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, 2001.
___ 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.)
125 PARK AVENUE, S.W., AIKEN, SOUTH CAROLINA 29801
(Address of Principal Executive Offices)
(803) 641-0142
(Issuer's Telephone Number, Including Area Code)
FORMER ADDRESS: 106-A PARK AVENUE, S.W., AIKEN, SOUTH CAROLINA 29801
(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: 998,009 shares of common
stock, par value $.01 per share outstanding at July 31, 2001.
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,
2001 2000
---- ----
(Unaudited) (Audited)
Assets
Cash and due from banks $ 1,845,233 $ 1,603,996
Federal funds sold 6,108,000 5,500,000
Short-term investments 984,500 999,028
Securities, available for sale 13,010,570 10,852,109
Loans receivable, net 47,706,701 40,080,422
Properties and equipment, net 3,247,233 2,188,878
Accrued interest receivable 471,582 421,930
Deferred income taxes 113,916 140,912
Other assets 81,262 54,261
------------- --------------
Total assets $ 73,568,997 $ 61,841,536
============= ==============
Liabilities and Shareholders' Equity
Liabilities:
Non-interest bearing deposits $ 8,660,179 $ 8,179,075
Interest bearing deposits 53,772,826 42,854,756
------------- --------------
Total deposits 62,433,005 51,033,831
Accrued interest payable 85,145 86,368
Accrued expenses and other liabilities 78,707 480,613
Other borrowings 797,377 344,631
------------- --------------
Total liabilities 63,394,234 51,945,443
------------- --------------
Shareholders' equity:
Common stock, $.01 par value; 10,000,000 shares authorized,
998,009 shares issued at June 30, 2001 and 998,262 at
December 31, 2000 9,980 9,983
Additional paid-in-capital 9,758,708 9,776,507
Retained earnings 373,942 508,303
Accumulated other comprehensive income (loss) 32,133 (34,458)
------------- --------------
10,174,763 10,260,335
Treasury stock, 0 and 39,749 shares at cost 0 (364,242)
------------- --------------
Total shareholders' equity 10,174,763 9,896,093
------------- --------------
Total liabilities and shareholders' equity $ 73,568,997 $ 61,841,536
============= ==============
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,
-------------- --------------
2001 2000 2001 2000
---- ---- ---- ----
Interest income:
Loans, including fees $ 1,014,316 $ 898,858 $ 1,994,686 $ 1,722,505
Federal funds sold 68,044 35,331 132,991 73,360
Securities, short-term investments, and cash 174,548 169,463 364,390 338,838
-------------- ------------- ------------- -------------
Total interest income 1,256,908 1,103,652 2,492,067 2,134,703
-------------- ------------- ------------- -------------
Interest expense:
Deposits 575,092 410,621 1,125,159 788,719
Other borrowings 3,770 10,549 9,110 17,006
-------------- ------------- ------------- -------------
Total interest expense 578,862 421,170 1,134,269 805,725
-------------- ------------- ------------- -------------
Net interest income 678,046 682,482 1,357,798 1,328,978
Provision for loan losses 21,919 60,275 61,288 117,275
-------------- ------------- ------------- -------------
Net interest income after provision 656,127 622,207 1,296,510 1,211,703
-------------- ------------- ------------- -------------
for loan losses
Non-interest income:
Service charges on deposit accounts 107,206 57,967 191,603 115,555
Realized net gains on sales of securities 18,437 - 18,437 -
Other income 37,192 30,305 77,130 53,634
-------------- ------------- -------------- -------------
Total non-interest income 162,835 88,272 287,170 169,189
-------------- ------------- -------------- -------------
Non-interest expenses:
Salaries and employee benefits 339,390 261,783 619,846 533,097
Occupancy and equipment 78,754 53,280 132,898 114,215
Consulting and professional expenses 27,722 22,186 65,838 60,821
Customer related expenses 23,907 17,407 44,150 34,320
General operating expenses 94,907 79,951 181,357 167,221
Other expenses 56,858 38,516 80,284 65,242
-------------- ------------- ------------- -------------
Total non-interest expenses 621,538 473,123 1,124,373 974,916
-------------- ------------- ------------- -------------
Income before income taxes 197,424 237,356 459,307 405,976
Income tax provision 74,869 90,461 174,965 154,607
-------------- ------------- ------------- -------------
Net income $ 122,555 $ 146,895 $ 284,342 $ 251,369
============== ============= ============= =============
Weighted average common shares outstanding:
