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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 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:
988,162 shares of common stock, par value $.01 per share, were issued
and outstanding as of November 8, 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
September 30, December 31,
1999 1998
------------ ------------
(Unaudited) (Audited)
ASSETS
Cash and due from banks $ 1,542,359 $ 958,613
Federal funds sold 3,940,000 3,830,000
Securities, available for sale 11,250,619 8,734,879
Loans receivable, net 28,153,744 20,717,698
Properties and equipment, net 1,686,684 1,718,705
Accrued interest receivable 322,841 243,909
Deferred income taxes 175,505 228,557
Other assets 87,491 107,052
------------ ------------
Total assets $ 47,159,243 $ 36,539,413
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Non-interest bearing deposits $ 6,479,168 $ 4,973,931
Interest bearing deposits 30,137,944 21,761,653
------------ ------------
Total deposits 36,617,112 26,735,584
Accrued interest payable 51,313 35,686
Accrued expenses and other liabilities 49,803 19,810
Other borrowings 1,006,319 331,783
------------ ------------
Total liabilities 37,724,547 27,122,863
------------ ------------
Stockholders' equity:
Common stock, $.01 par value; 10,000,000 shares authorized; 9,982 9,982
998,162 shares issued and outstanding at December 31, 1998;
988,162 shares issued and outstanding at September 30, 1999
Additional paid-in-capital 9,775,508 9,775,508
Treasury stock, 10,000 shares (107,500) 0
Retained earnings (deficit) (153,171) (401,429)
Accumulated other comprehensive income (loss) (90,123) 32,489
------------ ------------
Total stockholders' equity 9,434,696 9,416,550
------------ ------------
Total liabilities and stockholders' equity $ 47,159,243 $ 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 For the nine months
ended September 30, ended September 30,
------------------------ --------------------------
1999 1998 1999 1998
---------- --------- ---------- -----------
Interest income:
Loans, including fee $ 622,105 $ 336,351 $1,708,255 $ 728,531
Federal funds sold 43,386 44,372 136,160 204,310
Securities and short-term investments 171,465 176,636 427,343 490,982
---------- --------- ---------- -----------
Total interest income 836,956 557,359 2,271,758 1,423,823
---------- --------- ---------- -----------
Interest expense:
Deposits 282,834 208,465 747,813 540,545
Other borrowings 4,229 3,400 11,329 3,400
---------- --------- ---------- -----------
Total interest expense 287,063 211,865 759,142 543,945
---------- --------- ---------- -----------
Net interest income 549,893 345,494 1,512,616 879,878
Provision for loan losses 30,696 55,000 96,402 165,000
---------- --------- ---------- -----------
Net interest income after provision
for loan losses 519,197 290,494 1,416,214 714,878
---------- --------- ---------- -----------
Non-interest income:
Service charges on deposit accounts 56,123 23,709 142,474 46,087
Other income 17,538 18,636 77,820 60,255
---------- --------- ---------- -----------
Total non-interest income 73,661 42,345 220,294 106,342
---------- --------- ---------- -----------
Non-interest expenses:
Salaries and employee benefit 249,985 214,478 715,874 653,750
Occupancy and equipment 53,640 52,473 151,953 141,938
Consulting and professional fee 9,072 8,330 48,423 39,846
Customer related expenses 16,766 13,360 46,933 53,775
General operating expenses 74,805 39,836 194,374 108,506
Other expenses 23,139 29,325 77,218 75,096
---------- --------- ---------- -----------
Total non-interest expense 427,407 357,802 1,234,775 1,072,911
Income (loss) before income taxes 165,451 (24,963) 401,733 (251,691)
Income tax provision (benefits) 63,283 (9,570) 153,476 (97,204)
---------- --------- ---------- -----------
Net income (loss) $ 102,168 $ (15,393) $ 248,257 $ (154,487)
========== ========= ========== ===========
Weighted average common shares outstanding:
Basic 997,401 993,162 997,906 993,162
Diluted 1,040,325 993,162 1,040,027 993,162
Earnings (loss) per share:
Basic $ .10 $ (.02) $ .25 $ (.16)
Diluted $ .10 $ (.02) $ .24 $ (.16)
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 For the nine months
ended September 30, ended September 30,
----------------------- ------------------------
1999 1998 1999 1998
--------- -------- --------- ---------
Net income (loss) $ 102,168 $(15,393) $ 248,257 $(154,487)
Other comprehensive income (loss), net of tax:
Net change in unrealized gain (loss) on securities
available for sale (41,089) 19,513 (122,612) 33,482
--------- -------- --------- ---------
Total other comprehensive income (loss) (41,089) 19,513 (122,612) 33,482
--------- -------- --------- ---------
Comprehensive income (loss) $ 61,079 $ 4,120 $ 125,645 $(121,005)
========= ======== ========= =========
See accompanying Notes to Consolidated Financial Statements.
