PEOPLES PREFERRED CAPITAL CORP
10-Q, 2000-08-11
REAL ESTATE
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<PAGE>
================================================================================
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 2000

                         Commission file number: 0-23131

                     PEOPLE'S PREFERRED CAPITAL CORPORATION
             (Exact name of registrant as specified in its charter)

             Maryland                                     95-4642529
  (State or other jurisdiction                         (I.R.S. Employer
of incorporation or organization)                     Identification No.)

                            5900 Wilshire Boulevard,
                          Los Angeles, California 90036
                                 (323) 938-6300

         Indicate by check mark whether the registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                 YES [X] NO [ ]

         Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.

              CLASS                         SHARES OUTSTANDING AT AUGUST 8, 2000
              -----                         ------------------------------------
     Common Stock, $0.01 par value                         10,000
Series A Preferred Shares, $0.01 par value               1,426,000

================================================================================
<PAGE>

                     PEOPLE'S PREFERRED CAPITAL CORPORATION
                        JUNE 30, 2000 REPORT ON FORM 10-Q

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                           PAGE NO.
<S>                                                                                                        <C>
PART I   FINANCIAL INFORMATION

         Item 1.  Financial Statements

                  Statements of Financial Condition - June 30, 2000
                  and December 31, 1999                                                                         3

                  Statements of Earnings - For the three and six months ended
                  June 30, 2000 and June 30, 1999                                                               4

                  Statements of Cash Flows - For the six  months ended
                  June 30, 2000 and June 30, 1999                                                               5

                  Notes to Financial Statements                                                                 6

         Item 2.  Management's Discussion and Analysis of Financial Condition
                      and Results of Operations                                                                 7

         Item 3.  Quantitative and Qualitative Disclosures About
                  Market Risk                                                                                  13

PART II  OTHER INFORMATION

         Item 1:  Legal Proceedings                                                                            14

         Item 2:  Changes in Securities                                                                        14

         Item 3:  Defaults upon Senior Securities                                                              14

         Item 4:  Submission of Matters to a Vote of Security Holders                                          14

         Item 5:  Other Information                                                                            14

         Item 6:  Exhibits and Reports on Form 8-K                                                             14
</TABLE>


                                       2
<PAGE>


                     PEOPLE'S PREFERRED CAPITAL CORPORATION
                        STATEMENTS OF FINANCIAL CONDITION
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>

                                                                             June 30, 2000               December 31,1999
                                                                         -----------------------     -------------------------
                                                                              (Unaudited)
<S>                                                                      <C>                         <C>
ASSETS:
         Cash and cash equivalents............................................  $ 2,299                      $   959
         Mortgage loans, net (Note 2).........................................   68,917                       70,446
         Due from affiliate...................................................      883                          657
         Accrued interest receivable..........................................      347                          331
         Other assets.........................................................        6                           --
                                                                                --------                     --------
                  Total assets................................................  $72,452                      $72,393
                                                                                ========                     ========

LIABILITIES:
         Accounts payable and accrued liabilities.............................  $    27                      $   42
                                                                                --------                     --------
                  Total liabilities...........................................       27                          42
                                                                                --------                     --------

COMMITMENTS AND CONTINGENCIES.................................................

STOCKHOLDERS' EQUITY:

         Preferred stock, par value $.01 per share, 4,000,000
            shares authorized:
            Preferred stock series A, issued and outstanding
             1,426,000 shares, liquidation value $35,650......................       14                           14
         Common stock, par value $.01 per share, 4,000,000
             shares authorized: 10,000 shares issued and outstanding..........       --                           --
         Additional paid-in capital...........................................   72,075                       72,075
         Retained earnings....................................................      336                          262
                                                                                --------                     --------
                  Total stockholders' equity..................................   72,425                       72,351
                                                                                --------                     --------
                  Total liabilities and stockholders' equity..................  $72,452                      $72,393
                                                                                ========                     ========
</TABLE>


                 See accompanying notes to financial statements.

