SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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, 2000 000-20616
PEOPLES BANCORPORATION, INC.
(Exact name of registrant as specified in its charter)
South Carolina 57-09581843
-------------- -----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1814 East Main Street, Easley, South Carolina 29640
--------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant'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, 2000 was 3,011,060.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Peoples Bancorporation, Inc. and Subsidiaries
Consolidated Balance Sheets
(Amounts in thousands except share data)
<TABLE>
<CAPTION>
June 30, June 30, December 31,
2000 1999 1999
Unaudited Unaudited Audited
--------- --------- -------
ASSETS
<S> <C> <C> <C>
CASH AND DUE FROM BANKS ............................................. $ 8,456 $ 7,128 $ 6,507
INTEREST-BEARING DEPOSITS IN OTHER BANKS ............................ 0 0 5,047
FEDERAL FUNDS SOLD .................................................. 4,850 20,290 9,200
SECURITIES
Available for sale ............................................. 33,887 31,972 31,209
Held for investment (market value of $3,738,
$4,348 and $4,438) ......................................... 3,747 4,224 4,445
LOANS-less allowance for loan losses of $1,812,
$1,361 and $1,581 .............................................. 168,238 111,755 140,336
LOANS HELD FOR SALE ................................................. 17,949 5,660 6,662
PREMISES AND EQUIPMENT, net of accumulated
Depreciation and amortization .................................. 7,164 6,389 6,969
ACCRUED INTEREST RECEIVABLE ......................................... 1,644 1,137 1,544
OTHER ASSETS ........................................................ 2,296 2,033 1,994
--------- --------- ---------
TOTAL ASSETS ............................................... $ 248,231 $ 190,588 $ 213,913
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
DEPOSITS
Noninterest-bearing ............................................ $ 30,148 $ 23,664 $ 19,953
Interest-bearing ............................................... 167,869 124,214 148,823
--------- --------- ---------
Total deposits ............................................. 198,017 147,878 168,776
SECURITIES SOLD UNDER REPURCHASE
AGREEMENTS ..................................................... 16,461 15,847 15,434
NOTES PAYABLE TO FEDERAL HOME LOAN BANK ............................. 8,000 3,000 5,000
ACCRUED INTEREST PAYABLE ............................................ 1,339 896 1,154
OTHER LIABILITIES ................................................... 245 136 203
--------- --------- ---------
Total Liabilities .......................................... 224,062 167,757 190,567
--------- --------- ---------
SHAREHOLDERS' EQUITY
Common Stock - 10,000,000 shares authorized,
$1.67 Par value per share,
3,011,060 shares, 2,841,901 shares
and 2,987,627 shares outstanding ............................... 5,028 4,746 4,989
Additional paid-in capital .......................................... 18,832 17,312 18,867
Retained Earnings ................................................... 898 1,144 0
Accumulated other comprehensive income .............................. (589) (371) (510)
--------- --------- ---------
Total Shareholder's Equity ................................. 24,169 22,831 23,346
--------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY ........................... $ 248,231 $ 190,588 $ 213,913
========= ========= =========
</TABLE>
1
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands except share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
INTEREST INCOME
<S> <C> <C> <C> <C>
Interest and fees on loans ..................................... $ 3,983 $ 2,406 $ 7,505 $ 4,587
Interest on securities
Taxable ................................................... 527 460 1,050 926
Tax-exempt ................................................ 49 53 103 107
Interest on federal funds ...................................... 87 211 239 400
---------- ---------- ---------- ----------
Total interest income .......................................... 4,646 3,130 8,897 6,020
INTEREST EXPENSE
Interest on deposits ........................................... 2,015 1,254 3,774 2,380
Interest on federal funds purchased and securities
