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 March 31, 2003.
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)
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 1,098,283 shares of common
stock, par value $.01 per share, outstanding at May 8, 2003.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
People's Community Capital Corporation
Consolidated Balance Sheets
March 31, December 31,
2003 2002
---- ----
(Unaudited) (Audited)
Assets
Cash and due from banks $ 3,144,435 $ 3,311,246
Federal funds sold 8,456,000 7,209,000
Short-term investments 2,935,729 1,989,500
Securities, available for sale (at fair value) 21,767,724 20,558,456
Securities, held to maturity (at amortized cost) 4,831,828 4,845,138
Loans receivable, net 60,834,589 59,949,057
Properties and equipment, net 3,031,573 3,061,141
Accrued interest receivable 422,076 500,289
Other real estate owned 378,880 378,880
Other assets 174,804 212,434
------------ ------------
Total assets $105,977,638 $102,015,141
============ ============
Liabilities and Shareholders' Equity
Liabilities:
Non-interest bearing deposits $ 13,734,206 $ 11,748,878
Interest bearing deposits 77,278,572 74,902,613
------------ ------------
Total deposits 91,012,778 86,651,491
Accrued interest payable 69,711 71,151
Federal Home Loan Bank advance 2,500,000 2,500,000
Other borrowings 271,025 954,590
Accrued expenses and other liabilities 248,902 192,935
------------ ------------
Total liabilities 94,102,416 90,370,167
------------ ------------
Shareholders' equity:
Common stock, $.01 par value; 10,000,000 shares authorized,
1,098,283 shares issued at March 31, 2003 and 1,046,193
at December 31, 2002 10,983 10,462
Additional paid-in-capital 11,025,904 10,411,763
Retained earnings 708,824 1,093,901
Accumulated other comprehensive income 129,511 128,848
------------ ------------
Total shareholders' equity 11,875,222 11,644,974
------------ ------------
Total liabilities and shareholders' equity $105,977,638 $102,015,141
============ ============
See accompanying Notes to Consolidated Financial Statements.
2
People's Community Capital Corporation
Consolidated Statements of Income
(Unaudited)
For the three months
ended March 31,
---------------------
2003 2002
---- ----
Interest income:
Loans, including fees $ 999,298 $ 980,850
Federal funds sold 23,232 20,592
Securities, short-term investments, and cash 189,517 265,792
---------- ----------
Total interest income 1,212,047 1,267,234
---------- ----------
Interest expense:
Deposits 336,944 464,381
Other borrowings 23,457 2,339
---------- ----------
Total interest expense 360,401 466,720
---------- ----------
Net interest income 851,646 800,514
Provision for loan losses 30,000 48,248
Net interest income after provision 821,646 752,266
for loan losses ---------- ----------
Non-interest income:
Service charges on deposit accounts 140,308 136,381
Gain on sale of securities 26,712 -
Insurance and brokerage commissions 29,118 34,651
Other 90,172 55,958
---------- ----------
Total non-interest income 286,310 226,990
---------- ----------
Non-interest expenses:
Salaries and employee benefits 449,780 397,514
Occupancy and equipment 82,341 73,189
Consulting and professional fees 67,278 53,502
Customer related 29,385 23,507
General operating 97,940 113,648
Other 44,971 35,190
---------- ----------
Total non-interest expenses 771,695 696,550
---------- ----------
Income before income taxes 336,261 282,706
Income tax provision 104,083 89,413
---------- ----------
Net income $ 232,178 $ 193,293
========== ==========
Weighted average common shares outstanding:
Basic 1,082,077 1,094,932
Diluted 1,156,665 1,159,663
Earnings per share:
Basic $ .21 $ .18
Diluted $ .20 $ .17
See accompanying Notes to Consolidated Financial Statements.
