U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
X Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September
30, 2000.
___ Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _______________ to ________________
Commission File No. 333-25179
PEOPLE'S COMMUNITY CAPITAL CORPORATION
(Exact Name of Small Business Issuer as Specified in its Charter)
SOUTH CAROLINA 58-2287073
(State of Incorporation) (I.R.S. Employer Identification No.)
106-A PARK AVENUE, S.W., AIKEN, SOUTH CAROLINA 29801
(Address of Principal Executive Offices)
(803) 641-0142
(Issuer's Telephone Number, Including Area Code)
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 958,513 shares of common
stock, par value $.01 per share outstanding at October 31, 2000.
Transitional Small Business Disclosure Format (check one): Yes No X
-- --
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
PEOPLE'S COMMUNITY CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2000 1999
---- ----
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
Cash and due from banks $ 1,615,538 $ 3,076,294
Federal funds sold 6,900,000 5,550,000
Securities, available for sale 10,212,423 10,711,010
Loans receivable, net 39,315,690 33,225,197
Properties and equipment, net 1,725,058 1,678,862
Accrued interest receivable 404,582 325,904
Deferred income taxes 162,956 136,949
Other assets 103,046 90,571
--------------- ----------------
Total assets $ 60,439,293 $ 54,794,787
=============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Non-interest bearing deposits $ 7,699,018 $ 6,672,434
Interest bearing deposits 42,032,799 36,496,307
--------------- ----------------
Total deposits 49,731,817 43,168,741
Accrued interest payable 80,769 62,383
Accrued expenses and other liabilities 283,102 100,480
Other borrowings 694,711 2,006,427
--------------- ----------------
Total liabilities 50,790,399 45,338,031
--------------- ----------------
Shareholders' equity:
Common stock, $.01 par value; 10,000,000 shares authorized, 998,262
shares issued at September 30, 2000 and December 31, 1999 9,983 9,983
Additional paid-in-capital 9,776,507 9,776,507
Retained earnings (deficit) 344,889 (58,320)
Accumulated other comprehensive income (loss) (118,243) (113,914)
--------------- ---------------
10,013,136 9,614,256
Treasury stock, 39,749 and 15,000 shares at cost (364,242) (157,500)
--------------- ----------------
Total shareholders' equity 9,648,894 9,456,756
--------------- ----------------
Total liabilities and shareholders' equity $ 60,439,293 $ 54,794,787
=============== ================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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PEOPLE'S COMMUNITY CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the three months For the nine months
ended September 30, ended September 30,
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
Interest income:
<S> <C> <C> <C> <C>
Loans, including fees $ 933,303 $ 622,105 $ 2,655,808 $ 1,708,255
Federal funds sold 84,078 43,386 157,438 136,160
Securities and short-term investments 168,301 171,465 507,139 427,343
------------ ------------ -------------- -------------
Total interest income 1,185,682 836,956 3,320,385 2,271,758
------------ ------------ ------------- -------------
Interest expense:
Deposits 495,130 282,834 1,283,849 747,813
Other borrowings 5,217 4,229 22,223 11,329
------------ ------------ --------------- -------------
Total interest expense 500,347 287,063 1,306,072 759,142
------------ ------------ ------------- -------------
Net interest income 685,335 549,893 2,014,313 1,512,616
Provision for loan losses 33,559 30,696 150,834 96,402
------------ ------------ -------------- -------------
Net interest income after provision 651,776 519,197 1,863,479 1,416,214
------------ ------------ ------------- -------------
for loan losses
Non-interest income:
Service charges on deposit accounts 68,222 56,123 183,777 142,474
Other income 26,712 17,538 80,346 77,820
------------ ------------ ------------- -------------
Total non-interest income 94,934 73,661 264,123 220,294
------------ ------------ ------------- -------------
Non-interest expenses:
Salaries and employee benefits 286,956 249,985 820,053 715,874
Occupancy and equipment 62,016 53,640 176,231 151,953
Consulting and professional expenses 26,111 9,072 86,932 48,423
