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 the Quarterly Period Ended Commission file
March 31, 1998 000-20616
PEOPLES BANCORPORATION, INC.
(Exact name of small business issuer as specified in 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 _______
The number of outstanding shares of the issuer's $1.67 par value common stock as
of May 11, 1998 was 1,693,010.
Transitional Small Business Disclosure Format:
Yes _______ No ___X___
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997 1997
---- ---- ----
Unaudited Audited
ASSETS
<S> <C> <C> <C>
CASH AND DUE FROM BANKS ............................................. $ 4,673,321 $ 2,777,234 $ 3,908,784
FEDERAL FUNDS SOLD .................................................. 4,840,000 2,930,000 4,570,000
SECURITIES
Available for sale ................................................ 24,937,591 18,384,174 20,320,579
Held for investment (market value of $3,954,908
$3,571,234 and $3,953,648) ...................................... 3,849,663 3,571,299 3,852,356
LOANS - less allowance for loan losses of $1,003,382
$801,039 and $987,138 ........................................... 75,829,897 69,183,452 75,861,965
PREMISES AND EQUIPMENT, net of accumulated
depreciation and amortization ................................... 2,949,642 1,878,073 2,673,712
ACCRUED INTEREST RECEIVABLE ......................................... 857,226 731,042 878,459
OTHER ASSETS ........................................................ 1,600,314 712,030 1,350,449
------------- ------------- -------------
TOTAL ASSETS ........................................................ $ 119,537,654 $ 100,167,304 $ 113,416,304
============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Noninterest-bearing ............................................... $ 12,790,362 $ 9,497,317 $ 11,007,809
Interest-bearing .................................................. 91,034,527 71,888,606 85,182,039
------------- ------------- -------------
Total deposits ................................................. 103,824,889 81,385,923 96,189,848
SECURITIES SOLD UNDER REPURCHASE
AGREEMENTS ........................................................ 2,731,399 4,159,555 4,433,554
NOTES PAYABLE TO FEDERAL HOME LOAN BANK ............................. 2,000,000 5,020,405 2,030,612
ACCRUED INTEREST PAYABLE ............................................ 979,271 781,036 860,877
OTHER LIABILITIES ................................................... 170,354 219,656 391,924
------------- ------------- -------------
Total liabilities .............................................. 109,705,913 91,566,575 103,906,815
------------- ------------- -------------
SHAREHOLDERS' EQUITY
Common Stock-10,000,000 shares authorized, $1.67
par value per share, 1,693,010 shares and ......................... 1,687,250
shares outstanding at March 31, 1998 and December 31,
1997, respectively; 5,000,000 shares authorized, $3.33
par value per share, 800,071 shares outstanding at
March 31, 1997 ................................................... 2,827,327 2,664,237 2,817,708
Additional paid-in capital .......................................... 5,171,330 4,232,918 5,158,024
Retained earnings ................................................... 1,851,972 1,805,617 1,553,206
Unrealized loss on securities available for sale .................... (18,888) (102,043) (19,449)
------------- ------------- -------------
Total shareholders' equity ..................................... 9,831,741 8,600,729 9,509,489
------------- ------------- -------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY ............................ $ 119,537,654 $ 100,167,304 $ 113,416,304
============= ============= =============
</TABLE>
1
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
---- ----
INTEREST INCOME
<S> <C> <C>
Interest and fees on loans ...................................................... $ 1,741,430 $ 1,606,831
Interest on securities
Taxable .................................................................... 304,377 276,131
Tax-exempt ................................................................. 60,907 59,479
Interest on fed funds ........................................................... 85,105 51,893
----------- -----------
Total interest income ........................................................... 2,191,819 1,994,334
----------- -----------
INTEREST EXPENSE
Interest on deposits ............................................................ 1,017,382 786,873
Interest on federal funds purchased and securities
sold under repurchase agreements ........................................... 36,650 40,741
Interest on notes payable Federal Home Loan Bank ................................ 28,530 78,945
----------- -----------
Total interest expense .......................................................... 1,082,562 906,559
----------- -----------
Net interest income ............................................................. 1,109,257 1,087,775
PROVISION FOR LOAN LOSSES ....................................................... (2,500) 46,740
----------- -----------
Net interest income after provision for loan losses ............................. 1,111,757 1,041,035
----------- -----------
NON-INTEREST INCOME
Service fees and other income ................................................... 317,673 193,175
----------- -----------
NON-INTEREST EXPENSE