3
People's Community Capital Corporation
Consolidated Statements of Comprehensive Income
(Unaudited)
For the three months
ended March 31,
---------------
2003 2002
---- ----
Net income $ 232,178 $ 193,293
Other comprehensive income (loss), net of tax:
Net change in unrealized gain (loss) on
securities available for sale 41,586 (37,399)
Less: Reclassification adjustment for gains, net
of taxes of $9,474 in 2003 and $0 in 2002 14,211 -
--------- ---------
Total other comprehensive income (loss) 27,375 (37,399)
Comprehensive income $ 259,553 $ 155,894
========= =========
See accompanying Notes to Consolidated Financial Statements.
4
People's Community Capital Corporation
Consolidated Statements of Cash Flows
(Unaudited)
For the three months
ended March 31,
---------------
2003 2002
---- ----
Operating activities:
Net income $ 232,178 $ 193,293
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 47,742 52,141
Provision for loan losses 30,000 48,248
Amortization of held to maturity investments 13,310 -
Changes in deferred and accrued amounts:
Other assets and accrued interest receivable 115,843 (6,832)
Accrued expenses and other liabilities 54,527 20,841
----------- -----------
Net cash provided by operating activities 493,600 307,691
----------- -----------
Investing activities:
Activity in securities available for sale
Sales 3,796,841 -
Purchases (7,894,500) -
Maturities and calls 2,889,054 1,167,707
Net increase in short-term investments (946,229) (514,986)
Purchases of property and equipment (18,174) (32,467)
Loan originations and principal collections - net (915,532) (4,537,829)
Net increase in federal funds sold (1,247,000) (1,470,000)
----------- -----------
Net cash used for investing activities (4,335,540) (5,387,575)
----------- -----------
Financing activities:
Issuance of stock - 15,999
Net increase in deposits 4,361,287 4,136,191
Net decrease in other borrowings (683,565) -
Payment of dividends (2,593) (2,880)
----------- -----------
Net cash provided by financing activities 3,675,129 4,149,310
----------- -----------
Net decrease in cash and due from banks (166,811) (930,574)
Cash and due from banks at beginning of period 3,311,246 3,043,209
----------- -----------
Cash and due from banks at end of period $ 3,144,435 $ 2,112,635
=========== ===========
Supplemental disclosure:
Cash paid during the period for interest $ 361,841 $ 466,854
----------- -----------
Income taxes paid $ 2,292 $ 6,500
----------- -----------
Unrealized net gain (loss) on securities available for sale,
net of income tax $ 27,375 $ (37,399)
----------- -----------
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 accounting principles generally accepted in the
United States of America 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 accounting principles generally accepted in the United
States of America 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 three months ended March 31, 2003 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2003. For
further information, please refer to the consolidated financial statements and
footnotes thereto for the Company's fiscal year ended December 31, 2002,
included in the Company's Form 10-KSB for the year ended December 31, 2002.
Note 2. Summary of organization
People's Community Capital Corporation was 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, 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. Our 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 the headquarters of the holding company. In May
2001, we moved our banking center and holding company headquarters to a newly
constructed building nearby. At this time, the downtown Aiken location of our
bank became the main office.
In December 1999, our 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.
Note 3. Stock option plan
SFAS No. 123, "Accounting for Stock-Based Compensation", encourages all
entities to adopt a fair value based method of accounting for employee stock
compensation plans, whereby compensation cost is measured at the grant date
based on the value of the award and is recognized over the service period, which
is usually the vesting period. However, it also allows an entity to continue to
measure compensation cost for those plans using the intrinsic value based method
of accounting prescribed by Accounting Principals Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees", whereby compensation cost is the
excess, if any, of the quoted market price of the stock at the grant date (or
other measurement date) over the amount an employee must pay to acquire the
stock. Stock options issued under the Corporation's stock option plan have no
intrinsic value at the grant date, and under Opinion No. 25, no compensation
cost is recognized.