                                       3
<PAGE>


                     PEOPLE'S PREFERRED CAPITAL CORPORATION
                             STATEMENTS OF EARNINGS
                             (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>

                                                      Three Months Ended June 30,                Six Months Ended June 30,
                                                  ------------------------------------     --------------------------------------
                                                       2000                 1999                2000                  1999
                                                  ----------------      --------------     ----------------     -----------------
                                                                                   (Unaudited)
<S>                                               <C>                   <C>                <C>                  <C>
REVENUES:
 Interest on mortgage loans..............            $  1,392              $  1,359           $  2,789             $   2,718
 Interest on deposits....................                  24                    39                 45                    77
                                                  ----------------      --------------     ----------------     -----------------

          Total revenues:................               1,416                 1,398              2,834                2,795
                                                  ----------------      --------------     ----------------     -----------------

EXPENSES:
 Servicing fees..........................                  45                    44                 88                   87
 Advisory fees...........................                  50                    50                100                  100
 Professional fees.......................                  19                    20                 49                   38
 Other...................................                  15                     7                 23                   15
                                                  ----------------      --------------     ----------------     -----------------
          Total expenses.................                 129                   121                260                  240
                                                  ----------------      --------------     ----------------     -----------------
          Net earnings...................            $  1,287             $   1,277           $  2,574            $   2,555
                                                  ================      ==============     ================     =================
</TABLE>




                 See accompanying notes to financial statements.

                                       4
<PAGE>


                     PEOPLE'S PREFERRED CAPITAL CORPORATION
                            STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                                        Six Months Ended
                                                                                                            June 30,
                                                                                              --------------------------------------
                                                                                                     2000               1999
                                                                                              ------------------- ------------------
                                                                                                           (Unaudited)
<S>                                                                                           <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
         Net earnings...........................................................                 $ 2,574                  $ 2,555
         Adjustments to reconcile net earnings to net cash provided by operating
              activities:
                  Increase in accrued interest receivable.......................                      --                       (3)
                  (Increase) decrease in due from affiliates....................                    (226)                     657
                  Increase in other assets......................................                      (6)                      (6)
                  Decrease in accrued expenses.................................                      (15)                     (11)
                                                                                              ------------------- ------------------
                  Net cash provided by operating activities.....................                   2,327                    3,192
                                                                                              ------------------- ------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Loan purchases, net of discount...........................................                  (3,086)                 (10,401)
      Mortgage loan principal repayments........................................                   4,615                   11,376
      Purchase of accrued interest..............................................                     (16)                     (45)
                                                                                              ------------------- ------------------
         Net cash provided by  investing activities.............................                   1,513                      930
                                                                                              ------------------- ------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
         Preferred stock dividends paid.........................................                  (1,738)                  (1,738)
         Common stock dividends paid............................................                    (762)                    (774)
                                                                                              ------------------- ------------------
         Net cash used in financing activities..................................                  (2,500)                  (2,512)
                                                                                              ------------------- ------------------

Net increase in cash and cash equivalents.......................................                   1,340                    1,610
Cash and cash equivalents at beginning of period................................                     959                    1,301
                                                                                              ------------------- ------------------
Cash and cash equivalents at end of period......................................                 $ 2,299                  $ 2,911
                                                                                              =================== ==================
</TABLE>


                 See accompanying notes to financial statements.

                                       5
<PAGE>



                     PEOPLE'S PREFERRED CAPITAL CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

         People's Preferred Capital Corporation (the "Company") is a real estate
investment trust ("REIT") that was formed in June 1997 in order to acquire, hold
and manage mortgage assets and other authorized investments. All of our common
stock is owned by People's Bank of California (the "Bank"). We expect that all
of our mortgage assets will be acquired from the Bank or purchased from other
companies that are not affiliated with us. To date, all of our mortgage assets
have been acquired from the Bank.

