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
June 30, 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 August 1, 1998 was 1,695,619.
Transitional Small Business Disclosure Format:
Yes [ ] No [X]
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997 1997
------------ ------------ --------------
Unaudited Audited
--------- --------------
ASSETS
<S> <C> <C> <C>
CASH AND DUE FROM BANKS ............................................. $ 4,549,012 $ 2,759,024 $ 3,908,784
FEDERAL FUNDS SOLD .................................................. 6,550,000 2,490,000 4,570,000
SECURITIES
Available for sale ................................................ 27,071,123 18,883,702 20,320,579
Held for investment (market value of $4,100,687
$3,918,359 and $3,953,648) ...................................... 3,950,169 3,857,861 3,852,356
LOANS - less allowance for loan losses of $981,840
$847,924 and $987,138 ........................................... 74,527,125 73,572,029 75,861,965
PREMISES AND EQUIPMENT, net of accumulated
depreciation and amortization ................................... 3,264,758 1,858,546 2,673,712
ACCRUED INTEREST RECEIVABLE ......................................... 922,949 810,315 878,459
OTHER ASSETS ........................................................ 1,448,866 1,693,064 1,350,449
------------- ------------- -------------
TOTAL ASSETS ........................................................ $ 122,284,002 $ 105,924,541 $ 113,416,304
============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Noninterest-bearing ............................................... $ 14,316,459 $ 10,305,480 $ 11,007,809
Interest-bearing .................................................. 91,188,829 76,120,095 85,182,039
------------- ------------- -------------
Total deposits ................................................. 105,505,288 86,425,575 96,189,848
SECURITIES SOLD UNDER REPURCHASE
AGREEMENTS ........................................................ 3,612,891 3,258,276 4,433,554
NOTES PAYABLE TO FEDERAL HOME LOAN BANK ............................. 2,000,000 6,500,000 2,030,612
ACCRUED INTEREST PAYABLE ............................................ 925,592 670,678 860,877
OTHER LIABILITIES ................................................... 74,305 76,471 391,924
------------- ------------- -------------
Total liabilities .............................................. 112,118,076 96,931,000 103,906,815
------------- ------------- -------------
SHAREHOLDERS' EQUITY
Common Stock-10,000,000 shares authorized, $1.67 par
value per share, 1,695,619 shares and 1,687,250 shares
outstanding at June 30, 1998 and December 31, 1997,
respectively; 5,000,000 shares authorized, $3.33 par value
per share, 803,071 shares outstanding at June 30, 1997 .......... 2,831,684 2,674,226 2,817,708
Additional paid-in capital .......................................... 5,179,939 4,248,008 5,158,024
Retained earnings ................................................... 2,189,989 2,112,290 1,553,206
Unrealized loss on securities available for sale .................... (35,686) (40,983) (19,449)
------------- ------------- -------------
Total shareholders' equity ..................................... 10,165,926 8,993,541 9,509,489
------------- ------------- -------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY ............................ $ 122,284,002 $ 105,924,541 $ 113,416,304
============= ============= =============
</TABLE>
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
INTEREST INCOME
<S> <C> <C> <C> <C>
Interest and fees on loans ................................. $1,750,209 $1,725,564 $3,491,639 $3,332,395
Interest on securities
Taxable ............................................... 387,855 299,088 692,232 575,219
Tax-exempt ............................................ 57,454 60,336 118,361 119,815
Interest on fed funds ...................................... 113,534 33,027 198,639 84,920
---------- ---------- ---------- ----------
Total interest income ...................................... 2,309,052 2,118,015 4,500,871 4,112,349
INTEREST EXPENSE
Interest on deposits ....................................... 1,046,269 855,334 2,063,651 1,642,207
Interest on federal funds purchased
and securities sold
under repurchase agreements ........................... 41,490 32,178 78,140 72,919
Interest on notes payable Federal Home
Loan Bank ............................................. 27,587 92,230 56,117 171,175
---------- ---------- ---------- ----------
Total interest expense ..................................... 1,115,346 979,742 2,197,908 1,886,301
---------- ---------- ---------- ----------
Net interest income ........................................ 1,193,706 1,138,273 2,302,963 2,226,048
PROVISION FOR LOAN LOSSES .................................. 4,600 54,700 2,100 101,440
---------- ---------- ---------- ----------
Net interest income after provision for
loan losses ........................................... 1,189,106 1,083,573 2,300,863 2,124,608
NON-INTEREST INCOME
Service fees and other income .............................. 352,023 168,358 669,696 361,533
Gain on sales of securities
available for sale ..................................... 0 2,740 0 2,740
---------- ---------- ---------- ----------
352,023 171,098 669,696 364,273
NON-INTEREST EXPENSE
Salaries and benefits ...................................... 529,298 417,923 1,029,381 833,738
Occupancy .................................................. 50,474 38,842 107,448 80,144
Equipment .................................................. 79,320 60,933 146,018 125,486
