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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(MARK ONE)
X Annual Report under Section 13 or 15(d) of the Securities Exchange Act
- ---- of 1934 For the fiscal year ended December 31, 1997
OR
- ---- Transition Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ________ to ________
Commission file no. 333-25179
PEOPLES COMMUNITY CAPITAL CORPORATION
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(Name of Small Business Issuer in Its Charter)
South Carolina 58-2287073
-------------------------------- --------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
106A Park Avenue, S.W. 29801
Aiken, South Carolina ----------
- ---------------------------------------- (Zip Code)
(Address of Principal Executive Offices)
(803) 641-0142
------------------------------
Issuer's Telephone Number, Including Area Code
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: None.
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days.
Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B 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. [ X ]
The issuer's loss for its most recent fiscal year was $289,595. As of
December 31, 1997, 993,162 shares of Common Stock were issued and outstanding.
The aggregate market value of the Common Stock held by non-affiliates
of the Company on March 26, 1998 was $7,023,553. This calculation is based upon
an estimate of the fair market value of the Common Stock by the Company's Board
of Directors of $9.53 per share. There is not an active trading market for the
Common Stock and it is not possible to identify precisely the market value of
the Common Stock.
Transitional Small Business Disclosure Format. (Check one): Yes No X
-- --
DOCUMENTS INCORPORATED BY REFERENCE
None.
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This Report contains statements which constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
the Securities Exchange Act of 1934. These statements appear in a number of
places in this Report and include all statements regarding the intent, belief or
current expectations of the Company, its directors or its officers with respect
to, among other things: (i) the Company's financing plans; (ii) trends affecting
the Company's financial condition or results of operations; (iii) the Company's
growth strategy and operating strategy; and (iv) the declaration and payment of
dividends. Investors are cautioned that any such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties, and
that actual results may differ materially from those projected in the
forward-looking statements as a result of various factors discussed herein and
those factors discussed in detail in the Company's filings with the Securities
and Exchange Commission.
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
People's Community Capital Corporation (the "Company") was incorporated
in South Carolina on February 26, 1997 as a bank holding company to own and
control all of the capital stock of People's Community Bank of South Carolina
(the "Bank"). Organizing activities for the Company began in December 1996,
consisting primarily of preparation and filing of a registration statement for
sale of the Company's stock, preparation and filing of the Bank's charter
application, acquisition of physical facilities, and hiring of staff. On August
1, 1997, the Federal Deposit Insurance Corporation approved the Company's
application for deposit insurance for the Bank, and on August 25, 1997, the
South Carolina State Board of Financial Institutions approved the application of
the Bank to become a state-chartered financial institution. The Board of
Governors of the Federal Reserve approved the Company to be a bank holding
company on September 9, 1997. The Bank began operations on September 22, 1997 at
its main banking location in Aiken, South Carolina and began operations at its
branch facility in North Augusta, South Carolina on September 24, 1997.
The Company currently engages in no business other than owning and
managing the Bank. The holding company structure can assist the Bank in
maintaining its required capital ratios because, subject to compliance with
Federal Reserve Board debt guidelines, the Company may borrow money and
contribute the proceeds to the Bank as primary capital. Moreover, a holding
company may engage in certain non-banking activities that the Federal Reserve
Board has deemed to be closely related to banking. See "Supervision and
Regulation."
LOCATION AND SERVICE AREA
The Bank engages in a general commercial and retail banking business,
emphasizing the needs of small- to medium-sized businesses, professional
concerns, and individuals, primarily in Aiken and North Augusta, South Carolina
and the surrounding area. The Company's address is 106-A Park Avenue, S.W.,
Aiken, South Carolina 29801, the address of the Aiken main office is 1715
Whiskey Road, Aiken, South Carolina 29803, and the address of the North Augusta
branch office is 518 Georgia Avenue, North Augusta, South Carolina. The
Company's telephone number is (803) 641-0142. See "Facilities."
The primary service area of the Bank is Aiken County, with primary
focus centering on the county's two largest cities, Aiken and North Augusta.
Aiken County is one of South Carolina's largest counties geographically. It is
located in the midwestern portion of the state with its western border being the
Savannah River. Aiken County is centered between the mountains to the north and
the coast to the south, approximately one hour from Columbia and three hours
from Atlanta.
According to the 1990 census, the population of the county of Aiken was
120,940, with an estimated increase through 1996 of 12.2% to 135,640. The
population is projected to increase another 6.9% to 144,952 by 2001, according
to National Decision Systems data. It is estimated that over 70% of the total
population of the county is concentrated in and surrounding the cities of North
Augusta and Aiken where the offices of the Bank are located.
Over 70 different companies have manufacturing or industrial facilities
in Aiken county, including Savannah River Site, the largest employer in the
county, which is operated by Westinghouse Corporation for the Department of
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Energy. The 1996 estimated average household income in the county was $49,063,
with 15.2% of the households having income in excess of $50,000.
MARKETING FOCUS
Most of the banks in the Aiken County area are now local branches of
large regional banks. Although size gives the larger banks certain advantages in
competing for business from large corporations, including higher lending limits
and the ability to offer services in other areas of South Carolina and the Aiken
County area, the Company believes that there is a void in the community banking
market in the Aiken County area and believes that the Bank can successfully fill
this void. As a result, the Company generally does not attempt to compete for
the banking relationships of large corporations, but concentrates its efforts on
small- to medium-sized businesses and on individuals. The Bank advertises to
emphasize the Company's local ownership, community bank nature, and ability to
provide more personalized service than its competition.
DEPOSITS
The Bank offers a full range of deposit services that are typically
available in most banks and savings and loan associations, including checking
accounts, commercial accounts, NOW accounts, savings accounts, and other time
deposits of various types, ranging from daily money market accounts to
longer-term certificates of deposit. The transaction accounts and time
certificates are tailored to the Bank's principal market area at rates
competitive to those offered in the Aiken County area. In addition, the Bank
offers certain retirement account services, such as Individual Retirement
Accounts (IRAs). The Bank solicits these accounts from individuals, businesses,
associations and organizations, and governmental authorities.
LENDING ACTIVITIES
General. The Bank emphasizes a range of lending services, including
real estate, commercial and consumer loans, to individuals and small- to
medium-sized businesses and professional concerns that are located in or conduct
a substantial portion of their business in the Bank's market area.
Real Estate Loans. One of the primary components of the Bank's loan
portfolio is loans secured by first or second mortgages on real estate. These
loans generally consist of commercial real estate loans, construction and
development loans, and residential real estate loans (but exclude home equity
loans, which are classified as consumer loans). Loan terms generally are limited
to five years or less, although payments may be structured on a longer
amortization basis. Interest rates are fixed or adjustable. The Bank generally
charges an origination fee. Management attempts to reduce credit risk in the
commercial real estate portfolio by emphasizing loans on owner-occupied office
and retail buildings where the loan-to-value ratio, established by independent
appraisals, does not exceed 80%. In addition, the Bank typically requires
personal guarantees of the principal owners of the property backed with a review
by the Bank of the personal financial statements of the principal owners. The
principal economic risk associated with each category of loans, including real
estate loans, is the creditworthiness of the Bank's borrowers. The risks
associated with real estate loans vary with many economic factors, including
employment levels and fluctuations in the value of real estate. The Bank
competes for real estate loans with a number of bank competitors which are well
established in the Aiken County area. Most of these competitors have
substantially greater resources and lending limits than the Bank. As a result,
the Bank occasionally must charge a lower interest rate to attract borrowers.
See "Competition." The Bank also originates loans for sale into the secondary
market. The Bank attempts to limit interest rate risk and credit risk on these
loans by locking the interest rate for each loan with the secondary investor and
receiving the investor's underwriting approval prior to originating the loan.
Commercial Loans. The Bank makes loans for commercial purposes in
various lines of businesses. Equipment loans typically are made for a term of
five years or less at fixed or variable rates, with the loan fully amortized
over the term and secured by the financed equipment and with a loan-to-value
ratio of 80% or less. Working capital loans typically have terms not exceeding
one year and are usually secured by accounts receivable, inventory, or personal
guarantees of the principals of the business. For loans secured by accounts
receivable or inventory, principal is typically repaid as the assets securing
the loan are converted into cash, and in other cases principal is typically due
at maturity. The principal economic risk associated with each category of loans,
including commercial loans, is the
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creditworthiness of the Bank's borrowers. The risks associated with commercial
loans vary with many economic factors, including the economy in the Aiken County
area, especially the tourist economy. The well-established banks in the Aiken
County area will make proportionately more loans to medium- to large-sized
businesses than the Bank. Many of the Bank's commercial loans are made to small-
to medium-sized businesses which may be less able to withstand competitive,
economic, and financial conditions than larger borrowers.
Consumer Loans. The Bank makes a variety of loans to individuals for
personal and household purposes, including secured and unsecured installment and
term loans, home equity loans and lines of credit, and revolving lines of credit
such as credit cards. These loans typically carry balances of less than $25,000
and, in the case of non-revolving loans, are amortized over a period not
exceeding 48 months. The revolving loans typically bear interest at a fixed rate
and require monthly payments of interest and a portion of the principal balance.
The underwriting criteria for home equity loans and lines of credit is generally
the same as applied by the Bank when making a first mortgage loan, as described
above, and home equity lines of credit typically expire fifteen years or less
after origination. As with the other categories of loans, the principal economic
risk associated with consumer loans is the creditworthiness of the Bank's
borrowers, and the principal competitors for consumer loans is the established
banks in the Aiken County area.
Loan Approval and Review. The Bank's loan approval policies provide for
various levels of officer lending authority. When the amount of aggregate loans
to a single borrower exceeds an individual officer's lending authority, the loan
request is considered and approved by an officer with a higher lending limit.
The Bank has established a Board loan committee that must approve any loan over
the Chief Executive Officer's lending limit. The Bank does not make any loans to
directors, officers, or employees of the Bank unless the loan is approved by the
board of directors of the Bank and is made on terms not more favorable to such
person than would be available to a person not affiliated with the Bank
(excluding consumer loans less than $20,000 which are available at employee
rates).
Lending Limits. The Bank's lending activities are subject to a variety
of lending limits imposed by federal law. While differing limits apply in
certain circumstances based on the type of loan or the nature of the borrower
(including the borrower's relationship to the Bank), in general the Bank is
subject to a loan-to-one-borrower limit. This limit will increase or decrease as
the Bank's capital increases or decreases. Unless the Bank is able to sell
participations in its loans to other financial institutions, the Bank will not
be able to meet all of the lending needs of loan customers requiring aggregate
extensions of credit above these limits.
OTHER BANKING SERVICES
Other anticipated bank services include cash management services, safe
deposit boxes, travelers checks, direct deposit of payroll and social security
checks, and automatic drafts for various accounts. The Bank is associated with a
shared network of automated teller machines that may be used by Bank customers
throughout South Carolina and other regions. The Bank also offers MasterCard and
VISA credit card services through a correspondent bank as an agent for the Bank.
The Bank does not plan to exercise trust powers during its initial years of
operation.
COMPETITION
The banking business is highly competitive. The Bank competes as a
financial intermediary with other commercial banks, savings and loan
associations, credit unions, and money market mutual funds operating in the
Aiken County area and elsewhere. As of December 31, 1997, there were four
commercial banks (none of which are headquartered in Aiken County), two savings
banks, and two credit unions operating in Aiken County. A number of these
competitors are well established in the Aiken County area. Most of them have
substantially greater resources and lending limits than the Bank and offer
certain services, such as extensive and established branch networks and trust
services, that the Bank either does not expect to provide or will not provide
initially. As a result of these competitive factors, the Bank may have to pay
higher rates of interest to attract deposits.
EMPLOYEES
The Bank has approximately 20 full-time employees. The Company does not
have any employees other than its officers, none of whom will initially receive
any remuneration for their services to the Company.
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SUPERVISION AND REGULATION
The Company and the Bank are subject to state and federal banking laws
and regulations which impose specific requirements or restrictions on and
provide for general regulatory oversight with respect to virtually all aspects
of operations. These laws and regulations are generally intended to protect
depositors, not shareholders. To the extent that the following summary describes
statutory or regulatory provisions, it is qualified in its entirety by reference
to the particular statutory and regulatory provisions. Any change in applicable
laws or regulations may have a material effect on the business and prospects of
the Company. Beginning with the enactment of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA") and following with FDICIA, which
was enacted in 1991, numerous additional regulatory requirements have been
placed on the banking industry in the past several years, and additional changes
have been proposed. The banking industry is also likely to change significantly
as a result of the passage of the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Banking Act") The operations of the
Company and the Bank may be affected by legislative changes and the policies of
various regulatory authorities. The Company is unable to predict the nature or
the extent of the effect on its business and earnings that fiscal or monetary
policies, economic control, or new federal or state legislation may have in the
future.
THE COMPANY
Because it owns the outstanding capital stock of the Bank, the Company
is a bank holding company within the meaning of the Federal Bank Holding Company
Act of 1956 (the "BHCA") and The South Carolina Bank Holding Company Act (the
"South Carolina Act"). The activities of the Company are also governed by the
Glass-Steagall Act of 1933 (the "Glass-Steagall Act").
The BHCA. Under the BHCA, the Company is subject to periodic
examination by the Federal Reserve and will be required to file periodic reports
of its operations and such additional information as the Federal Reserve may
require. The Company's and the Bank's activities are limited to banking,
managing, or controlling banks; furnishing services to or performing services
for its subsidiaries; and engaging in other activities that the Federal Reserve
determines to be so closely related to banking, managing, or controlling banks
as to be a proper incident thereto.
Investments, Control, and Activities. With certain limited exceptions,
the BHCA requires every bank holding company to obtain the prior approval of the
Federal Reserve before (i) acquiring substantially all the assets of any bank,
(ii) acquiring direct or indirect ownership or control of any voting shares of
any bank if after such acquisition it would own or control more than 5% of the
voting shares of such bank (unless it already owns or controls the majority of
such shares), or (iii) merging or consolidating with another bank holding
company.
