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
June 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 760,935
Class Outstanding as of August 1, 1996
Transitional Small Business Disclosure Format:
Yes _____ No __X__
CONSOLIDATED BALANCE SHEET
Peoples Bancorporation, Inc. and Subsidiary
JUNE 30, DECEMBER 31,
1996 1995
ASSETS AUDITED
CASH AND DUE FROM BANKS $ 3,990,258 $ 2,903,800
FEDERAL FUNDS SOLD 1,300,000 3,120,000
SECURITIES
Available for Sale 15,817,412 16,518,391
Held for investments (market value of
$2,554,146 in 1996 and $2,311,958 in 1995) 2,554,309 2,257,398
LOANS - less allowance for loan losses of
$652,140 and $669,664 59,668,181 56,335,862
PREMISES AND EQUIMENT, net of accumulated
depreciation 1,913,569 1,974,444
ACCRUED INTEREST RECEIVABLE 730,120 742,433
OTHER ASSETS 426,655 309,660
TOTAL ASSETS $86,400,504 $84,161,988
LIABILITIES
DEPOSITS
Noninterest-bearing $11,557,006 $ 9,894,920
Interest-bearing 61,008,381 61,278,505
Total Deposits 72,565,387 71,173,425
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS 4,610,996 3,689,682
NOTES PAYABLE TO FEDERAL HOME LOAN BANK 581,633 825,306
ACCRUED INTEREST PAYABLE 610,046 600,920
OTHER LIABILITIES 159,896 342,134
TOTAL LIABILITIES 78,527,958 76,631,467
SHAREHOLDERS' EQUITY
Common Stock - 5,000,000 shares authorized,
$3.33 par value per share; 760,935 shares
and 754,971 shares outstanding 2,533,914 2,514,054
Additional paid-in capital 3,705,207 3,671,577
Retained earnings 1,719,843 1,266,137
Unrealized gain(loss) on securities
available for sale (86,418) 78,753
TOTAL CAPITAL 7,882,546 7,530,521
TOTAL LIABILITIES AND CAPITAL $86,400,504 $84,161,988
CONSOLIDATED STATEMENTS OF INCOME
Peoples Bancorporation, Inc. and Subsidiary
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
INTEREST INCOME
Interest and fees on loans $1,424,581 $1,295,303 $2,811,915 $2,537,412
Interest on securities
Taxable 227,121 233,371 459,261 435,619
Tax-exempt 51,852 43,044 102,251 83,528
Interest on federal funds 40,098 56,275 97,878 103,377
Total interest income 1,743,652 1,627,993 3,471,305 3,159,936
INTEREST EXPENSE
Interest on deposits 712,025 696,376 1,448,450 1,285,908
Interest on federal funds
purchased and securities sold
under repurchase agreements 35,421 41,624 74,711 84,288
Interest on notes payable to
Federal Home Loan Bank 8,598 19,416 18,347 42,460
Total interest expense 756,044 757,416 1,541,508 1,412,656
Net interest income 987,608 870,577 1,929,797 1,747,280
PROVISION FOR LOAN LOSSES 64,000 59,400 86,000 74,350
Net interest income after
provision for loan losses 923,608 811,177 1,843,797 1,672,930
NON-INTEREST INCOME
Service fees and other income 137,194 131,439 294,986 238,127
Gain (loss) on sale of securities
available for sale (5,658) 4,833 (1,836) (17,341)
131,536 136,272 293,150 220,786
NON-INTEREST EXPENSES
Salaries and benefits 389,679 356,375 777,325 699,310
Occupancy 39,282 42,582 84,538 89,261
Equipment 56,444 57,072 120,195 116,607
Other operating expenses 188,648 227,399 359,174 428,892
674,053 683,428 1,341,232 1,334,070
Income before income taxes 381,091 264,021 795,715 559,646
PROVISION FOR INCOME TAXES 123,850 85,800 258,600 181,400
Net Income $ 257,241 $ 178,221 $ 537,115 $ 378,246
INCOME PER COMMON SHARE $ 0.33 $ 0.24 $ 0.70 $ 0.52
PEOPLES BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
Six Months Ended
June 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 537,115 $ 378,246
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 86,000 74,350
Depreciation and amortization 89,644 101,125
Amortization and accretion (net) of
premiums and discounts on securities 26,878 23,145
(Increase) decrease in accrued interest receivable 12,313 (81,442)
Increase in other assets (80,753) (444,941)
Increase in accrued interest payable 9,126 211,625
Increase (decrease) in other liabilities (31,929) 200,434
Net cash provided by operating activities 650,230 479,883
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities held for investment (300,746) (2,899,049)
Purchases of securities available for sale (7,440,575) (3,298,396)
Proceeds from the maturity of securities
available for sale 5,290,000 1,767,362