Basic 998,009 1,024,769 983,543 1,027,357
Diluted 1,137,696 1,115,441 1,123,230 1,117,510
Earnings per share:
Basic $ .12 $ .14 $ .29 $ .24
Diluted $ .11 $ .13 $ .25 $ .22
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,
-------------- --------------
2001 2000 2001 2000
---- ---- ---- ----
Net income $ 122,555 $ 146,895 $ 284,342 $ 251,369
Other comprehensive income (loss), net of tax:
Net change in unrealized gain (loss) on 49,976 6,462 97,176 (65,542)
securities available for sale
Less reclassification adjustment for realized
gains (12,168) (12,168) -
------------- ------------ ------------ ------------
Total other comprehensive income (loss) 37,808 6,462 85,028 (65,542)
Comprehensive income $ 160,363 $ 153,357 $ 369,370 $ 185,827
============= ============ ============ ============
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,
--------------
2001 2000
---- ----
Operating activities:
Net income $ 284,342 $ 251,369
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Depreciation and amortization 74,137 55,368
Provision for loan losses 61,288 117,275
Deferred income taxes 26,996 (31,706)
Changes in deferred and accrued amounts:
Other assets and accrued interest receivable (82,392) (52,568)
Accrued expenses and other liabilities (403,129) 81,442
--------------- --------------
Net cash provided by (used for) operating activities (38,758) 421,180
--------------- --------------
Investing activities:
Purchase of securities available for sale (14,708,508) (8,500)
Sale of securities available for sale 1,000,000 -
Maturities and calls of securities available for sale 11,616,638 -
Net decrease in short-term investments 14,528 -
Purchase of property and equipment (1,126,753) (85,075)
Net increase in loans receivable (7,687,567) (5,511,218)
Net (increase) decrease in federal funds sold (608,000) 330,000
--------------- -------------
Net cash used for investing activities (11,499,662) (5,274,793)
--------------- -------------
Financing activities:
Purchase of treasury stock (72,000) (93,846)
Net increase in deposits 11,399,174 4,572,524
Net (decrease) increase in other borrowings 452,746 (997,678)
Payment of cash dividends in lieu of stock for fractional shares (263) 0
--------------- -------------
Net cash provided by financing activities 11,779,657 3,481,000
--------------- -------------
Net (decrease)/increase in cash and due from banks 241,237 (1,372,613)
Cash and due from banks at beginning of period 1,603,996 3,076,294
--------------- -------------
Cash and due from banks at end of period $ 1,845,233 $ 1,703,681
=============== =============
Supplemental disclosure:
Cash paid during the period for interest $ 1,135,492 $ 793,352
=============== =============
Cash paid during the period for income taxes $ 505,371 $ 26,727
=============== =============
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, 2001, are not necessarily
indicative of the results that may be expected for the year ended December 31,
2001. For further information, please refer to the consolidated financial
statements and footnotes thereto for the Company's fiscal year ended December
31, 2000, included in the Company's Form 10-KSB for the year ended December 31,
2000.
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 have also been the headquarters of the holding
company. A tract of land was purchased in downtown Aiken for the construction of
a permanent banking center office and holding company headquarters. Construction
began in September 2000 and was completed in May 2001. Total land and
construction costs were approximately $1.6 million.
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, 2001 to the
three months ended June 30, 2000
Our net income for the second quarter of 2001 was $122,555 compared to
$146,895 for the same period last year. The basic income per share decreased to
$.12 compared to $.14 for the same period in 2000. Weighted shares outstanding
have been adjusted for the effect of a 5% stock dividend paid on March 1, 2001
to shareholders of record as of February 15, 2001. The decrease in earnings for
the three months ended June 30, 2001 is directly attributable to the addition of
key personnel during the period and the move to our new headquarters and main
banking center in Aiken. The level of average earning assets actually increased
from $51.9 million for the three months ended June 30, 2000 to $63.4 million for
the three months ended June 30, 2001.