In addition, and subject to certain exceptions, the BHCA and the Change
in Bank Control Act, together with regulations thereunder, require Federal
Reserve approval (or, depending on the circumstances, no notice of disapproval)
prior to any person or company acquiring "control" of a bank holding company,
such as the Company. Control is conclusively presumed to exist if an individual
or company acquires 25% or more of any class of voting securities of the bank
holding company. Control is rebuttably presumed to exist if a person acquires
10% or more but less than 25% of any class of voting securities and either the
Company has registered securities under Section 12 of the Exchange Act (which
the Company is required to do with respect to the Common Stock because it has
more than 500 shareholders of record) or no other person will own a greater
percentage of that class of voting securities immediately after the transaction.
The regulations provide a procedure for challenge of the rebuttable control
presumption.
Under the BHCA, a bank holding company is generally prohibited from
engaging in, or acquiring direct or indirect control of more than 5% of the
voting shares of any company engaged in, nonbanking activities, unless the
Federal Reserve Board, by order or regulation, has found those activities to be
so closely related to banking or managing or controlling banks as to be a proper
incident thereto. Some of the activities that the Federal Reserve Board has
determined by regulation to be proper incidents to the business of a bank
holding company include making or servicing loans and certain types of leases,
engaging in certain insurance and discount brokerage activities, performing
certain data processing services, acting in certain circumstances as a fiduciary
or investment or financial adviser, owning savings associations, and making
investments in certain corporations or projects designed primarily to promote
community welfare.
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The Federal Reserve Board imposes certain capital requirements on the
Company under the BHCA, including a minimum leverage ratio and a minimum ratio
of "qualifying" capital to risk-weighted assets. These requirements are
described below under "Capital Regulations." Subject to its capital requirements
and certain other restrictions, the Company will be able to borrow money to make
a capital contribution to the Bank, and such loans may be repaid from dividends
paid from the Bank to the Company (although the ability of the Bank to pay
dividends will be subject to regulatory restrictions as described below in "The
Bank--Dividends"). The Company will also be able to raise capital for
contribution to the Bank by issuing securities without having to receive
regulatory approval, subject to compliance with federal and state securities
laws.
Source of Strength; Cross-Guarantee. In accordance with Federal Reserve
Board policy, the Company is expected to act as a source of financial strength
to the Bank and to commit resources to support the Bank in circumstances in
which the Company might not otherwise do so. Under the BHCA, the Federal Reserve
Board may require a bank holding company to terminate any activity or relinquish
control of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon
the Federal Reserve Board's determination that such activity or control
constitutes a serious risk to the financial soundness or stability of any
subsidiary depository institution of the bank holding company. Further, federal
bank regulatory authorities have additional discretion to require a bank holding
company to divest itself of any bank or nonbank subsidiary if the agency
determines that divestiture may aid the depository institution's financial
condition.
Glass-Steagall Act. The Company will also be restricted in its
activities by the provisions of the Glass-Steagall Act, which will prohibit the
Company from owning subsidiaries that are engaged principally in the issue,
flotation, underwriting, public sale, or distribution of securities. The
interpretation, scope, and application of the provisions of the Glass-Steagall
Act currently are being considered and reviewed by regulators and legislators,
and the interpretation and application of those provisions have been challenged
in the federal courts.
South Carolina Act. As a bank holding company registered under the
South Carolina Act, the Company is subject to regulation by the South Carolina
Bank Board. Consequently, the Company must receive the approval of the South
Carolina Bank Board prior to engaging in the acquisition of banking or
nonbanking institutions or assets. The Company must also file with the South
Carolina Bank Board periodic reports with respect to its financial condition and
operations, management, and intercompany relationships between the Company and
its subsidiaries.
THE BANK
General. The Bank operates as a state bank incorporated under the laws
of the United States and subject to examination by the South Carolina Bank
Board. The South Carolina Bank Board and the Federal Reserve regulate or monitor
virtually all areas of the Bank's operations, including security devices and
procedures, adequacy of capitalization and loss reserves, loans, investments,
borrowings, deposits, mergers, issuances of securities, payment of dividends,
interest rates payable on deposits, interest rates or fees chargeable on loans,
establishment of branches, corporate reorganizations, maintenance of books and
records, and adequacy of staff training to carry on safe lending and deposit
gathering practices. The South Carolina Bank Board require the Bank to maintain
certain capital ratios and impose limitations on the Bank's aggregate investment
in real estate, bank premises, and furniture and fixtures. The Bank is required
by the South Carolina Bank Board to prepare quarterly reports on the Bank's
financial condition and to conduct an annual audit of its financial affairs in
compliance with minimum standards and procedures prescribed by the South
Carolina Bank Board.
Under FDICIA, all insured institutions must undergo regular on site
examinations by their appropriate banking agency. The cost of examinations of
insured depository institutions and any affiliates may be assessed by the
appropriate agency against each institution or affiliate as it deems necessary
or appropriate. Insured institutions are required to submit annual reports to
the FDIC and the appropriate agency (and state supervisor when applicable).
FDICIA also directs the FDIC to develop with other appropriate agencies a method
for insured depository institutions to provide supplemental disclosure of the
estimated fair market value of assets and liabilities, to the extent feasible
and practicable, in any balance sheet, financial statement, report of condition
or any other report of any insured depository institution. FDICIA also requires
the federal banking regulatory agencies to prescribe, by regulation, standards
for all insured depository institutions and depository institution holding
companies relating, among other things, to: (i) internal
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controls, information systems, and audit systems; (ii) loan documentation; (iii)
credit underwriting; (iv) interest rate risk exposure; and (v) asset quality.
Holding companies which have been registered or have undergone a change
in control within the past two years or which have been deemed by the Federal
Reserve Board to be troubled institutions must give the Federal Reserve Board
thirty days prior notice of the appointment of any senior executive officer or
director. Within the thirty day period, the Federal Reserve Board may approve or
disapprove any such appointment. The Company will meet the criteria which
triggers this additional approval during the first two years after it is
registered.
Deposit Insurance. The FDIC establishes rates for the payment of
premiums by federally insured banks and thrifts for deposit insurance. A
separate Bank Insurance Fund ("BIF") and Savings Association Insurance Fund
("SAIF") are maintained for commercial banks and thrifts, respectively, with
insurance premiums from the industry used to offset losses from insurance
payouts when banks and thrifts fail. Due to the high rate of failures in recent
years, the fees that commercial banks and thrifts pay to BIF and SAIF have
increased. Since 1993, insured depository institutions like the Bank have paid
for deposit insurance under a risk-based premium system. Under this system,
until mid-1995 depositor institutions paid to BIF or SAIF from $0.23 to $0.31
per $100 of insured deposits depending on its capital levels and risk profile,
as determined by its primary federal regulator on a semi-annual basis. Once the
BIF reached its legally mandated reserve ratio in mid-1995, the FDIC lowered
premiums for well-capitalized banks, eventually to $.00 per $100, with a minimum
semiannual assessment of $1,000. However, in 1996 Congress enacted the Deposit
Insurance Funds Act of 1996, which eliminated this minimum assessment. It also
separates, effective January 1, 1997, the Financial Corporation (FICO)
assessment to service the interest on its bond obligations. The amount assessed
on individual institutions, including the Bank, by FICO will be in addition to
the amount paid for deposit insurance according to the risk-related assessment
rate schedule. Increases in deposit insurance premiums or changes in risk
classification will increase the Bank's cost of funds, and there can be no
assurance that such cost can be passed on the Bank's customers.
Transactions With Affiliates and Insiders. The Bank is subject to the
provisions of Section 23A of the Federal Reserve Act, which place limits on the
amount of loans or extensions of credit to, or investments in, or certain other
transactions with, affiliates and on the amount of advances to third parties
collateralized by the securities or obligations of affiliates. The aggregate of
all covered transactions is limited in amount, as to any one affiliate, to 10%
of the bank's capital and surplus and, as to all affiliates combined, to 20% of
the bank's capital and surplus. Furthermore, within the foregoing limitations as
to amount, each covered transaction must meet specified collateral requirements.
Compliance is also required with certain provisions designed to avoid the taking
of low quality assets.
The Bank is also subject to the provisions of Section 23B of the
Federal Reserve Act which, among other things, prohibit an institution from
engaging in certain transactions with certain affiliates unless the transactions
are on terms substantially the same, or at least as favorable to such
institution or its subsidiaries, as those prevailing at the time for comparable
transactions with non-affiliated companies. The Bank is subject to certain
restrictions on extensions of credit to executive officers, directors, certain
principal shareholders, and their related interests. Such extensions of credit
(i) must be made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
third parties and (ii) must not involve more than the normal risk of repayment
or present other unfavorable features.
Dividends. The Bank is subject to regulatory restrictions on the
payment of dividends, including a prohibition of payment of dividends from its
capital. All dividends must be paid out of the undivided profits then on hand,
after deducting expenses, including losses and bad debts. The Bank must also
obtain approval from the South Carolina Bank Board prior to the payment of any
dividends to the Company. In addition, under FDICIA, the Bank may not pay a
dividend if, after paying the dividend, the Bank would be undercapitalized. See
"Capital Regulations" below.
Branching. Under current South Carolina law, the Bank may open branch
offices throughout South Carolina with the prior approval of the South Carolina
Bank Board. In addition, with prior regulatory approval, the Bank will be able
to acquire existing banking operations in South Carolina. Furthermore, federal
legislation has recently been passed which permits interstate branching. The new
law permits out-of-state acquisitions by bank holding companies (subject to veto
by new state law), interstate branching by banks if allowed by state law,
interstate merging by banks, and de novo branching by banks if allowed by state
law. See "Recent Legislative Developments."
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Community Reinvestment Act. The Community Reinvestment Act requires
that, in connection with examinations of financial institutions within their
respective jurisdictions, a financial institution's primary federal regulator
(this is the FDIC for the Bank) shall evaluate the record of the financial
institutions in meeting the credit needs of their local communities, including
low and moderate income neighborhoods, consistent with the safe and sound
operation of those institutions. These factors are also considered in evaluating
mergers, acquisitions, and applications to open a branch or facility.
Other Regulations. Interest and certain other charges collected or
contracted for by the Bank are subject to state usury laws and certain federal
laws concerning interest rates. The Bank's loan operations are also subject to
certain federal laws applicable to credit transactions, such as the federal
Truth-In-Lending Act, governing disclosures of credit terms to consumer
borrowers; the Home Mortgage Disclosure Act of 1975, requiring financial
institutions to provide information to enable the public and public officials to
determine whether a financial institution will be fulfilling its obligation to
help meet the housing needs of the community it serves; the Equal Credit
Opportunity Act, prohibiting discrimination on the basis of race, creed or other
prohibited factors in extending credit; the Fair Credit Reporting Act of 1978,
governing the use and provision of information to credit reporting agencies; the
Fair Debt Collection Act, governing the manner in which consumer debts may be
collected by collection agencies; and the rules and regulations of the various
federal agencies charged with the responsibility of implementing such federal
laws. The deposit operations of the Bank also are subject to the Right to
Financial Privacy Act, which imposes a duty to maintain confidentiality of
consumer financial records and prescribes procedures for complying with
administrative subpoenas of financial records, and the Electronic Funds Transfer
Act and Regulation E issued by the Federal Reserve Board to implement that act,
which governs automatic deposits to and withdrawals from deposit accounts and
customers' rights and liabilities arising from the use of automated teller
machines and other electronic banking services.
CAPITAL REGULATIONS
The federal bank regulatory authorities have adopted risk-based capital
guidelines for banks and bank holding companies that are designed to make
regulatory capital requirements more sensitive to differences in risk profiles
among banks and bank holding companies and account for off-balance sheet items.
The guidelines are minimums, and the federal regulators have noted that banks
and bank holding companies contemplating significant expansion programs should
not allow expansion to diminish their capital ratios and should maintain ratios
in excess of the minimums. Neither the Company nor the Bank has received any
notice indicating that either entity will be subject to higher capital
requirements. The current guidelines require all bank holding companies and
federally-regulated banks to maintain a minimum risk-based total capital ratio
equal to 8%, of which at least 4% must be Tier 1 capital. Tier 1 capital
includes common shareholders' equity, qualifying perpetual preferred stock, and
minority interests in equity accounts of consolidated subsidiaries, but excludes
goodwill and most other intangibles and excludes the allowance for loan and
lease losses. Tier 2 capital includes the excess of any preferred stock not
included in Tier 1 capital, mandatory convertible securities, hybrid capital
instruments, subordinated debt and intermediate term-preferred stock, and
general reserves for loan and lease losses up to 1.25% of risk-weighted assets.
Under these guidelines, banks' and bank holding companies' assets are
given risk-weights of 0%, 20%, 50%, or 100%. In addition, certain off-balance
sheet items are given credit conversion factors to convert them to asset
equivalent amounts to which an appropriate risk-weight will apply. These
computations result in the total risk-weighted assets. Most loans are assigned
to the 100% risk category, except for first mortgage loans fully secured by
residential property and, under certain circumstances, residential construction
loans, both of which carry a 50% rating. Most investment securities are assigned
to the 20% category, except for municipal or state revenue bonds, which have a
50% rating, and direct obligations of or obligations guaranteed by the United
States Treasury or United States Government agencies, which have a 0% rating.
The federal bank regulatory authorities have also implemented a
leverage ratio, which is equal to Tier 1 capital as a percentage of average
total assets less intangibles, to be used as a supplement to the risk-based
guidelines. The principal objective of the leverage ratio is to place a
constraint on the maximum degree to which a bank holding company may leverage
its equity capital base. The minimum required leverage ratio for top-rated
institutions is 3%, but most institutions are required to maintain an additional
cushion of at least 100 to 200 basis points.
8
<PAGE> 9
FDICIA established a new capital-based regulatory scheme designed to
promote early intervention for troubled banks which requires the FDIC to choose
the least expensive resolution of bank failures. The new capital-based
regulatory framework contains five categories of compliance with regulatory
capital requirements, including "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized." To qualify as a "well capitalized" institution, a bank must
have a leverage ratio of no less than 5%, a Tier 1 risk-based ratio of no less
than 6%, and a total risk-based capital ratio of no less than 10%, and the bank
must not be under any order or directive from the appropriate regulatory agency
to meet and maintain a specific capital level. Initially, the Board of Directors
expects the Bank to qualify as "well-capitalized."