Other operating expenses ................................... 288,359 207,316 560,521 401,817
---------- ---------- ---------- ----------
947,451 725,014 1,843,368 1,441,185
Income before income taxes ................................. 593,678 529,657 1,127,191 1,047,696
PROVISION FOR INCOME TAXES ................................. 195,910 174,800 371,970 345,750
---------- ---------- ---------- ----------
Net income ................................................. $ 397,768 $ 354,857 $ 755,221 $ 701,946
========== ========== ========== ==========
INCOME PER COMMON SHARE:
BASIC ................................................. $ 0.24 $ 0.22 $ 0.45 $ 0.44
========== ========== ========== ==========
DILUTED ............................................... $ 0.21 $ 0.21 $ 0.41 $ 0.42
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC ................................................. 1,657,367 1,612,986 1,693,010 1,606,142
========== ========== ========== ==========
DILUTED ............................................... 1,894,133 1,689,795 1,821,867 1,657,954
========== ========== ========== ==========
DIVIDENDS PAID PER COMMON
SHARE ................................................. $ 0.035 $ 0.03 $ 0.07 $ 0.06
========== ========== ========== ==========
</TABLE>
2
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
--------- -------- --------- ----------
<S> <C> <C> <C> <C>
Net income ................................................... $ 397,768 $354,857 $ 755,221 $ 701,946
Other comprehensive income, net of tax:
Unrealized income (loss) on securities:
Unrealized income (loss) arising during period .......... (16,798) 61,060 (16,237) (15,719)
--------- -------- --------- ---------
Other comprehensive income ................................... (16,798) 61,060 (16,237) (15,719)
--------- -------- --------- ---------
Comprehensive income ......................................... $ 380,970 $415,917 $ 738,984 $ 686,227
========= ======== ========= =========
</TABLE>
3
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income ....................................................................... $ 755,221 $ 701,946
Adjustments to reconcile net cash provided
by operating activities:
Loss (gain) on sales of securities ............................................. 0 (2,740)
Provision for loan losses ...................................................... 2,100 101,440
Depreciation ................................................................... 103,782 60,661
Net amortization and (accretion) of premiums and
discounts on securities ........................................................ 85,165 29,321
Increase in accrued interest receivable ........................................ (44,490) (81,384)
(Increase) in other assets ..................................................... (158,625) (1,374,487)
Increase (decrease) in accrued interest payable ................................ 64,715 (4,918)
Increase (decrease) in other liabilities ....................................... (317,618) 91,797
------------ ------------
Net cash provided by operating activities ................................... 490,250 (478,364)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities held for investments ..................................... (102,508) (550,420)
Purchases of securities available for sale ....................................... (16,463,731) (8,745,581)
Proceeds from the maturity of securities available for sale ...................... 6,474,585 1,150,000
Proceeds from the sale of securities available for sale .......................... 0 2,250,547
Proceeds from the call of securities available for sale .......................... 3,200,000 1,900,000
Net (increase) decrease in loans ................................................. 1,334,840 (8,168,084)
Proceeds from the sale of property ............................................... 0 39,000
Purchase of premises and equipment ............................................... (694,827) (58,539)
------------ ------------
Net cash used by investing activities ....................................... (6,251,641) (12,183,077)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits ......................................................... 9,315,440 6,221,192
Net decrease in securities sold under
repurchase agreements .......................................................... (820,662) (668,615)
Net (decrease) increase in notes payable to Federal home Loan Bank ............... (30,612) 102,041
Proceeds from stock options exercised ............................................ 35,891 25,080
Cash dividend .................................................................... (118,438) (96,189)
------------ ------------
Net cash provided by financing activities ................................... 8,381,619 5,583,509
------------ ------------
Net increase (decrease) in cash and cash equivalents ........................ 2,620,228 (7,077,932)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................................... 8,478,784 12,326,956
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ......................................... $ 11,099,012 $ 5,249,024
============ ============
CASH PAID FOR
Interest ......................................................................... $ 1,928,555 $ 1,726,129
============ ============
Income taxes ..................................................................... $ 356,269 $ 255,400
============ ============
</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 June 18, 1998 and March 19, 1998, payable June 30,
1998 and March 31, 1998, respectively.
