U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
X Quarterly report under Section 13 or 15(d) of the Securities
___ Exchange Act of 1934 for the quarterly period ended June 30, 2000.
___ Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _______________ to ________________
Commission File No. 333-25179
PEOPLE'S COMMUNITY CAPITAL CORPORATION
(Exact Name of Small Business Issuer as Specified in its Charter)
SOUTH CAROLINA 58-2287073
(State of Incorporation) (I.R.S. Employer Identification No.)
106-A PARK AVENUE, S.W., AIKEN, SOUTH CAROLINA 29801
(Address of Principal Executive Offices)
(803) 641-0142
(Issuer's Telephone Number, Including Area Code)
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 972,625 shares of common
stock, par value $.01 per share outstanding at July 31, 2000.
Transitional Small Business Disclosure Format (check one): Yes No X
-- --
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
People's Community Capital Corporation
Consolidated Balance Sheets
June 30, December 31,
2000 1999
---- ----
(Unaudited) (Audited)
Assets
Cash and due from banks $ 1,703,681 $ 3,076,294
Federal funds sold 5,220,000 5,550,000
Securities, available for sale 10,610,359 10,711,010
Loans receivable, net 38,619,140 33,225,197
Properties and equipment, net 1,714,300 1,678,862
Accrued interest receivable 368,023 325,904
Deferred income taxes 203,764 136,949
Other assets 103,791 90,571
------------- ----------------
Total assets $ 58,543,058 $ 54,794,787
============= ================
Liabilities and Shareholders' Equity
Liabilities:
Non-interest bearing deposits $ 7,995,718 $ 6,672,434
Interest bearing deposits 39,745,547 36,496,307
------------- ---------------
Total deposits 47,741,265 43,168,741
Accrued interest payable 74,756 62,383
Accrued expenses and other liabilities 169,549 100,480
Other borrowings 1,008,749 2,006,427
------------- ---------------
Total liabilities 48,994,319 45,338,031
------------- ---------------
Shareholders' equity:
Common stock, $.01 par value; 10,000,000 shares authorized, 998,262
shares issued at June 30, 2000 and December 31, 1999 9,983 9,983
Additional paid-in-capital 9,776,507 9,776,507
Retained earnings (deficit) 193,051 (58,320)
Accumulated other comprehensive income (loss) (179,456) (113,914)
------------- ---------------
9,800,085 9,614,256
Treasury stock, 25,637 and 15,000 shares at cost (251,346) (157,500)
------------- ---------------
Total shareholders' equity 9,548,739 9,456,756
------------- ---------------
Total liabilities and shareholders' equity $58,543,058 $54,794,787
============= ===============
See accompanying Notes to Consolidated Financial Statements.
People's Community Capital Corporation
Consolidated Statements of Income
(Unaudited)
For the three months For the six months
ended June 30, ended June 30,
-------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
Interest income:
Loans, including fees $ 898,858 $ 577,367 $ 1,722,505 $ 1,086,150
Federal funds sold 35,331 54,264 73,360 92,774
Securities and short-term investments 169,463 128,071 338,838 255,878
------------- ------------- ------------- -------------
Total interest income 1,103,652 759,702 2,134,703 1,434,802
------------- -------------- ------------- -------------
Interest expense:
Deposits 410,621 251,988 788,719 464,979
Other borrowings 10,549 4,165 17,006 7,100
-------------- ------------- ------------ -------------
Total interest expense 421,170 256,153 805,725 472,079
-------------- ------------- ------------ -------------
Net interest income 682,482 503,549 1,328,978 962,723
Provision for loan losses 60,275 33,706 117,275 65,706
-------------- ------------- ------------ -------------
Net interest income after provision 622,207 469,843 1,211,703 897,017
------------- ------------- ------------ -------------
for loan losses
Non-interest income:
Service charges on deposit accounts 57,967 49,443 115,555 86,351
Other income 30,305 17,426 53,634 60,282
-------------- -------------- ------------- -------------
Total non-interest income 88,272 66,869 169,189 146,633
-------------- -------------- ------------- -------------
Non-interest expenses:
Salaries and employee benefits 261,783 228,498 533,097 465,889
Occupancy and equipment 53,280 47,729 114,215 98,313
Consulting and professional expenses 22,186 10,710 60,821 39,351
Customer related expenses 17,407 15,999 34,320 30,167
General operating expenses 79,951 62,547 167,221 119,569
Other expenses 38,516 31,308 65,242 54,079
-------------- -------------- ------------- --------------
Total non-interest expenses 473,123 396,791 974,916 807,368
-------------- -------------- ------------- -------------
Income before income taxes 237,356 139,921 405,976 236,282
Income tax provision 90,461 53,389 154,607 90,193
-------------- -------------- ------------- -------------
Net income $ 146,895 $ 86,532 $ 251,369 $ 146,089
============== ============== ============= =============
Weighted average common shares outstanding:
Basic 975,970 998,162 978,435 998,162
Diluted 1,062,325 1,039,584 1,064,295 1,039,876
Earnings per share:
Basic $ .15 $ .09 $ .26 $ .15
Diluted $ .14 $ .08 $ .24 $ .14
See accompanying Notes to Consolidated Financial Statements.