6
The Corporation sponsors a stock option plan (the Plan) for the benefit
of the directors, officers and employees. The Board may grant up to 289,406
options (adjusted for 5% stock dividends issued March 2001, January 2002, and
January 2003). The Corporation has adopted the disclosure-only provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation". Accordingly, no
compensation cost has been recognized for the stock option plan. Had
compensation cost been determined based on the fair value at the grant date for
the above stock option awards consistent with the provisions of SFAS No. 123,
the Corporation's net income and earnings per share would have been adjusted to
the proforma amounts indicated below:
For the three months ended
March 31,
--------------------------
2003 2002
---------- ----------
Net income - As reported $ 232,178 $ 193,293
Net income - Proforma 218,753 185,488
Earnings per share - As reported
Basic .21 .18
Diluted .20 .17
Earnings per share - Proforma
Basic .20 .17
Diluted .19 .16
The fair value of the option grant is estimated on the date of grant
using the Black-Scholes option pricing model. The risk free interest rate used
was 4.77%, the expected option life was ten years, the assumed dividend rate was
zero and the expected volatility was 8.0%.
7
Item 2. Management's Discussion and Analysis or Plan of Operation.
This discussion and analysis is intended to assist the reader in
understanding our financial condition and results of operations.
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.
o significant increases in competitive pressure in the banking and
financial services industries;
o changes in the interest rate environment which could reduce anticipated
or actual margins;
o changes in political conditions or the legislative or regulatory
environment;
o general economic conditions, either nationally or regionally and
especially in primary service area, becoming less favorable than
expected resulting in, among other things, a deterioration in credit
quality;
o changes occurring in business conditions and inflation;
o changes in technology;
o changes in monetary and tax policies;
o the level of allowance for loan loss;
o the rate of delinquencies and amounts of charge-offs;
o the rates of loan growth;
o adverse changes in asset quality and resulting credit risk-related
losses and expenses;
o changes in the securities markets; and
o other risks and uncertainties detailed from time to time in our filings
with the Securities and Exchange Commission.
CRITICAL ACCOUNTING POLICIES
- ----------------------------
We have adopted various accounting policies which govern the application
of accounting principles generally accepted in the United States in the
preparation of our financial statements. The significant
8
accounting policies of the company are described in the footnotes to the
consolidated financial statements at December 31, 2002 as filed on our 10-KSB
for that date.
Certain accounting policies involve significant judgments and assumptions
by management which have a material impact on the carrying value of certain
assets and liabilities; management considers such accounting policies to be
critical accounting policies. The judgments and assumptions used by management
are based on historical experience and other factors, which are believed to be
reasonable under the circumstances. Because of the nature of the judgments and
assumptions made by management, actual results could differ from these judgments
and estimates which could have a material impact on the carrying values of
assets and liabilities and the results of operations of our company.
We believe the allowance for loan losses is a critical accounting policy
that requires the most significant judgments and estimates used in preparation
of our consolidated financial statements. Refer to the discussion under
Allowance for Loan Losses section of this document for a detailed description of
our estimation process and methodology related to the allowance for loan losses.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------
EARNINGS REVIEW
Our net income for the first quarter of 2003 was $232,178 compared to
$193,293 for the same period last year, an increase of 20%. The basic income per
share increased to $.21 compared to $.18 for the same period in 2002. Weighted
shares outstanding have been adjusted for the effect of a 5% stock dividend
issued on January 29, 2003. The 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 $96.3 million for the three months ended
March 31, 2003 as compared to $81.5 million for the three months ended March 31,
2002.
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 March 31, 2003 and 2002. 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.
