<PAGE> 1
================================================================================
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 (Fee required) For the fiscal year ended December 31, 1998
OR
--- Transition Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No fee required)
For the transition period from to
--------- ----------
Commission file no. 333-25179
PEOPLES COMMUNITY CAPITAL CORPORATION
-------------------------------------
(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.
Aiken, South Carolina 29801
--------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(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. [ ]
The issuer's loss for its most recent fiscal year was $111,834. As of
December 31, 1998, 998,162 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 1, 1999 is $7,540,620. This calculation is based upon an
estimate of the fair market value of the Common Stock of $10.00 per share, which
was the price of the last trade of which management is aware prior to this date.
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
Company's Proxy Statement and Annual Report.
================================================================================
<PAGE> 2
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 for the purpose of operating as a bank
holding company. The Company's wholly-owned subsidiary, People's Community Bank
of South Carolina (the Bank) commenced business on September 22, 1997, and is
primarily engaged in the business of accepting savings and demand deposits and
providing mortgage, consumer and commercial loans to the general public. The
Bank operates two banking centers located in Aiken and one located in North
Augusta, South Carolina.
The second banking center located in Aiken was opened on September 8,
1998 in leased offices that also are the headquarters of the holding company. A
tract of land has been purchased in downtown Aiken for the construction of a
permanent banking center office. The cost of the land was approximately
$139,000. Construction of the office is expected to begin sometime in 1999.
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 and the second Aiken office are located at
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 Savannah River Company for the
Department of 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.
2
<PAGE> 3
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 has been 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, including home equity
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 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 ten years or less after origination. 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, and 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 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
3
<PAGE> 4
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 and lines of credit. 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 60 months. The revolving loans typically bear interest at a
fixed rate and require monthly payments of interest and a portion of the
principal balance. 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 bank services include 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 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, but has an agreement with the
Southeastern Trust Company which provides trust services as an agent for the
Bank.
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, 1998, there were five
commercial banks (none of which are headquartered in Aiken County), one 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.
4
<PAGE> 5
EMPLOYEES
The Bank has approximately 20 full-time employees, three part-time
employees, and two part-time couriers. The Company does not have any employees
other than its officers.
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 FIRREA in 1989 and following with
FDICIA 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 operations of the Company 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 is 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 Securities Exchange
Act of 1934 (the "Exchange Act") (which the Company has done) or no other person
owns 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.
5
<PAGE> 6
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 is 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 is subject to regulatory restrictions as described below in "The
Bank--Dividends"). The Company is also 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 is also restricted in its activities by
the provisions of the Glass-Steagall Act, which prohibits 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
State Board of Financial Institutions (the "South Carolina Board").
Consequently, the Company must receive the approval of the South Carolina Board
prior to engaging in the acquisition of banking or nonbanking institutions or
assets. The Company must also file with the South Carolina Board periodic
reports with respect to its financial condition and operations, management, and
intercompany relationships between the Company and its subsidiaries.
The Bank. The Bank is 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 Bank. Beginning with the enactment of FIRREA in 1989 and following with
FDICIA 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 operations of the Bank may be affected by legislative changes and
the policies of various regulatory authorities. The Bank 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.
General. The Bank operates as a state bank incorporated under the laws
of the United States and subject to examination by the South Carolina Board. The
South Carolina Board and the FDIC 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 Board requires the Bank to maintain certain
capital ratios and imposes limitations on the Bank's aggregate investment in
real estate, bank premises, and furniture and fixtures. The Bank is required by
the FDIC to prepare quarterly reports on the Bank's financial condition.
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
6
<PAGE> 7
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 controls, information systems,
and audit systems; (ii) loan documentation; (iii) credit underwriting; (iv)
interest rate risk exposure; and (v) asset quality.
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. In 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 separated, 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 Board prior to the payment of any
dividends. 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
Board. In addition, with prior regulatory approval, the Bank may 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.
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
7
<PAGE> 8
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 that are designed to make
regulatory capital requirements more sensitive to differences in risk profiles
among banks and account for off-balance sheet items. The guidelines are
minimums, and the federal regulators have noted that banks contemplating
significant expansion programs should not allow expansion to diminish their
capital ratios and should maintain ratios in excess of the minimums. The Bank
has not received any notice indicating that it 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' 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.
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
8
<PAGE> 9
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. Currently, the
Bank qualifies 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
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.
These capital guidelines can affect the Bank in several ways.
Currently, the Bank's capital levels are more than adequate. However, rapid
growth, poor loan portfolio performance, or poor earnings performance, or a
combination of these factors, could change the Bank'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 the 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, the 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 company 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 branching
by banks. As a result of this legislation, the number of competitors in the
Bank's market may increase.
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 Bank cannot predict whether any of
these proposals will be adopted or, if adopted, how these proposals would affect
the Bank.
9
<PAGE> 10
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
The Company's main office is located at 106-A Park Avenue, SW, Aiken,
South Carolina and has approximately 10,000 square feet.
The Bank's main office is located at 1715 Whiskey Road, Aiken, South
Carolina and was opened on September 22, 1997. It is a 2,600 square foot
facility with three drive-through banking stations and an automated teller
machine. A branch was opened approximately 15 miles away at 518 Georgia Avenue,
North Augusta, South Carolina on September 24, 1997. The branch has 3,600 square
feet and a 338 square foot drive-through banking facility with two drive-through
stations. The North Augusta location also has an automated teller machine. A
second branch was opened at the Company's main office location of 106-A Park
Avenue, SW, Aiken, South Carolina on September 8, 1998. The branch is
approximately five miles from the Bank's main office and is located in downtown
Aiken. The branch subleases approximately 3,000 square feet of the Company's
office space. There are no drive-through stations and there is not an automated
teller machine at this location.
The Bank owns the property at 1715 Whiskey Road in Aiken and the
property in North Augusta. The Company leases its space under renewal terms that
expire in 2000. The Company has purchased property in downtown Aiken on which it
plans to build a permanent office location to replace the leased premises.
Construction is expected to begin sometime in 1999.
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.
The Company's stock trades under the symbol "PPLM" on the Nasdaq
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 $6.00 to
$11.00. As of March 1, 1999, there were approximately 650 record holders.
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.
10
<PAGE> 11
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS AND FINANCIAL STATEMENTS
In response to this Item, the information contained on pages 5 through
19 of the Company's Annual Report to shareholders for the year ended December
31, 1998 is incorporated herein by reference.
ITEM 7. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 8. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
In response to this Item, the information contained on page 10 of the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held on
April 29, 1999 is incorporated herein by reference.
ITEM 9. EXECUTIVE COMPENSATION
In response to this Item, the information contained on pages 6 through
8 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be
held on April 29, 1999 is incorporated herein by reference.
ITEM 10. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
In response to this Item, the information contained on pages 8 through
9 of the Company's Proxy Statement for the Annual Meeting of shareholders to be
held on April 29, 1999 is incorporated herein by reference.
ITEM 11. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In response to this Item, the information contained on pages 9 through
10 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be
held on April 29, 1999 is incorporated herein by reference.
ITEM 12. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
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).
11
<PAGE> 12
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).
10.9 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).
10.10 Second Amendment to Lease Agreement dated August 4,
1998 by and between the Company and Ms. Margaret C.
Holley.
13 Annual Report for year ended December 31, 1998.
21.1 Subsidiaries of the Company.
27.1 Financial Data Schedule (for electronic filing
purposes).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the year
ended December 31, 1998.
12
<PAGE> 13
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: March 9, 1999 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 Director March 9, 1999
------------------------------------------
Raymond D. Brown
/s/ Alan J. George Director, President and Chief March 9, 1999
------------------------------------------ Operating Officer
Alan J. George
/s/ Anthony E. Jones Director March 9, 1999
------------------------------------------
Anthony E. Jones
/s/ James D. McNair Director March 9, 1999
------------------------------------------
James D. McNair
/s/ Clark D. Moore, M.D Director March 9, 1999
------------------------------------------
Clark D. Moore, M.D.
/s/ Russell D. Phelon Director March 9, 1999
------------------------------------------
Russell D. Phelon
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Margaret Holley-Taylor Director March 9, 1999
------------------------------------------
Margaret Holley-Taylor
/s/ Donald W. Thompson
------------------------------------------
Donald W. Thompson Director March 9, 1999
/s/ John B. Tomarchio, M.D. Director March 9, 1999
------------------------------------------
John B. Tomarchio, M.D.
/s/ Tommy B. Wessinger Director; Chairman; Chief Executive March 9, 1999
------------------------------------------ Officer
Tommy B. Wessinger
/s/ Jean H. Covington Chief Financial Officer March 9, 1999
------------------------------------------
Jean H. Covington
</TABLE>
14
<PAGE> 15
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).
10.9 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).
10.10 Second Amendment to Lease Agreement dated August 4, 1998 by and
between the Company and Ms. Margaret C. Holley.
13 Annual Report for the year ended December 31, 1998.
21.1 Subsidiaries of the Company.
27.1 Financial Data Schedule (for electronic filing purposes).
</TABLE>
15
<PAGE> 1
EXHIBIT 10.10
STATE OF SOUTH CAROLINA ) SECOND
) AMENDMENT TO LEASE
COUNTY OF AIKEN ) AGREEMENT
WHEREAS, the parties hereto entered into a Lease Agreement, dated
February 28, 1997 and wish to amend the Lease Agreement;
1. PARTIES. This Amended Lease Agreement is made by and between
People's Community Capital Corporation, a South Carolina Corporation, herein
referred to as "Lessee", and Margaret C. Holley-Taylor, formerly known as
Margaret C. Holley, herein referred to as "Lessor" to amend Paragraph 3 of the
original Lease Agreement to read as follows:
3. LEASE TERM. The initial term of this lease shall be six months
commencing on March 1, 1997, and ending on August 31, 1997, unless sooner
terminated as hereafter provided. Lessor hereby grants Lessee an option to renew
this lease for as many as six (6) additional terms of six months each and Lessee
shall notify Lessor of its intention to renew, in writing, within thirty (30)
days of the expiration of the initial term or any renewal term of the lease.
During the initial term or any renewal term of this lease, Lessee covenants and
agrees to pay Lessor a fixed rent, payable in equal monthly installments of
$2,000.00 each in advance on the first day of each month at Margaret C.
Holley-Taylor, Post Office Box 1237, Aiken, South Carolina, 29802, or at such
other place as the Lessor shall designate from time to time in writing as rent
for the leased premises, without any setoff of deduction whatsoever. If a
monthly installment is not paid by the tenth (10th) day of the month, Lessee
will pay also a monthly penalty of five (5%) percent of the installment due.