Salaries and benefits ........................................................... 500,083 415,815
Occupancy ....................................................................... 56,974 41,302
Equipment ....................................................................... 66,698 64,553
Other operating expenses ........................................................ 272,162 194,501
----------- -----------
895,917 716,171
Income before income taxes ...................................................... 533,513 518,039
PROVISION FOR INCOME TAXES ...................................................... 176,060 170,950
----------- -----------
Net income ...................................................................... $ 357,453 $ 347,089
=========== ===========
BASIC NET INCOME PER COMMON SHARE ............................................... $ 0.21 $ 0.22
=========== ===========
DILUTED NET INCOME PER COMMON SHARE ............................................. $ 0.20 $ 0.21
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC ...................................................................... 1,693,010 1,600,142
DILUTED .................................................................... 1,822,400 1,688,030
=========== ===========
DIVIDENDS PAID PER COMMON SHARE ................................................. $ 0.035 $ 0.03
=========== ===========
</TABLE>
2
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
---- ----
<S> <C> <C>
Net income ...................................................................... $ 357,453 $ 347,089
Other comprehensive income, net of tax:
Unrealized income (loss) on securities:
Unrealized income (loss) arising during period ............................. 561 (76,779)
--------- ---------
Other comprehensive income ...................................................... 561 (76,779)
--------- ---------
Comprehensive income ............................................................ $ 358,014 $ 270,310
========= =========
</TABLE>
3
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income ....................................................................... $ 357,453 $ 347,089
Adjustments to reconcile net cash provided
by operating activities
Provision for loan losses ........................................................ (2,500) 46,740
Depreciation ..................................................................... 49,804 13,477
Net amortization and (accretion) of premiums and
discounts on securities ........................................................ 14,833 13,924
(Increase) decrease in accrued interest receivable ............................... 21,233 (2,110)
Increase in other assets ......................................................... (265,678) (393,453)
Increase in accrued interest payable ............................................. 118,395 105,440
Increase (decrease) in other liabilities ......................................... (203,100) 389,568
------------ ------------
Net cash provided by operating activities ................................... 90,440 520,675
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities held for investments ..................................... 0 (261,214)
Purchases of securities available for sale ....................................... (8,267,090) (5,744,175)
Proceeds from the maturity of securities available for sale ...................... 938,769 2,700,000
Proceeds from the call of securities available for sale .......................... 2,700,000 0
Net (increase) decrease in loans ................................................. 32,068 (3,779,507)
Proceeds from the sale of property ............................................... 0 39,000
Purchase of premises and equipment ............................................... (325,734) (83,150)
------------ ------------
Net cash used by investing activities ....................................... (4,921,987) (7,129,046)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits ......................................................... 7,635,041 1,181,540
Net increase (decrease) in securities sold under
repurchase agreements .......................................................... (1,702,155) 232,664
Net decrease in notes payable to Federal home Loan Bank .......................... (30,612) (1,377,551)
Proceeds from stock options exercised ............................................ 22,925 0
Cash dividend .................................................................... (59,115) (48,004)
------------ ------------
Net cash (used) provided by financing activities ............................ 5,866,084 (11,351)
------------ ------------
Net decrease in cash and cash equivalents ................................... 1,034,537 (6,619,722)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................................... 8,478,784 12,326,956
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ......................................... $ 9,513,321 $ 5,707,234
============ ============
CASH PAID FOR
Interest ......................................................................... $ 890,327 $ 726,416
============ ============
Income taxes ..................................................................... $ 19,003 $ 19,650
============ ============
</TABLE>
4
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of these policies is included in the 1997 Annual Report to
shareholders.
