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 September 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)
N/A
(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: 991,845 shares of common
stock, par value $.01 per share outstanding at October 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
September 30, December 31,
2001 2000
---- ----
(Unaudited) (Audited)
Assets
Cash and due from banks $ 2,290,390 $ 1,603,996
Federal funds sold 8,681,000 5,500,000
Short-term investments 971,889 999,028
Securities, available for sale 15,777,956 10,852,109
Loans receivable, net 47,648,182 40,080,422
Properties and equipment, net 3,216,425 2,188,878
Accrued interest receivable 437,386 421,930
Deferred income taxes 76,074 140,912
Other assets 40,355 54,261
------------- --------------
Total assets $ 79,139,657 $ 61,841,536
============= ==============
Liabilities and Shareholders' Equity
Liabilities:
Non-interest bearing deposits $ 9,805,200 $ 8,179,075
Interest bearing deposits 57,774,605 42,854,756
------------- ---------------
Total deposits 67,579,805 51,033,831
Accrued interest payable 75,906 86,368
Accrued expenses and other liabilities 117,299 480,613
Other borrowings 1,004,278 344,631
------------- ----------------
Total liabilities 68,777,288 51,945,443
------------- ----------------
Shareholders' equity:
Common stock, $.01 par value; 10,000,000 shares
authorized, 991,845 shares issued at September 30, 2001
and 998,262 at December 31,2000 9,918 9,983
Additional paid-in-capital 9,699,178 9,776,507
Retained earnings 531,254 508,303
Accumulated other comprehensive income (loss) 122,019 (34,458)
------------- ----------------
10,362,369 10,260,335
Treasury stock, 0 and 39,749 shares at cost 0 (364,242)
------------- ----------------
Total shareholders' equity 10,362,369 9,896,093
------------- ----------------
Total liabilities and shareholders' equity $ 79,139,657 $ 61,841,536
============= ================
See accompanying Notes to Consolidated Financial Statements.
2
People's Community Capital Corporation
Consolidated Statements of Income
(Unaudited)
For the three months For the nine months
ended Sept 30, ended Sept 30,
-------------- --------------
2001 2000 2001 2000
---- ---- ---- ----
Interest income:
Loans, including fees $ 1,026,707 $ 933,303 $ 3,021,393 $ 2,655,808
Federal funds sold 62,588 84,078 195,580 157,438
Securities, short-term investments, and cash 209,330 168,301 573,719 507,139
------------ ------------ ----------- -----------
Total interest income 1,298,625 1,185,682 3,790,692 3,320,385
------------ ------------ ----------- -----------
Interest expense:
Deposits 590,062 495,130 1,715,221 1,283,849
Other borrowings 3,953 5,217 13,063 22,223
------------ ------------ ----------- -----------
Total interest expense 594,015 500,347 1,728,284 1,306,072
------------ ------------ ----------- -----------
Net interest income 704,610 685,335 2,062,408 2,014,313
Provision for loan losses 20,000 33,559 81,288 150,834
------------ ------------ ----------- -----------
Net interest income after provision 684,610 651,776 1,981,120 1,863,479
------------ ------------ ----------- -----------
for loan losses
Non-interest income:
Service charges on deposit accounts 119,102 68,222 310,705 183,777
Realized net gains on sales of securities 19,101 - 37,538 -
Other income 41,243 26,712 118,373 80,346
-------------- ------------ ----------- -----------
Total non-interest income 179,446 94,934 466,616 264,123
-------------- ------------ ----------- -----------
Non-interest expenses:
Salaries and employee benefits 381,878 286,956 1,001,724 820,053
Occupancy and equipment 44,109 62,016 177,007 176,231
Consulting and professional expenses 30,382 26,111 96,220 86,932
Customer related expenses 32,572 18,470 76,722 52,790
General operating expenses 102,160 72,636 283,517 239,857
Other expenses 32,539 35,165 112,823 100,407
-------------- ------------ ----------- -----------
Total non-interest expenses 623,640 501,354 1,748,013 1,476,270
------------- ------------ ----------- -----------
Income before income taxes 240,416 245,356 699,723 651,332
Income tax provision 83,366 93,518 258,331 248,125
------------- ------------ ----------- -----------
Net income $ 157,050 $ 151,838 $ 441,392 $ 403,207
============= ============ =========== ============
Weighted average common shares outstanding:
Basic 996,602 1,011,593 987,944 1,022,064
Diluted 996,602 1,011,593 987,944 1,022,064
Earnings per share:
Basic $ .16 $ .15 $ .45 $ .39
Diluted $ .16 $ .15 $ .45 $ .39
See accompanying Notes to Consolidated Financial Statements.
