SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended Commission file
June 30, 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 June
30, 1999 was 2,841,901.
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>
June 30, 1999 December 31, 1998
Unaudited Audited
--------- -------
ASSETS
<S> <C> <C>
CASH AND DUE FROM BANKS ...................................................... $ 7,128,000 $ 3,413,000
FEDERAL FUNDS SOLD ........................................................... 20,290,000 17,980,000
SECURITIES
Available for sale ...................................................... 31,972,000 31,971,000
Held for investment (market value of $4,348,000
and $4,265,000) ..................................................... 4,224,000 4,128,000
LOANS-less allowance for loan losses of $1,361,000
and $1,093,000) ......................................................... 117,415,000 86,924,000
PREMISES AND EQUIPMENT, net of accumulated
depreciation and amortization ........................................... 6,389,000 4,926,000
ACCRUED INTEREST RECEIVABLE .................................................. 1,137,000 922,000
OTHER ASSETS ................................................................. 2,033,000 1,407,000
------------- -------------
TOTAL ASSETS ........................................................ $ 190,588,000 $ 151,671,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
DEPOSITS
Noninterest-bearing ..................................................... $ 23,664,000 $ 14,991,000
Interest-bearing ........................................................ 124,214,000 105,109,000
------------- -------------
Total deposits ...................................................... 147,878,000 120,100,000
SECURITIES SOLD UNDER REPURCHASE
AGREEMENTS .............................................................. 15,847,000 5,980,000
NOTES PAYABLE FEDERAL HOME LOAN BANK ......................................... 3,000,000 2,000,000
ACCRUED INTEREST PAYABLE ..................................................... 896,000 867,000
OTHER LIABILITIES ............................................................ 136,000 253,000
------------- -------------
Total Liabilities ................................................... 167,757,000 129,200,000
------------- -------------
SHAREHOLDERS' EQUITY
Common Stock - 10,000,000 shares authorized,
$1.67 par value per share, 2,841,901 and
2,764,016 shares outstanding ............................................ 4,746,000 4,616,000
Additional paid-in capital ................................................... 17,312,000 17,092,000
Retained Earnings ............................................................ 1,144,000 811,000
Accumulated other comprehensive income ....................................... (371,000) (48,000)
------------- -------------
Total Shareholders' Equity .......................................... 22,831,000 22,471,000
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................................... $ 190,588,000 $ 151,671,000
============= =============
</TABLE>
2
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
INTEREST INCOME
<S> <C> <C> <C> <C>
Interest and fees on loans ..................................... $2,406,000 $1,814,000 $4,587,000 $3,619,000
Interest on securities
Taxable ................................................... 459,000 388,000 926,000 692,000
Tax-exempt ................................................ 53,000 57,000 107,000 118,000
Interest on fed funds .......................................... 212,000 114,000 400,000 199,000
---------- ---------- ---------- ----------
Total interest income .......................................... 3,130,000 2,373,000 6,020,000 4,628,000
INTEREST EXPENSE
Interest on deposits ........................................... 1,254,000 1,046,000 2,380,000 2,064,000
Interest on federal funds purchased and securities
sold under repurchase agreements .......................... 86,000 41,000 154,000 78,000
Interest on notes payable Federal Home
Loan Bank ................................................. 36,000 28,000 62,000 56,000
---------- ---------- ---------- ----------
Total interest expense ......................................... 1,376,000 1,115,000 2,596,000 2,198,000
---------- ---------- ---------- ----------
Net interest income ............................................ 1,754,000 1,258,000 3,424,000 2,430,000
PROVISION FOR LOAN LOSSES ...................................... 171,000 5,000 291,000 2,000
---------- ---------- ---------- ----------
Net interest income after provision for
loan losses ............................................... 1,583,000 1,253,000 3,133,000 2,428,000
NON-INTEREST INCOME
Service fees and other income .................................. 383,000 288,000 751,000 543,000
Gain on sales of securities available for sale ................. 0 0 0 0
---------- ---------- ---------- ----------
383,000 288,000 751,000 543,000
NON-INTEREST EXPENSE
Salaries and benefits .......................................... 885,000 529,000 1,727,000 1,029,000
Occupancy ...................................................... 78,000 50,000 140,000 107,000
Equipment ...................................................... 141,000 79,000 247,000 146,000
Other operating expenses ....................................... 488,000 289,000 965,000 562,000
---------- ---------- ---------- ----------
1,592,000 947,000 3,079,000 1,844,000
Income before income taxes ..................................... 374,000 594,000 805,000 1,127,000
PROVISION FOR INCOME TAXES ..................................... 127,000 196,000 273,000 372,000
---------- ---------- ---------- ----------
Net income ..................................................... $ 247,000 $ 398,000 $ 532,000 $ 755,000
========== ========== ========== ==========
INCOME PER COMMON SHARE:
BASIC ..................................................... $ 0.09 $ 0.21 $ 0.19 $ 0.43
========== ========== ========== ==========
DILUTED ................................................... $ 0.08 $ 0.20 $ 0.18 $ 0.39
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC ..................................................... 2,841,901 1,895,638 2,841,184 1,756,328
DILUTED ................................................... 3,049,918 1,988,400 3,001,002 1,912,960
DIVIDENDS PAID PER COMMON
SHARE ..................................................... $ 0.035 $ 0.035 $ 0.07 $ 0.07
========== ========== ========== ==========
</TABLE>
3
<PAGE>
Peoples Bancorporation, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
