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
September 30, 1999 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
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 September 30, 1999 was 2,845,770.
Transitional Small Business Disclosure Format:
Yes _______ No ___X___
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Peoples Bancorporation, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, 1999 December 31,
1999 1998
Unaudited Audited
--------- -------
ASSETS
<S> <C> <C>
CASH AND DUE FROM BANKS ................................................. $ 10,711,000 $ 3,413,000
FEDERAL FUNDS SOLD ...................................................... 9,610,000 17,980,000
SECURITIES
Available for sale ................................................. 31,723,000 31,971,000
Held for investment (market value of $4,248,000
and $4,265,000) ................................................ 4,221,000 4,128,000
LOANS-less allowance for loan losses of $1,578,000
and $1,093,000) .................................................... 140,375,000 86,924,000
PREMISES AND EQUIPMENT, net of accumulated
depreciation and amortization ...................................... 6,626,000 4,926,000
ACCRUED INTEREST RECEIVABLE ............................................. 1,410,000 922,000
OTHER ASSETS ............................................................ 1,972,000 1,407,000
------------- -------------
TOTAL ASSETS ................................................... $ 206,648,000 $ 151,671,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
DEPOSITS
Noninterest-bearing ................................................ $ 23,066,000 $ 14,991,000
Interest-bearing ................................................... 138,214,000 105,109,000
------------- -------------
Total deposits ................................................. 161,280,000 120,100,000
SECURITIES SOLD UNDER REPURCHASE
AGREEMENTS ......................................................... 16,142,000 5,980,000
NOTES PAYABLE FEDERAL HOME LOAN BANK .................................... 5,000,000 2,000,000
ACCRUED INTEREST PAYABLE ................................................ 851,000 867,000
OTHER LIABILITIES ....................................................... 315,000 253,000
------------- -------------
Total Liabilities .............................................. 183,588,000 129,200,000
------------- -------------
SHAREHOLDERS' EQUITY
Common Stock - 10,000,000 shares authorized,$1.67
par value per share, 2,845,770 and 2,764,016 shares
outstanding ........................................................ 4,752,000 4,616,000
Additional paid-in capital .............................................. 17,324,000 17,092,000
Retained Earnings ....................................................... 1,402,000 811,000
Accumulated other comprehensive income .................................. (418,000) (48,000)
------------- -------------
Total Shareholders' Equity ..................................... 23,060,000 22,471,000
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .............................. $ 206,648,000 $ 151,671,000
============= =============
</TABLE>
2
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
INTEREST INCOME
<S> <C> <C> <C> <C>
Interest and fees on loans ..................................... $2,852,000 $1,887,000 $7,439,000 $5,506,000
Interest on securities
Taxable ................................................... 505,000 375,000 1,431,000 1,067,000
Tax-exempt ................................................ 53,000 58,000 160,000 176,000
Interest on federal funds ...................................... 195,000 169,000 595,000 368,000
---------- ---------- ---------- ----------
Total interest income .......................................... 3,605,000 2,489,000 9,625,000 7,117,000
INTEREST EXPENSE
Interest on deposits ........................................... 1,424,000 1,032,000 3,804,000 3,096,000
Interest on federal funds purchased and securities
sold under repurchase agreements .......................... 176,000 50,000 330,000 128,000
Interest on notes payable Federal Home
Loan Bank ................................................. 48,000 29,000 110,000 85,000
---------- ---------- ---------- ----------
Total interest expense ......................................... 1,648,000 1,111,000 4,244,000 3,309,000
---------- ----------
Net interest income ............................................ 1,957,000 1,378,000 5,381,000 3,808,000
PROVISION FOR LOAN LOSSES ...................................... 250,000 152,000 541,000 154,000
---------- ---------- ---------- ----------
Net interest income after provision for
loan losses ............................................... 1,707,000 1,226,000 4,840,000 3,654,000
NON-INTEREST INCOME
Service fees and other income .................................. 479,000 309,000 1,230,000 852,000
Gain on sales of securities available for sale ................. 0 0 0 0
---------- ---------- ---------- ----------
479,000 309,000 1,230,000 852,000
NON-INTEREST EXPENSE
Salaries and benefits .......................................... 915,000 655,000 2,642,000 1,684,000
Occupancy ...................................................... 82,000 55,000 222,000 162,000
Equipment ...................................................... 149,000 92,000 396,000 238,000
Other operating expenses ....................................... 495,000 379,000 1,460,000 941,000
---------- ---------- ---------- ----------
1,641,000 1,181,000 4,720,000 3,025,000
Income before income taxes ..................................... 545,000 354,000 1,350,000 1,481,000
PROVISION FOR INCOME TAXES ..................................... 187,000 114,000 460,000 486,000
---------- ---------- ---------- ----------
Net income ..................................................... $ 358,000 $ 240,000 $ 890,000 $ 995,000
========== ========== ========== ==========
INCOME PER COMMON SHARE:
BASIC ..................................................... $ 0.13 $ 0.09 $ 0.31 $ 0.39
========== ========== ========== ==========
DILUTED ................................................... $ 0.12 $ 0.09 $ 0.30 $ 0.37