Customer related expenses 18,470 16,766 52,790 46,933
General operating expenses 72,636 74,805 239,857 194,374
Other expenses 35,165 23,139 100,407 77,218
------------- ------------ ------------- -------------
Total non-interest expenses 501,354 427,407 1,476,270 1,234,775
Income before income taxes 245,356 165,451 651,332 401,733
Income tax provision 93,518 63,283 248,125 153,476
------------- ------------ ------------- -------------
Net income $ 151,838 $ 102,168 $ 403,207 $ 248,257
============ ============ ============ =============
Weighted average common shares outstanding:
Basic 963,422 997,401 973,394 997,906
Diluted 963,422 1,040,325 973,394 1,040,027
Earnings per share:
Basic $ .16 $ .10 $ .41 $ .25
Diluted $ .16 $ .10 $ .41 $ .24
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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<CAPTION>
PEOPLE'S COMMUNITY CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
For the three months For the nine months
ended September 30, ended September 30,
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 151,838 $ 102,168 $ 403,207 $ 248,257
Other comprehensive income (loss), net of tax: 61,213 (41,089) (4,329) (122,612)
----------- ------------ ----------- -------------
Net change in unrealized gain (loss) on
securities available for sale
Total other comprehensive gain (loss) 61,213 (41,089) (4,329) (122,612)
----------- ------------ ----------- -------------
Comprehensive income $ 213,051 $ 61,079 $ 398,878 $ 125,645
=========== ============ =========== =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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<CAPTION>
PEOPLE'S COMMUNITY CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the nine months
ended September 30,
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 403,207 $ 248,257
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 85,128 77,849
Provision for loan losses 150,834 96,402
Deferred income taxes (31,748) 53,052
Changes in deferred and accrued amounts:
Other assets and accrued interest receivable (91,250) (67,964)
Accrued expenses and other liabilities 201,015 45,620
----------------- ---------------
Net cash provided by operating activities 717,186 453,216
----------------- ---------------
INVESTING ACTIVITIES:
Purchase of securities available for sale (8,500) (7,000,000)
Maturities and calls of securities available for sale 500,000 4,361,647
Purchase of property and equipment (122,724) (37,235)
Net increase in loans (6,241,327) (7,532,446)
Net increase in federal funds sold (1,350,000) (110,000)
----------------- ---------------
Net cash used for investing activities (7,222,551) (10,318,034)
----------------- ---------------
FINANCING ACTIVITIES:
Purchase of treasury stock (206,742) (107,500)
Net increase in deposits 6,563,070 9,881,528
Net (decrease) increase in other borrowings (1,311,719) 674,536
----------------- ---------------
Net cash provided by financing activities 5,044,609 10,448,564
----------------- ---------------
Net (decrease)/increase in cash and due from banks (1,460,756) 583,746
Cash and due from banks at beginning of period 3,076,294 958,613
----------------- ---------------
Cash and due from banks at end of period $ 1,615,538 $ 1,542,359
================= ===============
Supplemental disclosure:
Cash paid during the period for interest $ 1,287,686 $ 743,515
================= ===============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
5
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PEOPLE'S COMMUNITY CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B of the Securities and Exchange Commission. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. However, in
the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the nine months ended September 30, 2000, are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000. For further information, please refer to the consolidated
financial statements and footnotes thereto for the Company's fiscal year ended
December 31, 1999, included in the Company's Form 10-KSB for the year ended
December 31, 1999.
NOTE 2. SUMMARY OF ORGANIZATION
People's Community Capital Corporation (the "Company") was incorporated
on February 26, 1997, under the laws of the State of South Carolina for the
purpose of operating as a bank holding company pursuant to the Federal Bank
Holding Company Act of 1956, as amended.