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, 2001 and 2000. 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, 2001 Three months ended June 30, 2000
- -------------------------------- --------------------------------------------- -------------------------------------------
Average Interest Yield Average Interest Yield/
Balance Income/Expense /Rate Balance Income/Expense Rate
- -------------------------------- -------------- ------------------- ---------- -------------- ------------------ ---------
ASSETS
Cash $ 2,366 $ 65 10.99% 2,563 $ 66 10.3%
Federal funds sold 6,434,919 68,044 4.23% 2,235,269 35,265 6.31%
Short-term investments 986,333 15,141 6.14% - -
Securities 10,548,808 159,342 6.04% 10,647,776 169,463 6.37%
Loans 45,425,781 1,014,316 8.93% 38,964,696 898,858 9.23%
------------- ------------ ------------ ------------
Total earning assets 63,398,207 1,256,908 7.93% 51,850,304 1,103,652 8.51%
Cash and due from banks 1,802,233 1,675,020
Premises and equipment 2,922,017 1,693,172
Other assets 1,160,316 1,016,256
Allowance for loan losses (619,637) (488,833)
------------- ------------
Total assets 68,663,136 55,745,919
============= ============
LIABILITIES & EQUITY
Interest-bearing deposits:
Transaction accounts 7,117,511 19,750 1.11% 6,632,060 20,973 1.26%
Money market accounts 11,321,826 96,394 3.41% 9,482,557 99,157 4.18%
Savings deposits 2,370,803 24,142 4.07% 767,686 4,621 2.41%
Time deposits 28,569,464 434,806 6.09% 20,661,171 285,870 5.53%
------------- ------------ ------------ ------------
Total interest bearing
deposits 49,379,604 575,092 4.66% 37,543,474 410,621 4.37%
Interest-bearing borrowings 386,070 3,770 3.90% 692,615 10,549 6.09%
------------- ------------ ------------ ------------
Total interest-bearing
liabilities 49,765,674 578,862 4.65% 38,236,089 421,170 4.41%
Demand deposits 8,683,283 7,820,968
Other liabilities 239,252 40,773
Shareholders' equity 9,974,927 9,648,089
------------- ------------
Total liabilities &
shareholders equity $ 68,663,136 $ 55,745,919
============= ============
Net interest spread 3.28% 4.10%
Net interest income/margin $ 678,046 4.28% $ 682,482 5.27%
============ ===========
Net interest income was $678,046 for the three months ended June 30,
2001 as compared to $682,482 for the three months ended June 30, 2000. The net
interest margin (net interest income divided by average earning assets) was
4.28% for the three months ended June 30, 2001 compared to the net interest
margin of 5.27% for the three months ended June 30, 2000. The decline in net
interest income and net interest margin is the result of lower yields on most
every category of earning assets as interest rates have been falling in our
market area on loans, investments, and Federal funds sold. Additionally, higher
rates were being paid on the Bank's time deposits in an effort to attract funds,
and the growth of interest-bearing liabilities was $11.5 million from $38.2
million to $49.7 million between the two periods being compared. This decline in
net interest margin was partially offset by an increase in average earning
assets, which grew from $51.9 million at June 30, 2000 to $63.4 million at June
30, 2001.
Interest income for the second quarter of 2001 was $1,256,908 compared
to $1,103,652 for the same period in 2000. The volume of total earning assets
increased by about $11.5 million between the two periods. The largest component
of interest income was interest and fees on loans amounting to $1,014,316 for
the three months ended June 30, 2001 compared to $898,858 for the comparable
prior year period. The overall rate on the loan portfolio decreased from 9.23%
for the three months ended June 30, 2000 to 8.93% for the three month period
ended June 30, 2001. Even though the rate earned on federal funds sold has
decreased between the two periods, interest earned on federal funds sold
increased as the average balance was higher for the three months ended June 30,
2001 than for the comparable period in 2000 by about $4.2 million. Interest
income on securities decreased slightly between the two periods as the average
balances remained fairly comparable, but average rates earned on the portfolio
decreased.
