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 March 31, 1999
- --- 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:
998,162 shares of common stock, par value $.01 per share, were issued
and outstanding as of May 6, 1999.
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
March 31, December 31,
1999 1998
------------ ------------
(Unaudited) (Audited)
ASSETS
Cash and due from banks $ 1,828,332 $ 958,613
Federal funds sold 3,600,000 3,830,000
Securities, available for sale 7,909,203 8,734,879
Loans receivable, net 24,241,414 20,717,698
Properties and equipment, net 1,698,246 1,718,705
Accrued interest receivable 235,577 243,909
Deferred income taxes 211,989 228,557
Other assets 93,398 107,052
------------ ------------
Total assets $ 39,818,159 $ 36,539,413
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Non-interest bearing deposits $ 5,933,689 $ 4,973,931
Interest bearing deposits 24,123,788 21,761,653
------------ ------------
Total deposits 30,057,477 26,735,584
Accrued interest payable 43,258 35,686
Accrued expenses and other liabilities 30,507 19,810
Other borrowings 238,218 331,783
------------ ------------
Total liabilities 30,369,460 27,122,863
------------ ------------
Stockholders' equity:
Common stock, $.01 par value; 10,000,000 shares authorized 9,982 9,982
Additional paid-in-capital 9,775,508 9,775,508
Retained earnings (deficit) (341,871) (401,429)
Accumulated other comprehensive income 5,080 32,489
------------ ------------
Total stockholders' equity 9,448,699 9,416,550
------------ ------------
Total liabilities and stockholders' equity $ 39,818,159 $ 36,539,413
============ ============
See accompanying Notes to Consolidated Financial Statements.
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PEOPLE'S COMMUNITY CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three months
ended March 31,
--------------------------
1999 1998
---- ----
Interest income:
Loans, including fees $ 508,783 $ 150,816
Federal funds sold 38,510 108,835
Securities and short-term investments 127,807 118,215
---------- ----------
Total interest income 675,100 377,866
---------- ----------
Interest expense:
Deposits 212,991 141,685
Other borrowings 2,935 --
---------- ----------
Total interest expense 215,926 141,685
---------- ----------
Net interest income 459,174 236,181
Provision for loan losses 32,000 60,000
---------- ----------
Net interest income after provision
for loan losses 427,174 176,181
---------- ----------
Non-interest income:
Service charges on deposit accounts 36,908 8,908
Other income 42,856 23,131
---------- ----------
Total non-interest income 79,764 32,039
---------- ----------
Non-interest expenses:
Salaries and employee benefits 237,391 219,317
Occupancy and equipment 50,584 45,836
Consulting and professional fees 28,641 12,849
Customer related expenses 14,168 18,880
General operating expenses 57,022 35,157
Other expenses 22,771 20,209
---------- ----------
Total non-interest expenses 410,577 352,248
Income (loss) before income taxes 96,361 (144,028)
Income tax provision (benefits) 36,804 (55,870)
---------- ----------
Net income (loss) $ 59,557 $ (88,158)
========== ==========
Weighted average common shares outstanding:
Basic 998,162 993,162
Diluted 1,040,170 993,162
Earnings (loss) per share:
Basic $ .06 $ (.09)
Diluted $ .06 $ (.09)
See accompanying Notes to Consolidated Financial Statements.
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PEOPLE'S COMMUNITY CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
For the three months
ended March 31,
---------------
1999 1998
---- ----
Net income (loss) $ 59,557 $(88,158)
Other comprehensive income (loss), net of tax:
Net change in unrealized gain (loss) on securities
available for sale (27,409) 1,209
-------- --------
Total other comprehensive income (loss) (27,409) 1,209
-------- --------
Comprehensive income (loss) $ 32,148 $(86,949)
======== ========
See accompanying Notes to Consolidated Financial Statements.