People's Community Capital Corporation
Consolidated Statements of Comprehensive Income
(Unaudited)
For the three months For the six months
ended June 30, ended June 30,
-------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
Net income $ 146,895 $ 86,532 $ 251,369 $ 146,089
Other comprehensive income (loss), net of tax:
Net change in unrealized gain (loss) on
securities available for sale 6,462 (54,114) (65,542) (81,523)
-------------- ------------ -------------- -------------
Total other comprehensive gain (loss) 6,462 (54,114) (65,542) (81,523)
Comprehensive income $ 153,357 $ 32,418 $ 185,827 $ 64,566
============== ============ ============== =============
See accompanying Notes to Consolidated Financial Statements.
People's Community Capital Corporation
Consolidated Statements of Cash Flows
(Unaudited)
For the six months
ended June 30,
--------------
2000 1999
---- ----
Operating activities:
Net income $ 251,369 $ 146,089
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 55,368 51,765
Provision for loan losses 117,275 65,706
Deferred income taxes (31,706) 31,873
Changes in deferred and accrued amounts:
Other assets and accrued interest receivable (52,568) 4,177
Accrued expenses and other liabilities 81,442 12,280
----------------- ---------------
Net cash provided by operating activities 421,180 311,890
----------------- ---------------
Investing activities:
Purchase of securities available for sale (8,500) (6,500,000)
Maturities and calls of securities available for sale - 4,334,297
Purchase of property and equipment (85,075) (24,126)
Net increase in loans (5,511,218) (5,889,755)
Net decrease in federal funds sold 330,000 470,000
----------------- ---------------
Net cash used for investing activities (5,274,793) (7,609,584)
---------------- ---------------
Financing activities:
Purchase of treasury stock (93,846) -
Net increase in deposits 4,572,524 7,261,442
Net (decrease) increase in other borrowings (997,678) 668,817
--------------- ---------------
Net cash provided by financing activities 3,481,000 7,930,259
--------------- ---------------
Net (decrease)/increase in cash and due from banks (1,372,613) 632,565
Cash and due from banks at beginning of period 3,076,294 958,613
---------------- ---------------
Cash and due from banks at end of period $ 1,703,681 $ 1,591,178
================ ---------------
Supplemental disclosure:
Cash paid during the period for interest $ 793,352 $ 460,059
================ ===============
See accompanying Notes to Consolidated Financial Statements.
People's Community Capital Corporation
Notes to Consolidated Financial Statements
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B of the Securities and Exchange Commission. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. However, in
the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the six months ended June 30, 2000, are not necessarily
indicative of the results that may be expected for the year ended December 31,
2000. For further information, please refer to the consolidated financial
statements and footnotes thereto for the Company's fiscal year ended December
31, 1999, included in the Company's Form 10-KSB for the year ended December 31,
1999.
Note 2. Summary of organization
People's Community Capital Corporation (the "Company") was incorporated
on February 26, 1997, under the laws of the State of South Carolina for the
purpose of operating as a bank holding company pursuant to the Federal Bank
Holding Company Act of 1956, as amended.
The Company is a bank holding company whose subsidiary, People's
Community Bank of South Carolina (the "Bank"), is primarily engaged in the
business of accepting savings and demand deposits insured by the Federal Deposit
Insurance Corporation, and providing mortgage, consumer and commercial loans to
the general public. The Bank formed a subsidiary, People's Financial Services,
Inc. in December 1999 for the purpose of providing comprehensive financial
planning services in addition to full service brokerage, including stocks,
bonds, mutual funds, and insurance products.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This discussion and analysis is intended to assist the reader in
understanding our financial condition and results of operations. This commentary
should be read in conjunction with the financial statements and the related
notes and other statistical information in this report.