The Company is a bank holding company whose subsidiary, People's
Community Bank of South Carolina (the "Bank"), is primarily engaged in the
business of accepting savings and demand deposits insured by the Federal Deposit
Insurance Corporation, and providing mortgage, consumer and commercial loans to
the general public. The Bank formed a subsidiary, People's Financial Services,
Inc. in December 1999 for the purpose of providing comprehensive financial
planning services in addition to full service brokerage, including stocks,
bonds, mutual funds, and insurance products.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This discussion and analysis is intended to assist the reader in
understanding our financial condition and results of operations. This commentary
should be read in conjunction with the financial statements and the related
notes and other statistical information in this report.
This report contains "forward-looking statements" relating to, without
limitation, future economic performance, plans and objectives of management for
future operations, and projections of revenues and other financial items that
are based on the beliefs of our management, as well as assumptions made by and
information currently available to our management. The words "expect,"
"anticipate," and "believe," as well as similar expressions, are intended to
identify forward-looking statements. Our actual results may differ materially
from the results discussed in the forward-looking statements, and our operating
performance each quarter is subject to various risks and uncertainties that are
discussed in detail in our filings with the Securities and Exchange Commission,
including the "Risk Factors" section in our registration statement on Form SB-2
(Registration Number 333-25179) as filed with and declared effective by the
Securities and Exchange Commission.
We were incorporated in South Carolina on February 26, 1997 for the
purpose of operating as a bank holding company. Our 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
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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. Construction of the office began in September
2000. A construction contract was awarded to R.D. Brown Contractors of North
Augusta for $1,085,435. Raymond Brown is a director of the Company and the Bank.
The cost of the land and preliminary construction costs through September 30,
2000 were approximately $236,000. Two options have also been acquired for the
purchase of additional contiguous property for use as parking lots.
In December 1999, the Bank formed a subsidiary, People's Financial
Services, Inc. for the purpose of providing comprehensive financial planning
services in addition to full service brokerage, including stocks, bonds, mutual
funds, and insurance products.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EARNINGS REVIEW - Comparison of the three months ended September 30, 2000 to the
three months ended September 30, 1999
Our net income for the third quarter of 2000 was $151,838 compared to
$102,168 for the same period last year. The basic income per share increased to
$.16 compared to $.10 for the same period in 1999. This improvement in earnings
reflects the continued growth in the level of earning assets since the Bank
commenced operations. The level of average earning assets was $55.0 million for
the three months ended September 30, 2000 as compared to $41.7 million for the
three months ended September 30, 1999.
Net interest income represents the difference between interest received
or accrued on interest earning assets and interest paid or accrued on interest
bearing liabilities. 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 three month
periods ended September 30, 2000 and 1999. 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.
7
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<CAPTION>
Three months ended September 30, 2000 Three months ended September 30, 1999
------------------------------------- -------------------------------------
Average Interest Yield Average Interest Yield/
Balance Income/Expense /Rate Balance Income/Expense Rate
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold $ 5,051,186 $ 84,078 6.66% $3,373,454 $ 43,386 5.14%
Securities 10,617,106 168,301 6.34% 11,022,616 171,465 6.22%
Loans 39,323,979 933,303 9.49% 27,361,152 622,105 9.09%
------------ --------- ---------- --------
Total earning assets 54,992,271 1,185,682 8.62% 41,757,222 836,956 8.02%
------------ --------- ---------- --------
Cash and due from banks 1,746,614 1,396,193
Premises and equipment 1,725,790 1,687,746
Other assets 1,091,677 855,725
Allowance for loan losses
(516,167) (365,000)
----------- -----------
Total assets $59,040,185 $45,331,886
=========== ===========
LIABILITIES & EQUITY Interest-bearing deposits:
Transaction accounts 6,472,631 20,603 1.27% 5,402,358 17,498 1.30%
Money market accounts 10,087,137 106,945 4.24% 9,489,054 89,239 3.76%
Savings deposits 869,036 5,149 2.37% 679,627 4,160 2.45%
Time deposits 23,453,456 362,433 6.18% 13,434,284 171,937 5.12%
----------- -------- ---------- ---------
Total interest bearing deposits 40,882,260 495,130 4.84% 29,005,323 282,834 3.90%
Interest-bearing borrowings 324,216 5,217 6.44% 344,057 4,229 4.92%
----------- -------- ---------- ---------
Total interest-bearing liabilities 41,206,476 500,347 4.86% 29,349,380 287,063 3.91%
----------- -------- ---------- ---------
Demand deposits 7,887,572 6,405,097
Other liabilities 227,488 76,063
Shareholders' equity 9,718,649 9,501,346
----------- -----------
Total liabilities &
shareholders equity $59,040,185 $45,331,886
=========== ============
Net interest spread 3.77% 4.11%
Net interest income/margin $ 685,335 4.98% $ 549,893 5.27%
========= ==========
</TABLE>
Net interest income was $685,335 for the three months ended September 30,
2000 as compared to $549,893 for the three months ended September 30, 1999. The
net interest margin (net interest income divided by average earning assets) was
4.98% for the three months ended September 30, 2000 compared to the net interest
margin of 5.27% for the three months ended September 30, 1999.