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PEOPLE'S COMMUNITY CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the three months
ended March 31,
-----------------------------
1999 1998
---- ----
OPERATING ACTIVITIES:
Net income (loss) $ 59,557 $ (88,158)
Adjustments to reconcile net income (loss) to net cash (used for)
provided by operating activities:
Depreciation and amortization 25,823 25,217
Provision for loan losses 32,000 60,000
Deferred income taxes 16,568 (56,808)
Changes in deferred and accrued amounts:
Other assets and accrued interest receivable 19,124 (124,459)
Accrued expenses and other liabilities 18,269 (12,862)
----------- -----------
Net cash (used for) provided by operating activities 171,341 (197,070)
----------- -----------
INVESTING ACTIVITIES:
Purchase of securities available for sale (2,000,000) (6,099,682)
Maturities and calls of securities available for sale 2,798,266 750,000
Purchase of short-term investments available for sale -- (1,623,031)
Maturities of short-term investments available for sale -- 2,249,640
Purchases of property and equipment (2,500) (26,057)
Net increase in loans (3,555,716) (3,855,026)
Net decrease in federal funds sold 230,000 2,750,000
----------- -----------
Net cash used for investing activities (2,529,950) (5,854,156)
----------- -----------
FINANCING ACTIVITIES:
Net increase in deposits 3,321,893 6,099,902
Net decrease in other borrowings (93,565) --
----------- -----------
Net cash provided by financing activities 3,228,328 6,099,902
----------- -----------
Net increase in cash and due from banks 869,719 48,676
Cash and due from banks at beginning of period 958,613 625,785
----------- -----------
Cash and due from banks at end of period $ 1,828,332 $ 674,461
=========== ===========
Supplemental disclosure:
Cash paid during the period for interest $ 208,354 $ 128,962
=========== ===========
See accompanying Notes to Consolidated Financial Statements.
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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 three months ended March 31, 1999, are not necessarily
indicative of the results that may be expected for the year ended December 31,
1999. For further information, please refer to the consolidated financial
statements and footnotes thereto for the Company's fiscal year ended December
31, 1998, included in the Company's Form 10-KSB for the year ended December 31,
1998.
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.
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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.
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 the Company's management, as well as assumptions
made by and information currently available to the Company's management. The
words "expect," "anticipate," and "believe," as well as similar expressions, are
intended to identify forward-looking statements. 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 SB-2
(Registration Number 333-1546) 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 one located in North
Augusta, South Carolina.
The second banking center located in Aiken was opened on September 8,
1998 in leased offices that also are the headquarters of the holding company. A
tract of land has been purchased in downtown Aiken for the construction of a
permanent banking center office. The cost of the land was approximately
$139,000. Construction of the office is expected to begin sometime in 1999.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EARNINGS REVIEW
The Company's net income for the first quarter of 1999 was $59,557
compared to a loss of $88,158 in the same period last year when the Bank was
still in its early months of operations. The income per share increased to $.06
compared to a loss of $.09 for the same period in 1998. This improvement in
earnings reflects the continued growth in the level of earning assets since the
Bank commenced operations. The level of average earning assets was $33.9 million
for the three months ended March 31, 1999 as compared to $21.4 million for the
three months ended March 31, 1998. The Company experienced its first quarterly
profit in the fourth quarter of 1998.
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
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presents, in a tabular form, yield and rate data for interest-bearing balance
sheet components during the three month periods ended March 31, 1999 and 1998,
along with average balances and the related interest income and interest expense
amounts.
Three months ended March 31, 1999 Three months ended March 31, 1998
--------------------------------- ---------------------------------
Average Interest Yield Average Interest Yield/
Balance Income/Expense /Rate Balance Income/Expense Rate
------- -------------- ---- ------- -------------- ----
ASSETS
Federal funds sold $ 3,332,268 $ 38,510 4.62% $ 7,865,220 $ 108,835 5.53%
Short-term investments 0 0 0.00% 758,790 11,546 6.09%
Securities 8,281,729 127,807 6.17% 6,793,779 106,669 6.28%
Loans 22,353,936 508,783 9.10% 5,972,986 150,816 10.10%
------------ ------------ ---- ------------ ------------ -----
Total earning assets 33,967,933 675,100 7.95% 21,390,775 377,866 7.06%
------------ ------------ ---- ------------ ------------ -----
Cash and due from banks 1,352,642 669,896
Premises and equipment 1,708,413 1,614,549
Other assets 1,009,538 590,666
Allowance for loan losses (305,667) (79,157)
------------ ------------
Total assets 37,732,859 24,186,729
============ ============
LIABILITIES & EQUITY
Interest-bearing deposits 22,256,375 212,991 3.83% 12,107,114 141,685 4.68%
Interest-bearing borrowings 272,640 2,935 4.31% 0 0 0.00%
------------ ------------ ---- ------------ ------------ -----
Total interest-bearing liabilities 22,529,015 215,926 3.83% 12,107,114 141,685 4.68%
------------ ------------ ---- ------------ ------------ -----
Demand deposits 5,693,120 2,480,765
Other liabilities 96,452 121,280
Shareholders' equity 9,414,272 9,477,570
------------ ------------
Total liabilities &
shareholders equity $ 37,732,859 $ 24,186,729
============ ============
Net interest spread 4.12% 2.38%
Net interest income/margin $ 459,174 5.41% $ 236,181 4.42%
============ ============
Net interest income was $459,174 for the three months ended March 31,
1999 as compared to $236,181 for the three months ended March 31, 1998. The net
interest margin (net interest income divided by average earning assets) was
5.41% for the three months ended March 31, 1999 compared to the net interest
margin of 4.42% for the three months ended March 31, 1998. This improvement in
net interest margin is a result of the increase of the level of earning assets
as more earning assets have been applied to the higher yielding loan portfolio.