9
Three months ended March 31, 2003 Three months ended March 31, 2002
--------------------------------- ---------------------------------
Average Interest Yield Average Interest Yield
Balance Income/Expense /Rate Balance Income/Expense /Rate
------- -------------- ----- ------- -------------- -----
ASSETS
Cash $ 3,827 $ 4 0.42% $ 10,004 $ 34 1.38%
Federal funds sold 7,959,948 23,232 1.18% 4,931,580 20,592 1.69%
Short-term investments 2,918,548 21,981 3.05% 1,315,213 13,494 4.16%
Securities 25,243,496 167,532 2.69% 23,106,230 252,264 4.43%
Loans 60,176,650 999,298 6.73% 52,129,788 980,850 7.63%
----------- ----------- ----------- ----------
Total earnings assets 96,302,469 1,212,047 5.10% 81,492,815 1,267,234 6.31%
----------- ----------- ----------- ----------
Cash and due from banks 2,554,590 2,228,401
Premises and equipment 3,051,083 3,167,770
Other assets 1,277,729 1,190,049
Allowance for loan losses (849,709) (650,360)
----------- -----------
Total assets 102,336,162 87,428,675
=========== ===========
LIABILITIES & EQUITY
Interest-bearing deposits:
Transaction accounts 13,157,324 13,749 0.42% 9,070,991 12,340 0.55%
Money market accounts 11,964,891 29,504 1.00% 11,919,651 57,013 1.94%
Savings deposits 12,878,021 43,684 1.38% 13,117,772 77,546 2.40%
Time deposits 36,711,645 250,007 2.76% 31,628,920 317,482 4.07%
----------- ----------- ----------- ----------
Total interest bearing
deposits 74,711,881 336,944 1.83% 65,737,334 464,381 2.86%
Interest-bearing borrowings 2,782,730 23,457 3.42% 682,196 2,339 1.39%
----------- ----------- ----------- ----------
Total interest bearing
liabilities 77,494,611 360,401 1.89% 66,419,530 466,720 2.85%
----------- ----------- ----------- ----------
Demand deposits 12,876,321 10,251,604
Other liabilities 314,887 188,498
Shareholders' equity 11,650,343 10,569,043
------------- ------------
Total liabilities &
shareholders' equity $ 102,336,162 $ 87,428,675
============= ============
Net interest spread 3.21% 3.46%
Net interest income/margin $ 851,646 3.59% $ 800,514 3.98%
=========== ==========
Net interest income was $851,646 for the three months ended March 31,
2003 as compared to $800,514 for the three months ended March 31, 2002,
representing a 6% increase. The net interest margin (net interest income divided
by average earning assets) was 3.59% for the three months ended March 31, 2003
compared to the net interest margin of 3.98% for the three months ended March
31, 2002. The decline in net interest margin is due to the lower yield realized
as interest rates continued to decline. Rates paid on deposits also decreased,
but the volume of earning assets exceeded the volume of interest bearing
liabilities, having the effect of a net decrease in margins.
Interest income for the first three months of 2003 was $1,212,047
compared to $1,267,234 for the same period in 2002. The volume of average
earning assets increased by approximately $15 million between the two
10
periods, however interest income declined because the average rate earned on
assets decreased from 6.31% to 5.10%. The largest component of interest income
was interest and fees on loans amounting to $999,298 for the three months ended
March 31, 2003 compared to $980,850 for the comparable prior year period. The
average loan balance increased by $8 million. The overall rate on the loan
portfolio decreased from 7.63% for the three months ended March 31, 2002 to
6.73% for the three-month period ended March 31, 2003. Interest earned on
federal funds sold increased slightly from $20,592 for the first quarter of 2002
to $23,232 for the first quarter of 2003 as the average balance increased by $3
million but the average rate fell from 1.69% to 1.18%. The securities,
short-term investments portfolio, and interest-earning cash earned $265,792 for
the first three months of 2002 with a yield of 4.41%. For the first three months
of 2003, these investments earned $189,517 with a yield of 2.73%. The average
balance outstanding increased from $24,431,447 to $28,165,871, an increase of
approximately $3.7 million.
Interest expense decreased from $466,720 for the three months ended March
31, 2002 to $360,401 for the three months ended March 31, 2003. The decrease was
the direct result of the decrease in rates paid on deposits and other
liabilities, from an average of 2.85% for the first quarter last year to a rate
of 1.89% this year. Actual interest-bearing liabilities, primarily deposits,
increased from $66,419,530 to $77,494,611, an increase of 17%.