Interest expense increased from $421,170 for the three months ended
June 30, 2000 to $578,862 for the three months ended June 30, 2001. The increase
was the result of a growth in interest-bearing liabilities, primarily deposits,
from $38.2 million to $49.7 million, an increase of 30%. The average rate paid
on interest bearing liabilities increased from 4.41% to 4.65% reflecting the
increases in rates paid on promotions of time deposits and savings accounts to
attract funds. Rates declined with the market on demand deposits and money
market accounts.
Non-interest Income
Non-interest income for the three month period ended June 30, 2001 was
$162,835 compared to $88,272 for the same period in 2000. Of this total,
$107,206 represented service charges on deposit accounts for the three months
ended June 30, 2001 compared to $57,967 for the comparable period in 2000. The
increase in income from deposit service charges is due to the increase in
deposit customers and an increase in the fees charged for non-sufficient funds.
We had a gain on sale of available securities of $18,437 during the current
period. The $37,192 of other non-interest income for the second quarter of 2001
consisted of $27,134 of income generated from other fees charged such as
brokered mortgage origination fees, check cashing fees, internet fees, and
commissions on sale of checks to customers and $10,058 of fees from non-deposit
investment products' activities. For the second quarter of 2000, other income
amounted to $30,305 consisting of $12,376 of banking fees and $17,929 of
non-deposit products' fees.
Non-interest Expense
Non-interest expense for the three month period ended June 30, 2001 was
$621,538 as compared to $473,123 for the comparable period in 2000 an increase
of $138,415, or 31%. The largest component of non-interest expense was salaries
and employee benefits, which totaled $339,390 and $261,783 for the three months
ended June 30, 2001 and 2000, respectively. Salaries and employee benefits
expense increased 30% due to the addition of two key executives, general merit
increases, and the addition of staff associated with the move to a new banking
facility. Occupancy and equipment expense increased from $53,280 to $78,754, or
48% due to additional depreciation, moving expenses, and general occupancy
expenses associated with the new office building. Virtually, every category of
non-interest expense was impacted in the second quarter of 2001 by the move to
the new building as grand opening expenses, supplies expense, and advertising
expenses were all incurred. See the Consolidated Statements of Income for more
details on non-interest expense amounts for the two periods under comparison.
EARNINGS REVIEW - Comparison of the six months ended June 30, 2001 to the six
months ended June 30, 2000
Our net income for the six months ended June 30, 2001 was $284,342
compared to $251,369 for the same period last year. The basic income per share
increased to $.29 compared to $.24 for the same period in 2000. This improvement
in earnings reflects the continuing growth in the level of earning assets since
the Bank commenced operations despite the increase in non-interest expense as
mentioned in the above discussion. The level of average earning assets was $61.3
million for the six months ended June 30, 2001 as compared to $50.4 million for
the six months ended June 30, 2000.
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, 2001 and 2000, along with average balances and the related interest
income and interest expense amounts.
Six months ended June 30, 2001 Six months ended June 30, 2000
-------------------------------------------- ---------------------------------------
Average Interest Yield Average Interest Yield/
Balance Income/Expense /Rate Balance Income/Expense Rate
ASSETS
Cash $ 5,969 $ 190 6.37% $ 5,570 $ 149 5.35%
Federal funds sold 5,548,493 132,991 4.79% 2,445,188 73,211 5.99%
Short-term investments 989,814 31,570 6.38% - - -
Securities 10,804,387 332,630 6.16% 10,677,721 338,838 6.35%
Loans 43,951,752 1,994,686 9.08% 37,259,340 1,722,505 9.25%
------------ ---------- ------------ -----------
Total earning assets 61,300,415 2,492,067 8.13% 50,387,819 2,134,703 8.47%
Cash and due from banks 1,812,749 1,719,805
Premises and equipment 2,607,216 1,676,265
Other assets 1,086,655 1,113,413
Allowance for loan losses (605,010) (461,833)
------------ ------------
Total assets 66,202,025 54,435,469
============ ============
LIABILITIES & EQUITY
Interest-bearing deposits:
Transaction accounts 6,872,861 40,203 1.17% 6,615,341 41,813 1.26%
Money market accounts 11,048,528 205,575 3.72% 9,394,339 191,521 4.08%
Savings deposits 1,658,333 29,703 3.58% 757,601 9,148 2.41%
Time deposits 27,618,178 849,678 6.15% 19,944,787 546,237 5.48%
------------ ---------- ------------ -----------
Total interest
bearing deposits 47,197,900 1,125,159 4.77% 36,712,068 788,719 4.30%
Interest-bearing borrowings 401,769 9,110 4.53% 573,175 17,006 5.93%
Total interest-bearing ------------ ---------- ------------ -----------
liabilities 47,599,669 1,134,269 4.77% 37,285,243 805,725 4.32%
Demand deposits 8,358,338 7,503,708
Other liabilities 321,530 43,717
Shareholders' equity 9,922,488 9,602,801
Total liabilities &
shareholders equity $ 66,202,025 $ 54,435,469
============ =============
Net interest spread 3.36% 4.15%
Net interest income/margin $ 1,357,798 4.43% $ 1,328,978 5.27%
=========== ============
Net interest income was $1,357,798 for the six months ended June 30,
2001 as compared to $1,328,978 for the six months ended June 30, 2000. The net
interest margin (net interest income divided by average earning assets) was
4.43% for the six months ended June 30, 2001 compared to the net interest margin
of 5.27% for the six months ended June 30, 2000.
