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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 25049
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____ TO ____
Commission File No. 000-20616
Peoples Bancorporation, Inc.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
South Carolina 57-0951843
-------------- ----------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1814 East Main Street, Easley, South Carolina 29640
---------------------------------------------------
(Address of Principal Executive Offices, Including Zip Code)
Registrant's Telephone Number, Including Area Code: (864) 859-2265
Securities Registered Pursuant to Section 12 (b) of the Securities
Exchange Act of 1934:
None
Securities Registered Pursuant to Section 12 (g) of the Securities
Exchange Act of 1934:
Common Stock, $1.67 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting and non-voting common equity held by
nonaffiliates of the Registrant (2,292,056 shares) on March 1, 2001 was
approximately $37,246,000. As of such date, no organized trading market existed
for the common stock of the Registrant. For the purpose of this response,
officers, directors and holders of 5% or more of the Registrant's common stock
are considered affiliates of the Registrant at that date.
The number of shares outstanding of the Registrant's common stock, as of March
1, 2001: 3,168,046 shares of $1.67 par value common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 2000 Annual Meeting of
Shareholders - Part III
PART I
ITEM 1. BUSINESS
Forward Looking Statements
From time to time, Peoples Bancorporation, Inc. (the "Company") may
publish forward-looking statements relating to such matters as anticipated
financial performance, business prospects, technological developments, new
products and similar matters. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements. In order to comply
with terms of the safe harbor, the Company notes that a variety of factors could
cause the Company's actual results and experience to differ materially from the
anticipated results or other expectations expressed in the Company's
forward-looking statements. The risks and uncertainties that may affect the
operations, performances, development and results of the Company's business
include, but are not limited to, the following: risks from changes in economic
and industry conditions; changes in interest rates; risks inherent in making
loans including repayment risks and value of collateral; dependence on senior
management; and recently-enacted or proposed legislation. Statements contained
in this filing regarding the demand for Peoples Bancorporation's products and
services, changing economic conditions, interest rates, consumer spending and
numerous other factors may be forward-looking statements and are subject to
uncertainties and risks.
The Company
Peoples Bancorporation, Inc. was incorporated under South Carolina law
on March 6, 1992, for the purpose of becoming a bank holding company by
acquiring all of the common stock of The Peoples National Bank, Easley, South
Carolina. The Company commenced operations on July 1, 1992 upon effectiveness of
the acquisition of The Peoples National Bank. The company has three wholly-owned
subsidiaries: The Peoples National Bank, Easley, South Carolina, a national bank
which commenced business operations in August 1986; Bank of Anderson, National
Association, Anderson, South Carolina, a national bank which commenced business
operations in September 1998; and, Seneca National Bank, Seneca, South Carolina,
a national bank which commenced business operations in February 1999 (sometimes
referred to herein as "the Banks").
The Company engages in no significant operations other than the
ownership of its three subsidiaries and the support thereof. The Company
conducts its business from six banking offices located in the Upstate Area of
South Carolina.
The principal offices of the Company are located at 1814 East Main
Street, Easley, South Carolina 29640. The Company's telephone number is (864)
859-2265. The principal office of The Peoples National Bank is located at 1800
East Main Street, Easley, South Carolina 29640. The principal office of Bank of
Anderson, National Association is located at 201 East Greenville Street,
Anderson, South Carolina 29621, and the principal office of Seneca National Bank
is located at 201 Bypass 123, Seneca, South Carolina 29678.
2
General Business
Some of the major services which the Company provides through its
banking subsidiaries include checking accounts; NOW accounts; savings and other
time deposits of various types; daily repurchase agreements; alternative
investment products such as annuities, mutual funds, stocks and bonds; loans for
business, agriculture, real estate, personal uses, home improvement and
automobiles; credit cards; letters of credit; home equity lines of credit; an
accounts receivable financing program; a wholesale mortgage lending program;
safe deposit boxes; bank money orders; wire transfer services; and use of ATM
facilities. The Banks do not have trust powers. The Company has no material
concentration of deposits from any single customer or group of customers. No
significant portion of its loans is concentrated within a single industry or
group of related industries and the Company does not have any foreign loans.
There are no material seasonal factors that would have an adverse effect on the
Company.
As a financial holding company, the Company is a legal entity separate
and distinct from its subsidiaries. The Company coordinates the financial
resources of the consolidated enterprises and maintains financial, operational
and administrative systems that allow centralized evaluation of subsidiary
operations and coordination of selected policies and activities. The Company's
operating revenues and net income are derived primarily from its subsidiaries
through dividends and fees for services performed.
Territory Served and Competition
The Peoples National Bank serves its customers from four locations; two
offices in the city of Easley and one office in the city of Pickens, South
Carolina which are located in Pickens County, and one office in the
unincorporated community of Powdersville, South Carolina which is located in the
northeast section of Anderson County, South Carolina. Easley, South Carolina is
located approximately 10 miles west of Greenville, South Carolina. Pickens,
South Carolina is located approximately 8 miles north of Easley, and
Powdersville, South Carolina is located approximately 12 miles southeast of
Easley.
Bank of Anderson, National Association, serves its customers from one
location in the City of Anderson, South Carolina. Anderson is located
approximately 25 miles southwest of Greenville, South Carolina and approximately
25 miles south of Easley in Anderson County.
Seneca National Bank serves its customers from one location in the City
of Seneca, South Carolina. Seneca is located approximately 30 miles northwest of
Easley, South Carolina in Oconee County, South Carolina.
Each subsidiary bank of the Company is an independent bank, and,
therefore, each bank is responsible for developing and maintaining its own
customers and accounts. Located in Easley, South Carolina, The Peoples National
Bank's customer base has been primarily derived from Pickens County, South
Carolina and the northwest section of Anderson County, South Carolina. Bank of
Anderson's primary service area is Anderson County, South Carolina, more
particularly, the City of Anderson. Seneca National Bank derives most of its
customer base from the City of Seneca and surrounding Oconee County, South
Carolina.
3
The Banks compete with several major banks, which dominate the
commercial banking industry in their service areas and in South Carolina
generally. In addition, the Banks compete with savings institutions and credit
unions. In Pickens County, there are thirty-one (31) competitor bank branches,
one (1) savings institution branch, and three (3) credit union branches. In
Anderson County there are fifty-three (53) competitor bank branches, six (6)
savings institution branches and seven (7) credit union branches. In Oconee
County, there are fourteen (14) competitor bank branches, five (5) savings
institution branch and one (1) credit union branch. The Peoples National Bank
has approximately 12.18% of the FDIC insured deposits in Pickens County. The
Peoples National Bank and Bank of Anderson, combined, have approximately 3.82%
of the FDIC insured deposits in Anderson County. Seneca National Bank has
approximately 3.08% of the FDIC insured deposits in Oconee County.
