SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended Commission File Number
September 30, 1996 33-78602
PEOPLES BANCORPORATION, INC.
(exact name of small business issuer as specified in its charter)
South Carolina 57-09581843
(State of other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
1800 East Main Street, Easley, South Carolina 29640
(Address of principal executive offices) (Zip Code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required 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 _____
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Common Stock $3.33 Par Value 799,930
Class Outstanding as of November 8, 1996
Transitional Small Business Disclosure Format:
Yes _____ No __X__
CONSOLIDATED BALANCE SHEET
Peoples Bancorporation, Inc. and Subsidiary
SEPTEMBER 30, DECEMBER 31,
1996 1995 1995
ASSETS AUDITED
CASH AND DUE FROM BANKS $ 2,875,767 $ 3,506,864 $ 2,903,800
FEDERAL FUNDS SOLD 3,620,000 4,010,000 3,120,000
SECURITIES
Available for Sale 15,075,640 12,995,772 16,518,391
Held for investments (market value
of $2,898,516, $4,385,013 and
$2,311,958, respectively) 2,886,399 4,288,409 2,257,398
LOANS - less allowance for loan
losses of $707,365, $660,134 and
$669,664, respectively) 62,283,115 55,386,687 56,335,862
PREMISES AND EQUIPMENT, net of
accumulated depreciation 1,884,203 2,015,111 1,974,444
ACCRUED INTEREST RECEIVABLE 616,563 587,601 742,433
OTHER ASSETS 490,403 637,569 309,660
TOTAL ASSETS $89,732,090 $83,428,013 $84,161,988
LIABILITIES
DEPOSITS
Noninterest-bearing $11,377,647 $ 9,945,526 $ 9,894,920
Interest-bearing 65,182,796 61,198,135 61,278,505
Total Deposits 76,560,443 71,143,661 71,173,425
SECURITIES SOLD UNDER REPURCHASE
AGREEMENTS 3,827,676 3,145,528 3,689,682
NOTES PAYABLE TO FEDERAL HOME LOAN
BANK 489,796 1,097,143 825,306
ACCRUED INTEREST PAYABLE 556,555 560,364 600,920
OTHER LIABILITIES 187,628 242,408 342,134
TOTAL LIABILITIES 81,622,098 76,189,104 76,631,467
SHAREHOLDERS' EQUITY
Common Stock - 5,000,000 shares
authorized $3.33 par value per share;
761,985, 719,223 and 754,971 shares
outstanding, respectively 2,537,410 2,395,012 2,514,054
Additional paid-in capital 3,713,208 3,290,146 3,671,577
Retained earnings 1,943,400 1,559,928 1,266,137
Unrealized gain(loss) on securities
available for sale (84,026) (6,177) 78,753
TOTAL CAPITAL 8,109,992 7,238,909 7,530,521
TOTAL LIABILITIES AND CAPITAL $89,732,090 $83,428,013 $84,161,988
CONSOLIDATED STATEMENTS OF INCOME
Peoples Bancorporation, Inc. and Subsidiary
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
INTEREST INCOME
Interest and fees on loans $1,475,474 $1,347,346 $4,287,389 $3,884,758
Interest on securities
Taxable 219,542 236,896 678,803 672,515
Tax-exempt 52,677 43,975 154,928 127,503
Interest on federal funds 59,627 51,786 157,505 155,163
Total interest income 1,807,320 1,680,003 5,278,625 4,839,939
INTEREST EXPENSE
Interest on deposits 731,269 750,829 2,179,719 2,036,737
Interest on federal funds
purchased and securities sold
under repurchase agreements 37,807 29,718 112,518 114,006
Interest on notes payable to
Federal Home Loan Bank 7,429 16,212 25,776 58,672
Total interest expense 776,505 796,759 2,318,013 2,209,415
Net interest income 1,030,815 883,244 2,960,612 2,630,524
PROVISION FOR LOAN LOSSES 63,500 17,500 149,500 91,850
Net interest income after
provision for loan losses 967,315 865,744 2,811,112 2,538,674
NON-INTEREST INCOME
Service fees and other income 141,632 132,251 436,618 370,378
Gain (loss) on sale of securities
available for sale 0 0 (1,836) (17,341)
141,632 132,251 434,782 353,037
NON-INTEREST EXPENSES
Salaries and benefits 394,917 370,423 1,172,242 1,069,733
Occupancy 41,867 45,474 126,405 134,735
Equipment 57,474 61,771 177,669 178,378
Other operating expenses 215,013 182,566 574,187 611,458
709,271 660,234 2,050,503 1,994,304
Income before income taxes 399,676 337,761 1,195,391 897,407
PROVISION FOR INCOME TAXES 130,400 109,800 389,000 291,200
Net Income $ 269,276 $ 227,961 $ 806,391 $ 606,207
Income per common share * $ 0.36 $ 0.32 $ 1.06 $ 0.83
Average common shares
outstanding* 761,985 719,223 758,027 730,097
Cash dividends declared per
common share $ 0.06 $ 0.05 $ 0.17 $ 0.15
* Share data has been restated to reflect 5% stock dividends.