This report contains "forward-looking statements" relating to, without
limitation, future economic performance, plans and objectives of management for
future operations, and projections of revenues and other financial items that
are based on the beliefs of our management, as well as assumptions made by and
information currently available to our management. The words "expect,"
"anticipate," and "believe," as well as similar expressions, are intended to
identify forward-looking statements. Our actual results may differ materially
from the results discussed in the forward-looking statements, and our operating
performance each quarter is subject to various risks and uncertainties that are
discussed in detail in our filings with the Securities and Exchange Commission,
including the "Risk Factors" section in our registration statement on Form SB-2
(Registration Number 333-25179) as filed with and declared effective by the
Securities and Exchange Commission.
We were incorporated in South Carolina on February 26, 1997 for the
purpose of operating as a bank holding company. Our wholly-owned subsidiary,
People's Community Bank of South Carolina (the "Bank"), commenced business on
September 22, 1997 and is primarily engaged in the business of accepting savings
and demand deposits and providing mortgage, consumer and commercial loans to the
general public. The Bank operates two banking centers located in Aiken and one
located in North Augusta, South Carolina.
The second banking center located in Aiken was opened on September 8,
1998 in leased offices that also are the headquarters of the holding company. A
tract of land has been purchased in downtown Aiken for the construction of a
permanent banking center office. The cost of the land and preliminary
construction costs through June 30, 2000 were approximately $231,000.
Construction of the office is expected to begin this year.
In December 1999, the Bank formed a subsidiary, People's Financial
Services, Inc. for the purpose of providing comprehensive financial planning
services in addition to full service brokerage, including stocks, bonds, mutual
funds, and insurance products.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EARNINGS REVIEW - Comparison of the three months ended June 30, 2000 to the
three months ended June 30, 1999
Our net income for the second quarter of 2000 was $146,895 compared to
$86,532 for the same period last year. The basic income per share increased to
$.15 compared to $.09 for the same period in 1999. This improvement in earnings
reflects the continued growth in the level of earning assets since the Bank
commenced operations. The level of average earning assets was $51.9 million for
the three months ended June 30, 2000 as compared to $38.4 million for the three
months ended June 30, 1999.
Net interest income represents the difference between interest received
or accrued on interest earning assets and interest paid or accrued on interest
bearing liabilities. The following presents, in a tabular form, average balance
sheets that highlight the main components of interest earning assets and
interest bearing liabilities, on an annualized basis, for the three month
periods ended June 30, 2000 and 1999. Yields are derived by dividing income or
expense by the average balance of the corresponding assets or liabilities.
Average balances have been derived from daily averages.
Three months ended June 30, 2000 Three months ended June 30, 1999
Average Interest Yield Average Interest Yield/
Balance Income/Expense /Rate Balance Income/Expense Rate
ASSETS
Federal funds sold $ 2,237,832 $ 35,331 6.32% $ 4,567,601 $ 54,264 4.75%
Securities 10,647,776 169,463 6.37% 8,366,482 128,071 6.12%
Loans 38,964,696 898,858 9.23% 25,472,464 577,367 9.07%
---------- ------- ---------- -------
Total earning assets 51,850,304 1,103,652 8.51% 38,406,547 759,702 7.91%
--------- -------
Cash and due from banks 1,675,020 1,506,411
Premises and equipment 1,693,172 1,700,424
Other assets 1,016,256 812,788
Allowance for loan losses (488,833) (333,278)
--------- ---------
Total assets 55,745,919 42,092,892
========== ==========
LIABILITIES & EQUITY Interest-bearing deposits:
Transaction accounts 6,632,060 20,973 1.26% 4,934,094 15,786 1.28%
Money market accounts 9,482,557 99,157 4.18% 8,806,636 83,171 3.78%
Savings deposits 767,686 4,621 2.41% 484,745 2,942 2.43%
Time deposits 20,661,171 285,870 5.53% 11,787,761 150,089 5.09%
---------- ------- ---------- -------
Total interest bearing deposits 37,543,474 410,621 4.37% 26,013,236 251,988 3.87%
Interest-bearing borrowings 692,615 10,549 6.09% 355,083 4,165 4.69%
------- ------ ------- -----
Total interest-bearing liabilities 38,236,089 421,170 4.41% 26,368,319 256,153 3.89%
Demand deposits 7,820,968 6,158,261
Other liabilities 40,773 102,925
Shareholders' equity 9,648,089 9,463,387
--------- ---------
Total liabilities &
shareholders equity $55,745,919 $42,092,892
=========== ===========
Net interest spread 4.10% 4.02%
Net interest income/margin $ 682,482 5.27% $ 503,549 5.24%
========= =========
Net interest income was $682,482 for the three months ended June 30,
2000 as compared to $503,549 for the three months ended June 30, 1999. The net
interest margin (net interest income divided by average earning assets) was
5.27% for the three months ended June 30, 2000 compared to the net interest
margin of 5.24% for the three months ended June 30, 1999.