IN WITNESS WHEREOF, the Lessee has signed and sealed this instrument
August 4, 1998 and the Lessor has signed and sealed this instrument August 4,
1998.
LESSEE
PEOPLE'S COMMUNITY CAPITAL CORPORATION
/s/ Betty Sharp
- -------------------------------------
Witness BY: /s/ Alan J. George
-----------------------
It's President
/s/ P. M. Ross, Jr.
- -------------------------------------
Witness BY: /s/ Alan J. George
-----------------------
It's Secretary
<PAGE> 2
LESSOR
/s/ Betty Sharp By: /s/ Margaret C. Holley-Taylor
- ------------------------------ ----------------------------
Witness Margaret C. Holley-Taylor
/s/ P. M. Ross, Jr.
- ------------------------------
Witness
STATE OF SOUTH CAROLINA )
) Probate
COUNTY OF AIKEN )
Personally appeared before me the undersigned witness and made oath
that she saw the within named LESSEE sign, seal, and as his act and deed,
deliver the within Second Amendment to Lease Agreement and that she, with the
other witness whose signature appears above witnessed the execution thereof.
SWORN TO BEFORE ME THIS
4th day of August, 1998
/s/ P. M. Ross, Jr. /s/ Betty Sharp
- ---------------------------------- -------------------------
Notary Public for South Carolina
My Commission expires: 03/25/2002
STATE OF SOUTH CAROLINA )
) Probate
COUNTY OF AIKEN )
Personally appeared before me the undersigned witness and made oath
that she saw the within named LESSEE sign, seal, and as his act and deed,
deliver the within Second Amendment to Lease Agreement and that she, with the
other witness whose signature appears above witnessed the execution thereof.
SWORN TO BEFORE ME THIS
4th day of August, 1998
/s/ P. M. Ross, Jr. /s/ Betty Sharp
- ---------------------------------- -------------------------
Notary Public for South Carolina
My Commission expires: 03/25/2002
----------
<PAGE> 1
EXHIBIT 13
PEOPLE MAKE THE
DIFFERENCE AT
PEOPLE'S
COMMUNITY BANK
1
<PAGE> 2
================================================================================
PEOPLE'S COMMUNITY CAPITAL
CORPORATION
================================================================================
TABLE OF CONTENTS
================================================================================
<TABLE>
<CAPTION>
Page
<S> <C>
Letter to Shareholders and Customers 3
Selected Financial Data 4
Management's Discussion and Analysis 5-19
Report of Independent Certified Public Accountants 20
Consolidated Balance Sheets 21
Consolidated Statements of Income 22
Consolidated Statements of Comprehensive Income 23
Consolidated Statements of Stockholders' Equity 24
Consolidated Statements of Cash Flows 25
Notes to Consolidated Financial Statements 26-42
Directors, Officers and Locations 43
Corporate Data 44
</TABLE>
2
================================================================================
<PAGE> 3
================================================================================
================================================================================
TO OUR SHAREHOLDERS AND CUSTOMERS
================================================================================
The year 1998 was a year of firsts for People's Community Capital
Corporation. It was our first full year of operation and one in which we
realized our first quarterly profit. Our customer base grew to over 3,000
customers by year end with an increase in deposits from $11.7 million at
December 31, 1997 to $26.7 million at December 31, 1998. Loans increased from
$3.9 million to $20.7 million over the same time frame. This growth in deposits
and earning assets allowed the Company to achieve profitability in the fourth
quarter, which is earlier than original expectations.
Additionally, in the third quarter of 1998, we opened our third banking
office in the same facility as our operations center in downtown Aiken. We were
able to open this branch without creating significant overhead, and we became
one of only a few banks having three banking centers in the first full year of
operation.
At December 31, 1998, the Company had no nonperforming loans and no
loans more than 30 days past due. Also, the Company set aside an additional
$225,000 in 1998 as a reserve for possible loan losses bringing the total
reserve to $285,000. As of December 31, 1998, there have been no loan losses
since inception of the Company.
People truly come first at People's Community Capital Corporation. From
the dedicated staff and directors, to the loyal customers, to the shareholders
of this Company, it is the people who make the difference at our bank. During
1998, Year 2000 issues were aggressively addressed, risk management skills were
sharpened, and personally-delivered customer service remained our top priority.
These accomplishments reflect the dedication, enthusiasm, and hard work of all
the associates at People's. They are successfully meeting new challenges daily
in an effort to win new customers and strengthen existing relationships. We
offer a broad array of products to a growing base of customers in what we
believe is a very attractive market. Many thanks to the shareholders of this
company who have supported us by bringing "your" business to "your" bank.
We are excited about the prospects for our continued success in 1999.
We plan to introduce a new deposit product during the year as well as brokerage
and insurance services, and we plan to grow our mortgage loan production area.
We will continue to grow our customer base and earning assets through our sales
program, our officer call program, and our advertising efforts. We also look
forward to the construction of our new building in downtown Aiken to house the
operations and banking center currently located in leased premises.
While the Company is still in its early stages of development, we are
ever mindful of our primary goal of building stockholder value. We can
accomplish this by increasing net operating profits, which we strongly believe
is now well under way. We must also develop new markets and a broader geographic
area of interest for our stock. With your help and support, we are confident
that 1999 and beyond will prove successful and lead to even greater achievements
for our Company. We welcome your comments and suggestions.
Tommy B. Wessinger Alan J. George
Chairman and Chief Executive Officer President and Chief Operating Officer
3
================================================================================
<PAGE> 4
================================================================================
================================================================================
SELECTED FINANCIAL DATA
================================================================================
The following table sets forth certain selected financial data
concerning the Company for the year ended December 31, 1998 and for the period
February 26, 1997 to December 31, 1997. The selected financial data has been
derived from the consolidated financial statements that have been audited by
Elliott, Davis, & Company, LLP, independent accountants. This information should
be read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations.
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
BALANCE SHEETS:
Federal funds sold $ 3,830,000 $ 9,240,000
Securities available for sale 8,734,879 5,629,838
Net loans 20,717,698 3,889,163
Properties and equipment, net 1,718,705 1,607,802
Total assets 36,539,413 21,270,967
Non-interest bearing deposits 4,973,931 1,954,224
Interest bearing deposits 21,761,653 9,751,398
Total deposits 26,735,584 11,705,622
Total liabilities 27,122,863 11,810,361
Total stockholders' equity 9,416,550 9,460,606
RESULTS OF OPERATIONS:
Interest income $ 2,051,929 $ 326,757
Interest expense 764,956 80,815
Net interest income 1,286,973 245,942
Provision for loan losses 225,000 60,000
Net interest income after provision 1,061,973 185,942
Non-interest income 183,230 9,504
Non-interest expense 1,457,244 635,004
Income tax benefit 100,207 149,963
Net loss $ 111,834 $ 289,595
PER SHARE DATA:
Weighted average common shares
outstanding 994,052 993,162
Net loss per share of common stock $ (.11) $ (.29)
CAPITAL AND LIQUIDITY RATIOS:
Average equity to average assets 30.35% 61.63%
Leverage (4% required minimum) 16.74% 40.60%
Risk-based capital:
Tier 1 22.39% 70.00%
Total 23.59% 71.00%
Average loans to average deposits 56.80% 24.24%
</TABLE>
4
================================================================================
<PAGE> 5
================================================================================
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
================================================================================
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 other statistical
information in this report.
GENERAL
People's Community Capital Corporation (the Company) was incorporated
in South Carolina on February 26, 1997 for the purpose of operating as a bank
holding company. The Company's wholly-owned subsidiary, People's Community Bank
of South Carolina (the Bank) commenced business on September 22, 1997, and is
primarily engaged in the business of accepting savings and demand deposits and
providing mortgage, consumer and commercial loans to the general public. The
Bank operates two banking centers located in Aiken and one located in North
Augusta, South Carolina.
The second banking center located in Aiken was opened on September 8,
1998 in leased offices that also are the headquarters of the holding company.
The Company has purchased a tract of land in downtown Aiken for the construction
of a permanent banking center office. The cost of the land was approximately
$139,000. Construction of the office is expected to begin sometime in 1999.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EARNINGS REVIEW
People's Community Capital Corporation is a one bank holding company.
Principal banking operations of the Company's only subsidiary commenced on
September 22, 1997. Although a net loss from operations was experienced for the
year ended December 31, 1998, the Company recorded its first quarterly profit
since commencing operations during the fourth quarter of 1998. The Company
expected to experience losses until the Bank grew its assets to a point where
the assets generated revenue from operations that exceeded the Bank's fixed
costs. Comparative information for 1997 is for the period of incorporation of
the Company, February 26, 1997, through December 31, 1997. Comparisons of
operating results for the periods presented should be made with an understanding
of these events.
[PICTURE]
5
================================================================================
<PAGE> 6
================================================================================
The Company's net loss for the year ended December 31, 1998 was
$111,834 compared to a loss of $289,595 for the year ended December 31, 1997
when the banking operations were just beginning. The loss per share decreased to
$.11 compared to $.29 for the same period in 1997. In the fourth quarter of
1998, the Company recorded a profit of $42,654, or $.05 per share. The variance
in performance between the two periods is directly attributable to the start-up
nature of the Company in 1997. The return on average assets for 1998 and 1997
was (0.36%) and (4.76%), respectively, and return on average equity was (1.20%)
and (7.73%), respectively. The Company has not yet paid cash dividends. The
following is a brief discussion of the more significant components of the net
loss.
Net Interest Income
General. The largest component of the Company's net income is its net
interest income, which is the difference between the income earned on assets and
interest paid on deposits and borrowings used to support such assets. Net
interest income is determined by the yields earned on the Company's
interest-earning assets and the rates paid on its interest-bearing liabilities,
the relative amounts of interest-earning assets and interest-bearing
liabilities, and the degree of mismatch and the maturity and repricing
characteristics of its interest-earning assets and interest-bearing liabilities.
Net interest income totaled $1,286,973 in 1998, compared with $245,942 in 1997.
Net interest margin, the difference between the yield on earning assets and the
rate paid on interest-bearing liabilities, was 3.15% in 1998 as compared to
1.43% in 1997. The reason for the increase was primarily due to the changing mix
of the earning asset portfolios. During 1998, loans represented 44.7% of the
average earning assets as compared to 9.3% in 1997. Loans typically provide a
higher yield than other types of earning assets.