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 June
30, 1998 and 1,606,142 at June 30, 1997. The weighted average number of common
shares outstanding for diluted net income per common share was 1,821,867 at June
30, 1998 and 1,657,954 at June 30, 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 June 30, 1998, there were eleven nonaccrual loans totalling $496,521
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 consolidated
financial statements of Peoples Bancorporation, Inc. contain all adjustments
necessary to fairly present the financial results for 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 six-month period ending June 30, 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; risks 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 Bancorporation'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, one each 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
land, building construction and equipment costs are estimated to be
approximately $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 plans to form a new bank in
Anderson, South Carolina as a result of the announcement by Regions Financial
Corporation, headquartered in Birmingham, Alabama, of their intention to acquire
First United Bancorporation, parent company of Anderson National Bank,
headquartered in Anderson, SC. Management and the Board of directors of the
Company felt that the acquisition of First United and its lead bank, Anderson
National Bank, by Regions created an opportunity for a new, locally managed
community bank in Anderson, a $960 million deposit market roughly three times as
large as the Easley market. The Bank of Anderson, N.A. (in organization) has
received preliminary approval from the Office of the Comptroller of the
Currency, the Federal Reserve and the Federal Deposit Insurance Corporation.
Bank of Anderson, N.A. is expected to open in temporary facilities in September
1998.
In July, 1998, the Company completed the sale of 500,000 shares of its
Common Stock. In connection with the offering, the Company received net proceeds
of approximately $6,450,000 of which $4,500,000 will be used to capitalize the
Bank of Anderson, N. A. and the remainder used to support expected continued
internal growth. That offering was oversubscribed shortly after it commenced and
was, therefore, terminated on July 22, 1998. To provide subscribers who were not
able to purchase shares in the prior offering with an opportunity to purchase
shares, the Company's Board of Directors decided to commence another offering
for 425,000 shares. The proceeds from this offering will be used to support
growth of the Company and for general corporate purposes.
The Company entered into a construction contract during the second quarter
of 1998 for the construction of a building in Anderson South Carolina to house
the operations of Bank of Anderson, N. A. which will be a wholly owned
subsidiary of the Company. The land, building construction and equipment costs
are estimated to total approximately $1,125,000
The Company began construction of a central operations center, located
adjacent to the Bank's main office in Easley, during the second quarter of 1998.
This building, which will house the central operations and administrative
offices of the parent company, is expected to be completed in the fourth quarter
of 1998 with a projected cost of approximately $600,000.
The Company and the Bank presently employ 59 full-time and part-time
persons. With the addition of the Seneca branch and the new bank in Anderson, we
expect to employ an additional 20 persons.