Under the FDICIA regulations, the applicable agency can treat an
institution as if it were in the next lower category 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. The
degree of regulatory scrutiny of a financial institution will increase, and the
permissible activities of the institution will decrease, as it moves downward
through the capital categories. Institutions that fall into one of the three
undercapitalized categories may be required to (i) submit a capital restoration
plan; (ii) raise additional capital; (iii) restrict their growth, deposit
interest rates, and other activities; (iv) improve their management; (v)
eliminate management fees; or (vi) divest themselves of all or a part of their
operations. Bank holding companies controlling financial institutions can be
called upon to boost the institutions' capital and to partially guarantee the
institutions' performance under their capital restoration plans.
Effective January 1, 1997, the FDIC amended the risk-based capital
standards to incorporate a measure for market risk to cover all positions
located in a institution's trading account, and foreign exchange and commodity
positions wherever located. The effect of the rule is that it requires any bank
or bank holding company with significant exposure to market risk to measure the
risk and hold capital commensurate with that risk. Since the Bank does not have
any plans to engage in trading, foreign exchange or commodity position
activities, the rule is not expected to have an effect on the required Bank
capital levels. Rapid growth, poor loan portfolio performance, or poor earnings
performance, or a combination of these factors, could change the Company's
capital position in a relatively short period of time, making an additional
capital infusion necessary.
Failure to meet these capital requirements would mean that a bank would
be required to develop and file a plan with its primary federal banking
regulator describing the means and a schedule for achieving the minimum capital
requirements. In addition, such a bank would generally not receive regulatory
approval of any application that requires the consideration of capital adequacy,
such as a branch or merger application, unless the bank could demonstrate a
reasonable plan to meet the capital requirement within a reasonable period of
time.
ENFORCEMENT POWERS
FIRREA expanded and increased civil and criminal penalties available
for use by the federal regulatory agencies against depository institutions and
certain "institution-affiliated parties" (primarily including management,
employees, and agents of a financial institution, and independent contractors
such as attorneys and accountants and others who participate in the conduct of
the financial institution's affairs). These practices can include the failure of
an institution to timely file required reports or the filing of false or
misleading information or the submission of inaccurate reports. Civil penalties
may be as high as $1,000,000 a day for such violations. Criminal penalties for
some financial institution crimes have been increased to twenty years. In
addition, regulators are provided with greater flexibility to commence
enforcement actions against institutions and institution-affiliated parties.
Possible enforcement actions include the termination of deposit insurance.
Furthermore, FIRREA expanded the appropriate banking agencies' power to issue
cease-and-desist orders that may, among other things, require affirmative action
to correct any harm resulting from a violation or practice, including
restitution, reimbursement, indemnifications or guarantees against loss. A
financial institution may also be ordered to restrict its growth, dispose of
certain assets, rescind agreements or contracts, or take other actions as
determined by the ordering agency to be appropriate.
RECENT LEGISLATIVE DEVELOPMENTS
In the 1994 legislative session, South Carolina amended its bank
holding act to allow nationwide interstate banking beginning in 1996. The
Interstate Banking Act, passed by Congress in 1994, which allows unrestricted
interstate bank mergers, unrestricted interstate acquisition of banks by bank
holding companies, and interstate de novo
9
<PAGE> 10
branching by banks. As a result of this legislation, the number of competitors
in the Company's market may increase. However, the Company believes it can
compete effectively in the market and that the legislation will not have a
material adverse impact on the Company or the Bank. From time to time, various
bills are introduced in the United States Congress with respect to the
regulation of financial institutions. Certain of these proposals, if adopted,
could significantly change the regulation of banks and the financial services
industry. The Company cannot predict whether any of these proposals will be
adopted or, if adopted, how these proposals would affect the Company.
EFFECT OF GOVERNMENTAL MONETARY POLICIES
The earnings of the Bank will be affected by domestic economic
conditions and the monetary and fiscal policies of the United States government
and its agencies. The Federal Reserve Board's monetary policies have had, and
will likely continue to have, an important impact on the operating results of
commercial banks through its power to implement national monetary policy in
order, among other things, to curb inflation or combat a recession. The monetary
policies of the Federal Reserve Board have major effects upon the levels of bank
loans, investments and deposits through its open market operations in United
States government securities and through its regulation of the discount rate on
borrowings of member banks and the reserve requirements against member bank
deposits. It is not possible to predict the nature or impact of future changes
in monetary and fiscal policies.
ITEM 2. DESCRIPTION OF PROPERTY
Aiken Office. The Aiken main office is located at 1715 Whiskey Road,
Aiken, South Carolina 29803. It is a 2,600 square foot facility with 28 customer
parking spaces, five teller stations, and five drive-through banking stations.
The Aiken main office provides automated teller services to its customers.
North Augusta Office. The North Augusta branch office is located at 518
Georgia Avenue in North Augusta, South Carolina, approximately 15 miles from
Aiken, South Carolina, in the downtown business district of North Augusta. It is
a 3,600 square foot facility with 22 customer parking spaces, five teller
stations, which may be expanded to 10 stations to accommodate the location's
needs for expansion, if necessary, and a 338 square foot drive-through banking
facility with four drive-through banking stations. The North Augusta location
offers automated teller services to its customers.
Executive Office. The Company's main offices are located at 106-A Park
Avenue, S.W., Aiken, South Carolina 29801. The Bank does not make loans or
accept deposits at this office, which has approximately 10,000 square feet and
serves as the Company's headquarters.
The Company believes that the facilities will adequately serve the
Bank's needs for its first several years of operation.
ITEM 3. LEGAL PROCEEDINGS.
Neither the Company nor the Bank is a party to, nor is any of their
property the subject of, any material pending legal proceedings incidental to
the business of the Company or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) The Company's stock trades under the symbol "PPLM" on the Small Cap
Over-the Counter Market. Trading and quotations of the common stock have been
limited and sporadic. Management is not aware of the prices at which all shares
of stock have been traded. The ranges of prices known to management are $10.50
to $11.00. As of December 31, 1997, there were approximately 900 shareholders of
record.
10
<PAGE> 11
All outstanding shares of Common Stock of the Company are entitled to
share equally in dividends from funds legally available therefor, when, as and
if declared by the Board of Directors. The Company does not plan to declare any
dividends in the immediate future.
(b) Pursuant to Commission Rule 463, the Company is obligated to report
on the use of proceeds from its initial public offering (the "Offering"). The
information provided below is given as of December 31, 1997.
(1) The Company's registration statement on Form SB-2 (File
No. 333-25179) was declared effective by the Commission
on May 23, 1997.
(2) The Offering commenced on May 23, 1997.
(3) The Offering did not terminate before any securities were
sold.
(4)
(i) The Offering terminated in September, 1997,
before the sale of all securities registered.
(ii) There was no managing underwriter of the
Offering.
(iii) Common Stock was the only class of securities
registered in the Offering.
(iv) 1,200,000 shares ($12,000,000) of Common Stock
was registered, of which 993,162 shares
($9,931,620) were sold.
(v) An estimate of the amount of expenses incurred
by the Company in connection with the issuance
and distribution of the Common Stock registered
is $183,630. Such expenses have been paid
directly or indirectly to persons or entities
other than directors, officers, persons owning
10% or more of the Company's securities and
affiliates of the Company.
(vi) The net proceeds to the Company after deducting
the total expenses described above were
$9,747,990.
(vii) Through December 31, 1997, $3,744,402 of the
net proceeds of the Offering were invested in
cash, investments, property and equipment;
$6,000,000 was invested in the Company's bank
subsidiary; and $17,441 was invested in other
assets. None of the net proceeds have been paid
directly or indirectly to directors, officers,
persons owning 10% or more of the Company's
securities and affiliates of the Company.
(viii)The use of proceeds described above does not
represent a material change from the use of
proceeds disclosed in the prospectus for the
Offering.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This discussion and analysis is intended to assist the reader in
understanding the financial condition and results of operations of People's
Community Capital Corporation. This commentary should be read in conjunction
with the financial statements and the related notes and the other statistical
information in this report.
OVERVIEW
People's Community Capital Corporation (the Company) was incorporated
in South Carolina on February 26, 1997 as a bank holding company to own and
control all of the capital stock of People's Community Bank of South Carolina
(the Bank). Organizing activities for the Company began in December 1996,
consisting
11
<PAGE> 12
primarily of preparation and filing of a registration statement for sale of the
Company's stock, preparation and filing of the Bank's charter application,
acquisition of physical facilities, and hiring of staff. On August 1, 1997, the
Federal Deposit Insurance Corporation approved the Company's application for
deposit insurance for the Bank, and on August 25, 1997, the South Carolina State
Board of Financial Institutions approved the application of the Bank to become a
state-chartered financial institution. The Board of Governors of the Federal
Reserve approved the Company to be a bank holding company on September 9, 1997.
The Bank began operations on September 22, 1997 at its main banking location in
Aiken, South Carolina and began operations at its branch facility in North
Augusta, South Carolina on September 24, 1997.
RESULTS OF OPERATIONS
At December 31, 1997, the end of the first partial year of operations,
the Company had total assets of $21,270,967, which consisted of cash and due
from banks of $625,785, federal funds sold of $9,240,000, securities and
short-term investments of $5,629,838, net loans of $3,889,163, property and
equipment of $1,607,802, and other assets of $278,379. The Company's liabilities
at year-end were $11,705,622 in deposits and $104,739 in other liabilities.
Stockholders' equity at December 31, 1997 was $9,460,606.
The Company's net loss for the period ended December 31, 1997 was
$289,595, after taking into account a net income tax benefit of $149,963.
Staffing at the Bank was at a full-service level since the first part of
September for training in preparation of the Bank's opening on September 22,
1997, and other non-interest expenses were incurred in operating the Bank.
Net interest income of $245,942 was earned for the period and offset
non-interest expense partially. Interest income was $326,757 and interest
expense was $80,815 as the Bank recorded its first interest-earning assets and
liabilities. The majority of the interest income was earned on securities and
federal funds sold for a total of $274,448.
The provision for loan loss reserves was established at $60,000 at
December 31, 1997, reflecting management's estimate of the amount necessary to
adequately reflect possible loan losses. The Company's allowance for loan losses
as a percentage of its year-end loans was 1.52%. However, management's judgment
as to the adequacy of the allowance is based upon a number of assumptions about
future events which it believes to be reasonable, but which may or may not be
valid. Thus, there can be no assurance that charge-offs in future periods will
not exceed the allowance for loan losses or that additional increases in the
loan loss allowance will not be required. The Company had no non-performing
loans or net charge-offs in 1997.
Non-interest income in 1997 was $9,504, representing service charges on
deposit accounts of $3,260 and other fee income of $6,244. Non-interest expense
was $635,004, consisting of $350,028 of salaries and employee benefits incurred
during the initial start-up phase of the Company and the Bank through year-end,
and other expenses relating to the operation of the Company and Bank.
NET INTEREST INCOME
Earnings are dependent on net interest income to be the primary source
of revenue. Net interest income is the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Interest
rate spread, or margin, is the difference between the yield on average earning
assets and the rate on average interest-bearing liabilities. Net interest margin
is net interest income divided by average interest-earning assets.
AVERAGE BALANCES, YIELDS AND RATE
The following table sets forth, for the period February 26, 1997
through December 31, 1997, the weighted average yields earned, the weighted
average rates paid, the interest rate spread and the net yield on earning
assets, on an annualized basis.
12
<PAGE> 13
<TABLE>
<CAPTION>
Average Income/ Yield/
Balance Expense Rate
------- ------- ----
<S> <C> <C> <C>
ASSETS:
Federal funds sold $4,226,102 $238,728 5.65%
Investment securities 579,850 35,720 6.16%
Loans 490,257 52,309 10.67%
---------- -------- -----
Total earning assets 5,296,209 326,757 6.17%
---------- -------- -----
All other assets 780,259
----------
Total assets $6,076,468
==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing deposits $1,704,932 $ 80,815 4.74%
--------
Non-interest bearing deposits 317,492
Other liabilities 309,172
Shareholders' equity 3,744,872
----------
Total liabilities and shareholders' equity $6,076,468
==========
Net interest income/ margin $245,942 1.43%
========
Net yield on earning assets 4.64%
</TABLE>
As shown above, the average yield on earning assets was 6.17%, while
the average cost of funds was 4.74% for a net interest margin of 1.43%. The net
yield as a percentage of interest-earning assets was 4.64%. The average balances
above were calculated on an annualized basis, even though the Company and the
Bank were not in operations for the entire year. Income on loans includes loan
fees that amounted to $8,027. Interest expense of $17,307 was incurred on
short-term borrowings, but was capitalized into property and equipment. See the
section in this discussion relating to short-term borrowings.
RATE/VOLUME ANALYSIS
Net interest income can be analyzed in terms of the impact of changing
rates and changing volume. As this was the first period of operations for the
Company, all interest income and expense is attributable to volume and therefore
the Company has omitted the table analyzing the changes in net interest income
as it would not be meaningful.
LIQUIDITY AND RATE SENSITIVITY
Asset/liability management is the process by which the Company monitors
and controls the mix and maturities of its assets and liabilities. The essential
purposes of asset/liability management are to ensure adequate liquidity and to
maintain an appropriate balance between interest sensitive assets and
liabilities to minimize potentially adverse impacts on earnings from changes in
market interest rates.
Primary sources of liquidity for the Company are a stable base of
deposits, scheduled repayments on the Company's loans, and interest and
maturities on its investments. All securities of the Company have been
classified as available-for-sale. If necessary, the Company might sell a portion
of its investment securities in connection with the management of its interest
sensitivity gap or to manage liquidity. The Company may also utilize its cash
and due from banks and federal funds sold to meet liquidity needs. Additionally,
the Company has an unsecured line of credit with its correspondent bank in the
amount of $1,800,000, on which no borrowings have been drawn, that can be
utilized if needed. The Company believes that its liquidity and ability to
manage assets will be sufficient to meet its cash requirements over the near
future.
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
13
<PAGE> 14
subject to interest rate repricing within a given period of time. Interest rate
sensitivity can be managed by repricing assets or liabilities, selling
securities available-for-sale, 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 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 generally would benefit from increasing
market rates of interest when it has an asset-sensitive gap position and
generally would benefit from decreasing market rates of interest when it is
liability-sensitive.