3
People's Community Capital Corporation
Consolidated Statements of Comprehensive Income
(Unaudited)
For the three months For the nine months
ended Sept 30, ended Sept 30,
-------------- --------------
2001 2000 2001 2000
---- ---- ---- ----
Net income $ 157,050 $ 151,838 $ 441,392 $ 403,207
Other comprehensive income (loss), net of tax:
Net change in unrealized gain (loss) on 121,594 61,213 218,790 (4,329)
securities available for sale
Less reclassification adjustment for realized
gains (12,607) - (24,775) -
----------- ----------- ------------ -----------
Total other comprehensive income (loss) 108,987 61,213 194,015 (4,329)
Comprehensive income $ 266,037 $ 213,051 $ 635,407 $ 398,878
=========== =========== ============ ===========
See accompanying Notes to Consolidated Financial Statements.
4
People's Community Capital Corporation
Consolidated Statements of Cash Flows
(Unaudited)
For the nine months
ended Sept 30,
2001 2000
Operating activities:
Net income $ 441,392 $ 403,207
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Depreciation and amortization 119,842 85,128
Provision for loan losses 81,288 150,834
Deferred income taxes 64,838 (31,748)
Changes in deferred and accrued amounts:
Other assets and accrued interest receivable (10,144) (91,250)
Accrued expenses and other liabilities (373,776) 201,015
----------------- --------------
Net cash provided by operating activities 323,440 717,186
----------------- --------------
Investing activities:
Purchase of securities available for sale (21,075,180) (8,500)
Sale of securities available for sale 3,000,000 -
Maturities and calls of securities available for sale 13,305,810 500,000
Net decrease in short-term investments 27,139 -
Purchase of property and equipment (1,138,795) (122,724)
Net increase in loans receivable (7,649,048) (6,241,327)
Net increase in federal funds sold (3,181,000) (1,350,000)
----------------- --------------
Net cash used for investing activities (16,711,074) (7,222,551)
----------------- --------------
Financing activities:
Purchase of treasury stock (131,330) (206,742)
Net increase in deposits 16,545,974 6,563,070
Net increase/(decrease) in other borrowings 659,647 (1,311,719)
Payment of cash dividends in lieu of stock for fractional shares (263) 0
----------------- --------------
Net cash provided by financing activities 17,074,028 5,044,609
----------------- --------------
Net increase/(decrease) in cash and due from banks 686,394 (1,460,756)
Cash and due from banks at beginning of period 1,603,996 3,076,294
----------------- --------------
Cash and due from banks at end of period $ 2,290,390 $ 1,615,538
================= ==============
Supplemental disclosure:
Cash paid during the period for interest $ 1,738,746 $ 1,287,686
================= ==============
Cash paid during the period for income taxes $ 512,371 $ 36,517
================= ==============
See accompanying Notes to Consolidated Financial Statements.
5
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 nine months ended September 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.
6
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.
The terrorist attacks that occurred in New York City and Washington,
D.C. on September 11, 2001, and the United States' subsequent response to these
events have resulted in a general economic slowdown that may adversely affect
our banking business. Economic slowdowns or recessions in our primary market
area may be accompanied by reduced demand for credit, decreasing interest
margins and declining real estate values, which may in turn result in a decrease
in net earnings and an increased possibility of potential loan losses in the
event of default. Any sustained period of decreased economic activity, increased
delinquencies, foreclosures or losses could limit our growth and negatively
affect our results of operations. We cannot predict the extent or duration of
these events or their effect upon our business and operations. We will, however,
closely monitor the effect of these events upon our business, and make
adjustments to our business strategy as we deem necessary.
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 were also 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 September 30, 2001 to the
three months ended September 30, 2000
Our net income for the third quarter of 2001 was $157,050 compared to
$151,838 for the same period last year. The basic income per share increased
from $.15 to $.16 per share between the two quarters being compared. 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 level of
average earning assets increased from $55.0 million for the three months ended
September 30, 2000 to $70.3 million for the three months ended September 30,
2001. However, because of the addition of key personnel earlier in the year and
the move to our new headquarters and main banking center in May, earnings only
increased slightly from the same quarter last year.