sold under repurchase agreements .......................... 166 85 358 153
Interest on notes payable Federal Home
Loan Bank ................................................. 92 36 118 62
---------- ---------- ---------- ----------
Total interest expense ......................................... 2,273 1,375 4,250 2,595
Net interest income ............................................ 2,373 1,755 4,647 3,425
PROVISION FOR LOAN LOSSES ...................................... 155 172 318 291
---------- ---------- ---------- ----------
Net interest income after provision for
loan losses ............................................... 2,218 1,583 4,329 3,134
NON-INTEREST INCOME
Service fees and other income .................................. 628 383 1,093 751
Gain on sales of securities available for sale ................. 0 0 0 0
---------- ---------- ---------- ----------
628 383 1,093 751
NON-INTEREST EXPENSE
Salaries and benefits .......................................... 1,110 886 2,158 1,727
Occupancy ...................................................... 87 78 173 140
Equipment ...................................................... 156 141 292 247
Other operating expenses ....................................... 599 487 1,116 965
---------- ---------- ---------- ----------
1,952 1,592 3,739 3,079
Income before income taxes ..................................... 894 374 1,683 806
PROVISION FOR INCOME TAXES ..................................... 312 127 575 274
---------- ---------- ---------- ----------
Net income ..................................................... $ 582 $ 247 $ 1,108 $ 532
========== ========== ========== ==========
INCOME PER COMMON SHARE:
BASIC ..................................................... $ 0.19 $ 0.08 $ 0.37 $ 0.18
========== ========== ========== ==========
DILUTED ................................................... $ 0.18 $ 0.08 $ 0.35 $ 0.17
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC ...................................................... 2,995,955 2,983,996 2,992,178 2,983,243
========= ========= ========= =========
DILUTED .................................................... 3,220,734 3,202,414 3,104,568 3,088,486
========== ========== ========== ==========
DIVIDENDS PAID PER COMMON
SHARE ..................................................... $ 0.035 $ 0.035 $ 0.07 $ 0.07
========== ========== ========== ==========
</TABLE>
2
<PAGE>
Peoples Bancorporation, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
for the six months ended June 30, 2000 and 1999
(Amounts in thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Common stock Additional other Total
------------ paid-in Retained comprehensive shareholders'
Shares Amount capital earnings income equity
------ ------ ------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 ..................... 2,764,016 $ 4,616 $ 17,092 $ 811 $ (48) $ 22,471
Net Income ..................................... 532 532
Other comprehensive income, net of
tax:
Unrealized holding gains on
securities available for sale ............... (323) (323)
Less reclassification
adjustments for gains
included in net income ...................... 0 0
--------
Comprehensive income ........................... 209
Cash Dividends ................................. (199) (199)
Proceeds from stock options .................... 77,885 130 220 350
--------- ----------- ----------- ------- ----- --------
Balance, June 30, 1999 ......................... 2,841,901 $ 4,746 $ 17,312 $ 1,144 $(371) $ 22,831
========= =========== =========== ======= ===== ========
Balance, December 31, 1999 * ................... 2,987,627 $ 4,989 $ 18,867 $ 0 $(510) $ 23,346
Net Income ..................................... 1,108 1,108
Other comprehensive income, net of
tax:
Unrealized holding losses on
securities available for sale ............... (79) (79)
Less reclassification
adjustments for gains
included in net income ...................... 0 0
--------
Comprehensive income ........................... 1,029
Cash Dividends ................................. (210) (210)
Proceeds from stock options .................... 23,433 39 (35) 4
--------- ----------- ----------- ------- ----- --------
Balance, June 30, 2000 year .................... 3,011,060 $ 5,028 $ 18,832 $ 898 $(589) $ 24,169
========= =========== =========== ======= ===== ========
</TABLE>
* 5% stock dividend issued in January 2000 is reflected in December 31, 1999
data.