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC ...................................................... 2,841,853 2,553,649 2,841,853 2,553,649
DILUTED .................................................... 2,945,430 2,692,912 2,945,430 2,692,912
DIVIDENDS PAID PER COMMON
SHARE ..................................................... $ 0.035 $ 0.035 $ 0.105 $ 0.105
========== ========== ========== ==========
</TABLE>
3
<PAGE>
Peoples Bancorporation, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
for the nine months ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional other Total
Common stock Paid-in Retained comprehensive shareholders'
Shares Amount Capital Earnings income equity
------ ------ ------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 ............ 1,687,000 $ 2,818,000 $ 5,158,000 $ 1,553,000 $ (20,000) $ 9,509,000
Net Income ............................ 995,000 995,000
Other comprehensive income, net of
tax:
Unrealized holding gains on
securities available for sale ...... 48,000 48,000
Less reclassification
adjustments for gains
included in net income ............. 0 0
-----------
Comprehensive income .................. 1,043,000
Cash Dividends ........................ (203,000) (203,000)
Proceeds from stock options ........... 8,000 14,000 22,000 36,000
Proceeds from sale of stock ........... 737,000 1,230,000 8,267,000 9,497,000
----------- ------------ ------------ ------------ ------------ ------------
Balance, September 30, 1998 ........... 2,432,000 $ 4,062,000 $ 13,447,000 $ 2,345,000 $ 28,000 $ 19,882,000
=========== ============ ============ ============ ============ ============
Balance, December 31, 1998 ............ 2,764,000 $ 4,616,000 $ 17,092,000 $ 811,000 $ (48,000) $ 22,471,000
Net Income ............................ 890,000 890,000
Other comprehensive income, net of
tax: ..................................
Unrealized holding losses on
securities available for sale ...... (370,000) (370,000)
Less reclassification ..............
adjustments for gains
included in net income ............. 0 0
-----------
Comprehensive income .................. 520,000
Cash Dividends ........................ (299,000) (299,000)
Proceeds from stock options ........... 82,000 136,000 232,000 368,000
----------- ------------ ------------ ------------ ------------ ------------
Balance, September 30, 1999 ........... 2,846,000 $ 4,752,000 $ 17,324,000 $ 1,402,000 $ (418,000) $ 23,060,000
=========== ============ ============ ============ ============ ============
</TABLE>
4
<PAGE>
Peoples Bancorporation, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income ........................................................................ $ 890,000 $ 995,000
Adjustments to reconcile net income to net cash provided
by operating activities
Provision for loan losses ......................................................... 541,000 154,000
Depreciation and amortization ..................................................... 314,000 163,000
Amortization and accretion (net) of premiums and
discounts on securities ......................................................... 85,000 89,000
Increase in accrued interest receivable ........................................... (488,000) (139,000)
Increase in other assets .......................................................... (375,000) (404,000)
Decrease in accrued interest payable .............................................. (16,000) (86,000)
Increase (decrease) in other liabilities .......................................... 62,000 (68,000)
------------ ------------
Net cash provided by (used in) operating activities ............................. 1,013,000 704,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities held for investment ....................................... (100,000) (102,000)
Purchases of securities available for sale ........................................ (8,874,000) (21,562,000)
Proceeds from the maturity of securities available for sale ....................... 5,424,000 12,034,000
Proceeds from the call of securities available for sale ........................... 3,060,000 3,200,000
Net increase in loans ............................................................. (53,993,000) (3,884,000)
Purchase of premises and equipment ................................................ (2,014,000) (1,606,000)
------------ ------------
Net cash used by investing activities ........................................... (56,497,000) (11,920,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits .......................................................... 41,180,000 13,252,000
Net increase in securities sold under repurchase
agreements ...................................................................... 10,162,000 1,530,000
Net increase (decrease) in notes payable Federal Home Loan Bank ................... 3,000,000 (31,000)
Proceeds from sale of common stock ................................................ 0 9,497,000
Proceeds from stock options exercised ............................................. 369,000 36,000
Cash dividend ..................................................................... (299,000) (204,000)
------------ ------------
Net cash provided by financing activities ....................................... 54,412,000 24,080,000
------------ ------------
Net (decrease) increase in cash and cash equivalents ............................ (1,072,000) 12,864,000
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ......................................... 21,393,000 8,479,000
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................................. $ 20,321,000 $ 21,343,000
============ ============
CASH PAID FOR
Interest ........................................................................ $ 4,260,000 $ 3,395,000
============ ============
Income Taxes .................................................................... $ 585,000 $ 503,000
============ ============
</TABLE>
5
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of these policies is included in the 1998 Annual Report to
shareholders and incorporated herein by reference.
