SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended Commission file
March 31, 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 March 31, 1999 was 2,841,401.
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>
March 31, 1999 December 31, 1998
Unaudited Audited
--------- -------
ASSETS
<S> <C> <C>
CASH AND DUE FROM BANKS ...................................................... $ 5,609,974 $ 3,413,192
FEDERAL FUNDS SOLD ........................................................... 15,860,000 17,980,000
SECURITIES
Available for sale ...................................................... 32,655,179 31,970,972
Held for investment (market value of $4,348,398
and $4,264,583) .................................................... 4,226,214 4,128,267
LOANS-less allowance for loan losses of $1,200,284
and $1,093,280 .......................................................... 99,507,515 86,923,604
PREMISES AND EQUIPMENT, net of accumulated
depreciation and amortization ........................................... 5,948,820 4,926,263
ACCRUED INTEREST RECEIVABLE .................................................. 1,106,017 922,430
OTHER ASSETS ................................................................. 1,753,232 1,406,612
------------- -------------
TOTAL ASSETS ....................................................... $ 166,666,951 $ 151,671,340
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
DEPOSITS
Noninterest-bearing ..................................................... $ 18,855,679 $ 14,991,107
Interest-bearing ........................................................ 114,101,767 105,109,104
------------- -------------
Total deposits ..................................................... 132,957,446 120,100,211
SECURITIES SOLD UNDER REPURCHASE
AGREEMENTS .............................................................. 7,905,969 5,979,994
NOTES PAYABLE FEDERAL HOME LOAN BANK ......................................... 2,000,000 2,000,000
ACCRUED INTEREST PAYABLE ..................................................... 799,604 867,014
OTHER LIABILITIES ............................................................ 85,395 253,014
------------- -------------
Total Liabilities .................................................. 143,748,414 129,200,233
------------- -------------
SHAREHOLDERS' EQUITY
Common Stock - 10,000,000 shares authorized,
$1.67 par value per share, 2,841,401 and
2,764,016 shares outstanding ............................................... 4,745,140 4,615,907
Additional paid-in capital ................................................... 17,305,572 17,092,059
Retained Earnings ............................................................ 996,101 810,885
Accumulated other comprehensive income ....................................... (128,276) (47,744)
------------- -------------
Total Shareholder's Equity ......................................... 22,918,537 22,471,107
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY .................................... $ 166,666,951 $ 151,671,340
============= =============
</TABLE>
1
<PAGE>
Peoples Bancorporation, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
---- ----
INTEREST INCOME
<S> <C> <C>
Interest and fees on loans .................................................... $2,180,688 $ 1,804,202
Interest on securities
Taxable ................................................................... 466,506 304,377
Tax-exempt ................................................................ 53,634 60,907
Interest on federal funds ..................................................... 188,720 85,105
---------- -----------
Total interest income ............................................................ 2,889,548 2,254,591
---------- -----------
INTEREST EXPENSE
Interest on deposits .......................................................... 1,125,788 1,017,382
Interest on federal funds purchased and securities
sold under repurchase agreements .......................................... 67,962 36,650
Interest on notes payable Federal Home Loan Bank ................................. 26,067 28,530
---------- -----------
Total interest expense ........................................................... 1,219,817 1,082,562
---------- -----------
Net interest income .............................................................. 1,669,731 1,172,029
PROVISION FOR LOAN LOSSES ........................................................ 119,450 (2,500)
---------- -----------
Net interest income after provision for loan losses .............................. 1,550,281 1,174,529
NON-INTEREST INCOME
Service fees and other income ................................................. 367,808 254,901
---------- -----------
NON-INTEREST EXPENSES
Salaries and benefits ......................................................... 841,259 500,083
Occupancy ..................................................................... 61,654 56,974
Equipment ..................................................................... 106,198 66,698
Other operating expenses ...................................................... 477,760 272,162
---------- -----------
1,486,871 895,917
---------- -----------
Income before income taxes .................................................... 431,218 533,513
PROVISION FOR INCOME TAXES ....................................................... 146,600 176,000
---------- -----------
Net income .................................................................... $ 284,618 $ 357,453
========== ===========
INCOME PER COMMON SHARE:
BASIC ......................................................................... $ 0.10 $ 0.20
========== ===========