PEOPLES BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
Nine Months Ended
September 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 806,391 $ 606,207
Adjustments to reconcile net income to net
cash provided by operating activities
Loss (gain) on sales of securities available
for sale 1,836 17,341
Provision for loan losses 149,500 91,850
Depreciation and amortization 128,644 153,528
Amortization and accretion (net) of
premiums and discounts on securities 41,614 42,921
(Increase) decrease in accrued interest receivable 125,644 (13,188)
Increase in other assets (82,271) (254,491)
Increase in accrued interest payable (44,365) 188,632
Increase (decrease) in other liabilities 6,075 201,755
Net cash provided by operating activities 1,133,294 1,034,555
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities held for investment (634,460) (3,097,349)
Purchases of securities available for sale (10,245,525) (6,319,302)
Proceeds from the maturity of securities
available for sale 5,790,000 4,852,461
Proceeds from the sale of securities available
for sale 2,358,646 1,779,668
Proceeds from the call of securities available
for sale 2,900,000 1,000,000
Net increase in loans (5,947,253) (4,080,344)
Proceeds from the sale of property 3,000 0
Purchase of premises and equipment (38,403) (210,738)
Net cash used by investing activities (5,813,995) (6,075,604)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 5,387,018 9,447,636
Net increase (decrease) in federal funds purchased 0 0
Net increase (decrease) in securities sold under
repurchase agreements 165,301 (3,118,980)
Net increase in notes payable to Federal Home
Loan Bank (335,510) (815,510)
Proceeds from sale of stock 0 754,713
Proceeds from stock options exercised 64,988 0
Cash Dividend (129,129) (105,242)
Net cash (used) provided by financing
activities 5,152,668 6,162,617
Net increase (decrease) in cash and
cash equivalents 471 967 1,121,568
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,023,800 6,395,296
CASH AND CASH EQUIVALENTS, END OF PERIOD $6,495,767 $7,516,864
CASH PAID FOR
Interest $2,347,372 $1,970,055
Income Taxes $ 554,798 $ 271,650
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
PEOPLES BANCORPORATION, INC. AND SUBSIDIARY
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of these policies is included in the 1995 Annual Report to
Shareholders.
SECURITIES
The change in the net unrealized loss on securities available for sale
for the nine months ended September 30, 1996 was $84,026 which was a decrease
of $162,779 from the $78,753 net unrealized gain at December 31, 1995.
STATEMENTS OF CASH FLOWS
Cash includes currency and coin, cash items in process of collection
and amounts due from banks. Income tax payments of $554,798 were made for the
nine months ended September 30, 1996.
COMMON STOCK
The Board of Directors declared a cash dividend of $0.05 per common
share to shareholders of record as of March 21, 1996, payable March 29, 1996
and $0.06 per common share to shareholders of record as of June 27, 1996 and
September 19, 1996, payable July 2, 1996 and September 30, 1996, respectively.
Dividends are not cumulative.
The Board of Directors declared a 5% stock dividend on October 15, 1996
to common stockholders of record October 25, 1996, payable November 8, 1996.
Primary earnings per share amount are computed based on the weighted
average number of shares outstanding plus the shares that would be
outstanding assuming the exercise of dilutive stock options, all of which are
considered to be common stock equivalents. The number of shares that would be
issued from the exercise of stock options has been reduced by the number of
shares that could have been purchased from the proceeds at the average market
price of the Company's stock.
NONPERFORMING LOANS
As of September 30, 1996, there were eight nonaccrual loans totalling
$272,265 and one loan 90 days past due or more as to principal or interest
payments in the amount of $72,651.
MANAGEMENT'S OPINION
In the opinion of management, the accompanying unaudited financial
statements of Peoples Bancorporation, Inc. contain all adjustments
necessary to fairly present the financial results of the interim periods
presented. The results of operations for any interim period is not
necessarily indicative of the results to be expected for an entire year.