STATEMENT OF CASH FLOWS
Cash includes currency and coin, cash items in process of collection,
amounts due from banks and federal funds sold.
COMMON STOCK
The board of Directors declared a cash dividend of $0.035 per common share
to shareholders of record March 19, 1998, payable March 31, 1998.
The Company adopted SFAS No. 128, Earnings per Share, on December 31, 1997.
This statement requires that the Company present basic and diluted net income
per share. The assumed conversion of stock options creates the difference
between basic and diluted net income per share. Income per share is calculated
by dividing net income by the weighted average number of common shares
outstanding for each period presented. The weighted average number of common
shares outstanding for basic net income per common share was 1,693,010 at March
31, 1998 and 1,600,142 at March 31, 1997. The weighted average number of common
shares outstanding for diluted net income per common share was 1,822,400 at
March 31, 1998 and 1,688,030 at March 31, 1997.
The Company issued a five-percent common stock dividend and a two-for-one
stock split in 1997. Net income per common share in 1997 has been restated to
reflect these transactions.
NONPERFORMING LOANS
As of March 31, 1998, there were fifteen nonaccrual loans totaling $805,376
and one loan 90 days past due or more as to principal or interest payments
totaling $39,680.
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 are not necessarily indicative of
the results to be expected for an entire year.
5
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and related notes and with the statistical
information and financial data appearing in this report as well as the 1997
Annual Report of Peoples Bancorporation, Inc. on Form 10-KSB/A. Results of
operations for the three-month period ending March 31, 1998 are not necessarily
indicative of the results to be attained for any other period.
Forward Looking Statements
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products and similar matters. The
Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. In order to comply with the terms of the safe
harbor, the Company notes that a variety of factors could cause the Company's
actual results and experience to differ materially from the anticipated results
or other expectations expressed in the Company's forward-looking statements. The
risks and uncertainties that may affect the operations, performances,
development and results of the Company's business include, but are not limited
to, the following: risks from changes in economic and industry conditions;
changes in interest rates' rates inherent in making loans including repayment
risks and value of collateral; dependence on senior management; and
recently-enacted or proposed legislation. Statements contained in this filing
regarding the demand for Peoples National Bank's products and services, changing
economic conditions, interest rates, consumer spending and numerous other
factors may be forward-looking statements and are subject to uncertainties and
risks.
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 the 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.
The Bank received regulatory approval in September 1997 to open a branch
office in Seneca, South Carolina. Construction has begun on this office and the
loan purchase, building construction and equipment purchases are estimated to
cost $965,000. The new branch is anticipated to open in the latter part of 1998
upon completion of the construction.
6
<PAGE>
In October 1997, the Company announced it would be forming a new bank in
Anderson, South Carolina. The announcement of Regions Financial Corporation
purchasing First United Bancorporation, based in Anderson, South Carolina
created an opportunity for the Company. Anderson, whose $960 million in deposits
represents a market three times as large as Easley, is better suited for a
full-fledged locally owned community bank. Consequently, Bank of Anderson, N. A.
is currently in the application process through regulatory channels and is
expected to open in the latter part of 1998. The size of the new market
potential will necessitate a stock offering to capitalize the Anderson bank.
The Bank intends to enter into a construction contract in the second quarter
of 1998 for the construction of a building in Anderson South Carolina. The new
building will house the operations of the new bank ("Bank of Anderson, N. A." in
organization) which will be a wholly owned subsidiary of the Company. The land
purchase, building construction and equipment purchases are estimated to cost
$1,125,000. The new bank is expected to open in the latter part of 1998 upon
receipt of all regulatory approvals.