7
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 September 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 September 30, 2001 Three months ended September 30, 2000
Average Interest Yield Average Interest Yield/
Balance Income/Expense /Rate Balance Income/Expense Rate
ASSETS
Cash and Federal funds sold $ 7,212,062 $ 62,622 3.47% $ 5,051,186 $ 84,078 6.66%
Short-term investments 976,228 14,443 5.92% - -
Securities 14,479,720 194,853 5.38% 10,617,106 168,301 6.34%
Loans 47,597,013 1,026,707 8.63% 39,323,979 933,303 9.49%
------------ ---------- ----- ---------- --------- -----
Total earning assets 70,265,023 1,298,625 7.39% 54,992,271 1,185,682 8.62%
Cash and due from banks 2,017,812 1,746,614
Premises and equipment 3,235,486 1,725,790
Other assets 1,602,799 1,091,677
Allowance for loan losses (638,052) (516,167)
------------ ----------
Total assets 76,483,068 59,040,185
============ ==========
LIABILITIES & EQUITY Interest-bearing deposits:
Transaction accounts 7,197,797 12,239 0.68% 6,472,631 20,603 1.27%
Money market accounts 11,299,349 75,603 2.68% 10,087,137 106,945 4.24%
Savings deposits 9,311,923 98,692 4.24% 869,036 5,149 2.37%
Time deposits 28,399,652 403,528 5.68% 23,453,456 362,433 6.18%
------------ ---------- ----- ---------- --------- -----
Total interest bearing deposits 56,208,721 590,062 4.20% 40,882,260 495,130 4.84%
Interest-bearing borrowings 515,871 3,953 3.07% 324,216 5,217 6.44%
------------ ---------- ----- ---------- --------- -----
Total interest-bearing liabilities 56,724,592 594,015 4.19% 41,206,476 500,347 4.86%
Demand deposits 9,411,894 7,887,572
Other liabilities 241,119 227,488
Shareholders' equity 10,105,463 9,718,649
------------ -----------
Total liabilities &
shareholders equity $ 76,483,068 $59,040,185
============ ===========
Net interest spread 3.20% 3.77%
Net interest income/margin $ 704,610 4.01% $ 685,335 4.98%
========= ===========
Net interest income was $704,610 for the three months ended September
30, 2001 as compared to $685,335 for the three months ended September 30, 2000.
The net interest margin (net interest income divided by average earning assets)
was 4.01% for the three months ended September 30, 2001 compared to the net
interest margin of 4.98% for the three months ended September 30, 2000. The
decline in net interest margin is the result of lower yields on every category
of earning assets as interest rates have been falling during the quarter ended
September 30, 2001.. Additionally, the Bank paid higher rates on savings
deposits in an effort to attract funds, and the growth of interest-bearing
liabilities was $15.5 million from $41.2 million to $56.7 million between the
two periods being compared. Nevertheless, net interest income increased during
these periods because average earning assets grew from $55.0 million at
September 30, 2000 to $70.3 million at September 30, 2001.
Interest income for the third quarter of 2001 was $1,298,625 compared
to $1,185,682 for the same period in 2000. The volume of total earnings assets
increased by about $15.3 million between the two periods. The largest component
of interest income was interest and fees on loans, amounting to $1,026,707 for
the three months ended September 30, 2001
8
compared to $933,303 for the comparable prior year period. The overall rate on
the loan portfolio decreased from 9.49% for the three months ended September 30,
2000 to 8.63% for the three month period ended September 30, 2001. Interest
earned on federal funds sold decreased between the two periods as the average
rate fell from 6.66% to 3.47% on average balances that increased from $5.1
million to $7.2 million between the two periods. Interest income on securities
increased slightly between the two periods as the average balances increased by
about $3.9 million and average rates fell from 6.34% to 5.38%.
Interest expense increased from $500,347 for the three months ended
September 30, 2000 to $594,015 for the three months ended September 30, 2001.
The increase was the result of a growth in interest-bearing liabilities,
primarily deposits, from $40.9 million to $56.2 million, an increase of 37%. The
average rate paid on interest bearing liabilities decreased from 4.84% to 4.20%,
reflecting the decreases in rates paid on all products except for savings
deposits that were being promoted to attract funds. Rates declined with the
market on demand, money market, and time deposit accounts.
Non-interest Income
Non-interest income for the three month period ended September 30, 2001
was $179,446 compared to $94,934 for the same period in 2000. Of this total,
$119,102 represented service charges on deposit accounts for the three months
ended September 30, 2001 compared to $68,222 for the comparable period in 2000.
