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
September 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
incorporation or organization) Identification No.)
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 September 30, 2000 was 3,016,964.
<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>
September 30, September 30, December 31,
2000 1999 1999
Unaudited Unaudited Audited
--------- --------- -------
ASSETS
<S> <C> <C> <C>
CASH AND DUE FROM BANKS ............................................. $ 10,019 $ 10,711 $ 6,507
INTEREST-BEARING DEPOSITS IN OTHER BANKS ............................ 0 0 5,047
FEDERAL FUNDS SOLD .................................................. 3,290 9,610 9,200
SECURITIES
Available for sale ............................................. 33,125 31,723 31,209
Held for investment (market value of $3,689,
$4,248 and $4,438) ......................................... 3,671 4,221 4,445
LOANS-less allowance for loan losses of $1,967,
$1,578 and $1,581 .............................................. 176,171 127,485 140,336
LOANS HELD FOR SALE ................................................. 8,094 12,890 6,662
PREMISES AND EQUIPMENT, net of accumulated
depreciation and amortization .................................. 7,101 6,626 6,969
ACCRUED INTEREST RECEIVABLE ......................................... 1,722 1,410 1,544
OTHER ASSETS ........................................................ 2,511 1,972 1,994
--------- --------- ---------
TOTAL ASSETS ............................................... $ 245,704 $ 206,648 $ 213,913
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
DEPOSITS
Noninterest-bearing ............................................ $ 30,353 $ 23,055 $ 19,953
Interest-bearing ............................................... 169,320 138,225 148,823
--------- --------- ---------
Total deposits ............................................. 199,673 161,280 168,776
SECURITIES SOLD UNDER REPURCHASE
AGREEMENTS ..................................................... 17,008 16,142 15,434
FEDERAL FUNDS PURCHASED ............................................. 130 0 0
NOTES PAYABLE TO FEDERAL HOME LOAN BANK ............................. 2,000 5,000 5,000
ACCRUED INTEREST PAYABLE ............................................ 1,492 851 1,154
OTHER LIABILITIES ................................................... 398 315 203
--------- --------- ---------
Total Liabilities .......................................... 220,701 183,588 190,567
--------- --------- ---------
SHAREHOLDERS' EQUITY
Common Stock - 10,000,000 shares authorized,
$1.67 Par value per share,
3,016,964 shares, 2,845,770 shares
and 2,987,627 shares outstanding ............................... 5,038 4,752 4,989
Additional paid-in capital .......................................... 18,844 17,324 18,867
Retained Earnings ................................................... 1,488 1,402 0
Accumulated other comprehensive income .............................. (367) (418) (510)
--------- --------- ---------
Total Shareholder's Equity ................................. 25,003 23,060 23,346
--------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY ........................... $ 245,704 $ 206,648 $ 213,913
========= ========= =========
</TABLE>
2
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands except share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
INTEREST INCOME
<S> <C> <C> <C> <C>
Interest and fees on loans ..................................... $ 4,258 $ 2,852 $ 11,763 $ 7,439
Interest on securities
Taxable ................................................... 524 505 1,574 1,431
Tax-exempt ................................................ 46 53 149 160
Interest on federal funds ...................................... 86 195 325 595
---------- ---------- ---------- ----------
Total interest income .......................................... 4,914 3,605 13,811 9,625
INTEREST EXPENSE
Interest on deposits ........................................... 2,161 1,424 5,935 3,804
Interest on federal funds purchased and securities
sold under repurchase agreements .......................... 205 177 563 330
Interest on notes payable Federal Home
Loan Bank ................................................. 64 48 182 110
---------- ---------- ---------- ----------
Total interest expense ......................................... 2,430 1,649 6,680 4,244
Net interest income ............................................ 2,484 1,956 7,131 5,381
PROVISION FOR LOAN LOSSES ...................................... 180 250 498 541
---------- ---------- ---------- ----------
Net interest income after provision for
loan losses ............................................... 2,304 1,706 6,633 4,840
NON-INTEREST INCOME
Service fees and other income .................................. 764 479 1,857 1,230
---------- ---------- ---------- ----------
764 479 1,857 1,230
NON-INTEREST EXPENSE
Salaries and benefits .......................................... 1,197 915 3,355 2,642
Occupancy ...................................................... 91 82 264 222
Equipment ...................................................... 155 149 447 396
Other operating expenses ....................................... 564 495 1,680 1,460
---------- ---------- ---------- ----------
2,007 1,641 5,746 4,720
Income before income taxes ..................................... 1,061 544 2,744 1,350
PROVISION FOR INCOME TAXES ..................................... 365 186 940 460
---------- ---------- ---------- ----------
Net income ..................................................... $ 696 $ 358 $ 1,804 $ 890
========== ========== ========== ==========
INCOME PER COMMON SHARE:
BASIC ..................................................... $ 0.23 $ 0.13 $ 0.60 $ 0.31
========== ========== ========== ==========
DILUTED ................................................... $ 0.22 $ 0.12 $ 0.57 $ 0.29
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC ...................................................... 3,014,996 2,843,191 2,999,784 2,841,854