Interest income for the second quarter of 2000 was $1,103,652 compared
to $759,702 for the same period in 1999. The volume of total earnings assets
increased by about $13.4 million between the two periods. The largest component
of interest income was interest and fees on loans amounting to $898,858 for the
three months ended June 30, 2000 compared to $577,367 for the comparable prior
year period. The overall rate on the loan portfolio increased from 9.07% for the
three months ended June 30, 1999 to 9.23% for the three month period ended June
30, 2000. Interest earned on federal funds sold decreased slightly between the
two periods under review as the average federal funds sold balance was lower for
the three months ended June 30, 2000 than for the comparable period in 1999 by
about $2.3 million. Interest income on securities increased between the two
periods as the average balance increased by about $2.3 million and the average
rate earned increased.
Interest expense increased from $256,153 for the three months ended
June 30, 1999 to $421,170 for the three months ended June 30, 2000 as the size
of interest-bearing liabilities, primarily deposits, increased from $26.4
million to
$38.2 million, an increase of 45%. The average rate paid on interest bearing
liabilities increased from 3.89% to 4.41% reflecting the increases in general
market rates of interest paid on deposits as prompted by several increases in
the prime rate.
Non-interest Income
Non-interest income for the three month period ended June 30, 2000 was
$88,272 compared to $66,869 for the same period in 1999. Of this total, $57,967
represented service charges on deposit accounts for the three months ended June
30, 2000 compared to $49,443 for the comparable period in 1999. The increase in
income from deposit service charges is due to the increase in deposit customers
during the comparable periods. The remaining $30,305 of non-interest income for
the second quarter of 2000 was income generated from other fees charged such as
brokered mortgage origination fees, lease fees, commissions on sale of checks to
customers, and fees from non-deposit investment products' activity associated
with the Bank's financial services subsidiary. For the second quarter of 1999,
other income amounted to $17,426, the largest component being brokered mortgage
origination fee income. Brokered mortgage origination fee income has been
significantly less in 2000 compared to last year, reflecting the decrease in
refinancing activities associated with rising interest rates. The majority of
other fee income for the second quarter of 2000 was $17,929 of fees from
non-deposit investment products' activity. The financial services subsidiary
began operations in December 1999.
Non-interest Expense
Non-interest expense for the three month periods ended June 30, 2000
and 1999 were $473,123 and $396,791, respectively, a 19% increase. The largest
component of non-interest expense was salaries and employee benefits of $261,783
and $228,498, respectively. Salaries and employee benefits expense increased 15%
due to general merit increases, the addition of staff associated with the
financial services subsidiary, and the matching of 401k plan contributions that
began January 1, 2000. Occupancy and equipment expense increased from $47,729 to
$53,280, or 12% largely due to additional depreciation associated with new
equipment purchases and repairs on existing equipment. Consulting and
professional fees increased from $10,710 to $22,186 due to increases in other
consulting service contracts, an increase in the FDIC fee assessment as deposits
have increased, and the commencement of directors' fees in August 1999. General
operating expenses increased from $62,547 to $79,951, or 28%. This increase was
due to higher levels of Bank activity generating increased costs, primarily in
data processing, but also in items such as postage, supplies and Federal Reserve
processing fees. Other expenses increased from $31,308 to $38,516, or 23%,
primarily due to increased advertising.