Interest income for the first six months of 2001 was $2,492,067
compared to $2,134,703 for the same period in 2000. The volume of total earning
assets increased from $50.4 million at June 30, 2000 to $61.3 million at June
30, 2001. The largest component of interest income was interest and fees on
loans amounting to $1,994,686 for the six months ended June 30, 2001 compared to
$1,722,505 for the comparable prior year period. The overall rate on the loan
portfolio decreased from 9.25% for the six months ended June 30, 2000 to 9.08%
for the six month period ended June 30, 2001 as we encountered a period of
falling interest rates. Interest earned on federal funds sold increased between
the two periods under review as the average federal funds sold balance was
higher for the six months ended June 30, 2001 than for the comparable period in
2000. Interest income on securities stayed relatively the same between the two
periods as the average balances were slightly higher and the average rates
earned were slightly lower.
Interest expense increased from $805,725 for the six months ended June
30, 2000 to $1,134,269 for the six months ended June 30, 2001 as
interest-bearing liabilities, primarily deposits, increased from $37.3 million
to $47.6 million, an increase of 28%. The average rate paid on interest bearing
liabilities also increased from 4.32% to 4.77% reflecting the increases in rates
paid on promotions of time deposits and savings accounts to attract funds. Rates
declined with the market on demand deposits and money market accounts.
Non-interest Income
Non-interest income for the six month period ended June 30, 2001 was
$287,170 compared to $169,189 for the same period in 2000. Of this total,
$191,603 represented service charges on deposit accounts for the six months
ended June 30, 2001 compared to $115,555 for the comparable period in 2000. The
increase in income from deposit service charges is due to the increase in
deposit customers. We had $18,437 from gain on sale of available-for-sale
securities which occurred in the second quarter of this year. The remaining
$77,130 of other non-interest income for the first half of 2001 consisted of
$61,728 of income generated from other fees charged such as brokered mortgage
origination fees of $19,090, check cashing fees, internet fees, and commissions
on sale of checks to customers and $15,402 of fees from non-deposit investment
products' activities. For the first half of 2000, other income amounted to
$53,634 consisting of $25,084 of banking fees (only $3,770 of brokered mortgage
fees) and $28,550 of non-deposit products' fees.
Non-interest Expense
Non-interest expense for the six month period ended June 30, 2001 was
$1,124,373 as compared to $974,916, for the same period in 2000, a 15% increase.
The largest component of non-interest expense was salaries and employee benefits
of $619,846 and $533,097, respectively. Salaries and employee benefits expense
increased 16% due to the addition of two key executives, general merit
increases, and the addition of staff associated with the move to a new banking
facility. Occupancy and equipment expense increased from $114,215 to $132,898,
or 16% due to additional depreciation, moving expenses, and general occupancy
expenses associated with the new office building. General operating expenses and
other expenses were also impacted by the move to the new building as grand
opening expenses, supplies expense, and advertising expenses were all incurred.
See the Consolidated Statements of Income for more details on non-interest
expense amounts for the two periods under comparison.
