1
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, 1998
___ Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _______________ to ________________
Commission File No. 333-25179
PEOPLE'S COMMUNITY CAPITAL CORPORATION
(Exact Name of Small Business Issuer as Specified in its Charter)
SOUTH CAROLINA 58-2287073
(State of Incorporation) (I.R.S. Employer Identification No.)
106-A PARK AVENUE, S.W., AIKEN, SOUTH CAROLINA 29801
(Address of Principal Executive Offices)
(803) 641-0142
(Issuer's Telephone Number, Including Area Code)
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
993,162 shares of common stock, par value $.01 per share, were issued
and outstanding as of August 7, 1998.
Transitional Small Business Disclosure Format (check one):
Yes No X
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
PEOPLE'S COMMUNITY CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1998 1997
------------- -------------
(Unaudited) (Audited)
ASSETS
Cash and due from banks $ 784,822 $ 625,785
Federal funds sold 1,280,000 9,240,000
Securities, available for sale 13,625,469 5,629,838
Loans receivable, net 11,928,672 3,889,163
Properties and equipment, net 1,591,962 1,607,802
Accrued interest receivable 252,276 45,769
Deferred income taxes 228,934 149,182
Other assets 74,821 83,428
------------- -------------
Total assets $ 29,766,956 $ 21,270,967
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Non-interest bearing deposits $ 3,166,466 $ 1,954,224
Interest bearing deposits 17,157,697 9,751,398
------------- -------------
Total deposits 20,324,163 11,705,622
Accrued interest payable 35,443 21,362
Accrued expenses and other liabilities 71,869 83,377
------------- -------------
Total liabilities 20,431,475 11,810,361
------------- -------------
Stockholders' equity:
Common stock, $.01 par value; 10,000,000 shares
authorized, 993,162 shares issued and outstanding 9,932 9,932
Additional paid-in-capital 9,738,058 9,738,058
Retained earnings (deficit) (428,689) (289,595)
Net unrealized gain on securities available for sale,
net of income taxes 16,180 2,211
------------- -------------
Total stockholders' equity 9,335,481 9,460,606
------------- -------------
Total liabilities and stockholders' equity $ 29,766,956 $ 21,270,967
============= =============
See accompanying Notes to Consolidated Financial Statements.
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PEOPLE'S COMMUNITY CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
For the three months For the six months
ended June 30, ended June 30,
------------------------------ ----------------------------
1998 1997 1998 1997
(unaudited) Development (unaudited) Development
stage enterprise stage enterprise
(unaudited) (unaudited)
Interest income:
Loans, including fees $ 241,364 $ -- $ 392,180 $ --
Federal funds sold 51,103 -- 159,938 --
Securities and short-term investments 196,131 1,131 314,346 1,351
----------- ------------ ----------- ---------
Total interest income 488,598 1,131 866,464 1,351
----------- ------------ ----------- ---------
Interest expense:
Deposits 190,395 -- 332,080 --
----------- ------------ ----------- ---------
Total interest expense 190,395 -- 332,080 --
----------- ------------ ----------- ---------
Net interest income 298,203 1,131 534,384 1,351
Provision for loan losses 50,000 -- 110,000 --
------------ ------------ ----------- ---------
Net interest income after provision
for loan losses 248,203 1,131 424,384 1,351
----------- ------------ ----------- ---------
Non-interest income:
Service charges on deposit accounts 13,470 -- 22,378 --
Other income 18,488 -- 41,619 --
----------- ------------ ----------- ---------
Total non-interest income 31,958 -- 63,997 --
----------- ------------ ----------- ---------
Non-interest expenses:
Salaries and employee benefits 219,955 41,086 439,272 46,086
Occupancy and equipment 43,629 8,800 89,465 10,800
Consulting and professional fees 9,959 -- 22,808 --
Customer related expenses 21,535 -- 40,415 --
General operating expenses 33,513 4,013 68,670 5,016
Other expenses 34,270 12,641 54,479 14,345
------------ ------------ ----------- ---------
Total non-interest expenses 362,861 66,540 715,109 76,247
Loss before income taxes (82,700) (65,409) (226,728) (74,896)
Income tax benefits (31,764) -- (87,634) --
------------ ------------ ----------- ---------
Net loss $ (50,936) $ (65,409) $(139,094) $ (74,896)
============ ============ =========== =========
Net loss per share of common stock $ (.05) N/A $ (.14) N/A
============ ============ ============ =========
Weighted average shares outstanding 993,162 10 993,162 10
============ ============ ============ =========
See accompanying Notes to Consolidated Financial Statements.