3
<PAGE>
Peoples Bancorporation, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Amounts in thousands except share data)
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended
June 30,
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income .......................................................................... $ 1,108 $ 532
Adjustments to reconcile net income to net cash provided
by (used in) operating activities
Provision for loan losses ........................................................... 318 291
Depreciation and amortization ....................................................... 259 183
Amortization and accretion (net) of premiums and
discounts on securities ........................................................... 18 59
Increase in accrued interest receivable ............................................. (100) (214)
Increase in other assets ............................................................ (252) (436)
Increase in accrued interest payable ................................................ 185 28
Increase (decrease) in other liabilities ............................................ 34 (141)
-------- --------
Net cash provided by (used in) operating activities ............................... 1,570 (302)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities held for investment ......................................... 0 (100)
Purchases of securities available for sale .......................................... (4,330) (7,776)
Proceeds from the maturity of securities available for sale ......................... 2,078 4,171
Proceeds from the call of securities available for sale ............................. 133 3,060
Net increase in loans ............................................................... (39,508) (30,782)
Purchase of premises and equipment .................................................. (453) (1,646)
-------- --------
Net cash used in investing activities ............................................. (42,080) (33,073)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits ............................................................ 29,241 27,778
Net increase in securities sold under repurchase
agreements ........................................................................ 1,027 9,867
Net increase in Federal funds purchased ............................................. 0 0
Net decrease in notes payable Federal Home Loan Bank ................................ 3,000 1,000
Proceeds from stock options exercised ............................................... 4 350
Cash dividend ....................................................................... (210) (199)
-------- --------
Net cash provided by financing activities ......................................... 33,062 38,796
-------- --------
Net increase (decrease) in cash and cash equivalents .............................. (7,448) 6,025
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ........................................... 20,754 21,393
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................................... $ 13,306 $ 27,418
======== ========
CASH PAID FOR
Interest .......................................................................... $ 4,065 $ 2,567
======== ========
Income Taxes ...................................................................... $ 391 $ 520
======== ========
</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 1999 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 June 22, 2000 and March 23, 2000, respectively,
payable July 7, 2000 and April 6, 2000, respectively.
SFAS No. 128, "Earnings per Share" requires that the Company present basic
and diluted net income per common 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 2,992,178
at June 30, 2000 and 2,983,243 at June 30 1999. The weighted average number of
common shares outstanding for diluted net income per common share was 3,104,568
at June 30, 2000 and 3,088,486 at June 30, 1999.
The Company issued a five-percent common stock dividend in January 2000.
Per share data in 1999 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 1999
Annual Report of Peoples Bancorporation, Inc. on Form 10-K. Results of
operations for the three-month and six-month periods ending June 30, 2000 are
not necessarily indicative of the results to be attained for any other period.
Forward-Looking Statements
From time to time, Peoples Bancorporation, Inc. (the "Company") may
publish forward-looking statements relating to such matters as anticipated
financial performance, business prospects, technological developments, new
products and similar matters. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements. In order to comply
with the terms of the safe harbor, the Company notes that a variety of factors
could cause the Company's actual results and experience to differ materially
from the anticipated results or other expectations expressed in the Company's
forward-looking statements. The risks and uncertainties that may affect the
operations, performances, development and results of the Company's business
include, but are not limited to, the following: risks from changes in economic
and industry conditions; changes in interest rates; risks inherent in making
loans including repayment risks and value of collateral; dependence on senior
management; and recently-enacted or proposed legislation. Statements contained
in this filing regarding the demand for 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.
6
<PAGE>
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. On May 19, 2000, the Company filed an
election with the Federal Reserve Bank of Richmond to become a financial holding
company, pursuant to the Gramm-Leach-Bliley Act of 1999. As a financial holding
company, Peoples Bancorporation, Inc. may engage in activities that are
financial in nature or incidental to a financial activity. The activities
permissible for a financial holding company and the applicable notice procedures
are contained in sections 225-85 through 225.89 of the Federal Reserve Board's
Regulation Y (12 C.F.R. 225.85-89). The election to become a financial holding
company became effective June 23, 2000.
The Company currently 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").
