in the
event of nonperformance by the borrower is represented by the contractual
amount of the financial instruments described above.
Standby letters of credit written are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party. Those
guarantees are issued to support public and private borrowing arrangements,
bond financing, and similar transactions. The credit risk involved in issuing a
letter of credit is essentially the same as that involved in extending loan
facilities to customers.
35
<PAGE> 36
PCB BANCORP, INC.
AND WHOLLY-OWNED SUBSIDIARY
PEOPLE'S COMMUNITY BANK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 10. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED):
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. Since many
of the commitments may never be drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank uses the same credit
policies in making commitments as it does for on-balance sheet instruments.
The Bank evaluates each customer's creditworthiness on a case by case basis.
NOTE 11. COMMITMENTS AND CONTINGENT LIABILITIES:
The Bank is subject to claims and lawsuits, which arise, primarily in the
ordinary course of business. It is the opinion of management that the
disposition or ultimate resolution of such claims and lawsuits will not have a
material adverse effect on the financial position of the Bank.
NOTE 12. RESTRICTIONS ON DIVIDENDS:
The Bank was prohibited from paying dividends for the first three years of
operations under Federal Deposit Insurance Corporation (FDIC) Regulations.
However, the FDIC granted permission for People's Community Bank to pay a
$21,000 dividend to PCB Bancorp, Inc. to pay expenses associated with forming a
holding company in 1997. The FDIC prohibition from paying dividends expired
December 15, 1998 and People's Community Bank paid a $12,000 dividend to PCB
Bancorp, Inc. to pay expenses of the holding company. In addition, the Board of
Directors declared a five cent per share dividend payable on January 20, 1999
to PCB Bancorp, Inc. and the directors of PCB Bancorp, Inc. declared a dividend
payable to its shareholders of record on December 31, 1998 in the same amount.
NOTE 13. SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK:
Most of the Bank's business activity is with customers within the Upper East
Tennessee area.
The Bank evaluates each customer's creditworthiness 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.
Collateral held varies but generally includes real estate, vehicles, equipment
and income producing commercial properties.
36
<PAGE> 37
PCB BANCORP, INC.
AND WHOLLY-OWNED SUBSIDIARY
PEOPLE'S COMMUNITY BANK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair values of the Bank's financial instruments at December 31
were as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------- -------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
-------- ---------- ------ -----------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and Due from Banks and
Federal Funds Sold $ 8,620,256 8,620,256 4,270,270 4,270,270
Securities Held to Maturity 500,000 507,242 2,717,144 2,729,558
Securities Available for Sale 12,157,224 12,157,224 1,442,749 1,442,749
Loans Receivable:
Adjustable Rate Loans under 30 years 19,300,225 19,300,225 18,912,528 18,912,528
Fixed Rate Loans with original
maturities of 30 years 180,638 192,452 67,865 65,499
Fixed Rate Loans with original
maturities of 5 to 30 years 2,482,797 2,542,573 752,105 744,855
Fixed Rate Loans with original
maturities of 1 to 5 years 35,828,463 35,490,710 29,832,747 29,925,813
Fixed Rate Loans with original
maturities of less than one year 8,902,539 8,902,539 8,413,051 8,413,051
Loans Held for Sale 380,250 380,250 212,800 212,800
Accrued Interest Receivable 501,780 501,780 385,890 385,890
Financial Liabilities:
Deposit Liabilities 81,808,741 81,808,741 60,031,341 60,031,341
Off Balance Sheet Instruments:
Commitments to Extend Credit - - - -
</TABLE>
NOTE 15. FEDERAL INCOME TAXES:
The provision for income tax for 1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Income Tax Expense:
Current Tax Expense
Federal $ 72,195 --
State 29,822 --
Deferred Tax (Benefit)
Federal 178,370 142,359
State 31,476 25,122
----------- ----------
$ 311,863 167,481
=========== ==========
</TABLE>
37
<PAGE> 38
PCB BANCORP, INC.
AND WHOLLY-OWNED SUBSIDIARY
PEOPLE'S COMMUNITY BANK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 15. FEDERAL INCOME TAXES (CONTINUED):
A cumulative net deferred tax asset for 1997 is included in Other Assets. A
cumulative net deferred tax liability for 1998 is included in Other
Liabilities. The components of the asset and liability are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Differences in Depreciation Methods $ (96,794) (68,907)
Net Operating Loss Carryforward -- 179,020
Net Unrealized Appreciation on
on Available-For-Sale Securities (48,660) (2,292)
----------- ----------
$ (145,454) 107,821
=========== ==========
Deferred Tax Assets $ -- 179,020
Deferred Tax Liabilities (145,454) (71,199)
----------- ----------
Net Deferred Tax Assets (Liabilities) $ (145,454) 107,821
=========== ==========
</TABLE>
The following is a reconciliation of the statutory federal income tax rate
applied to pre-tax accounting income, with the income tax provisions in the
statements of income.