Many competitor institutions have substantially greater resources and
higher lending limits than the Banks and they perform certain functions for
their customers, including trust services and investment banking services, which
none of the Banks is equipped to offer directly. However, the Banks do offer
some of these services through correspondent banks. In addition to commercial
banks, savings institutions and credit unions, the Banks compete for deposits
and loans with other financial intermediaries and investment alternatives,
including, but not limited to mortgage companies, captive finance companies,
money market mutual funds, brokerage firms, governmental and corporation bonds
and other securities. Several of these non-bank competitors are not subject to
the same regulatory restrictions as the Company and its subsidiaries and many
have substantially greater resources than the Company.
The extent to which other types of financial institutions compete with
commercial banks has increased significantly within the past few years as a
result of federal and state legislation that has, in several respects,
deregulated financial institutions. The full impact of existing legislation and
subsequent laws that deregulate the financial services industry cannot be fully
assessed or predicted.
4
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDER'S EQUITY; INTEREST RATES AND
INTEREST DIFFERENTIAL
The following is a presentation of the average consolidated balance
sheets of the Company for the years ended December 31, 2000, 1999 and 1998. This
presentation includes all major categories of interest-earning assets and
interest-bearing liabilities:
AVERAGE CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
For the years ended December 31,
--------------------------------
2000 1999 1998
---- ---- ----
Assets
Cash and Due from Banks ............................................. $ 7,451 $ 6,617 $ 4,870
Taxable Securities .................................................. 33,794 34,308 25,093
Tax-Exempt Securities ............................................... 3,972 4,265 4,358
Federal Funds Sold .................................................. 6,252 14,414 11,126
Gross Loans ......................................................... 179,398 119,623 79,181
Less: Loan Loss Reserve ............................................ 1,816 1,378 1,027
-------- -------- --------
Net Loans ........................................................... 177,582 118,245 78,154
-------- -------- --------
Other Assets ........................................................ 11,034 9,156 6,055
-------- -------- --------
Total Assets ........................................................ $240,085 $187,055 $129,656
======== ======== ========
Liabilities and
Shareholders' Equity
Noninterest-bearing Deposits ........................................ $ 26,997 $ 20,798 $ 13,884
Interest-bearing Deposits:
Interest Checking ............................................... 24,738 21,739 14,214
Savings Deposits ................................................ 5,149 4,879 4,336
Money Market .................................................... 26,085 24,823 18,353
Certificates of Deposit ......................................... 96,162 65,406 49,577
Individual Retirement Accounts .................................. 12,391 9,370 6,944
-------- -------- --------
Total Interest-bearing Deposits ..................................... 164,525 126,217 93,424
-------- -------- --------
Short-term Borrowings ............................................... 21,194 12,309 4,638
Long-term Borrowings ................................................ 833 3,308 2,002
Other Liabilities ................................................... 1,690 1,093 1,101
-------- -------- --------
Total Liabilities ............................................... 215,239 163,725 115,049
-------- -------- --------
Common Stock ........................................................ 4,997 4,737 3,426
Additional paid-in capital .......................................... 18,736 17,183 9,076
Retained earnings ................................................... 1,113 1,360 2,105
-------- -------- --------
Total Shareholders' Equity ...................................... 24,846 23,280 14,607
-------- -------- --------
Total Liabilities and Shareholders Equity ........................... $240,085 $187,055 $129,656
======== ======== ========
5
The following is a presentation of an analysis of the net interest
income of the Company for the years ended December 31, 2000, 1999 and 1998 with
respect to each major category of interest-earning assets and each major
category of interest-bearing liabilities:
Year Ended December 31, 2000
(dollars in thousands)
Average Interest Average
Assets Amount Earned/Paid Yield/Rate
- ------ ------ ----------- ----------
Securities - Taxable .................... $ 33,794 $ 2,086 6.17%
Tax-Exempt ................. 3,972 195 7.44%*
Federal Funds Sold ...................... 6,252 397 6.35%
Gross Loans ............................. 179,398 16,157 9.01%
------------- -------------
Total Earning Assets ................ $ 223,416 $ 18,835 8.48%*
============= =============
Liabilities
Interest Checking ....................... $ 24,738 $ 519 2.10%
Savings Deposits ........................ 5,149 92 1.79%
Money Market ............................ 26,085 1,136 4.35%
Certificates of Deposit ................. 96,162 5,772 6.00%
Individual Retirement Accounts .......... 12,391 737 5.95%
------------- -------------
164,525 8,256
Short-term Borrowings ................... 21,194 984 4.64%
Long-term Borrowings .................... 833 34 4.08%
------------- -------------
Total Interest-bearing Liabilities .. $ 186,552 $ 9,274 4.97%
============= =============
Excess of interest-earning assets
over interest-bearing liabilities ..... $ 36,864
=============
Net interest income ..................... $ 9,561
=============
Interest rate spread .................... 3.51%*
Net yield on earning assets ............. 4.32%*
* Calculated on a fully taxable equivalent basis using a federal tax rate of
34%.
For purposes of these analyses, non-accruing loans are included in the average
balances. Loan fees included in interest earned are not material to the
presentation. Net yield on interest earning assets is calculated by dividing net
interest earnings by total interest earning assets.
6
Year Ended December 31, 1999
(dollars in thousands)
Average Interest Average
Assets Amount Earned/Paid Yield/Rate
- ------ ------ ----------- ----------
Securities - Taxable ........................ $ 34,308 $ 1,969 5.74%
Tax-Exempt ..................... 4,265 214 7.64%*
Federal Funds Sold .......................... 14,414 783 5.43%
Gross Loans ................................. 119,623 10,611 8.87%
------------- -------------
Total Earning Assets .................... $ 172,610 $ 13,577 7.93%*
============= =============
Liabilities
Interest Checking ........................... $ 21,739 $ 456 2.10%
Savings Deposits ............................ 4,879 87 1.78%
Money Market ................................ 24,823 986 3.98%
Certificates of Deposit ..................... 65,406 3,404 5.20%
Individual Retirement Accounts .............. 9,370 494 5.28%
------------- -------------
126,217 5,427
Short-term Borrowings ....................... 12,309 521 4.22%
Long-term Borrowings ........................ 3,308 174 5.26%
------------- -------------
Total Interest-bearing Liabilities ...... $ 141,834 $ 6,122 4.32%
============= =============
Excess of interest-earning assets
over interest-bearing liabilities ......... $ 30,776
=============
Net interest income ......................... $ 7,455
=============
Interest rate spread ........................ 3.61%*
Net yield on earning assets ................. 4.38%*
* Calculated on a fully taxable equivalent basis using a federal tax rate of
34%.