========== ========== ========== ==========
DILUTED .................................................... 3,099,781 2,998,697 3,167,004 3,092,702
========== ========== ========== ==========
DIVIDENDS PAID PER COMMON
SHARE ..................................................... $ 0.035 $ 0.035 $ 0.105 $ 0.105
========== ========== ========== ==========
</TABLE>
3
<PAGE>
Peoples Bancorporation, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
for the six months ended September 30, 2000 and 1999
(Amounts in thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
Accummulated
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 ............................ 890 890
Other comprehensive income, net of
tax:
Unrealized holding gains on
securities available for sale ...... (370) (370)
-----------
Comprehensive income .................. 520
Cash Dividends ........................ (299) (299)
Proceeds from stock options ........... 81,854 136 232 368
----------- ---------- ---------- ---------- ------------- ------------
Balance, September 30, 1999 ........... 2,845,770 $ 4,752 $ 17,324 $ 1,402 $ (418) $ 23,060
=========== ========== ========== ========== ============= ============
Balance, December 31, 1999* ........... 2,987,627 $ 4,989 $ 18,867 $ 0 $ (510) $ 23,346
Net Income ............................ 1,804 1,804
Other comprehensive income, net of
tax:
Unrealized holding losses on
securities available for sale ...... 143 143
-----------
Comprehensive income .................. 1,947
Cash Dividends ........................ (316) (316)
Proceeds from stock options ........... 29,337 49 (23) 26
----------- ---------- ----------- ---------- ------------- ------------
Balance, September 30, 2000 ........... 3,016,964 $ 5,038 $ 18,844 $ 1,488 $ (367) $ 25,003
=========== ========== ========== ========== ============= ============
</TABLE>
* 5% stock dividend issued in January 2000 is reflected in December 31, 1999
data.
4
<PAGE>
Peoples Bancorporation, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Amounts in thousands except share data)
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended
September 30,
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income ............................................................................ $ 1,804 $ 890
Adjustments to reconcile net income to net cash provided
by (used in) operating activities
Provision for loan losses ............................................................. 497 541
Depreciation and amortization ......................................................... 393 314
Amortization and accretion (net) of premiums and
discounts on securities ............................................................. 25 85
Increase in accrued interest receivable ............................................... (178) (488)
Increase in other assets .............................................................. (589) (375)
Increase (decrease) in accrued interest payable ....................................... 338 (16)
Increase in other liabilities ......................................................... 196 62
-------- --------
Net cash provided by operating activities ........................................... 2,486 1,013
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities held for investment ........................................... 0 (100)
Purchases of securities available for sale ............................................ (4,580) (8,874)
Proceeds from the maturity of securities available for sale ........................... 3,194 5,424
Proceeds from the call of securities available for sale ............................... 433 3,060
Net increase in loans ................................................................. (37,765) (53,993)
Purchase of premises and equipment .................................................... (525) (2,014)
-------- --------
Net cash used in investing activities ............................................... (39,243) (56,497)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits .............................................................. 30,898 41,180
Net increase in securities sold under repurchase
agreements .......................................................................... 1,574 10,162
Net increase in Federal funds purchased .............................................. 130 0
Net increase (decrease) in notes payable Federal Home Loan Bank ....................... (3,000) 3,000
Proceeds from stock options exercised ................................................. 26 369
Cash dividend ......................................................................... (316) (299)
-------- --------
Net cash provided by financing activities ........................................... 29,312 54,412
-------- --------
Net increase (decrease) in cash and cash equivalents ................................ (7,445) (1,072)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ............................................. 20,754 21,393
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ................................................. $ 13,309 $ 20,321
======== ========
CASH PAID FOR
Interest ............................................................................ $ 6,431 $ 4,260
======== ========
Income Taxes ........................................................................ $ 810 $ 585
======== ========
</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 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 September 21, 2000, June 22, 2000 and March 23, 2000,
respectively, payable October 6, 2000, 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 2,999,784
at September 30, 2000 and 2,841,854 at September 30 1999. The weighted average
number of common shares outstanding for diluted net income per common share was
3,167,004 at September 30, 2000 and 3,092,702 at September 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.