Proceeds from the sale of securities available
for sale 2,358,646 1,779,668
Net increase in loans (3,332,319) (2,076,194)
Proceeds from the sale of property 3,000 0
Purchase of premises and equipment (28,769) (148,596)
Net cash used by investing activities (3,450,763) (4,875,205)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 1,391,962 7,253,617
Net increase (decrease) in federal funds purchased 0 0
Net increase (decrease) in securities sold under
repurchase agreements 948,621 (2,166,278)
Net increase in notes payable to Federal Home
Loan Bank (243,673) (543,673)
Proceeds from sale of stock 0 754,713
Proceeds from stock options exercised 53,491 0
Cash Dividend (83,410) (69,281)
Net cash (used) provided by financing
activities 2,066,991 5,229,098
Net increase (decrease) in cash and
cash equivalents (733,542) 833,776
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,023,800 6,395,296
CASH AND CASH EQUIVALENTS, END OF PERIOD $5,290,258 $7,229,072
CASH PAID FOR
Interest $1,543,145 $1,172,108
Income Taxes $ 424,298 $ 196,533
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 six months ended June 30, 1996 was $86,418 which was a decrease of
$165,171 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 $424,298 were made for the
six months ended June 30, 1996.
COMMON STOCK
The Board of Directors declared two cash dividens of $0.05 and $0.06 per
common share to sharehodlers of record as of March 21, 1996 and June 27, 1996,
payable March 29, 1996 and July 2, 1996, respectively. Dividends are not
cumulative.
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 June 30, 1996, there were nine nonaccrual loans totalling
$283,585 and no loans 90 days past due or more as to principal or interest
payments.
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 commons 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 second quarter of 1996 was $257,241, a
44.34% increase compared to $178,221 for the same period of 1995. Earnings
per share increased to $0.33 in the second quarter of 1996 compared to $0.24
per share for the same period in 1995. Net income for thew six months ended
June 30, 1996 was $537,115 or $0.70 per share compared to $378,246 or $0.52
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 six months and three months ended June
30, 1996 was 13.73% and 11.79% compared to 12.05% and 11.35% for the same
period in 1995. Return on average assets for the six months ended June 30,
1996 was 1.25% compared to 0.95% for the same period in 1995. For the second
quarter of 1996, return on average assets was 1.20% compared to 0.90% 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 second quarter of 1996 increased $112,431 or
13.86% over the second quarter of 1995. Net interest income after provision
for loan losses for the six months ended June 30, 1996 increased $170,867 or
10.21% over the first six months of 1995. This represents a 4.58% net
interest margin (net interest income divided by average earnings assets) on
average earnings assets of $80,551,100. For the same period in 1995, the net
interest margin was 4.63% on average earnings assets of $72,267,400. This
slight decrease in interest margin reflects the repricing of floating rate
assets more quickly than the repricing of interest bearing liability accounts
in a decreasing rate environment in which the prime rate decreased from 9.00%
at February 2, 1995 to 8.25% at February 2, 1996.
NON-INTEREST INCOME
Noninterest income, excluding securities transactions, increased $5,755
or 4.38% for the second quarter of 1996 as compared to the first quarter of
1995. For the first six months of 1996 noninterest income, excluding
securities transactions, increase $56,859 or 23.88% as compared to the same
period of 1995. Mortgage loan fees, which increased $40,985 or 88.53% during
the first six months of 1996, compared to the same period in 1995, was the
main contributor to increased noninterest income. The Company realized a
$5,658 loss on the sale of securities available for sale for the second
quarter of 1996, compared to a $4,833 gain on the sale of securities available
for sale in the second quarter of 1995.