         As a REIT, dividends paid to our stockholders are deductible for
federal and state income tax purposes. Under the Internal Revenue Code, REITs
are subject to numerous organizational and operational requirements, including a
requirement that they distribute at least 95% of their taxable income, as
calculated on an annual basis. If we fail to qualify for taxation as a REIT in
any year, our income will be taxed at regular corporate rates, and we may not be
able to qualify for treatment as a REIT for that year and the next four years.

         In October 1997, we completed the sale of 1,426,000 shares of 9.75%
Noncumulative Exchangeable Preferred Stock, Series A (our "Series A Preferred
Shares") at an offering price of $25.00 per share. Our Board of Directors,
including a majority of our independent directors, authorized the filing of a
Registration Statement with the Securities and Exchange Commission ("SEC") for
the issuance of Series B Preferred Shares which, to the extent issued, will be
parity stock with respect to the Series A shares. The Registration Statement was
filed on August 9, 1999. To date, the Company has not issued any Series B
Preferred Shares and, due to market conditions, the Company has no immediate
plans with respect to the issuance of such securities.

         The accompanying financial statements were prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions for meeting the requirements of Regulation S-X, Article
10, and therefore do not include all disclosures necessary for complete
financial statements. In the opinion of management, all adjustments have been
made that are necessary for a fair presentation of the financial position and
results of operations and cash flows as of and for the periods presented. All
such adjustments are of a normal recurring nature. The results of operations for
the six months ended June 30, 2000 are not necessarily indicative of the results
that may be expected for the entire fiscal year or any other interim period.

         The financial statements should be read in conjunction with the audited
financial statements and accompanying notes thereto as of December 31, 1999
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1999. All terms used but not defined elsewhere herein have meanings ascribed
to them in the Annual Report on Form 10-K with the SEC filed on March 28, 2000.


                                       6
<PAGE>


NOTE 2 - MORTGAGE LOANS, NET

         Mortgage loans, net consisted of the following (in thousands):
<TABLE>
<CAPTION>
                                                                       June 30, 2000                 December 31, 1999
                                                               ------------------------------    ---------------------------
<S>                                                            <C>                               <C>
1-4 unit residential mortgage loans.........................            $       62,081                   $        61,836
Multi-family and commercial loans...........................                     7,487                             9,165
                                                               ------------------------------    ---------------------------
                                                                                69,568                            71,001
Discount on loans...........................................                      (398)                             (302)
Allowance for loan losses...................................                      (253)                             (253)
                                                               ------------------------------    ---------------------------
         Total mortgage loans, net..........................            $       68,917                   $        70,446
                                                               ==============================    ===========================
</TABLE>


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

         WHEN USED IN THIS FORM 10-Q OR FUTURE FILINGS BY THE COMPANY WITH THE
SEC, IN THE COMPANY'S PRESS RELEASES OR OTHER PUBLIC OR STOCKHOLDER
COMMUNICATIONS, OR IN ORAL STATEMENTS MADE WITH AN APPROVAL OF AN AUTHORIZED
EXECUTIVE OFFICER, THE WORDS OR PHRASES "WOULD BE", "WILL ALLOW", "INTENDS TO",
"WILL LIKELY RESULT", "ARE EXPECTED TO", "WILL CONTINUE", "IS ANTICIPATED",
"ESTIMATE", "PROJECT", OR SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY "FORWARD
LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE LITIGATION REFORM ACT OF
1995.