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 cash dividends of $0.035 per common share
to shareholders of record September 23, 1999, June 24, 1999 and March 18, 1999,
payable October 6, 1999, July 8, 1999 and March 31, 1999, respectively.
The Company adopted SFAS No. 128, "Earnings per Share", on December 31,
1997 which 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 2,841,853 at September 30,
1999 and 2,553,649 at September 30, 1998. The weighted average number of common
shares outstanding for diluted net income per common share was 2,945,430 at
September 30, 1999 and 2,692,912 at September 30, 1998.
In 1998 the Company completed the sale of 925,000 shares of its Common
Stock through two public stock offerings. In connection with these offerings,
the Company received net proceeds totaling $11,950,000. $4,500,000 of the
proceeds was used to initially capitalize Bank of Anderson, N. A. in September
1998 and $3,500,000 was used to initially capitalize Seneca National Bank in
February 1999. In January, 1999, the Company used a total of $2,000,000 in
proceeds raised from the two stock offerings in 1998 to inject additional
capital of $1,000,000 in Bank of Anderson, N. A. and $1,000,000 in additional
capital in Peoples National Bank to support anticipated future growth. The
remaining proceeds from the two stock offerings in 1998 are being held at the
Company level and will be used for general corporate purposes.
The Company issued a five-percent common stock dividend in December 1998.
Per share data for 1998 has been restated to reflect this transaction.
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 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.
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 1998
Annual Report of Peoples Bancorporation, Inc. on Form 10-KSB. Results of
operations for the nine-month period ending September 30, 1999 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; risks related to
year 2000 technology compliance of the Company and its customers; and
recently-enacted or proposed legislation. Statements contained in this filing
regarding the demand for the Company'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. was incorporated under South Carolina law on
March 6, 1992, for the purpose of becoming a bank holding company by acquiring
all of the Common Stock of The Peoples National Bank, Easley, South Carolina.
The Company commenced operations on July 1, 1992 upon effectiveness of the
acquisition of The Peoples National Bank. The Company has three wholly-owned
subsidiaries: The Peoples National Bank, Easley, South Carolina, a national bank
which commenced business operations in August 1986; Bank of Anderson, National
Association, Anderson, South Carolina, a national bank which commenced business
operations in September 1998; and, Seneca National Bank, Seneca, South Carolina,
a national bank which commenced business operations in February 1999 (sometimes
referred to herein as "the Banks").
The Company engages in no significant operations other than the ownership
of its three subsidiaries and the support thereof. The Company conducts its
business from five banking offices located in the Upstate Area of South
Carolina.
7
<PAGE>
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EARNINGS REVIEW
The Company's net income for the third quarter of 1999 was $358,000, or
$0.13 per basic share ($0.12 per diluted share) compared to $240,000, or $0.09
per basic share ($0.09 per diluted share), for the third quarter of 1998. Net
income for the nine months ended September 30, 1999 was $890,000, or $0.31 per
basic share ($0.30 per diluted share), compared to $995,000, or $0.39 per basic
share ($0.37 per diluted share), for the nine months ended September 30, 1998.
Return on average equity for the nine months and three months ended September
30, 1999 was 5.14% and 6.13%, respectively, compared to 10.15% and 7.35%,
respectively for the nine months and three months ended September 30, 1998.
Return on average assets for the nine months and three months ended September
30, 1999 was 0.66% and 0.72%, respectively, compared to 1.06% and 0.76%,
respectively, for the nine months and three months ended September 30, 1998. The
decreases in the Company's net income and return on average assets for the 1999
nine month period are attributable to pre-opening and early operating losses
associated with the opening of Seneca National Bank in February 1999 and
continued early operating losses associated with Bank of Anderson, N. A. which
commenced business operations in September 1998. The decreases in earnings per
basic and diluted share and return on average equity for the 1999 nine month
period are also attributable to pre-opening and early operating losses
associated with the opening of Seneca National Bank and early operating losses
associated with Bank of Anderson, coupled with an increase in the Company's
number of outstanding shares of common stock and total equity capital as a
result of the two public stock offerings completed in 1998. Third quarter 1998's
net income was substantially affected by pre-opening expenses associated with
Bank of Anderson during that period, as well as the addition of several key
management positions at the parent company level. No pre-opening expenses were
incurred in the third quarter of 1999, thus the $118,000, or 49.2%, increase in
net income over third quarter 1998's net income.