Interest income for the third quarter of 2000 was $1,185,682 compared to
$836,956 for the same period in 1999. The volume of total earnings assets
increased by about $13.2 million between the two periods. The largest component
of interest income was interest and fees on loans amounting to $933,303 for the
three months ended September 30, 2000 compared to $622,105 for the comparable
prior year period. The overall rate on the loan portfolio increased from 9.09%
for the three months ended September 30, 1999 to 9.49% for the three month
period ended September 30, 2000. Interest earned on federal funds sold increased
between the two periods under review as the average federal funds sold balance
was higher for the three months ended September 30, 2000 than for the comparable
period in 1999 by about $1.7 million, and the average rate increased from 5.14%
to 6.66%. Interest income on securities decreased slightly between the two
periods as the average balance decreased by about $400,000.
Interest expense increased from $287,063 for the three months ended
September 30, 1999 to $500,347 for the three months ended September 30, 2000 as
the size of interest-bearing liabilities, primarily deposits,
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increased from $29.3 million to $41.2 million, an increase of 40%. The average
rate paid on interest bearing liabilities increased from 3.91% to 4.86%
reflecting the increases in general market rates of interest paid on deposits as
prompted by several increases in the prime rate.
Non-interest Income
Non-interest income for the three month period ended September 30, 2000 was
$94,934 compared to $73,661 for the same period in 1999. Of this total, $68,222
represented service charges on deposit accounts for the three months ended
September 30, 2000 compared to $56,123 for the comparable period in 1999. The
increase in income from deposit service charges is due to the increase in
deposit customers during the comparable periods. The remaining $26,712 of
non-interest income for the third quarter of 2000 was income generated from
other fees charged such as brokered mortgage origination fees, lease fees,
commissions on sale of checks to customers, and fees from non-deposit investment
products' activity associated with the Bank's financial services subsidiary. For
the third quarter of 1999, other income amounted to $17,538, the largest
components being brokered mortgage origination fee income and credit life
insurance commissions. Brokered mortgage origination fee income has been
significantly less in 2000 compared to last year, reflecting the decrease in
refinancing activities associated with rising interest rates. The largest item
of other fee income for the third quarter of 2000 was $12,895 of fees from
non-deposit investment products' activity. The financial services subsidiary
began operations in December 1999.
Non-interest Expense
Non-interest expense for the three month periods ended September 30, 2000
and 1999 were $501,354 and $427,407, respectively, a 17% increase. The largest
component of non-interest expense was salaries and employee benefits of $286,956
and $249,985, respectively. Salaries and employee benefits expense increased 15%
due to general merit increases, the addition of staff associated with the
financial services subsidiary, higher health insurance premiums, and the
matching of 401k plan contributions that began January 1, 2000. Occupancy and
equipment expense increased from $53,640 to $62,016, or 16% largely due to
additional depreciation associated with new equipment purchases and repairs on
existing equipment. Consulting and professional fees increased from $9,072 to
$26,111 due to increases in consulting service contracts, an increase in the
FDIC fee assessment as deposits have increased, and the commencement of
directors' fees in August 1999. Other expenses increased from $23,139 to
$35,165, or 52%, primarily due to increased advertising.
