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
March 31, 1997
33-78602
PEOPLES
BANCORPORATION, INC.
(Exact name of small business issuer
as specified in its charter
South Carolina
57-09581843
(State or 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)
Issuer's telephone number: (864)
859-2265
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____
___________800,071___________
Class
Outstanding as of April 24, 1997
Transitional Small Business Disclosure
Format:
Yes __________
No _____X______
CONSOLIDATED
BALANCE SHEETS
PEOPLES BANCORPORATION,
INC. AND SUBSIDIARY
March 31, December 31,
1997 1996 1996
--ASSETS--
- ------------------------- --AUDITED--
CASH AND DUE FROM BANKS $
2,777,234 $ 4,121,797 $ 2,626,956
FEDERAL FUNDS SOLD
2,930,000 980,000 9,700,000
SECURITIES
Available for sale
18,384,174 16,251,033 15,774,248
Held for investment (market
3,571,299 2,455,253 3,312,304
value of$3,571,234 in 1997
$2,474,957 and $3,348,651 in 1996)
LOANS - less allowance for loan
69,183,452 57,221,449 65,403,945
losses of $801,039, $680,698
and $760,679
PREMISES AND EQUIPMENT, net of
1,878,073 1,930,190 1,858,429
accumulated depreciation and
amortization
ACCRUED INTEREST RECEIVABLE
731,042 668,749 728,931
OTHER ASSETS
712,030 399,025 318,577
TOTAL ASSETS
$100,167,304 $84,027,496 $99,723,390
=========== ========== ==========
--LIABILITIES--
DEPOSITS:
Noninterest-bearing $
9,497,317 $ 9,957,605 $10,083,028
Interest-bearing
71,888,606 62,084,525 70,121,355
Total deposits
81,385,923 72,042,130 80,204,383
SECURITIES SOLD UNDER REPURCHASE
AGREEMENTS
4,159,555 2,793,964 3,926,891
FEDERAL FUNDS PURCHASED
0 0 1,000,000
NOTES PAYABLE FEDERAL HOME
LOAN BANK
5,020,408 673,470 5,397,959
ACCRUED INTEREST PAYABLE
781,036 605,853 675,596
OTHER LIABILITIES
219,653 236,087 140,568
TOTAL LIABILITIES
91,566,575 76,351,504 91,345,397
SHAREHOLDER'S EQUITY
Common Stock - 5,000,000 shares
authorized $3.33 par value per
share; 800,071, 755,071 and
800,071 shares outstanding
2,664,237 2,514,386 2,664,237
Additional paid-in capital
4,232,918 3,672,339 4,232,918
Retained earnings
1,805,617 1,508,258 1,506,102
Unrealized gain(loss) on securities
available for sale
(102,043) (18,991) (25,264)
TOTAL CAPITAL
8,600,729 7,675,992 8,377,993
TOTAL LIABILITIES & CAPITAL
$100,167,304 $84,027,496 $99,723,390
=========== ========== ==========
CONSOLIDATED
STATEMENTS OF INCOME
PEOPLES BANCORPORATION,
INC. AND SUBSIDIARY
(Unaudited)
Three Months Ended
March 31,
1997 1996
INTEREST INCOME
Interest and fees on loans
$1,606,831 $1,387,334
Interest on securities
Taxable
276,131 232,140
Tax-exempt
59,479 50,399
Interest on federal funds
51,893 57,780
1,994,334 1,727,653
INTEREST EXPENSE
Interest on deposits
786,873 736,425
Interest on federal funds purchased
and securities solder under repurchase
agreements
40,741 39,290
Interest on notes payable to Federal
Home Loan Bank
78,945 9,749
Total interest expense
906,559 785,464
Net interest income
1,087,775 942,189
PROVISION FOR LOAN LOSSES
46,740 22,000
Net interest income after provision
for loan losses
1,041,035 920,189
NON-INTEREST INCOME
Service fees and other income
193,175 157,792
Gain (loss) on sale of securities
available for sale
0 3,822
193,175 161,614
OTHER EXPENSES
Salaries and benefits
415,815 387,646
Occupancy
41,302 45,256
Equipment
64,553 63,751
Other operating expenses
194,501 170,526
716,171 667,179
Income before income taxes
518,039 414,624
PROVISION FOR INCOME TAXES
170,950 134,750
Net Income
$ 347,089 $ 279,874
========= =========
Income per Common Share
$ 0.43 $ 0.35
========= =========
PEOPLES BANCORPORATION,
INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
$ 347,089 $ 279,874
Adjustments to reconcile net income to
net cash provided by operating
activities
Loss(gain) on sales of securities
0 (3,822)
Provision for loan losses
46,740 22,000
Depreciation and amortization