Net Interest Income
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
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 increased $579,000, or 42.0%,
to $1,957,000 in the 1999 quarter compared to $1,378,000 in the 1998 quarter.
For the nine months ended September 30, 1999, net interest income before
provision for loan losses increased $1,573,000, or 41.3%, to $5,381,000 compared
to $3,808,000 for the nine months ended September 30, 1998. The Company's net
interest margin was 4.25% and 4.38%, respectively, for the quarter and nine
months ended September 30, 1999, compared to 4.53% and 4.43%, respectively, for
the quarter and nine months ended September 30, 1998. The increases in net
interest income for the comparative year-to-date periods and comparative
quarters resulted from an increase in earning assets, primarily loans generated
by all three of the Company's banking subsidiaries.
8
<PAGE>
Non-interest Income
Non-interest income increased $170,000, or 55.0%, to $479,000 for the third
quarter of 1999 compared to $309,000 for the 1998 third quarter. For the nine
months ended September 30, 1999 non-interest income increased $378,000, or
44.4%, to $1,230,000 compared to $852,000 for the nine months ended September
30, 1998. The increase in non-interest income for the two comparative periods
resulted largely from an increase in fees generated from the Company's mortgage
lending activities and an increase in service charge income on deposit accounts.
No gain or loss was realized on the sale of available for sale securities during
the comparative periods.
Non-interest Expense
Total non-interest expense increased $460,000, or 39.0%, to $1,641,000 for
the third quarter of 1999 compared to $1,181,000 for the third quarter of 1998.
For the first nine months of 1999, total non-interest expense increased
$1,695,000, or 56.0%, to $4,720,000 compared to $3,025,000 for the first nine
months of 1998. Salaries and benefits, the largest component of non-interest
expense, increased $260,000, or 39.7%, in the third quarter of 1999 compared to
the 1998 quarter. For the nine months ended September 30, 1999, salaries and
benefits increased $958,000, or 56.9%, to $2,642,000 compared to $1,684,000 for
the nine months ended September 30, 1998. The large increase in salaries and
benefits for the comparative periods is primarily attributable to the addition
of several key employees at the parent company level in the second half of 1998,
the staffing of Bank of Anderson, N. A. in the third quarter of 1998, the
staffing of Seneca National Bank in the first quarter of 1999, additional
staffing associated with the Company's mortgage lending activities and
additional staff and normal salary increases at The Peoples National Bank.
Occupancy expense increased $27,000, or 49.1%, to $82,000 in the 1999 quarter
compared to $55,000 in the 1998 quarter. For the first nine months of 1999
occupancy expense totaled $222,000, a $60,000, or 37.0%, increase over the
$162,000 recorded for the first nine months of 1998. The increase in occupancy
expense for the two comparative periods is attributable to an increase in
depreciation expense, maintenance expenses and utilities on the main office
buildings for Bank of Anderson, N. A. and Seneca National Bank, and the
Company's new corporate headquarters building located adjacent to the main
office of The Peoples National Bank which was occupied during the fourth quarter
of 1998. Equipment expense increased $57,000, or 62.0%, to $149,000 in the 1999
quarter compared to $92,000 for the 1998 quarter. For the first nine months of
1999, equipment expense totaled $396,000, a $158,000, or 66.4% increase over the
$238,000 recorded for the first nine months of 1998. The increase for both
comparative periods is attributable to increases in depreciation and maintenance
expense associated with the Company's Wide Area Network equipment installed in
1998, new equipment for Bank of Anderson, N. A., Seneca National Bank and the
Company's new corporate office. Other operating expenses increased $116,000, or
30.6%, to $495,000 for the 1999 quarter when compared to the $379,000 recorded
in the 1998 quarter. For the nine months ended September 30, 1999, other
operating expenses increased $519,000, or 55.2%, to $1,460,000 compared to
9
<PAGE>
$941,000 in other operating expenses recorded during the first nine months of
1998. The increase in other operating expenses is primarily attributable to
increases in marketing and advertising expense, printing and supplies expense,
telephone expense and other expenses associated with Bank of Anderson, N. A. and
Seneca National Bank, and the Company's expenditures on year 2000 compliance.