EARNINGS REVIEW
The Company's net income for the second quarter of 1998 was $397,768, or
$0.24 per basic share ($0.21 per diluted share), compared to net income of
$354,857, or $0.22 per basic share ($0.21 per diluted share) for the second
quarter of 1997. Net income for the six months ended June 30, 1998 was $755,221
7
<PAGE>
or $0.45 per basic share ($0.41 per diluted share), compared to $701,946, or
$0.44 per basic share ($0.42 per diluted share) for the six months ended June
30, 1997. Return on average equity for the six months and three months ended
June 30, 1998 was 15.20% and 16.01%, respectively, compared to 16.03% and
16.20%, respectively, for the same periods in 1997. Return on average assets for
the six months ended June 30, 1998 was 1.25% compared to 1.37% for the same
period in 1997. For the second quarter of 1998, return on average assets was
1.32%, 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
interest-earning assets and the interest paid on interest-bearing liabilities,
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 second quarter of 1998 amounted to $1,193,706,
an increase of $55,433, or 4.87%, over the first quarter of 1997. Net interest
income before the provision for loan losses for the six months ended June 30,
1998 amounted to $2,302,963, an increase of $76,915, or 3.46%, over the same
period in 1997. This represents a 4.12% net interest margin (net interest income
divided by average earning assets) on average earning assets of $111,809,600.
For this same period in 1997, the net interest margin was 4.47% based on average
earning assets of $99,651,500. The decrease in the net interest margin resulted
primarily from an increase in the amounts paid on interest-bearing liabilities
and lower yields earned on interest earning assets.
Non-interest Income
Non-interest income, excluding securities transactions, increased $183,655,
or 109.09%, to $352,023 for the second quarter of 1998 compared to $168,358 for
the second quarter of 1997. For the first six months of 1998, non-interest
income, excluding securities transactions, increased $308,163, or 85.24%, to
$669,696 compared to $361,533 for the first six months of 1997. A $129,028
increase in origination fees on mortgage loans; increased earnings from the
Bank's business manager product of $39,363; earnings of $32,235 on the Bank's
salary continuation plan; and earnings of $45,108 from the Bank's specialized
investment program were the main contributors to the increase in non-interest
income in both 1998 periods when compared to the 1997 periods. No gain or loss
was realized on the sale of available for sale securities during the first six
months of 1998. The Company recorded a $2,740 gain on the sale of available for
sale securities during the first six months of 1997.
Non-interest Expense
Non-interest expense increased $222,437, or 30.68%, to $947,451 for the
second quarter of 1998 compared to $725,014 for the second quarter of 1997. For
the first six months of 1998, non-interest expense increased $402,183, or
27.91%, to $1,843,368 compared to $1,441,185 for the same period in 1997.
Salaries and benefits, the largest single category of non-interest expense
items, increased $195,643, or 23.47%, to $529,298 in the 1998 period due to
8
<PAGE>
normal salary increases, the addition of several key employees during the last
six months of 1997, and the partial staffing of the Bank of Anderson, N.A. (In
Organization), in 1998. Occupancy and equipment expense increased $47,836, or
23.26%, primarily due to an increase in the purchase and maintenance of
equipment for The Peoples National Bank and Bank of Anderson, N.A. (In
Organization). Other operating expenses increased $158,704, or 39.50%, primarily
as a result of a $23,140 increase in marketing expenses due to advertising
commitments made by Company management; a $31,705 increase in computer expenses
associated with the installment of a wide area network; a $10,040 increase in
legal fees associated with collection efforts; a $4,818 additional expense
associated with the Business Manager (accounts receivable) product; a $5,700
increase in board fees paid to the Company and Bank board members; and $33,912
in expenses associated with the Company's Salary Continuation Plan.