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Federal Income Tax Expense at the
Statutory Rate (34%) $ 300,027 144,034
Increases (Decreases) Resulting from:
Nontaxable Interest Income, Net of Non-
deductible Interest Expense (41,110) (1,666)
State Income Taxes, Net of Federal Income
Tax Benefit 52,946 25,418
Other -- (305)
----------- ----------
Provision for Income Taxes $ 311,863 167,481
=========== ==========
</TABLE>
NOTE 16. EMPLOYEE BENEFIT PLANS:
Effective May 1, 1998 the Bank adopted a simple IRA plan covering all
employees. Employees may contribute up to $6,000 per year to the plan. The Bank
may contribute up to 3% of the employees annual compensation. There were no
employer contributions in 1998.
38
<PAGE> 39
PCB BANCORP, INC.
AND WHOLLY-OWNED SUBSIDIARY
PEOPLE'S COMMUNITY BANK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 17. REGULATORY MATTERS:
The Bank is subject to various regulatory capital requirements administered by
its primary federal regulator, the Federal Deposit Insurance Corporation
(FDIC). 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 the Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The Bank's capital amounts and classification are also subject to qualitative
judgements by the regulator about components, risk weightings and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier I
capital to risk-weighted assets (as defined). Management believes, as of
December 31, 1998, that the Bank meets all capital adequacy requirements to
which it is subject.
As of March 31, 1998 the most recent notification from the FDIC, the Bank was
categorized as well capitalized under the regulatory framework for prompt
corrective action. To remain categorized as well capitalized, the Bank will
have to maintain minimum total risk-based, Tier 1 risk-based, and Tier 1
leverage ratios as disclosed in the table below. There are no conditions or
events since the most recent notification that management believes have changed
the Bank's prompt corrective action category.
The Bank's actual capital and ratio amounts are presented in the following
table:
<TABLE>
<CAPTION>
To Be Well Capitalized
Under the Prompt
For Capital Corrective
Actual Adequacy Purposes Action Provisions
---------------- ------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Risk-Based Capital
(To Risk Weighted Assets) $ 9,080,577 13.3% $ => 5,455,120 => 8.0% $ 6,818,900 => 10.0%
Tier I Capital
(To Risk Weighted Assets) 8,254,928 12.1% => 2,727,560 => 4.0% 4,091,340 => 6.0%
Tier I Capital
(To Average Assets) 8,254,928 9.3% => 3,549,567 => 4.0% 4,436,900 => 5.0%
</TABLE>
39
<PAGE> 40
PCB BANCORP, INC.
AND WHOLLY-OWNED SUBSIDIARY
PEOPLE'S COMMUNITY BANK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 17. REGULATORY MATTERS (CONTINUED):
<TABLE>
<CAPTION>
To Be Well Capitalized
Under the Prompt
For Capital Corrective
Actual Adequacy Purposes Action Provisions
---------------- ------------------ -----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Risk-Based Capital
(To Risk Weighted Assets) $ 8,318,540 14.7% => 5,164,800 => 8.0% 6,456,000 => 10.0%
Tier I Capital
(To Risk Weighted Assets) 7,610,246 13.4% => 2,265,800 => 4.0% 3,398,700 => 6.0%
Tier I Capital
(To Average Assets) 7,610,246 11.8% => 2,852,400 => 4.0% 3,228,000 => 5.0%
</TABLE>
The Bank received notice from the FDIC that the Bank's deposits are insured up
to $100,000 for each depositor, the FDIC assessment for the years ended
December 31, 1998 and 1997 was $7,523 and $4,363, respectively.
NOTE 18. BANK HOLDING COMPANY:
The officers and directors of People's Community Bank formed a one bank holding
company, PCB Bancorp, Inc. in 1996. Effective October 1, 1996, PCB Bancorp,
Inc. consummated acquisition of all the outstanding shares of People's
Community Bank through an equal share exchange and People's Community Bank
became a wholly-owned subsidiary of PCB Bancorp, Inc. The retained earnings of
PCB Bancorp, Inc. reflect the accumulated earnings of People's Community Bank
and the consolidated statement of income reflects the income and expenses of
People's Community Bank for the years ended December 31, 1998 and 1997.
The Parent Company's sole source of funds is the receipt of dividends from the
Bank.