For purposes of these analyses, non-accruing loans are included in the
average balances. Loan fees included in interest earned are not material to the
presentation. Net yield on interest earning assets is calculated by dividing net
interest earnings by total interest earning assets.
7
Year Ended December 31, 1998
(dollars in thousands)
Average Interest Average
Assets Amount Earned/Paid Yield/Rate
- ------ ------ ----------- ----------
Securities - Taxable ........................ $ 25,093 $ 1,430 5.70%
Tax-Exempt ..................... 4,358 229 7.96%*
Federal Funds Sold .......................... 11,126 678 6.09%
Gross Loans ................................. 79,181 7,506 9.48%
------------- -------------
Total Earning Assets .................... $ 119,758 $ 9,843 8.32%*
============= =============
Liabilities
Interest Checking ........................... $ 14,214 $ 277 1.95%
Savings Deposits ............................ 4,336 89 2.05%
Money Market ................................ 18,353 770 4.20%
Certificates of Deposit ..................... 49,577 2,701 5.45%
Individual Retirement Accounts .............. 6,944 380 5.49%
------------- -------------
93,424 4,217 4.51%
Short-term Borrowings ....................... 4,638 186 4.01%
Long-term Borrowings ........................ 2,002 113 5.64%
------------- -------------
Total Interest-bearing Liabilities ...... $ 100,064 $ 4,516 4.51%
============= =============
Excess of interest-earning assets
over interest-bearing liabilities ......... $ 19,694
=============
Net interest income ......................... $ 5,327
=============
Interest rate spread ........................ 3.81%*
Net yield on earning assets ................. 4.55%*
* Calculated on a fully taxable equivalent basis using a federal tax rate of
34%.
For purposes of these analyses, non-accruing loans are included in the
average balances. Loan fees included in interest earned are not material to the
presentation. Net yield on interest earning assets is calculated by dividing net
interest earnings by total interest earning assets.
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
The effect of changes in average balances (volume) and rates on
interest income, interest expense and net interest income, for the periods
indicated, is shown below. The effect of a change in average balance has been
determined by applying the average rate in the earlier period to the change in
average balance in the later period, as compared with the earlier period. The
effect of a change in the average rate has been determined by applying the
average balance in the earlier period to the change in the average rate in the
later period, as compared with the earlier period. Changes resulting from
average balance/rate variances are included in changes resulting from volume.
8
Year Ended December 31,
2000 compared to 1999
(dollars in thousands)
Increase (Decrease) Due to
Volume Rate Change
------ ---- ------
Interest earned on:
Securities
Taxable ....................................... $ (30) $ 147 $ 117
Tax-Exempt .................................... (14) (5) (19)
Federal Funds Sold ................................. (501) 115 (386)
Net Loans .......................................... 5,386 159 5,545
------------- ------------- -------------
Total Interest Income .............................. 4,841 416 5,257
------------- ------------- -------------
Interest paid on:
Interest Checking ............................. 63 0 63
Savings Deposits .............................. 5 0 5
Money Market .................................. 45 105 150
Certificates of Deposit ....................... 1,965 403 2,368
Individual Retirement Accounts ................ 193 49 242
------------- ------------- -------------
2,271 557 2,828
Short-term Borrowings .............................. 418 45 463
Long-term Borrowings ............................... (89) (51) (140)
-------------- -------------- --------------
Total Interest Expense ............................. 2,600 551 3,151
------------- ------------- -------------
Change in Net Interest Income ...................... $ 2,241 $ (135) $ 2,106
============= ============= =============
As reflected in the table above, most of the increase in 2000 net
interest income of $2,106,000 was primarily due to the change in volume.
Substantially all the $5,257,000 increase in interest income was related to the
volume growth in the loan portfolios. In reviewing the Company's deposits,
substantially all the $3,151,000 increase in interest expense was due to the
increases in Certificates of Deposits.
9
Year Ended December 31,
1999 compared to 1998
(dollars in thousands)
Increase (Decrease) Due to
--------------------------
Volume Rate Change
------ ---- ------
Interest earned on:
Securities
Taxable $ 529 $ 10 $ 539
Tax-Exempt (5) (10) (15)
Federal Funds Sold 184 (79) 105
Net Loans 3,715 (610) 3,105
------------- -------------- -------------
Total Interest Income 4,423 (689) 3,734
------------- -------------- -------------
Interest paid on:
Interest Checking 160 19 179
Savings Deposits 10 (12) (2)
Money Market 259 (43) 216
Certificates of Deposit 828 (126) 702
Individual Retirement Accounts 129 (14) 115
------------- -------------- -------------
1,386 (176) 1,210
Short-term Borrowings 325 10 335
Long-term Borrowings 69 (8) 61
------------- -------------- -------------
Total Interest Expense 1,780 (174) 1,606
------------- -------------- -------------
Change in Net Interest Income $ 2,643 $ (515) $ 2,128
============= ============== =============
As reflected in the table above, the increase in net interest income of
$2,128,000 was primarily due to the changes in volume. On the interest income
side, substantially all the $3,734,000 increase was related to the volume growth
in the loan and investment portfolios. On the deposit side, substantially all
the $1,606,000 increase in interest expense was due to the large volume of
interest-bearing deposit accounts coupled with additional interest expense
associated with both long-term and short term borrowings.
LOAN PORTFOLIO
The Company engages, through the Banks, in a full complement of lending
activities, including commercial, consumer, installment and real estate loans.
Commercial lending is directed principally towards businesses whose
demands for funds fall within each Bank's legal lending limits and which are
potential deposit customers of the Banks. This category of loans includes loans
made to individuals, partnerships or corporate borrowers, and which are obtained
for a variety of business purposes. Particular emphasis is placed on loans to
small and medium-sized businesses. The Company's commercial loans are spread
throughout a variety of industries, with no industry or group of related
industries accounting for a significant portion of the commercial loan
portfolio. Commercial loans are made on either a secured or unsecured basis.
When taken, security consists of liens on inventories, receivables, equipment,
10
and furniture and fixtures. Unsecured commercial loans are generally short-term
with emphasis on repayment strengths and low debt to worth ratios. At December
31, 2000, approximately $11,689,000, or 49%, of commercial loans were unsecured
compared to approximately $10,792,000 or 42% at December 31, 1999.