Currently, 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 six banking offices located in the Upstate Area of
South Carolina.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EARNINGS PERFORMANCE
Overview
The consolidated Company's net income for the second quarter of 2000 was
$582,000, or $0.18 per diluted share compared to $247,000, or $0.08 per diluted
share for the second quarter of 1999. Net income for the six months ended June
30, 2000 was $1,108,000, or $0.35 per diluted share, compared to $532,000, or
$0.17 per diluted share for the six months ended June 30, 1999. Return on
average equity for the six months and three months ended June 30, 2000 was 9.15%
and 9.52%, respectively, compared to 4.66% and 4.27%, respectively for the six
months and three months ended June 30, 1999. Return on average assets for the
six months and three months ended June 30, 2000 was 0.96% and 0.97%,
respectively, compared to 0.63% and 0.56%, respectively, for the six months and
three months ended June 30, 1999. The increases in the Company's net income,
earnings per fully diluted share, return on average equity, and return on
average assets in 2000 are attributable to the diminished early operating losses
associated with Seneca National Bank, which commenced operations in February
1999, the attainment of profitability associated with Bank of Anderson, N. A.,
which commenced business operations in September 1998, and increased earnings at
The Peoples National Bank resulting largely from an increase in interest income
from a larger base of interest-earning assets. For the six months ended June 30,
2000, Bank of Anderson, N. A. recorded net earnings of $104,000 compared to a
net loss of $110,000 for the six months ended June 30, 1999. Seneca National
Bank recorded a net loss of $3,000 for the six months ended June 30, 2000
compared to a net loss of $155,000 for the six months ended June 30, 1999. The
Peoples National Bank recorded net earnings of $1,011,000 for the six months
ended June 30, 2000 compared to net earnings of $769,000 for the six months
ended June 30, 1999.
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 $618,000, or 35.2%,
to $2,373,000 in the second quarter of 2000 compared to $1,755,000 in the second
quarter of 1999. For the six months ended June 30, 2000, net interest income
7
<PAGE>
before provision for loan losses increased $1,222,000, or 35.7%, to $4,647,000
compared to $3,425,000 for the six months ended June 30, 1999. The Company's net
interest margin was 4.26% and 4.37%, respectively, for the quarter and six
months ended June 30, 2000, compared to 4.35% and 4.46%, respectively, for the
quarter and six months ended June 30, 1999. The increases in net interest income
for the quarter and year-to-date period in 2000 when compared to the quarter and
year-to-date period in 1999 resulted largely from an increase in earning assets,
primarily loans, attributable to all three of the Company's banking
subsidiaries. The decreases in the Company's net interest margin for the 2000
periods when compared to the 1999 periods is attributable to an overall increase
in the Company's cost of interest bearing liabilities in the 2000 periods.
Provision for Loan Losses
The amount charged to the provision for loan losses by the Company is based
on management's judgment as to the amount required to maintain an allowance
adequate to provide for potential losses in the Company's loan portfolio.
The provision for loan losses charged to operations during the three months
ended June 30, 2000 was $155,000 compared to $172,000 for the three months ended
June 30, 1999, a decrease of $17,000 or 11.0%. However, the provision for loan
losses during the six months ended June 30, 2000 was $318,000 compared to
$291,000 for the six months ended June 30, 1999, an increase of $27,000 or 9.3%.
The variations in the provision for loan losses reflect the growth in the loan
portfolio, the net amount of assets being charged off by the Company against the
allowance for loan losses, and possible changes in the levels of risk associated
with the various loans in the portfolio.