Average Balances, Income, Expenses, and Rates. The following presents,
in a tabular form, average balance sheets that highlight the main components of
interest earning assets and interest bearing liabilities, on an annualized
basis, for the years ended December 31, 1998 and 1997. Yields are derived by
dividing income or expense by the average balance of the corresponding assets or
liabilities. Average balances have been derived from daily averages.
<TABLE>
<CAPTION>
AVERAGE BALANCES, INCOME, EXPENSES AND RATES
1998 1997
------------------------------------------- ---------------------------------------
Average Income/ Yield/ Average Income/ Yield/
ASSETS Balance Expense Rate Balance Expense Rate
----------- ---------- ----- ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold $ 4,913,723 $ 264,832 5.39% $4,226,102 $238,728 5.65%
Short-term investments 168,364 10,359 6.15% -- -- --
Securities 9,778,410 611,234 6.25% 579,850 35,720 6.16%
Loans 12,036,978 1,165,504 9.68% 490,257 52,309 10.67%
----------- ---------- ----- ---------- -------- -----
Total earning assets 26,897,475 2,051,929 7.63% 5,296,209 326,757 6.17%
----------- ---------- ----- ---------- -------- -----
Cash and due from banks 1,611,138 364,584
Premises and equipment 1,633,448 400,336
Other assets 823,440 21,310
Allowance for loan losses (172,500) (5,971)
----------- ----------
Total assets $30,793,001 $6,076,468
============ ==========
</TABLE>
6
================================================================================
<PAGE> 7
================================================================================
<TABLE>
<CAPTION>
LIABILITIES & EQUITY
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits:
Transaction accounts $ 2,687,264 $ 45,746 1.70% $ 363,569 7,026 1.93%
Money market accounts 6,489,132 290,956 4.48% 777,311 41,492 5.34%
Savings deposits 234,853 5,846 2.49% 14,182 343 2.42%
Time deposits 7,533,643 415,333 5.51% 549,870 31,954 5.81%
----------- -------- ---- ---------- ------ ----
Total int-bearing deposits 16,944,892 757,881 4.47% 1,704,932 80,815 4.74%
Interest-bearing borrowings 138,828 7,075 5.10% -- -- --
----------- -------- ---- ---------- ------ ----
Total int-bearing liabilities 17,083,720 764,956 4.48% 1,704,932 80,815 4.74%
----------- -------- ---- ---------- ------ ----
Demand deposits 4,246,640 317,492
Other liabilities 115,969 309,172
Shareholders' equity 9,346,672 3,744,872
----------- ----------
Total liabilities and share-
holders' equity $30,793,001 $6,076,468
=========== ==========
Net interest income/margin $1,286,973 3.15% $245,942 1.43%
=========== ========
Net yield on earning assets 4.78% 4.64%
</TABLE>
All loans and deposits are domestic. The effect of loans in non-accrual
status at any point in the periods presented is not significant to the
computations.
Analysis of Changes in Net Interest Income. The following table sets
forth the effect which the varying levels of earning assets and interest-bearing
liabilities and the applicable rates have had on changes in net interest income
from 1997 to 1998.
<TABLE>
<CAPTION>
1998 COMPARED TO 1997
---------------------
Variance Due to
---------------
Volume Rate Net
------ ---- ---
<S> <C> <C> <C>
EARNING ASSETS
Loans $1,232,361 $(119,166) $1,113,195
Securities 566,713 8,801 575,514
Federal funds sold 38,880 (12,776) 26,104
Other short-term investments 10,359 -- 10,359
---------- --------- ----------
Total earning assets 1,848,313 (123,141) 1,725,172
---------- --------- ----------
INTEREST-BEARING LIABILITIES
Transaction accounts 44,901 (6,181) 38,720
Money market accounts 305,270 (55,806) 249,464
Savings deposits 5,338 164 5,502
Time deposits 405,981 (22,601) 383,380
Other short-term borrowings 7,075 -- 7,075
---------- --------- ----------
Total interest-bearing liabilities 768,565 (84,424) 684,141
---------- --------- ----------
NET INTEREST INCOME $1,079,748 $ (38,717) $1,041,031
========== ========= ==========
</TABLE>
7
================================================================================
<PAGE> 8
================================================================================
Liquidity and Interest 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.
One monitoring technique employed by the Company is the measurement of
the Company's interest sensitivity "gap", which is the positive or negative
dollar difference between assets and liabilities that are subject to interest
rate repricing within a given period of time. Interest rate sensitivity can be
managed by repricing assets or liabilities, selling 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.
At December 31, 1998, the Company was liability-sensitive over the
three month and twelve month time frames and asset-sensitive over one year.
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.
The following table presents the Company's rate sensitivity at each of
the time intervals indicated as of December 31, 1998. The table may not be
indicative of the Company's rate sensitivity position at other points in time.
8
================================================================================
<PAGE> 9
================================================================================
<TABLE>
<CAPTION>
INTEREST SENSITIVITY ANALYSIS
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 $ 3,830 $ -- $ -- $ -- $ 3,830
Investment securities 82 -- 8,653 -- 8,735
Loans 8,313 1,586 10,181 923 21,003
-------- ------- ------- ------- -------
Total earning assets 12,225 1,586 18,834 923 33,568
Interest-bearing liabilities:
Transaction accounts 4,379 -- -- -- 4,379
Money market accounts 7,812 -- -- -- 7,812
Savings deposits 416 -- -- -- 416
Time deposits 3,936 3,264 1,955 -- 9,155
-------- ------- ------- ------- -------
Total interest-bearing liabilities $ 16,543 $ 3,264 $ 1,955 $ -- $21,762
Period gap $ (4,318) $(1,678) $16,879 $ 923 $11,806
Cumulative gap $ (4,318) $(5,996) $10,883 $11,806 $11,806
Ratio of cumulative gap to total
earning assets (12.86)% (17.86)% 32.42% 35.17%
</TABLE>
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 about 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 accurate. 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, 1998 and 1997, the allowance for loan losses was
$285,000 and $60,000, respectively. This represents 1.36% and 1.52% of
outstanding loans at December 31, 1998 and 1997, respectively. The Bank has not
charged off any loans since commencing operations. There were no non-accrual or
non-performing loans at December 31, 1998 or 1997, nor any loans delinquent more
than 90 days. The provision was made based on management's assessment of general
loan loss risk and asset quality.
Non-interest Income
Non-interest income for the year ended December 31, 1998 was $183,230
compared to $9,504 for 1997. Of this total, $85,089 represented service charges
on deposit accounts compared to
9
================================================================================
<PAGE> 10
================================================================================
$3,260 in 1997. The increase in service charge income was primarily the result
of substantial growth in deposit accounts and related deposit account fees. The
remaining $98,141 of non-interest income was primarily income generated from
other fees charged, the largest of which was brokered mortgage origination fee
income of $55,007.
Non-interest Expense
Non-interest expense increased from $635,004 for the period ended
December 31, 1997 to $1,457,244 for the year ended December 31, 1998. The
majority of the expense in 1997 was salaries and benefits of $350,028 during the
period of Bank operations as well as pre-opening activities such as planning and
organizing activities for the opening of the Bank. Salaries and benefits of
$878,391 again accounted for the largest portion of non-interest expense in
1998. The substantial increase in expenses from 1997 to 1998 is a result of the
Bank being in operation for all of 1998, as compared to approximately three
months in 1997.
BALANCE SHEET REVIEW
Total consolidated assets grew to $36,539,413 at December 31, 1998 from
$21,270,967 at December 31, 1997, an increase of $15,268,446. The increase was
generated primarily through a corresponding $15,029,962 increase in deposits.
Earning Assets
Loans. Loans typically provide higher yields than the other types of
earning assets, and as such should normally comprise the largest portion of
earning assets. Outstanding loans did represent the largest component of earning
assets as of December 31, 1998 at $20,717,698, or 62.2% of total
Quarter End Assets Since Quarter End Net Loans Since
Commencing Banking Operations Commencing Banking Operations
[CHART] [CHART]
earning assets. As of December 31, 1997, loans were $3,889,163, accounting for
only 20.7% of earning assets. Loans increased $16,828,535 since December 31,
1997 primarily due to the fact the Bank was in operations for all of 1998 and
funds were shifted over time from the investment
10
================================================================================
<PAGE> 11
categories to the more profitable loan categories. Average loans were $490,257
in 1997 and $12,036,978 in 1998. The following table shows the composition of
the loan portfolio by category.
<TABLE>
<CAPTION>
LOANS
December 31, 1998 December 31, 1997
-------------------------- --------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural $ 3,123,919 14.87% $ 498,293 12.62%
Real estate:
Mortgage - residential 6,457,298 30.75% 1,376,157 34.85%
Mortgage - commercial 8,960,654 42.66% 1,578,267 39.96%
Other 1,038,449 4.94% 201,000 5.09%
Consumer 1,410,480 6.72% 294,310 7.45%
Other 11,898 .06% 1,136 .03%
------------ ------ ----------- ------
Total loans 21,002,698 100.00% 3,949,163 100.00%
====== =========== ======
Allowance for loan losses (285,000) (60,000)
------------ -----------
Total net loans $ 20,717,698 $ 3,889,163
============ ===========
</TABLE>
The principal components of the Company's loan portfolio, at year end
1998 and 1997, were real estate loans comprising a combined 78.35% and 79.90% of
total loans, respectively.
In the context of this discussion, a "real estate loan" is defined as
any loan secured by real estate, regardless of the purpose of the loan. It is
common practice for financial institutions in the Company's market area to
obtain a security interest in real estate whenever possible, in addition to any
other available collateral. This collateral is taken to reinforce the likelihood
of the ultimate repayment of the loan and tends to increase the magnitude of the
real estate loan portfolio component. Also, due to the short term the loan
portfolio has existed, the current portfolio may not be indicative of the
ongoing portfolio mix. The repayment of loans in the loan portfolio as they
mature is also a source of liquidity for the Company. The following table sets
forth the Company's loans maturing within specified intervals at December 31,
1998.
<TABLE>
<CAPTION>
LOAN MATURITY SCHEDULE AND SENSITIVITY TO CHANGES IN
INTEREST RATES AT DECEMBER 31, 1998
Over One Year
One Year Through Over
or Less Five Years Five Years Total
------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $ 1,547,739 $ 1,509,155 $ 67,025 $ 3,123,919
Real estate 3,046,877 8,710,638 4,698,886 16,456,401
Consumer and other 254,275 1,119,791 48,312 1,422,378
----------- ----------- ----------- -----------
$ 4,848,891 $11,339,584 $ 4,814,223 $21,002,698
=========== =========== =========== ===========
Loans maturing after one year with:
Fixed interest rates $12,302,109
Floating interest rates 3,851,698
-----------
$16,153,807
===========
</TABLE>
11
================================================================================
<PAGE> 12
================================================================================
The information presented in the above table is based on the
contractual maturities of the individual loans, including loans that 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.