The increase in income from deposit service charges is due to the increase in
deposit customers during the comparable periods and a substantial increase in
the fees received for non-sufficient funds. We had a gain on sale of available
securities of $19,101 during the current period, bringing the year to date gain
total to $37,538. There was no gain on sale of securities through the same
period in 2000. The $41,243 of other non-interest income for the third quarter
of 2001 consisted of $32,403 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 $8,840 of fees from non-deposit
investment products' activities. For the third quarter of 2000, other income
amounted to $26,712, consisting of $13,817 of banking fees and $12,895 of
non-deposit products' fees.
Non-interest Expense
Non-interest expense for the three month periods ended September 30,
2001 and 2000 were $623,640 and $501,354, respectively, a 24% increase. The
largest component of non-interest expense was salaries and employee benefits of
$381,878 and $286,956, respectively. Salaries and employee benefits expense
increased 33% due to expenses related to the addition of two key executives,
general merit increases, the addition of staff associated with the move to a new
banking facility, and bonus accruals. Occupancy and equipment expense decreased
from $62,016 to $44,109, or 41%, due to a refund of personal property tax paid
in prior years. This refund offset the increases in depreciation and general
occupancy expenses during the quarter that were associated with occupying a new
office building. Customer related expenses were up $14,102, or 76%, for the
quarter compared to last year because we offered free closing costs on equity
line financing and also held a free check order promotion. General operating
expenses increased $29,524, or 41%, primarily due to increased costs associated
with our data processing contract. 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 nine months ended September 30, 2001 to the
nine months ended September 30, 2000
Our net income for the nine months ended September 30, 2001 was
$441,392 compared to $403,207 for the same period last year. The basic income
per share increased to $.45 compared to $.39 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 $64.3 million for the nine months ended September 30, 2001 as
compared to $51.9 million for the nine months ended September 30, 2000.
9
The following presents, in a tabular form, yield and rate data for
interest-bearing balance sheet components during the nine month periods ended
September 30, 2001 and 2000, along with average balances and the related
interest income and interest expense amounts.
Nine months ended September 30, 2001 Nine months ended September 30, 2000
Average Interest Yield Average Interest Yield/
Balance Income/Expense /Rate Balance Income/Expense Rate
ASSETS
Cash and Federal funds sold $6,110,839 $ 195,802 4.27% $ 3,317,568 $ 157,438 6.33%
Short-term investments 985,285 46,013 6.23% - - -
Securities 12,044,160 527,484 5.84% 10,657,585 507,139 6.34%
Loans 45,180,190 3,021,393 8.92% 37,952,578 2,655,808 9.33%
----------- ---------- ----- ---------- --------- ----
Total earning assets 64,320,474 3,790,692 7.86% 51,927,731 3,320,385 8.52%
Cash and due from banks 1,881,860 1,735,232
Premises and equipment 2,818,941 1,695,230
Other assets 1,328,609 1,090,252
Allowance for loan losses (616,145) (479,944)
------------ ------------
Total assets 69,733,739 55,968,501
============ ============
LIABILITIES & EQUITY
Interest-bearing deposits:
Transaction accounts 6,982,364 52,442 1.00% 6,567,424 62,416 1.27%
Money market accounts 11,133,054 281,177 3.37% 9,625,006 298,468 4.13%
Savings deposits 4,237,565 128,395 4.04% 795,017 14,296 2.40%
Time deposits 27,881,531 1,253,207 5.99% 21,122,880 908,669 5.74%
----------- ---------- ----- ---------- --------- ----
Total interest bearing deposits 50,234,514 1,715,221 4.55% 38,110,327 1,283,849 4.49%
Interest-bearing borrowings 434,062 13,063 4.01% 490,136 22,223 6.05%
----------- ---------- ----- ---------- --------- ----
Total interest-bearing liabilities 50,668,576 1,728,284 4.55% 38,600,463 1,306,072 4.51%
Demand deposits 8,713,416 7,622,433
Other liabilities 294,723 104,188
Shareholders' equity 10,057,024 9,641,417
------------ -----------
Total liabilities &
shareholders equity $ 69,733,739 $55,968,501
============ ===========
Net interest spread 3.31% 4.01%
Net interest income/margin $2,062,408 4.28% $2,014,313 5.17%
========== ==========
Net interest income was $2,062,408 for the nine months ended September
30, 2001 as compared to $2,014,313 for the nine months ended September 30, 2000.