Non-interest Income
Non-interest income increased $245,000, or 64.0%, to $628,000 for the
second quarter of 2000 compared to $383,000 for the second quarter of 1999. For
the six months ended June 30, 2000 non-interest income increased $342,000, or
45.5%, to $1,093,000 compared to $751,000 for the six months ended June 30,
1999. The increase in non-interest income for the two comparative periods
resulted largely from an increase in fees on mortgage loans, an increase in
service charge income on deposit accounts, and an increase in income derived
from the sale of alternative investment products. 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 $360,000, or 22.6%, to $1,952,000 for
the second quarter of 2000 compared to $1,592,000 for the second quarter of
1999. For the first six months of 2000, total non-interest expense increased
$660,000, or 21.4%, to $3,739,000 compared to $3,079,000 for the first six
months of 1999. Salaries and benefits, the largest component of non-interest
expense, increased $224,000, or 25.3%, in the second quarter of 2000 compared to
the second quarter of 1999. For the six months ended June 30, 2000, salaries and
benefits increased $431,000, or 25.0%, to $2,158,000 compared to $1,727,000 for
the six months ended June 30, 1999. The increase in salaries and benefits for
the comparative periods is primarily attributable to the addition of several
employees as well as normal salary increases for the holding company and the
three subsidiary banks. Occupancy expense increased $9,000, or 11.5%, in the
second quarter of 2000 compared to the second quarter of 1999. For the first six
months of 2000 occupancy expense totaled $173,000, a $33,000, or 23.6%, increase
over the $140,000 recorded for the first six months of 1999. The increase in
occupancy expense for the two comparative periods is attributable to an increase
in depreciation, maintenance, and utilities expenses associated with the
construction of a new branch office for Peoples National Bank in Easley which
opened during the fourth quarter of 1999 and the renovation and expansion of the
existing branch office of Peoples National Bank in Powdersville, which was
completed during the second quarter of 2000. Equipment expense increased
$15,000, or 10.6%, to $156,000 in the second quarter of 2000 when compared to
the second quarter of 1999. For the first six months of 2000, equipment expense
totaled $292,000, a $45,000, or 18.2% increase over the $247,000 recorded for
the first six months of 1999. The increase is primarily attributable to
additional furniture and equipment expense associated with Peoples National
Bank's new office construction and office renovation described above. Other
operating expense increased $112,000, or 23.0%, to $599,000 in the second
8
<PAGE>
quarter of 2000 when compared to the second quarter of 1999. For the six months
ended June 30, 2000, other operating expenses increased $151,000, or 15.6%, to
$1,116,000 compared to $965,000 in other operating expenses recorded during the
first six months of 1999. The increase in other operating expenses is primarily
attributable to increases in various expense categories resulting from a larger
base of deposits, loans, and assets.
BALANCE SHEET REVIEW
Loans
Outstanding loans represent the largest component of earning assets at
73.8% of total earning assets. As of June 30, 2000, the Company held total gross
loans outstanding of $170,050,000, which excludes loans held for sale. Gross
loans increased $28,133,000, or 19.8% from $141,917,000 in total gross
outstanding loans at December 31, 1999 and increased $56,934,000, or 50.3%, from
$113,116,000 in total gross outstanding loans at June 30, 1999. The increase
resulted from new loans generated by Bank of Anderson, N.A. and Seneca National
Bank as well as internal loan growth experienced by The Peoples National Bank.
At June 30, 2000, Bank of Anderson, N.A. had gross outstanding loans of
$35,789,000; Seneca National Bank had gross outstanding loans of $16,923,000;
and The Peoples National Bank had outstanding gross loans of $117,338,000.
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, 2000 was
8.92% compared to 8.99%, for the first six months of 1999. Approximately 33.2%
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. Almost all of these loans are to
borrowers located in South Carolina, and they are concentrated in the Company's
market areas.
The Company's real estate loans are primarily construction loans and loans
secured by real estate, commercial and residential, located within the Company's
trade areas. The Company does not actively pursue long-term, fixed-rate mortgage
loans for retention in its loan portfolio. The Banks have mortgage loan
originators who originate and package loans that are pre-sold at origination to
third parties and are classified as loans held for sale for reporting purposes.
At June 30, 2000 the Company held $17,949,000 of mortgage loans held for sale
compared to $6,662,000 at December 31, 1999 and $5,660,000 at June 30, 1999.
During the second quarter of 2000, the Company originated $60,893,000 and sold
$42,944,000 in mortgages held for sale.
The Company's commercial lending activity is directed principally towards
businesses whose demands for funds fall within each Bank's legal lending limits
and which are potential deposit customers of the Banks. This category of loans
includes loans made to individuals, partnerships or corporate borrowers, and
which are obtained for a variety of business purposes. Particular emphasis is
placed on loans to small and medium-sized businesses. The Company's commercial
loans are spread throughout a variety of industries, with no industry or group
of related industries accounting for a significant portion of the commercial
loan portfolio. Commercial loans are made on either a secured or unsecured
basis. When taken, security consists of liens on inventories, receivables,
equipment and furniture and fixtures. Unsecured commercial loans are generally
short-term with emphasis on repayment strengths and low debt to worth ratios. At
June 30, 2000, approximately $12,113,000, or 44.9%, of commercial loans were
unsecured.