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 month
period and nine month period ended September 30, 1999 was $250,000 and $541,000,
respectively, compared to $152,000 and $154,000, respectively, for the three
month and nine month period ended September 30, 1998. The increase in the
Company's provision for loan losses in both comparative periods is attributable
to provisions made by Bank of Anderson, N. A. and Seneca National Bank as they
continued to establish their allowance for loan losses as well as an increase in
the provision made by The Peoples National Bank as a result of strong loan
growth experienced during the first nine months of 1999. For the three month and
nine month period ended September 30, 1999, Bank of Anderson, N.A, made
provisions of $68,000 and $175,000, respectively compared to $33,000 and
$33,000, respectively for the three and nine month period ended September 30,
1998. For the three month and nine month period ended September 30, 1999, Seneca
National Bank, which commenced banking operations in February of 1999, made
provisions of $42,000 and $103,000, respectively. For the three month and nine
month period ended September 30, 1999, The Peoples National Bank made provisions
of $141,000 and $264,000, respectively, compared to provisions of $116,000 and
$121,000, respectively, for the same comparable periods in 1998.
BALANCE SHEET REVIEW
Loans
Gross outstanding loans represent the largest component of earning assets
at 79.8% of total gross earning assets. As of September 30, 1999, the Company
had total gross loans outstanding of $141,953,000. Gross loans increased
$53,936,000, or 61.3%, from $88,017,000 in total gross outstanding loans at
December 31, 1998. The increase in outstanding loans resulted from new loans
generated by Bank of Anderson, N. A. and Seneca National Bank and strong
internal loan growth experienced by The Peoples National Bank. At September 30,
1999, Bank of Anderson, N. A. had gross outstanding loans of $22,320,000; Seneca
National Bank had gross outstanding loans of $8,793,000; and The Peoples
National Bank had gross outstanding loans of $110,840,000.
10
<PAGE>
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 nine month period ended September 30, 1999
was 8.52% compared to 9.34%, for the first nine months of 1998. Approximately
29.3% of the Company's loans are tied to the prime interest rate.
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. The Company originates first mortgage residential real estate
loans for sale to third parties, but does not service these loans. During the
second quarter of 1999, the Company began self funding first mortgage
residential real estate loans with standing commitments to sell to third parties
within a short period of time from the closing of the loans. Prior to the second
quarter of 1999, these types of loans were being "table funded" by third
parties. The Company receives origination fees upon closing of the loans and
receives a service release fee upon selling the loans to third parties. At
September 30, 1999, the Company held $12,890,000 in closed originated mortgage
loans for sale compared to none at December 31, 1998.
Allowance for Loan Losses
The allowance for loan losses at September 30, 1999 was $1,578,000, or
1.11% of loans outstanding compared to $1,093,000, or 1.24% of loans outstanding
at December 31, 1998. The allowance for loan losses is based upon the management
of each subsidiary bank's continuing evaluation of the collectibility of past
due loans based on the historical loan loss experience of that Bank, current
economic conditions affecting the ability of borrowers to repay, the volume of
loans, the quality of collateral securing non-performing and problem loans, and
other factors deserving recognition.
At September 30, 1999, the Company had $501,000 in non-accruing loans,
$177,000 in restructured loans, no loans more than ninety days past due and
still accruing interest and $219,000 in other real estate owned. This compares
to $617,000 in non-accruing loans, $8,000 in restructured loans, no loans more
than ninety days past due on which interest was still being accrued and $101,000
in other real estate owned at December 31, 1998. Non-performing loans at
September 30, 1999 consisted of $32,000 in commercial loans; $417,000 in
mortgage loans; and $52,000 in consumer loans. Non-performing assets as a
percentage of loans and other real estate owned was 0.35% and 0.74% at September
30, 1999 and December 31, 1998, respectively.
Net charge-offs for the nine month period ended September 30, 1999 were
$56,000, compared to net charge-offs of $85,000 for the nine month period ended
September 30, 1998 and to net charge-offs of $88,000 for the year ended December
31, 1998. The allowance for loan losses as a percentage of non-performing loans
was 315%, 127% and 177%, respectively, as of September 30, 1999, September 30,
1998 and December 31, 1998.
11
<PAGE>
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. At each of September 30, 1999, September 30,
1998 and December 31, 1998 the Company had no impaired loans. At 1.11% of total
outstanding loans, management considers the allowance for loan losses to be
adequate based upon evaluations of specific loans and weighing of various loan
categories as suggested by the Banks' internal loan rating systems.