DILUTED ....................................................................... $ 0.10 $ 0.19
========== ===========
WEIGHTED AVERAGE COMMON SHARES:
BASIC ......................................................................... 2,840,468 1,777,661
========== ===========
DILUTED ....................................................................... 2,934,327 1,913,520
========== ===========
DIVIDENDS PAID PER COMMON SHARE .................................................. $ 0.035 $ 0.033
========== ===========
</TABLE>
2
<PAGE>
Peoples Bancorporation, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
for the three months ended March 31, 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 ........ 1,687,250 $ 2,817,708 $ 5,158,024 $ 1,553,206 $ (19,449) $ 9,509,489
Net Income ........................ 357,453 357,453
Other comprehensive income, net of
tax:
Unrealized holding gains on
securities available for sale .. 561 561
Less reclassification
adjustments for gains
included in net income ......... 0 0
--------- ------------
Comprehensive income .............. 358,014
Cash Dividends .................... (58,687) (58,687)
Proceeds from stock options ....... 5,760 9,619 13,306 22,925
--------- -------------- ------------- -------------- --------- ------------
Balance, March 31, 1998 ........... 1,693,010 $ 2,827,327 $ 5,171,330 $ 1,851,972 $ (18,888) $ 9,831,741
========= ============== ============= ============== ========= ============
Balance, December 31, 1998 ........ 2,764,016 $ 4,615,907 $ 17,092,059 $ 810,885 $ (47,744) $ 22,471,107
Net Income ........................ 284,618 284,618
Other comprehensive income, net of
tax:
Unrealized holding losses on
securities available for sale .. (80,532) (80,532)
Less reclassification
adjustments for gains
included in net income ......... 0 0
--------- ------------
Comprehensive income .............. 204,086
Cash Dividends .................... (99,402) (99,402)
Proceeds from stock options ....... 77,385 129,233 213,513 342,746
--------- -------------- ------------- -------------- --------- ------------
Balance, March 31, 1999 ........... 2,841,401 $ 4,745,140 $ 17,305,572 $ 996,101 $(128,276) $ 22,918,537
========= ============== ============= ============== ========= ============
</TABLE>
3
<PAGE>
Peoples Bancorporation, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income ..................................................................... $ 284,618 $ 357,453
Adjustments to reconcile net income to net cash provided
(used) by operating activities
Provision for loan losses ...................................................... 119,450 (2,500)
Depreciation and amortization .................................................. 76,807 49,804
Amortization and accretion (net) of premiums and
discounts on securities ...................................................... 28,445 14,833
(Increase) decrease in accrued interest receivable ............................. (183,587) 21,233
Increase in other assets ....................................................... (346,620) (265,678)
Increase in accrued interest payable ........................................... 67,410 118,395
Decrease in other liabilities .................................................. (167,619) (203,100)
------------ -----------
Net cash provided by operating activities .................................... (121,096) 90,440
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities held for investment .................................... (100,400) 0
Purchases of securities available for sale ..................................... (6,587,590) (8,267,090)
Proceeds from the maturity of securities available for sale .................... 2,721,904 938,769
Proceeds from the call of securities available for sale ........................ 3,060,000 2,700,000
Net (increase) decrease in loans ............................................... (12,703,361) 32,068
Purchase of premises and equipment ............................................. (1,219,229) (325,734)
------------ -----------
Net cash used by investing activities ........................................ (14,828,676) (4,921,987)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits ....................................................... 12,857,235 7,635,041
Net increase (decrease) in securities sold under
repurchase agreements ........................................................ 1,925,975 (1,702,155)
Net decrease in notes payable Federal Home Loan Bank ........................... 0 (30,612)
Proceeds from stock options exercised .......................................... 342,746 22,925
Cash dividend .................................................................. (99,402) (59,115)
------------ -----------
Net cash provided by financing activities .................................... 15,026,554 5,866,084
------------ -----------
Net increase in cash and cash equivalents .................................... 76,782 1,034,537
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ...................................... 21,393,192 8,478,784
------------ -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD .......................................... $ 21,469,974 $ 9,513,321
============ ===========
CASH PAID FOR
Interest ..................................................................... $ 1,287,227 $ 890,327
============ ===========
Income Taxes ................................................................. $ 162,018 $ 19,003
============ ===========
</TABLE>
4
<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 a cash dividend of $0.035 per common share
to shareholders of record March 18, 1999, payable March 31, 1999.