The Company's direct consumer loans consist primarily of secured
installment loans to individuals for personal, family and household purposes,
including automobile loans to individuals, and pre-approved lines of credit.
Management believes the loan portfolio is adequately diversified. The
Company has no foreign loans or loans for highly leveraged transactions. The
Company has few agricultural loans.
9
<PAGE>
Allowance for Loan Losses
The allowance for loan losses at June 30, 2000 was $1,812,000, or 0.96% of
loans outstanding compared to $1,581,000, or 1.06% of loans outstanding, at
December 31, 1999 and $1,361,000, or 1.15% of loans outstanding, at June 30,
1999. The allowance for loan losses is based upon management's continuing
evaluation of the collectability 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. The decrease in the allowance for loan losses as a percentage of
loans outstanding is partially attributed to the increase in loans held for
sale. These loans, which are residential mortgages typically held for less than
two weeks, are believed to have a lower level of risk when compared to other
loans contained in the company's portfolio.
At June 30, 2000, the Company had $703,000 in non-accruing loans, $218,000
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
$628,000 in non-accruing loans, $150,000 in restructured loans, no loans more
than ninety days past due on which interest was still being accrued, and
$219,000 in Other Real Estate Owned at December 31, 1999. At June 30, 1999, The
Company had $559,000 in non-accruing loans, $205,000 in restructured loans and
no loans more than ninety days past due and still accruing interest and $313,000
in Other Real Estate Owned. Non-performing loans at June 30, 2000 consisted of
$68,000 in commercial loans; $577,000 in mortgage loans; and $58,000 in consumer
loans. Non-performing assets as a percentage of loans and other real estate
owned was 0.41%, 0.67% and 0.47% at June 30, 2000, December 31, 1999 and June
30, 1999, respectively.
Net charge-offs during the three month period and six month periods ended
June 30, 2000 were $33,000 and $87,000, respectively, compared to net
charge-offs of $11,000 and $23,000, respectively, for the three-month and
six-month periods ended June 30, 1999. The allowance for loan losses as a
percentage of non-performing loans was 258%, 243% and 252%, respectively, as of
June 30, 2000, June 30, 1999 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 collectability
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, 2000, June 30, 1999,
and December 31, 1999 the Company had no impaired loans.
Securities
The Company invests primarily in obligations of the United States or
obligations guaranteed as to principal and interest by the United States, other
taxable securities and in certain obligations of states and municipalities. The
Company does not invest in corporate bonds nor does it hold any trading
securities. 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. At June 30, 2000,
securities totaled $37,634,000. Securities increased $1,980,000 from $35,654,000
invested as of December 31, 1999 and $1,438,000 from $36,196,000 invested as of
June 30, 1999. The slight increase is due to increases in investment securities
held by Bank of Anderson, N. A. and Seneca National Bank.
10
<PAGE>
At June 30, 2000, the Company's total investments classified as
available for sale had a book value of $34,780,000 and a market value of
$33,887,000 for an unrealized net loss of $893,000. This compares to a book
value of $32,534,000 and a market value of $31,972,000 for an unrealized net
loss of $562,000 on the Company's investments classified as available for sale
at June 30, 1999. At December 31, 1999 the Company's total investments
classified as available for sale had a book value of $31,982,000 and a market
value of $31,209,000 for an unrealized net loss of $773,000.
Deposits
The Bank's primary source of funds for loans and investments is its
deposits. Total deposits were $198,017,000 at June 30, 2000, an increase of
$29,241,000, or 17.3%, from $168,776,000 at December 31, 1999 and an increase of
$50,139,000, or 33.9%, from $147,878,000 at June 30, 1999. These increases
resulted from deposits generated by The Peoples National Bank, Bank of Anderson,
and Seneca National Bank in their respective markets. Competition for deposit
accounts is primarily based on the interest rates paid, location convenience and
services offered.