The Company's real estate loans are primarily construction loans and
loans secured by real estate, both commercial and residential, located within
the Company's trade areas. The Company does not actively pursue long-term, fixed
rate mortgage loans for retention in its loan portfolio. The Banks have mortgage
loan originators who originate and package loans that are pre-sold at
origination to third parties. The Company also purchases mortgage loans through
a wholesale mortgage loan division of The Peoples National Bank that are also
pre-sold at origination to third parties. These loans are classified as loans
held for sale for reporting purposes. In 2000, the Company originated
$188,087,000, and sold $171,095,000 in mortgage loans held for sale.
The Banks' direct consumer loans consist primarily of secured
installment loans to individuals for personal, family and household purposes,
including automobile loans to individuals, and pre-approved lines of credit.
Management believes the loan portfolio is adequately diversified. There
are no foreign loans and few agricultural loans. The following table presents
various categories of loans contained in the Company's loan portfolio and the
total amount of all loans at December 31, 2000, 1999, 1998, 1997 and 1996.
Loan Portfolio Composition
(dollars in thousands)
December 31,
------------
Type of Loan 2000 1999 1998 1997 1996
- ------------ ---- ---- ---- ---- ----
Commercial and Industrial ......... $ 24,084 $ 25,677 $ 13,812 $ 11,031 $ 7,296
Real Estate ....................... 141,516 101,277 62,099 55,291 47,644
Consumer Loans .................... 19,426 14,963 12,106 10,527 11,225
Mortgage loans held for sale ...... 16,992 6,662 0 0 0
----------- ----------- ----------- ----------- -----------
Subtotal ..................... 202,018 148,579 88,017 76,849 66,165
Less allowance for loan losses . 2,023 1,581 1,093 987 761
----------- ----------- ----------- ----------- -----------
Net Loans ......................... $ 199,995 $ 146,998 $ 86,924 $ 75,862 $ 65,404
=========== =========== =========== =========== ===========
11
The following is a presentation of an analysis of maturities of loans
as of December 31, 2000:
Loan Maturity and Interest Sensitivity
(dollars in thousands)
Due After 1
Due in 1 Year up to Due after
Type of Loans Year or less 5 years 5 years Total
- ------------- ------------ ------- ------- ----
Commercial and Industrial ........ $ 9,304 $ 8,620 $ 6,160 $ 24,084
Real Estate ...................... 64,489 65,561 11,466 141,516
Consumer Loans ................... 7,505 6,952 4,969 19,426
Mortgage Loans Held for Sale ..... 16,992 0 0 16,992
-------------- -------------- -------------- --------------
Total ........................ $ 98,290 $ 81,133 $ 22,595 $ 202,018
All loans are recorded according to original terms, and demand loans,
overdrafts, mortgage loans held for sale and loans having no stated repayment
terms or maturity are reported as due in one year or less.
At December 31, 2000, the amount of loans due after one year with
predetermined interest rates totaled approximately $90,829,000 while the amount
of loans due after one year with floating interest rates totaled approximately
$27,352,000.
The following table presents information on non-performing loans and
real estate acquired in settlement of loans:
December 31,
------------
(dollars in thousands)
Non-performing Assets 2000 1999 1998 1997 1996
- --------------------- ---- ---- ---- ---- ----
Non-performing loans:
Non-accrual loans ........................... $ 993 $ 628 $ 617 $ 757 $ 398
Past due 90 days or more .................... 108 0 0 142 123
Other restructured loans .................... 67 150 8 10 0
------ ------ ------ ------ ------
Total non-performing loans .................... $1,168 $ 778 $ 625 $ 909 $ 411
Real estate acquired in
Settlement of loans ......................... 478 219 101 125 197
------ ------ ------ ------ ------
Total non-performing assets ................... $1,646 $ 997 $ 726 $1,034 $ 608
====== ====== ====== ====== ======
Non-performing assets as a
Percentage of loans and
other real estate ........................... 0.81% 0.67% 0.82% 1.34% 0.92%
Allowance for loan losses as
a percentage of non-
performing loans ............................ 173% 252% 177% 130% 146%
Accrual of interest is discontinued on a loan when management of the
Company determines, after consideration of economic and business factors
affecting collection efforts, that collection of interest is doubtful.
12
With respect to the loans accounted for on a non-accrual basis and
restructured loans, the gross interest income that would have been recorded if
the loans had been current in accordance with their original terms and
outstanding throughout the period or since origination amounts to $65,000 for
the year ended December 31, 2000. The amount of interest on those loans that was
included in net income for 2000 amounts to $38,000.
As of December 31, 2000, there were no potential problem loans
classified for regulatory purposes as doubtful, substandard or special mention
that have not been disclosed above, which (i) represent or result from trends or
uncertainties which management reasonably expects will materially impact future
operating results, liquidity, or capital resources, or (ii) represent material
credits about which management is aware of any information which causes
management to have serious doubts as to the ability of such borrowers to comply
with the loan repayment terms.
The Company accounts for impaired loans in accordance with SFAS No. 114
"Accounting by Creditors for Impairment of a Loan." SFAS No. 114, as amended by
SFAS No. 118, requires that impaired loans be measured based on the present
value of expected future cash flows or the underlying collateral values as
defined in the pronouncement. The Company includes the provision of SFAS No.114,
if any, in the allowance for loan losses. When the ultimate collectability of an
impaired loan's principal is in doubt, wholly or partially, all cash receipts
are applied to principal. When this doubt does not exist, cash receipts are
applied under the contractual terms of the loan agreement first to principal
then to interest. Once the recorded principal balance has been reduced to zero,
future cash receipts are applied to interest income, to the extent that any
interest has been foregone. Further cash receipts are recorded as recoveries on
any amounts previously charged off. At December 31, 2000 and 1999, the recorded
investment in loans for which impairment was recognized was $0 and $0,
respectively.
PROVISION AND ALLOWANCE FOR LOAN LOSSES, LOAN LOSS EXPERIENCE
The purpose of the Company's allowance for loan losses is to absorb
loan losses that occur in the loan portfolios of its bank subsidiaries.
Management determines the adequacy of the allowance quarterly and considers a
variety of factors in establishing a level of the allowance for losses and the
related provision, which is charged to expense. Factors considered in
determining the adequacy of the reserve for loan losses include: historical loan
losses experienced by the Company, current economic conditions affecting a
borrower's ability to repay, the volume of outstanding loans, the trends in
delinquent, non-accruing and potential problem loans, and the quality of
collateral securing non-performing and problem loans. By considering the above
factors, management attempts to determine the amount of reserves necessary to
provide for potential losses in the loan portfolios of its subsidiaries,
however, the amount of reserves may change in response to changes in the
financial condition of larger borrowers, changes in the Company's local
economies and expected industry trends.