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PEOPLE'S COMMUNITY CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the nine months
ended September 30,
-----------------------------------
1999 1998
------------ ------------
OPERATING ACTIVITIES:
Net income (loss) $ 248,257 $ (154,487)
Adjustments to reconcile net income (loss) to net cash (used for)
provided by operating activities:
Depreciation and amortization 77,849 83,918
Provision for loan losses 96,402 165,000
Deferred income taxes 53,052 (76,146)
Changes in deferred and accrued amounts:
Other assets and accrued interest receivable (67,964) (222,523)
Accrued expenses and other liabilities 45,620 5,763
------------ ------------
Net cash (used for) provided by operating activities 453,216 (198,475)
------------ ------------
INVESTING ACTIVITIES:
Purchase of securities available for sale (7,000,000) (11,803,559)
Maturities and calls of securities available for sale 4,361,647 8,727,106
Purchases of property and equipment (37,235) (52,968)
Net increase in loans (7,532,446) (12,290,412)
Net decrease (increase) in federal funds sold (110,000) 4.430,000
Net cash used for investing activities (10,318,034) (10,989,833)
------------ ------------
FINANCING ACTIVITIES:
Net increase in deposits 9,881,528 11,489,278
Net increase in other borrowings 674,536 310,441
Purchase of treasury stock (107,500) 0
------------ ------------
Net cash provided by financing activities 10,448,564 11,799,719
Net increase in cash and due from banks 583,746 611,411
Cash and due from banks at beginning of period 958,613 625,785
------------ ------------
Cash and due from banks at end of period $ 1,542,359 $ 1,237,196
============ ============
Supplemental disclosure:
Cash paid during the period for interest $ 743,515 $ 526,956
============ ============
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 nine months ended September 30, 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 S-1
(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. A construction date has not yet been determined.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------
EARNINGS REVIEW - Comparison of the three months ended September 30, 1999 to
the three months ended September 30, 1998:
The Company's net income for the third quarter of 1999 was $102,168
compared to a loss of $15,393 in the same period last year when the Bank was
still in its first year of operations. The income per share increased to $.10
compared to a loss of $.02 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 $41.7
million for the three months ended September 30, 1999 as compared to $28.7
million for the three months ended September 30, 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 presents, in a tabular form, yield
and rate data for interest-bearing balance sheet components during
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the three month periods ended September 30, 1999 and 1998, along with average
balances and the related interest income and interest expense amounts.
Three months ended Sept 30, 1999 Three months ended Sept 30,1998
-------------------------------------- ---------------------------------------
Average Interest Yield Average Interest Yield/
Balance Income/Expense /Rate Balance Income/Expense Rate
------------ -------------- ----- ------------ -------------- ------
ASSETS
Federal funds sold $ 3,373,454 $ 43,386 5.14% $ 3,221,590 $ 44,372 5.51%
Securities 11,022,616 171,465 6.22% 11,447,348 176,636 6.21%
Loans 27,361,152 622,105 9.09% 14,074,084 336,351 9.56%
------------ -------- ---- ------------ -------- ----
Total earning assets 41,757,222 836,956 8.02% 28,743,022 557,359 7.76%
------------ -------- ---- ------------ -------- ----
Cash and due from banks 1,396,193 2,316,684
Premises and equipment 1,687,746 1,590,872
Other assets 855,725 851,815
Allowance for loan losses (365,000) (188,791)
------------ ------------
Total assets $ 45,331,886 $ 33,313,602
============ ============
LIABILITIES & EQUITY
Interest-bearing deposits $ 29,005,323 $282,834 3.90% $ 18,671,301 $208,465 4.47%
Interest-bearing borrowings 344,057 4,229 4.92% 251,232 3,400 5.41%
------------ -------- ---- ------------ -------- ----
Total interest-bearing liabilities 29,349,380 287,063 3.91% 18,922,533 211,865 4.48%
------------ -------- ---- ------------ -------- ----
Demand deposits 6,405,097 4,824,464
Other liabilities 76,063 148,574
Shareholders' equity 9,501,346 9,418,031
------------ ------------
Total liabilities &
shareholders equity $ 45,331,886 $ 33,313,602
============ ============
Net interest spread 4.11% 3.28%
Net interest income/margin $549,893 5.27% $345,494 4.81%
======== ========
Net interest income was $549,893 for the three months ended September
30, 1999 as compared to $345,494 for the three months ended September 30, 1998.