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Peoples Bancorporation, Inc. (the "Company"), headquartered in Easley,
South Carolina, was incorporation on March 6, 1992 for the primary purpose of
effecting the reorganization of The Peoples National Bank (the "Bank") into a
bank holding company structure which reorganization resulted in ownership by
the Company of 100% of the issued and outstanding shares of common stock of
the Bank.
The Bank, a nationally chartered financial institution, operates three
offices, in Easley, Pickens and Powdersville, South Carolina.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EARNINGS REVIEW
The Company's net income for the third quarter of 1996 was $269,276, an
18.12% increase compared to $227,961 for the same period of 1995. Earnings
per share increased to $0.36 in the third quarter of 1996 compared to $0.32
per share for the same period in 1995. Net income for the nine months ended
September 30, 1996 was $806,391 or $1.06 per share compared to $606,207 or
$0.83 per share for the same period in 1995. Increases in earning assets
without corresponding overhead growth, plus good growth in noninterest income
are the primary reasons for the growth in net income and earnings per common
share.
Return on average equity for the nine months and three months ended
September 30, 1996 was 13.65% and 13.68% compared to 12.08% and 12.57% for the
same period in 1995. Return on average assets for the nine months ended
September 30, 1996 was 1.24% compared to 1.02% for the same period in 1995.
For the third quarter of 1996, return on average assets was 1.21% compared to
0.98% for the same period in 1995.
The largest ccomponent of the Company's net income is net interest
income. Net interest income, which is the difference between the interest
earned on assets and the interest paid for the liabilities used to fund those
assets, measures the gross profit from lending and investing activities and is
the primary contributor to the Company's earnings. Net interest income after
provision for loan losses for the third quarter of 1996 increased $101,571 or
11.73% over the third quarter of 1995. Net interest income after provision
for loan losses for the nine months ended September 30, 1996 increased
$272,438 or 10.73% over the first nine months of 1995. This represents a
4.52% net interest margin (net interest income divided by average earnings
assets) on average earnings assets of $81,465,000. For the same period in
1995, the net interest margin was 4.41% on average earnings assets of
$73,028,900. The increase in the interest margin is more a reflection of
lower deposits rates. In February, 1996, the prime interest rate charged on
loans was reduced from 8.50% to 8.25%. Approximately 40% of the loan
portfolio has variable rates and were immediately repriced down, while deposit
rates were not instantly lowered.
NON-INTEREST INCOME
Noninterest income, excluding securities transactions, increased $9,381
or 7.09% for the third quarter of 1996 as compared to the same period of 1995.
For the first nine months of 1996 noninterest income, excluding securities
transactions, increase $66,240 or 17.88% as compared to the same period of
1995. Mortgage loan fees, which increased $45,422 or 56.94% during the first
nine months of 1996, compared to the same period in 1995, was the main
contributor to increased noninterest income. There were no sales of
investments during the third quarter of 1996, nor during the third quarter of
1995. For the first nine months of 1996, the Company realized a loss of
$1,836 loss on the sale of securities available for sale, compared to a loss
of $17,341 during the same period of 1995.
NON-INTEREST EXPENSE
Noninterest expense increased $49,037 or 7.43% for the third quarter of
1996 over the third quarter of 1995. The increase is due primarily to
approximately $24,000 expensed for the celebration of the Bank's tenth
anniversary in August, 1996. Personnel cost increased $24,494, or 6.61%
during the third quarter of 1996 due to additional staffing and normal salary
increases. Management continues to closely monitor all operating expenses.
PROVISION FOR LOAN LOSSES
The amount charged to the provision for loan losses by the Company is
based on management's judgement as to the amount required to maintain an
allowance adequate to provide for potential losses in the Company's loan
portfolio.
The provision for loan losses charged to operations during the nine
months ended September 30, 1996 was $149,500 compared to $91,850 for this same
period in 1995. Management considers this reserve to be adequate based upon
evaluations of specific loans and weighing of various loan categories as
suggested by the Bank's internal loan rating system.
BALANCE SHEET REVIEW
LOANS
Outstanding loans represent the largest component of earning assets at
74.37% of total earning assets. As of September 30, 1996, the Company had
total loans outstanding of $62,990,480. Loans increased $6,943,659 or 12.39%,
from $56,046,821 at September 30, 1995, and increased $5,984,954 or 10.50%,
from $57,005,526 at December 31, 1995. For the first nine months of 1996, the
Company's loans averaged $59,527,000, compared to $53,808,000 for the same
period of 1995.