Because the Bank has only been open since September 1997 and not yet
generated a substantial amount of loans, the Company is currently asset
sensitive over all time frames. However, the Company's gap analysis is not a
precise indicator of its interest sensitivity position. The analysis presents
only a static view of the timing of maturities and repricing opportunities,
without taking into consideration that changes in interest rates do not affect
all assets and liabilities equally. For example, rates paid on a substantial
portion of core deposits may change contractually within a relatively short time
frame, but those rates are viewed by management as significantly less
interest-sensitive than market-based rates such as those paid on non-core
deposits. 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.
INTEREST RATE SENSITIVITY ANALYSIS
The following table presents the Company's rate sensitivity at each of
the time intervals indicated as of December 31, 1997. The table may not be
indicative of the Company's rate sensitivity position at other points in time.
<TABLE>
<CAPTION>
Within After three but After one but After
three within twelve within five five
months months years years Total
------ ------ ----- ----- -----
(Dollars in Thousands)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold $ 9,240 $ -- $ -- $ -- $ 9,240
Investment securities 627 -- 5,003 -- 5,630
Loans 851 363 2,154 581 3,949
-------- ------- --------- --------- ------
Total earning assets $ 10,718 $ 363 $ 7,157 $ 581 $18,819
Interest-bearing liabilities:
Money market and NOW $ 6,400 $ -- $ -- $ -- $ 6,400
Regular savings 81 -- --------- --------- 81
Time deposits 247 1,396 1,627 -- 3,270
-------- ------- --------- --------- ------
Total interest-bearing $ 6,728 $ 1,396 $ 1,627 $ -- $ 9,751
liabilities
Period gap $ 3,990 $(1,033) $ 5,530 $ 581 $ 9,068
Cumulative gap $ 3,990 $ 2,957 $ 8,487 $ 9,068 $ 9,068
Ratio of cumulative gap to
total earning assets 21.20% 15.71% 45.10% 48.18%
</TABLE>
14
<PAGE> 15
LOAN PORTFOLIO
Since loans typically provide higher interest yields than do other
types of earning assets, it is the intent of the Company to channel a
substantial percentage of its earning 1997, that category had not grown
substantially as a percentage of total earning assets at the end of the year.
Average loans, on an annualized basis, were $490,257 for 1997. Total loans
outstanding at December 31, 1997 were $3,949,163 before allowance for loan
losses.
The following table summarizes the composition of the loan portfolio at
December 31, 1997: assets into the loans category. However, since the Bank only
commenced operations in late September
<TABLE>
<CAPTION>
Percent
Amount of total
------ --------
<S> <C> <C>
Commercial $ 498,293 12.62%
Real estate - construction 88,547 2.24%
Real estate - mortgage 3,066,877 77.66%
Consumer and other 295,446 7.48%
------
Total loans $3,949,163 100.00%
======
Allowance for loan loss (60,000)
----------
Total net loans $3,889,163
==========
</TABLE>
The principal component of the Company's loan portfolio at year-end was
mortgage loans, which represented 77.66% of the portfolio. Due to the short time
the portfolio has existed, the current mix of loans may not be indicative of the
ongoing portfolio mix. Management will attempt to maintain a relatively
diversified loan portfolio to help reduce the risk inherent in concentration of
collateral.
MATURITIES AND SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES:
The information in the following table is based on the contractual
maturities of individual loans, including loans which may be subject to renewal
at their contractual maturity. Renewal of such loans is subject to review and
credit approval, as well as modification of terms upon their maturity. Actual
repayments of loans may differ from maturities reflected below because borrowers
have the right to prepay obligations with or without prepayment penalties.
The following table summarizes the loan maturity distribution, by type,
and related interest rate characteristics at December 31, 1997:
<TABLE>
<CAPTION>
One year After one but After
or less within five years five years Total
------- ----------------- ---------- ----
<S> <C> <C> <C> <C>
Commercial $222,909 $ 275,384 $ -- $ 498,293
Real estate - construction 17,149 71,398 -- 88,547
Real estate - mortgage 184,068 1,713,181 1,169,628 3,066,877
Consumer and other 44,943 216,501 34,002 295,446
-------- ---------- ----------- ---------
Total $469,069 $2,276,464 $ 1,203,630 $3,949,163
Loans maturing after one year with:
Fixed interest rates $2,734,686
Floating interest rates $ 745,408
</TABLE>
15
<PAGE> 16
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The Company has developed policies and procedures for evaluating the
overall quality of its credit portfolio and the timely identification of
potential credit problems. Management's judgment as to the adequacy of the
allowance is based on a number of assumptions about future events, which it
believes to be reasonable, but which may or may not be valid. Thus, there can be
no assurance that charge-offs in future periods will not exceed the allowance
for loan losses as estimated at any point in time.
Additions to the allowance for loan losses, which are expenses to the
provision for loan losses on the Company's income statement, are made
periodically to maintain the allowance at an appropriate level based on
management's analysis of the potential risk in the loan portfolio. The Company
does not allocate the allowance for loan losses to specific categories of loans
but evaluates the adequacy on an overall portfolio basis utilizing a risk
grading system.
At December 31, 1997, the allowance for loan losses was $60,000, or
1.52% of outstanding loans of $3,949,163. The Bank has not charged off any loans
since commencing operations. There were no non-accrual or non-performing loans
at December 31, 1997, nor any loans delinquent more than 90 days. The provision
for loan losses was made primarily as a result of management's assessment of
general loan loss risk as the Bank recorded its first loans.
INVESTMENT PORTFOLIO
At December 31, 1997, the investment securities portfolio represented
approximately 30% of the Company's earning assets at $5,629,838. The Company was
invested in U.S. Government agency securities with a fair value of $5,003,229
and an amortized cost of $4,999,554, for an unrealized gain of $2,211, net of
income taxes. The Company also invested in commercial paper of a bank in the
amount of $626,609.
Contractual maturities and yields on the Company's investments (all
available for sale) at December 31, 1997 are shown in the following table.
Expected maturities may differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
After one but
Within within five
one year Yield years Yield Total Yield
-------- ----- ------------- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government agencies $ -- -- $5,003,229 6.35% $5,003,229 6.35%
Other 626,609 6.25% -- -- 626,609 6.25%
-------- ---------- ----------
Total $626,609 6.25% $5,003,229 6.35% $5,629,838 6.34%
</TABLE>
At December 31, 1997, short-term investments comprised the largest
portion of total earning assets at $9,240,000. These funds were invested in
Federal funds sold on an overnight basis. As the Bank continues to grow, it is
expected that there will be a shift from overnight investments into the loan
portfolio, primarily, and into the investment securities portfolio, secondarily.
16
<PAGE> 17
DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES
As of December 31, 1997, deposits were the only component of
interest-bearing liabilities. Average total deposits were $2,022,424 and average
interest-bearing deposits were $1,704,932 in 1997, on an annualized basis. The
following is a table of deposits by category at year-end.
<TABLE>
<CAPTION>
Average Average
Amount Percent Amount Percent Rate Paid
<S> <C> <C> <C> <C> <C>
Demand deposit accounts $ 1,954,224 16.69% $ 317,492 15.70% --
NOW accounts 2,568,736 21.94% 363,569 17.98% 1.93%
Money market accounts 3,831,221 32.73% 777,311 38.43% 5.34%
Savings accounts 81,536 70% 14,297 71% 2.40%
Time deposits less than $100,000 1,838,533 15.71% 379,217 18.75% 5.75%
Time deposits of $100,000 or more 1,431,372 12.23% 170,538 8.43% 5.90%
----------- ------ ---------- ------
Total deposits $11,705,622 100.00% $2,022,424 100.00%
=========== ====== ========== ======
</TABLE>
Core deposits, which exclude time deposits of $100,000 or more, provide
a relatively stable funding source for the Company's loan portfolio and other
earning assets. The Company's core deposits were $10,274,250 at December 31,
1997. The Company's loan-to-deposit ratio was 33.22% at year-end. The maturity
distribution of the Company's time deposits of $100,000 or more at December 31,
1997 is as follows:
<TABLE>
<S> <C>
Three months or less $ 101,362
Over three through six months 400,452
Over six through twelve months 100,000
Over twelve months 829,558
----------
Total $1,431,372
==========
</TABLE>
SHORT-TERM BORROWINGS
At December 31, 1997, the Company had no outstanding balances under
short-term borrowings. During 1997, the Company had a line of credit with a bank
that was used to finance the purchase of the Bank's land and buildings. The
maximum amount of borrowings outstanding at any month end was $775,000 at July
31, 1997. The average rate paid on the short-term borrowings was 7.5%, and the
interest expense was capitalized to the property purchased.
The Company also has an unsecured line of credit available on a one to
fourteen day basis with a bank for $1,800,000. No borrowings have been made from
this line as of December 31, 1997.
RETURN ON EQUITY AND ASSETS
The following table shows the return on average assets (net income
divided by average total assets), return on average equity (net income divided
by average equity), and equity to assets ratio (average equity divided by
average total assets) for 1997. Since its inception, the Company has not paid
cash dividends.
Return on average assets (4.76%)
Return on average equity (7.73%)
Equity to assets ratio 61.63%
17
<PAGE> 18
CAPITAL ADEQUACY
The Federal Reserve Board and bank regulatory agencies require bank
holding companies and financial institutions to maintain capital at adequate
levels based on a percentage of assets and off-balance sheet exposures, adjusted
for risk weights ranging from 0% to 100%. The Federal Reserve guidelines also
contain an exemption from the capital requirements for bank holding companies
with less than $150 million in consolidated assets. Because the Company has less
than $150 million in assets, it is not currently subject to these rules. 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, the Bank must meet specific capital ratios 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
judgments by the regulators about components, risk weightings and other factors.
Under the capital adequacy guidelines, capital is classified into two
tiers. Tier 1 capital consists of common stockholders' equity, excluding the
unrealized gain or loss on securities available for sale, minus certain
intangible assets. Tier 2 capital consists of general reserve for loan losses
subject to certain limitations. The qualifying capital base for purposes of the
risk-based capital ratio consists of the sum of its Tier 1 and Tier 2 capital.
The Bank is also required to maintain capital at a minimum level based on total
average assets, which is known as the Tier 1 leverage ratio. The following chart
reflects the leverage and risk-based regulatory capital ratios of the Bank at
December 31, 1997.
RISK-BASED CAPITAL RATIOS
<TABLE>
<CAPTION>
Required Actual
Amount % Amount % %
--------- -------- ------
<S> <C> <C> <C> <C>
Tier 1 capital $317,700 4.00% $5,560,000 70.00%
Total capital $633,200 8.00% $5,620,000 71.00%
Tier 1 leverage ratio $547,800 4.00% $5,560,000 40.60%
</TABLE>
A condition of the original offering was that a minimum of 610,000
shares of common stock, par value $.01 per share be subscribed to and fully paid
for. There were a total of 993,162 shares sold during the offering period with
gross proceeds after offering expenses of $9,747,990. Of the proceeds,
$6,000,000 was used to capitalize the Bank. The Company believes that this
amount is sufficient to fund the activities of the Bank in its initial stages of
operations and that the Bank will generate sufficient income from operations to
fund its activities on an on-going basis. The remaining offering proceeds were
retained in the Company to provide additional capital for investment in the
Bank, if needed, or to fund other activities which may from time to time be
considered appropriate investments of capital at some point in the future.
As of December 31, 1997, there were no significant commitments
outstanding for capital expenditures.
IMPACT OF INFLATION AND CHANGING PRICES
The effect of relative purchasing power over time due to inflation has
not been taken into effect in the financial statements of the Company. Rather,
the statements have been prepared on an historical cost basis in accordance with
generally accepted accounting principles.
Since most of the assets and liabilities of a financial institution are
monetary in nature, the effect of changes in interest rates will have a more
significant impact on the Company's performance than will the effect of changing
prices and inflation in general. Interest rates may generally increase as the
rate of inflation increases, although not necessarily in the same magnitude.
18
<PAGE> 19
ACCOUNTING AND FINANCIAL REPORTING ISSUES
In October 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") 123, "Accounting for
Stock-Based Compensation", effective for transactions entered into in fiscal
years that began after December 15, 1995. SFAS 123 recommends that companies
account for stock compensation on a fair value based method which requires
compensation cost to be measured at the grant date based on the value of the
award and to be recognized over the service period. As an alternative, companies
may continue to record compensation cost based on the excess, if any, of the
quoted market price of the stock at the grant date (or other measurement date)
over the amount an employee must pay to acquire the stock. However, if a company
elects this method, it must include in the financial statements certain
disclosures, which reflect proforma amounts as if the fair value method had been
used. Accordingly, necessary disclosures were made in the consolidated financial
statements.
INDUSTRY DEVELOPMENTS
From time to time, various bills are introduced in the United
States Congress with respect to the regulation of financial institutions.
Certain of these proposals, if adopted, could significantly change the
regulation of banks and the financial services industry. The Company cannot
predict whether any of these proposals will be adopted or, if adopted, how these
proposals would affect the Company.
FORWARD LOOKING AND TREND INFORMATION
Like many financial institutions, the Bank relies upon computers for
the daily conduct of its business and for information systems processing. There
is concern among industry experts that on January 1, 2000 computers will be
unable to "read" the new year and there may be widespread computer malfunctions.
The Company will generally rely on software and hardware developed by
independent third parties to provide the information systems used by the Company
and the Bank. The Company intends to seek assurances about the Year 2000
compliance with respect to any third party hardware or software system it
intends to use. The Company also believes that its internal systems and software
and the network connections it will maintain will be adequately programmed to
address the Year 2000 issue. Based on information currently available,
management does not believe that the Company will incur significant costs in
connection with the Year 2000 issue. Nevertheless, there can be no assurances
that all hardware and software that the Company uses will be Year 2000
compliant, and the Company cannot predict with any certainty the costs the
Company will incur to respond to any Year 2000 issues. Further, the business of
many of the Company's customers may be negatively affected by the Year 2000
issue, and any financial difficulties incurred by the Company's customers in
solving Year 2000 issues could negatively affect such customer's ability to
repay any loans which the Bank may have extended. Therefore, even if the Company
and the Bank do not incur significant direct costs in connection with responding
to the Year 2000 issue, there can be no assurance that the failure or delay of
the Bank's customers or other third parties in addressing the Year 2000 issue or
the costs involved in such process will not have a material adverse effect on
the Company's business, financial condition and results of operations. The
management of the Company is not aware of any trends or events other than those
included in this discussion that are likely to have a material effect on the
Company's capital resources, liquidity, or operations. Also, no known factors
regarding regulatory matters are expected to effect the overall operating
results of the Company.