13
The allowance for loan losses represents management's estimate of an
amount adequate in relation to the risk of future losses inherent in the loan
portfolios of its bank subsidiaries. While it is the Company's policy to
charge-off in the current period loans in which a loss is considered probable,
there are additional risks of future losses that cannot be quantified precisely
or attributed to particular loans or classes of loans. Because these risks
include the state of the economy, industry trends, and conditions affecting
individual borrowers, management's judgment of the allowance is necessarily
approximate and imprecise. The Company and its bank subsidiaries are also
subject to regulatory examinations and determinations as to adequacy, which may
take into account such factors as the methodology used to calculate the
allowance for loan losses and the size of the allowance for loan losses in
comparison to a group of peer companies identified by the regulatory agencies.
In assessing the adequacy of the allowance, management relies
predominantly on its ongoing review of the loan portfolio, which is undertaken
both to ascertain whether there are probable losses that must be charged off and
to assess the risk characteristics of the portfolio in the aggregate. The
Company utilizes the services of an outside consultant to perform quality
reviews of its loan portfolio. The review considers the judgments of management
and also those of bank regulatory agencies that review the loan portfolio as
part of their regular examination process. The Comptroller of the Currency, as
part of its routine examination process of various national banks, including the
Banks, may require additions to the allowance for loan losses based upon the
regulators' credit evaluations differing from those of management. The Company's
management believes they have in place the controls and personnel to adequately
monitor its loan portfolios.
On December 31, 2000, the allowance for loan losses was $2,023,000, or
1.00% of gross outstanding loans compared to $1,581,000, or 1.06% of gross
outstanding loans at December 31, 1999. During fiscal 2000, the Company
experienced net charge-offs of $239,000, or 0.13% of average loans, compared to
net charge-offs of $83,000, or 0.07% of average loans in fiscal 1999. Consumer
loan net charge-offs were $122,000 in 2000 compared to net charge-offs of
$35,000 in 1999. Commercial loan net recoveries were $101,000 in 2000 compared
to net recoveries of $2,000 in 1999. Mortgage loan net charge-offs were $16,000
in 2000 compared to net charge-offs of $50,000 in 1999.
The Company made provisions for loan losses of $681,000 in fiscal 2000
compared to $571,000 for fiscal 1999.
In fiscal 2000 and 1999, The Peoples National Bank made provisions for
loan losses of $403,000 and $204,000, respectively. In fiscal 2000 and 1999, The
Peoples National Bank recorded net charge-offs of $233,000 and $83,000,
respectively. In fiscal 2000, Bank of Anderson made provisions for loan losses
of $198,000 compared to $219,000 in 1999. In fiscal 2000, Bank of Anderson
recorded net charge-offs of $3,000. Seneca National Bank, which commenced
operations in February of 1999, made provisions for loan losses of $80,000 in
fiscal 2000 compared to $148,000 in 1999. In fiscal 2000 Seneca National Bank
recorded net charge-offs of $3,000.
14
Management continues to closely monitor the levels of non-performing
and potential problem loans and will address the weaknesses in these credits to
enhance the amount of ultimate collection or recovery on these assets. Should
increases in the overall level of non-performing and potential problem loans
accelerate from the current trend, management will adjust the methodology for
determining the allowance for loan losses and will increase the provision and
allowance for loan losses. This would likely decrease net income.
The following tables set forth the allocation of the allowance for loan
losses based on the percentage of total loans in each category at December 31,
2000, 1999, 1998, 1997 and 1996. Management does not segregate the allowance by
category and the entire allowance is available to absorb losses from all
categories.
Composition of Allowance for Loan Losses
(dollars in thousands)
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Commercial and industrial .... $ 263 $ 286 $ 172 $ 142 $ 84
Real Estate .................. 1,547 1,128 771 710 548
Consumer ..................... 213 167 150 135 129
----------- ----------- ----------- --------- ---------
Total ................... $ 2,023 $ 1,581 $ 1,093 $ 987 $ 761
=========== =========== =========== ========= =========
Percentage of Loans in Category
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Commercial and industrial .... 13.02% 18.09% 15.69% 14.35% 11.04%
Real Estate .................. 76.48% 71.36% 70.55% 71.95% 71.97%
Consumer ..................... 10.50% 10.55% 13.75% 13.70% 16.99%
------ ------- ------ ------ ------
Total ................... 100.00% 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ====== ======
15
The following table summarizes loan balances of the Company at the end
of each period and averages for each period, changes in the allowance arising
from charge-offs and recoveries by category and additions to the allowance which
have been charged to expense.
Summary of Loan Loss Experience
(dollars in thousands)
Years Ended December 31,
------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Balance at beginning of year ......... $ 1,581 $ 1,093 $ 987 $ 761 $ 670
Charge-offs:
Commercial and industrial ....... 104 15 30 32 43
Real estate ..................... 17 50 56 8 2
Consumer ........................ 127 80 53 86 148
----------- ----------- ----------- ----------- -----------
248 145 139 126 193
Recoveries:
Commercial and industrial ....... 3 17 3 11 10
Real estate ..................... 1 0 0 5 1
Consumer ........................ 5 45 48 15 13
----------- ----------- ----------- ----------- -----------
9 62 51 28 24
----------- ----------- ----------- ----------- -----------
Net Charge-offs ...................... 239 83 88 98 169
Provision for loan losses ............ 681 571 194 324 260
----------- ----------- ----------- ----------- -----------
Balance at end of year ............... $ 2,023 $ 1,581 $ 1,093 $ 987 $ 761
=========== =========== =========== =========== ===========
Asset Quality Ratios:
- --------------------
Years Ended December 31,
------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Net charge-offs to average loans ..... 0.13% 0.07% 0.11% 0.13% 0.28%
outstanding during the year
Net charge-offs to total loans ....... 0.11% 0.06% 0.10% 0.13% 0.26%
outstanding at end of year
Allowance for loan losses to ......... 1.13% 1.32% 1.38% 1.33% 1.26%
average loans
Allowance for loan losses to ......... 1.00% 1.06% 1.24% 1.29% 1.15%
total loans
Net charge-offs to allowance for ..... 11.79% 5.25% 8.07% 9.93% 22.33%
loan losses
Net charge-offs to provision for ..... 35.05% 14.54% 45.40% 30.21% 65.00%
loan losses
The allowance for loan losses is increased by direct charges to
operating expense. Losses on loans are charged against the allowance in the
period in which management determines it is more likely than not such loans have
become uncollectable. Recoveries of previously charged-off loans are credited to
the allowance.