Non-interest Income
- -------------------
Non-interest income for the three-month period ended March 31, 2003 was
$286,310 compared to $226,990 for the same period in 2002. Of this total,
$140,308 represented service charges on deposit accounts for the three months
ended March 31, 2003 compared to $136,381 for the comparable period in 2002.
There were gains on sale of securities for the first quarter of 2003 of $26,712.
There were no comparable gains in the first quarter of 2002. Insurance and
brokerage commissions generated by our subsidiary were $29,118 for the first
quarter of 2003 compared to $34,651 for the first quarter of 2002. The $90,172
of other non-interest income for the first three months of 2003 was income
generated from other fees charged including brokered mortgage fees. Income
generated from other fees was $55,958 last year for the first quarter. In 2003,
the brokered mortgage origination fees were $43,904 compared to $26,839 for the
same period last year as customers continued to take advantage of lower rates to
refinance their home loans.
Non-interest Expense
- --------------------
Non-interest expense for the three-month periods ended March 31, 2003 and
2002 was $771,695 and $696,550, respectively. The largest component of
non-interest expense was salaries and employee benefits of $449,780 and
$397,514, respectively, representing a 13% increase. This increase is the result
of general increases in salaries and benefits as well as expenses paid pursuant
to a severance agreement. Consulting and professional fees increased from
$53,502 to $67,278, or 26%, primarily due to legal services performed in
connection with a real estate foreclosure. Without the additional severance
expense and legal fees paid in the first quarter, non-interest expenses would
have only increased approximately 5% from the first quarter of 2002 to the first
quarter of 2003.
Provision for Loan Losses
- -------------------------
The provision for loan losses was $30,000 and $48,248, respectively, for
the first three months of 2003 and 2002, bringing the total reserve balance to
$870,000 and $685,000 at March 31, 2003 and 2002, respectively. This amount
represents 1.41% of gross loans at March 31, 2003, compared to 1.25% at March
31, 2002. It also reflects our estimate of the amounts necessary to maintain the
allowance for loan losses at a level
11
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, our judgment as to the adequacy of the allowance is based upon a number
of assumptions about future events that we believe 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
$532,478 in loans that were classified as non-accrual at March 31, 2002 compared
to $100 in non-accrual loans at March 31, 2003. The non-accrual balance at March
31, 2002 resulted in the foreclosure of real estate now shown on the balance
sheet as other real estate owned in the amount of $378,880. There were no
charge-offs for the period ended March 31, 2003 and net charge-offs were $248
for the period ended March 31, 2002.
BALANCE SHEET REVIEW
Total consolidated assets grew by $3,962,497 from $102,015,141 at
December 31, 2002 to $105,977,638 at March 31, 2003. The increase was generated
primarily through a $4,361,287 increase in deposits. This increase in deposits
was the source of funding for increases in net loans, in federal funds sold, in
short-term investments, and in the securities portfolio. We purchased $77,900 of
stock in the Federal Home Loan Bank to satisfy minimum stock ownership
requirements during the first quarter of 2003.
Loans
- -----
Outstanding loans represent the largest component of earning assets as of
March 31, 2003 at $60,834,589, or approximately 62% of total earning assets. Net
loans increased $885,532, or 1.5%, since December 31, 2002. The decline in loan
growth is indicative of the slowing economy.
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 March 31, 2003 was 6.73% as
compared to a yield of 7.24% for the year ended December 31, 2002.
The principal components of our loan portfolio at March 31, 2003 and
December 31, 2002, consisted of real estate loans comprising approximately 87.5%
and 86.7% 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.
12
The following table shows the composition of the loan portfolio by category.