The net interest margin (net interest income divided by average earning assets)
was 4.28% for the nine months ended September 30, 2001 compared to the net
interest margin of 5.17% for the nine months ended September 30, 2000.
Interest income for the first nine months of 2001 was $3,790,692
compared to $3,320,385 for the same period in 2000. The volume of total earning
assets increased from $51.9 million at September 30, 2000 to $64.3 million at
September 30, 2001. The largest component of interest income was interest and
fees on loans amounting to $3,021,393 for the nine months ended September 30,
2001, compared to $2,655,808 for the comparable prior year period. The overall
rate on the loan portfolio decreased from 9.33% for the nine months ended
September 30, 2000 to 8.92% for the nine month period ended September 30, 2001
as we encountered eight decreases in the prime rate since last September.
Interest earned on cash and federal funds sold increased between the two periods
under review as the average federal funds sold balance was higher for the nine
months ended September 30, 2001 than for the comparable period in 2000 even
though rates received were much lower. Interest income on securities increased
slightly between the two periods as the average balances were higher and the
average rates earned were lower.
10
Interest expense increased from $1,306,072 for the nine months ended
September 30, 2000 to $1,728,284 for the nine months ended September 30, 2001 as
the size of interest-bearing liabilities, primarily deposits, increased from
$38.6 million to $50.7 million, an increase of 31%. The average rate paid on
interest bearing liabilities increased only slightly from 4.51% to 4.55% even
though rates for various products were quite different between the two periods.
We held a promotion on savings accounts that greatly increased the balances
outstanding. Lower rates, however, were applied to the money market accounts in
keeping with the general market, but in all, the average rate paid on
liabilities did not vary greatly from last year. The largest increase in
interest expense came in the time deposits. That category comprises the majority
of our deposit base and the average rate increased from 5.74% to 5.99% due to
promotions in 2000.
Non-interest Income
Non-interest income for the nine month period ended September 30, 2001
was $466,616 compared to $264,123 for the same period in 2000. Of this total,
$310,705 represented service charges on deposit accounts for the nine months
ended September 30, 2001 compared to $183,777 for the comparable period in 2000.
The increase in income from deposit service charges is due to the increase in
deposit customers during the comparable periods and the increases in
non-sufficient funds fees collected in particular. We had $37,538 from gain
on sale of available-for-sale securities that occurred in the second and third
quarters of this year. The remaining $118,373 of other non-interest income for
the first nine months of 2001 consisted of $94,130 of income generated from
other fees charged such as brokered mortgage origination fees of $37,914, check
cashing fees, internet fees, and commissions on sale of checks to customers and
$24,243 of fees from non-deposit investment products' activities. For the first
nine months of 2000, other income amounted to $80,346, consisting of $38,901 of
banking fees (only $7,445 of brokered mortgage fees) and $41,445 of non-deposit
products' fees.
Non-interest Expense
Non-interest expense for the nine month periods ended September 30,
2001 and 2000 were $1,748,013 and $1,476,270, respectively, an 18% increase. The
largest component of non-interest expense was salaries and employee benefits of
$1,001,724 and $820,053, respectively. Salaries and employee benefits expense
increased 22% due to costs associated with the addition of two key executives,
general merit increases, the addition of staff associated with the move to a new
banking facility, and bonus accruals. Even with increased costs associated with
the new banking facility, occupancy and equipment expense was about the same
amount as last year because of a refund of personal property taxes paid in prior
years. However, general operating expenses and other expenses are higher because
of the new building as grand opening expenses, supplies expense, and advertising
expenses were all incurred this year. Customer expense increased this year due
to the closing costs and free check promotions discussed in the quarterly
expense comparison. 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 $81,288 and $150,834, respectively,
for the first nine months of 2001 and 2000, bringing the total reserve balance
to $651,474 and $520,000 at September 30, 2001 and 2000, respectively. This
amount represents 1.35% of gross loans at September 30, 2001 and 1.31% at
September 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
$639,938 in potential problem loans that were classified as non-accrual loans at
September 30, 2001. This total consists of two loans that are both secured by
first mortgages on real estate. Payments are being made, but both loans are past
due. In October 2001, the non-accrual loans were reduced by approximately
$83,000 for net payments received. Currently, we
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do not expect any loss on these loans if the real estate is liquidated. There
were $25,394 of non-performing loans at September 30, 2000. Net loan charge-offs
for the nine months ended September 30, 2001 were $1,872 and were $40,834 for
the nine months ended September 30, 2000.