         THE COMPANY WISHES TO CAUTION READERS NOT TO PLACE UNDUE RELIANCE ON
ANY SUCH FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE MADE, AND
TO ADVISE READERS THAT VARIOUS FACTORS, INCLUDING REGIONAL AND NATIONAL ECONOMIC
CONDITIONS, SUBSTANTIAL CHANGES IN LEVELS OF MARKET INTEREST RATES, CREDIT AND
OTHER RISKS OF LENDING AND INVESTMENT ACTIVITIES AND COMPETITIVE AND REGULATORY
FACTORS, COULD AFFECT THE COMPANY'S FINANCIAL PERFORMANCE AND COULD CAUSE THE
COMPANY'S ACTUAL RESULTS FOR FUTURE PERIODS TO DIFFER MATERIALLY FROM THOSE
ANTICIPATED OR PROJECTED. THE COMPANY DOES NOT UNDERTAKE, AND SPECIFICALLY
DISCLAIMS ANY OBLIGATION, TO UPDATE ANY FORWARD-LOOKING STATEMENTS TO REFLECT
OCCURRENCES OR UNANTICIPATED EVENTS OR CIRCUMSTANCES AFTER THE DATE OF SUCH
STATEMENTS.

                                       7
<PAGE>


A summary of Selected Financial Data of the Company is as follows (dollars in
thousands):

                                               For the Six Months
                                                 Ended June 30,
                                    --------------------------------------------
                                            2000                   1999
                                   ---------------------- ---------------------

STATEMENT OF EARNINGS:
      Interest on mortgage loans.....     $  2,789               $  2,718
      Total revenues.................        2,834                  2,795
      Net earnings...................        2,574                  2,555

                                       At June 30, 2000   At December 31, 1999
                                      ------------------ ----------------------
STATEMENT OF CONDITION:
      Mortgage loans, net............     $ 68,917               $ 70,446
      Total assets...................       72,452                 72,393
      Total stockholders' equity.....       72,425                 72,351
      Weighted average yield on
        mortgage loans...............         7.38%                  7.44%

OVERVIEW

         Our principal business objective is to acquire, hold and manage
mortgage assets and other authorized investments that will generate net earnings
for distribution to our stockholders. At June 30, 2000, we had total assets of
$72.5 million, total liabilities of $27,000 and total stockholders' equity of
$72.4 million. As of that date, $68.9 million or 95.1% of our assets were
comprised of mortgage loans. At June 30, 2000, our loan portfolio contained 259
residential mortgage loans, representing approximately 89.2% of the unpaid
principal balance of the mortgage loans contained in our portfolio, and 44
commercial mortgage loans, representing approximately 10.8% of the unpaid
principal balance of the mortgage loans contained in our portfolio. An aggregate
of $62.1 million or 89.2% of our mortgage loans at June 30, 2000 were secured by
single-family (one-to-four-unit) residential properties with a weighted average
yield of 7.15% and $7.5 million or 10.8% of our mortgage loans were secured by
multi-family residential and commercial properties with a weighted average yield
of 9.29%. The overall yield on our portfolio as of June 30, 2000 and December
31, 1999 was 7.38% and 7.44%, respectively.

         Although we have the authority to acquire an unlimited number of
mortgage assets from unaffiliated third parties, all of our mortgage assets
acquired through June 30, 2000 have been acquired from the Bank (although a
portion of our mortgage assets were acquired by the Bank from unaffiliated third
parties). We have no present plans or expectations with respect to purchase of
mortgage assets from unaffiliated third parties. We may also acquire from time
to time mortgage-backed securities and a limited amount of non-mortgage related
securities.

                                       8
<PAGE>

         Our board of directors is composed of six members, two of whom are
independent directors. In addition, we currently have four officers. We have no
other employees and do not anticipate that we will require additional employees.

         RESIDENTIAL MORTGAGE LOANS. The following table sets forth as of June
30, 2000 certain information with respect to each type of residential mortgage
loan included in the Company's portfolio (dollars in thousands):