March 31, 2003 December 31, 2002
-------------- -----------------
Amount Percent Amount Percent
------ ------- ------ -------
Commercial, financial & agricultural $ 5,889,209 9.5% $ 6,262,045 10.3%
Real estate
Mortgage - residential 17,502,845 28.3% 18,045,181 29.6%
Mortgage - commercial 36,319,268 58.8% 34,397,045 56.5%
Other 271,014 0.4% 377,190 0.6%
Consumer and other 1,801,795 2.9% 1,779,141 2.9%
Other 19,870 0.1% 15,714 0.1%
------------ ------ ------------ ------
Total loans 61,804,001 100.0% 60,876,316 100.0%
Allowance for loan losses (870,000) (840,000)
Unearned fees (99,412) (87,259)
------------ -----------
Total net loans $60,834,589 $59,949,057
=========== ===========
Allowance for Loan Losses
- -------------------------
The allowance for loan losses at March 31, 2003 was $870,000, or 1.41% of
loans outstanding, compared to an allowance of $840,000, or 1.38% of loans
outstanding, at December 31, 2002. The allowance for loan losses is based upon
our 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. The bank's policy has been to review the allowance for
loan losses using a reserve factor for each type of loan since there have been
few delinquencies and little charge-off activity since the bank's inception. The
overall objective is to apply percentages to the loans based on the relative
inherent risk for that loan type and grade. Reserve factors are based on peer
group data, information from regulatory agencies, and on the experience of our
bank's lenders. The reserve factors will change depending on trends in national
and local economic conditions, the depth of experience of our bank's lenders,
delinquency trends, and other factors. The bank's general strategy is to
maintain a minimum coverage of a certain percentage of gross loans until it has
sufficient historical data and trends available.
Short-Term Investments and Securities
- -------------------------------------
Short-term investments and securities represented 30% of earning assets
at March 31, 2003, or $29,535,281. This represented an increase of $2,142,187
from the December 31, 2002 balance of $27,393,094. The combined yield on
short-term investments and securities was 2.73% for the three months ended March
31, 2003 compared to 3.97% for the year ended December 31, 2002. Short-term
investments at March 31, 2003 and at December 31, 2002 consisted of commercial
paper in another financial institution with balances of $2,935,729 and
$1,989,500, respectively. Included in available-for-sale securities is $274,200
of stock purchased in the Federal Home Loan Bank of Atlanta, of which $77,900
was purchased in the first quarter of 2003. This purchase was a requirement from
the FHLB as a condition of membership. A portion of our securities portfolio has
been classified as held to maturity and is recorded at amortized cost. The
available for sale portfolio is recorded at fair value.
13
Deposits
- --------
Our primary source of funds for loans and investments is deposits.
Deposits grew $4,361,287, or 5%, since year-end 2002 for a total of $91,012,778
at March 31, 2003. The average rates paid on interest-bearing deposits were
1.83% and 2.31% at March 31, 2003 and December 31, 2002, respectively. In
pricing deposits, we consider our liquidity needs, the direction and levels of
interest rates, and local market conditions. We have seen a decrease in the
price of our deposits due to declining rates in the general economy and in the
local market.
Shareholders' Equity
- --------------------
The Board of Directors declared a 5% stock dividend which was issued on
January 29, 2003 to shareholders of record on January 15, 2003. The number of
shares issued was 52,090 with a market value of $11.80 for a total decrease in
retained earnings of $614,662. Cash paid in lieu of stock for fractional shares
totaled $2,593.
Liquidity and Sources of Capital
- --------------------------------
At March 31, 2003, our liquid assets, consisting of cash and due from
banks and Federal funds sold, amounted to $11,600,435, representing 10.9% of
total assets. Short-term investments and securities equaled $29,535,281, or
27.9% of total assets. These securities provide a secondary source of liquidity
because 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 three-month period ended March 31, 2003, total
deposits increased by $4,361,287 representing an increase of 5%, or 20% on an
annualized basis. Growth for the first quarter of the year is not necessarily
indicative of expected growth for the remainder of the year. We closely monitor
and seek 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 unsecured lines of credit from
correspondent banks, one in the amount of $2,400,000 and another for $1,800,000.