During the first six months of 2000, interest-bearing deposits averaged
$158,543,000 compared to $114,590,000 for the first six months of 1999. The
average interest rate paid on interest-bearing deposits was 4.49% for the first
six months of 2000 compared to 4.15% for the first six months of 1999. In
pricing deposits, the Company considers its liquidity needs, the direction and
levels of interest rates and local market conditions. At June 30, 2000
interest-bearing deposits comprised 84.8% of total deposits compared to 84.0% at
June 30, 1999.
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 79.3% for the six months ended June 30,
2000. The Company closely monitors its reliance on certificates of deposit
greater than $100,000, which are generally considered to be less stable and less
reliable than core deposits. At June 30, 2000, certificates of deposit greater
than $100,000 totaled $42,163,000 compared to $20,494,000 at December 31, 1999
and $28,987,000 at June 30, 1999.
Short Term Borrowings
The Company's short-term borrowings are comprised of securities sold
under repurchase agreements and short-term borrowings from the Federal Home Loan
Bank of Atlanta. At June 30, 2000 short-term borrowings totaled $24,461,000 and
was comprised of $16,461,000 in securities sold under repurchase agreements and
$8,000,000 in short-term Federal Home Loan Bank advances compared to $20,434,000
in short-term borrowings at December 31, 1999 which was comprised of $15,434,000
in securities sold under repurchase agreements and $5,000,000 in short-term
Federal Home Loan Bank advances and to $18,847,000 is short-term borrowings at
June 30, 1999 which was comprised of $15,847,000 in securities sold under
repurchase agreements and $3,000,000 in short-term Federal Home Loan Bank
advances.
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, 2000, The Peoples
National Bank had $8,000,000 in short-term borrowings from the Federal Home Loan
11
<PAGE>
Bank of Atlanta. At June 30, 2000 The Peoples National Bank had unused borrowing
capacity from the Federal Home Loan Bank of Atlanta of equal to sixteen percent
(16%) of its total assets or approximately $20,000,000. 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 $3,700,000
and $1,500,000, respectively at June 30, 2000, all of which was available. At
June 30, 2000, the Banks had unused federal funds lines of credit totaling
$10,100,000 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 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.
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.
12
<PAGE>
The following table sets forth the capital ratios for the Company and the
Banks as of June 30, 2000.
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 ............... $26,570 14.36% $18,503 10.00% $14,802 8.00%
Tier 1 Risk-based Capital .............. $24,758 13.38% $11,102 6.00% $ 7,401 4.00%
Leverage Ratio ......................... $24,758 9.88% $12,529 5.00% $10,023 4.00%
</TABLE>
<TABLE>
<CAPTION>
Well Adequately
Capitalized Capitalized
Actual Requirement Requirement
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Peoples National Bank:
<S> <C> <C> <C> <C> <C> <C>
Total Risk-based Capital ............... $14,345 10.89% $13,173 10.00% $10,538 8.00%
Tier 1 Risk-based Capital .............. $13,128 9.97% $ 7,901 6.00% $ 5,267 4.00%
Leverage Ratio ......................... $13,128 7.63% $ 8,603 5.00% $ 6,882 4.00%
Bank of Anderson, N. A:
Total Risk-based Capital ............... $ 5,594 15.40% $ 3,632 10.00% $ 2,906 8.00%
Tier 1 Risk-based Capital .............. $ 5,205 14.32% $ 2,181 6.00% $ 1,454 4.00%
Leverage Ratio ......................... $ 5,205 10.87% $ 2,394 5.00% $ 1,915 4.00%
Seneca National Bank:
Total Risk-based Capital ............... $ 3,451 20.77% $ 1,662 10.00% $ 1,329 8.00%
Tier 1 Risk-based Capital .............. $ 3,245 19.53% $ 997 6.00% $ 665 4.00%
Leverage Ratio ......................... $ 3,245 14.18% $ 1,144 5.00% $ 915 4.00%
</TABLE>
13
<PAGE>
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.