                    TYPE OF RESIDENTIAL MORTGAGE LOAN PRODUCT
<TABLE>
<CAPTION>
                                                                                                 Average
                                                                          Average Initial       Remaining        Average Net
                                 Principal Balance     Percentage of       Loan to Value           Term             Note
             Type                                        Portfolio             "LTV"           (in months)          Rate
-------------------------------- ------------------- ------------------- ------------------- ----------------- ----------------
<S>                              <C>                 <C>                 <C>                 <C>               <C>
Bi-weekly - fixed rate..........     $     755               1.2%                73.6%               137               6.75%
15 year fixed rate..............         5,387               8.7                 61.6                124               7.17
30 year fixed rate..............        55,939              90.1                 66.8                317               7.15
                                 ------------------- -------------------
                                     $  62,081             100.0%                66.4%               298               7.15%
                                 =================== =================== =================== ================= ================
</TABLE>


         The residential mortgage loans included in our portfolio are all fixed
rate loans. The interest rates of the fixed-rate residential mortgage loans
included in our portfolio range from 5.875% per annum to 13.500% per annum. At
June 30, 2000, the weighted average net interest rate of the residential
mortgage loans included in our portfolio was approximately 7.15% per annum.

         COMMERCIAL MORTGAGE LOANS. The following table sets forth as of June
30, 2000 certain information with respect to each type of commercial mortgage
loan included in the Company's portfolio (dollars in thousands):

                          TYPE OF COMMERCIAL MORTGAGE LOAN PRODUCT
<TABLE>
<CAPTION>

                                                                                                Average
                                                                               Average         Remaining         Average
                                       Principal         Percentage of         Initial            Term          Net Note
               Type                     Balance            Portfolio             LTV          (in months)         Rate
----------------------------------- ------------------- ----------------- ------------------ --------------- ----------------
<S>                                 <C>                 <C>               <C>                <C>             <C>
Commercial fixed rate
      balloon......................   $  3,996               53.4%             68.3%               78              9.19%
Commercial fixed rate..............      1,244               16.6              74.8               103              9.74
Multi-family fixed rate
      balloon......................        486                6.5              25.6                79              8.25
Multi-family fixed rate............      1,761               23.5              73.6                81              9.47
                                    ------------------- -----------------
                                      $  7,487              100.0%             67.9%               83              9.29%
                                    =================== ================= ================== =============== ================
</TABLE>

                                       9
<PAGE>

         Of the commercial mortgage loans included in our portfolio,
approximately 59.9% are not fully amortizing and will have significant
principal balances (or "balloon payments") due upon maturity.

         All of the commercial mortgage loans included in our portfolio at
June 30, 2000 bear interest at fixed rates. The interest rates of the
fixed-rate commercial mortgage loans range from 8.50% per annum to 11.00% per
annum. The weighted average net interest rate of the commercial mortgage
loans in our portfolio at June 30, 2000 was approximately 9.29% per annum.

ASSET QUALITY

         At June 30, 2000, there was one residential mortgage loan 30 to 59
days past due as to principal and interest aggregating $53,000, or 0.1% of
the residential mortgage loan portfolio. In addition, there was one
residential mortgage loan 60 to 89 days past due as to principal and interest
aggregating $177,000, or 0.3% of the residential mortgage loan portfolio. At
December 31, 1999, there was one residential mortgage 30 to 59 days past due
as to principal and interest aggregating $181,000, or 0.3% of the residential
mortgage loan portfolio. No commercial mortgage loans were past due as of
June 30, 2000 or December 31, 1999.

ALLOWANCE FOR LOAN LOSSES

         We maintain an allowance for loan losses to absorb potential loan
losses from the entire loan portfolio. At June 30, 2000, the allowance for
loan losses amounted to $253,000 or 0.36% of total loans. We have not
incurred any loan losses since our inception. On an ongoing basis, we monitor
the loan portfolio and evaluate the adequacy of the allowance for loan
losses. Based upon our analysis, we believe that the allowance for loan
losses as of June 30, 2000 is sufficient to absorb any unidentified losses
that currently exist in the portfolio. We will continue to review the loan
portfolio to determine the extent to which any changes in loss experience may
require additional provisions in the future.

FINANCIAL CONDITION

         At June 30, 2000 and December 31, 1999, we had total assets of $72.5
and $72.4 million, respectively. As of June 30, 2000, an aggregate of $68.9
million or 95.1% of our assets was comprised of mortgage loans.