EARNINGS REVIEW - Comparison of the nine months ended September 30, 2000 to the
nine months ended September 30, 1999
Our net income for the nine months ended September 30, 2000 was $403,207
compared to $248,257 for the same period last year. The basic income per share
increased to $.41 compared to $.25 for the same period in 1999. This improvement
in earnings reflects the continued growth in the level of earning assets since
the Bank commenced operations. The level of average earning assets was $51.9
million for the nine months ended September 30, 2000 as compared to $38.2
million for the nine months ended September 30, 1999.
The following presents, in a tabular form, yield and rate data for
interest-bearing balance sheet components during the nine month periods ended
September 30, 2000 and 1999, along with average balances and the related
interest income and interest expense amounts.
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<TABLE>
<CAPTION>
Nine months ended September 30, 2000 Nine months ended September 30, 1999
------------------------------------ ------------------------------------
Average Interest Yield Average Interest Yield/
Balance Income/Expense /Rate Balance Income/Expense Rate
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold $3,317,568 $157,438 6.33% $3,775,933 $ 136,160 4.81%
Securities 10,657,585 507,139 6.34% 9,359,528 427,343 6.09%
Loans 37,952,578 2,655,808 9.33% 25,080,859 1,708,255 9.08%
---------- --------- ------------ ---------
Total earning assets 51,927,731 3,320,385 8.52% 38,216,320 2,271,758 7.93%
---------- ---------- ------------ ---------
Cash and due from banks 1,735,232 1,422,397
Premises and equipment 1,695,230 1,698,715
Other assets 1,090,252 883,552
Allowance for loan losses (479,944) (334,648)
----------- ------------
Total assets $55,968,501 $41,886,336
=========== ============
LIABILITIES & EQUITY Interest-bearing deposits:
Transaction accounts 6,567,424 62,416 1.27% 4,985,156 47,654 1.27%
Money market accounts 9,625,006 298,468 4.13% 8,914,270 251,017 3.75%
Savings deposits 795,017 14,296 2.40% 532,622 9,557 2.39%
Time deposits 21,122,880 908,669 5.74% 11,534,945 439,585 5.08%
---------- ---------- ------------ ---------
Total interest bearing deposits 38,110,327 1,283,849 4.49% 25,966,993 747,813 3.84%
Interest-bearing borrowings 490,136 22,223 6.05% 323,927 11,329 4.66%
---------- ---------- ------------ ---------
Total interest-bearing liabilities 38,600,463 1,306,072 4.51% 26,290,920 759,142 3.85%
---------- ---------- ------------ ---------
Demand deposits 7,622,433 6,089,283
Other liabilities 104,188 90,347
Shareholders' equity 9,641,417 9,415,786
--------- -----------
Total liabilities &
shareholders equity $55,968,501 $41,886,336
=========== ===========
Net interest spread 4.01% 4.08%
Net interest income/margin $2,014,313 5.17% $1,512,616 5.28%
=========== ==========
</TABLE>
Net interest income was $2,014,313 for the nine months ended September 30,
2000 as compared to $1,512,616 for the nine months ended September 30, 1999. The
net interest margin (net interest income divided by average earning assets) was
5.17% for the nine months ended September 30, 2000 compared to the net interest
margin of 5.28% for the nine months ended September 30, 1999.