Management considers the allowance for loan losses adequate to cover
inherent losses on the loans outstanding at December 31, 2000. In the opinion of
management, there are no material risks or significant loan concentrations in
the present portfolio. It must be emphasized, however, that the determination of
the allowance for loan losses using the Company's procedures and methods rests
upon various judgments and assumptions about future economic conditions and
16
other factors affecting loans. No assurance can be given that the Company will
not in any particular period sustain loan losses which are sizable in relation
to the amount reserved or that subsequent evaluation of the loan portfolio, in
light of conditions and factors then prevailing, will not require significant
changes in the allowance for loan losses or future charges to earnings. The
allowance for loan losses is also subject to review and approval by various
regulatory agencies through their periodic examinations of the Company's
subsidiaries. Such examinations could result in required changes to the
allowance for loan losses.
INVESTMENTS
The Company invests primarily in obligations of the United States or
obligations guaranteed as to principal and interest by the United States, other
taxable securities and in certain obligations of states and municipalities. The
Banks enter into Federal funds transactions with their principal correspondent
banks and usually act as net sellers of such funds. The sale of Federal funds
amounts to a short-term loan from one bank to another bank.
The following table summarizes the book and market values of investment
securities held by the Company at December 31, 2000, 1999 and 1998.
Securities Composition
(dollars in thousands)
2000 1999 1998
---- ---- ----
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
---- ----- ---- ----- ---- -----
AVAILABLE FOR SALE
Obligations of U.S. Treasury and
other U.S. Government agencies ......... $ 31,767 $ 31,673 $ 30,957 $ 30,184 $ 31,087 $ 31,014
State and Political Subdivisions ....... 0 0 0 0 125 125
--------- --------- --------- --------- --------- ---------
Total Available for Sale ............... $ 31,767 $ 31,673 $ 30,957 $ 30,184 $ 31,212 $ 31,139
-------- -------- -------- -------- -------- --------
HELD FOR INVESTMENT
State and Political Subdivisions ....... $ 3,754 $ 3,794 $ 4,445 $ 4,438 $ 4,129 $ 4,265
-------- --------- -------- -------- -------- --------
Total Held for Investment .............. $ 3,754 3,794 $ 4,445 $ 4,438 $ 4,129 $ 4,265
Other Investments ...................... 1,088 1,088 1,025 1,025 831 832
-------- --------- -------- -------- -------- --------
Total ......................... $ 36,609 $ 36,555 $ 36,427 $ 35,647 $ 36,172 $ 36,236
======== ======== ======== ======== ======== ========
The Company accounts for investments in accordance with Statement of
Financial Accounting Standard (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Investments classified as available
for sale are carried at market value. Unrealized holding gains or losses are
reported as a component of shareholder's equity net of deferred income taxes in
comprehensive income. Securities classified as held for investment are carried
at cost, adjusted for the amortization of premiums and the accretion of
discounts. In order to qualify as held for investment, the Company must have the
ability to hold the securities to maturity. The Company has no trading
securities.
At December 31, 2000, the Company's total investment portfolio
classified as available for sale had a book value of $32,855,000 and a market
value of $32,761,000 for an unrealized net loss of $94,000.
The following table indicates the respective maturities and weighted
average yields of securities as of December 31, 2000:
17
Securities Maturity Schedule
(dollars in thousands)
Amortized Weighted
Cost Average Yield
---- -------------
AVAILABLE FOR SALE
Obligations of U.S. Treasury and other Government agencies:
0-1 Year ................................................. $ 1,766 5.44%
1-5 Years ................................................ 20,624 6.25%
5-10 Years ............................................... 4,496 6.28%
Greater than 10 Years .................................... 4,881 6.33%
-------------
$ 31,767 6.25%
=============
HELD FOR INVESTMENT State and political subdivisions:
0-1 Year ................................................. $ 510 7.25%*
1-5 Years ................................................ 2,402 7.08%*
5-10 Years ............................................... 742 6.06%*
Greater than 10 Years .................................... 100 6.38%*
-------------
Total ........................................... $ 3,754 6.88%*
=============
*Calculated on a fully taxable equivalent basis using a federal tax rate of 34%.
DEPOSITS
The Company offers a full range of interest-bearing and
noninterest-bearing accounts, including commercial and retail checking accounts,
negotiable orders of withdrawal ("NOW") accounts, public funds accounts, money
market accounts, individual retirement accounts, including Keogh plans with
stated maturities, regular interest-bearing statement savings accounts and
certificates of deposit with fixed rates and a range of maturity date options.
The sources of deposits are residents, businesses and employees of businesses
within the Company's market areas obtained through the personal solicitation of
the Company's officers and directors, direct mail solicitations and
advertisements published in the local media. The Company pays competitive
interest rates on interest checking, savings, money market, time and individual
retirement accounts. In addition, the Banks have implemented a service charge
fee schedule competitive with other financial institutions in the Banks' market
areas, covering such matters as maintenance fees on checking accounts, per item
processing fees on checking accounts, returned check charges and the like.
The Company's average deposits in 2000 were $191,522,000, compared to
$147,015,000 the prior year, an increase of $44,507,000, or 30.3%. The increase
18
in average deposits in 2000 is largely attributable to new deposits generated by
Bank of Anderson and Seneca National Bank.
In 2000, average noninterest-bearing deposits increased approximately
$6,199,000, or 29.8%, average money market accounts increased $1,262,000, or
5.1%, average interest-bearing checking accounts increased $2,999,000 or 13.8%,
average certificates of deposit increased $30,756,000, or 47.0%, and individual
retirement accounts increased $3,021,000, or 32.2%. The significant growth in
all deposit categories is attributable to new deposits generated by Bank of
Anderson and Seneca National Bank in 2000, coupled with continued internal
deposit growth at The Peoples National Bank. Competition for deposit accounts is
primarily based on the interest rates paid, service charge structure, location
convenience and other services offered.
The following table presents, for the years ended December 31, 2000,
1999 and 1998, the average amount of and average rate paid on each of the
following deposit categories:
Deposit Category Average Amount Average Rate Paid
- ---------------- -------------- -----------------
(dollars in thousands)
2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
Noninterest-bearing Deposits ............... $ 26,977 $ 20,798 $ 13,884
Interest-bearing Deposits
Interest Checking ...................... 24,738 21,739 14,214 2.10% 2.10% 1.95%
Savings Deposits ....................... 5,149 4,879 4,336 1.79% 1.78% 2.05%
Money Market ........................... 26,085 24,823 18,353 4.35% 3.98% 4.20%
Certificates of Deposit ................ 96,162 65,406 49,577 6.00% 5.20% 5.45%
Individual Retirement Accounts ......... 12,391 9,370 6,944 5.95% 5.28% 5.49%
The Company's core deposit base consists of consumer time deposits less
than $100,000, savings accounts, NOW accounts, money market accounts and
checking accounts. Although such core deposits are becoming increasingly
interest sensitive for both the Company and the industry as a whole, such core
deposits continue to provide the Company with a large and stable source of
funds. Core deposits as a percentage of average total deposits averaged
approximately 77% in 2000 compared to approximately 80% in 1999. The Company
closely monitors its reliance on certificates of deposits greater than $100,000,
which are generally considered less stable and less reliable than core deposits.