for the six months ended June 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 ............................ 755,000 755,000
Other comprehensive income, net of
tax:
Unrealized holding gains on
securities available for sale ...... (16,000) (16,000)
Less reclassification
adjustments for gains
included in net income ............. 0 0
------------
Comprehensive income .................. 739,000
Cash Dividends ........................ (118,000) (118,000)
Proceeds from stock options ........... 8,000 14,000 22,000 36,000
--------- ------------ ------------ ------------ ------------ ------------
Balance, March 31, 1998 ............... 1,695,000 $ 2,832,000 $ 5,180,000 $ 2,190,000 $ (36,000) $ 10,166,000
========= ============ ============ ============ ============ ============
Balance, December 31, 1998 ............ 2,764,000 $ 4,616,000 $ 17,092,000 $ 811,000 $ (48,000) $ 22,471,000
Net Income ............................ 532,000 532,000
Other comprehensive income, net of
tax:
Unrealized holding losses on
securities available for sale ...... (323,000) (323,000)
Less reclassification
adjustments for gains
included in net income ............. 0 0
------------
Comprehensive income .................. 209,000
Cash Dividends ........................ (199,000) (199,000)
Proceeds from stock options ........... 78,000 130,000 220,000 350,000
--------- ------------ ------------ ------------ ------------ ------------
Balance, March 31, 1999 ............... 2,842,000 $ 4,746,000 $ 17,312,000 $ 1,144,000 $ (371,000) $ 22,831,000
========= ============ ============ ============ ============ ============
</TABLE>
4
<PAGE>
Peoples Bancorporation, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------------
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income ........................................................................ $ 532,000 $ 755,000
Adjustments to reconcile net income to net cash provided
by operating activities
Provision for loan losses ......................................................... 291,000 2,000
Depreciation and amortization ..................................................... 183,000 104,000
Amortization and accretion (net) of premiums and
discounts on securities ......................................................... 59,000 85,000
Increase in accrued interest receivable ........................................... (214,000) (44,000)
Increase in other assets .......................................................... (436,000) (159,000)
Increase in accrued interest payable .............................................. 28,000 65,000
Decrease in other liabilities ..................................................... (141,000) (318,000)
------------ ------------
Net cash provided by (used in) operating activities ............................. 302,000 490,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities held for investment ....................................... (100,000) (102,000)
Purchases of securities available for sale ........................................ (7,776,000) (16,464,000)
Proceeds from the maturity of securities available for sale ....................... 4,171,000 6,475,000
Proceeds from the call of securities available for sale ........................... 3,060,000 3,200,000
Net (increase) decrease in loans .................................................. (30,782,000) 1,335,000
Purchase of premises and equipment ................................................ (1,646,000) (695,000)
------------ ------------
Net cash used by investing activities ........................................... (33,073,000) (6,251,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits .......................................................... 27,778,000 9,315,000
Net increase (decrease) in securities sold under
repurchase agreements ........................................................... 9,867,000 (821,000)
Net increase (decrease) in notes payable Federal Home Loan Bank ................... 1,000,000 (31,000)
Proceeds from stock options exercised ............................................. 350,000 36,000
Cash dividend ..................................................................... (199,000) (118,000)
------------ ------------
Net cash provided by financing activities ....................................... 38,796,000 8,381,000
------------ ------------
Net increase in cash and cash equivalents ....................................... 6,025,000 2,620,000
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ......................................... 21,393,000 8,479,000
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................................. $ 27,418,000 $ 11,099,000
============ ============
CASH PAID FOR
Interest ........................................................................ $ 2,567,000 $ 1,929,000
============ ============
Income Taxes .................................................................... $ 520,000 $ 356,000
============ ============
</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 June 24, 1999 and March 18, 1999, payable 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 2,841,184 at June 30, 1999
and 1,606,142 at June 30, 1998. The weighted average number of common shares
outstanding for diluted net income per common share was 3,001,002 at June 30,
1999 and 1,657,954 at June 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 six-month period ending June 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.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EARNINGS REVIEW
The Company's net income for the second quarter of 1999 was $247,000, or
$0.09 per basic share ($0.08 per diluted share) compared to $398,000, or $0.21
per basic share ($0.20 per diluted share), for the second quarter of 1998. Net
income for the six months ended June 30, 1999 was $532,000, or $0.19 per basic
share ($0.18 per diluted share), compared to $755,000, or $0.43 per basic share
($0.39 per diluted share), for the six months ended June 30, 1998. Return on
average equity for the six months and three months ended June 30, 1999 was 4.66%
and 4.27%, respectively, compared to 15.20% and 16.01%, respectively for the six
months and three months ended June 30, 1998. Return on average assets for the
six months and three months ended June 30, 1999 was 0.63% and 0.56%,
respectively, compared to 1.25% and 1.32%, respectively, for the six months and
three months ended June 30, 1998. The decreases in the Company's net income and
return on average assets in the 1999 periods 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
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.