         During the six months ended June 30, 2000 and the year ended
December 31, 1999, we purchased from the Bank additional residential mortgage
loans with an aggregate principal balance of $3.3 million and $16.5 million,
respectively. As of June 30, 2000, our portfolio of mortgage loans was
comprised of $62.1 million of residential mortgage loans and $7.5 million of
multi-family and commercial mortgage loans, or 89.2% and 10.8% of our total
portfolio of mortgage loans, respectively. As of December 31, 1999, our
portfolio of mortgage loans was

                                       10

<PAGE>

comprised of $61.8 million of residential mortgage loans and $9.2 million of
commercial mortgage loans, or 87.1% and 12.9% of our total portfolio of mortgage
loans, respectively. The weighted average yield of our portfolio as of June 30,
2000 and December 31, 1999 was 7.38% and 7.44%, respectively. At June 30, 2000,
amounts due from affiliates aggregated $883,000, as compared to $657,000 at
December 31, 1999. At June 30, 2000, accrued interest amounted to $347,000, as
compared to $331,000 at December 31, 1999. We maintained an allowance for loan
losses of $253,000 at June 30, 2000 and December 31, 1999.

         At June 30, 2000, our total liabilities amounted to $27,000, as
compared to $42,000 at December 31, 1999. At June 30, 2000, stockholders'
equity amounted to $72.4 million, after taking into consideration earnings of
$2.6 million and aggregate dividend payments on the Common Stock and the
Series A Preferred Shares of $2.5 million during the first six months of
2000. At December 31, 1999, stockholders' equity amounted to $72.4 million.

RESULTS OF OPERATIONS

         For the three months ended June 30, 2000 we reported net earnings of
$1.29 million compared to $1.28 million for the three months ended June 30,
1999. Total revenues were $1.42 million for the three months ended June 30,
2000 compared to total revenues of $1.40 million for the three months ended
June 30, 1999. This increase was mainly due to an increase in interest on
mortgage loans. Total expenses amounted to $129,000 for the second quarter
ended June 30, 2000 compared to $121,000 for the second quarter ended June
30,1999. This increase in expenses was mainly due to an increase in other
expenses.

         We reported net earnings of $2.57 million for the six months ended
June 30, 2000 compared to $2.56 million for the comparable period in 1999.
The increase in earnings during the six month period was due to an increase
in interest earned on mortgage loans, which was partially offset by an
increase in expenses.

         Total revenues for the six months ended June 30, 2000 increased from
$2.80 million to $2.83 million over the comparable prior period due to
increased interest on mortgage loans.

         Total expenses for the six months ended June 30, 2000 increased to
$260,000 from $240,000 during the six months ended June 30, 1999, primarily
due to an increase in professional fees. Advisory fee payments to the Bank
were $100,000 during each of the six month periods ended June 30, 2000 and
1999. The Bank received $11,000 and $14,000, for servicing our commercial
mortgage loans and $49,000 and $34,000 for servicing a portion of our
residential mortgage loans during the six months ended June 30, 2000 and
1999. Temple Inland Mortgage Corporation, which services a portion of our
residential mortgage loans, received $28,000 and $39,000 in servicing fees
during the six months ended June 30, 2000 and 1999, respectively.

                                       11
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

         The objective of liquidity management is to ensure the availability of
sufficient cash flows to meet all of our financial commitments and to capitalize
on opportunities for our business expansion. In managing liquidity, we take into
account various legal limitations placed on a REIT.

         Our principal liquidity needs are to maintain our current portfolio
size through the acquisition of additional mortgage loans as mortgage loans
currently in the portfolio mature or prepay and to pay dividends on the Series A
Preferred Shares. The acquisition of additional mortgage loans is intended to be
funded with the proceeds obtained from repayment of principal balances by
individual mortgagees and the possible issuance of additional shares of capital
stock. The Company has not had and does not anticipate having any material
capital expenditures.