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 1999
Annual Report of Peoples Bancorporation, Inc. on Form 10-K. Results of
operations for the three-month and nine-month periods ending September 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.
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.
7
<PAGE>
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EARNINGS PERFORMANCE
Overview
The consolidated Company's net income for the third quarter of 2000 was
$696,000, or $0.22 per diluted share compared to $358,000, or $0.12 per diluted
share for the third quarter of 1999. Net income for the nine months ended
September 30, 2000 was $1,804,000, or $0.57 per diluted share, compared to
$890,000, or $0.29 per diluted share for the nine months ended September 30,
1999. Return on average equity for the nine months and three months ended
September 30, 2000 was 9.81% and 11.08%, respectively, compared to 5.14% and
6.13%, respectively for the nine months and three months ended September 30,
1999. Return on average assets for the nine months and three months ended
September 30, 2000 was 1.02% and 1.13%, respectively, compared to 0.66% and
0.72%, respectively, for the nine months and three months ended September 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 attainment of profitability by Seneca National Bank, which
commenced operations in February 1999, the attainment of profitability by 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 nine months ended September 30, 2000, Seneca National Bank recorded net
earnings of $13,000 compared to a net loss of $187,000 for the nine months ended
September 30, 1999. Bank of Anderson, N. A. recorded net earnings of $163,000
for the nine months ended September 30, 2000 compared to a net loss of $153,000
for the nine months ended September 30, 1999. The Peoples National Bank recorded
net earnings of $1,626,000 for the nine months ended September 30, 2000 compared
to net earnings of $1,209,000 for the nine months ended September 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 revenue on
interest-earning assets and the interest expense 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 $528,000, or 27.0%,
to $2,484,000 in the third quarter of 2000 compared to $1,956,000 in the third
quarter of 1999. For the nine months ended September 30, 2000, net interest
income before provision for loan losses increased $1,750,000, or 32.5%, to
$7,131,000 compared to $5,381,000 for the nine months ended September 30, 1999.
The Company's net interest margin was 4.31% and 4.38%, respectively, for the
three and nine months ended September 30, 2000, compared to 4.25% and 4.38%
respectively, for the three and nine months ended September 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 Company's net interest margin for the
nine-month period ended September 30, 2000 remained flat when compared to the
nine-month period ended September 30, 1999. The Company's net interest margin
for the three-month period ended September 30, 2000 increased slightly over the
comparable three-month period in 1999, largely as a result of an increase in
earning assets.
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 September 30, 2000 was $180,000 compared to $250,000 for the three months
ended September 30, 1999, a decrease of $70,000 or 28.0%. The provision for loan
losses during the nine months ended September 30, 2000 was $498,000 compared to
$541,000 for the nine months ended September 30, 1999, a decrease of $43,000, or
7.9%. 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.
8
<PAGE>
Non-interest Income
Non-interest income increased $285,000, or 59.5%, to $764,000 for the third
quarter of 2000 compared to $479,000 for the third quarter of 1999. For the nine
months ended September 30, 2000 non-interest income increased $627,000, or
51.0%, to $1,857,000 compared to $1,230,000 for the nine months ended September
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 $366,000, or 22.3%, to $2,007,000 for
the third quarter of 2000 compared to $1,641,000 for the third quarter of 1999.
For the first nine months of 2000, total non-interest expense increased
$1,026,000, or 21.7%, to $5,746,000 compared to $4,720,000 for the first nine
months of 1999. Salaries and benefits, the largest component of non-interest
expense, increased $282,000, or 30.8%, in the third quarter of 2000 compared to
the third quarter of 1999. For the nine months ended September 30, 2000,
salaries and benefits increased $713,000, or 26.9%, to $3,355,000 compared to
$2,642,000 for the nine months ended September 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 11.0%, in the third quarter of 2000 compared to the third quarter of
1999. For the first nine months of 2000 occupancy expense totaled $264,000, a
$42,000, or 18.9%, increase over the $222,000 recorded for the first nine 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 $6,000, or 4.0%, to $155,000 in the third quarter of 2000 when
compared to $149,000 in the third quarter of 1999. For the first nine months of
2000, equipment expense totaled $447,000, a $51,000, or 12.9% increase over the
$396,000 recorded for the first nine 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 $69,000, or 13.9%, to $564,000 in the
third quarter of 2000 when compared to $495,000 in the third quarter of 1999.