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 2,840,468 at March
31, 1999 and 1,777,661 at March 31, 1998. The weighted average number of common
shares outstanding for diluted net income per common share was 2,934,327 at
March 31, 1999 and 1,913,520 at March 31, 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 in 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 of the interim periods presented. The
results of operations for any interim period are not necessarily indicative of
the results to be expected for an entire year.
5
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 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 three-month period ending March 31, 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 relating
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.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EARNINGS REVIEW
The Company's net income for the first quarter of 1999 was $285,000, or
$0.10 per fully diluted share compared to $357,000, or $0.19 per fully diluted
share for the first quarter of 1998. Return on average equity for the three
months ended March 31, 1999 was 5.08% compared to 14.67% for the three months
ended March 31, 1998. Return on average assets for the three months ended March
31, 1999 was 0.72% compared to 1.22% for the three months ended March 31, 1998.
The decreases in the Company's net income and return on average assets in 1999
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 decrease in earnings per diluted share and
return on average equity is 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.
The largest component of the Company's net income is net interest income.
Net interest income, which is the difference between the interest earned on
assets and the interest paid for the liabilities used to fund those assets,
measures the gross profit from lending and investing activities and is the
primary contributor to the Company's earnings. Net interest income before
provision for loan losses increased $498,000, or 42.5%, to $1,670,000 in the
6
<PAGE>
1999-quarter compared to $1,172,000 in the 1998-quarter. The Company's net
interest margin was 4.57% for the 1999-quarter compared to 4.09% for the 1998
quarter. The increase in net interest income and the net interest margin
resulted primarily from an increase in earning assets, primarily loans,
attributable to Bank of Anderson and Seneca National Bank, coupled with a
decrease in the cost of interest-bearing liabilities at The Peoples National
Bank.
Non-interest Income
Non-interest income increased $113,000, or 44.3%, to $368,000 for the first
quarter of 1999 compared to $255,000 for the 1998-quarter. A $67,000 increase in
origination fees on mortgage loans and $39,000 increase in service charges on
deposit accounts were the main contributors to this increase. No gain or loss
was realized on the sale of available for sale securities during the first three
months of either 1999 or 1998.
Non-interest Expense
Total non-interest expense increased $591,000 or 66.0% for the first quarter
of 1999 over the first quarter of 1998. Salaries and benefits, the largest
component of non-interest expense, increased $341,000, or 68.2%, in the
1999-quarter compared to the 1998 quarter. This large increase 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 and normal salary increases at The Peoples National Bank. Occupancy and
equipment expenses, combined, increased $44,000, or 35.7%, in the 1999 quarter
due primarily to an increase in depreciation expense and maintenance expense on
the equipment and buildings for Bank of Anderson, N.A. and Seneca National, and
depreciation and maintenance expenses associated with the Company's Wide Area
Network. Other operating expense increased $206,000, or 75.5%, and is primarily
attributable to increases in marketing and advertising expense, printing and
supplies expense, and other expenses associated with Bank of Anderson, N.A. and
Seneca National Bank.
Provision for Loan Losses
The amount charged to the provision for loan losses by the Company is based
on management's judgement as to the amount required to maintain an allowance
adequate to provide for potential losses in the Company's loan portfolio.
The provision for loan losses charged to operations during the three months
ended March 31, 1999 was $119,000 compared to a negative provision of $2,500 for
the three months ended March 31, 1998. The increase in the Company's provision
for loan losses in the 1999 quarter is largely attributable to provisions made
by Bank of Anderson, N.A. and Seneca National Bank as they continued to
establish their allowance for loan losses. During the 1999 quarter, Bank of
Anderson made provisions of $52,000 and Seneca National Bank made provisions of
$42,000. The Peoples National Bank, which recorded a negative provision of
$2,500 in the 1998 quarter as a result of net recoveries on previously
charged-off loans and a decrease in the volume of outstanding loans, made
provisions of $25,000 in the 1999 quarter as a result of an increase in the
volume of outstanding loans during the period. At 1.19% 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 Bank's internal loan rating system.
BALANCE SHEET REVIEW
Loans
Outstanding loans represent the largest component of earning assets at
65.6% of total earning assets. As of March 31, 1999, the Company had total gross
loans outstanding of $100,708,000. Loans increased $12,691,000, or 14.4%, from
$88,017,000 in total gross outstanding loans at December 31, 1998 and
$23,737,000, or 30.8% from $76,971,000, in total gross loans outstanding at
March 31, 1998. The increase resulted primarily from new loans generated by Bank
of Anderson and Seneca National Bank and internal loan growth experienced by The
Peoples National Bank.