Condensed Statements of Financial Condition
(Parent Only)
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
ASSETS
Cash On Deposit with Subsidiary $ 2,093 3,822
Investment in Subsidiary 8,365,151 7,781,439
Dividends Receivable 40,000 --
Premises and Equipment, Net of Accumulated Depreciation
of $954 and 530, respectively 1,166 1,590
Organization costs, Net of Accumulated Amortization 10,624 14,486
----------- ----------
Total Assets $ 8,419,034 7,801,337
=========== ==========
</TABLE>
40
<PAGE> 41
PCB BANCORP, INC
AND WHOLLY-OWNED SUBSIDIARY
PEOPLE'S COMMUNITY BANK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 18. BANK HOLDING COMPANY (CONTINUED):
Condensed Statements of Financial Condition (Continued)
(Parent Only)
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Dividends Payable 40,000 --
Common Stock 800,000 800,000
Additional Paid-In Capital 7,200,000 7,200,000
Retained Earnings (Deficit) 310,456 (202,100)
Net Unrealized Gain on Available-for-Sale Securities
Net of Tax of $2,292 68,578 3,437
----------- ----------
Total Liabilities and Shareholders' Equity 8,419,034 7,801,337
=========== ==========
</TABLE>
Condensed Statements of Income and Undivided Profits
(Parent Only)
<TABLE>
<S> <C> <C>
OPERATING INCOME
Dividend from Subsidiary $ 52,000 21,000
----------- ----------
Total Operating Income 52,000 21,000
----------- ----------
OPERATING EXPENSES
Amortization of Organization Costs 3,862 3,992
Advertising and Promotion 2,074 1,250
Miscellaneous Operating Expense -- 40
Depreciation Expense 424 530
Dues and Membership 20 --
Outside Services 11,635 11,225
----------- ----------
Total Operating Expenses 18,015 17,037
----------- ----------
Income from Operations 33,985 3,963
OTHER INCOME (EXPENSE)
Undistributed Net Income from Investment
in Wholly-Owned Subsidiary 518,571 235,149
----------- ----------
Net Income 552,556 239,112
Beginning Retained Earnings (Deficit) (202,100) (441,212)
Cash Dividends (40,000) --
----------- ----------
Ending Retained Earnings (Deficit) 310,456 (202,100)
=========== ==========
</TABLE>
41
<PAGE> 42
PCB BANCORP, INC.
AND WHOLLY-OWNED SUBSIDIARY
PEOPLE'S COMMUNITY BANK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 18. BANK HOLDING COMPANY (CONTINUED):
Condensed Statements of Cash Flows
(Parent Only)
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ 552,556 239,112
Undistributed Net (Income) Loss of Wholly-Owned
Subsidiary (518,571) (235,149)
Depreciation Expense 424 530
Amortization of Organization Costs 3,862 3,992
Increase in Organization Costs -- (2,622)
(Increase) in Dividends Payable (40,000) --
----------- ----------
Net Cash Provided by Operating Activities (1,729) 5,863
----------- ----------
Cash Flows from Investing Activities:
Purchase of Premises and Equipment -- (2,120)
----------- ----------
Net Cash Used for Investing Activities 0 (2,120)
----------- ----------
Increase (Decrease) in Cash and Cash Equivalents (1,729) 3,743
Beginning Cash and Cash Equivalents 3,822 79
----------- ----------
Ending Cash and Cash Equivalents $ 2,093 3,822
=========== ==========
</TABLE>
NOTE 19. STOCK OPTIONS:
During 1996, PCB Bancorp, Inc. adopted a stock option plan for key employees.
The plan is established to provide "Incentive Stock Options" within the meaning
of Section 422 of the Internal Revenue Code of 1986, or "non-statutory" stock
options. The Board of Directors administers the plan.
In addition to the plan for the key employees, PCB Bancorp, Inc. adopted a plan
for non-employee directors. All eligible directors can participate and receive
non-qualified stock options. Directors were granted an
42
<PAGE> 43
PCB BANCORP, INC.
AND WHOLLY-OWNED SUBSIDIARY
PEOPLE'S COMMUNITY BANK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 19. STOCK OPTIONS(CONTINUED):
initial option to acquire 5,000 shares at an option price of $10, which was the
fair value at the date of the grant. This option was fully vested immediately.
Directors are granted an additional 1,000 shares each year through the year
2000. The shares are granted at the fair value on the date of grant. Options
vest ratably at twenty percent per year over five years.