EARNINGS REVIEW - Comparison of the six months ended June 30, 2000 to the six
months ended June 30, 1999
Our net income for the six months ended June 30, 2000 was $251,369
compared to $146,089 for the same period last year. The basic income per share
increased to $.26 compared to $.15 for the same period in 1999. This improvement
in earnings reflects the continued growth in the level of earning assets since
the Bank commenced operations. The level of average earning assets was $50.4
million for the six months ended June 30, 2000 as compared to $36.2 million for
the six months ended June 30, 1999.
The following presents, in a tabular form, yield and rate data for
interest-bearing balance sheet components during the six month periods ended
June 30, 2000 and 1999, along with average balances and the related interest
income and interest expense amounts.
Six months ended June 30, 2000 Six months ended June 30, 1999
Average Interest Yield Average Interest Yield/
Balance Income/Expense /Rate Balance Income/Expense Rate
ASSETS
Federal funds sold $ 2,450,758 $ 73,360 5.99% $ 3,949,934 $ 92,774 4.70%
Securities 10,677,721 338,838 6.35% 8,327,101 255,878 6.15%
Loans 37,259,340 1,722,505 9.25% 23,921,815 1,086,150 9.08%
---------- --------- ---------- ---------
Total earning assets 50,387,819 2,134,703 8.47% 36,198,850 1,434,802 7.93%
--------- ---------
Cash and due from banks 1,719,805 1,428,512
Premises and equipment 1,676,265 1,704,365
Other assets 1,113,413 912,207
Allowance for loan losses (461,833) (319,472)
--------- ---------
Total assets 54,435,469 39,924,462
========== ==========
LIABILITIES & EQUITY Interest-bearing deposits:
Transaction accounts 6,615,341 41,813 1.26% 4,704,611 30,156 1.28%
Money market accounts 9,394,339 191,521 4.08% 8,413,163 161,778 3.85%
Savings deposits 757,601 9,148 2.41% 457,901 5,397 2.36%
Time deposits 19,944,787 546,237 5.48% 10,569,534 267,648 5.06%
---------- ------- ---------- -------
Total interest bearing deposits 36,712,068 788,719 4.30% 24,145,209 464,979 3.85%
Interest-bearing borrowings 573,175 17,006 5.93% 313,862 7,100 4.52%
------- ------ ------- -----
Total interest-bearing liabilities 37,285,243 805,725 4.32% 24,459,071 472,079 3.86%
Demand deposits 7,503,708 5,926,959
Other liabilities 43,717 99,684
Shareholders' equity 9,602,801 9,438,748
--------- ---------
Total liabilities &
shareholders equity $54,435,469 $39,924,462
=========== ===========
Net interest spread 4.15% 4.07%
Net interest income/margin $ 1,328,978 5.27% $ 962,723 5.32%
=========== =========
Net interest income was $1,328,978 for the six months ended June 30,
2000 as compared to $962,723 for the six months ended June 30, 1999. The net
interest margin (net interest income divided by average earning assets) was
5.27% for the six months ended June 30, 2000 compared to the net interest margin
of 5.32% for the six months ended June 30, 1999.
Interest income for the first six months of 2000 was $2,134,703
compared to $1,434,802 for the same period in 1999. The volume of total earning
assets increased from $36.2 million at June 30, 1999 to $50.4 million at June
30, 2000. The largest component of interest income was interest and fees on
loans amounting to $1,722,505 for the six months ended June 30, 2000 compared to
$1,086,150 for the comparable prior year period. The overall rate on the loan
portfolio increased from 9.08% for the six months ended June 30, 1999 to 9.25%
for the six month period ended June 30, 2000 as we encountered a period of
rising interest rates. As with the quarterly analysis previously presented,
interest earned on federal funds sold decreased slightly between the two periods
under review as the average federal funds sold balance was lower for the six
months ended June 30, 2000 than for the comparable period in 1999. Interest
income on securities increased between the two periods as the average balance
increased from $8,327,101 to $10,677,721, and the average rate earned increased
from 6.15% to 6.35%.
Interest expense increased from $472,079 for the six months ended June
30, 1999 to $805,725 for the six months ended June 30, 2000 as the size of
interest-bearing liabilities, primarily deposits, increased from $24.5 million
to $37.3 million, an increase of 52%. The average rate paid on interest bearing
liabilities increased from 3.86% to 4.32% reflecting the increases in general
market rates of interest paid on deposits as prompted by several increases in
the prime rate.