Interest income for the first nine months of 2000 was $3,320,385 compared to
$2,271,758 for the same period in 1999. The volume of total earning assets
increased from $38.2 million at September 30, 1999 to $51.9 million at September
30, 2000. The largest component of interest income was interest and fees on
loans amounting to $2,655,808 for the nine months ended September 30, 2000
compared to $1,708,255 for the comparable prior year period. The overall rate on
the loan portfolio increased from 9.08% for the nine months ended September 30,
1999 to 9.33% for the nine month period ended September 30, 2000 as we
encountered a period of rising interest rates. Interest earned on federal funds
sold increased slightly between the two periods under review as the average
federal funds sold balance was lower for the nine months ended September 30,
2000 than for the comparable period in 1999, but the average rate increased from
4.81% to 6.33%. Interest income on securities increased between the two periods
as the average balance increased from $9.3 million to $10.7 million, and the
average rate earned increased from 6.09% to 6.34%.
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Interest expense increased from $759,142 for the nine months ended September
30, 1999 to $1,306,072 for the nine months ended September 30, 2000 as the size
of interest-bearing liabilities, primarily deposits, increased from $26.3
million to $38.6 million, an increase of 47%. The average rate paid on interest
bearing liabilities increased from 3.85% to 4.51% reflecting the increases in
general market rates of interest paid on deposits as prompted by several
increases in the prime rate.
Non-interest Income
Non-interest income for the nine month period ended September 30, 2000 was
$264,123 compared to $220,294 for the same period in 1999. Of this total,
$183,777 represented service charges on deposit accounts for the nine months
ended September 30, 2000 compared to $142,474 for the comparable period in 1999.
The increase in income from deposit service charges is due to the increase in
deposit customers during the comparable periods. The remaining $80,346 of
non-interest income for the first nine months of 2000 was income generated from
other fees charged such as brokered mortgage origination fees, lease fees,
commissions on sale of checks to customers, and fees from non-deposit investment
products' activity associated with the Bank's financial services subsidiary. For
the first nine months of 1999, other income amounted to $77,820, the largest
component being brokered mortgage origination fee income of $38,383. Brokered
mortgage origination fee income has been significantly less in 2000 compared to
last year at $7,445, reflecting the decrease in refinancing activities
associated with rising interest rates. The largest component of other fee income
for the first nine months of 2000 was $41,445 of fees from non-deposit
investment products' activity. The financial services subsidiary began
operations in December 1999.
Non-interest Expense
Non-interest expense for the nine month periods ended September 30, 2000 and
1999 was $1,476,270 and $1,234,775, respectively, a 20% increase. The largest
component of non-interest expense was salaries and employee benefits of $820,053
and $715,874, respectively. Salaries and employee benefits expense increased 15%
due to general merit increases, the addition of staff associated with the
financial services subsidiary, higher health insurance premiums, and the
matching of 401k plan contributions that began January 1, 2000. Occupancy and
equipment expense increased from $151,953 to $176,231, or 16% largely due to
additional depreciation associated with new equipment purchases and repairs on
existing equipment. Consulting and professional fees increased from $48,423 to
$86,932 due to increases in consulting service contracts, an increase in the
FDIC fee assessment as deposits have increased, and the commencement of
directors' fees in August 1999. General operating expenses increased from
$194,374 to $239,857, or 23%. This increase was primarily due to data processing
fee increases, but was also impacted by increased spending for postage relative
to a higher customer base. Additionally, the operating costs of the Bank's
financial services subsidiary began in December of 1999. Other expenses
increased from $77,218 to $100,407, or 30%, primarily due to increased levels of
advertising.
Provision for Loan Losses
The provision for loan losses was $150,834 and $96,402, respectively, for
the first nine months of 2000 and 1999, bringing the total reserve balance to
$520,000 and $380,000 at September 30, 2000 and 1999, respectively. This amount
represents 1.31% of gross loans at September 30, 2000 and 1.33% at September 30,
1999. It also reflects management's estimates of the amounts necessary to
maintain the allowance for loan losses at a level believed to be adequate in
relation to the current size, mix and quality of the loan portfolio. See the
description of the allowance for loan losses below. However, management's
judgment as to the adequacy of the allowance is based upon a number of
assumptions about future events that it believes to be reasonable, but which may
or may not be accurate. Because of the inherent uncertainty of assumptions made
during the evaluation process, there can be no assurance that charge-offs in
future periods will not exceed the allowance for loan losses or that additional
increases in the loan loss allowance will not be
11
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required. We had $25,394 in potential problem loans that were classified as
non-accrual loans at September 30, 2000. There were no non-performing loans at
September 30, 1999. Loan charge-offs, net of recoveries, for the nine months
ended September 30, 2000 were $40,834 and were $1,402 for the nine months ended
September 30, 1999.