19
<PAGE> 20
ITEM 7. FINANCIAL STATEMENTS
PEOPLE'S COMMUNITY
CAPITAL CORPORATION
REPORT ON
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FEBRUARY 26, 1997 (INCEPTION)
TO DECEMBER 31, 1997
20
<PAGE> 21
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Directors
People's Community Capital Corporation
Aiken, South Carolina
We have audited the accompanying consolidated balance sheet of
People's Community Capital Corporation as of December 31, 1997, and the related
consolidated statements of income, stockholders' equity and cash flows for the
period from February 26, 1997 (inception) to December 31, 1997. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall consolidated 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 consolidated financial
position of People's Community Capital Corporation as of December 31, 1997, and
the consolidated results of their operations and their cash flows for the period
from February 26, 1997 (inception) to December 31, 1997, in conformity with
generally accepted accounting principles.
Very truly yours,
ELLIOTT, DAVIS & COMPANY, L.L.P.
January 23, 1998
21
<PAGE> 22
PEOPLE'S COMMUNITY CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
ASSETS
<TABLE>
<S> <C>
CASH AND DUE FROM BANKS $ 625,785
FEDERAL FUNDS SOLD 9,240,000
SECURITIES
Available for sale 5,629,838
LOANS RECEIVABLE - NET 3,889,163
PROPERTIES AND EQUIPMENT 1,607,802
ACCRUED INTEREST RECEIVABLE 45,769
OTHER ASSETS 232,610
Total assets $21,270,967
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS
Non-interest bearing $ 1,954,224
Interest bearing 9,751,398
-----------
Total deposits 11,705,622
ACCRUED INTEREST PAYABLE 21,362
ACCRUED EXPENSES AND OTHER LIABILITIES 83,377
-----------
Total liabilities 11,810,361
COMMITMENTS AND CONTINGENCIES - NOTES 13 AND 14
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 10,000,000 shares authorized, 993,162 shares issued 9,932
Additional paid-in capital 9,738,058
Retained earnings (deficit) (289,595)
Net unrealized gain on securities available for sale - net of income taxes 2,211
-----------
Total stockholders' equity 9,460,606
Total liabilities and stockholders' equity $21,270,967
===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
22
<PAGE> 23
PEOPLE'S COMMUNITY CAPITAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD FEBRUARY 26, 1997 (INCEPTION) TO DECEMBER 31, 1997
<TABLE>
<S> <C>
INTEREST INCOME
Loans $ 52,309
Securities 35,720
Federal funds sold 238,728
-----------
Total interest income 326,757
-----------
INTEREST EXPENSE
Deposits 80,815
-----------
Total interest expense 80,815
-----------
Net interest income 245,942
PROVISION FOR LOAN LOSSES 60,000
-----------
Net interest income after provision for loan losses 185,942
-----------
NON-INTEREST INCOME
Service charges on deposit accounts 3,260
Other income 6,244
-----------
Total non-interest income 9,504
-----------
NON-INTEREST EXPENSES
Salaries and employee benefits 350,028
Occupancy and equipment expense 74,594
Consulting and professional fees 63,216
Customer related expenses 16,869
General operating expenses 89,408
Other expense 40,889
-----------
Total non-interest expenses 635,004
-----------
Loss before income taxes (439,558)
INCOME TAX BENEFITS (149,963)
-----------
NET LOSS $ (289,595)
===========
NET LOSS PER SHARE OF COMMON STOCK $ (.29)
===========
WEIGHTED AVERAGE SHARES OUTSTANDING 993,162
===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
23
<PAGE> 24
PEOPLE'S COMMUNITY CAPITAL CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FEBRUARY 26, 1997 (INCEPTION) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
RETAINED NET UNREALIZED TOTAL
COMMON ADDITIONAL EARNINGS GAIN ON SECURITIES STOCKHOLDERS
SHARES STOCK PAID-IN-CAPITAL (DEFICIT) AVAILABLE FOR SALE EQUITY
------ ----- --------------- --------- ------------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, FEBRUARY 26, 1997 -- $ -- $ -- $ -- $ -- $ --
Common stock issued 993,162 9,932 9,738,058 -- -- 9,747,990
Net loss -- -- -- (289,595) -- (289,595)
Net change in unrealized gain on
securities available for sale -
net of income taxes -- -- -- -- 2,211 2,211
------- ------ ---------- --------- ------ -----------
BALANCE, DECEMBER 31, 1997 993,162 $9,932 $9,738,058 $(289,595) $2,211 $ 9,460,606
======= ====== ========== ========= ====== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
24
<PAGE> 25
PEOPLE'S COMMUNITY CAPITAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FEBRUARY 26, 1997 (INCEPTION) TO DECEMBER 31, 1997
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss $ (289,595)
Adjustments to reconcile net loss to net cash used for operating activities
Depreciation and amortization 23,103
Provision for loan losses 60,000
Deferred income taxes (150,656)
Changes in deferred and accrued amounts
Other assets and accrued interest receivable (130,588)
Accrued expenses, accrued interest payable and other liabilities 104,838
Net cash used for operating activities (382,898)
-----------
INVESTING ACTIVITIES
Activity in available for sale securities
Purchases (5,627,627)
Purchases of properties and equipment (1,628,038)
Net increase in loans (3,949,164)
Net increase in federal funds sold (9,240,000)
-----------
Net cash used for investing activities (20,444,829)
-----------
FINANCING ACTIVITIES
Net increase in deposits 11,705,622
Proceeds from issuance of common stock - net of costs 9,747,990
Non-interest bearing borrowings from organizers 240,000
Repayment of non-interest bearing borrowings from organizers (275,000)
Net proceeds from note payable 775,000
Repayment of note payable (775,000)
Development stage enterprise stock purchased (100)
-----------
Net cash provided by financing activities 21,418,512
Net increase in cash and due from banks 590,785
CASH AND DUE FROM BANKS, FEBRUARY 26, 1997 35,000
-----------
CASH AND DUE FROM BANKS, DECEMBER 31, 1997 $ 625,785
===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for
Interest $ 59,453
===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
25
<PAGE> 26
PEOPLE'S COMMUNITY CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY AND ORGANIZATION
People's Community Capital Corporation (the "Corporation"), was
incorporated on February 26, 1997, under the laws of the State of South
Carolina for the purpose of operating as a bank holding company pursuant
to the Federal Bank Holding Company Act of 1956, as amended. The group of
organizers initiated several financial transactions on behalf of the
company prior to the date of incorporation.
The Corporation is a bank holding company whose subsidiary, People's
Community Bank of South Carolina, is primarily engaged in the business of
accepting savings and demand deposits insured by The Federal Deposit
Insurance Corporation, and providing mortgage, consumer and commercial
loans to the general public.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of People's
Community Capital Corporation and its wholly-owned subsidiary, People's
Community Bank of South Carolina ("the Bank"). References are made
interchangeably in the following notes to the Corporation and the Bank.
All significant intercompany balances and transactions have been
eliminated.
CONCENTRATIONS OF CREDIT RISK
The Corporation, through its subsidiary, makes loans to individuals and
small businesses located primarily in Aiken County, South Carolina for
various personal and commercial purposes. The subsidiary has a
diversified loan portfolio and the borrowers' ability to repay their
loans is not dependent upon any specific economic sector.
CASH EQUIVALENTS
For the purposes of reporting cash flows, the Corporation considers all
liquid nonequity investments with an original maturity of three months
or less to be cash equivalents. For the purpose of the statements of
cash flows, cash and cash equivalents are defined as those amounts
included in the balance sheet caption "Cash and due from banks".
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
SECURITIES
Securities that management has both the positive intent and ability to
hold to maturity are classified as securities held to maturity and are
carried at cost, adjusted for amortization of premium or accretion of
discount using the interest method. There were no "held to maturity"
securities at December 31, 1997. Securities that may be sold prior to
maturity for asset/liability management purposes, are classified as
securities available for sale and carried at fair value with any
adjustments to fair value, after tax, reported as a separate component of
shareholders' equity. Declines in the fair value of individual held to
maturity and available for sale securities below their cost that are
other than temporary are included in earnings as realized losses.
(Continued)
26
<PAGE> 27
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Interest on securities, including the amortization of premiums and the
accretion of discounts, are reported as interest income using the
interest method. Gains and losses on the sale of securities are recorded
on the trade date and are calculated using the specific identification
method.
LOANS
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off generally are stated at
their outstanding unpaid principal balances net of any deferred fees or
costs on originated loans. Interest income is accrued on the unpaid
principal balance.
Loans are defined as impaired when "based on current information and
events, it is probable that the Bank will be unable to collect all
amounts due according to the contractual terms of the loan agreement."
All loans are subject to this criteria except for "smaller-balance
homogeneous loans that are collectively evaluated for impairment" and
loans "measured at fair value or at the lower of cost or fair value." The
Bank considers its consumer installment portfolio, and home equity lines
as meeting this criteria. The Bank identifies impaired loans through its
normal internal loan review process. Loans on the Corporation's problem
loan watch list are considered potentially impaired loans. These loans
are evaluated in determining whether all outstanding principal and
interest are expected to be collected. Loans are not considered impaired
if a minimal delay occurs and all amounts due including accrued interest
at the contractual interest rate for the period of delay are expected to
be collected.
At December 31, 1997, management reviewed its problem loan watch list and
determined that no impaired loans exist. The accrual of interest is
discontinued on impaired loans when management anticipates that a
borrower may be unable to meet the obligations of the note. Accrued
interest through the date the interest is discontinued is reversed.
Subsequent interest earned is recognized only to the point that cash
payments are received. All payments will be applied to principal if the
ultimate amount of principal is not expected to be collected.
NONACCRUAL LOANS
Commercial loans are placed on nonaccrual at the time the loan is 90
days delinquent unless the credit is well secured and in process of
collection. Residential real estate loans are typically placed on
nonaccrual at the time the loan is 120 days delinquent. Other unsecured
personal credit lines and certain consumer finance loans are typically
charged-off no later than 180 days delinquent. Other consumer loans are
charged-off at 120 days delinquent. In all cases, loans must be placed
on nonaccrual or charged-off at an earlier date if collection of
principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on
nonaccrual or charged-off is reversed against interest income. The
interest on these loans is accounted for on the cash basis or cost
recovery method, until qualifying for return to accrual. Loans are
returned to accrual status when all the principal and interest amounts
contractually due are reasonably assured of repayment within a
reasonable time frame and when the borrower has demonstrated payment
performance of cash or cash equivalents for a minimum of six months.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through provisions for
loan losses charged against income. Portions of loans deemed to be
uncollectible are charged against the allowance for losses, and
subsequent recoveries, if any, are credited to the allowance.
(Continued)
27
<PAGE> 28
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
The allowance for loan losses related to impaired loans that are
identified for evaluation is based on collateral using the loan's initial
effective interest rate or the fair value, less selling costs, of the
collateral for collateral dependent loans. By the time a loan becomes
probable of foreclosure it has been charged down to fair value, less
estimated cost to sell.
The allowance for loan losses is maintained at a level believed adequate
by management to absorb estimated probable inherent loan losses.
Management's periodic evaluation of the adequacy of the allowance is
based on the Bank's known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay (including the
timing of future payments), the estimated value of any underlying
collateral, composition of the loan portfolio, current economic
conditions, and other relevant factors. This evaluation is inherently
subjective as it requires material estimates that are susceptible to
significant change including the amounts and timing of future cash flows
expected to be received on impaired loans.
PROPERTIES AND EQUIPMENT
Properties and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed over the
estimated useful lives of the assets using primarily the straight-line
method. Additions to property and major replacements or improvements are
capitalized at cost. Maintenance, repairs and minor replacements are
expensed when incurred. Gains and losses on routine dispositions are
included in other income.
INCOME TAXES
Deferred income tax assets and liabilities are determined using the
liability (or balance sheet) method. Under this method, the net deferred
tax asset or liability is determined based on the tax effects of the
differences between the book and tax bases of the various balance sheet
assets and liabilities and gives current recognition to changes in tax
rates and laws. The Corporation files a consolidated federal income tax
return. Separate state income tax returns are filed.
NET LOSS PER SHARE OF COMMON STOCK
Net loss per common share is computed by dividing net loss by the
weighted average number of shares of common stock outstanding. Stock
options outstanding are not dilutive; therefore, only basic net income
per share is presented.
ORGANIZATION COSTS
Organization costs are costs that have been incurred in the expectation
that they will generate future revenues. Organization costs include
incorporation, legal and consulting fees incurred in connection with
establishing the Corporation. Organization costs are capitalized when
incurred, and are amortized over a period of sixty months.
STOCK-BASED COMPENSATION AND STOCK OPTIONS
"Accounting for Stock-Based Compensation", Statement of Financial
Accounting Standards No. 123, allows a company to either adopt the fair
value method of valuation or continue using the intrinsic valuation
method presented under Accounting Principles Board ("APB") Opinion 25 to
account for stock-based compensation. The Company has elected to use APB
Opinion 25 and the intrinsic value method. The intrinsic value method
measures compensation expense as the difference between the quoted market
price of the stock and the exercise price of the option on the date of
grant.
RECENTLY ISSUED ACCOUNTING STANDARDS
Accounting standards that have been issued by the Financial Accounting
Standards Board that do not require adoption until a future date will
have no material impact on the financial statements upon adoption.
28
<PAGE> 29
NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is currently not required to maintain average reserve balances
by the Federal Reserve Bank.