13,477 53,899
Amortization and accretions (net) of
premiums and discounts on
securities 13,924 12,446
(Increase) decrease in accrued
interest
receivable
(2,110) 73,684
Increase in other assets
(393,453) (89,365)
Increase in accrued interest
payable 105,440 4,933
Increase (decrease) in other
liabilities 389,568 (50,256)
Net cash provided by operating
activities 520,675 303,393
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities held for
investment (261,214) 0
Purchases of securities available for
sale (5,744,175) (6,640,575)
Proceeds from the maturity of securities
available for sale
2,700,000 4,600,000
Proceeds from the sale of securities
available for sale
0 1,867,708
Net increase in loans
(3,779,507) (885,587)
Proceeds from sale of property
39,000 0
Purchase of premises and equipment
(83,150) (9,645)
Net cash used by investing activities
(7,129,046) (1,068,099)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits
1,181,540 868,705
Net increase (decrease) in securities
sold
under repurchase agreements
232,664 (868,411)
Net increase in notes payable to Federal
Home Loan Bank
(1,377,551) (151,836)
Proceeds from the sale of stock
0 1,095
Cash dividend
(48,004) (37,754)
Net cash (used) provided by financing
activities
(11,351) (188,201)
Net decrease in cash and cash
equivalents (6,619,722) (952,907)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR
12,326,956 6,054,704
CASH AND CASH EQUIVALENTS, END OF PERIOD
$5,707,234 $5,101,797
========= =========
CASH PAID FOR
Interest
$ 726,416 $ 664,669
Income Taxes
$ 19,650 $ 131,091
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 1996 Annual Report
to Shareholders.
SECURITIES
The change in the net unrealized
loss on securities available for
sale for the three months ended March
31, 1997 was $154,643 which was a
increase of $116,379 from the $38,264
net unrealized loss at December
31, 1996.
STATEMENTS OF CASH FLOWS
Cash includes currency and coin,
cash items in process of
collection and amounts due from banks.
Income tax payments of $19,650
were made for the three months ended
March 31, 1997.
COMMON STOCK
The Board of Directors declared a
cash dividend of $0.06 per
common share to shareholders of record
as of March 20, 1997, payable
March 31, 1996. Dividends are not
cumulative.
Primary earnings per share amounts
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 March 31, 1997, there were
nine nonaccrual loans totalling
$247,657 and there were 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 incorporated
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
first quarter of 1997 was
$347,089, an 24.02% increase compared to
$279,874 for the same period
in 1996. Earnings per share increased
to $0.43 in the first quarter of
1997 compared to $0.35 per share for the
same period in 1996. 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
three months ended March 31, 1997
was 16.09% compared to 14.55% for the
same period in 1996. Return on
average assets for the three months
ended March 31, 1997 was 1.38%
compared to 1.30% for the same period in
1996.
The largest component 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 before
provision for loan losses for the
first quarter of 1997 increased $145,586
or 15.54% over the first
quarter of 1996. Net interest income
after provision for loan losses
for the three months ended March 31,
1997 increased $120,846 or 13.13%
over the first three months of 1996.
This represents a 4.58% net
interest margin (net interest income
divided by average earning assets)
on average earning assets of
$94,989,000. For this same period in
1996, the net interest margin was 4.70%
on average earning assets of
$80,248,000. This decrease in interest
margin was primarily due to
reduced rates on interest-bearing
liabilities after the reduction in
the prime interest rate during 1995 and
early 1996.