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, 1998 was $2,100 compared to a charge of $101,440 for the same
period in 1997. The decrease is due primarily to $7,398 in net charge-offs
through June 30, 1998 compared to $14,194 in net charge-offs through June 30,
1997. Also contributing to the decrease is the additional provision made in
December 1997 of $40,000. At 1.30% 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
66.68% of total earning assets. As of June 30, 1998, the Company had total loans
outstanding of $75,508,965. Loans increased $1,089,011, or 1.46%, from
$74,419,954 at June 30, 1997, and decreased $1,340,138, or 1.77%, from
$76,849,103 at December 31, 1997. For the first six months of 1998, the
Company's loans averaged $76,277,000 compared to $70,634,000 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 for the six months ended June 30, 1998 was 9.16%
compared to 9.30% for the first six months of 1997 and to 9.21% for the twelve
months ended December 31, 1997. The decline in the Company's loan yield was
9
<PAGE>
primarily attributable to a shift in the composition of the loan portfolio to a
higher concentration of mortgage loans which generally carry lower rates of
interest than other types of loans. At June 30, 1998 approximately 40% of the
Company's outstanding loans carried adjustable rates of interest.
The Company's loan portfolio consists principally of loans secured by real
estate, 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 June 30, 1998 was $981,840, or 1.30%, of
total loans outstanding compared to $847,924, or 1.14%, of loans outstanding at
June 30, 1997 and to $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 outstanding loans, the quality of collateral securing
non-performing and problem loans, and other factors deserving recognition.
At June 30, 1998 the Company had $496,521 in non-accruing loans, two
restructured loans totalling $219,405 and no loans more than ninety days past
due on which interest was still being accrued. This compares to $408,320 in
non-accruing loans, no restructured loans and one loan more than ninety days
past due on which interest was still being accrued in the amount of $89,719 at
June 30, 1997. At December 31, 1997, there was $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 0.82% and 0.70% at June 30, 1998 and
1997, respectively.
Net charge-offs during the first six months of 1998 were $7,398, compared to
net charge-offs of $14,194 for the first six months 1997 and to 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 158% and 162% as of June 30, 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
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
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has been foregone. Further cash receipts are recorded as recoveries on any
amounts previously charged off. On each of June 30, 1998 and June 30, 1997 the
Company had no impaired loans.
Securities
Investment securities constituted 33.32% and 26.17% of earning assets as of
June 30, 1998 and 1997, respectively. At June 30, 1998, securities totaled
$31,021,292, up $8,279,729 from $22,741,563 invested as of June 30, 1997 and up
$6,848,357 from December 31, 1997's balance of $24,172,935. The increase is
investment securities resulted from the investment of excess funds attributable
to an increase in deposits coupled with soft loan demand. The yield on
investment securities decreased from 6.0% at June 30, 1997 and 5.94% at December
31, 1997 to 5.87% at June 30, 1998. The portfolio yield decreased due to
maturities of higher yielding government securities being reinvested at lower
rates. The investment portfolio has a weighted average maturity of approximately
1.03 years.
At June 30, 1998 the book value of the Company's Available for Sale
portfolio was $27,125,190 and the market value of its Available for Sale
portfolio was $27,071,124 resulting in an unrealized loss before tax of $54,066.
The Company's total securities averaged $35,198,300 for the first six months of
1998, 54.60% above the first six months of 1997 average of $22,767,700.
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 and, 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 Company's primary source of funds for loans and investments is
deposits. Deposits increased 22.08% to $105,505,288 at June 30, 1998 from
$86,425,575 at June 30, 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.
During the first six months of 1998, interest-bearing deposits averaged
$90,588,430 compared to $72,079,700 for the same period in 1997, and to
$76,516,106 for the twelve months ended December 31, 1997. The average interest
rate paid on interest-bearing deposits was 4.59% for the first six months of
1998 compared to 4.59% for the first six months of 1997. During the first six
months of 1998, deposit pricing continued to be very competitive in the
Company's market areas, resulting in little downward pressure on deposit
interest rates. The Company expects this competitive deposit environment to
continue. In pricing deposits, the Company considers its liquidity needs, the
11
<PAGE>
direction and levels of interest rates, anticipated loan demand and local market
conditions. As of June 30, 1998, interest-bearing deposits comprised 86.43% of
total deposits. The Company does not believe that it has any brokered deposits.