The net interest margin (net interest income divided by average earning assets)
was 5.27% for the three months ended September 30, 1999 compared to the net
interest margin of 4.81% for the three months ended September 30, 1998. This
improvement in net interest margin for the quarter is a result of the increase
in the level of earning assets that have been applied to the higher yielding
loan portfolio. Also, the rates paid on interest-bearing deposits have
decreased since the earlier months of operations when higher rates were paid to
attract initial deposits. Additionally, the level of non-interest bearing
deposits has also increased since the third quarter of 1998.
Interest income for the third quarter of 1999 was $836,956 compared to
$557,359 for the same period in 1998. The largest component of interest income
was interest and fees on loans amounting to $622,105 for the three months ended
September 30, 1999 compared to $336,351 for the comparable prior year period.
The overall rate on the loan portfolio decreased from 9.56% for the three
months ended September 30, 1998 to 9.09% for the three-month period ended
September 30, 1999. This was primarily a function of the relatively small size
of the portfolio in 1998 when individual loan rates and fees were more apt to
skew the portfolio average in one direction or the other. It also reflects
downward market pressures on loan rates between the periods, including two
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decreases in the prime rate. The prime rate rose twice in the third quarter but
a significant impact has not been realized.
Interest expense increased from $211,865 for the three months ended
September 30, 1998 to $287,063 for the three months ended September 30, 1999 as
the size of average interest-bearing liabilities, primarily deposits, increased
from $18,922,533 to $29,349,380, an increase of 55%.
Non-interest Income
- -------------------
Non-interest income for the three-month period ended September 30,
1999 was $73,661 compared to $42,345 for the same period in 1998. Of this
total, $56,123 represented service charges on deposit accounts for the three
months ended September 30, 1999 compared to $23,709 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
$17,538 of non-interest income for the third quarter of 1999 was income
generated from other fees charged such as brokered mortgage origination fees,
commissions on credit life insurance sales, and commissions on the sale of
checks to customers. The comparable amount for the same quarter last year was
$18,636, which was only slightly higher due to more brokered mortgage
origination fees during that particular quarter.
Non-interest Expense
- --------------------
Non-interest expense for the three-month periods ended September 30,
1999 and 1998 were $427,407 and $357,802, respectively, a 19% increase. The
largest component of non-interest expense was salaries and employee benefits of
$249,985 and $214,478, respectively. Salaries and employee benefits expense
increased 16% due to the addition of a credit officer in August 1998, the
addition of a teller position at the Park Avenue branch in September 1998, and
general merit increases. General operating expenses increased 88%, or $34,969,
between the two reporting periods primarily due to an increase in contract
prices with the Bank's data processing provider.
EARNINGS REVIEW - Comparison of the nine months ended September 30, 1999 to the
nine months ended September 30, 1998: (Certain reclassifications have been made
to 1998 year-to-date totals to compare more accurately with 1999
classifications.)
Net income for the nine months ended September 30, 1999 was $248,257
compared to a net loss of $154,487 for the nine months ended September 30,
1998. This equates to net income of $.25 per share for the nine months ended
September 30, 1999 compared to a net loss of $.16 per share for the nine months
ended September 30, 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 $38.2 million for the nine months ended
September 30, 1999 as compared to $25.4 million for the nine months ended
September 30, 1998.
The following presents, in a tabular form, yield and rate data for
interest-bearing balance sheet components during the nine month periods ended
September 30, 1999 and 1998, along with average balances and the related
interest income and interest expense amounts.