Securities
Investment securities constituted 19.4% and 25.4% of earning assets as of
September 30, 1999 and December 31, 1998, respectively. At September 30, 1999,
the book value of the Company's total securities portfolio totaled $36,577,000,
up $405,000 from $36,172,000 invested as of December 31, 1998. The slight
increase is due to increases in investment securities held by Bank of Anderson,
N. A. and Seneca National Bank.
At September 30, 1999, the Company's total investments classified as
available for sale had a book value of $32,356,000 and a market value of
$31,723,000 for an unrealized loss of $633,000.
The Company uses its investment portfolio to provide liquidity for
unexpected deposit liquidation or loan generation, to secure public deposits, 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 Banks' primary source of funds for loans and investments are their
deposits. Deposits grew $41,200,000, or 34.3%, to $161,300,000 at September 30,
1999 from $120,100,000 at December 31, 1998. The increase resulted principally
from deposits generated by Bank of Anderson and Seneca National Bank.
Competition for deposit accounts is primarily based on the interest rates paid,
location convenience and services offered.
12
<PAGE>
During the first nine months of 1999, interest-bearing deposits averaged
$120,387,000 compared to $91,019,000 for the first nine months of 1998. The
average interest rate paid on interest-bearing deposits was 4.21% for the first
nine months of 1999 compared to 4.50% for the first nine months of 1998. In
pricing deposits, the Company considers its liquidity needs, the direction and
levels of interest rates and local market conditions. At September 30, 1999
interest-bearing deposits comprised 85.7% of total deposits compared to 86.5% at
September 30, 1998.
The Company's core deposit base consists of consumer time deposits of less
than $100,000, 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 81.4% for the
nine months ended September 30, 1999. The Company closely monitors its reliance
on certificates greater than $100,000, which are generally considered less
stable and less reliable than core deposits. At September 30, 1999, certificates
of deposit greater than $100,000 totaled $34,489,000 compared to $20,494,000 at
December 31, 1998.
LIQUIDITY
Liquidity management involves meeting the cash flow requirements of the
Company. The Company's liquidity position is primarily dependent upon its need
to respond to short-term demand for funds caused by withdrawals from deposit
accounts and upon the liquidity of its assets. The Company's primary liquidity
sources include cash and due from banks, federal funds sold and "securities
available for sale". In addition, the Company (through the Banks) has the
ability, on a short-term basis, to borrow funds from the Federal Reserve System
and to purchase federal funds from other financial institutions. The Banks are
also members of the Federal Home Loan Bank System and have the ability to borrow
both short and long-term funds on a secured basis. At September 30, 1999, The
Peoples National Bank had $5,000,000 in short-term borrowings from the Federal
Home Loan Bank of Atlanta. At September 30, 1999 The Peoples National Bank had
unused borrowing capacity from the Federal Home Loan Bank of Atlanta of
$23,000,000. The Company's other two bank subsidiaries, Bank of Anderson, N. A.
and Seneca National Bank have established lines of credit with the Federal Home
Loan Bank totaling ten percent (10%) of each respective bank's total assets. At
September 30, 1999, the Banks had unused federal funds lines of credit totaling
$6,000,000 with correspondent banks.
Peoples Bancorporation, Inc., the parent holding company, has limited
liquidity needs. Peoples Bancorporation requires liquidity to pay limited
operating expenses and dividends. These needs are presently being met by
management fees assessed to each affiliated bank and dividends from The Peoples
National Bank.
13
<PAGE>
Company management believes its liquidity sources are adequate to meet its
operating needs and does not know of any trends that may result in the Company's
liquidity materially increasing or decreasing.
CAPITAL ADEQUACY and RESOURCES
The capital needs of the Company have been met through the retention of
earnings and from the proceeds of prior public stock offerings.
For bank holding companies with total assets of more than $150 million,
such as the Company, capital adequacy is generally evaluated based upon the
capital of its banking subsidiaries. Generally, the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") expects bank holding
companies to operate above minimum capital levels. The Office of the Comptroller
of the Currency ("Comptroller") regulations establish the minimum leverage
capital ratio requirement for national banks at 3% in the case of a national
bank that has the highest regulatory examination rating and is not contemplating
significant growth or expansion. All other national banks are expected to
maintain a ratio of at least 1% to 2% above the stated minimum. Furthermore, the
Comptroller reserves the right to require higher capital ratios in individual
banks on a case by case basis when, in its judgement, additional capital is
warranted by a deterioration of financial condition or when high levels of risk
otherwise exist. The Banks have not been notified that they must maintain
capital levels above regulatory minimums.