Non-interest Income
- -------------------
Non-interest income for the six month period ended June 30, 2000 was
$169,189 compared to $146,633 for the same period in 1999. Of this total,
$115,555 represented service charges on deposit accounts for the six months
ended June 30, 2000 compared to $86,351 for the comparable period in 1999. The
increase in income from deposit service charges is due to the increase in
deposit customers during the comparable periods. The remaining $53,634 of
non-interest income for the first half of 2000 was income generated from other
fees charged such as brokered mortgage origination fees, lease fees, commissions
on sale of checks to customers, and fees from non-deposit investment products'
activity associated with the Bank's financial services subsidiary. For the first
half of 1999, other income amounted to $60,282, the largest component being
brokered mortgage origination fee income of $33,862. Brokered mortgage
origination fee income has been significantly less in 2000 compared to last year
at $3,770, reflecting the decrease in refinancing activities associated with
rising interest rates. The majority of other fee income for the first six months
of 2000 was $28,550 of fees from non-deposit investment products' activity. The
financial services subsidiary began operations in December 1999.
Non-interest Expense
- --------------------
Non-interest expense for the six month periods ended June 30, 2000 and
1999 were $974,916 and $807,368, respectively, a 21% increase. The largest
component of non-interest expense was salaries and employee benefits of $533,097
and $465,889, respectively. Salaries and employee benefits expense increased 14%
due to general merit increases, the addition of staff associated with the
financial services subsidiary, and the matching of 401k plan contributions that
began January 1, 2000. Occupancy and equipment expense increased from $98,313 to
$114,215, or 16% largely due to additional depreciation associated with new
equipment purchases and repairs on existing equipment. Consulting and
professional fees increased from $39,351 to $60,821 due to increases in other
consulting service contracts, an increase in the FDIC fee assessment as deposits
have increased, and the commencement of directors' fees in August 1999. General
operating expenses increased from $119,569 to $167,221, or 40%. This increase
was due to higher levels of Bank activity generating increased costs, primarily
in data processing, but also in items such as postage, supplies and Federal
Reserve processing fees. Other expenses increased from $54,079 to $65,242, or
21%, primarily due to increased levels of advertising.
Provision for Loan Losses
- -------------------------
The provision for loan losses was $117,275 and $65,706, respectively,
for the first six months of 2000 and 1999, bringing the total reserve balance to
$508,000 and $350,000 at June 30, 2000 and 1999, respectively. This amount
represents 1.30% of gross loans at both June 30, 2000 and at June 30, 1999. It
also reflects management's estimates of the amounts necessary to maintain the
allowance for loan losses at a level believed to be adequate in relation to the
current size, mix and quality of the loan portfolio. See the description of the
allowance for loan losses below. However, management's judgment as to the
adequacy of the allowance is based upon a number of assumptions about future
events that it believes to be reasonable, but which may or may not be accurate.
Because of the inherent uncertainty of assumptions made during the evaluation
process, there can be no assurance that charge-offs in future periods will not
exceed the allowance for loan losses or that additional increases in the loan
loss allowance will not be required. We had $18,000 in potential problem loans
that were classified as non-accrual loans at June 30, 2000. There were no
non-performing loans at June 30, 1999. Loan charge-offs for the six months ended
June 30, 2000 were $19,275 and were $706 for the six months ended June 30, 1999.
Charge-offs in both years were made in the second quarter.
BALANCE SHEET REVIEW
Total consolidated assets grew by $3.7 million from $54,794,787 at
December 31, 1999 to $58,543,058 at June 30, 2000. The increase was generated
through a $4.6 million increase in deposits with a $1 million decrease in
borrowed funds. The increase in deposits was used to fund loans that increased
by $5.4 million on a net basis. Cash and due from banks decreased by $1.4
million. Federal funds sold and securities available for sale remained fairly
comparable at June 30, 2000 and at December 31, 1999. There were no purchases or
maturities of investment securities in the period except for $8,500 of
additional stock purchased in the Federal Home Loan Bank of Atlanta.
Loans
- -----
Net outstanding loans represent the largest component of earning assets
as of June 30, 2000 at $38,619,140, or 71% of total earning assets. Net loans
increased $5,393,943, or 16%, since December 31, 1999.
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 regulations also influence interest rates.
The average yield on our loans for the period ended June 30, 2000 was 9.25% as
compared to a yield of 9.19% for the year ended December 31, 1999.