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 yield on the Company's loans as of September 30, 1996 was 9.33%,
compared to 9.44% at September 30, 1995. With approximately 40% of the Bank's
loans tied to prime, the four prime decreases during the last twelve months
have influenced the Bank's loan yields.
The Company's loan portfolio consists principally of residential
mortgage loans, commercial loans, and consumer loans. Substantially all of
these loans are located in South Carolina and are concentrated in the
Company's market areas. The Company has no foreign loans or loans for highly
leveraged transactions.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses at September 30, 1996 was $707,365, or
1.12% of loans outstanding compared to $660,134 or 1.18% of loans outstanding
at September 30, 1995, and $669,664 or 1.17% at year end December 31, 1995.
The allowance for loan losses is based upon management's continuing evaluation
of the collectibility of past due loans based on the historical loan loss
experience of the Bank, 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.
At September 30, 1996, the Company had $272,265 in non-accruing loans,
no restructured loans and one loan, in the amount of $72,651, greater than
ninety days past due on which interest was still being accrued. This compares
with $24,164 in non-accruing and restructured loans and two loans, in the
amount of $3,822, greater that ninety days past due at September 30, 1995. At
December 31, 1995, there were $157,506 in non-accruing and restructured loans
and two loans, in the amount of $347,076, grater than ninety days past due on
which interest was still being accrued. Nonperforming assets as a percentage
of loans and other real estate owned were 0.55% and 0.05% at September 30,
1996 and 1995, respectively.
Net charge-offs during the first nine months of 1996 were $111,799, which
represents 0.19% of average loans, compared to net charge-offs of $51,007 or
0.09% of average loans at September 30, 1995, and $57,627, or 0.10% of average
loans at December 31, 1995. The allowance for loan losses as a percentage of
nonperforming loans was 632% and 2,359% as of September 30, 1996 and 1995,
respectively.
The Company accounts for impaired loans in accordance with the provision
of Statement of Financial Accounting Standards ("SFAS") 114, Accounting by
Creditors for Impairment of a Loan. SFAS No. 114, as amended by SFAS No. 118,
requires that impaired loans be measured based on the present value of
expected future cash flows or the underlying collateral values as defined in
the pronouncement.
At September 30, 1996, the recorded investment in loans that were
considered to be impaired under SFAS No. 114 was $272,265. The average
recorded investment and foregone interest on impaired loans during the first
nine months of 1996 was approximately $260,500 and $16,800, respectively. For
the nine months ended September 30, 1996, the Company recognized no interest
income on impaired loans.
SECURITIES
Investment securities constituted 25.63% and 17.53% of earnings assets
as of September 30, 1996 and 1995, respectively. At September 30, 1996,
securities totaled $17,962,039, up $677,858 from $17,284,181 invested as of
the third quarter of 1995, and down $813,750 from December 31, 1995's balance
of $18,775,789. The yield on investments securities declined slightly from
6.11% at December 31, 1995 to 6.07% at September 30, 1996, principally due to
lower yields on new investments. The Company has shortened the average
maturity of its investment portfolio which provides liquidity and flexibility
in a changing interest rate environment.
At September 30, 1996, the Company's total investment portfolio had a
book value of $18,089,355 and a market value of $17,974,4156 for an unrealized
net loss of $84,026. Securities averaged $22,208,617 for the first nine
months of 1996, 27.55% above the first nine months of 1995's average of
$17,411,600.
The Company uses its investment portfolio to provide liquidity for
unexpected deposit liquidation or loan generation, to meet the Company's
interest rate sensitivity goals and to generate income. The Company
emphasizes safety in its selection of investment securities. Accordingly, the
investment portfolio is limited to securities of the United States government
or its agencies, mortgage backed securities and investment grade state and
municipal securities. The Company does not invest in corporate bonds nor does
it hold any trading securities.
DEPOSITS
Peoples' primary source of funds for loans and investments is its
deposits. Deposits grew 7.61% to $76,560,443 at September 30, 1996 from
$71,143,661 at September 30, 1995. At December 31, 1995, deposits totaled
$71,173,425. This increase resulted principally from account promotions.
Competition for deposit accounts is primarily based on the interest rates
paid, location convenience, and services offered.
During the first nine months of 1996, interest-bearing liabilities
averaged $62,546,200 compared to $57,959,500 for the same period of 1995, and
$58,781,700 for the twelve months ending December 31, 1995. The average
interest rates were 4.49% and 4.58% at September 30, 1996 and 1995,
respectively. In pricing deposits, the Company considers its liquidity needs,
the direction and levels of interest rates and local market conditions. As of
September 30, 1996, interest-bearing deposits comprised 85.14% of total
deposits.