         To the extent that our Board of Directors determines that additional
funding is required, the Company may raise such funds through additional equity
offerings, debt financing or retention of cash flow (after consideration of
provisions of the Internal Revenue Code of 1986, as amended (the "Code")), or a
combination of these methods. Our organizational documents do not contain any
limitation on the amount or percentage of debt, funded or otherwise, that we
might incur. Notwithstanding the foregoing, we may not, without the approval of
a majority of the Company's independent directors, incur debt in excess of 20%
of our total stockholders' equity. Any such debt incurred may include
intercompany advances made by the Bank to us.

         We also may issue additional series of preferred stock. However, we may
not issue additional shares of preferred stock that is, or will be, senior to
the Series A Preferred Shares, without obtaining the prior consent of holders of
at least 66 2/3% of the shares of preferred stock outstanding at that time. We
may not issue additional shares of preferred stock on a parity with the Series A
Preferred Shares without the prior approval of a majority of our independent
directors. Our Board of Directors, including a majority of our independent
directors, authorized the filing of a Registration Statement with the SEC for
the issuance of Series B Preferred Shares, which, if issued, will be parity
stock with respect to the Series A Preferred Shares. The Registration Statement
was filed on August 9, 1999. No assurance can be made, however as to when the
Company will complete the offering of Series B Preferred Shares, if at all.

INTEREST RATE RISK

         Our interest rate risk is primarily related to loan prepayments and
payoffs. The average maturity of loans is substantially less than their average
contractual terms because of prepayments and, in the case of conventional
mortgage loans, due-on-sale clauses, which generally give us the right to
declare a loan immediately due and payable in the event, among other things,
that the borrower sells the real property subject to the mortgage and the loan
is not repaid. The average life of mortgage loans tends to increase when the
current mortgage loan rates are substantially higher than rates on existing
mortgage loans and, conversely, decrease when rates on existing mortgages are
substantially lower than current mortgage loan rates (due to refinancings of
adjustable rate and fixed rate loans at lower rates). Since December 31, 1999

                                       12

<PAGE>

there were no significant changes in the anticipated maturities or repricing of
our interest earning assets.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         See "Item 2. Management Discussion and Analysis of Financial Condition
and Results of Operations Interest Rate Risk".

                                       13
<PAGE>


                     PEOPLE'S PREFERRED CAPITAL CORPORATION

PART II  OTHER INFORMATION

         ITEM 1:  LEGAL PROCEEDINGS

                       None

         ITEM 2:  CHANGES IN SECURITIES

                       None

         ITEM 3:  DEFAULTS UPON SENIOR SECURITIES

                       None

         ITEM 4:  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

                       None

         ITEM 5:  OTHER INFORMATION

                       None

         EXHIBIT INDEX

         EXHIBIT           DESCRIPTION
         -------           -----------

         27                Financial Data Schedule

         NO REPORTS ON FORM 8-K HAVE BEEN FILED DURING THE QUARTER ENDED JUNE
30, 2000.
                                       14
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                          PEOPLE'S PREFERRED CAPITAL
                                          CORPORATION

                                         /s/ RUDOLF P. GUENZEL
                                         ---------------------------------------
                                         Rudolf P. Guenzel
                                         President and Chief Executive Officer


                                         /s/ J. MICHAEL HOLMES
                                         ---------------------------------------
                                         J. Michael Holmes
                                         Executive Vice President and Chief
                                          Financial Officer

                                         Date: August 10, 2000


                                       15
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                          PEOPLE'S PREFERRED CAPITAL
                                          CORPORATION


                                         ---------------------------------------
                                         Rudolf P. Guenzel
                                         President and Chief Executive Officer


                                         ---------------------------------------
                                         J. Michael Holmes
                                         Executive Vice President and Chief
                                          Financial Officer

                                         Date: August 10, 2000


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