Allowance for Loan Losses
- -------------------------
The allowance for loan losses at June 30, 2000 was $508,000, or 1.30%
of loans outstanding, compared to an allowance of $410,000, or 1.22%, at
December 31, 1999. The allowance for loan losses is based upon management's
continuing evaluation of the collectibility of loans based somewhat on
historical loan loss experience, but mostly, because of the lack of historical
data available in a new company, based on 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. As of June 30, 2000, there were $18,000 in non-performing
loans with charge-offs of $19,275 for the six month period.
Securities
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Investment securities represented 19.5% of earning assets at June 30,
2000 with a total of $10,610,359, down $100,651 from the December 31, 1999
balance of $10,711,010. There have been no purchases or maturities of
investments for the six months since December 31, 1999 with the exception of
additional stock purchased in the Federal Home Loan Bank of Atlanta. The yield
on investment securities was 6.35% for the six months ended June 30, 2000
compared to 6.18% for the year ended December 31, 1999. Included in
available-for-sale securities is $109,900 of stock purchased in the Federal Home
Loan Bank of Atlanta, of which $8,500 was purchased in the first quarter of
2000. This purchase was a requirement from the FHLB in order to secure
borrowings from them in the future.
Deposits
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Our primary source of funds for loans and investments is deposits.
Deposits grew $4,572,524, or 10.5%, since year-end 1999 for a total of
$47,741,265 at June 30, 2000. The average rates paid on interest-bearing
deposits were 4.30% and 3.93% at June 30, 2000 and December 31, 1999,
respectively. In pricing deposits, we consider our liquidity needs, the
direction and levels of interest rates, and local market conditions. The Bank
had paid higher rates initially to attract deposits but had subsequently
decreased the rates based on the factors above. The Bank has now seen rates
begin to move back up again due to changes in those same factors.
Liquidity and Sources of Capital
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At June 30, 2000, our liquid assets, consisting of cash and due from
banks and Federal funds sold, amounted to $6,923,681, representing 11.8% of
total assets. Investment securities amounted to $10,610,359, representing 18.1%
of total assets; these securities provide a secondary source of liquidity since
they can be converted into cash in a timely manner. Our ability to maintain and
expand our deposit base and borrowing capabilities also serves as a source of
liquidity. For the six month period ended June 30, 2000, total deposits
increased by $4.6 million representing an increase of 10.5%, or 21% on an
annualized basis. Our deposit growth rate is not as high as it was in the
initial periods of our development. Our management closely monitors and seeks to
maintain appropriate levels of interest-earning assets and interest-bearing
liabilities so that maturities of assets are such that adequate funds are
provided to meet customer withdrawals and loan demand.
We plan to meet future cash needs through the liquidation of temporary
investments, maturities of loans and investment securities, and generation of
deposits. In addition, the Bank maintains two lines of credit from correspondent
banks in the amount of $1,800,000 each, and is a member of the Federal Home Loan
Bank, from which applications may be made for borrowing capabilities, if needed.
The Bank currently maintains a level of capitalization in excess of the
minimum capital requirements set by the regulatory agencies. Despite anticipated
asset growth, management expects its capital ratios to continue to be adequate
for the next two to three years. However, no assurances can be given in this
regard, as rapid growth, deterioration in loan quality, and operating losses, or
a combination of these factors, could change our capital position in a
relatively short period of time. We plan to begin construction in 2000 on an
office building in downtown Aiken with total estimated capital expenditures of
$1,400,000. The capital project is expected to be funded with internal sources.
The cost of the land and preliminary construction costs through June 30, 2000
was approximately $231,000.
During the first quarter of this year, 5,000 shares of our outstanding
stock were purchased at $9.75 per share to hold as treasury stock. In the second
quarter, another 5,637 shares were purchased at $8.00 per share. The total
purchase price of the acquired shares was $93,846. The treasury stock was
purchased for possible utilization in connection with our stock option plan. Our
Board of Directors has approved approximately 100,000 shares to be purchased as
treasury stock. To date, 25,637 shares have been purchased for a cost of
$251,346, at an average of $9.81 per share.