Under both plans, no incentive stock option shall be exercisable after the
expiration of 10 years from the date it is granted and the total number of
shares of the Company's common stock that may be transferred pursuant to the
exercise of stock options under the Plan shall not exceed in the aggregate
100,000 shares for the employee stock option plan and 60,000 shares for the
directors stock option plan.
The Company has elected to account for the stock option plan under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees",
and related interpretations. Accordingly, no compensation expense has been
recognized for the stock option.
Had compensation expense for the stock option plan been determined based on the
fair value of the options at the grant date consistent with the methodology
prescribed under Statement of Financial Standards No. 123, "Accounting for
Stock-Based Compensation", the Company's net income in 1998 and 1997 would have
been $526,216 and $215,697, respectively. The restated earnings per share would
have been $0.66 and $0.27 in 1998 and 1997, respectively. The Company
calculates a weighted-average fair value for each option. The weighted-average
fair value for the options in 1998 and 1997 were $14.09 and $10.85, using the
following assumptions for both years:
<TABLE>
<S> <C>
Risk-free interest rate 5%
Expected life (years) 10
Expected volatility 8%
Expected dividends None
</TABLE>
43
<PAGE> 44
PCB BANCORP, INC.
AND WHOLLY-OWNED SUBSIDIARY
PEOPLE'S COMMUNITY BANK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 19. STOCK OPTIONS (CONTINUED);
A summary of option transactions during the years ended December 31, 1998 and
1997 is shown below:
<TABLE>
<CAPTION>
Number Weighted-Average
of Shares Exercise Price
-------- --------------
<S> <C> <C>
Outstanding at January 1, 1997 102,500 10.00
Granted: Directors 5,000 16.00
----------
Outstanding at December 31, 1997 107,500 10.29
==========
Exercisable at December 31, 1997 36,500 10.29
==========
Outstanding at January 1, 1998 107,500 10.29
Granted: Employees 2,500 20.00
Directors 5,000 20.00
----------
Outstanding at December 31, 1998 115,000 10.50
==========
Exercisable at December 31, 1998 54,000 10.50
==========
</TABLE>
A summary of options outstanding as of December 31, 1998 is shown below:
<TABLE>
<CAPTION>
Weighted-Average
Exercise Number of Options Remaining Contractual Number of Options
Price Outstanding Life Outstanding Exercisable
-------- ------------------- ---------------------- -----------------
<S> <C> <C> <C>
$ 10.00 102,500 7.5 years 53,000
16.00 5,000 8.5 years 1,000
20.00 7,500 10 years 0
------- ------
115,000 54,000
======= ======
</TABLE>
44
<PAGE> 45
PCB BANCORP, INC.
AND WHOLLY-OWNED SUBSIDIARY
PEOPLE'S COMMUNITY BANK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 20. EARNINGS PER SHARE:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
1997 1998
-------------------------------------------------------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Income $ 239,112 -- -- 552,556 -- --
Basic EPS
Income Available to
Common Stockholders 239,112 800,000 .30 552,556 800,000 .69
Effect of Dilutive Options
Stock Options
(using the Treasury Stock
Method) -- 51,668 -- -- 66,598 --
--------- ---------- ----- -------- ------- -----
Diluted EPS
Income Available to
Common Stockholders plus
Assumed exercise of options $ 239,112 851,668 .28 552,556 866,598 .64
========= ========== ===== ======== ========= =====
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There have been no disagreements with the Company's independent
auditors on any matters of accounting principles or practices or financial
statement disclosure.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The names of the Company's directors and executives officers, together
with certain information regarding them, are as follows:
45
<PAGE> 46
<TABLE>
<CAPTION>
<S> <C> <C>
Name, Age, and Address Company Position Principal Occupation
- ------------------------------------------- ---------------------------------- -----------------------------------
Phillip R. Carriger (51) Director, President and Banker
819 Xanadu Court Chief Executive Officer
Johnson City, TN 37604
Thomas J. Garland (64) Director College Professor/Consultant
1208 Christy Court
Greeneville, TN 37743
Timothy P. Jones (56) Director Newspapers
824 E. Myrtle Avenue
Johnson City, TN 37601
C.C. Marshall (65) Director Real Estate Developer
1805 Sherwood Dr.
Johnson City, TN 37601
James D. Swartz (63) Director Newspapers
112 Barberry, Unit 30
Johnson City, TN 37604
James W. Gibson, M.D. (65) Director Radiologist
810 Cloudland Drive
Johnson City, TN 37601
</TABLE>
Biographies of Directors and Officers
Phillip R. Carriger, age 51, has been the Chief Executive Officer of People's
Community in Johnson City since 1995. Prior to that time, he was the Senior
Vice President of Hamilton Bank's Corporate Division. Mr. Carriger has over 26
years of experience in the banking industry, having worked for the Comptroller
of the Currency as an Assistant National Bank Examiner, C&C Bank of Anderson
County as a Senior Vice President and First American National Bank (in the
Knoxville and Johnson City offices) as a Senior Vice President. Mr. Carriger
graduated from the University of Tennessee with a B.S. Degree in Economics in
1971. Mr. Carriger is a member of the Kiwanis Club, East Tennessee State
University Foundation Board of Trustees, Economic Development Board, Johnson
City Development Authority Board, United Way and Girl's Inc. Board of Directors
and President of the Johnson City Country Club Board of Directors.