The Company and the Bank presently employ 56 full-time and part-time
persons. With the addition of the Seneca branch and the new bank in Anderson, we
expect to employ additional 20 persons.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EARNINGS REVIEW
The Company's net income for the first quarter of 1998 was $357,453, or
$0.20 per fully diluted share. For the first quarter of 1997, net income was
$347,089, or $0.21 per fully diluted share. Net interest income increased
approximately $21,482 for the first quarter of 1998, compared to the year
earlier period. Return on average equity for the three months ended March 31,
1998 was 14.67% compared to 16.09% for the same period in 1997. Return on
average assets for the three months ended March 31, 1998 was 1.22% compared to
1.38% for the same period in 1997.
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 the
provision for loan losses for the first quarter of 1998 increased $21,482 or
1.97% over the first quarter of 1997. Net interest income after provision for
loan losses for the three months ended March 31, 1998 increased $70,722 or 6.79%
over the same period in 1997. This represents a 4.09% net interest margin (net
interest income divided by average earning assets) on average earning assets of
$108,544,700. For this same period in 1997, the net interest margin was 4.58% on
average earning assets of $80,248,000. This decrease in interest margin resulted
primarily from higher funding costs and lower yields on earning assets.
7
<PAGE>
Noninterest Income
Noninterest income, excluding securities transactions, increased $124,498
or 64.45% for the first quarter of 1998 as compared to the same period of 1997.
A $46,254 increase in origination fees on mortgage loans; increased earnings
from the Bank's business manager product of $20,601; and earnings of $17,837
from the Bank's specialized investment program were the main contributors to
increased noninterest income. No gain or loss was realized on the sale of
available for sale securities during the first three months of either 1998 or
1997.
Noninterest Expense
Noninterest expense increased $179,746 or 25.10% for the first quarter of
1998 over the first quarter of 1997. First quarter salary and benefit costs
increased $84,268 or 20.27% due to normal salary increases and the addition of
several key employees during the last six months of 1997. Occupancy and
equipment expenses were up $17,817 or 16.83% primarily due to an increase in the
purchase and maintenance of equipment. Other operating expenses increased
$77,661 or 39.93% primarily attributable to a $12,250 increase in marketing
expenses due to the advertising commitment made by the Bank's management, a
$4,185 additional expense on the Business Manager (account receivable) product,
a $4,800 increase in board fees paid to the Company and Bank board members, and
$13,480 in expenses associated with the Salary Continuation Plan.
Provision for Loan Losses
The amount charged to the provision for loan losses by the Company is based
on management's judgment 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 to operations during the three months ended
March 31, 1998 was a benefit of $2,500 compared to a charge of $46,740 for the
same period in 1997. The benefit is due primarily to the $18,744 net recovery
and the small $15,824 decrease in outstanding loans since December 31, 1997. At
1.31% of total outstanding loans, 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
69.56% to total earning assets. As of March 31, 1998, the Company had total
loans outstanding of $76,833,279. Loans increased $6,848,788 or 9.79% from
8
<PAGE>
$69,984,491 at March 31, 1997, and decreased $15,824 or 0.02% from $76,849,103
at December 31, 1997. For the first three-months of 1998, the Company's loans
averaged $76,935,029 compared to $68,366,006 for the same period of 1997. The
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 regulation also influence interest rates. The average
yield on the company's loans as of March 31, 1998 was 9.18% compared to 9.27% at
March 31, 1997 and 9.21% at December 31, 1997. Approximately 42% of the Bank's
loans are tied to prime, including the Bank's equity line loan product, which
has increased $2,122,477 or 29.95% since March 31, 1997
The Company's loan portfolio consists principally of residential mortgage
loans, commercial loans and consumer loans. Substantially all of these loans are
to borrowers 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, 1998 was $1,003,382 or 1.31% of
loans outstanding compared to $801,039 or 1.14% of loans outstanding at March
31, 1997 and $987,138 or 1.30% at December 31, 1997. 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, 1998, the Company had $805,376 in non-accruing loans, one
restructured loan in the amount of $9,476 and one loan more than ninety days
past due in the amount of $39,680 on which interest was still being accrued.