7
<PAGE>
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 $496,000, or 39.4%,
to $1,754,000 in the 1999 quarter compared to $1,258,000 in the 1998 quarter.
For the six months ended June 30, 1999, net interest income before provision for
loan losses increased $994,000, or 40.9%, to $3,424,000 compared to $2,430,000
for the six months ended June 30, 1998. The Company's net interest margin was
4.35% and 4.46%, respectively, for the quarter and six months ended June 30,
1999, compared to 4.27% and 4.12%, respectively, for the quarter and six months
ended June 30, 1998. The increase in net interest income and the net interest
margin resulted primarily from an increase in earning assets, primarily loans,
attributable to all three of the Company's banking subsidiaries, coupled with a
decrease in the cost of interest-bearing liabilities at The Peoples National
Bank.
Non-interest Income
Non-interest income increased $95,000, or 33.1%, to $383,000 for the second
quarter of 1999 compared to $288,000 for the 1998 second quarter. For the six
months ended June 30, 1999 non-interest income increased $208,000, or 38.3%, to
$751,000 compared to $543,000 for the six months ended June 30, 1998. The
increase in non-interest income for the two comparative periods resulted largely
from an increase in origination fees on mortgage loans 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 $645,000, or 68.0%, to $1,592,000 for
the second quarter of 1999 compared to $947,000 for the second quarter of 1998.
For the first six months of 1999, total non-interest expense increased
$1,235,000, or 67.0%, to $3,079,000 compared to $1,844,000 for the first six
months of 1998. Salaries and benefits, the largest component of non-interest
expense, increased $356,000, or 67.3%, in the second quarter of 1999 compared to
the 1998 quarter. For the six months ended June 30, 1999, salaries and benefits
increased $698,000, or 67.8%, to $1,727,000 compared to $1,029,000 for the six
months ended June 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, and additional staffing and normal
salary increases at The Peoples National Bank. Occupancy expense increased
$28,000, or 56.0%, in the 1999 quarter compared to the 1998 quarter. For the
first six months of 1999 occupancy expense totaled $140,000, a $32,000, or
29.9%, increase over the $107,000 recorded for the first six 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 $62,000, or 77.7%, to $141,000 in the 1999
8
<PAGE>
quarter when compared to the 1998 quarter. For the first six months of 1999,
equipment expense totaled $247,000, a $101,000, or 69.3% increase over the
$146,000 recorded for the first six 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 expense increased $199,000, or
69.1%, to $488,000 for the 1999 quarter when compared to the 1998 quarter. For
the six months ended June 30, 1999, other operating expenses increased $405,000,
or 72.2%, to $561,000 compared to $403,000 in other operating expenses recorded
during the first six 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 six month period ended June 30, 1999 was $171,000 and $291,000,
respectively, compared to $5,000 and $2,000, respectively, for the three month
and six month period ended June 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 six months of 1999. For the three month and
six month period ended June 30, 1999, Bank of Anderson, N.A, made provisions of
$55,000 and $107,000, respectively. For the three month and six month period
ended June 30, 1999, Seneca National Bank made provisions of $18,000 and
$61,000, respectively. Neither of these two banks was open during the first six
months of 1998. For the three month and six month period ended June 30, 1999,
The Peoples National Bank made provisions of $98,000 and $123,000, respectively,
compared to provisions of $5,000 and $2,000, respectively, for the same
comparable periods in 1998. At 1.15% 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
67.8% of total earning assets. As of June 30, 1999, the Company had total gross
loans outstanding of $118,776,000. Gross loans increased $30,759,000, or 34.9%,
from $88,017,000 in total gross outstanding loans at December 31, 1998. The
increase resulted from new loans generated by Bank of Anderson, N. A. and Seneca
National Bank and internal loan growth experienced by The Peoples National Bank.