Item 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and
rates. The Company's market risk arises principally from interest rate risk
inherent in its lending, deposit and borrowing activities. Management actively
monitors and manages its interest rate risk exposure. Although the Company
manages other risks, such as credit quality and liquidity risk, in the normal
course of business, management considers interest rate risk to be its most
significant market risk and the risk that could potentially have the largest
material effect on the Company's financial condition and results of operations.
Other types of market risks, such as foreign currency risk and commodity price
risk, do not arise in the normal course of the Company's business activities.
The primary objective of Asset/Liability Management at the Company is to
manage interest rate risk and achieve reasonable stability in net interest
income throughout interest rate cycles. This is achieved by maintaining the
proper balance of rate sensitive earning assets and rate sensitive earning
liabilities. The relationship of rate sensitive earning assets to rate sensitive
liabilities, is the principal factor in projecting the effect that fluctuating
interest rates will have on future net interest income. Rate sensitive assets
and interest-bearing liabilities are those that can be repriced to current
market rates within a relatively short time period. Management monitors the rate
sensitivity of earning assets and interest-bearing liabilities over the entire
life of these instruments, but places particular emphasis on the first year. At
June 30, 2000, on a cumulative basis through 12 months, rate sensitive
liabilities exceeded rate-sensitive assets, resulting in a liability sensitive
position of $54.9 million. This liability sensitive position is largely
attributable to assuming that the Company's NOW accounts, which totaled $24.8
million at June 30, 2000, will reprice within one year. This assumption may or
may not hold true as the Company believes its NOW accounts are generally not
price sensitive.
14
<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.
Thomas T. Brittain commenced a lawsuit against Peoples National
Bank in the Court of Common Pleas for Pickens County, South
Carolina, Thirteenth Judicial Circuit, on July 20, 2000.
Plaintiff, a former employee of Peoples National Bank, seeks an
unspecified amount of actual and punitive damages for alleged
breach of an employment contract and termination in violation of
public policy. The Company intends to vigorously defend the suit
and is presently unable to determine the amount of liability, if
any, the Company may have.
Item 2. Changes in Securities and Use of Proceeds
During the period ended June 30, 2000 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
----------- ---------- ------ -----
01/07/2000 Employees 775 $ 3,666
06/12/2000 Employees 30,629* $ 151,797
*Stock purchase by exchange of 7,971 shares.
Item 4. Submission to a Vote of Security Holders
On April 10, 2000, the Company held its Annual Meeting of Shareholders. The
result of the 2000 Annual Meeting of Shareholders is as follows:
Election of Directors
The following persons were elected as Directors to serve for the terms set forth
below with 1,850,851 shares voted, representing 61.9% of the total voting
shares:
<TABLE>
<CAPTION>
For Withheld Against Term (years)
--- -------- ------- ------------
<S> <C> <C> <C> <C>
William A. Carr ................................... 1,848,647 2,204 0 3
Robert E. Dye, Jr ................................. 1,848,647 2,204 0 3
W. Rutledge Galloway .............................. 1,848,647 2,204 0 3
E. Smyth McKissick, III ........................... 1,848,647 2,204 0 3
James A. Black, Jr ................................ 1,848,647 2,204 0 3
William B. West ................................... 1,849,749 1,102 0 3
F. Davis Arnette, Jr .............................. 1,848,647 2,204 0 2
Larry D. Reeves ................................... 1,849,749 1,102 0 2
David C. King ..................................... 1,849,749 1,102 0 1
Andrew M McFall ................................... 1,848,647 2,204 0 1
</TABLE>
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, 2000
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PEOPLES BANCORPORATION, INC.
Dated: August 7,2000 By: /s/ Robert E. Dye
-------------------
Robert E. Dye
President and Chairman of the Board
Dated: August 7,2000 By: /s/ William B. West
---------------------
William B. West
Sr. Vice President & CFO
(principal financial officer)
16
<PAGE>
EXHIBIT INDEX
Exhibit No. from
Item 601 of
Regulation S-B Description
-------------- -----------
27 Financial Data Schedule
17