Investment Securities. At December 31, 1998, the investment securities
portfolio of the Company represented 26.2% of earning assets with a total of
$8,734,879, compared to the balance at December 31, 1997 of $5,629,838 when
investment securities were 30.0% of earning assets. All securities were
designated as available for sale and were recorded at estimated fair value. The
Company primarily invests in U.S. Government agencies with maturities up to five
years and also owns stock in the Federal Home Loan Bank. Contractual maturities
and yields on the Company's investments at December 31, 1998 are shown on 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
No Within but within
Maturity Yield one year Yield five years Yield
-------- ----- -------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
U.S. Government agencies $ - - $ - - $8,653,179 6.18%
FHLB stock 81,700 7.50% - - - -
---------- ----- ----------- ---------- ---------- -----
Total $ 81,700 7.50% $ - - $8,653,179 6.18%
========== ===== ============ ========== ========== =====
</TABLE>
Short-Term Investments. Short-term investments, which consist primarily
of federal funds sold, averaged $4,913,723 in 1998 compared to $4,226,102 in
1997. At December 31, 1998, short-term investments totaled $3,830,000 in federal
funds sold. This represents a major source of the Company's liquidity and is
generally invested on an overnight basis.
Deposits and Other Interest-Bearing Liabilities
Deposits. The Company's primary source of funds for loans and
investments is its deposits. Average total deposits were $21,191,532 in 1998,
compared to $2,022,424 during 1997. Average interest-bearing deposits were
$16,944,892 in 1998, compared to $1,704,932 in 1997. The average rate paid on
interest-bearing deposits in 1998 was 4.47% compared to 4.74% in 1997. In
pricing deposits, the Company considers its liquidity needs, the direction and
levels of interest rates, and local market conditions. As such, higher rates
were paid initially to attract deposits but have decreased based on the factors
above.
Quarter End Deposits Since
Commencing Banking Operations
[CHART]
12
================================================================================
<PAGE> 13
================================================================================
The following table sets forth the deposits of the Company by category
at December 31, 1998 and 1997.
<TABLE>
<CAPTION>
DEPOSITS
December 31, 1998 December 31, 1997
------------------- ------------------
Percent Percent
Amount of Total Amount of Total
------ -------- ------ --------
<S> <C> <C> <C> <C>
Demand deposit accounts $4,973,931 18.60% $ 1,954,224 16.69%
NOW accounts 4,378,876 16.38% 2,568,736 21.94%
Money market accounts 7,811,649 29.22% 3,831,221 32.73%
Savings accounts 416,269 1.55% 81,536 .70%
Time deposits less than $100,000 5,402,240 20.21% 1,838,533 15.71%
Time deposits of $100,000 or over 3,752,619 14.04% 1,431,372 12.23%
----------- ------ ------------ ------
Total deposits $26,735,584 100.00% $11,705,622 100.00%
=========== ====== =========== ======
</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 $22,982,965 and $10,274,250 at
December 31, 1998 and 1997, respectively. The maturity distribution of the
Company's time deposits of $100,000 or more at December 31, 1998 is shown in the
following table.
MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE AT DECEMBER 31, 1998
<TABLE>
<S> <C>
Three months or less $2,063,952
Over three through six months 723,160
Over six through twelve months 105,489
Over twelve months 860,018
----------
Total $3,752,619
==========
</TABLE>
Large time deposit customers tend to be extremely sensitive to interest
rate levels, making these deposits less reliable sources of funding for
liquidity planning purposes than core deposits. Some financial institutions
partially fund their balance sheets using large certificates of deposit obtained
through brokers. These brokered deposits are generally expensive and are
unreliable as long-term funding sources. Accordingly, the Company does not
accept brokered deposits.
Borrowed funds. Borrowed funds consist primarily of short-term
borrowings provided through a U.S. Treasury demand note associated with a
treasury tax and loan account. These borrowings averaged $138,828 for 1998 at an
average rate of 5.10%. The balance outstanding at December 31, 1998 was
$331,783.
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 7.50%, and the interest was
capitalized to the property purchased. This note was paid out in 1997.
13
================================================================================
<PAGE> 14
================================================================================
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, 1998.
Capital
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 guidelines.
However, the Bank falls under these rules as set per bank regulatory agencies.
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 the 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 Bank exceeded the minimum capital requirements set by the
regulatory agencies at December 31, 1998 and 1997. Below is a table that
reflects the leverage and risk-based regulatory capital ratios of the Bank at
December 31, 1998 and 1997.
<TABLE>
<CAPTION>
ANALYSIS OF CAPITAL
Required Actual
AT DECEMBER 31, 1998 Amount Percent Amount Percent
-------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
Tier 1 capital $ 953,500 4.0% $5,338,000 22.39%
Total capital $ 1,907,000 8.0% $5,623,000 23.59%
Tier 1 leverage ratio $ 1,275,800 4.0% $5,338,000 16.74%
AT DECEMBER 31, 1997
Tier 1 capital $ 317,700 4.0% $5,560,000 70.00%
Total capital $ 633,200 8.0% $5,620,000 71.00%
Tier 1 leverage ratio $ 547,800 4.0% $5,560,000 40.60%
</TABLE>
The Company sold a total of 993,162 shares 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 fund activities which may from time to time be
considered appropriate investments of capital at some point in the future.
14
================================================================================
<PAGE> 15
================================================================================
As of December 31, 1998, there were no significant firm commitments
outstanding for capital expenditures.
LIQUIDITY MANAGEMENT
Liquidity management involves monitoring the Company's sources and uses
of funds in order to meet its day-to-day cash flow requirements while maximizing
profits. Liquidity represents the ability of a company to convert assets into
cash or cash equivalents without significant loss and to raise additional funds
by increasing liabilities. Liquidity management is made more complicated because
different balance sheet components are subject to varying degrees of management
control. For example, the timing of maturities of the investment portfolio is
fairly predictable and subject to a high degree of control at the time
investment decisions are made. However, net deposit inflows and outflows are far
less predictable and are not subject to nearly the same degree of control.
At December 31, 1998, the Company's liquid assets, consisting of cash
and due from banks and federal funds sold, amounted to $4,788,613, representing
13.1% of total assets. Investment securities amounted to $8,734,879,
representing 23.9% of total assets; these securities provide a secondary source
of liquidity since they can be converted into cash in a timely manner. The
Company's ability to maintain and expand its deposit base and borrowing
capabilities also serves as a source of liquidity.
The Company plans to meet its future cash needs through the liquidation
of temporary investments, maturities of loans and investment securities, and
generation of deposits. In addition, the Bank maintains a line of credit from
its correspondent bank in the amount of $1,800,000, and is also a member of the
Federal Home Loan Bank from which application for borrowings can be made for
leverage purposes, if so desired. Management believes that its existing stable
base of core deposits along with continued growth in this deposit base will
enable the Company to successfully meet its long term liquidity needs.
IMPACT OF INFLATION
Unlike most industrial companies, the assets and liabilities of
financial institutions such as the Company and the Bank are primarily monetary
in nature. Therefore, interest rates have a more significant effect on the
Company's performance than do the effects of changes in the general rate of
inflation and changing prices. In addition, interest rates do not necessarily
move in the same direction or in the same magnitude as the prices of goods and
services. As discussed previously, management seeks to manage the relationships
between interest sensitive assets and liabilities in order to protect against
wide interest rate fluctuations, including those which may result from
inflation.
INDUSTRY DEVELOPMENTS
In February 1998, the Supreme Court ruled that federal credit unions
must limit their membership to employees of the companies that sponsor the
credit union. Banking leaders throughout the country have argued that credit
unions have an unfair competitive advantage because they do not pay income taxes
and are not subject to the same level of regulatory oversight. The Supreme Court
ruling applies only to federal credit unions. State-chartered credit unions were
not directly affected by the ruling. The lower courts will determine whether
current members who are
15
================================================================================
<PAGE> 16
================================================================================
not employed by the credit union sponsor will be forced to close their accounts.
Management does not expect the ruling to have an immediate effect on the
financial position or results of operations of the Company. The effects on
future periods have not yet been determined.
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.
YEAR 2000 ISSUES
Definition. Some computers, software, and other equipment include
programming codes in which calendar year data is abbreviated to only two digits.
As a result of this design decision, some of these systems could fail to operate
or fail to produce correct results if "00" is interpreted to mean 1900, rather
than 2000. These problems are widely expected to increase in frequency and
severity as the year 2000 approaches and are commonly referred to as the "Year
2000 Problem".
Assessment. The Year 2000 Problem could affect computers, software, and
other equipment that the Company uses. Accordingly, the Company has developed a
plan that provides for, among other things, the replacement or modification of
existing information systems as necessary. Because the primary hardware and
software systems are presently certified by their vendors as Year 2000
compliant, the Company has not incurred any significant costs to date relating
to software modifications or new installations for the other systems. Most
systems are made compliant through periodic software upgrades provided by the
various vendors as part of the license agreements. However, while the Company
does not expect the cost of these efforts to be material to its financial
position or any year's operating results, there can be no assurance to this
effect.
Internal Infrastructure. The Company utilizes an outsourced data
processing system for most of its accounting functions. The Company's primary
systems have been tested by proxy with the vendor, who has tested in
environments with like software and hardware systems as the Company. Banking
regulators have approved this type of testing as a valid means of testing. The
Company has received and is reviewing the vendor's Year 2000 test results. Based
on this review, the Company does not believe that the data processing system has
any material Year 2000 issues. The Company believes that its has identified
substantially all of the major computers, software applications, and related
equipment used in connection with its internal operations that must be modified,
upgraded, or replaced to minimize the possibility of a material disruption of
its business. Management is in the process of assessing mission critical proxy
test results. Management believes that the testing and review of mission
critical results should be completed by March 31, 1999. Costs spent to date on
the Year 2000 Problem have been negligible, and Management believes that total
project costs will not exceed $10,000 to get all of its systems Year 2000
compliant. The Company does not believe that the cost related to these efforts
will be material to its business, financial condition, or operating results.