This compares to $247,657 in non-accruing loans, no restructured loans and no
loans more than ninety days past due on which interest was still being accrued
at March 31, 1997. At December 31, 1997, there were $757,206 in non-accruing
loans, one $9,898 restructured loan and a $142,317 loan more 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 1.26% and 0.35% at March
31, 1998 and 1997, respectively.
Net recoveries during the first three months of 1998 were $18,744, compared
to net charge-offs of $6,380 for the first three months of 1997 and net
charge-offs of $98,016 for the year ended December 31, 1997. The allowance for
loan losses as a percentage of nonperforming loans was 119% and 323% as of March
31, 1998 and 1997, respectively.
The Company accounts for impaired loans in accordance with the provisions
of Statement of Financial Accounting Standards ("SFAS") 114, Accounting by
9
<PAGE>
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. On each of March 31, 1998 and March 31, 1997 the
Company had no impaired loans.
Securities
Investment securities constituted 26.06% and 23.14% of earning assets as of
March 31, 1998 and 1997, respectively. At March 31, 1998, securities totaled
$28,787,254, up $6,831,781 from $21,955,473 invested as of March 31, 1997 and up
$4,614,319 from December 31, 1997's balance of $24,172,935. The increase is due
to increased deposits coupled with lower loan demand. The yield on investment
securities decreased from 6.03% at March 31, 1997 and decreased from 5.94% at
December 31, 1997 to 5.85% at March 31, 1998. The portfolio yield decreased due
to maturities of higher yielding government securities, which were reinvested at
lower rates. The investment portfolio has a weighted average maturity of
approximately 1.33 years.
At March 31, 1998, the Company's total investment portfolio had a book
value of $28,815,872 and a market value of $28,892,499 for an unrealized net
loss of $28,618. Securities averaged $25,406,719 for the first three months of
1998, 11.94% above the first three months of 1997 average of $22,696,500.
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
The Bank's primary source of funds for loans and investments is its
deposits. Deposits grew 27.57% to $103,824,889 at March 31, 1998 from
$81,385,923 at March 31, 1997. At December 31, 1997, deposits totaled
$96,189,848. The increase resulted principally from account promotions.
Competition for deposit accounts is primarily based on the interest rates paid,
location, convenience and services offered.
10
<PAGE>
During the first three months of 1998, interest-bearing deposits
averaged $88,381,144 compared to $80,373,955 for the same period in 1997, and
$76,516,106 for the twelve months ended December 31, 1997. The average interest
rates were 4.67% and 4.54% at March 31, 1998 and 1997 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, 1998,
interest-bearing deposits comprised 87.68% 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 80.79% for the three months ended March
31, 1998. 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, volatile interest rates and greater reliance on
market-sensitive deposits, increasing both the importance and the difficulty of
interest sensitivity management have characterized the environment in which
financial institutions operate. 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
11
<PAGE>
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 expect to 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, 1998,
unused borrowing capacity from the FHLB totaled $14 million. While FHLB advances
remain a source of funding, the Bank has increased its emphasis on retail
banking and raised deposits through market promotions and sales efforts, thereby
decreasing FHLB advances. The Company believes that the potential benefits of
cross-selling these customers other products and services would offset any
increase in the cost of funds. At March 31, 1998, FHLB advances totaled
$2,000,000, compared to $5,020,408 at March 31, 1997 and $2,030,612 at December
31, 1997.