Additionally, the rates paid on interest-bearing deposits have decreased since
the earlier months of operations when higher rates were paid to attract initial
deposits.
Interest income for the first three months of 1999 was $675,100
compared to $377,866 for the same period in 1998. The largest component of
interest income was interest and fees on loans amounting to $508,783 for the
three months ended March 31, 1999 compared to $150,816 for the comparable prior
year period. The overall rate on the loan portfolio decreased from 10.10% for
the three months ended March 31, 1998 to 9.10% for the three-month period ended
March 31, 1999. This was primarily a function of the relatively small size of
the portfolio in 1998 when individual loan rates and fees are more apt to skew
the portfolio average in one direction or the other. It also
9
reflects downward market pressures on loan rates between the periods, including
two decreases in the prime rate.
Interest expense increased from $141,685 for the three months ended
March 31, 1998 to $215,926 for the three months ended March 31, 1999 as the size
of interest-bearing liabilities, primarily deposits, increased from $12,107,114
to $22,529,015, an increase of 86%.
Non-interest Income
Non-interest income for the three-month period ended March 31, 1999 was
$79,764 compared to $32,039 for the same period in 1998. Of this total, $36,908
represented service charges on deposit accounts for the three months ended March
31, 1999 compared to $8,908 for the comparable period in 1998. The increase in
income from deposit service charges is due to the increase in deposit customers
during the comparable periods. The remaining $42,856 of non-interest income for
the first three months of 1999 was income generated from other fees charged, the
largest of which was brokered mortgage origination fee income of $27,808, an
increase from $16,405 during the same period in 1998.
Non-interest Expense
Non-interest expense for the three-month periods ended March 31, 1999
and 1998 were $410,577 and $352,248, respectively, a 16% increase. The largest
component of non-interest expense was salaries and employee benefits of $237,391
and $219,317, respectively. Salaries and employee benefits expense increased 8%
primarily due to the addition in August 1998 of a Senior Credit Officer and the
addition of a teller position when the Park Avenue branch began banking
operations in September 1998. General operating expenses increased 62%, or
$21,865, between the two reporting periods primarily due to an increase in
contract prices with the Bank's data processing provider, an increase in the
Federal Reserve's service fees due to increased levels of bank activity, and the
accrual of approximately $6,000 of shareholder expense. The shareholder expense
is the cost of preparing, printing and filing annual shareholders' reports and
other regulatory reports during the first quarter. Since 1998 was the first year
of such filings, the expense was recognized in the second quarter once invoices
were received and amounts were quantifiable. Consulting and professional fees
increased $15,792 due in part to a planned contract increase with the Company's
auditing firm as the Bank's operations grew, legal fees relating to a customer's
loan, and an accrual of legal fees relating to the regulatory filings mentioned
above.
Provision for Loan Losses
The provision for loan losses was $32,000 and $60,000, respectively,
for the first three months of 1999 and 1998, bringing the total reserve balance
to $317,000 and $120,000 at March 31, 1999 and 1998, respectively. This amount
represents 1.29% of gross loans at March 31, 1999, compared to 1.54% at March
31, 1998. 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 valuation
10
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. The Company had no nonperforming loans at
March 31, 1999 or 1998 and there have been no charge-offs since the Bank began
operations.
BALANCE SHEET REVIEW
Total consolidated assets grew by $3.3 million from $36,539,413 at
December 31, 1998 to $39,818,159 at March 31, 1999. The increase was generated
through a corresponding $3.3 million increase in deposits. Federal funds sold
decreased by $230,000, and the funds generated from the decrease in Federal
funds sold and the increase in deposits were used to increase loans by $3.5
million. The available-for-sale investment portfolio decreased by $825,676 since
December 31, 1998 due to calls not immediately reinvested in the securities
portfolio. Cash and due from banks increased by $869,719.
Loans
Outstanding loans represent the largest component of earning assets as
of March 31, 1999 at $24,241,414, or 67.8% of total earning assets. Gross loans
increased $3,555,716, or 16.9%, since December 31, 1998.
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 yield on the Company's loans as of March 31, 1999 was 9.10% as compared to a
yield of 9.68% at December 31, 1998. The decrease in yield is primarily due to
the mix of loans and competitive pressures on rates.