Systems Other Than Information Technology Systems. In addition to
computers and related systems, the operation of the Company's office and
facilities equipment, such as fax machines, photocopiers, telephone switches,
security systems, and other devices, may be affected by the Year 2000 Problem.
The Company has completed its assessment of the potential effect of, and the
costs
16
================================================================================
<PAGE> 17
================================================================================
of remediating, the Year 2000 Problem on this equipment. The Company estimates
that its total cost of completing any required modifications, upgrades, or
replacements of these internal systems will not have a material effect on its
business, financial condition, or operating results.
Suppliers and Other Third Parties. The Company has been gathering
information from and has initiated communications with its suppliers and other
third parties to identify and, to the extent possible, resolve issues involving
the Year 2000 Problem. The Company believes that the information systems and
software it uses, and the network connections it maintains, are programmed to
comply with Year 2000 requirements. However, there is a risk that they are not.
Customers. The Company believes that the largest Year 2000 Problem
exposure to most banks is the preparedness of the customers of the banks.
Management is addressing with its customers the possible consequences of not
being prepared for Year 2000. Should large borrowers not sufficiently address
this issue, the Company may experience an increase in loan defaults. The amount
of potential loss from this issue it not quantifiable. Management is attempting
to reduce this exposure by educating its customers. A "Year 2000 Customer Risk
Assessment" is prepared on significant commercial loan customers to determine
the degree to which the customer is preparing for Year 2000. The degree of risk
assessed is incorporated into the Company's loan risk grade system which
determines the amount of loan loss reserves required.
Most Likely Consequences of Year 2000 Problems. The Company expects to
identify and resolve all Year 2000 Problems that could materially adversely
affect its business, financial condition, or operating results. However, the
Company believes that it is not possible to determine with complete certainty
that all Year 2000 Problems affecting it have been identified or corrected. The
number of devices that could be affected and the interactions among these
devices are simply too numerous. In addition, the Company cannot accurately
predict how many failures related to the Year 2000 Problem will occur with its
suppliers, customers, or other third parties or the severity, duration, or
financial consequences of such failures. As a result, the Company expects that
it could possibly suffer the following consequences:
- A number of operational inconveniences and inefficiencies for
the Company, its service providers, or its customers that may
divert the Company's time and attention and financial and
human resources from its ordinary business activities:
- System malfunctions that may require significant efforts by
the Company or its service providers or customers to prevent
or alleviate material business disruptions.
Contingency Plans. The Company is currently developing contingency
plans as part of its efforts to identify and correct Year 2000 Problems
affecting its internal systems. The Company expects to complete its contingency
plans by the end of the second quarter of 1999. Depending on the systems
affected, these plans could include (a) accelerated replacement of affected
equipment or software; (b) short term use of backup equipment and software; (c)
increased work hours for the Company's personnel or use of contract personnel to
correct on an accelerated schedule any Year 2000 Problems which arise; and (d)
other similar approaches. If the Company is required to implement any of these
contingency plans, these plans could have a material adverse effect on its
business, financial condition, or operating results.
17
================================================================================
<PAGE> 18
================================================================================
FORWARD-LOOKING INFORMATION
This Report contains statements which constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These statements appear in a
number of places in this Report and include all statements that are not
historical statements of fact regarding the intent, belief, or current
expectations of the Company or 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; and (iii) the Company's
growth and operating strategies. Words such as "may," "would," "could," "will,"
"expect," "estimate," "anticipate," "believe," "intend," and "plans" are
intended to identify forward-looking statements. Investors are cautioned that
any such forward-looking statements are not guarantees of future performance and
involve risks and uncertainties, many of which are beyond the Company's control.
Actual results may differ materially from those projected in the forward-looking
statements as a result of various factors. Among the key risks, assumptions, and
factors that may affect operating results, performance, and financial condition
are the Company's ability to continue and manage its growth, fluctuations in its
quarterly results, Year 2000 risks and concerns, competition, and other factors
discussed herein and in the Company's filings with the Securities and Exchange
Commission, including the "Risk Factors" section of the Company's Registration
Statement on Form S-1 (Registration Number 333-25179).
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, Statement of Financial Accounting Standards NO. 130,
"Reporting Comprehensive Income" (FASB 130), was issued, and established
standards for reporting and displaying comprehensive income and its components,
as recognized under accounting standards, to be displayed in a financial
statement with the same prominence as other financial statements. Accordingly,
the Consolidated Statements of Comprehensive Income (Loss) have been included in
the financial statements for the years ended December 31, 1998 and 1997.
In June 1997, the FASB issued SFAS 131, "Disclosures about Segments of
an Enterprise and Related Information". SFAS 131 requires that a public business
enterprise report financial and descriptive information about its reportable
operating segments. Operating segments are components of an enterprise about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance. SFAS 131 requires that a public enterprise report a
measure of segment profit or loss, certain specific revenue and expense items,
segment assets, information about the way that the operating segments were
determined and other items. The Statement was effective for fiscal years
beginning after December 15, 1997. The adoption of SFAS 131 did not have an
impact on the financial statements or disclosures of the Company.
In April 1998, the FASB issued SFAS 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits". The new Statement revises the
required disclosures for employee benefit plans, but it does not change the
measurement or recognition of such plans. While the new standard requires some
additional information about benefit plans, it helps preparers of financial
statements by eliminating certain disclosures and by standardizing the
disclosures for pensions and other postretirement benefits to the extent
practicable. SFAS 132 supercedes the disclosure requirements in SFAS 87,
"Employers' Accounting for Pensions", SFAS 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination
18
================================================================================
<PAGE> 19
================================================================================
Benefits", and SFAS 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions". The new disclosures were effective for fiscal years
beginning after December 15, 1997. The adoption of SFAS 132 did not have an
impact on the financial statements of the Company due to the disclosure only
requirements.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instrument and Hedging Activities". All derivatives are to be measured at fair
value and recognized in the statement of financial position as assets or
liabilities. The statement is effective for fiscal years and quarters beginning
after June 15, 1999. Because the Company has limited use of derivative
transactions at this time, management does not expect that this standard would
have a significant effect on the Company.
In October 1998, the FASB issued SFAS 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise". The new statement establishes
accounting and reporting standards for certain activities of mortgage banking
enterprises. The statement is effective for the first quarter beginning after
December 15, 1998. The statement will have no effect on the financial statements
of the Company.
In March 1998, the Accounting Standards Executive Committee of the
AICPA issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" (SOP 98-1), which provided
guidance as to when it is or is not appropriate to capitalize the cost of
software developed or obtained for internal use. SOP 98-1 is effective for
financial statements for fiscal years beginning after December 15, 1998 with
early adoption encouraged. The Company does not anticipate that adoption of SOP
98-1 will have a material effect on its financial statements.
In April 1998, the Accounting Standards Executive Committee of the
AICPA issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities"(SOP 98-5), which provided guidance on the financial reporting of
start-up costs and organization costs. SOP 98-5 requires start-up costs and
organization costs to be expensed as incurred and initial application should be
reported as the cumulative effect of a change in accounting principle. SOP 98-5
is effective for financial statements for fiscal years beginning after December
15, 1998, with early adoption encouraged. The Company does not anticipate that
adoption of SOP 98-5 will have a material effect on its financial statements.
19
================================================================================
<PAGE> 20
================================================================================
================================================================================
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
================================================================================
The Directors
People's Community Capital Corporation
Aiken, South Carolina
We have audited the accompanying consolidated balance sheets of
People's Community Capital Corporation as of December 31, 1998 and 1997, and the
related consolidated statements of income, comprehensive income, stockholders'
equity and cash flows for the year ended December 31, 1998 and 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, 1998 and
1997, and the consolidated results of their operations and their cash flows for
the year ended December 31, 1998 and the period from February 26, 1997
(inception) to December 31, 1997, in conformity with generally accepted
accounting principles.