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PEOPLE'S COMMUNITY CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the three months For the six months
ended June 30, ended June 30,
---------------- --------------
1998 1997 1998 1997
------ ---- ---- ----
(unaudited) Development (unaudited) Development
stage stage enterprise
enterprise
(unaudited) (unaudited)
Net loss $(50,936) $ (65,409) $(139,094) $ (74,896)
Other comprehensive income, net of tax:
Net change in unrealized gain on securities
available for sale 12,760 -- 13,969 --
--------- --------- ---------- ---------
Total other comprehensive income 12,760 -- 13,969 --
--------- --------- ---------- ---------
Comprehensive loss $ (38,176) $ (65,409) $ (125,125) $ (74,896)
========= ========= ========== =========
See accompanying Notes to Consolidated Financial Statements.
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PEOPLE'S COMMUNITY CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months
ended June 30,
----------------------------
1998 1997
------ ------
(unaudited) Development
stage enterprise
(unaudited)
OPERATING ACTIVITIES:
Net loss $ (139,094) $ (74,896)
Adjustments to reconcile net loss to net cash used
for operating activities:
Depreciation and amortization 50,638 --
Provision for loan losses 110,000 --
Deferred income taxes (79,752) --
Deferred compensation expense -- 20,000
Changes in deferred and accrued amounts:
Other assets and accrued interest receivable (197,900) (89,914)
Accrued expenses and other liabilities 2,573 32,116
----------- -----------
Net cash used for operating activities (253,535) (112,694)
----------- -----------
INVESTING ACTIVITIES:
Purchase of securities available for sale (11,731,302) --
Maturities of securities available for sale 3,749,640 --
Purchase of property and equipment (34,798) (877,737)
Net increase in loans (8,149,509) --
Net decrease in federal funds sold 7,960,000 --
----------- -----------
Net cash used for investing activities (8,205,969) (877,737)
----------- -----------
FINANCING ACTIVITIES:
Net increase in deposits 8,618,541 --
Issuance of development stage enterprise stock -- 100
Non-interest bearing borrowings from organizers -- 235,000
Proceeds from notes payable -- 725,000
-----------
Net cash provided by financing activities 8,618,541 960,100
----------- -----------
Net increase (decrease) in cash and due from banks 159,037 (30,331)
Cash and due from banks at beginning of period 625,785 35,000
----------- -----------
Cash and due from banks at end of period $ 784,822 $ 4,669
=========== ===========
Supplemental disclosure:
Cash paid during the period for interest $ 317,999 $ --
Non-cash investing and financing activities:
Unrealized gain on securities available for sale $ 13,969 $ --
See accompanying Notes to Consolidated Financial Statements.
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PEOPLE'S COMMUNITY CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1998, are not necessarily
indicative of the results that may be expected for the year ended December 31,
1998. For further information, please refer to the consolidated financial
statements and footnotes thereto for the Company's fiscal year ended December
31, 1997, included in the Company's Form 10-KSB for the year ended December 31,
1997.
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 group of organizers
initiated several financial transactions on behalf of the company prior to the
date of incorporation.
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.
NOTE 3. STOCK OPTION PLAN
On April 29, 1998, the Company adopted a stock option plan for the
benefit of the directors, officers and employees. The Board may grant up to
250,000 options at an option price per share not less than the fair market
value on the date of grant. On June 16, 1998, 213,394 incentive stock options
were granted to directors, officers and employees that expire 10 years from the
grant date and are subject to various vesting schedules. The Company has
adopted Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation". The fair value of the option grant is estimated on
the date of grant using the Black-Scholes option pricing model and the minimum
value method allowed by SFAS 123. There is no effect on the reported net loss
or net loss per share based upon the pricing model computations.
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PART I FINANCIAL INFORMATION
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 the financial condition and results of operations of People's
Community Capital Corporation. This commentary should be read in conjunction
with the financial statements and the related notes and other statistical
information in this report.
The following discussion contains forward-looking statements that
involve risks and uncertainties. The Company's actual results may differ
materially from the results discussed in the forward-looking statements, and
the Company's operating performance each quarter is subject to various risks
and uncertainties that are discussed in detail in the Company's filings with
the Securities and Exchange Commission, including the "Risk Factors" section in
the Company's Registration Statement on Form S-1 (Registration Number
333-25179) as filed with and declared effective by the Securities and Exchange
Commission.
People's Community Capital Corporation (the Company) was incorporated
in South Carolina on February 26, 1997 for the purpose of operating as a bank
holding company. The Company's 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 North Augusta, South
Carolina.
Results of Operations
Since principal banking operations only commenced on September 22,
1997, a comparison of the June 30, 1998 results to those of June 30, 1997 (when
the Company was still a development stage enterprise) are not meaningful.
This discussion will therefore concentrate on the June 30, 1998 results.