Capital Adequacy
Federal banking regulations have established certain capital adequacy
standards required to be maintained by banks and bank holding companies. At
March 31, 1998, 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, 1998:
CAPITAL RATIOS
(Amounts in Thousands)
<TABLE>
<CAPTION>
Well Adequately
Capitalized Capitalized
Actual Requirement Requirement
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Company:
<S> <C> <C> <C> <C> <C> <C>
Total Risk-based Capital ............... $10,927 13.64% $ 8,008 10.00% $ 6,407 8.00%
Tier 1 Risk-based Capital .............. 9,926 12.39% 4,805 6.00% 3,203 4.00%
Leverage Ratio ......................... 9,926 8.46% 5,866 5.00% 4,693 4.00%
Peoples National Bank:
Total Risk-based Capital ............... $ 9,982 12.55% $ 7,954 10.00% $ 6,383 8.00%
Tier 1 Risk-based Capital .............. 8,979 11.30% 4,772 6.00% 3,181 4.00%
Leverage Ratio ......................... 8,979 7.65% 5,868 5.00% 4,695 4.00%
</TABLE>
12
<PAGE>
EFFECTS OF REGULATORY ACTION
The management of the Company and the Bank are not aware of any current
recommendations by regulatory authorities, which if they were to be implemented,
would have a material effect on liquidity, capital resources, or operations.
YEAR 2000
The Company acknowledges that there is a business risk in computerized
systems as the new century approaches. Many computer-based information systems
in use today exclude the century as part of the date definition, which could
cause inaccurate interest calculations on loans and deposits. A number of
computer systems used by the Company in its day-to-day operations will be
affected by the "Year 2000 Problem." Management has established a Year 2000
Project Team (the "Y2K Team") which has identified all affected systems and is
currently working to ensure that this event will not disrupt operations. The Y2K
Team reports regularly to the Company's Board of Directors. The Company is also
working closely with all outside computer vendors to ensure that all software
corrections and warranty commitments are obtained and to implement internal
"mock" testing. Testing of all systems has begun and will be completed by
December 1998. The estimated cost to the Company for these corrective actions is
$100,000, which is included in the Company's 1998 and 1999 budgets. Incomplete
or untimely compliance, however, could have a material adverse effect on the
company, the dollar amount of which cannot be accurately quantified at this time
because of the inherent variables and uncertainties involved.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various claims and legal actions
arising in the normal course of business. Management believes
that these proceedings will not result in a material loss to the
Company.
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 March 31, 1998
14
<PAGE>
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 11, 1998 By: /s/ Robert E. Dye
-------------------
Robert E. Dye
President and Chairman of the Board
Dated: May 11, 1998 By: /s/ R. Riggie Ridgeway
------------------------
R. Riggie Ridgeway
Secretary and Treasurer
(principal financial officer)
15
<PAGE>
EXHIBIT INDEX
Exhibit No. from
Item 601 of
Regulation S-B Description
27 Financial Data Schedule
16
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at March 31, 1998, (unaudited) and the Consolidated
Statement of Income for the three months ended March 31, 1998 (unaudited) and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,059
<INT-BEARING-DEPOSITS> 91,035
<FED-FUNDS-SOLD> 4,840
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 24,938
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 3,955
<LOANS> 76,833
<ALLOWANCE> 1,003
<TOTAL-ASSETS> 119,538
<DEPOSITS> 103,825
<SHORT-TERM> 2,731
<LIABILITIES-OTHER> 170
<LONG-TERM> 2,000
0
0
<COMMON> 2,827
<OTHER-SE> 7,004
<TOTAL-LIABILITIES-AND-EQUITY> 119,538
<INTEREST-LOAN> 1,741
<INTEREST-INVEST> 365
<INTEREST-OTHER> 85
<INTEREST-TOTAL> 2,192
<INTEREST-DEPOSIT> 1,017
<INTEREST-EXPENSE> 1,083
<INTEREST-INCOME-NET> 1,109
<LOAN-LOSSES> (3)
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 896
<INCOME-PRETAX> 534
<INCOME-PRE-EXTRAORDINARY> 534
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 357
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.20
<YIELD-ACTUAL> 4.04
<LOANS-NON> 805
<LOANS-PAST> 40
<LOANS-TROUBLED> 9
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 987
<CHARGE-OFFS> 10
<RECOVERIES> 29
<ALLOWANCE-CLOSE> 1,003
<ALLOWANCE-DOMESTIC> 1,003
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