Below is a table that reflects the leverage and risk-based regulatory
capital ratios of the Bank at June 30, 2000:
Well-Capitalized Minimum
Ratio Requirement Requirement
----- ---------------- -----------
Tier 1 Capital 14.50% 6.00% 4.00%
Total Capital 15.74% 10.00% 8.00%
Tier 1 leverage ratio 11.25% 5.00% 4.00%
YEAR 2000 ISSUES
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Like many financial institutions, we rely upon computers for conducting
our business and for information systems processing. Industry experts were
concerned that on January 1, 2000, some computers would not be able to interpret
the new year properly, causing computer malfunctions. While we have not
experienced any material computer malfunctions to date, there remains a risk
that our computers will be unable to read or interpret data on Year
2000-sensitive dates, including October 10, 2000. Our regulators have issued
guidelines to require compliance with Year 2000 issues. In accordance with these
guidelines, we have developed and executed a plan to ensure that our computer
and telecommunication systems do not have these Year 2000 problems. We generally
rely on software and hardware developed by independent third parties for our
information systems. We believe that our internal systems and software,
including our network connections, are programmed to comply with Year 2000
requirements, although there is a risk they
may not be. We incurred approximately $2,000 in expenses in 1999 to implement
our Year 2000 plan. Under our plan, we are continuing to monitor the situation
throughout 2000. Based on information currently available, we believe that we
will not incur significant additional expenses in connection with the Year 2000
issue.
The Year 2000 issue may also negatively affect the business of our
customers, but to date we are not aware of any material Year 2000 issues
affecting them. We include Year 2000 readiness in our lending criteria to
minimize risk. However, this will not eliminate the issue, and any financial
difficulties that our customers experience caused by Year 2000 issues could
impair their ability to repay loans to us.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board, FASB, issued
SFAS 133, "Accounting for Derivative Instrument and Hedging Activities." All
derivatives are to be measured at fair value and recognized in the balance sheet
as assets or liabilities. The statement is now effective for fiscal years and
quarters beginning after June 15, 2000 (delayed through the issuance of SFAS
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133 - An Amendment of FASB Statement
No. 133"). Because we do not use derivative transactions at this time,
management does not expect that this standard will have a significant effect on
us.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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Not Applicable
Item 2. Changes in Securities
- -----------------------------
Not Applicable
Item 3. Defaults Upon Senior Securities
- ---------------------------------------
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
One matter was voted upon at the Annual Meeting of Shareholders held on April
27, 2000.
1. The Company's Bylaws provides that the Board of Directors shall be divided
into three classes with each class to be nearly equal in number as
possible. The Bylaws also provide that the three classes of directors are
to have staggered terms, so that the terms of only approximately one-third
of the board members will expire at each annual meeting of shareholders.
The current Class I directors are Margaret Holley-Taylor, Clark D. Moore,
M.D., Donald W. Thompson, and John B. Tomarchio, M.D. The current Class II
directors are Raymond D. Brown, Alan J. George, and Anthony E. Jones. (W.
Cothran Campbell, previously a Class II director, resigned from the Board
in January 1999 due to time constraints with his other business interests.)
The current Class III directors are James D. McNair, Russell D. Phelon, and
Tommy B. Wessinger. The current terms of the Class I directors expired at
the Annual Meeting. Each of the four current Class I directors was
nominated for reelection and stood for election at the Annual Meeting on
April 27, 2000 for a three year term. The number of votes for the election
of the Class III directors was as follows: For Ms. Holley-Taylor - 806,122;
for Dr. Moore - 805,622; for Mr. Thompson - 805,522; for Dr. Tomarchio -
805,622; withhold authority for Ms. Holley-Taylor - 0; withhold authority
for Dr. Moore - 500; withhold authority for Mr. Thompson - 600; withhold
authority for Dr. Tomarchio - 500. The terms of the Class II directors will
expire at the 2001 Annual Meeting of Shareholders, and the terms of the
Class III directors will expire at the 2002 Annual Meeting of Shareholders.
Item 5. Other Information
- -------------------------
None.
Item 6. Exhibits and Report on Form 8-K
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(a) Exhibits - 27.1 Financial Data Schedule for period ending
June 30, 2000.
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter ended June 30, 2000.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
People's Community Capital Corporation
(Registrant)
Date: July 31, 2000 By: /s/ Tommy B. Wessinger
--------------------------------
Tommy B. Wessinger
Chief Executive Officer
By: /s/ Jean H. Covington
--------------------------------
Jean H. Covington
Principal Accounting and Chief
Financial Officer