Provision for Loan Losses
The provision for loan losses was $61,288 and $117,275, respectively,
for the first six months of 2001 and 2000, bringing the total reserve balance to
$631,300 and $508,000 at June 30, 2001 and 2000, respectively. This amount
represents 1.31% of gross loans at June 30, 2001 and 1.30% at June 30, 2000. 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 $190,000 in potential problem loans
that were classified as non-accrual loans at June 30, 2001. There were $18,000
of non-accrual loans at June 30, 2000. Net loan charge-offs were $1,988 for the
six months ended June 30, 2001 and were $19,217 for the six months ended June
30, 2000.
BALANCE SHEET REVIEW
Total consolidated assets grew by $11.7 million from $61,841,536 at
December 31, 2000 to $73,568,994 at June 30, 2001. The increase was generated
through an $11.4 million increase in deposits. The increase in deposits was used
to fund loans that increased by $7.6 million on a net basis, increase securities
available for sale by a net $2.1 million, complete the new office building in
Aiken for a net $1.0 million increase in property, and increase overnight
investments in federal funds sold by $.6 million.
Loans
Net outstanding loans represent the largest component of earning assets
as of June 30, 2001 at $47,706,701, or 70% of total earning assets. Net loans
increased $7,626,279, or 19%, since December 31, 2000.
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, 2001 was 9.08% as
compared to a yield of 9.25% for the year ended December 31, 2000.
The principal components of our loan portfolio at June 30, 2001 and
December 31, 2000, consisted of real estate loans comprising approximately 84.5%
and 75.7% of total loans, respectively. Real estate loan means any loan secured
by real estate, regardless of the purpose of the loan. It is common practice for
financial institutions in our market area to obtain a security interest in real
estate whenever possible, in addition to any other available collateral. This
collateral is taken to reinforce the likelihood of the ultimate repayment of the
loan and tends to increase the magnitude of the real estate portfolio component.
The following table shows the composition of the loan portfolio by category.
June 30, 2001 December 31, 2000
------------- -----------------
Amount Percent Amount Percent
------ ------- ------ -------
Commercial, financial and agricultural $ 5,108,121 10.6% $ 7,266,130 17.9%
Real estate 40,899,275 84.5% 30,813,021 75.7%
Consumer and other 2,369,475 4.9% 2,598,990 6.4%
------------ ---- ------------ ----
Total loans 48,376,871 100.0% 40,678,141 100.0%
Allowance for loan losses (631,300) (572,000)
Unearned fees (38,870) (25,719)
------------ ------------
Total net loans $47,706,701 $40,080,422
=========== ===========
Allowance for Loan Losses
The allowance for loan losses at June 30, 2001 was $631,300, or 1.31%
of loans outstanding, compared to an allowance of $572,000, or 1.41%, at
December 31, 2000. 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 primarily 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, 2001, there were $190,000 in
non-performing loans with net charge-offs of $1,988 for the six month period.
Short-Term Investments and Securities
Short-term investments and securities represented 20.6% of earning
assets at June 30, 2001 with a combined total of $13,995,070, up $2,143,933 from
the December 31, 2000 combined balance of $11,851,137. There was a significant
amount of activity in the securities portfolio. As interest rates fell, many
agency bonds were called, and we purchased
new bonds, some with slightly lower yields. Total calls equaled $11.6 million,
total purchases equaled $14.7 million, and sales of securities equaled $1.0
million. The combined yield on investment securities was 6.18% for the six
months ended June 30, 2001 compared to a combined yield of 6.33% for the year
ended December 31, 2000. Included in available-for-sale securities is $137,100
of stock purchased in the Federal Home Loan Bank of Atlanta, of which $27,200
was purchased in the first quarter of 2001. This purchase was a requirement from
the FHLB in order to secure borrowings from them in the future.
Deposits
Our primary source of funds for loans and investments is deposits.
Deposits grew $11,399,174, or 22%, since year-end 2000 for a total of
$62,433,005 at June 30, 2001. The average rates paid on interest-bearing
deposits were 4.77% and 4.60% at June 30, 2001 and December 31, 2000,
respectively. In pricing deposits, we consider our liquidity needs, the
direction and levels of interest rates, and local market conditions. We have
seen an increase in the price of our deposits due to local market competition
associated with rates on time deposits and also due to a promotion we have had
in this last quarter relating to savings deposits.