C.C. Marshall, age 65, has been President of Mountcastle Corporation, a real
estate development and construction firm, since 1967. Mr. Marshall was a
director of Hamilton Bank for 17 years. He is a graduate of East Tennessee
State University and a native of Johnson City.
Timothy P. Jones, age 56, is a Vice President, director and stockholder of
Press Holding Corporation, the publisher of the Johnson City Press newspaper
and seven other newspapers. Mr. Jones received his A.B. Degree in Economics
from Wofford College, has a Masters degree in Mass Communications from Texas
Tech University and is a former directors of the Tennessee Press Association.
He is also a former director of Hamilton Bank and a past Chairman of the Board
of Directors of the Johnson City/Jonesborough/Washington County Chamber of
Commerce. Mr. Jones is Past President of the Johnson City Evening Rotary Club,
Past President of the Johnson City Country Club Board of Directors, a member of
the East Tennessee State University Foundation Board of Trustees, Economic
Development Board and Johnson City Development Authority Board.
Thomas J. Garland, age 64, served for 21 years in the Tennessee State Senate
(17 years as Senate Minority Leader). He is a former Chancellor of the
Tennessee Board of Regents, former Chairman of the Board of Commerce Union Bank
(now NationsBank) in Greeneville, Tennessee, and also served as Executive Vice
President and a director of First American Bank, Tri-Cities. Mr. Garland, a
graduate of East Tennessee State University, currently serves as Chairman of
the Tusculum Institute for Public Leadership and Policy at Tusculum College. He
is a member of the Board of Directors of Atmos Energy Corporation, Dallas
Texas, and a former director of Tri-State Container, now Inland Container, in
Elizabethton, Tennessee. Mr. Garland is a member of the boards of the Johnson
City Medical Center, the Sequoyah Council Boy Scouts of America, ETSU National
Alumni Association, the Greater Tri-Cities Business Alliance and the East
Tennessee State University Foundation Board of Trustees.
James D. Swartz, age 63, has been a co-owner of Swartz-Morris Media (which owns
two newspapers) and Swart Media Consultants, a company that advises newspapers
in operation systems, since 1988. Prior to that time, Mr. Swartz was President
46
<PAGE> 47
or Worrell Enterprises, a media company with 33 newspapers and three television
stations. Mr. Swartz was born in Johnson City, Tennessee, and currently serves
on the East Tennessee State University Foundation Board of Trustees and ETSU
College of Business Board of Advisors.
James W. Gibson, M.D., age 65, is currently associated with Mountain Empire
Radiology , P.C. and has practiced his specialty of radiology in Johnson City
since 1965. Dr. Gibson received his undergraduate education from Vanderbilt
University, his Medical Degree from the University of Tennessee Medical School
in Memphis and served his residency in radiology at Duke University Medical
Center, Durham, North Carolina. He presently serves on the National Alumni
Council for the University of Tennessee Medical School and is a member of the
ETSU Foundation. He has served on the Johnson City Medical School Board of
Directors and the Watauga Mental Health Center Board of Directors.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes the compensation paid or accrued for
the years ended December 31, 1998 and 1997 to the Chief Executive Officer.
There are no other officers of the Company or Bank whose total annual salary
exceeds $100,000; accordingly, disclosure regarding executive compensation is
provided in the below tables only with respect to the Chief Executive Officer.
The Company and its predecessor bank did not exist prior to 1996; accordingly,
information is supplied in the tables below only for 1998 and 1997.
<TABLE>
<CAPTION>
Annual
Compensation
Fiscal Salary
Name and Current Position Year Salary ($) Bonus ($) Compensation
- ------------------------------------------- ------------ ------------------------- -------------------
<S> <C> <C> <C>
Phillip R. Carriger 1998 $108,750 $1,304 (1)
President and Chief Executive 1997 $102,000 $3,800 (1)
Officer, Director 1996 $95,000 $3,800 (1)
</TABLE>
(1) Represents automobile reimbursement.