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 quarter ended March 31, 1999 was 9.34%
compared to 9.18% for the quarter ended March 31, 1998. Approximately 30.5% of
the Company's loans are tied to the prime interest rate.
7
<PAGE>
The Company's loan portfolio consists principally of residential mortgage
loans, commercial loans and consumer loans. Substantially all of these loans are
to borrowers located in South Carolina and are concentrated in the Company's
market areas. The Company has no foreign loans or loans for highly leveraged
transactions.
Allowance for Loan Losses
The allowance for loan losses at March 31, 1999 was $1,200,000, or 1.19% 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 management's
continuing evaluation of the collectibility of past due loans based on the
historical loan loss experience of the Company, current economic conditions
affecting the ability of borrowers to repay, the volume of loans, the quality of
collateral securing non-performing and problem loans, and other factors
deserving recognition.
At March 31, 1999, the Company had $513,000 in non-accruing loans, $8,000
in restructured loans and no loans more than ninety days past due and still
accruing interest. This compares to $617,000 in non-accruing loans, $8,000 in
restructured loans and no loans more than ninety days past due on which interest
was still being accrued at December 31, 1998. Non-performing loans at March 31,
1999 consists of $12,000 in commercial loans; $490,000 in mortgage loans; and
$11,000 in consumer loans. Non-performing assets as a percentage of loans and
other real estate owned was 0.51% and 0.74% at March 31, 1999 and December 31,
1998, respectively.
Net charge-offs during the first three months of 1999 were $12,000,
compared to net recoveries of $19,000 for the first three months 1998 and net
charge-offs of $88,000 for the year ended December 31, 1998. The allowance for
loan losses as a percentage of nonperforming loans was 234%, 119% and 177%,
respectively, as of March 31, 1999, March 31, 1998 and December 31, 1998.
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 March 31, 1999, March 31, 1998 and
December 31, 1998 the Company had no impaired loans.
Securities
Investment securities constituted 24.1% and 25.4% of earning assets as of
March 31, 1999 and December 31, 1998, respectively. At March 31, 1999,
securities totaled $37,076,000, up $904,000 from $36,172,000 invested as of
December 31, 1998's. The slight increase is due to increases in investment
securities held by Bank of Anderson and Seneca National Bank.
At March 31, 1999, the Company's total investments classified as available
for sale had a book value of $32,850,000 and a market value of $32,655,000 for
an unrealized net loss of $195,000.
The Company uses its investment portfolio to provide liquidity for
unexpected deposit liquidation or loan generation, to meet the Company's
interest rate sensitivity goals and to generate income. The Company emphasizes
safety in its selection of investment securities. Accordingly, the investment
portfolio is limited to securities of the United States government or its
agencies, mortgage backed securities and investment grade state and municipal
securities. The Company does not invest in corporate bonds nor does it hold any
trading securities.
Deposits
The Bank's primary source of funds for loans and investments is its
deposits. Deposits grew $12,857,000, or 10.7%, to $132,957,000 at March 31, 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.
8
<PAGE>
During the first three months of 1999, interest-bearing deposits
averaged $109,314,000 compared to $88,381,000 for the first three months of
1998. The average interest rate paid on interest-bearing deposits was 4.18% for
the 1999-quarter compared to 4.67% for the 1998-quarter. In pricing deposits,
the Company considers its liquidity needs, the direction and levels of interest
rates and local market conditions. At March 31, 1999 interest-bearing deposits
comprised 85.8% of total deposits compared to 87.68% at March 31, 1998.
The Company's core deposit base consists of consumer time deposits,
savings, NOW accounts, money market accounts and checking accounts. Although
such core deposits are becoming increasingly interest sensitive for both the
Company and the industry as a whole, such core deposits continue to provide the
Company with a large and stable source of funds. Core deposits as a percentage
of total deposits averaged approximately 83.4% for the three months ended March
31, 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.
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 March 31, 1999, The
Peoples National Bank had $2,000,000 in long-term borrowings from the Federal
Home Loan Bank of Atlanta. At March 31, 1999 The Peoples National Bank had
unused borrowing capacity from the Federal Home Loan Bank of Atlanta of
$14,000,000. The Company's other two bank subsidiaries, Bank of Anderson and
Seneca National Bank have not yet established lines of credit with the Federal
Home Loan Bank. At March 31, 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.