The Federal Reserve Board has adopted a risk-based capital rule which
requires bank holding companies to have qualifying capital to risk-weighted
assets of at least 8%, with at least 4% being "Tier 1" capital. Tier 1 capital
consists principally of common stockholders' equity, non-cumulative preferred
stock, qualifying perpetual preferred stock, and minority interests in equity
accounts of consolidated subsidiaries, less goodwill and certain intangible
assets. "Tier 2" (or supplementary) capital consists of general loan loss
reserves (subject to certain limitations), certain types of preferred stock and
subordinated debt, and certain hybrid capital instruments and other debt
securities such as equity commitment notes. A bank holding company's qualifying
capital base for purposes of its risk-based capital ratio consists of the sum of
its Tier 1 and Tier 2 capital components, provided that the maximum amount of
Tier 2 capital that may be treated as qualifying capital is limited to 100% of
Tier 1 capital. The Comptroller imposes a similar standard on national banks.
The regulatory agencies expect national banks and bank holding companies to
operate above minimum risk-based capital levels.
During 1998 the Company successfully completed the sale of 925,000 shares
of its common stock through two public stock offerings. From these two stock
offerings the company raised $12,025,000 ($11,950,000 net of offering expenses)
in additional capital. $4,500,000 of this additional capital was used to
initially capitalize Bank of Anderson, National Association in September of 1998
and $3,500,000 was used to initially capitalize Seneca National Bank in February
1999. In January 1999, the Company injected $1,000,000 in additional capital in
The Peoples National Bank and $1,000,000 in additional capital in Bank of
Anderson to provide for future growth of these two subsidiaries. The remaining
funds from the two stock offerings are being held at the parent company level
for future operating needs.
14
<PAGE>
The following table sets forth the capital ratios for the Company and
the Banks as of September 30, 1999:
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 ............... $25,056 17.13% $14,627 10.00% $11,702 8.00%
Tier 1 Risk-based Capital .............. $23,478 16.05% $ 8,777 6.00% $ 5,851 4.00%
Leverage Ratio ......................... $23,478 11.25% $10,435 5.00% $ 8,348 4.00%
Peoples National Bank:
Total Risk-based Capital ............... $13,126 11.88% $11,049 10.00% $ 8,839 8.00%
Tier 1 Risk-based Capital .............. $11,918 10.79% $ 6,627 6.00% $ 4,418 4.00%
Leverage Ratio ......................... $11,918 7.99% $ 7,458 5.00% $ 5,966 4.00%
Bank of Anderson, N. A:
Total Risk-based Capital ............... $ 5,374 21.04% $ 2,554 10.00% $ 2,043 8.00%
Tier 1 Risk-based Capital .............. $ 5,106 19.99% $ 1,533 6.00% $ 1,022 4.00%
Leverage Ratio ......................... $ 5,106 14.73% $ 1,733 5.00% $ 1,387 4.00%
Seneca National Bank:
Total Risk-based Capital ............... $ 3,368 33.79% $ 997 10.00% $ 797 8.00%
Tier 1 Risk-based Capital .............. $ 3,265 32.76% $ 598 6.00% $ 399 4.00%
Leverage Ratio ......................... $ 3,265 21.53% $ 758 5.00% $ 607 4.00%
</TABLE>
EFFECTS OF REGULATORY ACTION
The management of the Company and the Banks 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 READINESS DISCLOSURE
The Company recognizes that there is a business risk in computerized
systems as the new century approaches. Many computer-based information systems
previously in use exclude the century as part of the date definition, which
could cause inaccurate interest calculations on loans and deposits and other
problems at the change of the century. A number of computer systems used by the
Company in its day-to-day operations could 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 commenced in 1998 and was completed by December 1998. Based on
testing done to date, the Company believes that all of its systems are now Year
2000 compliant. Plans are also in place in the event critical systems fail on
January 1, 2000. The Company now believes that most of the Y2K Problems which
could affect it have been or will be remedied before year end. Accordingly, the
anticipated, reasonable worst case scenario for the Company is not likely to be
more than a moderate inconvenience which should not have a material affect on
the Company. The estimated cost to the Company for these corrective actions is
$111,250 which is included in the Company's 1998 and 1999 budgets. As of
September 30, 1999, the Company's Year 2000 compliance expenditures totaled
$99,000. 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. Factors which could contribute to the Company's experiencing an
adverse effect include the availability of skilled personnel and compliant
software, the performance of vendors, the ability of entities with which the
Company does business and the Company's customers to resolve their Year 2000
problems and the ability to identify non-compliant software and the applications
or functions affected.