Net loss for the six-month period ended June 30, 1998 amounted to
$139,094, or $.14 per share. The following is a brief discussion of the more
significant components of the net loss:
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, the
main components of interest earning assets and interest bearing liabilities for
the six-month period ended June 30, 1998:
Interest
Earning Assets/ Average Interest
Bearing Liabilities Balance Income/Expense Yield/Rate
------------------- ------------- -------------- ----------
Federal funds sold $ 5,782,885 $ 159,937 5.53%
Short-term investments 379,395 11,546 6.09%
Securities 9,609,490 302,800 6.30%
Loans 7,928,041 392,181 9.89%
------------- -------------- --------
Total earning assets $ 23,699,810 $ 866,464 7.31%
------------- -------------- --------
Interest-bearing deposits $ 14,316,271 $ 332,080 4.64%
------------- -------------- --------
Total interest-bearing liabilities $ 14,316,271 $ 332,080 4.64%
------------- -------------- --------
Net interest income/margin $ 534,384 2.67%
==============
Net yield on earning assets 4.51%
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PART I FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. (CONTINUED)
As shown above, the net interest margin was 2.67%, an increase over
the annualized spread of 1.43% at December 31, 1997. The net yield on earning
assets was 4.51% at June 30, 1998 compared to 4.64% at the end of last year.
The net margin has increased as more of the earning assets have moved from
investments into the higher yielding loan portfolio. Similarly, as deposits
have increased, the interest paid has increased causing a slight decline in the
net yield on earning assets.
Other income for the six-month period ended June 30, 1998 was $63,997.
Of this total, $22,378 represented service charges on deposit accounts. The
remaining $41,619 was income generated from other fees charged, the largest of
which was brokered mortgage origination fee income of $26,998.
Operating expenses for the period were $715,109 consisting primarily
of salaries and employee benefits of $439,272.
The provision for loan losses was increased by $110,000 during the
first six months bringing the total reserve balance to $170,000. This amount
represents 1.41% of gross loans, compared to 1.52% at December 31, 1997.
However, management's judgement 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. Thus, 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. The Company had no non-performing loans or net charge-offs in the
first two quarters.
Total consolidated assets increased by $8.5 million to $29.7 million
during the six-month period ended June 30, 1998. The increase was generated
primarily through a corresponding $8.6 million increase in deposits. The funds
were used to increase loans by $8 million. Federal funds sold decreased by $8
million since December 31, 1997 as the funds were invested in
available-for-sale securities.
Liquidity and sources of capital
At June 30, 1998, the Company's liquid assets, consisting of cash and
due from banks and Federal funds sold, amounted to $2,064,822, representing
6.9% of total assets. Investment securities amounted to $13,625,469,
representing 45.8% of total assets; these securities provide a secondary source
of liquidity since they can be converted into cash in a timely manner. The
Company's ability to maintain and expand its deposit base and borrowing
capabilities also serves as a source of liquidity. For the six-month period
ended June 30, 1998, total deposits increased from $11.7 million at year-end to
$20.3 million, representing an increase of 74%, or 147% on an annualized basis.
However, the Company does not expect that it will maintain this growth rate.
The Company's 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.
The Bank currently maintains a level of capitalization substantially
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 continued losses, or a combination of these factors, could change the
Company's capital position in a relatively short period of time. The Company
has no commitments or immediate plans for significant capital expenditures at
this time. Below is a table that reflects the leverage and risk-based
regulatory capital ratios of the Bank at June 30, 1998:
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PART I FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. (CONTINUED)
Minimum
Ratio Requirements
----- ------------
Tier 1 capital 33.55% 4.0%
Total capital 34.62% 8.0%
Tier 1 leverage ratio 20.70% 4.0%
Year 2000 Readiness
The Bank relies upon operational systems, outsource providers and
computer hardware and software each with varying degrees of dependence on
computer solutions and/or embedded microchips. Some number of these systems may
be affected by considerations involving several dates either prior to or
following the Year 2000. The Bank is in the process of seeking to identify both
internal and external systems which will be affected, attain assurances about
their Year 2000 compliance and initiate corrective actions as appropriate.
Based on information currently available, management does not believe that the
Company will incur significant costs in connection with the Year 2000 issue and
further estimates at this time that direct project costs should not exceed
$10,000. However, Year 2000 costs are difficult to estimate, particularly since
the Company relies largely on outside service providers for many of its
computer hardware and software products, and total costs could exceed this
amount substantially. Furthermore, the Bank potentially may have some number of
business loan customers who could be affected by the Year 2000 issue and
negatively affect such customer's ability to repay credit extended. Therefore,
even if the Company does not incur any significant direct costs in connection
with responding to the Year 2000 issue, there can be no assurance that the
failure or delay of the Bank's customers, or other providers addressing the
Year 2000 issues or the costs involved in such process will not have an adverse
effect on the Company's business, financial condition and results of
operations. At present, one member of senior management is currently devoting
approximately 10% of his time towards this project and the Company expects to
be Year 2000 ready by December 31, 1998.