NON-INTEREST EXPENSE
Noninterest expense decreased $9,375 or 1.39% for the second quarter of
1996 over the second quarter of 1995. The decreased is due primarily to the
decrease in FDIC insurance paid during the second quarter of 1996 in the
amount of $500, compared to $37,350 expensed during the second quarter of
1995. Personnel cost increased $33,304, or 9.35% during the second quarter of
1996 due to additional staffing and normal salary increasese.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 six
months ended June 30, 1996 was $86,000 compared to $74,350 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
75.28% of total earning assets. As of June 30, 1996, the Company had total
loans outstanding of $60,320,321. Loans increased $6,293,868 or 11.65%, from
$54,026,453 at the end of the same quarter of 1995. For the first six months
of 1996, the Company's loans averaged $58,339,700, compared to $53,283,000 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 June 30, 1996 was
9.38%, compared to 9.57% for the same period in 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 June 30, 1996 was $652,140, or 1.08% of
loans outstanding compared to $669,664 or 1.2% 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 June 30, 1996, the Company had $283,585 in non-accruing and
restructured loans and no loans greater that ninety days past due on which
interest was still being accrued. This compares with $91,477 in non-accruing
and restructured loans and one loan in the amount of $710 greater that ninety
days past due at June 30, 1995. Nonperforming assets as a percentage of loans
and other real estate owned were 0.47% and 0.17% at June 30, 1996 and 1995,
respectively.
Net charge-offs during the first six months of 1996 were $103,523, which
represents 0.18% of average loans, compared to net charge-offs of $49,725 or
0.09% of average loans, for the first six months of 1995. The allowance for
loan losses as a percentage of nonperforming loans was 230% and 704% as of
June 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 June 30, 1996, the recorded investment in loans that were considered
to be impaired under SFAS No. 114 was $283,585. The average recorded
investment and foregone interest on impaired loans during the first six months
of 1996 was approximately $260,500 and $16,000, respectively. For the six
months ended June 30, 1996, the Company recognized no interest income on
impaired loans.
SECURITIES
Investment securities constituted 24.72% and 28.37% of earnings assets
as of June 30, 1996 and 1995, respectively. Investment securities averaged
$22,211,370 in the first six months of 1996, $1,580,795 above the comparable
1995 average. The yield on investment securities declined slightly from 6.15%
for the first six months of 1995 to 6.03% for the same period in 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.
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 5.24% from approximately $68,949,600 as of June 30,
1995 to approximately $72,565,400 as of June 30, 1996. Competition for
deposit accounts is primarily based on the interest rates paid, location
convenience, and services offered.
During the first six months of 1996, interest-bearing liabilities
averaged $61,821,000 compared to $56,751,000 for the comparable period of
1995. The average interest rates were 4.50% and 4.76% for the first six
months of 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 June 30, 1996, interest-bearing deposits
comprised approximately 84.07% of total 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.
These regulations establish minimums of risk-based capital of 4% for core
capital (tier 1), 8% for total risk-based capital and at least 3% for the
leverage ratio (tier 1 capital to total assets). Three percent in the minimum
leverage ratio for the most highly-rated banks. All other banks are required
to meet a minimum of at least 100 to 200 basis points above the 3% level. The
Company's tier 1 risk-based capital at June 30, 1996 was 13.71% as compared to
13.19% at year ended December 31, 1995. At June 30, 1996 the Company's total
risk-based capital was 14.85% as compared to 14.37% at December 31, 1995. The
Company's leverage ratio at June 30, 1996 was 9.23% compared to 7.96% at
December 31, 1995.
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 June 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: August 5, 1996 By:__/s/__Robert E. Dye_______________
Robert E. Dye
President and Chairman of the Board
Dated: August 5, 1996 By:__/s/__R. Riggie Ridgeway__________
R. Riggie Ridgeway
Secretary and Treasurer
(Principal Financial Officer)