Allowance for Loan Losses
The allowance for loan losses at March 31, 1999 was $317,000, or 1.29%
of loans outstanding, compared to an allowance of $285,000, or 1.36%, at
December 31, 1998. The allowance for loan losses is based upon management's
continuing evaluation of the collectibility of loans based somewhat on
historical loan loss experience, but mostly, because of the lack of historical
data available in a new company, based on current economic conditions affecting
the ability of borrowers to repay, the volume of loans, the quality of
collateral securing non-performing and problem loans, and other factors
deserving recognition. As of March 31, 1999, there have been no non-performing
loans or net charge-offs since inception.
Securities
Investment securities represented 22.1% of earning assets at March 31,
1999 with a total of $7,909,203, down $825,676 from the December 31, 1998
balance of $8,734,879. The yield on investment securities was 6.17% at March 31,
1999 compared to 6.25% at December 31, 1998. Included in available-for-sale
securities is $101,400 of stock purchased in the Federal Home Loan Bank of
Atlanta. This purchase was a requirement from the FHLB in order to secure
borrowings from them in the future.
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Deposits
The Company's primary source of funds for loans and investments is its
deposits. Deposits grew $3,321,893, or 12.4%, since year-end 1998 for a total of
$30,057,477 at March 31, 1999. The average rates paid on interest-bearing
deposits were 3.83% and 4.47% at March 31, 1999 and December 31, 1998,
respectively. In pricing deposits, the Company considers its liquidity needs,
the direction and levels of interest rates, and local market conditions. The
Bank paid higher rates initially to attract deposits but has subsequently
decreased the rates based on the factors above.
Liquidity and Sources of Capital
At March 31, 1999, the Company's liquid assets, consisting of cash and
due from banks and Federal funds sold, amounted to $5,428,332, representing
13.6% of total assets. Investment securities amounted to $7,909,203,
representing 19.9% 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 three-month period
ended March 31, 1999, total deposits increased by $3.3 million representing an
increase of 12.4%, or 49.6% on an annualized basis. However, the Company does
not expect that it will necessarily 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 Company plans to meet its future cash needs through the liquidation
of temporary investments, maturities of loans and investment securities, and
generation of deposits. In addition, the Bank maintains a line of credit from
its correspondent bank in the amount of $1,800,000, and is a member of the
Federal Home Loan Bank, from which application may be made for borrowing
capabilities, if needed.
The Bank currently maintains a level of capitalization well 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 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 March 31, 1999:
Well-Capitalized Minimum
Ratio Requirement Requirement
----- ----------- -----------
Tier 1 capital 20.39% 6.00% 4.0%
Total capital 21.59% 10.00% 8.0%
Tier 1 leverage ratio 15.79% 5.00% 4.0%
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YEAR 2000 ISSUES
Definition. Some computers, software, and other equipment include
programming codes in which calendar year data is abbreviated to only two digits.
As a result of this design decision, some of these systems could fail to operate
or fail to produce correct results if "00" is interpreted to mean 1900, rather
than 2000. These problems are widely expected to increase in frequency and
severity as the year 2000 approaches and are commonly referred to as the "Year
2000 Problem".
Assessment. The Year 2000 Problem could affect computers, software, and
other equipment that the Company uses. Accordingly, the Company has developed a
plan that provides for, among other things, the replacement or modification of
existing information systems as necessary. Because the primary hardware and
software systems that the Company uses have been certified or represented by
their vendors as Year 2000 compliant, the Company has not incurred any
significant costs to date relating to software modifications or new
installations. Most systems have been made compliant through periodic software
upgrades provided by the various vendors as part of the license agreements.
While the Company does not expect the cost of these efforts to be material to
its financial position or any year's operating results, there can be no
assurance to this effect.
Internal Infrastructure. The Company utilizes an outsourced data
processing system for most of its accounting functions. The Company's primary
systems have been tested by proxy with the vendor, who has tested in
environments with like software and hardware systems as the Company. Banking
regulators have approved this type of testing as a valid means of testing. The
Company has received and reviewed the vendor's Year 2000 test results. Based on
this review, the Company does not believe that the data processing system has
any material Year 2000 issues. In addition, the Company believes that it has
identified substantially all of the major computers, software applications, and
related equipment used in connection with its internal operations that must be
modified, upgraded, or replaced to minimize the possibility of a material
disruption of its business. Management has completed upgrading and testing of
the mission critical systems with results confirming Year 2000 compliant
readiness. Costs spent to date on the Year 2000 Problem have been negligible,
and management believes that total project costs will not exceed $10,000 to get
all of its systems Year 2000 compliant. The Company does not believe that the
cost related to these efforts will be material to its business, financial
condition, or operating results.