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
9
<PAGE>
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 consist 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 bands 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 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.
The following table sets forth the capital ratios for the Company and
the Banks as of March 31, 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 ................ 24,247 21.94 11,052 10.00 8,841 8.00
Tier 1 Risk-based Capital ............... 23,047 20.86 6,629 6.00 4,419 4.00
Leverage Ratio .......................... 23,047 13.72 8,399 5.00 6,719 4.00
Peoples National Bank:
Total Risk-based Capital ................ 12,339 13.63 9,053 10.00 7,242 8.00
Tier 1 Risk-based Capital ............... 11,326 12.51 5,432 6.00 3,621 4.00
Leverage Ratio .......................... 11,326 8.66 6,539 5.00 5,231 4.00
Bank of Anderson, N. A:
Total Risk-based Capital ................ 5,348 36.00 1,486 10.00 1,188 8.00
Tier 1 Risk-based Capital ............... 5,203 35.02 891 6.00 594 4.00
Leverage Ratio .......................... 5,203 22.17 1,173 5.00 938 4.00
Seneca National Bank:
Total Risk-based Capital ................ 3,396 66.19 513 10.00 410 8.00
Tier 1 Risk-based Capital ............... 3,354 65.37 308 6.00 205 4.00
Leverage Ratio .......................... 3,354 71.84 233 5.00 187 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.
10
<PAGE>
YEAR 2000
The Company recognizes 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 commenced in 1998 and was completed by
December 1998. Alternative vendors/programs have been identified for all
critical function areas, as classified by the Y2K Team, and will be purchased
and installed in the event the primary vendor can not provide satisfactory Y2K
compliance by July 31, 1999. Plans are also in place in the event critical
systems fail on January 1, 2000. 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 March 31, 1999, the Company's Year 2000 compliance expenditures
totaled $11,000. 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.
11
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various claims and legal actions
arising in the normal course of business. Management believes
that these proceedings will not result in a material loss to the
Company.
Item 2. Changes in Securities and Use of Proceeds.
During the period ended March 31, 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 Issued Purchasers Issues Price
----------- ---------- ------ -----
01/08/99 Employees 75,985 $336,125
03/24/99 Employee 1,400 6,622
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. See Exhibit Index.
(b) Reports on Form 8-K. No report on Form 8-K was filed during the
quarter ended March 31, 1999
12
<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: May 5, 1999 By: /s/ Robert E. Dye
-------------------
Robert E. Dye
President and Chairman of the Board
Dated: May 5, 1999 By: /s/ William B. West
---------------------
William B. West
Sr. Vice President & CFO
(principal financial officer)
13
<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 March 31, 1999, (unaudited) and the Consolidated
Statement of Income for the three months ended March 31, 1999 (unaudited) and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 4,592
<INT-BEARING-DEPOSITS> 114,102
<FED-FUNDS-SOLD> 15,860
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 32,655
<INVESTMENTS-CARRYING> 4,226
<INVESTMENTS-MARKET> 4,348
<LOANS> 100,708
<ALLOWANCE> 1,200
<TOTAL-ASSETS> 166,667
<DEPOSITS> 132,957
<SHORT-TERM> 7,906
<LIABILITIES-OTHER> 85
<LONG-TERM> 2,000
0
0
<COMMON> 4,745
<OTHER-SE> 18,174
<TOTAL-LIABILITIES-AND-EQUITY> 166,667
<INTEREST-LOAN> 2,181
<INTEREST-INVEST> 709
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 2890
<INTEREST-DEPOSIT> 1,126
<INTEREST-EXPENSE> 1,220
<INTEREST-INCOME-NET> 1,670
<LOAN-LOSSES> 119
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,487
<INCOME-PRETAX> 431
<INCOME-PRE-EXTRAORDINARY> 431
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 285
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
<YIELD-ACTUAL> 4.57
<LOANS-NON> 513
<LOANS-PAST> 0
<LOANS-TROUBLED> 8
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,093
<CHARGE-OFFS> 33
<RECOVERIES> 20
<ALLOWANCE-CLOSE> 1,200
<ALLOWANCE-DOMESTIC> 1,200
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