Noninterest Income
Noninterest income, excluding
securities transactions, increased
$35,383 or 22.42% for the first quarter
of 1997 as compared to the same
period of 1996. Gain on sales of fixed
assets, in the amount of
$22,910, is the main contributor to
increased noninterest income.
There were no sales of investments
during the first quarter of 1997,
and the Company realized a gain of
$3,822 on the sale of available
for sale securities during the same
period in 1996.
Noninterest Expense
Noninterest expense increased
$48,992 or 7.34% for the first
quarter of 1997 over the first quarter
of 1996. Personnel costs
increased $28,169, or 7.27% due to
normal salary increases and
increased matching contributions to the
Company's 401-k program.
Occupancy and equipment expense
decreased $3,152, or 2.98% for the
first quarter of 1997, due primarily to
a decrease in depreciation
expense on original equipment. During
the third quarter of 1996, the
Bank began paying all closing costs on
equity lines, which increased
$5,979, or 248.81% compared to the same
period in 1996. Marketing
expenses increased $5,293, or 26.86% due
to the advertising commitment
made by management in 1996.
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
three months ended March 31, 1997 was
$46,740 compared to $22,000 for
this same period in 1996. This increase
is due primarily to the
$12,082,344 or 20.87% increase in
outstanding loans since March 31,
1996. 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 73.77% of total earning
assets. As of March 31, 1997, the
Company had total loans outstanding of
$69,984,491. Loans increased
$12,082,344 or 20.87% from $57,902,147
at March 31, 1996, and increased
$3,819,867 or 5.77%, from $66,164,624 at
December 31, 1996. For the
first three months of 1997, the
Company's loans averaged $68,366,006,
compared with $57,425,000 for the same
period of 1996. This increase
resulted primarily from internal growth.
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 March 31, 1997
was 9.27%, compared to 9.40% at March
31, 1996. With approximately 40%
of the Bank's loans tied to prime, the
prime rate decrease in February,
1996 influenced the Bank's loan yields.
Another influence was the
Bank's equity line product which is
priced at the prime rate. Equity
lines increased 71.17% during the last
six months of 1996.
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
March 31, 1997 was $801,039, or
1.14% of loans outstanding compared to
$680,698 or 1.16% of loans
outstanding at March 31, 1996, and
$760,679, or 1.15% at year end
December 31, 1996. 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
experienced by 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 March 31, 1997, the Company had
$247,657 in non-accruing loans,
no restructured loans and no loans
greater than ninety days past due on
which interest was still being accrued.
This compares with $331,861 in
non-accruing and restructured loans and
$372,893 in loans greater than
ninety days past due on which interest
was still being accrued at March
31, 1996. At December 31, 1996, there
were $397,530 in non-accruing
and restructured loans and one loan, in
the amount of $123,366, greater
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 0.35% and 1.55% at March 31,
1997 and 1996, respectively.
Net charge-offs during the first
three months of 1997 were $6,380,
which represents 0.01% of average loans,
compared to net charge-offs of
$10,966 or 0.05% of average loans at
March 31, 1996, and $169,065 or
0.28% of average loans, at December 31,
1996. The allowance for loan
losses as a percentage of nonperforming
loans was 323% and 97% as of
March 31, 1997 and 1996, respectively.
The Company accounts for impaired
loans in accordance with the
provisions 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. The Company
includes the provisions of SFAS NO. 114,
if any, in the allowance for
loan losses. When the ultimate
collectibility of an impaired loan's
principal is in doubt, wholly or
partially, all cash receipts are
applied to principal. When this doubt
does not exist, cash receipts
are applied under the contractual terms
of the loan agreement first to
principal then to interest income. Once
the recorded principal balance
has been reduced to zero, future cash
receipts are applied to interest
income, to the extent that any interest
has been foregone. Further
cash receipts are recorded as recoveries
on any amounts previously
charged off. As of March 31, 1997 the
Company had no impaired loans
and $331,861 in impaired loans at March
31, 1996, on which no interest
income was recognized.