For the nine months ended September 30, 2000, other operating expenses increased
$220,000, or 15.0%, to $1,680,000 compared to $1,460,000 in other operating
expenses recorded during the first nine 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
78.7% of total earning assets. As of September 30, 2000, the Company held total
gross loans outstanding of $178,138,000, which excludes loans held for sale.
Gross loans increased $36,221,000 or 25.5% from $141,917,000 in total gross
outstanding loans at December 31, 1999 and increased $49,075,000, or 38.0%, from
$129,063,000 in total gross outstanding loans at September 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 September 30, 2000, Bank of Anderson, N.A. had gross
outstanding loans of $37,690,000; Seneca National Bank had gross outstanding
loans of $18,774,000; and The Peoples National Bank had outstanding gross loans
of $121,674,000.
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 nine months ended September 30, 2000 was
9.03% compared to 8.52%, for the first nine months of 1999. Approximately 36.9%
of the Company's loans are tied to the prime interest rate.
9
<PAGE>
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 commercial and residential real estate, 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 residential 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 September 30, 2000 the Company held $8,094,000 of
mortgage loans held for sale compared to $6,662,000 at December 31, 1999 and
$12,890,000 at September 30, 1999. During the third quarter of 2000, the Company
originated $43,014,000 and sold $34,920,000 in residential mortgages.
The Company's commercial lending activity is directed principally towards
businesses whose demands for funds fall within each of the 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,
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, furniture and fixtures. Unsecured commercial loans are generally
short-term with emphasis on repayment strengths and low debt-to-worth ratios. At
September 30, 2000, approximately $12,428,000, or 54.4%, 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 that the loan portfolio is adequately diversified. The
Company has no foreign loans or loans for highly leveraged transactions. The
Company has few agricultural loans.
Allowance for Loan Losses
The allowance for loan losses at September 30, 2000 was $1,967,000, or
1.06% of loans outstanding (including loans held for sale) compared to
$1,581,000, or 1.06% of loans outstanding, at December 31, 1999 and $1,578,000,
or 1.11% of loans outstanding, at September 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.
At September 30, 2000, the Company had $1,073,000 in non-accruing loans, no
restructured loans, no loans more than ninety days past due and still accruing
interest, and $502,000 in Other Real Estate Owned. These 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 September 30, 1999, The Company had
$501,000 in non-accruing loans, $177,000 in restructured loans and no loans more
than ninety days past due and still accruing interest and $219,000 in Other Real
Estate Owned. Non-performing loans at September 30, 2000 consisted of $160,000
in commercial loans; $864,000 in mortgage loans; and $49,000 in consumer loans.
Non-performing assets as a percentage of loans and other real estate owned was
0.84%, 0.67% and 0.63% at September 30, 2000, December 31, 1999 and September
30, 1999, respectively.
Net charge-offs during the three month period and nine month periods ended
September 30, 2000 were $25,000 and $112,000, respectively, compared to net
charge-offs of $33,000 and $56,000, respectively, for the three-month and
nine-month periods ended September 30, 1999. The allowance for loan losses as a
percentage of non-performing loans was 183%, 233% and 203%, respectively, as of
September 30, 2000, September 30, 1999 and December 31, 1999.
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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 September 30, 2000, September
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 September 30, 2000,
securities totaled $36,796,000. Securities increased $1,142,000 from $35,654,000
invested as of December 31, 1999 and $852,000 from $35,944,000 invested as of
September 30, 1999.
At September 30, 2000, the Company's total investments classified as
available for sale had a book value of $33,683,000 and a market value of
$33,125,000 for an unrealized net loss of $558,000. This compares to a book
value of $32,356,000 and a market value of $31,723,000 for an unrealized net
loss of $633,000 on the Company's investments classified as available for sale
at September 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 Company's primary source of funds for loans and investments is
deposits. Total deposits were $199,673,000 at September 30, 2000, an increase of
$30,897,000, or 18.3%, from $168,776,000 at December 31, 1999 and an increase of
$38,393,000, or 23.8%, from $161,280,000 at September 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 nine months of 2000, interest-bearing deposits
averaged $161,765,000 compared to $120,387,000 for the first nine months of
1999. The average interest rate paid on interest-bearing deposits was 4.89% for
the first nine months of 2000 compared to 4.21% for the first nine months of
1999. In pricing deposits, the Company considers its liquidity needs, the
direction and levels of interest rates and local market conditions. At September
30, 2000 interest-bearing deposits comprised 84.8% of total deposits compared to
85.7% at September 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, they continue to provide the Company with a
large and stable source of funds. Core deposits as a percentage of total
deposits averaged approximately 74.8% for the nine months ended September 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 September 30, 2000, certificates of deposit
greater than $100,000 totaled $42,172,000 compared to $20,494,000 at December
31, 1999 and $34,489,000 at September 30, 1999.