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Three months ended Sept 30, 1999 Three months ended Sept 30,1998
--------------------------------------- ----------------------------------------
Average Interest Yield Average Interest Yield/
Balance Income/Expense /Rate Balance Income/Expense Rate
------------ -------------- ----- ------------ -------------- ------
ASSETS
Federal funds sold $ 3,775,933 $ 136,160 4.81% $ 4,937,141 204,310 5.52%
Securities & short term invest 9,359,528 427,343 6.09% 10,477,501 490,982 6.25%
Loans 25,080,859 1,708,255 9.08% 10,006,850 728,531 9.71%
------------ ----------- ---- ------------ --------- ----
Total earning assets 38,216,320 2,271,758 7.93% 25,421,492 1,423,823 7.47%
------------ ----------- ---- ------------ --------- ----
Cash and due from banks 1,422,397 1,500,104
Premises and equipment 1,698,715 1,604,434
Other assets 883,552 639,840
Allowance for loan losses (334,648) (134,617)
------------ ------------
Total assets $ 41,886,336 $ 29,031,253
============ ============
LIABILITIES & EQUITY
Interest-bearing deposits $ 25,966,993 $ 747,813 3.84% $ 15,788,177 $ 540,545 4.56%
Interest-bearing borrowings 323,927 11,329 4.66% 84,970 3,400 5.33%
------------ ----------- ---- ------------ --------- ----
Total interest-bearing liabilities 26,290,920 759,142 3.85% 15,873,147 543,945 4.57%
------------ ----------- ---- ------------ --------- ----
Demand deposits 6,089,283 3,741,253
Other liabilities 90,347 152,638
Shareholders' equity 9,415,786 9,264,215
------------ ------------
Total liabilities &
shareholders equity $ 41,886,336 $ 29,031,253
============ ============
Net interest spread 4.08% 2.90%
Net interest income/margin $ 1,512,616 5.28% $ 879,878 4.61%
=========== =========
Net interest income was $1,512,616 for the nine months ended September
30, 1999 as compared to $879,878 for the nine months ended September 30, 1998.
The net interest margin (net interest income divided by average earning assets)
was 5.28% for the nine months ended September 30, 1999 compared to the net
interest margin of 4.61% for the nine months ended September 30, 1998. As with
the current quarter's results, this improvement in net interest margin for the
year-to-date 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. Also,
the rates paid on interest-bearing deposits have decreased since the earlier
months of operations when higher rates were paid to attract initial deposits.
Additionally, the level of non-interest bearing deposits has increased since
the third quarter of 1998.
Interest income for the nine months ended September 30, 1999 was
$2,271,758 compared to $1,423,823 for the same period in 1998. The largest
component of interest income for the nine months ended September 30, 1999 was
interest and fees on loans amounting to $1,708,255 compared to $728,531 for the
comparable prior year period. For the nine months ended September 30, 1998,
almost as much interest income was earned from security investments and federal
funds sold as from the loan portfolio. The majority of the growth in new funds
in 1999 has been placed in the higher yielding loan portfolio. The overall rate
on the loan portfolio decreased from 9.71% for the nine months ended September
30, 1998 to 9.08% for the nine-month period ended September 30, 1999. This was
primarily a function of the relatively small size of the portfolio in 1998 when
individual loan rates and fees were more apt to skew the portfolio average in
one direction or the other. It also reflects downward market pressures on loan
rates between the periods, including two decreases in the prime rate. The prime
rate only recently rose again in the third quarter of this year.
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Interest expense increased from $543,945 for the nine months ended
September 30, 1998 to $759,142 for the nine months ended September 30, 1999.
Average interest-bearing liabilities between those periods grew from
$15,873,147 to $26,290,920, or 66%.
Non-interest Income
- -------------------
Non-interest income for the nine months ended September 30, 1999 was
$220,294 compared to $106,342 for the same period in 1998. As with the third
quarter, the year-to-date growth is primarily due to the increase in income
from service charges on deposit accounts corresponding to the increase in
deposit customers. Service charges on deposit accounts grew from $46,087 for
the nine months ended September 30, 1998 to $142,474 for the nine months ended
September 30, 1999. Other non-interest income categories such as mortgage
origination fees, commissions on credit life insurance sales, commissions on
the sale of checks to customers, and other fees have generally all increased
since last year due to the growth of the Bank's customer base.