January 14, 1999
20
================================================================================
<PAGE> 21
================================================================================
================================================================================
PEOPLE'S COMMUNITY CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1998 1997
------------ ------------
ASSETS
<S> <C> <C>
CASH AND DUE FROM BANKS $ 958,613 $ 625,785
FEDERAL FUNDS SOLD 3,830,000 9,240,000
SECURITIES
Available for sale 8,734,879 5,629,838
LOANS RECEIVABLE - NET 20,717,698 3,889,163
PROPERTIES AND EQUIPMENT - NET 1,718,705 1,607,802
ACCRUED INTEREST RECEIVABLE 243,909 45,769
OTHER ASSETS 335,609 232,610
------------ ------------
Total assets $ 36,539,413 $ 21,270,967
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS
Noninterest bearing $ 4,973,931 $ 1,954,224
Interest bearing 21,761,653 9,751,398
------------ ------------
Total deposits 26,735,584 11,705,622
ACCRUED INTEREST PAYABLE 35,686 21,362
OTHER BORROWINGS 331,783 --
ACCRUED EXPENSES AND OTHER LIABILITIES 19,810 83,377
------------ ------------
Total liabilities 27,122,863 11,810,361
------------ ------------
COMMITMENTS AND CONTINGENCIES - Notes 13 and 14
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 10,000,000 shares authorized 9,982 9,932
Additional paid-in capital 9,775,508 9,738,058
Retained earnings (deficit) (401,429) (289,595)
Accumulated other comprehensive income 32,489 2,211
------------ ------------
Total stockholders' equity 9,416,550 9,460,606
------------ ------------
Total liabilities and stockholders' equity $ 36,539,413 $ 21,270,967
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
21
================================================================================
<PAGE> 22
================================================================================
================================================================================
.PEOPLE'S COMMUNITY CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
================================================================================
<TABLE>
<CAPTION>
For the period from
February 26, 1997
For the year ended (inception) through
December 31, 1998 December 31, 1997
------------------ --------------------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $ 1,165,504 $ 52,309
Securities and short-term investments 621,593 35,720
Federal funds sold 264,832 238,728
----------- ---------
Total interest income 2,051,929 326,757
----------- ---------
INTEREST EXPENSE
Deposits 757,881 80,815
Other borrowings 7,075 --
----------- ---------
Total interest expense 764,956 80,815
----------- ---------
Net interest income 1,286,973 245,942
PROVISION FOR LOAN LOSSES 225,000 60,000
----------- ---------
Net interest income after provision for loan losses 1,061,973 185,942
----------- ---------
NONINTEREST INCOME
Service charges on deposit accounts 85,089 3,260
Other income 98,141 6,244
----------- ---------
Total noninterest income 183,230 9,504
----------- ---------
NONINTEREST EXPENSES
Salaries and employee benefits 878,391 350,028
Occupancy and equipment expense 206,566 74,594
Consulting and professional fees 37,364 63,216
Customer related expenses 67,651 16,869
General operating expenses 151,470 89,408
Other expense 115,802 40,889
----------- ---------
Total noninterest expenses 1,457,244 635,004
----------- ---------
Loss before income taxes (212,041) (439,558)
INCOME TAX BENEFITS (100,207) (149,963)
NET LOSS $ (111,834) $(289,595)
=========== =========
NET LOSS PER SHARE OF COMMON STOCK $ (0.11) $ (0.29)
=========== =========
WEIGHTED AVERAGE SHARES OUTSTANDING 994,052 993,162
=========== =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
22
================================================================================
<PAGE> 23
================================================================================
================================================================================
PEOPLE'S COMMUNITY CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
================================================================================
<TABLE>
<CAPTION>
For the period from
February 26, 1997
For the year ended (inception) through
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
NET LOSS $(111,834) $(289,595)
OTHER COMPREHENSIVE INCOME
Net change in unrealized appreciation on securities available
for sale, net of taxes of $20,186 in 1998 and $1,474 in 1997 30,278 2,211
--------- ---------
COMPREHENSIVE LOSS $ (81,556) $(287,384)
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
23
================================================================================
<PAGE> 24
================================================================================
================================================================================
PEOPLE'S COMMUNITY CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL RETAINED OTHER TOTAL
COMMON PAID-IN EARNINGS COMPREHENSIVE STOCKHOLDERS'
SHARES STOCK CAPITAL (DEFICIT) INCOME EQUITY
-------- ------ ---------- --------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, FEBRUARY 26, 1997 (INCEPTION) -- $ -- $ -- $ -- $ $ --
Common stock issued 993,162 9,932 9,738,058 -- -- 9,747,990
Net loss -- -- -- (289,595) -- (289,595)
Net change in unrealized appreciation 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
Common stock issued 5,000 50 37,450 -- -- 37,500
Net loss -- -- -- (111,834) -- (111,834)
Net change in unrealized appreciation on
securities available for sale - Net of
income taxes -- -- -- -- 30,278 30,278
-------- ------ ---------- --------- ------- -----------
BALANCE, DECEMBER 31, 1998 $998,162 $9,982 $9,775,508 $(401,429) $32,489 $ 9,416,550
======== ====== ========== ========= ======= ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
24
================================================================================
<PAGE> 25
================================================================================
================================================================================
PEOPLE'S COMMUNITY CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FEBRUARY 26, 1997
FOR THE YEAR ENDED (INCEPTION) THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (111,834) $ (289,595)
Adjustments to reconcile net loss to net cash used
for operating activities
Depreciation and amortization 102,060 23,103
Realized gain on sales of securities - Net (547) --
Provision for loan losses 225,000 60,000
Deferred income tax benefits (100,207) (150,656)
Changes in deferred and accrued amounts
Other assets and accrued interest receivable (212,390) (130,588)
Accrued expenses, accrued interest payable
and other liabilities (49,244) 104,838
------------ ------------
Net cash used for operating activities (147,162) (382,898)
------------ ------------
INVESTING ACTIVITIES
Activity in securities
Sales 1,000,547 --
Purchases (11,700,903) (5,627,627)
Maturities and calls 7,626,140 --
Purchases of properties and equipment (201,504) (1,628,038)
Loan originations and principal collections, net (17,053,535) (3,949,164)
Net (increase) decrease in federal funds sold 5,410,000 (9,240,000)
------------ ------------
Net cash used for investing activities (14,919,255) (20,444,829)
------------ ------------
FINANCING ACTIVITIES
Net increase in deposits 15,029,962 11,705,622
Proceeds from issuance of common stock - net of costs 37,500 9,747,990
Non-interest bearing borrowings from organizers -- 240,000
Repayment of non-interest bearing borrowings from organizers -- (275,000)
Net proceeds from borrowings 331,783 --
Net proceeds from note payable -- 775,000
Repayment of note payable -- (775,000)
Development stage enterprise stock purchased -- (100)
------------ ------------
Net cash provided from financing activities 15,399,245 21,418,512
------------ ------------
Net increase in cash and cash equivalents 332,828 590,785
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 625,785 35,000
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 958,613 $ 625,785
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid on deposits and borrowed funds $ 750,632 $ 59,453
============ ============
Income taxes paid $ 1,413 $ --
============ ============
</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, with respect
to a then proposed de novo bank, People's Community Bank of South
Carolina (the "Bank"). The Company offered its common stock for sale to
the public under an initial public offering price of $10 per share.
During 1997, the Bank obtained regulatory approval to operate and opened
for business on September 22, 1997, with a total capitalization of
$6,000,000. The Bank provides full commercial banking services to
customers and is subject to regulation of the Federal Deposit Insurance
Corporation and the State of South Carolina Board of Financial
Institutions. The Company is subject to regulation of the Federal Reserve
Board.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Corporation and its wholly-owned subsidiary, the Bank. All significant
intercompany balances and transactions have been eliminated in
consolidation. The accounting and reporting policies of the Corporation
conform to generally accepted accounting principles and to general
practices in the banking industry. The Corporation uses the accrual basis
of accounting.
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.
STATEMENT OF CASH FLOWS
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 reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities as of the date of
the consolidated financial statements and the reported amount of income
and expenses during the reporting periods. Actual results could differ
from those estimates.
(Continued)
26
================================================================================
<PAGE> 27
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
SECURITIES
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 unrealized gains and losses excluded from
earnings and reported in other comprehensive income. 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. Debt 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, 1998 and 1997.
Interest on securities, including the amortization of premiums and the
accretion of discounts, are reported as interest income using the
interest method over the terms of the securities. 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. Points on real estate loans are taken into income to
the extent they represent the direct cost of initiating a loan.
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
(Continued)
27
================================================================================
<PAGE> 28
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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 a provision for loan
losses charged to earnings. Loan losses are charged against the allowance
when management believes the collectibility of the loan balance is
unlikely. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by
management and is based upon management's periodic review of the
collectibility of the loans in light of historical experience, known and
inherent risks in the nature and volume of the loan portfolio, adverse
situations that may affect the borrower's ability to repay, estimated
value of any underlying collateral and prevailing economic conditions.
This evaluation is inherently subjective as it requires estimates that
are susceptible to significant change. Ultimately, losses may vary from
current estimates and future additions to the allowance may be necessary.
The Bank accounts for impaired loans in accordance with SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". This standard
requires that all creditors value loans at the loan's fair value if it is
probable that the creditor will be unable to collect all amounts due
according to the terms of the loan agreement. Fair value may be
determined based upon the present value of expected cash flows, market
price of the loan, if available, or value of the underlying collateral.
Expected cash flows are required to be discounted at the loan's effective
interest rate. SFAS No. 114 was amended by SFAS No. 118 to allow a
creditor to use existing methods for recognizing interest income on an
impaired loan and by requiring additional disclosures about how a
creditor recognizes interest income on an impaired loan.
A loan is considered impaired when, based on current information and
events, it is probable that a creditor will be unable to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. Factors considered by management
in determining impairment include payment status, collateral value and
the probability of collecting scheduled principal and interest payments
when due. Loans that experience insignificant payment delays and payment
shortfalls generally are not classified as impaired. Management
determines the significance of payment delays and payment shortfalls on a
case-by-case basis, taking into consideration all of the circumstances
surrounding the loan and the borrower, including the length of the delay,
the reasons for the delay, the borrower's prior payment record and the
amount of the shortfall in relation to the principal and interest owed.
Impairment is measured on a loan by loan basis by either the present
value of expected future cash flows discounted at the loan's effective
interest rate, the loan's obtainable market price or the fair value of
the collateral if the loan is collateral dependent.
(Continued)
28
================================================================================
<PAGE> 29
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Large groups of smaller balance homogenous loans are collectively
evaluated for impairment Accordingly, the Bank does not separately
identify individual consumer loans for impairment disclosures.
As of December 31, 1998 and 1997, the Bank had no impaired loans.
PROPERTIES AND EQUIPMENT
Land is carried at cost. 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 in
accordance with SFAS No. 128, "Earnings per Share". The Treasury Stock
Method is used to compute the effect of stock options on the weighted
average number of common shares outstanding for the Diluted Method. No
dilution occurs under the Treasury Stock Method as the exercise price of
stock options equal or exceeds the market value of the stock.
ORGANIZATION COSTS
In accordance with Statement of Financial Accounting Standards (SFAS) No.
7, the Corporation and the Bank capitalized all direct organizational
costs that were incurred in the expectation that they would 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 COMPENSATION PLANS
Financial Accounting Standards Board ("FASB") Statement No. 123,
"Accounting for Stock-Based Compensation", encourages all entities to
adopt a fair value based method of
(Continued)
29
================================================================================
<PAGE> 30
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
accounting for employee stock compensation plans, whereby compensation
cost is measured at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting period.
however, it also allows an entity to continue to measure compensation
cost for those plans using the intrinsic value based method of accounting
prescribed by APB Opinion no. 25, "Accounting for Stock Issued to
Employees", whereby compensation cost is 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. Stock
options issued under the Corporation's stock option plan have no
intrinsic value at the grant date, and under Opinion No. 25 no
compensation cost is recognized for them. The Corporation has elected to
continue with the accounting methodology in Opinion No. 25 and, as a
result, has provided proforma disclosures of net income and earnings per
share and other disclosures, as if the fair value based method of
accounting had been applied.
ADVERTISING EXPENSE
Advertising, promotional and other business development costs are
generally expensed as incurred. External costs incurred in producing
media advertising are expensed the first time the advertising takes
place. External costs relating to direct mailing costs are expensed in
the period in which the direct mailings are sent.
COMPREHENSIVE INCOME
The Corporation adopted SFAS No. 130, "Reporting Comprehensive Income",
as of January 1, 1998. Accounting principles generally require that
recognized revenue, expenses, gains and losses be included in net income.
Although certain changes in assets and liabilities, such as unrealized
gains and losses on available for sale securities, are reported as a
separate component of the equity section of the balance sheet, such items
along with net income, are components of comprehensive income. The
adoption of SFAS No. 130 had no effect on the Corporation's net income or
stockholders' equity.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June, 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instrument and Hedging Activities". All derivatives are to be measured at
fair value and recognized in the balance sheet as assets or liabilities.
The statement is effective for fiscal years and quarters beginning after
June 15, 1999. Because the Corporation does not use derivative
transactions at this time, management does not expect that this standard
will have a significant effect on the Corporation.