15
<PAGE>
RECENTLY ISSUED ACCOUNTING CHANGES
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." All derivatives are to be measured at fair
value and recognized in the balance sheets as assets or liabilities. This
statement's effective date was delayed by the issuance of SFAS 137 ("Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133 - and amendment of the FASB Statement No. 133)
and is effective for fiscal years and quarters beginning after June 15, 2000.
Because the Company has no derivative transactions at this time, this standard
will have no effect on the Company.
In October 1998, the FASB issued SFAS 143, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Companying Enterprise." The new statement establishes accounting and
reporting standards for certain activities of mortgage Companying enterpries.
The statement is effective for the first quarter beginning after December 15,
1998. The statement will have no effect on the financial statements of the
Company.
In February 1999, the FASB issued SFAS 135, "Rescission of FASB Statement
No. 75 and Technical Corrections." The SFAS provides technical corrections for
previously issued statements and rescinds SFAS 75, which provides guidance
related to pension plans of state and local government units. SFAS 135 is
effective for fiscal years ending after February 15, 1999. This statement will
have no effect on the financial statements of the Company.
In June 1999, the FASB issued SFAS 136, "Transfer of Assets to a
Not-for-Profit Organization or Charitable Trust that Raises or Holds
Contributions for Others", which is effective for fiscal periods beginning after
December 15, 1999. This statement establishes standards for transactions in
which an entity makes a contribution by transferring assets to a not-for-profit
organization or a charitable trust and then requires these contributions to be
used in specified manner. This statement will have no effect on the financial
statements of the Company.
16
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time the Company is involved in various claims
and legal actions arising in the normal course of business.
Management is not aware of any proceedings which could result
in a material loss to the Company.
Item 2. Changes in Securities and Use of Proceeds
During the period ended September 30, 1999, the Registrant
issued shares of common stock to the following classes of
persons upon the exercise of options issued pursuant to the
Registrant's 1993 Incentive Stock Option Plan. The securities
were issued pursuant to the exemption from registration
provided by Section 4(2) of the Securities Act of 1933 because
the issuance did not involve a public offering.
Aggregate
Class of # of Shares Exercise Date
Date Issued Purchasers Issued Price Exercisable
----------- ---------- ------ ----- -----------
01/08/99 Employees 75,985 $336,125 1-9-94
03/24/99 Employee 1,400 $ 6,622 6-12-98
04/30/99 Director 500 $ 7,500 4-21-99
09/13/99 Employee 1,869 $ 8,840 6-12-99
09/30/99 Employee 2,000 $ 9,460 6-12-99
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 September 30, 1999
17
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PEOPLES BANCORPORATION, INC.
Dated: November 5, 1999 By: /s/ Robert E. Dye
-------------------
Robert E. Dye
President and Chairman of the Board
Dated: November 5, 1999 By: /s/ William B. West
---------------------
William B. West
Sr. Vice President & CFO
(principal financial officer)
18
<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 September 30, 1999, (unaudited) and the
Consolidated Statement of Income for the nine months ended September 30, 1999
(unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,050
<INT-BEARING-DEPOSITS> 138,214
<FED-FUNDS-SOLD> 9,610
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 31,723
<INVESTMENTS-CARRYING> 4,221
<INVESTMENTS-MARKET> 4,248
<LOANS> 141,953
<ALLOWANCE> 1,578
<TOTAL-ASSETS> 206,648
<DEPOSITS> 161,280
<SHORT-TERM> 16,142
<LIABILITIES-OTHER> 315
<LONG-TERM> 5,000
0
0
<COMMON> 4,752
<OTHER-SE> 18,308
<TOTAL-LIABILITIES-AND-EQUITY> 206,648
<INTEREST-LOAN> 7,439
<INTEREST-INVEST> 2,186
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 9,625
<INTEREST-DEPOSIT> 3,804
<INTEREST-EXPENSE> 4,244
<INTEREST-INCOME-NET> 5,381
<LOAN-LOSSES> 541
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,720
<INCOME-PRETAX> 1,305
<INCOME-PRE-EXTRAORDINARY> 1,305
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 890
<EPS-BASIC> 0.31
<EPS-DILUTED> 0.30
<YIELD-ACTUAL> 4.38
<LOANS-NON> 501
<LOANS-PAST> 0
<LOANS-TROUBLED> 177
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,093
<CHARGE-OFFS> 101
<RECOVERIES> 45
<ALLOWANCE-CLOSE> 1,578
<ALLOWANCE-DOMESTIC> 1,578
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