NOTE 3 - SECURITIES
Available for sale - The amortized cost, gross unrealized holding gains
and losses and fair values of securities available for sale at December 31, 1997
consisted of the following:
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED -------------------
COST GAINS LOSSES FAIR VALUE
---------- ------- ------- ----------
<S> <C> <C> <C> <C>
Securities
U. S. Agency obligations $4,999,544 $3,685 $-- $5,003,229
Commercial paper 626,609 -- -- 626,609
---------- ------ --- ----------
$5,626,153 $3,685 $-- $5,629,838
========== ====== === ==========
</TABLE>
The amortized cost and fair value of securities at December 31,
1997, by contractual maturity, follow:
<TABLE>
<CAPTION>
AMORTIZED
COST FAIR VALUE
----------- -----------
<S> <C> <C>
Securities
Due in one year or less $ 626,609 $ 626,609
Due after one year through five years 4,999,544 5,003,229
----------- ----------
$ 5,626,153 $ 5,629,838
=========== ===========
</TABLE>
At December 31, 1997, no securities were pledged as collateral for
deposits.
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES
The Corporation's loan portfolio is summarized below:
<TABLE>
<S> <C>
Loans other than mortgage
Commercial $ 498,293
Consumer 294,310
Other 1,136
Mortgage
Commercial 1,578,267
Residential 1,376,157
Other 201,000
----------
Gross loans 3,949,163
Less allowance for loan losses 60,000
Net loans $3,889,163
==========
</TABLE>
(Continued)
29
<PAGE> 30
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES, CONTINUED
Changes in the allowance for loan losses were as follows:
<TABLE>
<S> <C>
Balance, beginning of period $ --
Provision charged to operations 60,000
Loans charged off --
Recoveries on loans previously charged off --
-----------
Balance, end of period $ 60,000
===========
</TABLE>
Approximately $1,067,000 of the loans were variable interest rate loans
at December 31, 1997. The remaining portfolio was fixed interest rate loans.
There were no non-accrual loans outstanding at December 31, 1997.
NOTE 5 - PROPERTIES AND EQUIPMENT
Properties and equipment are summarized as follows:
<TABLE>
<S> <C>
Land and buildings $ 1,150,592
Furniture, fixtures and equipment 473,119
-----------
1,623,711
Less accumulated depreciation (19,154)
-----------
1,604,557
Leasehold improvements - Net of amortization 3,245
-----------
$ 1,607,802
===========
</TABLE>
For the period ended December 31, 1997, interest of $17,307 was
capitalized in connection with the acquisition of two bank buildings.
NOTE 6 - OTHER ASSETS
Other assets include the following:
<TABLE>
<S> <C>
Prepaid expenses $ 29,001
Organization costs - Net 54,427
Deferred tax asset 149,182
-----------
$ 232,610
===========
</TABLE>
NOTE 7 - DEPOSITS
Deposits are summarized as follows:
<TABLE>
<S> <C>
Demand (non-interest bearing) $ 1,954,224
Demand (interest bearing) and savings 6,481,493
Time
$100,000 and over 1,431,372
Under $100,000 1,838,533
-----------
Total $11,705,622
===========
</TABLE>
(Continued)
30
<PAGE> 31
NOTE 7 - DEPOSITS, CONTINUED
Scheduled maturities of time deposits are as follows:
<TABLE>
<S> <C>
One year or less $ 1,642,804
From one year to three years 1,258,661
After three years 368,440
----------------
$ 3,269,905
================
</TABLE>
NOTE 8 - UNUSED LINES OF CREDIT
At December 31, 1997, the Bank had $1,800,000 available under an
unsecured line of credit with The Banker's Bank that expires September 1, 1998.
This line of credit is available on a one to fourteen day basis for general
corporate purposes.
NOTE 9 - INCOME TAXES
The significant components of the income tax benefits are as follows:
<TABLE>
<S> <C>
Currently payable - State $ 693
Deferred income tax benefit (150,656)
-----------
Income tax benefits $ (149,963)
===========
</TABLE>
The significant components of deferred income tax assets and
liabilities consist of the following at December 31, 1997 and are presented in
other assets:
<TABLE>
DEFERRED TAX
ASSET (LIABILITY)
-----------------
<S> <C>
Net operating loss $ 130,256
Loan loss provisions 20,400
Net unrealized gain on securities available for sale (1,474)
-----------
149,182
-----------
Valuation alloance --
$ 149,182
===========
</TABLE>
Income tax expenses are allocated to members of the group under the
contribution to consolidated taxable income method.
The Corporation does not accrue deferred income taxes on undistributed
earnings of its subsidiary. Generally, such amounts are intended to be
permanently invested.
The Corporation has available at December 31, 1997, $400,000 of unused
operating loss carryforwards that may be applied against future taxable income
and that expire in 2012.
31
<PAGE> 32
NOTE 10 - STOCKHOLDERS' EQUITY
In September, 1997, the Corporation completed the issuance of
993,162 common shares through a public offering, resulting in net proceeds
(after deducting issuance cost) of $9,747,990. Gross proceeds were $9,931,620
and issuance costs totaled $183,630.
NOTE 11 - RETIREMENT PLAN
Effective July 11, 1997, the Bank established a defined
contribution employee benefit plan (401(k) plan) covering eligible employees (as
defined in the Plan), whereby employees can defer a portion of their earnings.
The Bank's matching contributions are determined by the Board on an annual
basis. For the year ended December 31, 1997 there were no contributions.
NOTE 12 - RELATED PARTY TRANSACTIONS
Directors and officers of the Bank are customers of and had
transactions with the Bank in the ordinary course of business. Additional
transactions may be expected to take place in the future. Included in such
transactions are outstanding loans and commitments, all of which were made on
comparable terms, including interest rate and collateral, as those prevailing at
the time for other customers of the Bank, and did not involve more than normal
risk of collectibility or present other unfavorable features. Total loans
outstanding to all officers and directors, including immediate family and
business interests, at December 31, 1997 were $1,021,789. During 1997, new loans
of $1,025,097 were made to this group and repayments of $3,308 were received.
The Corporation leases office space under a non-cancelable
operating lease from a board member. The lease expires in February, 1998. The
lease requires monthly lease payments of $2,000 and includes two options for
consecutive six-month extensions. The minimum future lease payments required
under this lease are $4,000.
NOTE 13 - LEGAL CONTINGENCIES
From time to time the Bank may be a party to various litigation,
both as plaintiff and as defendant, arising from its normal operations. At
December 31, 1997, the Bank was not involved with any litigation matters.
NOTE 14 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include commitments to
extend credit, commercial and standby letters of credit. Those instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the consolidated balance sheets. The contract
amounts of those instruments reflect the extent of the Bank's involvement in
particular classes of financial instruments. The Bank uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance-sheet instruments.
(Continued)
32
<PAGE> 33
NOTE 14 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK, CONTINUED
Commitments to extend credit are agreements to lend as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained if deemed
necessary by the Bank upon extension of credit, is based on management's credit
evaluation. Collateral held varies but may include accounts receivable,
inventory, property, plant and equipment, and income-producing commercial
properties. Commitments to extend credit, including unused lines of credit,
amounted to $1,512,684 at December 31, 1997.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support the financing needs of the Bank's commercial
customers, and are short-term in nature. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers. Commitments under standby letters of credit amounted to
$50,000 at December 31, 1997, which were granted primarily to commercial
borrowers.
NOTE 15 - RESTRICTIONS ON SUBSIDIARY DIVIDENDS
The ability of the Corporation to pay cash dividends to
stockholders is dependent upon receiving cash in the form of dividends from its
banking subsidiary. However, certain restrictions exist regarding the ability of
the subsidiary to transfer funds in the form of cash dividends, loans or
advances to the Corporation. State law requires prior approval of the Board of
Financial Institutions. Dividends are payable only from the undivided profits of
the banking subsidiary.
NOTE 16 - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on 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 judgments by the regulators 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 (set forth in
the table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets, and of Tier I capital to average assets. Management
believes, as of December 31, 1997, that the Bank meets all capital adequacy
requirements to which it is subject.
(Continued)
33
<PAGE> 34
NOTE 16 - REGULATORY MATTERS, CONTINUED
The Bank's actual capital amounts and ratios are also presented in the
table.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------- -------------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-weighted
assets) $5,620,000 71.0% >$633,200 >8.0% >$ 791,50 >10.0%
- - - -
Tier I capital (to risk-weighted
assets) $5,560,000 70.0% >$317,700 >4.0% >$476,570 > 6.0%
- - - -
Tier I capital (to average assets) $5,560,000 40.6% >$547,800 >4.0% >$410,800 > 3.0%
- - - -
</TABLE>
NOTE 17 - CONDENSED FINANCIAL INFORMATION
Following is condensed financial information of People's Community
Capital Corporation (parent company only):
CONDENSED BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Cash, investments, property and equipment $ 3,744,402
Investment in bank subsidiary 5,753,931
Other assets 17,441
-----------
$ 9,515,774
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities $ 55,168
Shareholders' equity 9,460,606
-----------
$ 9,515,774
===========
</TABLE>
CONDENSED STATEMENT OF INCOME AND RETAINED EARNINGS (DEFICIT)
FOR THE PERIOD FEBRUARY 26, 1997 (INCEPTION) TO DECEMBER 31, 1997
<TABLE>
<S> <C>
EQUITY IN NET LOSS OF SUBSIDIARY AND INTEREST INCOME $ (118,895)
OPERATING EXPENSES 165,532
PROVISION FOR INCOME TAXES 5,168
-----------
Net loss (289,595)
RETAINED EARNINGS, FEBRUARY 26, 1997 --
-----------
RETAINED EARNINGS (DEFICIT), DECEMBER 31, 1997 $ (289,595)
===========
</TABLE>
34
<PAGE> 35
(Continued)
NOTE 17 - CONDENSED FINANCIAL INFORMATION, CONTINUED
CONDENSED CASH FLOW STATEMENT FOR THE
PERIOD FEBRUARY 26, 1997 (INCEPTION) TO DECEMBER 31, 1997
<TABLE>
<S> <C>
Net cash used for operating activities $ (285,787)
Net cash used for investing activities (9,482,656)
Net cash provided by financing activities 9,747,990
----------------
Net decrease in cash and cash equivalents (20,453)
CASH AND DUE FROM BANKS, FEBRUARY 26, 1997 35,000
----------------
CASH AND DUE FROM BANKS, DECEMBER 31, 1997 $ 14,547
================
</TABLE>
NOTE 18 - STOCK BASED COMPENSATION
In lieu of salary for 1997, the Corporation will issue 5,000 shares of common
stock in 1998 to the Chief Executive Officer for no additional consideration.
Compensation expense has been recognized, based on an estimated fair market
value of common stock of$10.00 per share.
In addition, the Corporation has employment agreements with two
officers, the Chief Executive Officer and the Chief Operating Officer. The
officers are to be granted options to purchase an amount equal to 5% of the
shares sold in the initial offering (approximately 50,000 shares each) at $10.00
per share. The options vest at the rate of one-fifth per year for each of the
first five anniversaries of the opening date, subject to the officers being
employed by the Corporation on such dates and meeting certain performance
criteria.
Also, the Corporation is obligated to grant additional options to
the Chief Executive Officer for the future purchase of 10,000 shares of common
stock at $10.00 per share. The options will vest at the rate of 2,000 shares on
each December 31 beginning in 1998 and ending in 2002.
Currently, no options have been granted. The Corporation
anticipates adopting a stock option plan in 1998. No pro-forma information in
accordance with SFAS 123 has been presented because the stock option plan has
not been adopted.
35
<PAGE> 36
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Company's Bylaws provides that the Board of Directors shall be
divided into three classes with each class to be as nearly equal in number as
possible. The Bylaws also provide that the three classes of directors are to
have staggered terms, so that the terms of only approximately one-third of the
Board members will expire at each annual meeting of shareholders. The current
Class I directors are Margaret Holley-Taylor, Clark D. Moore, M.D., Donald W.
Thompson, and John B. Tomarchio, M.D. The current Class II directors are Raymond
D. Brown, W. Cothran Campbell, Alan J. George, and Anthony E. Jones. The current
Class III directors are James D. McNair, Russell D. Phelon, and Tommy B.
Wessinger. The initial Class I directors were reelected in 1997 by the Company's
sole shareholder before the close of the Company's stock offering. The current
terms of the Class II directors will expire at the 1998 Annual Meeting. Each of
the four current Class II directors has been nominated for reelection and will
stand for election at the 1998 Annual Meeting for a three year term. The terms
of the Class III directors will expire at the 1999 Annual Shareholders Meeting,
and the terms of the Class I directors will expire at the 2000 Annual
Shareholders Meeting.
Set forth below is certain information about the nominees, including
each nominee's age, and position with the Company. Each nominee is also a
director of the Bank. All of the nominees are nominated as Class II directors
and have served as directors of the Company since the Company's formation in
1997, with the exception of Anthony E. Jones, who was appointed to the Board of
Directors in April 1997.
Raymond D. Brown, 53, is a Class II Director of the Company. He resides
in North Augusta, South Carolina and is a graduate of Auburn University where he
received a Bachelors Degree in Building Construction. He is currently the
President and Chief Executive Officer of R.D. Brown Contractors, Inc., a general
construction company specializing in commercial and industrial construction. He
has served on the Chamber of Commerce Board and the NationsBank Advisory Board
in North Augusta, South Carolina.
W. Cothran Campbell, 70, is a Class II Director of the Company and is a
resident of Aiken, South Carolina. He served in the United States Navy in the
South Pacific during World War II and later attended the University of The South
in Sewanee, Tennessee. He is the President of Dogwood Stables, Inc. and the
founder and former Chairman of the Board of Burton-Campbell Advertising Agency
in Atlanta and New York. Mr. Campbell is also a trustee of the Thoroughbred
Owner's and Breeders Association, the National Museum of Racing and Hall of Fame
in Saratoga Springs, New York, and is the 1992 recipient of the John W.
Galbreath Award for entrepreneurial excellence and leadership in the horse
industry. He is currently a member of the Aiken Rotary Club, Piedmont Driving
Club in Atlanta, Woodside Plantation Country Club, Green Boundary Club, Aiken
Tennis Club, and the First Presbyterian Church of Aiken and is a former member
of the Atlanta Rotary Club.