Average noninterest-bearing deposits, which increased 17.96% during the
year, increased 14.11% of average total deposits in the first nine month of
1996 from 13.04% in the first nine months of 1995. This increase was
attributable to new commercial and individual customers.
The Company's core deposit base consists of consumer time deposits,
savings, NOW accounts, money market accounts and checking accounts. Although
such core deposits are becoming increasingly interest sensitive for both the
Company and the industry as a whole, such core deposits continue to provide
the Company with a large and stable source of funds. Core deposits as a
percentage of total deposits average approximately 86% for the nine months
ended September 30, 1996. The Company closely monitors its reliance on
certificates greater than $100,000, which are generally considered less stable
and less reliable than core deposits.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity management entails meeting the cash flow requirements of the
Company. The primary cash flow requirements include withdrawals of deposits,
extensions of credit, payment of operating expenses and repayment of purchased
funds. The Company's principal sources of funds for liquidity purposes are
customer deposits, principal and interest payments on loans, maturities and
sale of debt securities, temporary investments and earnings.
The Company monitors and controls the mix and maturities of its assets
and liabilities through asset/liability management. The essential purposes of
asset/liability management are (i) to ensure adequate liquidity to fund
demands from depositors and borrowers and (ii) to maintain an appropriate
balance between interest sensitive assets and liabilities. Interest sensitive
assets and liabilities are those that are subject to repricing in the near
term, including both floating rate instruments and those with approaching
maturities. The objective of interest sensitivity management is to maintain
reasonable stable growth in net interest income despite changes in market
interest rates by maintaining the proper mix of interest sensitive assets and
liabilities. Over the past several years, the environment in which financial
institutions operate has been characterized by volatile interest rates and
greater reliance on market-sensitive deposits, increasing both the importance
and the difficulty of interest sensitivity management. Throughout this
period, management has sought to maintain a general equilibrium between
interest sensitive assets and liabilities in order to insulate net interest
income from significant adverse changed in market rates.
The Company routinely reviews its interest sensitivity gap, or the
difference between total interest sensitive assets and liabilities for a
static time period. While the static gap is a widely-used measure of
interest-sensitivity, it is not, in management's opinion, a true indicator of
the Company's interest rate sensitive position. Consequently, the Company
also uses an asset/liability simulation model which quantifies balance sheet
and earnings variations under different interest rate environments, to measure
and manage interest rate risk.
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. By increasing the rates paid on deposits, the Company
would be able to raise deposits as needed. In addition, the Bank maintains
lines of credit from unrelated banks in the amount of $2,500,000 and has a
borrowing availability through the Federal Home Loan Bank of approximately $11
million.
CAPITAL ADEQUACY
Federal banking regulators have established certain capital adequacy
standards required to be maintained by banks and bank holding companies. At
September 30, 1996, the Company and Peoples National Bank were in compliance
with each of the applicable capital requirements and exceeded the "well
capitalized" regulatory guidelines. The following table sets forth the
capital ratios for the Company and Peoples national Bank:
CAPITAL RATIOS
Well Adequately
As of Capitalized Capitalized
9/30/96 Requirement Requirement
Company:
Total Risk-based Capital 14.62% 10.00% 8.00%
Tier 1 Risk-based Capital 13.46% 6.00% 4.00%
Leverage Ratio 9.15% 5.00% 4.00%
Peoples National Bank:
Total Risk-based Capital 13.70% 10.00% 8.00%
Tier 1 Risk-based Capital 12.51% 6.00% 4.00%
Leverage Ratio 8.29% 5.00% 4.00%
EFFECTS OF REGULATORY ACTION
The management of the Company and the Bank are not aware of any current
recommendations by the regulatory authorities which, if they were to be
implemented, would have a material effect on liquidity, capital resources, or
operations.
PART II OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. No exhibits are required to be filed with this
report.
(b) Reports on Form 8-K. No report on Form 8-K was filed during
the quarter ended September 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PEOPLES BANCORPORATION, INC.
Dated: November 14, 1996 By:__/s/__Robert E. Dye_______________
Robert E. Dye
President and Chairman of the Board
Dated: November 14, 1996 By:__/s/__R. Riggie Ridgeway__________
R. Riggie Ridgeway
Secretary and Treasurer
(Principal Financial Officer)