At June 30, 1999, Bank of Anderson, N. A. had gross outstanding loans of
$16,669,000; Seneca National Bank had gross outstanding loans of $5,051,000; and
The Peoples National Bank had outstanding gross loans of $97,056,000.
9
<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 six month period ended June 30, 1999 was
8.99% compared to 9.16%, for the first six months of 1998. Approximately 29.5 %
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. At June 30, 1999, the Company held $5,660,000 in originated
mortgage loans for sale compared to none at December 31, 1998.
Allowance for Loan Losses
The allowance for loan losses at June 30, 1999 was $1,361,000, or 1.15% 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 June 30, 1999, the Company had $559,000 in non-accruing loans, $205,000
in restructured loans, no loans more than ninety days past due and still
accruing interest and $313,000 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 June 30,
1999 consist of $12,000 in commercial loans; $539,000 in mortgage loans; and
$8,000 in consumer loans. Non-performing assets as a percentage of loans and
other real estate owned was 0.47% and 0.74% at June 30, 1999 and December 31,
1998, respectively.
Net charge-offs during the three month period and six month period ended
June 30, 1999 were $11,000 and $23,000, respectively, compared to net
charge-offs of $26,000 and $7,000, respectively, for the three month and six
month period ended June 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 243%, 198% and 177%, respectively, as of June 30, 1999,
June 30, 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 June 30, 1999, June 30, 1998
and December 31, 1998 the Company had no impaired loans.
Securities
Investment securities constituted 20.9% and 25.4% of earning assets as of
June 30, 1999 and December 31, 1998, respectively. At June 30, 1999, the book
value of the Company's total securities portfolio totaled $36,757,000, up
$582,000 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 June 30, 1999, the Company's total investments classified as
available for sale had a book value of $32,534,000 and a market value of
$31,972,000 for an unrealized net loss of $562,000.
10
<PAGE>
The Company uses its investment portfolio to provide liquidity for
unexpected deposit liquidation or loan generation, to meet the Company's
interest rate sensitivity goals and to generate income. The Company emphasizes
safety in its selection of investment securities. Accordingly, the investment
portfolio is limited to securities of the United States government or its
agencies, mortgage backed securities and investment-grade state and municipal
securities. The Company does not invest in corporate bonds nor does it hold any
trading securities.
Deposits
The Bank's primary source of funds for loans and investments is its
deposits. Deposits grew $27,778,000, or 23.2%, to $147,878,000 at June 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.
During the first six months of 1999, interest-bearing deposits averaged
$114,590,000 compared to $90,588,000 for the first six months of 1998. The
average interest rate paid on interest-bearing deposits was 4.15% for the first
six months of 1999 compared to 4.59% for the first six months of 1998. In
pricing deposits, the Company considers its liquidity needs, the direction and
levels of interest rates and local market conditions. At June 30, 1999
interest-bearing deposits comprised 84.0% of total deposits compared to 86.4% at
June 30, 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 82.4% for the six months ended June 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 June 30, 1999, certificates of deposit greater than $100,000
totaled $28,987,000 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 June 30, 1999, The Peoples
National Bank had $3,000,000 in short-term borrowings from the Federal Home Loan
Bank of Atlanta. At June 30, 1999 The Peoples National Bank had unused borrowing
capacity from the Federal Home Loan Bank of Atlanta of $13,000,000. The
Company's other two bank subsidiaries, Bank of Anderson, N. A. and Seneca
National Bank are in the process of establishing lines of credit with the
Federal Home Loan Bank. At June 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. Those needs are presently met by dividends
from The Peoples National Bank.
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.