BALANCE SHEET REVIEW
Total consolidated assets grew by $5.6 million from $54,794,787 at
December 31, 1999 to $60,439,293 at September 30, 2000. The increase was
generated through a $6.6 million increase in deposits with a $1.0 million
decrease in borrowed funds and other liabilities. The increase in deposits was
used to fund loans that increased by $6.0 million on a net basis. Between
December 31, 1999 and September 30, 2000, cash and due from banks decreased by
$1.5 million. Federal funds sold increased by $1.4 million, and securities
available for sale decreased by $500,000 due to a bond maturity. There were no
purchases of investment securities in the period except for $8,500 of additional
stock purchased in the Federal Home Loan Bank of Atlanta.
Loans
Net outstanding loans represent the largest component of earning assets as
of September 30, 2000 at $39,315,690, or 69.7% of total earning assets. Net
loans increased $6,090,493, or 18.3%, since December 31, 1999.
The interest rates charged on loans vary with the degree of risk, maturity
and amount of the loan. Competitive pressures, money market rates, availability
of funds, and government regulations also influence interest rates. The average
yield on our loans for the period ended September 30, 2000 was 9.33% as compared
to a yield of 9.19% for the year ended December 31, 1999.
Allowance for Loan Losses
The allowance for loan losses at September 30, 2000 was $520,000, or 1.31%
of loans outstanding, compared to an allowance of $410,000, or 1.22%, at
December 31, 1999. The allowance for loan losses is based upon management's
continuing evaluation of the collectibility of loans based somewhat on
historical loan loss experience, but mostly, because of the lack of historical
data available in a new company, based on current economic conditions affecting
the ability of borrowers to repay, the volume of loans, the quality of
collateral securing non-performing and problem loans, and other factors
deserving recognition. As of September 30, 2000, there were $25,394 in
non-performing loans with charge-offs, net of recoveries, of $40,834 for the
nine month period.
Securities
Investment securities represented 18.1% of earning assets at September 30,
2000 with a total of $10,212,423, down $498,587 from the December 31, 1999
balance of $10,711,010. One bond has matured since year-end for $500,000. There
have been no purchases of investments for the nine months since December 31,
1999 with the exception of additional stock purchased in the Federal Home Loan
Bank of Atlanta. The yield on investment securities was 6.34% for the nine
months ended September 30, 2000 compared to 6.18% for the year ended December
31, 1999. Included in available-for-sale securities is $109,900 of stock
purchased in the Federal Home Loan Bank of Atlanta, of which $8,500 was
purchased in the first quarter of 2000. This purchase was a requirement from the
FHLB in order to secure borrowings from them in the future.
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Deposits
Our primary source of funds for loans and investments is deposits. Deposits
grew $6,563,076, or 15.2%, since year-end 1999 for a total of $49,731,817 at
September 30, 2000. The average rates paid on interest-bearing deposits were
4.51% and 3.93% at September 30, 2000 and December 31, 1999, respectively. In
pricing deposits, we consider our liquidity needs, the direction and levels of
interest rates, and local market conditions. Pricing of deposits has gone up
significantly over the last year due to local market competition associated with
the several increases in the prime rate of interest.