The Company's core deposit base consists of consumer time deposits, savings
accounts, NOW accounts, money market accounts and checking accounts. Although
such core deposits are becoming increasingly interest rate 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 84.49% for the six months
ended June 30, 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, repayment of purchased
funds and dividends. 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
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.
12
<PAGE>
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 June 30, 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 June 30, 1998, FHLB advances totaled
$2,000,000, compared to $6,500,000 at June 30, 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 June
30, 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 June 30, 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 ................. $11,185 12.13% $9,223 10.00% $7,378 8.00%
Tier 1 Risk-based Capital ................ 10,195 11.05% 5,534 6.00% 3,689 4.00%
Leverage Ratio ........................... 10,195 8.34% 6,112 5.00% 4,890 4.00%
Peoples National Bank:
Total Risk-based Capital ................. $10,312 13.34% $7,716 10.00% $6,169 8.00%
Tier 1 Risk-based Capital ................ 9,330 12.09% 4,630 6.00% 3,087 4.00%
Leverage Ratio ........................... 9,330 7.55% 6,179 5.00% 4,943 4.00%
</TABLE>
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.
13
<PAGE>
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.
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 4. Submission to a Vote of Security Holders
On April 13, 1998, the Company held its 1998 Annual Meeting of
Shareholders. The results of the 1998 Annual meeting of Shareholders is as
follows.
14
<PAGE>
Proposal # 1 - Election of Directors
The following persons were elected as Directors with each receiving 1,201,137
votes in favor, representing 71.11% of the total voting shares. 1,212 shares
were withheld from voting on Robert E. Dye, Jr.
Robert E. Dye, Jr. Eugene W. Merritt, Jr.
George B. Nalley, Jr Nell W. Smith
A. J. Thompson, Jr.
Garnet A. Barnes, William A. Carr, Charles D. Dalton, Robert E. Dye, Sr.,
W. Rutledge Galloway, E. Smyth McKissick, III, and R. Riggie Ridgeway
continued in their present terms as directors.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K. No report on Form 8-K was filed during the
quarter ended June 30, 1998
15
<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: August 10, 1998 By: /s/ Robert E. Dye
-------------------
Robert E. Dye
President and Chairman of the Board
Dated: August 10, 1998 By: /s/ William B. West
---------------------
William B. West
Sr. Vice President & CFO
(principal financial officer)
16
<PAGE>
EXHIBIT INDEX
Exhibit No. from
Item 601 of
Regulation S-B Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at June 30, 1998, (unaudited) and the Consolidated
Statement of Income for the six months ended June 30, 1998, (unaudited) and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,000
<INT-BEARING-DEPOSITS> 91,189
<FED-FUNDS-SOLD> 6,550
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 27,071
<INVESTMENTS-CARRYING> 3,950
<INVESTMENTS-MARKET> 4,101
<LOANS> 75,509
<ALLOWANCE> 982
<TOTAL-ASSETS> 122,284
<DEPOSITS> 105,505
<SHORT-TERM> 3,613
<LIABILITIES-OTHER> 74
<LONG-TERM> 2,000
0
0
<COMMON> 2,832
<OTHER-SE> 7,334
<TOTAL-LIABILITIES-AND-EQUITY> 122,284
<INTEREST-LOAN> 3,492
<INTEREST-INVEST> 721
<INTEREST-OTHER> 199
<INTEREST-TOTAL> 4,501
<INTEREST-DEPOSIT> 2,064
<INTEREST-EXPENSE> 2,198
<INTEREST-INCOME-NET> 2,303
<LOAN-LOSSES> 2
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,843
<INCOME-PRETAX> 1,127
<INCOME-PRE-EXTRAORDINARY> 755
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 755
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.41
<YIELD-ACTUAL> 4.12
<LOANS-NON> 497
<LOANS-PAST> 0
<LOANS-TROUBLED> 219
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 987
<CHARGE-OFFS> 45
<RECOVERIES> 38
<ALLOWANCE-CLOSE> 982
<ALLOWANCE-DOMESTIC> 982
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