Option Grants in Preceeding Fiscal Years
The following table sets forth information concerning stock option
grants to the Company's Chief Executive Officer during 1996. There were no
grants prior to that time or after that time.
<TABLE>
<CAPTION>
# OF SECURITIES % OF TOTAL
UNDERLYING OPTIONS OPTIONS GRANTED TO
Name GRANTED EMPLOYEES IN 1996
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
Phillip R. Carriger 40,000 51.61%
</TABLE>
Value of Unexercised Options
This table presents information regarding the value of unexercised
options held at December 31, 1998. No stock options were exercised, and there
were no SARs outstanding during 1998, 1997, or 1996.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISABLE
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END (#) AT FY-END (1)
Name EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ----------------------------- -------------------------------------- ---------------------------------
<S> <C> <C>
Phillip R. Carriger 16,000/24,000 $192,000/$288,000
</TABLE>
47
<PAGE> 48
(1) Dollar values were calculated by determining the difference between
the price of common stock on December 31, 1998 of $22.00 per share and
the exercise price of such options
Director Compensation
Members of the Board of Directors have never received any fees for
attending meetings. However, the outside directors of the Company are entitled
to receive options under the PCB Bancorp, Inc. Outside Directors' Stock Option
Plan.
See "Stock Incentive Plans."
Stock Incentive Plans
The Company's Board of Directors and its shareholders have adopted and
approved the 1996 Stock Option Plan (the "Employee Plan") and the Outside
Directors' Stock Option Plan (the "Directors' Plan"). The Plans are intended to
promote the interests of the Company and its shareholders, to improve the
long-term financial performance of the Company, and to attract and retain the
Company's management team by providing competitive financial incentives.
1996 Stock Option Plan. The persons to whom options may be granted
under the Employee Plan will be determined from time to time by the Company's
Compensation Committee (the "Committee"). Officers and key employees of the
Company of the Company and its subsidiary, as determined by the Board or the
Committee, are eligible for grants of options.
The Employee Plan provides for the granting of incentive stock options
and non-statutory stock options. Incentive stock options offer employees the
possibility of deferring taxes until the underlying shares of stock acquired
upon exercise of the option are sold. For some of the Company's employees, the
benefits of incentive stock options are outweighed by the disadvantages of
certain restrictions imposed by the Internal Revenue Code. In addition, with
non-statutory stock options, the Company receives a tax deduction at the time
the employee recognizes ordinary income in an amount of such income to the
employee. With incentive stock options, the Company does not receive a tax
deduction at any time (assuming that the employee meets the holding period
requirements for capital gain treatment).
The Employee Plan is administered by the Committee. No person while a
member of the Committee is eligible to be granted an option under the Employee
Plan. Members of the Committee are appointed, and vacancies thereon filled, by
the Board of Directors of the Company, and the Board has the power to remove
members of the Committee.
An aggregate of 100,000 shares of the Company's common stock, no par
value, may be issued pursuant to the exercise of stock options by such officers
and key employees of the Company and its subsidiary as the Committee determine.
As of December 31, 1996, options covering a total of 77,500 shares had been
granted under the Employee Plan. There are no limitations on the number of
shares of common stock which may be optioned to any one person, except that the
aggregate fair market value (determined as of the time the option is granted)
of Company Common Stock with respect to which incentive stock options are
exercisable for the first time by an employee during any calendar under the
Employee Plan (and any other incentive stock option plan of the Company or any
subsidiary) may not exceed $100,000.
Outside Directors' Stock Option Plan. The Directors' Plan provides
that each person (except Dr. Gibson) who was a non-employee director of the
Company in April 1996, will receive an option to purchase 5,000 shares of the
Company's common stock, no par value. This option was exercisable immediately.
In addition, on the first business day following the annual meeting of
shareholders of each of the years 1996 through and including 2000, each outside
director immediately following such annual meeting will be granted an option to
purchase 1,000 shares of stock. These options will vest at a rate of 20% per
year on the anniversary date of the annual meeting of shareholders. The
exercise price of all options shall equal the fair market of the Company's
common stock on the date of the grant.
An aggregate of 60,000 shares are reserved for grants of options
pursuant to the Directors' Plan. Shares subject to options which terminate or
expire unexercised will be available for future option grants. The total number
of shares subject to the Director's Plan and the number covered under each
individual option is subject to automatic adjustment in the event of stock
dividends, recapitalizations, mergers, consolidations, split-ups, combinations
or exchanges of shares and the like, as determined by the Board of Directors.