Non-interest Expense
- --------------------
Non-interest expense for the nine months ended September 30, 1999 was
$1,234,775, an increase of 15% over non-interest expense of $1,072,911 for the
nine-month period ended September 30, 1998. The largest component increase was
in general operating expenses due to data processing fee increases both by our
contract processor and by the Federal Reserve as volumes have increased.
Salaries for the nine-month periods increased from $653,750 in 1998 to $715,874
in 1999, a 9% increase, due primarily to the same reasons addressed in the
discussion of non-interest expense for the change in the two quarters being
compared.
Provision for Loan Losses
- -------------------------
The provision for loan losses was $30,696 and $55,000, respectively,
for the third quarter of 1999 and 1998, bringing the total reserve balance to
$380,000 and $225,000 at September 30, 1999 and 1998, respectively. This amount
represents 1.33% of gross loans at September 30, 1999, compared to 1.39% at
September 30, 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 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. The
Company had no nonperforming loans at September 30, 1999 or 1998. The Bank
charged off its first loan losses in the amount of $706 in the second quarter
of 1999. Charge-offs in the third quarter of 1999 were $696 for a total of
$1,402 in charge-offs for the year. There have been no previous loan
charge-offs.
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BALANCE SHEET REVIEW
Total consolidated assets grew by $10.6 million from $36,539,413 at
December 31, 1998 to $47,159,243 at September 30, 1999. The increase was
generated primarily through a $9.9 million increase in deposits. This increase
in resources was used to fund net loans by $7.4 million and the
available-for-sale investment portfolio by $2.5 million, net of maturities.
Loans
- -----
Net outstanding loans represent the largest component of earning
assets as of September 30, 1999 at $28,153,744, or 65% of total earning assets.
Net loans increased $7,436,046, or 36%, 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 September 30, 1999 was 9.08% 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 September 30, 1999 was $380,000, or
1.33% 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 September 30, 1999, there were no non-performing
loans. The Bank's first loan charge-offs of $706 were taken against the loan
loss allowance in the second quarter of 1999, and $696 was charged off in the
third quarter of 1999 for a total of $1,402 for the year.
Securities
- ----------
Investment securities represented 26% of earning assets at September
30, 1999 with a total of $11,250,619, a net increase of $2,515,740 from the
December 31, 1998 balance of $8,734,879. The yield on investment securities was
6.09% at September 30, 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 maintain membership.
Deposits
- --------
The Company's primary source of funds for loans and investments is its
deposits. Deposits grew $9,881,528, or 37%, since year-end 1998 for a total of
$36,617,112 at September 30, 1999. The average rates paid on interest-bearing
deposits were 3.84% and 4.47% at September 30, 1999 and December 31, 1998,
respectively. In pricing deposits, the Company considers its liquidity
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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 September 30, 1999, the Company's liquid assets, consisting of cash
and due from banks and Federal funds sold, amounted to $5,482,359, representing
11.6% of total assets. Investment securities amounted to $11,250,619,
representing 23.8% 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 nine-month period
ended September 30, 1999, total deposits increased by $9.9 million representing
an increase of 37%, or 49% 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. Also, during the second quarter of 1999, an
arrangement was made with another bank for a Federal Funds Line of Credit in
the amount of $1,800,000 and application was also made with the Federal Reserve
Bank for receiving advances at the discount window.
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 or
dividends at this time.
During the third quarter, 10,000 shares of the Company's outstanding
stock were purchased to hold as treasury stock. The purchase price was
$107,500, or $10.75 per share. The treasury stock was purchased for possible
utilization in connection with the Company's stock option plan. The Company's
Board of Directors has approved approximately 100,000 shares to be purchased as
treasury stock. There are no current plans for additional purchases at this
time.
Below is a table that reflects the leverage and risk-based regulatory
capital ratios of the Bank at September 30, 1999:
Well-Capitalized Minimum
Ratio Requirement Requirement
----- ---------------- -----------
Tier 1 capital 18.69% 6.00% 4.0%
Total capital 19.95% 10.00% 8.0%
Tier 1 leverage ratio 13.56% 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. In June 1996, the Federal Financial Institutions
Examination Council alerted the banking industry that serious challenges could
be encountered with Year 2000 issues. In addition, the FDIC has issued
guidelines to require compliance with Year 2000 issues. In accordance with
these guidelines, we have developed and are executing a plan to ensure that our
computer and telecommunications systems do not have these Year 2000 problems.