The bank is also a member of the Federal Home Loan Bank (FHLB), from which
additional 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, we expect 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.
14
Below is a table that reflects the leverage and risk-based regulatory
capital ratios of the bank at March 31, 2003:
Well-Capitalized Minimum
Ratio Requirement Requirement
----- ----------- -----------
Tier 1 capital 11.40% 6.00% 4.0%
Total capital 12.64% 10.00% 8.0%
Tier 1 leverage ratio 8.11% 5.00% 4.0%
Off-Balance Sheet Risk
- ----------------------
Through the operations of our bank, we have made contractual commitments
to extend credit in the ordinary course of our business activities. These
commitments are legally binding agreements to lend money to our customers at
predetermined interest rates for a specified period of time. At March 31, 2003,
we had issued commitments to extend credit of $15,604,000 through various types
of commercial lending arrangements and we had $515,000 in letters of credit
issued. We evaluate each customer's credit worthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by us upon extension of
credit, is based on our credit evaluation of the borrower. Collateral varies but
may include accounts receivable, inventory, property, plant and equipment,
commercial and residential real estate. We manage the credit risk on these
commitments by subjecting them to normal underwriting and risk management
processes.
Industry Developments
- ---------------------
In October 2001, the USA Patriot Act of 2001 was enacted in response to the
terrorist attacks in New York, Pennsylvania and Washington D.C. which occurred
on September 11, 2001. The Patriot Act is intended to strengthen U.S. law
enforcement's and the intelligence communities' abilities to work cohesively to
combat terrorism on a variety of fronts. The potential impact of the Patriot Act
on financial institutions of all kinds is significant and wide ranging. The
Patriot Act contains sweeping anti-money laundering and financial transparency
laws and imposes various regulations, including standards for verifying client
identification at account opening, and rules to promote cooperation among
financial institutions, regulators and law enforcement entities in identifying
parties that may be involved in terrorism or money laundering.
From time to time, various bills are introduced in the United States
Congress with respect to the regulation of financial institutions. Certain of
these proposals, if adopted, could significantly change the regulation of banks
and the financial services industry. We cannot predict whether any of these
proposals will be adopted or, if adopted, how these proposals would affect us.
Item 3. Internal Controls and Procedures
Within the 90 days prior to the date of this report, we carried out an
evaluation under the supervision and with the participation of our management,
including our chief executive officer and chief financial officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Securities Exchange Act Rule 13a-14. Based upon that
evaluation, the chief executive officer and chief financial officer concluded
that our disclosure controls and procedures are effective in timely alerting
them to material information relating to the Company required to be included in
our periodic SEC filings. The design of any system of controls is based in part
upon certain assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions, regardless of how remote. There were no
significant changes in our internal controls or in other factors that could
significantly affect these controls subsequent to the date of their evaluation.
15
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
- -------------------------
Not Applicable
Item 2. Changes in Securities and Use of Proceeds
- -------------------------------------------------
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
- -------------------------
None.
Item 6. Exhibits and Report on Form 8-K
- ---------------------------------------
(a) Exhibits:
Exhibit Description
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K -
The following reports were filed on Form 8-K during the first quarter
ended March 31, 2003:
99.1 The Company filed a Form 8-K on March 26, 2003 to disclose that
the Chief Executive Officer, Tommy B. Wessinger, and the Chief
Financial Officer, Jean H. Covington, each furnished to the SEC the
certification required pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
16
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: May 8, 2003 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
17
Certification by CEO
--------------------
I, Tommy B. Wessinger, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of People's Community
Capital Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 8, 2003
/s/ Tommy B. Wessinger
----------------------------------
Tommy B. Wessinger, Chief Executive Officer
18
Certification by CFO
--------------------
I, Jean H. Covington, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of People's Community
Capital Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 8, 2003
/s/ Jean H. Covington
----------------------------------
Jean H. Covington, Chief Financial Officer
19
INDEX TO EXHIBITS
Exhibit
Number Description
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
20