If any non-employee director ceases to be a director as a result of
death or total disability while holding an option that has not expired and has
not been fully exercised, such person or such person's executors,
administrators, heirs, personal
48
<PAGE> 49
representative, conservator, or distributees may, at any time within six months
after the date of such death or total disability, exercise the option in its
entirety with respect to all remaining shares covered by that option.
The options under the Directors' Plan are nonstatutory options
intended not to qualify as incentive stock options under Section 422 of the
Internal Revenue Code. The grant of options will not result in taxable income
to the non-employee director or a tax deduction to the Company. The exercise of
an option by a non-employee director will result in taxable ordinary income to
the non-employee director and a corresponding deduction for the Company, in
each case equal to the difference between the option price and the fair market
value of the shares on the date the option is exercised.
The Director's Plan is administered by the Board of Directors who is
authorized to interpret the Plan but has no authority with respect to the
selection of directors to receive options or the option price for shares
subject to the Directors' Plan. The Board has no authority to materially
increase the benefits under the plan. The Board may amend the Directors' Plan
as it shall deem advisable but may not, without further shareholder approval,
increase the maximum number of shares under the plan or options granted
thereunder, reduce the minimum option price, extend the period during which
options may be granted or exercised, or change the class of persons eligible to
receive options.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of December 31, 1998 certain
information with respect to the shares of the common stock of the Company
beneficially owned by the shareholders known to the Company to own beneficially
more than 5% of the shares and the shares of common stock beneficially owned by
the Company's directors and executive officers and by all of its executive
officers and directors as a group. The shares listed below and the percentage
of ownership for each person named below have been calculated assuming that all
presently exercisable options and options that will become exercisable within
120 days from the date of this table, that have been issued pursuant to any of
the Company's stock option plans, have been exercised.
<TABLE>
<CAPTION>
Name and Address Number of Shares Beneficially
of Beneficial Owners Owned on 12/31/98 (%)
- ------------------------------------------- -----------------------------------
<S> <C> <C> <C>
Phillip R. Carriger (1) 36,000 (4.41%)
819 Xanadu Court
Johnson City, TN 37604
Thomas J. Garland (2) 15,600 (1.94%)
1208 Christy Court
Greeneville, TN 37743
Timothy P. Jones (2) 15,600 (1.94%)
824 E. Myrtle Avenue
Johnson City, TN 37601
C.C. Marshall (2) 34,678 (4.30%)
1805 Sherwood Dr.
Johnson City, TN 37601
James D. Swartz (2) 50,600 (6.28%)
112 Barberry, Unit 30
Johnson City, TN 37604
James W. Gibson, M.D. (3) 10,600 (1.32%)
810 Cloudland Drive
Johnson City, TN 37601
All Directors and Executive Officers as a group (six persons) (4) 163,078 (19.44%)
</TABLE>
49
<PAGE> 50
(1) Includes 16,000 shares which Mr. Carriger currently has a right to
acquire under Company stock options.
(2) Includes 5,600 shares which each of these directors currently has a
right to acquire under Company stock options.
(3) Includes 600 chares which Dr. Gibson currently has a right to acquire
under Company stock options.
(4) Includes 39,000 shares which all officers and directors as a group
currently have a right to purchase under Company stock options.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's directors and officers, as well as business
organizations and individuals associated with them, are customers of the Bank.
All loan transactions to such individuals and entities are made in the ordinary
course of business and on the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
unrelated borrowers and do not involve more than the normal risk of
collectibility or present other unfavorable features.
There are no cases in which aggregate extensions of credit outstanding to any
one director or officer and his associates exceeds 10% of the equity capital of
the Bank. At December 31, 1998, the total amount of loans to directors and
executive officers was $31,497, or approximately .4% of shareholder's equity.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits Filed
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
3.1 Charter of Registrant (previously filed as Exhibit
3(a) as part of the Registration Statement on Form
S-4 No. 333-4984, filed June 6, 1996, which
incorporated herein by reference).
3.2 Bylaws of Registrant (previously filed as Exhibit 3
(b) as part of the Registration Statement No.
333-4984, which exhibit is incorporated herein by
reference).
10.1 PCB Bancorp, Inc. 1996 Stock Option Plan (previously
filed as Appendix C to Registration Statement No.
333-4984, which appendix is incorporated herein by
reference).
10.2 PCB Bancorp, Inc. Outside Directors' Stock Option
Plan (previously filed as Appendix D to Registration
Statement No. 33-4984, which appendix is
incorporated herein by reference).
21 Subsidiaries of the Registrant
27.1 1998 Financial Data Schedule (for SEC use only)
27.2 1997 Financial Data Schedule (for SEC use only)
</TABLE>
(b) Reports on Form 8-K. No reports on Form 8-K filed during the
fourth quarter of the Registrant's last fiscal year.