We rely on third party vendors to supply our computer and telecommunication
systems and other office equipment, and to process our data and account
information. Our technology and processing vendors work with many other
financial institutions, all of whom, like us, are required by their bank
regulators to be Year 2000 compliant. Because our systems are substantially
similar to those used in many other banks, we believe that the scrutiny imposed
by our regulators and the banking industry in general have significantly
reduced the Year 2000 related risks we might otherwise have faced. Nonetheless,
there is a risk that the Year 2000 issues could negatively affect our business.
Internal Infrastructure. The Company utilizes an outsourced data
processing system for most of its accounting functions. The Intercept Group is
a well-established company and provides computer systems and data processing
for numerous financial institutions. The Intercept Group has tested its systems
with software and hardware similar to the Company's. The Company has reviewed
these test results and is relying on them as a proxy for a test of its own
systems with The Intercept Group. Banking regulators have approved this type of
testing as a valid means of testing. 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.
The Company has completed upgrading or 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 by the time Year 2000 concerns are over.
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
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information systems and software it uses, and the network connections it
maintains, are programmed to comply with Year 2000 requirements.
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 that 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.
- Additionally, there may be a higher than usual demand for
liquidity immediately prior to the century change due to
deposit withdrawals by customers concerned about Year 2000
issues. To address this possible demand, the Company plans to
have a higher percentage of its investment portfolio in
readily accessible funds during this time frame.
Contingency Plans. The Company has completed its contingency plans as
part of its efforts to identify and correct Year 2000 Problems affecting its
internal systems. The Company's contingency plan was completed, approved by the
Board of Directors, and forwarded to the FDIC on schedule before the end of the
second quarter of 1999. Depending on the systems affected, these plans include:
(a) alternative considerations, approaches and methods, (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.
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RECENTLY ISSUED ACCOUNTING STANDARDS
- ------------------------------------
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 balance sheets as assets or liabilities. The
statement is now effective for fiscal years and quarters beginning after June
15, 2000 (delayed through issuance of SFAS 137 "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133 - an amendment of FASB Statement No. 133"). 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.
In February 1999, the FASB issued SFAS 135, "Rescission of FASB
Statement No. 75 and Technical Corrections". The SFAS provides technical
corrections for previously issued statements and rescinds SFAS 75, which
provides guidance related to pension plans of state and local governmental
units. SFAS 135 is effective for fiscal years ending after February 15, 1999.
This statement will not have a material effect on the financial statements of
the Company.
In June 1999, the FASB issued SFAS 136, "Transfers of Assets to a
Not-for-Profit Organization or Charitable Trust that Raises or Holds
Contributions for Others". This statement establishes standards for
transactions in which an entity makes a contribution by transferring assets to
a not-for-profit organization or a charitable trust and then requires these
contributions to be used in a specific manner. This statement is not expected
to have a material impact on the financial statements of the Company.
On November 4, 1999, the U.S. Senate and House of Representatives each
passed the Gramm-Leach-Bliley Act, previously known as the Financial Services
Modernization Act of 1999. The Act is expected to be signed into law by
President Clinton in early November 1999. Among other things, the Act repeals
the restrictions on banks affiliating with securities firms contained in
sections 20 and 32 of the Glass-Steagall Act. The Act also creates a new
"financial holding company" under the Bank Holding Company Act, which will
permit holding companies to engage in a statutorily provided list of financial
activities, including insurance and securities underwriting and agency
activities, merchant banking, and insurance company portfolio investment
activities. The Act also authorizes activities that are "complementary" to
financial activities.
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The Act is intended to grant to community banks certain powers as a
matter of right that larger institutions have accumulated on an ad hoc basis.
Nevertheless, the Act may have the result of increasing the amount of
competition that the Company faces from larger institutions and other types of
companies. In fact, it is not possible to predict the full effect that the Act
will have on the Company.
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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
(c) 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
- -------------------------
The Bank formed a new subsidiary in August 1999 through which the Company
expects to begin offering stock brokerage services in late 1999.
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 September 30, 1999.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PEOPLE'S COMMUNITY CAPITAL CORPORATION
--------------------------------------
(Registrant)
Date: November 11, 1999 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
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