Systems Other Than Information Technology Systems. In addition to
computers and related systems, the operation of the Company's office and
facilities equipment, such as fax machines, photocopiers, telephone switches,
security systems, and other devices, may be affected by the Year 2000 Problem.
The Company has completed its assessment of the potential effect of, and the
costs of remediating, the Year 2000 Problem on this equipment. The Company
estimates that its total cost of completing any required modifications,
upgrades, or replacements of these internal systems will not have a material
effect on its business, financial condition, or operating results.
Suppliers and Other Third Parties. The Company continues to gather
information from and has initiated communications with its suppliers and other
third parties to identify and, to the extent possible, resolve issues involving
the Year 2000 Problem. The Company believes that the information systems and
software it uses, and the network connections it maintains, are programmed to
comply with Year 2000 requirements.
13
Customers. The Company believes that the largest Year 2000 Problem
exposure to most banks is the preparedness of the customers of the banks.
Management is addressing with its customers the possible consequences of not
being prepared for Year 2000. Should large borrowers not sufficiently address
this issue, the Company may experience an increase in loan defaults. The amount
of potential loss from this issue it not quantifiable. Management is attempting
to reduce this exposure by educating its customers. The Company prepares a "Year
2000 Customer Risk Assessment" on significant commercial loan customers to
determine the degree to which the customer is preparing for Year 2000. The
degree of risk assessed is incorporated into the Company's loan risk grade
system which determines the amount of loan loss reserves required.
Most Likely Consequences of Year 2000 Problems. The Company expects to
identify and resolve all Year 2000 Problems that could materially adversely
affect its business, financial condition, or operating results. However, the
Company believes that it is not possible to determine with complete certainty
that all Year 2000 Problems affecting it have been identified or corrected. The
number of devices that could be affected and the interactions among these
devices are simply too numerous. In addition, the Company cannot accurately
predict how many failures related to the Year 2000 Problem will occur with its
suppliers, customers, or other third parties or the severity, duration, or
financial consequences of such failures. As a result, the Company expects that
it could possibly suffer the following consequences:
- A number of operational inconveniences and inefficiencies for
the Company, its service providers, or its customers that may
divert the Company's time and attention and financial and
human resources from its ordinary business activities:
- System malfunctions that may require significant efforts by
the Company or its service providers or customers to prevent
or alleviate material business disruptions.
Contingency Plans. The Company is continuing to refine its contingency
plans as part of its efforts to identify and correct Year 2000 Problems
affecting its internal systems. The Company expects to complete its contingency
plans by the end of the second quarter of 1999. Depending on the systems
affected, these plans could include (a) accelerated replacement of affected
equipment or software; (b) short term use of backup equipment and software; (c)
increased work hours for the Company's personnel or use of contract personnel to
correct on an accelerated schedule any Year 2000 Problems which arise; and (d)
other similar approaches. If the Company is required to implement any of these
contingency plans, these plans could have a material adverse effect on its
business, financial condition, or operating results.
RECENTLY ISSUED ACCOUNTING STANDARDS
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
14
that the operating segments were determined and other items. The Statement was
effective for fiscal years beginning after December 15, 1997. The adoption of
SFAS 131 did not have an impact on the financial statements or disclosures of
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 were effective for fiscal
years beginning after December 15, 1997. The adoption of SFAS 132 did not have
an impact on the financial statements of the Company due to the disclosure only
requirements.
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 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 October 1998, the FASB issued SFAS 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise". The new statement establishes
accounting and reporting standards for certain activities of mortgage banking
enterprises. The statement is effective for the first quarter beginning after
December 15, 1998. The statement did not have an impact on the financial
statements of the Company.
In April 1998, the Accounting Standards Executive Committee of the
AICPA issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities"(SOP 98-5), which provided guidance on the financial reporting of
start-up costs and organization costs. SOP 98-5 requires start-up costs and
organization costs to be expensed as incurred and initial application should be
reported as the cumulative effect of a change in accounting principle. SOP 98-5
is effective for financial statements for fiscal years beginning after December
15, 1998, with early adoption encouraged. The adoption of SOP 98-5 did not have
a material effect on the financial statements of the Company.
15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES
(a) Not applicable
(b) Not applicable
(c) Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of shareholders during the three
months ended March 31, 1999.
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
(a) Exhibit - 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 March 31, 1999.
16
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: May 6, 1999 By: /s/ Tommy B. Wessinger
------------------------------
Tommy B. Wessinger
Chief Executive Officer