BALANCE SHEET REVIEW
Total consolidated assets grew by $17.3 million from $61,841,536 at
December 31, 2000 to $79,139,657 at September 30, 2001. The increase was
primarily generated through a $16.5 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 $4.9 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 $3.2 million.
Loans
Net outstanding loans represent the largest component of earning assets
as of September 30, 2001 at $47,648,182, or 65% of total earning assets. Net
loans increased $7,567,760, or 19%, since December 31, 2000. We have
approximately $10,543,000 in unused loan commitments.
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 September 30, 2001 was 8.92%
as compared to a yield of 9.37% for the year ended December 31, 2000.
The principal components of our loan portfolio at September 30, 2001
and December 31, 2000, consisted of real estate loans comprising approximately
84.4% 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.
September 30, 2001 December 31, 2000
------------------ -----------------
Amount Percent Amount Percent
------ ------- ------ -------
Commercial, financial and agricultural $ 5,243,028 10.8% $ 7,266,130 17.9%
Real estate 40,782,387 84.4% 30,813,021 75.7%
Consumer and other 2,312,333 4.8% 2,598,990 6.4%
------------ ----- ------------ -----
Total loans 48,337,748 100.0% 40,678,141 100.0%
Allowance for loan losses (651,474) (572,000)
Unearned fees (38,092) (25,719)
------------ ------------
Total net loans $ 47,648,182 $ 40,080,422
============ ============
Allowance for Loan Losses
The allowance for loan losses at September 30, 2001 was $651,474, or
1.35% 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 September 30, 2001, there were approximately
$640,000 in non-performing loans with net charge-offs of $1,872 for the nine
month period.
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Short-Term Investments and Securities
Short-term investments and securities represented 22.9% of earning
assets at September 30, 2001 with a combined total of $16,749,845, up $4,898,708
from the December 31, 2000 combined balance of $11,851,137. There has been a
significant amount of activity in the securities portfolio. As interest rates
fell, many agency bonds were called, and we purchased new bonds, most with lower
yields. Total maturities and calls equaled $13.3 million, total purchases
equaled $21.1 million, and sales of securities equaled $3.0 million. The
combined yield on investment securities was 5.87% for the nine months ended
September 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 if so desired.
Deposits
Our primary source of funds for loans and investments is deposits.
Deposits grew $16,545,974, or 32%, since year-end 2000 for a total of
$67,579,805 at September 30, 2001. The average rates paid on interest-bearing
deposits were 4.55% and 4.60% at September 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. Despite a
promotion related to savings deposits this year, we have seen a slight decrease
now in the price of our deposits since last year due to the declining rate
environment.
Of the increase in deposits since December 31, 2000, 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 that will expire
in January 2002.
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.
On September 20, 2001, we purchased and immediately retired 6,164
shares of our stock at $9.625, or $59,328.
Liquidity and Sources of Capital
At September 30, 2001, our liquid assets, consisting of cash and due
from banks and Federal funds sold, amounted to $10,971,390, representing 13.9%
of total assets. Investment securities and short-term investments amounted to
$16,749,845, representing 21.2% 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 nine month period
ended September 30, 2001, total deposits increased by $16.5 million representing
an increase of 32.4%, or 43% on an annualized basis. Growth for the first nine
months 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.
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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 $2,100,000 and $1,800,000, 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 September 30, 2001:
Well-Capitalized Minimum
Ratio Requirement Requirement
Tier 1 Capital 11.87% 6.00% 4.00%
Total Capital 13.04% 10.00% 8.00%
Tier 1 leverage ratio 9.07% 5.00% 4.00%
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 141- Business Combinations. 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 impact of this SFAS will not be material
to the Company's financial statements.
In August 2001, the FASB issued SFAS No. 144 - Accounting for the
Impairment or Disposal of Long-Lived Assets. This SFAS supercedes prior
pronouncements associated with impairment or disposal of long-lived assets. The
SFAS establishes methodologies for assessing impairment of long-lived assets,
including assets to be disposed of by sale or by other means. This statement is
effective for all fiscal years beginning after December 15, 2001. This SFAS is
not expected to have a material impact on the Company's financial position.
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.
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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
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Report on Form 8-K
(a) Exhibits - for period ending September 30, 2001.
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter ended September 30, 2001.
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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: November 3, 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
16