Alan J. George, 48, is a Class II Director of the Company. He is a
resident of Aiken, South Carolina and a graduate of the University of South
Carolina, Columbia where he received a Bachelors Degree in English. He is also a
graduate of the Canon Trust School in Charlotte, North Carolina and the Stonier
Graduate School of Banking. He graduated from the University of South Carolina
School of Law in 1974. In 1975 he became Vice President and Trust Officer of F&M
Bank in Aiken, South Carolina. In 1983 he became Vice President and Business
Development Officer and served in this capacity until 1985 when he became Vice
President and Group Head for Citizens & Southern Bank. In 1987 Mr. George became
Senior Vice President and Regional Executive Officer and remained employed in
this position following the merger of Citizens & Southern Bank with NationsBank
until 1996. He is currently the President, Secretary and the Chief Operating
Officer of the Company and the President and Chief Operating Officer of the
Bank. Mr. George is Chairman of the Aiken Housing Committee and Chairman and
member of the Salvation Army Boys & Girls Club Advisory Council. He is also a
member of the South Carolina Bar Association, the Aiken County Bar Association,
the Aiken Rotary Club, and the St. Thaddeus Episcopal Church. He is a former
member of the Board of the University of South Carolina Education Foundation,
the Investment Policy Committee, the University of South Carolina Aiken
Partnership Board and is past President and former member of the executive
committee of the Trust Division for the South Carolina Bankers Association. Mr.
George is also a member of the Corporation, Banking and Securities Law Section
of the South Carolina Bar Association.
36
<PAGE> 37
Anthony E. Jones, 35, is a Class II Director of the Company. Mr. Jones
is a resident of Augusta, Georgia. Mr. Jones majored in Finance at the
University of Georgia, where he received a bachelor's degree in Business
Administration. From 1985 to 1996 he was the General Manager and Treasurer of
Gerald Jones VW Inc. and, since 1996, has been the President and Chief Executive
Officer of that company. He is also a member of the Augusta Country Club.
Set forth below is also information about each of the Company's other
directors and each of its executive officers. Each of the following directors
has been a director of the Company since the Company's formation in 1997. Each
director is also a director of the Bank.
Margaret Holley-Taylor, 63, is a Class I Director of the Company. She is a
resident of Aiken, South Carolina and the owner of Aiken Office Supply. Ms.
Holley-Taylor received the "Small Business Person of the Year" award in 1986 and
was a recipient of the Finalist Award as the "Aiken County Small Business Person
of the Year" in 1991. She previously served on the NationsBank Advisory Board
and the Partnership Board of the University of South Carolina, Aiken, and was on
the Board of Directors for the Aiken Chamber of Commerce and the Aiken United
Way, where she also served as Treasurer for three years. She is a member of the
Woodside Plantation Country Club, the Houndslake County Club, the National
Business Products Industry Association, and the Millbrook Baptist Church.
James D. McNair, 80, is a Class III Director of the Company and Vice
Chairman of the Company and the Bank. He resides in Aiken, South Carolina and
attended the University of South Carolina. He is a graduate of Canon Trust
School and the School of Banking of the South at Louisiana State University. Mr.
McNair was the President of Farmers and Merchants Bank of Aiken from 1963 to
1983 and was Senior Executive Vice President of Citizens & Southern National
Bank from 1983 until 1984. He served as a member of the advisory board of
NationsBank until December 1996. Mr. McNair is a past president of the South
Carolina Association of Independent Bankers and the South Carolina Bankers
Association. He is also a past member of the South Carolina Board of Financial
Institutions and was elected Man of the Year in 1984 by the Greater Aiken
Chamber of Commerce. Mr. McNair is a charter member, organizer and director of
the Lower Savannah Council of Governments and President of the Lower Savannah
Council of Governments Development Corporation. He is an honorary member of the
Aiken Rotary Club and was also an organizer and past president of Friends of
Hopelands, a charitable organization in Aiken.
Clark D. Moore, M.D., 53, is a Class I Director of the Company and is a
resident of Aiken, South Carolina. Dr. Moore graduated from the University of
Illinois under a Western Golf Association Evans Scholarship, a National Merit
Scholarship and an Illinois State Scholarship. He received a Masters Degree from
Loyola University, graduated with Honors in Medicine from the St. Louis
University School of Medicine, and trained in general surgery and orthopedic
surgery at the Medical College of Virginia. In 1993 he was awarded the Order of
the Palmetto, the highest civilian award presented by the State of South
Carolina. He is a member of the American Association of Orthopedic Surgery, the
American Medical Association, the South Carolina Orthopedic Society, and the
Eastern Orthopedic Association. He is a member of the board of trustees of the
Aiken Regional Medical Centers Hospital and previously served on the Board of
Directors of the Hitchcock Rehabilitation Center. Dr. Moore is the founder and
senior partner of Carolina Orthopedic Associates P.A., founder and developer of
the Aiken Medical Center, and founder of Preferred Care, a physician hospital
organization. He is an active member of the Aiken Chamber of Commerce and a
former member of the advisory board for NationsBank in Aiken, South Carolina.
Russell D. Phelon, 56, is a resident of Aiken, South Carolina and is a
Class III Director of the Company. He graduated from Rensselaer Polytechnic
Institute in 1963 with a Bachelors Degree in Mechanical Engineering and attended
Babson Institute in Wellesley, Massachusetts from 1963 until 1964. He is the
President and Chief Executive Officer of R.E. Phelon Company, Inc., which is
headquartered in Aiken, South Carolina, and Power Parts, Inc. and has served on
the Board of Directors of Springfield Wire Company in Springfield, Massachusetts
and the board of trustees of Western New England College.
Donald W. Thompson, 52, is a Class I Director of the Company and a
resident of North Augusta, South Carolina. He has been President of Windsor
Jewelers, Inc. since 1989 and has been active in the jewelry industry for more
than 35 years. Mr. Thompson is a member of the Augusta Kiwanis.
37
<PAGE> 38
John B. Tomarchio, M.D., 45, is a Class I Director of the Company and a
resident of Aiken, South Carolina. He graduated summa cum laude from Central
Florida University with a Bachelors Degree in Microbiology and is a graduate of
Louisiana State University Medical School. He also received specialty training
at Tulane University Medical Center and the Medical College of Georgia and is
board certified in Emergency Medicine. He is the founder and former President
and Chief Executive Officer of South Carolina Physicians Care, a physicians
multi-specialty group. Dr. Tomarchio currently serves as President of the Aiken
County Medical Society and was appointed to the Board of Directors of the
Aiken-Barnwell Mental Health Association by both South Carolina Governor
Campbell and Governor Beasley. He is a member of the Aiken Judicial-Public
Safety Commission, the City of Aiken Planning Commission, the Aiken County
Indigent Care Commission, and the Vice Chairman of the Aiken Emergency Services
Subcommittee. In addition to his private practice in general and family
medicine, he is also an active member of a number of professional associations
including the Aiken County Medical Society, the South Carolina Hospital Trustee
Association, the South Carolina Medical Association, the American Medical
Association, and the American College of Physicians.
Tommy B. Wessinger, 60, is a Class III Director of the Company and is
also the Chairman and Chief Executive Officer of the Bank. He is a resident of
Aiken, South Carolina and attended Clemson University. He is also a graduate of
the University of North Carolina School of Banking, the Graduate School of
Banking of the South, L.S.U., and the Executive Management School at Columbia
University. Mr. Wessinger began his banking career in 1968 with Bankers Trust of
South Carolina, working in various positions and in various cities throughout
South Carolina. In 1982, Mr. Wessinger became a Regional Executive for Bankers
Trust where he was responsible for all branches throughout a ten county region,
including Aiken County. Mr. Wessinger continued to serve in this role after NCNB
acquired Bankers Trust from 1986 until 1992. Following the merger of C&S Bank
and NCNB, which resulted in the formation of NationsBank, Mr. Wessinger was
employed by NationsBank as a Senior Banking Executive and Senior Commercial Area
Executive for the Aiken County area from 1992 until his retirement in 1995. Mr.
Wessinger is a recipient of The Order of the Palmetto and was named Man of the
Year in 1994 by the Greater Aiken Chamber of Commerce. He is the Vice President
and a member of the Board of Directors of Hitchcock Rehabilitation Center,
former Chairman of the Economic Development Board of Aiken and Edgefield
Counties, and former Chairman of the Aiken Tech Foundation Board. He is also a
former member of the Governor's Council of Illiteracy and Workforce Excellence
and the Aiken County Human Relations Council, a current member of the Aiken
Rotary Club, and a member and founder of the Commission on The Future of Aiken
County.
Jean H. Covington, 40, is the Controller and Chief Financial Officer of
the Bank and the Company. She resides in Aiken, South Carolina and graduated
from Clemson University. In her career she has held senior financial positions
with various companies, and she was an auditor with Arthur Andersen & Co. for
three years. Most recently, Ms. Covington served as Vice President of Finance at
Foster Dixiana Corporation in Columbia, South Carolina from 1988 until 1995,
where she was responsible for all financial and administrative management,
accounting, budget, and treasury functions. She is a member of the South
Carolina Association of CPAs and the American Institute of Certified Public
Accountants. She currently serves as the Treasurer of the Board of the First
Presbyterian Church Preschool and Mothers' Morning Out Programs. She is a
sustaining member of the Kershaw County Jr. Welfare League and a past board
member of the Camden-Kershaw County Child Care Center. Ms. Covington also served
previously as a board member for The Loxcreen Company in Columbia, South
Carolina. She is a member of the First Presbyterian Church in Aiken, South
Carolina.
L. Stephen Lineberry, 52, is the Senior Vice President of Operations
for the Bank. He resides in North Augusta, South Carolina and attended Augusta
College. He is also a graduate of the American Institute of Banking. Mr.
Lineberry worked for Bankers First Data Services, Inc. from 1983 until 1996,
serving as President and Chief Operating Officer from 1990 until 1996. He is an
active member of the Georgia Army National Guard.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
As of December 31, 1997, the Company had no class of securities
registered pursuant to Section 12 of the Exchange Act. As a result, Section
16(a) of the Exchange Act does not apply to the Company.
38
<PAGE> 39
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows the cash compensation paid by the Bank to the
Company's Chief Executive Officer and President for the year ended December 31,
1997. No executive officers of the Company or the Bank earned total annual
compensation, including salary and bonus, in excess of $100,000 for the fiscal
year ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1)
-----------------------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
--------------------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Tommy B. Wessinger 1997 $ 1.00 (2) -- $1,800
Chairman and
Chief Executive Officer
Alan J. George 1997 $58,100 -- $2,400
President and Chief
Operating Officer
</TABLE>
- ----------------------
(1) Executive officers of the Company also receive indirect
compensation in the form of certain perquisites and other personal
benefits. The amount of such benefits received in the fiscal year by
each named executive officer did not exceed 10% of the executive's
annual salary and bonus.
(2) In addition, in lieu of salary before the Bank opened, in 1998 the
Company will issue 5,000 shares of common stock to Mr. Wessinger for no
additional consideration.
In March 1998, the Board of Directors adopted a stock option plan under
which directors, executive officers, and certain other key employees of the
Company and the Bank can receive options to purchase shares of the Company's
Common Stock, and, as described below, Mr. Wessinger and Mr. George will be
granted stock options in accordance with the terms of their employment
agreements with the Company. See "Employment Agreements." The Board will present
the Stock Option Plan to the shareholders for their approval at the 1998 Annual
Meeting of Shareholders. Upon approval of the Plan, the Company intends to grant
options to purchase 5,000 shares to each of the Company's outside directors and
to grant options to certain of the Company's employees. These initial options
will be exercisable at $10.00 per share.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with both Mr.
Wessinger and Mr. George for five year terms beginning March 3, 1997. At the end
of each term, upon adoption of a resolution by the Board of Directors of the
Bank (the "Board"), each term shall be extended for an additional year so that
each remaining term shall continue to be for five years unless either Mr.
Wessinger or Mr. George provide written notice to the Bank to fix their terms to
finite terms of five years commencing with the later date of March 3, 1997, or
the date of the latest Board resolution extending each term.
Tommy B. Wessinger and the Company entered into an employment agreement
pursuant to which Mr. Wessinger will serve as the Chairman and Chief Executive
Officer of the Company and the Bank. The employment agreement provided for a
starting salary of $1.00 per annum, plus medical insurance premiums until the
Bank opened for business. Since January 1, 1998, Mr. Wessinger has been paid a
salary of $75,000 plus his yearly medical insurance premium. In addition, in
lieu of salary before the Bank opened, in 1998 the Company agreed to issue 5,000
shares of common stock to Mr. Wessinger for no additional consideration. Alan J.
George and the Company entered into an employment agreement pursuant to which
Mr. George will serve as the
39
<PAGE> 40
President and Chief Operating Officer of the Company and the Bank. The
employment agreement provides for a starting salary of $75,000 per annum, plus
medical insurance premiums until the Bank opened for business. Thereafter, Mr.
George will be paid a salary of $90,000 plus his yearly medical insurance
premium.
Both agreements provide that the executive will be eligible to
participate in any management incentive program of the Bank or any long-term
equity incentive program and will be eligible for grants of stock options and
other awards thereunder. Each executive will also participate in the Bank's
retirement, welfare and other benefit programs and is entitled to reimbursement
for automobile expenses, club dues, and travel and business expenses. In
addition, under the agreements, on September 22, 1998 (the first anniversary of
the opening date of the Bank), Mr. Wessinger and Mr. George will be eligible to
receive a cash bonus in an amount determined by the Board of Directors (with
each executive abstaining from the determination of his bonus). The amount of
the bonuses will be based on such intangible criteria as the Board shall
establish. The Board anticipates that among the factors it will consider will be
each executive's efforts in connection with obtaining approvals from the South
Carolina Board of Financial Institutions and the Federal Reserve, and in
connection with preparing generally for the Bank's opening. On each anniversary
of the opening date thereafter, Mr. Wessinger and Mr. George will each be
eligible to receive a cash bonus if the Bank achieves certain performance levels
established by the Board of Directors from time to time.