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Short-Term Borrowings
The Company's short-term borrowings are comprised of daily federal
funds purchased, securities sold under repurchase agreements, and short-term
borrowings from the Federal Home Loan Bank of Atlanta. At September 30, 2000
short-term borrowings totaled $19,138,000 and were comprised of $130,000 in
federal funds purchased, $17,008,000 in securities sold under repurchase
agreements, and $2,000,000 in short-term Federal Home Loan Bank advances
compared to $20,434,000 in short-term borrowings at December 31, 1999, which
were comprised of $15,434,000 in securities sold under repurchase agreements and
$5,000,000 in short-term Federal Home Loan Bank advances. At September 30, 1999
short-term borrowings totaled $21,142,000, which were comprised of $16,142,000
in securities sold under repurchase agreements and $5,000,000 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 funds 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-term and long-term funds on a secured basis. At September
30, 2000, The Peoples National Bank had $2,000,000 in short-term borrowings from
the Federal Home Loan Bank of Atlanta. At September 30, 2000 The Peoples
National Bank had a total borrowing capacity from the Federal Home Loan Bank of
Atlanta equal to sixteen percent (16%) of its total assets or approximately
$27,000,000, with the unused borrowing capacity being $25,000,000. The Company's
other two bank subsidiaries, Bank of Anderson, N. A. and Seneca National Bank
have a borrowing capacity with the Federal Home Loan Bank equal to ten percent
(10%) of their total assets or approximately $5,100,000 and $2,500,000,
respectively at September 30, 2000, all of which was available. At September 30,
2000, the Banks collectively had unused federal funds lines of credit totaling
$13,720,000 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.
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The following table sets forth the capital ratios for the Company and
the Banks as of September 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 ............... $27,336 14.57% $18,762 10.00% $15,009 8.00%
Tier 1 Risk-based Capital .............. $25,370 13.52% $11,259 6.00% $ 7,506 4.00%
Leverage Ratio ......................... $25,370 10.23% $12,400 5.00% $ 9,920 4.00%
Peoples National Bank:
Total Risk-based Capital ............... $14,927 11.42% $13,071 10.00% $10,457 8.00%
Tier 1 Risk-based Capital .............. $13,637 10.44% $ 7,837 6.00% $ 5,225 4.00%
Leverage Ratio ......................... $13,637 8.02% $ 8,502 5.00% $ 6,801 4.00%
Bank of Anderson, N. A:
Total Risk-based Capital ............... $ 5,706 15.02% $ 3,799 10.00% $ 3,039 8.00%
Tier 1 Risk-based Capital .............. $ 5,264 13.85% $ 2,280 6.00% $ 1,520 4.00%
Leverage Ratio ......................... $ 5,264 10.55% $ 2,495 5.00% $ 1,996 4.00%
Seneca National Bank:
Total Risk-based Capital ............... $ 3,490 19.06% $ 1,831 10.00% $ 1,465 8.00%
Tier 1 Risk-based Capital .............. $ 3,261 17.81% $ 1,099 6.00% $ 732 4.00%
Leverage Ratio ......................... $ 3,261 13.20% $ 1,235 5.00% $ 988 4.00%
</TABLE>
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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
September 30, 2000, on a cumulative basis through 12 months, rate sensitive
liabilities exceeded rate-sensitive assets, resulting in a liability sensitive
position of $53.3 million. This liability sensitive position is largely
attributable to assuming that the Company's NOW accounts, which totaled $24
million at September 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.
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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 September 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 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
08/13/2000 Employees 5,904 $21,998
*Stock purchase by exchange of 7,971 shares.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K. No report on Form 8-K was filed during the quarter
ended September 30, 2000
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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: November 6, 2000 By: /s/ Robert E. Dye
-------------------
Robert E. Dye
President and Chairman of the Board
Dated: November 6, 2000 By: /s/ William B. West
---------------------
William B. West
Sr. Vice President & CFO
(principal financial officer)
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EXHIBIT INDEX
Exhibit No. From
Item 601 of
Regulation S-B Description
-------------- -----------
27 Financial Data Schedule
17