Of the increase in deposits for the first half of 2001, one
institutional customer's time deposit accounted for $2,500,000 of the increase.
This deposit is secured by agency bonds and was accepted for a one-year term.
Shareholders' Equity
On January 23, 2001, the Board of Directors declared a 5% stock
dividend which was paid on March 1, 2001 to shareholders of record on February
15, 2001. The number of shares issued was 49,883 with a market value of $8.81 on
the declaration date for a total decrease in retained earnings of $439,469. Due
to the dividend, treasury stock was increased by 2,387 shares, or $21,029. Cash
paid in lieu of stock for fractional shares totaled $263.
On January 24, 2001, we purchased an additional 8,000 shares of our own
stock to hold in treasury for a price of $9.00 per share, or $72,000. In June
2001, our Board of Directors voted to retire our treasury stock and the total
value of our treasury stock of $457,271, representing 50,136 shares, was netted
against common stock and paid in capital.
Liquidity and Sources of Capital
At June 30, 2001, our liquid assets, consisting of cash and due from
banks and Federal funds sold, amounted to $7,953,233, representing 10.8% of
total assets. Investment securities and short-term investments amounted to
$13,995,070, representing 19.0% 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, 2001, total deposits increased by $11.4 million representing an
increase of 22.3%, or 45% on an annualized basis. Growth for the first half of
the year is not necessarily indicative of expected growth for the remainder of
the year. 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.
Below is a table that reflects the leverage and risk-based regulatory
capital ratios of the Bank at June 30, 2001:
Well-Capitalized Minimum
Ratio Requirement Requirement
----- --------------- -----------
Tier 1 Capital 11.95% 6.00% 4.00%
Total Capital 13.12% 10.00% 8.00%
Tier 1 leverage ratio 9.90% 5.00% 4.00%
RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the SEC issued Staff Accounting Bulletin (SAB) No. 102 -
Selected Loan Loss Allowance Methodology and Documentation Issues. This staff
accounting bulletin clearly defines the required development, documentation, and
application of a systematic methodology for determining allowances for loan and
lease losses in accordance with generally accepted accounting principles. The
Company believes that it is in compliance with SAB 102.
In June 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 141- Business Combinatons. This FASB addresses accounting and reporting
for all business combinations and defines the purchase method as the only
acceptable method. This statement is effective for all business combinations
initiated after June 30, 2001.
In June 2001, the FASB issued SFAS No. 142 - Goodwill and Other
Intangible Assets. This SFAS addresses how goodwill and other intangible assets
should be accounted for at their acquisition (except for those acquired in a
business combination) and after they have been initially recognized in the
financial statements. The statement is effective for all fiscal years
beginning after December 15, 2001. The Company believes the effect of this SFAS
will not have a material impact on the financial position of the Company.
Additional accounting standards that have been issued or proposed by
the FASB that do not require adoption until a future date are not expected to
have a material impact on the consolidated financial statements upon adoption.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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
The annual meeting of shareholders was held on May 17, 2001 for which there was
only one matter submitted to a vote of security holders.
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. The current Class
III directors are James D. McNair, Russell D. Phelon, and Tommy B.
Wessinger. The current terms of the Class II directors expired at this
year's Annual Meeting held May 17, 2001 therefore leaving the Class II
directors up for reelection for a three year term. The number of votes for
the election of the Class II directors was as follows: There were 808,790
votes for the reelection of Raymond D. Brown, 0 votes withheld, and 0 votes
against Mr. Brown's reelection. There were 808,790 votes for the reelection
of Alan J. George, 0 votes withheld, and 0 votes against Mr. George's
reelection. There were 808,790 votes for Anthony E. Jones, 0 votes
withheld, and 0 votes against Mr. Jones' reelection. The terms of the Class
III directors will expire at the 2002 Annual Meeting of Shareholders, and
the terms of the Class I directors will expire at the 2003 Annual Meeting
of Shareholders.
There were no other matters submitted for a vote of security holders.
Item 5. Other Information
None.
Item 6. Exhibits and Report on Form 8-K
(a) Exhibits - There were no new exhibits for period ending
June 30, 2001.
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter ended June 30, 2001.
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, 2001 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