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
50
<PAGE> 51
PCB BANCORP, INC.
(Registrant)
By:/s/ Phillip R. Carriger
--------------------------------------------------------------
Phillip R. Carriger, Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: March 25, 1999
--------------------------------------------------------------
By:/s/ Larry Parks
--------------------------------------------------------------
Larry Parks, Vice President
(Principal Accounting Officer)
Date: March 25, 1999
--------------------------------------------------------------
In accordance with the Exchange Act, this report has been sigend
below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
By:/s/ Phillip R. Carriger
---------------------------------------------------------
Phillip R. Carriger, Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: March 25, 1999
---------------------------------------------------------
By:/s/ Thomas J. Garland
---------------------------------------------------------
Thomas J. Garland, Director
Date: March 25, 1999
---------------------------------------------------------
By:/s/ Timothy P. Jones
---------------------------------------------------------
Timothy J. Jones, Director
Date: March 25, 1999
---------------------------------------------------------
By:/s/ C.C. Marshall
---------------------------------------------------------
C.C. Marshall, Director
Date: March 25, 1999
---------------------------------------------------------
By:/s/ J.D. Swartz
---------------------------------------------------------
J.D. Swartz, Director
Date: March 25, 1999
---------------------------------------------------------
51
<PAGE> 52
By:/s/ James W. Gibson
---------------------------------------------------------
James W. Gibson, Director
Date: March 25, 1999
---------------------------------------------------------
52
<PAGE> 1
EXHIBIT 21
Subsidiaries of the Registrant
The Registrant's sole subsidiary is "People's Community Bank",
a Tennessee state chartered banking institution.
53
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,048,350
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,574,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,157,224
<INVESTMENTS-CARRYING> 500,000
<INVESTMENTS-MARKET> 507,242
<LOANS> 66,671,806
<ALLOWANCE> 825,649
<TOTAL-ASSETS> 91,573,902
<DEPOSITS> 81,808,741
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,386,127
<LONG-TERM> 0
0
0
<COMMON> 800,000
<OTHER-SE> 7,579,034
<TOTAL-LIABILITIES-AND-EQUITY> 91,573,902
<INTEREST-LOAN> 5,464,044
<INTEREST-INVEST> 362,324
<INTEREST-OTHER> 310,390
<INTEREST-TOTAL> 6,136,758
<INTEREST-DEPOSIT> 3,432,989
<INTEREST-EXPENSE> 3,433,421
<INTEREST-INCOME-NET> 2,703,337
<LOAN-LOSSES> 118,398
<SECURITIES-GAINS> (3,150)
<EXPENSE-OTHER> 2,257,989
<INCOME-PRETAX> 864,419
<INCOME-PRE-EXTRAORDINARY> 864,419
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 552,556
<EPS-PRIMARY> .69
<EPS-DILUTED> .64
<YIELD-ACTUAL> 8.56
<LOANS-NON> 144,022
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 727,598
<CHARGE-OFFS> 22,291
<RECOVERIES> 1,944
<ALLOWANCE-CLOSE> 825,649
<ALLOWANCE-DOMESTIC> 825,649
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,151,092
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,123,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,422,749
<INVESTMENTS-CARRYING> 2,717,144
<INVESTMENTS-MARKET> 0
<LOANS> 57,978,296
<ALLOWANCE> 727,598
<TOTAL-ASSETS> 68,874,521
<DEPOSITS> 60,031,341
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,041,843
<LONG-TERM> 0
0
0
<COMMON> 800,000
<OTHER-SE> 7,001,337
<TOTAL-LIABILITIES-AND-EQUITY> 68,874,521
<INTEREST-LOAN> 4,000,251
<INTEREST-INVEST> 334,357
<INTEREST-OTHER> 73,669
<INTEREST-TOTAL> 4,408,277
<INTEREST-DEPOSIT> 2,329,064
<INTEREST-EXPENSE> 2,341,718
<INTEREST-INCOME-NET> 2,066,559
<LOAN-LOSSES> 356,453
<SECURITIES-GAINS> 1,617
<EXPENSE-OTHER> 1,795,107
<INCOME-PRETAX> 406,593
<INCOME-PRE-EXTRAORDINARY> 406,593
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 239,112
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
<YIELD-ACTUAL> 8.76
<LOANS-NON> 31,988
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 382,122
<CHARGE-OFFS> 11,127
<RECOVERIES> 150
<ALLOWANCE-CLOSE> 727,598
<ALLOWANCE-DOMESTIC> 365,453
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