RECLASSIFICATIONS
Certain previously reported amounts have been reclassified to conform to
current year presentation. Such changes had no effect on previously
reported net income or stockholders' equity.
30
================================================================================
<PAGE> 31
================================================================================
NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required to maintain average reserve balances either
at the Bank or on deposit with the Federal Reserve Bank. At December 31, 1998,
these required reserves were met by vault cash.
NOTE 3 - SECURITIES
Available for sale - The amortized cost, gross unrealized holding
gains and losses and fair values of securities available for sale consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------------------------------------------
GROSS UNREALIZED
AMORTIZED ----------------------------
COST GAINS LOSSES FAIR VALUE
---------------- ----------- -------------- ---------------
<S> <C> <C> <C> <C>
Securities
U. S. Government and Federal Agency
obligations $ 8,599,028 $ 54,151 $ - $ 8,653,179
Federal Reserve Bank (FRB)
stock - restricted 81,700 - - 81,700
---------------- ----------- -------------- ---------------
$ 8,680,728 $ 54,151 $ - $ 8,734,879
================ =========== ============== ===============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------------------------------------------
GROSS UNREALIZED
AMORTIZED ----------------------------
COST GAINS LOSSES FAIR VALUE
---------------- ----------- -------------- ---------------
<S> <C> <C> <C> <C>
Securities
U. S. Government and Federal 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,
1998, by contractual maturity, follow:
<TABLE>
<CAPTION>
AMORTIZED
COST FAIR VALUE
--------------- --------------
<S> <C> <C>
Securities
Due after one year through five years $ 8,599,028 $ 8,653,179
FRB stock (no maturity) 81,700 81,700
--------------- --------------
$ 8,680,728 $ 8,734,879
=============== ==============
(continued)
</TABLE>
31
================================================================================
<PAGE> 32
================================================================================
NOTE 3 - SECURITIES, CONTINUED
During 1998, securities sales in the amount of $1,000,000 yielded net
gains of $547. There were no securities sales during 1997.
At December 31, 1998, securities with an amortized cost of $1,200,000
and a fair value of $1,212,932 were pledged as collateral for certain other
borrowings. There were no securities pledged at December 31, 1997.
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES
The Corporation's loan portfolio is summarized below:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1998 1997
--------------- --------------
<S> <C> <C>
Loans other than mortgage
Commercial $ 3,123,919 $ 498,293
Consumer 1,410,480 294,310
Other 11,898 1,136
Mortgage
Commercial 8,960,654 1,578,267
Residential 6,457,298 1,376,157
Other 1,038,449 201,000
Gross loans 21,002,698 3,949,163
Less allowance for loan losses 285,000 60,000
--------------- --------------
Net loans $ 20,717,698 $ 3,889,163
=============== ==============
</TABLE>
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1998 1997
--------------- --------------
<S> <C> <C>
Balance, beginning of period $ 60,000 $ -
Provision charged to operations 225,000 60,000
Loans charged off - -
Recoveries on loans previously charged off - -
--------------- --------------
Balance, end of period $ 285,000 $ 60,000
=============== ==============
</TABLE>
Approximately $6,987,100 and $1,067,000 of the loans were variable
interest rate loans at December 31, 1998 and 1997, respectively. The remaining
portfolio was fixed interest rate loans. There were no non-accrual loans at
December 31, 1998 and 1997.
32
================================================================================
<PAGE> 33
================================================================================
NOTE 5 - PROPERTIES AND EQUIPMENT
Properties and equipment included in the consolidated balance sheets
are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1998 1997
--------------- --------------
<S> <C> <C>
Land and buildings $ 1,293,467 $ 1,150,592
Furniture, fixtures and equipment 531,748 473,119
--------------- --------------
1,825,215 1,623,711
Less accumulated depreciation (106,510) (19,154)
--------------- --------------
1,718,705 1,604,557
Leasehold improvements - Net of amortization - 3,245
--------------- --------------
$ 1,718,705 $ 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.
Depreciation expense for the years ended December 31, 1998 and 1997
amounted to $87,356 and $19,154, respectively.
<TABLE>
<CAPTION>
TYPE OF ASSET LIFE IN YEARS DEPRECIATION METHOD
- --------------------------------- ------------- -------------------
<S> <C> <C>
Software 3 Straight-line
Furniture, fixtures and equipment 5 to 7 Straight-line
Buildings and improvements 40 Straight-line
</TABLE>
NOTE 6 - OTHER ASSETS
Other assets include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1998 1997
--------------- --------------
<S> <C> <C>
Prepaid expenses $ 63,436 $ 29,001
Organization costs - Net 42,969 54,427
Deferred tax asset - Net 229,204 149,182
--------------- --------------
$ 335,609 $ 232,610
=============== ==============
</TABLE>
33
================================================================================
<PAGE> 34
================================================================================
NOTE 7 - DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998 1997
--------------- --------------
<S> <C> <C>
Demand (non-interest bearing) $ 4,973,931 $ 1,954,224
Demand (interest bearing) and savings 12,606,794 6,481,493
Time
$100,000 and over 3,752,619 1,431,372
Under $100,000 5,402,240 1,838,533
--------------- --------------
Total $ 26,735,584 $ 11,705,622
=============== ==============
</TABLE>
Scheduled maturities of time deposits are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1998 1997
--------------- --------------
<S> <C> <C>
One year or less $ 7,200,178 $ 1,642,804
From one year to three years 1,134,008 1,258,661
After three years 820,673 368,440
--------------- --------------
$ 9,154,859 $ 3,269,905
=============== ==============
</TABLE>
NOTE 8 - UNUSED LINES OF CREDIT
At December 31, 1998, the Bank had $1,800,000 available under an
unsecured line of credit with The Banker's Bank that expires September 1, 1999.
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>
<CAPTION>
FOR THE PERIOD
FEBRUARY 26, 1997
FOR THE YEAR ENDED (INCEPTION) THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------- --------------------
<S> <C> <C>
Currently payable - State $ - $ 693
Deferred income tax benefit (100,207) (150,656)
------------------- --------------------
Income tax benefits $ (100,207) $ (149,963)
=================== ====================
(continued)
</TABLE>
34
================================================================================
<PAGE> 35
================================================================================
NOTE 9 - INCOME TAXES, CONTINUED
The significant components of deferred income tax assets and
liabilities consist of the following and are presented in other assets:
<TABLE>
<CAPTION>
1998 1997
DEFERRED TAX DEFERRED TAX
ASSET (LIABILITY) ASSET (LIABILITY)
----------------- -----------------
<S> <C> <C>
Depreciation $ (57,398) $ 130,256
Net operating loss 211,362 -
Loan loss provisions 96,900 20,400
Net unrealized gain on securities available for sale (21,660) (1,474)
------------------ ------------------
229,204 149,182
Valuation allowance - -
------------------ ------------------
$ 229,204 $ 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, 1998, $534,000 of
unused operating loss carryforwards that may be applied against future taxable
income. Of this amount, $130,000 expires in 2013 and $404,000 expires in 2012.
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.
During the year ended December 31, 1998, the Corporation issued
5,000 shares of common stock. Additional information is provided in Note 18.
NOTE 11 - RETIREMENT PLAN
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, 1998 and 1997 there were no matching Bank contributions.
35
================================================================================
<PAGE> 36
================================================================================
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, 1998 and 1997 were $1,376,226 and
$1,021,789, respectively. During 1998 and 1997, new loans and advances on
existing loans of $1,944,325 and $1,025,097 were made to this group and
repayments of $1,589,888 and $3,308 were received, respectively.
The Corporation leases office space under an operating lease
from a board member. The lease currently expires in February, 1999 and includes
three 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
and claims, both as plaintiff and as defendant, arising from its normal
operations. At December 31, 1998, 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.
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
(Continued)
36
================================================================================
<PAGE> 37
================================================================================
NOTE 14 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK, CONTINUED
commercial properties. Commitments to extend credit, including unused lines of
credit, amounted to approximately $5,695,000 and $2,140,000 at December 31, 1998
and 1997, respectively.
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 $173,713 and $50,000 at December 31, 1998 and 1997, respectively,
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 judgements 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, 1998 and 1997, that the Bank meets all capital
adequacy requirements to which it is subject.
To be categorized as well capitalized, they must maintain minimum
total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in
the following tables. The Bank's actual capital amounts and ratios as of
December 31, 1998 and 1997 are also presented in the tables.