Securities
Investment securities constituted
23.14% and 25.53% of earning
assets as of March 31, 1995 and 1996,
respectively. At March 31, 1997,
securities totaled $21,955,473, up
$3,249,187 from $18,706,286 invested
as of the first quarter of 1996 and up
$2,868,921 from December 31,
1996's balance of $19,086,552. The
yield on investment securities
increased from 5.91% at March 31, 1996
and decreased from 6.18% at
December 31, 1996 to 6.03% at March 31,
1997, 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 March 31, 1997, the Company's
total investment portfolio had a
book value of $22,110,116 and a market
value of $21,955,408 for an
unrealized net loss of $154,643.
Securities averaged $22,696,500 for
the first three months of 1997, 0.56%
below the first three months 1996
average of $22,822,770.
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 trade securities.
Deposits
Peoples' primary source of funds
for loans and investments is its
deposits. Deposits grew 12.97% to
$81,385,923 at March 31, 1997 from
$72,042,130 at March 31, 1996. At
December 31, 1996, deposits totaled
$80,204,383. 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 three months of
1997, interest-bearing deposits
averaged $80,373,955 compared to
$61,730,000 for the same period in
1996, and $63,704,026 for the twelve
months ending December 31, 1996.
The average interest rates were 4.54%
and 4.56% at March 31, 1997 and
1996, respectively. In pricing
deposits, the Company considers its
liquidity needs, the direction and
levels of interest rates and local
market conditions. As of March 31,
1997, interest-bearing deposits
comprised 88.33% of total deposits.
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 averaged approximately 83% for
the three months ended March
31, 1997. 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 reasonably
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 changes 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 is
able to borrow from the
Federal Home Loan Bank ("FHLB"). At
March 31, 1997, unused borrowing
capacity from the FHLB totaled
approximately $5 million. In 1996, the
Company modified its funding strategy to
rely more on advances from the
FHLB because Management determined that,
due to increased competition
for deposits, the marginal cost of
borrowing from the FHLB is lower
that the margin cost of raising
deposits. At March 31, 1997, FHLB
advances totaled $5,020,408, compared to
$673,470 at March 31, 1996 and
$5,397,959 at December 31, 1996.
Capital Adequacy
Federal banking regulators have
established certain capital
adequacy standards required to be
maintained by banks and bank holding
companies. At March 31, 1997, 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 as of March 31, 1997:
CAPITAL RATIOS
(Amounts in Thousands)
Well Adequately
Capitalized Capitalized
Requirement Requirement
Actual
Minimum Minimum
Amount
Ratio Amount Ratio Amount Ratio
Company:
Total Risk-based Capital $9,504
13.87% $6,852 10.00% $5,482 8.00%
Tier 1 Risk-based Capital 8,703
12.70% 4,111 6.00% 2,741 4.00%
Leverage Ratio 8,703
8.70% 3,426 5.00% 2,741 4.00%
Peoples National Bank:
Total Risk-based Capital $8,662
12.55% $6,902 10.00% $5,522 8.00%
Tier 1 Risk-based Capital 7,861
11.39% 4,141 6.00% 2,761 4.00%
Leverage Ratio 7,861
7.82% 3,451 5.00% 2,761 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 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: May 12, 1997
By:__/s/_Robert E. Dye________________
Robert E.
Dye
President
and Chairman of the Board
Dated: May 12, 1997 By:__/s/_R.
Riggie Ridgeway___________
R. Riggie
Ridgeway
Secretary
and Treasurer
(principal
financial officer)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<PERIOD-TYPE>3-MOS
<FISCAL-YEAR-END>DEC-31-1997
<PERIOD-END>MAR-31-1997
<CASH)2,777
<INT-BEARING-DEPOSITS>71,889
<FED-FUNDS-SOLD>2,930
<TRADING-ASSETS>0
<INVESTMENTS-HELD-FOR-SALE>18,384
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0
0
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</TABLE>