Liquidity and Sources of Capital
At September 30, 2000, our liquid assets, consisting of cash and due from
banks and Federal funds sold, amounted to $8,515,538, representing 14.1% of
total assets. Investment securities amounted to $10,212,423, representing 16.9%
of total assets; these securities provide a secondary source of liquidity since
they can be converted into cash in a timely manner. Our ability to maintain and
expand our deposit base and borrowing capabilities also serves as a source of
liquidity. For the nine month period ended September 30, 2000, total deposits
increased by $6.6 million representing an increase of 15.2%, or 20.3% on an
annualized basis. Our deposit growth rate is not as high as it was in the
initial periods of our development. Our management closely monitors and seeks to
maintain appropriate levels of interest-earning assets and interest-bearing
liabilities so that maturities of assets are such that adequate funds are
provided to meet customer withdrawals and loan demand.
We plan to meet future cash needs through the liquidation of temporary
investments, maturities of loans and investment securities, and generation of
deposits. In addition, the Bank maintains two lines of credit from correspondent
banks in the amount of $1,800,000 each, and is a member of the Federal Home Loan
Bank, from which applications may be made for borrowing capabilities, if needed.
The Bank currently maintains a level of capitalization in excess of the
minimum capital requirements set by the regulatory agencies. Despite anticipated
asset growth, management expects its capital ratios to continue to be adequate
for the next two to three years. However, no assurances can be given in this
regard, as rapid growth, deterioration in loan quality, and operating losses, or
a combination of these factors, could change our capital position in a
relatively short period of time. We have begun construction on an office
building in downtown Aiken with total estimated capital expenditures of
$1,400,000. The construction contract was awarded to R.D. Brown Contractors for
$1,085,435. Raymond Brown is a director of the Company and the Bank. The capital
project is expected to be funded with available cash. The cost of the land and
preliminary construction costs through September 30, 2000 was approximately
$236,000.
During the first quarter of this year, we purchased 5,000 shares of our
outstanding stock at $9.75 per share to hold as treasury stock. In the second
quarter, we purchased another 5,637 shares at $8.00 per share. In the third
quarter, we purchased 14,112 shares at $8.00 per share, all of which were sold
to us by Alan George, our President and Chief Operating Officer, which
transaction was in accordance with the share purchase authorized by our board of
directors. The total purchase price of the shares acquired in 2000 was $206,742.
The treasury stock was purchased for possible utilization in connection with our
stock option plan. Our Board of Directors has approved approximately 100,000
shares to be purchased as treasury stock. To date, 39,749 shares have been
purchased for a cost of $364,242, at an average price of $9.17 per share.
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Below is a table that reflects the leverage and risk-based regulatory
capital ratios of the Bank at September 30, 2000:
Well-Capitalized Minimum
Ratio Requirement Requirement
Tier 1 Capital 14.61% 6.00% 4.00%
Total Capital 15.86% 10.00% 8.00%
Tier 1 leverage ratio 10.99% 5.00% 4.00%
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board, FASB, issued SFAS
No. 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 and liabilities. SFAS No. 138, "ACCOUNTING FOR CERTAIN DERIVATIVE
INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES" was issued in June 2000 and amends
the accounting and reporting standards of SFAS No. 133 for certain derivative
instruments and hedging activities. The two statements are to be adopted
concurrently and are effective for fiscal years and quarters beginning after
June 15, 2000. We do not expect that the adoption of SFAS No. 133 and SFAS No.
138 will have a material impact on the presentation of our financial results or
financial position.
Other accounting standards that have been issued or proposed by the
Financial Accounting Standards Board that do not require adoption until a future
date are not expected to have a material impact on our consolidated financial
statements upon adoption.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
(a) Exhibits - 27.1 Financial Data Schedule for period ending
September 30, 2000.
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the
quarter ended September 30, 2000.
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SIGNATURES
In accordance with the requirements 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
(Registrant)
Date: November 6, 2000 By: /s/ Tommy B. Wessinger
--------------------------
Tommy B. Wessinger
Chief Executive Officer
By: /s/ Jean H. Covington
---------------------------
Jean H. Covington
Principal Accounting and
Chief Financial Officer
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