(Continued)
37
================================================================================
<PAGE> 38
================================================================================
NOTE 16 - REGULATORY MATTERS, CONTINUED
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------------- ------------------------- ----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------ ------ -------------- -------- ------------- -------
AS OF DECEMBER 31, 1998
<S> <C> <C> <C> <C> <C> <C>
Total capital
(to risk-weighted assets) $ 5,623,000 23.6% > $ 1,907,000 >8.0% > $ 2,383,800 >10.0%
- - - -
Tier I capital
(to risk-weighted assets) 5,338,000 22.4 > 953,500 >4.0 > 1,430,300 >6.0
- - - -
Tier I capital
(to average assets) 5,338,000 16.7 > 1,275,800 >4.0 > 1,594,800 >5.0
- - - -
</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>
AS OF DECEMBER 31, 1997
Total capital
(to risk-weighted assets) $ 5,620,000 71.0% > $ 633,200 >8.0% > $ 791,500 >10.0%
- - - -
Tier I capital
(to risk-weighted assets) 5,560,000 70.0 > 317,700 >4.0 > 476,600 >6.0
- - - -
Tier I capital
(to average assets) 5,560,000 40.6 > 547,800 >4.0 > 684,800 >5.0
- - - -
</TABLE>
38
================================================================================
<PAGE> 39
================================================================================
NOTE 17 - CONDENSED FINANCIAL INFORMATION
Following is condensed financial information of People's Community
Capital Corporation (parent company only):
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash and due from banks $1,026,247 $ 14,547
Federal funds sold 80,000 3,010,000
Short-term investments -- 716,609
Investments available for sale 2,510,195 --
Investment in bank subsidiary 5,626,039 5,753,931
Other assets 183,253 20,687
---------- ----------
$9,425,734 $9,515,774
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities $ 9,184 $ 55,168
Stockholders' equity 9,416,550 9,460,606
---------- ----------
$9,425,734 $9,515,774
========== ==========
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 26, 1997
FOR THE YEAR ENDED (INCEPTION) THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
INCOME INTEREST ON INVESTMENTS $ 176,547 $ 119,137
MISCELLANEOUS INCOME 12,500 10,248
--------- ---------
Total income 189,047 129,385
OPERATING EXPENSES 154,108 165,532
--------- ---------
Income (loss) before income taxes and equity in
undistributed net loss of Bank 34,939 (36,147)
PROVISION (BENEFIT) FOR INCOME TAXES (5,121) 5,168
--------- ---------
40,060 (41,315)
EQUITY IN UNDISTRIBUTED NET LOSS OF
BANK SUBSIDIARY (151,894) (248,280)
--------- ---------
NET LOSS, END OF PERIOD $(111,834) $(289,595)
========= =========
</TABLE>
39
================================================================================
<PAGE> 40
================================================================================
NOTE 17 - CONDENSED FINANCIAL INFORMATION, CONTINUED
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 26, 1997
FOR THE YEAR ENDED (INCEPTION) THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (111,834) $ (289,595)
Adjustments to reconcile net loss to net cash used for
operating activities
Equity in undistributed net loss of the bank subsidiary 151,894 248,280
Depreciation and amortization 6,917 2,000
Increase in other assets (29,973) (18,359)
(Decrease) increase in other liabilities (45,983) 55,167
----------- -----------
Net cash used for operating activities (28,979) (2,507)
----------- -----------
INVESTING ACTIVITIES
Purchase of short-term investments -- (716,609)
Net (increase) decrease in federal funds sold 2,930,000 (3,010,000)
Purchase of securities available for sale (2,503,930) --
Sale of short-term investments 716,609 --
Purchase of property and equipment (139,500) (4,327)
Purchase of bank stock -- (6,000,000)
----------- -----------
Net cash used by investing activities 1,003,179 (9,730,936)
----------- -----------
FINANCING ACTIVITIES
Proceeds from sale of stock, net 37,500 9,747,990
----------- -----------
Net cash provided by financing activities 37,500 9,747,990
----------- -----------
Net increase in cash and cash equivalents 1,011,700 14,547
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 14,547 --
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,026,247 $ 14,547
=========== ===========
</TABLE>
40
================================================================================
<PAGE> 41
================================================================================
NOTE 18 - STOCK BASED COMPENSATION AND STOCK OPTION PLAN
In lieu of salary for 1997, the Corporation issued 5,000 shares of
common stock in 1998 to the Chief Executive Officer for no additional
consideration. Compensation expense was recognized in 1997, based on an
estimated fair market value of common stock on the date of the grant. An
adjustment to fair market value on the date of issuance was made in 1998.
As of December 31, 1997, the Corporation had employment agreements
with two officers, the Chief Executive Officer and the Chief Operating Officer.
The officers were 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, subject to the
officers being employed by the Corporation on such dates and meeting certain
performance criteria. During 1998, the Corporation adopted a stock option plan
and incorporated these agreements within the stock option plan.
Also, the Corporation is obligated in its employment agreement 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. Once granted, the options
will vest at the rate of 2,000 shares on each December 31 beginning in 1998 and
ending in 2002. As of December 31, 1998, the options were not issued.
On April 29, 1998, the Corporation adopted a stock option plan for
the benefit of the directors, officers and employees. The Board may grant up to
250,000 options at an option price per share not less than the fair market value
on the date of grant. The Directors were granted 5,000 options each. All options
granted vest 20% each year for five years based on certain performance criteria
and expire ten years from the grant date. The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation". Accordingly, no compensation
cost has been recognized for the stock option plan. Had compensation cost been
determined based on the fair value at the grant date for the above stock option
awards consistent with the provisions of SFAS 123, the Company's net loss and
net loss per common share would have been adjusted to the proforma amounts
indicated below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1998
-----------------
<S> <C>
Net loss - As reported $ (111,834)
Net loss - Proforma (127,445)
Net loss per share - As reported (.11)
Net loss per share - Proforma (.13)
</TABLE>
The fair value of the option grant is estimated on the date of
grant using the Black-Scholes option pricing model and the minimum value method
allowed by SFAS 123. The risk free interest rate used was 4.77%, the expected
option life was ten years, the assumed dividend rate was zero and the expected
volatility was 8.0%.
(Continued)
41
================================================================================
<PAGE> 42
================================================================================
NOTE 18 - STOCK BASED COMPENSATION AND STOCK OPTION PLAN - CONTINUED
A summary of the status of the Plan and other option arrangements as
of December 31, 1998 and changes during the year ended on that date is presented
below:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------ --------------
<S> <C> <C>
Outstanding at beginning of year -- $ --
Granted 217,894 10.00
Forfeited or expired (5,500) 10.00
---------
Outstanding at year end 212,394 10.00
=========
Options exercisable at December 31, 1998 --
Weighted-average fair value of options granted during the year $ 10.00
Shares available for grant under the plan 37,606
</TABLE>
42
================================================================================
<PAGE> 43
================================================================================
DIRECTORS
================================================================================
BOARD OF DIRECTORS BOARD OF DIRECTORS
PEOPLE'S COMMUNITY CAPITAL CORPORATION PEOPLE'S COMMUNITY BANK OF S.C.
Raymond D. Brown Raymond D. Brown
W. Cothran Campbell W. Cothran Campbell
Alan J. George Alan J. George
Margaret Holley-Taylor Margaret Holley-Taylor
Anthony E. Jones Anthony E. Jones
James D. McNair James D. McNair
Clark D. Moore, M.D. Clark D. Moore, M.D.
Russell D. Phelon Russell D. Phelon
Donald W. Thompson Donald W. Thompson
John B. Tomarchio, M.D. John B. Tomarchio, M.D.
Tommy B. Wessinger, Chairman Tommy B. Wessinger, Chairman
================================================================================
OFFICERS
================================================================================
EXECUTIVE OFFICERS EXECUTIVE OFFICERS
PEOPLE'S COMMUNITY CAPITAL CORPORATION PEOPLE'S COMMUNITY BANK OF S.C.
Tommy B. Wessinger, Chm & CEO Tommy B. Wessinger, Chm & CEO
James D. McNair, Vice Chairman James D. McNair, Vice Chairman
Alan J. George, President & COO Alan J. George, President & COO
Jean H. Covington, CFO & Controller Jean H. Covington, CFO & Controller
Charles E. Harmon, EVP - Credit
L. Stephen Lineberry, SVP -
Operations
OFFICERS
PEOPLE'S COMMUNITY BANK OF S.C.
H. Stanley Price, Vice President
Dale G. Slack, Vice President
Harriett H. Wood, Vice President
Marie McKinnon, Operations Officer
================================================================================
LOCATIONS
================================================================================
Aiken Main North Augusta Branch
1715 Whiskey Road 518 Georgia Avenue
Aiken, South Carolina 29803 North Augusta, South Carolina 29841
(803) 641-BANK (2265) (803) 819-3030
Aiken Downtown Branch / Operations Center People's Community Capital Corp.
106A Park Avenue SW 106A Park Avenue SW
Aiken, South Carolina 29801 Aiken, South Carolina 29801
(803) 641-0142 (803) 641-0142
43
================================================================================
<PAGE> 44
================================================================================
================================================================================
CORPORATE DATA
================================================================================
ANNUAL MEETING
The Annual Meeting of the Shareholders of People's Community Capital Corporation
will be held at 11:00 a.m. on Thursday, April 29, 1999 at The Conference Center
located at 215 The Alley, Aiken, South Carolina.
CORPORATE OFFICE: GENERAL COUNSEL:
106A Park Avenue SW Nelson, Mullins, Riley & Scarborough
Aiken, South Carolina 29801 First Union Plaza
(803) 641-0142 999 Peachtree Street, Suite 1400
(803) 641-7555 Fax Atlanta, Georgia 30309
STOCK TRANSFER AGENT: INDEPENDENT AUDITORS:
First Citizens Bank Elliott, Davis & Company, LLP
P.O. Box 29 P.O. Box 429
Columbia, South Carolina 29202 Greenwood, South Carolina 29648
STOCK INFORMATION:
The Company's stock trades under the symbol "PPLM" on the Nasdaq 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 $6.00 to $11.00.
As of December 31, 1998, there were 650 record holders.
The ability of People's Community Capital Corporation to pay cash dividends is
dependent upon receiving cash in the form of dividends from People's Community
Bank of South Carolina. However, certain restrictions exist regarding the
ability of the Bank to transfer funds to the Company in the form of cash
dividends. All of the Bank's dividends are subject to prior approval by the
South Carolina State Board of Financial Institutions and are payable only from
the undivided profits of the Bank.
FORM 10-K:
The Company will furnish upon request, free of charge, copies of the Annual
Report and the Company's Report to the Securities and Exchange Commission (Form
10-KSB) by contacting Jean H. Covington, Chief Financial Officer, People's
Community Capital Corporation, P.O. Box 313, Aiken, South Carolina 29801.
This Annual Report serves as the ANNUAL FINANCIAL DISCLOSURE STATEMENT furnished
pursuant to Part 350 of the Federal Deposit Insurance Corporation Rules and
Regulations. THIS STATEMENT HAS NOT BEEN REVIEWED, OR CONFIRMED FOR ACCURACY OR
RELEVANCE BY THE FDIC.
44
================================================================================
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
People's Community Bank of South Carolina
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PEOPLE'S COMMUNITY CAPITAL CORPORATION FOR THE TWELVE
MONTHS ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 958,613
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,830,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,734,879
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 20,717,698
<ALLOWANCE> 285,000
<TOTAL-ASSETS> 36,539,413
<DEPOSITS> 26,735,584
<SHORT-TERM> 331,783
<LIABILITIES-OTHER> 55,496
<LONG-TERM> 0
0
0
<COMMON> 9,982
<OTHER-SE> 9,406,568
<TOTAL-LIABILITIES-AND-EQUITY> 36,539,413
<INTEREST-LOAN> 1,165,504
<INTEREST-INVEST> 621,593
<INTEREST-OTHER> 264,832
<INTEREST-TOTAL> 2,051,929
<INTEREST-DEPOSIT> 757,881
<INTEREST-EXPENSE> 764,956
<INTEREST-INCOME-NET> 1,286,973
<LOAN-LOSSES> 225,000
<SECURITIES-GAINS> 547
<EXPENSE-OTHER> 1,457,244
<INCOME-PRETAX> (212,041)
<INCOME-PRE-EXTRAORDINARY> (212,041)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (111,834)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
<YIELD-ACTUAL> 4.78
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 60,000
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 285,000
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 285,000
</TABLE>