Virtually all of the certificates of deposit over $100,000 are held by local
customers. The Company does not accept brokered deposits.
The following table indicates amounts outstanding of time certificates
of deposit of $100,000 or more and respective maturities as of December 31,
2000:
Time Certificates of Deposit
----------------------------
(dollars in thousands)
3 months or less ................... $ 11,270
4-6 months ......................... 23,645
7-12 months ........................ 9,335
Over 12 months ..................... 9,377
-------------------
Total ..................... $ 53,627
===================
19
RETURN ON EQUITY AND ASSETS
Returns on average consolidated assets and average consolidated equity
for the years ended December 31, 2000, 1999 and 1998 are as follows:
2000 1999 1998
----- ---- ----
Return on average assets .................... 1.01% 0.74% 0.96%
Return on average equity .................... 9.78% 5.91% 8.71%
Average equity to average assets ratio ...... 10.35% 12.45% 11.27%
Dividend payout ratio ....................... 18.26% 28.95% 24.09%
SHORT-TERM BORROWINGS
The following table summarizes the Company's short-term borrowings for
the years ended December 31, 2000, 1999 and 1998. These borrowings consist of
federal funds purchased and securities sold under agreements to repurchase,
which generally mature on a one-business-day basis.
2000 1999 1998
---- ---- ----
Balance at year end $ 17,817,000 $ 15,434,000 $ 5,980,000
Rate at year end 6.53% 4.93% 2.90%
Maximum amount outstanding at any month end $ 32,613,000 $ 16,595,000 $ 5,980,000
Average amount outstanding during the year $ 21,194,000 $ 12,803,000 $ 4,575,000
Average rate paid during the year 4.80% 4.07% 3.30%
MARKET RISK - INTEREST RATE SENSITIVITY
Market risk is the risk of loss arising from adverse changes in the
fair value of financial instruments due to a change in interest rates, exchange
rate and equity prices. The Company's primary risk is interest rate risk.
The primary objective of Asset/Liability Management at the Company is
to manage interest rate risk and achieve reasonable stability in net interest
income throughout interest rate cycles. This is achieved by maintaining the
proper balance of rate sensitive earning assets and rate sensitive earning
liabilities. The relationship of rate sensitive earning assets to rate sensitive
liabilities, is the principal factor in projecting the effect that fluctuating
interest rates will have on future net interest income. Rate sensitive assets
and interest-bearing liabilities are those that can be repriced to current
market rates within a relatively short time period. Management monitors the rate
sensitivity of earning assets and interest-bearing liabilities over the entire
life of these instruments, but places particular emphasis on the first year. At
December 31, 2000, approximately 36% of the Company's interest-earning assets
repriced or matured within one year compared to approximately 89% of
interest-bearing liabilities.
The following table shows the Company's rate sensitive position at
December 31, 2000, as measured by gap analysis (the difference between the
earning asset and interest-bearing liability amounts scheduled to be repriced to
20
current market rates in subsequent periods). Over the next 12 months
approximately $94 million more interest-bearing liabilities than earning assets
can be repriced to current market rates at least once. As a result, the one-year
cumulative gap (the ratio of rate sensitive assets to rate sensitive
liabilities) at December 31, 2000, was 48%, indicating a "liability sensitive"
position.
The following table sets forth the Company's interest sensitivity
position as of December 31, 2000.
Interest Sensitivity Analysis
(dollars in thousands)
Within 3 4-12 Over 5
Months months 1-5 years Years Total
------ ------ --------- ----- -----
INTEREST-EARNING ASSETS:
Federal Funds Sold ......................... $ 1,180 $ 0 $ 0 $ 0 $ 1,180
Investment Securities ...................... 342 3,292 26,981 5,995 36,610
Interest Bearing Deposits in Other Banks ... 43 0 0 0 43
Loans ...................................... 64,432 17,595 78,349 41,642 202,018
---------- ---------- ---------- ---------- ----------
Total Interest-Earning Assets ................ $ 65,997 $ 20,887 $ 105,330 $ 47,637 $ 239,851
---------- ---------- ---------- ---------- ----------
INTEREST-BEARING LIABILITIES:
Interest Checking ........................ 0 26,122 0 0 26,122
Savings Deposits ......................... 0 4,941 0 0 4,941
Money Market ............................. 21,674 0 0 0 21,674
Time Deposits ............................ 39,706 62,807 21,667 0 124,180
Other Borrowings ......................... 25,817 0 0 0 25,817
---------- ---------- ---------- ---------- ----------
Total Interest-Bearing Liabilities ........... 87,197 93,870 21,667 0 202,734
---------- ---------- ---------- ---------- ----------
Interest sensitive gap ....................... $ (21,200) $ (72,983) $ 83,663 $ 47,637
Cumulative interest sensitive gap ............ $ (21,200) $ (94,183) $ (10,520) $ 37,117
RSA/RSL ...................................... 76% 22%
Cumulative RSA/RSL ........................... 76% 48%
RSA - rate sensitive assets; RSL - rate sensitive liabilities
Asset/liability management is the process by which the Company monitors
and controls the mix and maturities of its assets and liabilities. The essential
purposes of asset/liability management are to ensure adequate liquidity and to
maintain an appropriate balance between interest sensitive assets and
liabilities. It is the overall philosophy of management to support asset growth
primarily through growth of core deposits, which include deposits of all
categories made by individuals, partnerships and corporations. Management of the
Company seeks to invest the largest portion of its assets in commercial,
consumer and real estate loans.
Each of the Company's banking subsidiaries has established an
Asset/Liability Management Committee. These committees use a variety of tools to
analyze interest rate sensitivity, including a static gap presentation and a
simulation model. A "static gap" presentation reflects the difference between
total interest-sensitive assets and liabilities within certain time periods.
While the static gap is a widely used measure of interest sensitivity, it is
21
not, in management's opinion, a true indicator of a company's sensitivity
position. It presents a static view of the timing of maturities and repricing
opportunities, without taking into consideration that changes in interest rates
do not affect all assets and liabilities equally. For example, rates paid on a
substantial portion of savings and core time deposits may contractually change
within a relatively short time frame, but those rates are significantly less
interest-sensitive than market based rates such as those paid on non-core
deposits. Accordingly, a liability sensitive gap position is not as indicative
of a company's true interest sensitivity as would be the case for an
organization which depends to a greater extent on purchased funds to support
earning assets. Net interest income would also be impacted by other significant
incremental borrowing cost and the volume and mix of earning asset growth.