Upon the adoption of the Plan, each of Mr. Wessinger and Mr. George
will be granted an option to purchase 49,658 shares (an amount equal to 5% of
the shares sold in the offering) at $10.00 per share. The options will vest at
the rate of one-fifth per year for each of the first five anniversaries of the
Bank's opening date, subject to such executive being employed by the Company on
such date and meeting certain performance criteria. The options will have a term
of ten years. In addition, the Company will grant Mr. Wessinger an option to
purchase 10,000 shares of common stock which will vest as to 2,000 shares on
each of December 31, 1998, 1999, 2000, 2001, and 2002, but in each case only if
Mr. Wessinger remains employed by the Company on such date. The Company will
maintain a term life insurance policy on Mr. George providing for death benefits
in the amount of $1,000,000 payable to the Bank and $1,000,000 payable to Mr.
George's family.
If the Company terminates either Mr. Wessinger's or Mr. George's
employment without cause or if Mr. Wessinger's or Mr. George's employment is
terminated due to a sale, merger or dissolution of the Company or the Bank, the
Company will be obligated to continue their salaries and bonuses for the first
twelve months thereafter plus one-half of their salaries and bonuses for the
second twelve months thereafter. Furthermore, the Company must remove any
restrictions on outstanding incentive awards so that all such awards vest
immediately and the Company must continue to provide medical benefits to Mr.
Wessinger and Mr. George until they reach the age of 65.
In addition, each employment agreement provides that following
termination of their employment with the Bank and for a period of twelve months
thereafter, neither Mr. Wessinger, nor Mr. George, may (i) be employed in the
banking business as a director, officer at the vice-president level or higher,
or organizer or promoter of, or provide executive management services to, any
financial institution within Aiken County, (ii) solicit major customers of the
Bank for the purpose of providing financial services, or (iii) solicit employees
of the Bank for employment.
DIRECTOR COMPENSATION
Neither the Company nor the Bank intend to pay directors' fees until
such time as the Bank is cumulatively profitable. However, the Company and the
Bank reserve the right to pay directors' fees.
40
<PAGE> 41
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
GENERAL
The following table sets forth the number and percentage of outstanding
shares of Common Stock beneficially owned at the Record Date by (a) the Chief
Executive Officer and the President of the Company, (b) each director of the
Company, (c) all executive officers and directors of the Company as a group, and
(d) each person or entity known to the Company to own more than 5% of the
outstanding Common Stock.
<TABLE>
<CAPTION>
Shares Beneficially Owned (1)
-----------------------------
Name Percent (2)
---- -----------
NUMBER OF SHARES
<S> <C> <C>
Raymond D. Brown 15,000 1.51
W. Cothran Campbell 17,500 1.76
Alan J. George 15,000(3) 1.51
Margaret Holley-Taylor 17,500 1.76
Anthony E. Jones 31,400 3.16
James D. McNair 15,000 1.51
Clark D. Moore, M.D. 34,500 3.47
Russell D. Phelon 49,000 4.93
Donald W. Thompson 17,500 1.76
John B. Tomarchio, M.D. 18,300 1.84
Tommy B. Wessinger 15,000(4) 1.51
Executive Officers and Directors as 255,800 25.76
a group (13 persons)
</TABLE>
- ------------------------------------
(1) Information relating to the beneficial ownership of Common Stock is
based upon "beneficial ownership" concepts set forth in rules of the
Securities Exchange Commission under Section 13(d) of the Securities
Exchange Act of 1934. Under these rules a person is deemed to be a
"beneficial owner" of a security if that person has or shares "voting
power," which includes the power to vote or direct the voting of each
security, or "investment power," which includes the power to dispose or
to direct the disposition of such security. A person is also deemed to
be a beneficial owner of any security of which that person has the
right to acquire beneficial ownership within 60 days. Under the rules,
more than one person may be deemed to be a beneficial owner of the same
securities, and a person may be deemed to be a beneficial owner of
securities as to which he has no beneficial interest. For instance,
beneficial ownership includes spouses, minor children, and other
relatives residing in the same household, and trusts, partnerships,
corporations or deferred compensation plans which are affiliated with
the principal.
(2) Percent is calculated by treating shares subject to options held by the
named individual for whom the percentage is held by the named
individual for whom the percentage is calculated which are exercisable
within the next 60 days as if outstanding, but treating shares subject
to options held by another shareholder as not outstanding. Excludes
shares potentially purchasable by directors or executive officers
pursuant to stock options expected to be granted upon adoption of the
Stock Option Plan.
(3) Excludes shares potentially purchasable by Mr. George pursuant to stock
options to be granted pursuant to his employment agreement.
(4) Excludes shares potentially purchasable by Mr. Wessinger pursuant to
stock options to be granted pursuant to his employment agreement.
41
<PAGE> 42
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into an agreement to lease the Company's
executive office property with Margaret Holley-Taylor. The Company believes that
this agreement was entered into on terms no less favorable to the Company than
could be obtained from an unaffiliated third party. The Company and the Bank
also have and expect to continue to have banking and other transactions in the
ordinary course of business with organizers, directors, and officers of the
Company and the Bank and their affiliates, including members of their families
or corporations, partnerships, or other organizations in which such organizers,
officers, or directors have a controlling interest, on substantially the same
terms (including price, or interest rates and collateral) as those prevailing at
the time for comparable transactions with unrelated parties. Such transactions
are not expected to involve more than the normal risk of collectibility nor
present other unfavorable features to the Company and the Bank. The Bank is
subject to a limit on the aggregate amount it could lend to its and the
Company's directors and officers as a group equal to its unimpaired capital and
surplus (or, under a regulatory exemption available to banks with less than $100
million in deposits, twice that amount). Loans to individual directors and
officers must also comply with the Bank's lending policies and statutory lending
limits, and directors with a personal interest in any loan application will be
excluded from the consideration of such loan application. The Company intends
for all of its transactions with organizers or other affiliates of the Company
or the Bank to be on terms no less favorable to the Company than could be
obtained from an unaffiliated third party and to be approved by a majority of
the Company's disinterested directors.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
<TABLE>
<S> <C>
3.1 Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 of the
Registration Statement on Form SB-2, File No.
333-25179).
3.2 Bylaws of the Company (incorporated by reference to
Exhibit 3.2 of the Registration Statement on Form
SB-2, File No. 333-25179).
4.1 Provisions in the Company's Articles of Incorporation
and Bylaws defining the rights of holders of the
Company's Common Stock (incorporated by reference to
Exhibit 4.1 of the Registration Statement on Form
SB-2, File No. 333-25179).
4.2 Form of Certificate of Common Stock (incorporated by
reference to Exhibit 4.2 of the Registration
Statement on Form SB-2, File No. 333-25179).
10.1 Purchase and Sale Agreement dated March 20, 1997, by
and between NationsBank National Association, as
seller, and People's Community Capital Corporation,
as purchaser (incorporated by reference to Exhibit
10.1 of the Registration Statement on Form SB-2, File
No. 333-25179).
10.2 Employment Agreement dated March 3, 1997, between the
Company and Tommy B. Wessinger (incorporated by
reference to Exhibit 10.2 of the Registration
Statement on Form SB-2, File No. 333-25179).
10.3 Employment Agreement dated March 3, 1997, by and
between the Company and Alan J. George (incorporated
by reference to Exhibit 10.3 of the Registration
Statement on Form SB-2, File No. 333-25179).
10.4 Escrow Agreement dated March 14, 1997, by and between
The Bankers Bank and the Company (incorporated by
reference to Exhibit 10.4 of the Registration
Statement on Form SB-2, File No. 333-25179).
</TABLE>
42
<PAGE> 43
<TABLE>
<S> <C>
10.5 Lease Agreement dated February 28, 1997, between the
Company, as lessee, and Margaret Holley-Taylor, as
lessor (incorporated by reference to Exhibit 10.5 of
the Registration Statement on Form SB-2, File No.
333-25179).
10.6 Form of Subscription Agreement (incorporated by
reference to Exhibit 10.6 of the Registration
Statement on Form SB-2, File No. 333-25179).
10.7 Negative Pledge Agreement dated as of May 19, 1997,
between the Company and Carolina First Bank
(incorporated by reference to Exhibit 10.7 of the
Registration Statement on Form SB-2, File No.
333-25179).
10.8 Promissory Note dated May 19, 1997, issued by the
Company to Carolina First Bank (incorporated by
reference to Exhibit 10.8 of the Registration
Statement on Form SB-2, File No. 333-25179).
10.9 Sales Agency Agreement dated July 9, 1997 between the
Company and Interstate/Johnson Lane Corporation
(incorporated by reference to Exhibit 10.9 of the
Quarterly Report on Form 10-QSB for the period ended
September 30, 1997, File No. 333-25179).
21.1 Subsidiaries of the Company.
27.1 Financial Data Schedule (for electronic filing purposes).
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the year
ended December 31, 1997.
43
<PAGE> 44
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PEOPLE'S COMMUNITY CAPITAL CORPORATION
Date: 3-17-98 By: /s/ Alan J. George
--------------- -------------------------------------
Alan J. George
President and Chief Operating Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Alan J. George, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this Registration Statement, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto attorney-in-fact and agent
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Raymond D. Brown 3-17-98
---------------------------- Director --------------------------
Raymond D. Brown
/s/ W. Cothran Campbell 3-17-98
---------------------------- Director --------------------------
W. Cothran Campbell
/s/ Alan J. George 3-17-98
---------------------------- Director, President and Chief --------------------------
Alan J. George Operating Officer
/s/ Anthony E. Jones 3-17-98
---------------------------- Director --------------------------
Anthony E. Jones
/s/ James D. McNair 3-17-98
---------------------------- Director --------------------------
James D. McNair
/s/ Clark D. Moore, M.D. 3-17-98
---------------------------- Director --------------------------
Clark D. Moore, M.D.
</TABLE>
44
<PAGE> 45
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Russell D. Phelon 3-17-98
---------------------------- Director --------------------------
Russell D. Phelon
/s/ Margaret Holley-Taylor 3-17-98
---------------------------- Director --------------------------
Margaret Holley-Taylor
/s/ Donald W. Thompson 3-17-98
---------------------------- Director --------------------------
Donald W. Thompson
/s/ John B. Tomarchio, M.D. 3-17-98
---------------------------- Director --------------------------
John B. Tomarchio, M.D.
/s/ Tommy B. Wessinger 3-17-98
---------------------------- Director; Chairman; Chief Executive --------------------------
Tommy B. Wessinger Officer
</TABLE>
45
<PAGE> 46
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
3.1 Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 of
the Registration Statement on Form SB-2, File No.
333-25179).
3.2 Bylaws of the Company (incorporated by reference to
Exhibit 3.2 of the Registration Statement on Form
SB-2, File No. 333-25179).
4.1 Provisions in the Company's Articles of Incorporation
and Bylaws defining the rights of holders of the
Company's Common Stock (incorporated by reference to
Exhibit 4.1 of the Registration Statement on Form
SB-2, File No. 333-25179).
4.2 Form of Certificate of Common Stock (incorporated by
reference to Exhibit 4.2 of the Registration
Statement on Form SB-2, File No. 333-25179).
10.1 Purchase and Sale Agreement dated March 20, 1997, by
and between NationsBank National Association, as
seller, and People's Community Capital Corporation,
as purchaser (incorporated by reference to Exhibit
10.1 of the Registration Statement on Form SB-2, File
No. 333-25179).
10.2 Employment Agreement dated March 3, 1997, between the
Company and Tommy B. Wessinger (incorporated by
reference to Exhibit 10.2 of the Registration
Statement on Form SB-2, File No. 333-25179).
10.3 Employment Agreement dated March 3, 1997, by and
between the Company and Alan J. George (incorporated
by reference to Exhibit 10.3 of the Registration
Statement on Form SB-2, File No. 333-25179).
10.4 Escrow Agreement dated March 14, 1997, by and between
The Bankers Bank and the Company (incorporated by
reference to Exhibit 10.4 of the Registration
Statement on Form SB-2, File No. 333-25179).
10.5 Lease Agreement dated February 28, 1997, between the
Company, as lessee, and Margaret Holley-Taylor, as
lessor (incorporated by reference to Exhibit 10.5 of
the Registration Statement on Form SB-2, File No.
333-25179).
10.6 Form of Subscription Agreement (incorporated by
reference to Exhibit 10.6 of the Registration
Statement on Form SB-2, File No. 333-25179).
10.7 Negative Pledge Agreement dated as of May 19, 1997,
between the Company and Carolina First Bank
(incorporated by reference to Exhibit 10.7 of the
Registration Statement on Form SB-2, File No.
333-25179).
10.8 Promissory Note dated May 19, 1997, issued by the
Company to Carolina First Bank (incorporated by
reference to Exhibit 10.8 of the Registration
Statement on Form SB-2, File No. 333-25179).
</TABLE>
46
<PAGE> 47
<TABLE>
<S> <C>
10.9 Sales Agency Agreement dated July 9, 1997 between the
Company and Interstate/Johnson Lane Corporation
(incorporated by reference to Exhibit 10.9 of the
Quarterly Report on Form 10-QSB for the period ended
September 30, 1997, File No. 333-25179).
21.1 Subsidiaries of the Company.
27.1 Financial Data Schedule (for electronic filing purposes).
</TABLE>
47
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
People's Community Bank of South Carolina
48
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0001037249
<NAME> PEOPLE'S COMMUNITY CAPITAL
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 625,785
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 9,240,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,629,838
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 3,949,163
<ALLOWANCE> 60,000
<TOTAL-ASSETS> 21,270,967
<DEPOSITS> 11,705,622
<SHORT-TERM> 0
<LIABILITIES-OTHER> 83,377
<LONG-TERM> 0
0
0
<COMMON> 9,932
<OTHER-SE> 9,450,674
<TOTAL-LIABILITIES-AND-EQUITY> 21,270,967
<INTEREST-LOAN> 52,309
<INTEREST-INVEST> 35,720
<INTEREST-OTHER> 238,728
<INTEREST-TOTAL> 326,757
<INTEREST-DEPOSIT> 80,815
<INTEREST-EXPENSE> 80,815
<INTEREST-INCOME-NET> 245,942
<LOAN-LOSSES> (60,000)
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 40,889
<INCOME-PRETAX> (439,558)
<INCOME-PRE-EXTRAORDINARY> (439,558)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (289,595)
<EPS-PRIMARY> (.29)
<EPS-DILUTED> (.29)
<YIELD-ACTUAL> 4.64
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 60,000
<ALLOWANCE-DOMESTIC> 60,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