11
<PAGE>
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 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 June 30, 1999:
12
<PAGE>
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 ..................... $24,563 19.36% $12,690 10.00% $10,152 8.00%
Tier 1 Risk-based Capital .................... $23,202 18.28% $ 7,614 6.00% $ 5,076 4.00%
Leverage Ratio ............................... $23,202 12.06% $ 9,616 5.00% $ 7,693 4.00%
Peoples National Bank:
Total Risk-based Capital ..................... $12,679 12.81% $ 9,898 10.00% $ 7,918 8.00%
Tier 1 Risk-based Capital .................... $11,578 11.70% $ 5,939 6.00% $ 3,959 4.00%
Leverage Ratio ............................... $11,578 8.54% $ 6,779 5.00% $ 5,423 4.00%
Bank of Anderson, N. A:
Total Risk-based Capital ..................... $ 5,349 26.85% $ 1,992 10.00% $ 1,594 8.00%
Tier 1 Risk-based Capital .................... $ 5,149 35.85% $ 1,195 6.00% $ 797 4.00%
Leverage Ratio ............................... $ 5,149 17.20% $ 1,497 5.00% $ 1,197 4.00%
Seneca National Bank:
Total Risk-based Capital ..................... $ 3,358 45.64% $ 736 10.00% $ 589 8.00%
Tier 1 Risk-based Capital .................... $ 3,297 44.81% $ 441 6.00% $ 294 4.00%
Leverage Ratio ............................... $ 3,297 27.29% $ 604 5.00% $ 483 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
in use today exclude the century as part of the date definition, which could
cause inaccurate interest calculations on loans and deposits and other problems.
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. As a contingency plan, alternative vendors/programs
have been identified for all critical function areas, as classified by the Y2K
Team, and will be acquired 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 June 30, 1999, the Company's Year 2000
compliance expenditures totaled $80,347. 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.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various claims and legal actions
arising in the normal course of business. Management believes
that these proceedings will not result in a material loss to
the Company.
Item 2. Changes in Securities and Use of Proceeds
During the period ended June 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 the 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 Issued Price
----------- ---------- ------ -----
01/08/99 Employees 75,985 $ 336,125
03/24/99 Employee 1,400 $ 6,622
4/30/99 Director 500 $ 7,500
Item 4. Submission to a Vote of Security Holders
On April 12, 1999, the Company held its 1999 Annual Meeting of Shareholders. The
result of the 1999 Annual Meeting of Shareholders is as follows:
Election of Directors
The following persons were elected as Directors to serve for a term of three
years with 2,012,749 shares voted, representing 67.6% of the
total voting shares:
FOR WITHHELD AGAINST
Garnet A. Barnes 2,009,494 3,255 0
Charles E. Dalton 2,009,284 3,465 0
Robert E. Dye, Sr. 2,010,229 2,520 0
R. Riggie Ridgeway 2,005,504 7,245 0
Also state the number of votes against and abstentions as to each director.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K. No report on Form 8-K was filed during the
quarter ended June 30, 1999
14
<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: August 6, 1999 By: /s/ Robert E. Dye
-------------------
Robert E. Dye
President and Chairman of the Board
Dated: August 6, 1999 By: /s/ William B. West
---------------------
William B. West
Sr. Vice President & CFO
(principal financial officer)
15
<PAGE>
EXHIBIT INDEX
Exhibit No. from
Item 601 of
Regulation S-B Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at June 30, 1999, (unaudited) and the Consolidated
Statement of Income for the six months ended June 30, 1999 (unaudited) and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,870
<INT-BEARING-DEPOSITS> 124,214
<FED-FUNDS-SOLD> 20,290
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 31,972
<INVESTMENTS-CARRYING> 4,224
<INVESTMENTS-MARKET> 4,348
<LOANS> 118,776
<ALLOWANCE> 1,361
<TOTAL-ASSETS> 190,588
<DEPOSITS> 147,878
<SHORT-TERM> 15,847
<LIABILITIES-OTHER> 136
<LONG-TERM> 3,000
0
0
<COMMON> 4,746
<OTHER-SE> 18,085
<TOTAL-LIABILITIES-AND-EQUITY> 190,588
<INTEREST-LOAN> 4,587
<INTEREST-INVEST> 1,433
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 6,020
<INTEREST-DEPOSIT> 2,380
<INTEREST-EXPENSE> 2,596
<INTEREST-INCOME-NET> 3,424
<LOAN-LOSSES> 291
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,079
<INCOME-PRETAX> 805
<INCOME-PRE-EXTRAORDINARY> 805
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 532
<EPS-BASIC> 0.19
<EPS-DILUTED> 0.18
<YIELD-ACTUAL> 4.45
<LOANS-NON> 559
<LOANS-PAST> 0
<LOANS-TROUBLED> 205
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,093
<CHARGE-OFFS> 67
<RECOVERIES> 44
<ALLOWANCE-CLOSE> 1,361
<ALLOWANCE-DOMESTIC> 1,361
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