Recently issued accounting standards
In June 1997, Statement of Financial Accounting Standards NO. 130,
"Reporting Comprehensive Income" (FASB 130), was issued, and established
standards for reporting and displaying comprehensive income and its components,
as recognized under accounting standards, to be displayed in a financial
statement with the same prominence as other financial statements. Accordingly,
the Consolidated Statements of Comprehensive Income (Loss) have been included
in the financial statements.
In June 1997, the FASB issued SFAS 131, "Disclosures about Segments of
an Enterprise and Related Information". SFAS 131 requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments. Operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. SFAS 131 requires that a
public enterprise report a measure of segment profit or loss, certain specific
revenue and expense items, segment assets, information about the way that the
operating segments were determined and other items. The Statement is effective
for fiscal years beginning after December 15, 1997. The Company does not
anticipate that adoption of SFAS 131 will have a material effect on its
financial statements.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instrument and Hedging Activities". All derivatives are to be measured at fair
value and recognized in the statement of financial
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PART I FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. (CONTINUED)
position as assets or liabilities. The statement is effective for fiscal years
and quarters beginning after June 15, 1999. Because the Company has limited use
of derivative transactions at this time, management does not expect that this
standard would have a significant effect on the Company.
In April 1998, the FASB issued SFAS 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits". The new Statement revises the
required disclosures for employee benefit plans, but it does not change the
measurement or recognition of such plans. While the new standard requires some
additional information about benefit plans, it helps preparers of financial
statements by eliminating certain disclosures and by standardizing the
disclosures for pensions and other postretirement benefits to the extent
practicable. SFAS 132 supercedes the disclosure requirements in SFAS 87,
"Employers' Accounting for Pensions", SFAS 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits", and SFAS 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions". The new disclosures are effective for fiscal
years beginning after December 15, 1997. The adoption of SFAS 132 will not have
an impact on the financial statements of the Company due to the disclosure only
requirements.
In March 1998, the Accounting Standards Executive Committee of the
AICPA issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" (SOP 98-1), which provided
guidance as to when it is or is not appropriate to capitalize the cost of
software developed or obtained for internal use. SOP 98-1 is effective for
financial statements for fiscal years beginning after December 15, 1998 with
early adoption encouraged. The Company does not anticipate that adoption of SOP
98-1 will have a material effect on its financial statements.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES
(a) Not applicable
(b) Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Several matters were voted upon at the Annual Meeting of Shareholders held on
April 29, 1998.
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, W. Cothran Campbell, Alan
J. George, and Anthony E. Jones. The current Class III directors are James
D. McNair, Russell D. Phelon, and Tommy B. Wessinger. The initial Class I
directors were reelected in 1997 by the Company's sole shareholder before
the close of the Company's stock offering. The current terms of the Class
II directors expired at the Annual Meeting. Each of the four current Class
II directors was nominated for reelection and stood for election at the
Annual Meeting on April 29, 1998 for a three year term. The number of
votes for the election of the Class II directors was 756,665 and there
were no votes against the reelection, and 4,550 abstained from voting. The
terms of the Class III directors will expire at the 1999 Annual Meeting of
Shareholders, and the terms of the Class I directors will expire at the
2000 Annual Meeting of Shareholders.
2. The shareholders of the Company approved the People's Community Capital
Corporation 1998 Stock Option Plan. The Plan provides that restricted
stock may be awarded, and stock options may be granted, with respect to an
aggregate of no more than 250,000 shares, subject to adjustment upon
changes in capitalization. Stock appreciation rights may also be granted
under the Plan. The number of votes for the approval of the Plan was
626,212. The number of votes against the Plan was 15,500, and 600
abstained from voting.
3. The third issue voted upon at the Annual Meeting of Shareholders was the
ratification of Elliott, Davis & Company, L.L.P. to serve as the Company's
outside accountants for the year ending December 31, 1998. The number of
votes for the accountants was 756,315. There were 2,300 votes against the
accountants and 2,600 abstained from voting on this matter.
ITEM 5. OTHER INFORMATION
Not applicable
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ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
(a) Exhibits 27.1 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the quarter
ended June 30, 1998.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934 (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
Date: August 10, 1998 By: /s/ Tommy B. Wessinger
--------------------------
Tommy B. Wessinger
Chief Executive Officer
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