Accordingly, the Company's banking subsidiaries also use an asset/liability
simulation model that estimates balance sheet and earnings variations under
different interest rate environments to measure and manage interest rate risk.
It is the responsibility of the Committees to establish parameters for
various interest risk measures, to set strategies to control interest rate risk
within those parameters, to maintain adequate and stable net interest income,
and to direct the implementation of tactics to facilitate achieving its
objectives.
Management is not aware of any known events or uncertainties that will
have or are reasonably likely to have a material effect on the Company's
liquidity, capital resources or results of operations. Management is not aware
of any current recommendations by the regulatory authorities, which if they were
to be implemented, would have a material effect on the Company's liquidity,
capital resources or results of operations.
LIQUIDITY
Liquidity management involves meeting the cash flow requirements of the
Company. The Company's liquidity position is primarily dependent upon its need
to respond to short-term demand for funds caused by withdrawals from deposit
accounts and upon the liquidity of its assets. The Company's primary liquidity
sources include cash and due from banks, federal funds sold and "securities
available for sale". In addition, the Company (through the Banks) has the
ability, on a short-term basis, to borrow funds from the Federal Reserve System
and to purchase federal funds from other financial institutions. The Banks are
also members of the Federal Home Loan Bank System and have the ability to borrow
both short and long term funds on a secured basis. At December 31, 2000 The
Peoples National Bank had $5,000,000 in long-term borrowings and $3,000,000 in
short term borrowings from the Federal Home Loan Bank of Atlanta. At December
31, 2000, The Peoples National Bank had unused borrowing capacity from the
Federal Home Loan Bank of Atlanta of $20,661,000. The Company's other two bank
subsidiaries, Bank of Anderson, N. A. and Seneca National Bank have established
lines of credit with the Federal Home Loan Bank totaling $8,551,000. At December
31, 2000, the Banks', in aggregate, had unused federal funds lines of credit
totaling $13,850,000 with correspondent banks.
22
Peoples Bancorporation, Inc., the parent holding company, has limited
liquidity needs. Peoples Bancorporation requires liquidity to pay limited
operating expenses and dividends. The parent company's liquidity needs are
fulfilled through management fees assessed each subsidiary bank and from
dividends passed up to the parent company from The Peoples National Bank.
The Company plans to meet its future cash needs through the liquidation
of temporary investments, maturities or sales of loans and investment
securities, generation of deposits and Federal Home Loan Bank advances. Company
management believes its liquidity sources are adequate to meet its operating
needs and does not know of any trends that may result in the Company's liquidity
materially increasing or decreasing.
CAPITAL ADEQUACY and RESOURCES
The capital needs of the Company have been met through the retention of
earnings and from the proceeds of prior public stock offerings.
For bank holding companies with total assets of more than $150 million,
such as the Company, capital adequacy is generally evaluated based upon the
capital of its banking subsidiaries. Generally, the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") expects bank holding
companies to operate above minimum capital levels. The Office of the Comptroller
of the Currency ("Comptroller") regulations establish the minimum leverage
capital ratio requirement for national banks at 3% in the case of a national
bank that has the highest regulatory examination rating and is not contemplating
significant growth or expansion. All other national banks are expected to
maintain a ratio of at least 1% to 2% above the stated minimum. Furthermore, the
Comptroller reserves the right to require higher capital ratios in individual
banks on a case-by-case basis when, in its judgment, additional capital is
warranted by a deterioration of financial condition or when high levels of risk
otherwise exist. The Banks have not been notified that they must maintain
capital levels above regulatory minimums. The Company's leverage capital ratio
was 9.90% at December 31, 2000 compared to 11.05% at December 31, 1999. The
leverage capital ratio for The Peoples National Bank was 8.20% at December 31,
2000 compared to 7.87% at December 31, 1999. Bank of Anderson's leverage capital
ratio was 9.68% at December 31, 2000 compared to 12.61% at December 31, 1999.
Seneca National Bank's leverage capital ratio was 12.66% at December 31, 2000
compared to 20.19% at December 31, 1999. The decreases in the Company's, Bank of
Anderson's and Seneca National Bank's leverage capital ratios resulted from
growth experienced during 2000.
The Federal Reserve Board has adopted a risk-based capital rule which
requires bank holding companies to have qualifying capital to risk-weighted
assets of at least 8%, with at least 4% being "Tier 1" capital. Tier 1 capital
consists principally of common stockholders' equity, non-cumulative preferred
stock, qualifying perpetual preferred stock, and minority interests in equity
accounts of consolidated subsidiaries, less goodwill and certain intangible
assets. "Tier 2" (or supplementary) capital consists of general loan loss
23
reserves (subject to certain limitations), certain types of preferred stock and
subordinated debt, and certain hybrid capital instruments and other debt
securities such as equity commitment notes. A bank holding company's qualifying
capital base for purposes of its risk-based capital ratio consists of the sum of
its Tier 1 and Tier 2 capital components, provided that the maximum amount of
Tier 2 capital that may be treated as qualifying capital is limited to 100% of
Tier 1 capital. The Comptroller imposes a similar standard on national banks.
The regulatory agencies expect national banks and bank holding companies to
operate above minimum risk-based capital levels. The Company's risk-based
capital ratio was 14.16% and its Tier 1 capital to risk weighted assets ratio
was 13.14% at December 31, 2000, compared to 16.23% and 15.22%, respectively, at
December 31, 1999. The Peoples National Bank's risk-based capital ratio was
11.30% and its Tier 1 capital to risk weighted assets ratio was 10.35% at
December 31, 2000, compared to 11.73% and 10.75%, respectively, at December 31,
1999. Bank of Anderson's risk-based capital ratio was 13.77% and its Tier 1
capital to risk weighted assets ratio was 12.57% at December 31, 2000 compared
to 19.21% and 18.10%, respectively at December 31, 1999. Seneca National Bank's
risk-based capital ratio was 19.12% and its Tier 1 capital to risk weighted
assets ratio was 17.00% at December 31, 2000 compared to 26.62% and 25.46%,
respectively at December 31, 1999. The decreases in the Company's and the Banks'
risk-based capital ratios and their Tier 1 capital to risk weighted assets
ratios in 2000 resulted from growth experienced during 2000. (See "Item 7, Notes
to Consolidated Financial Statements).
During 1998 the Company successfully completed the sale of 925,000
shares of its common stock through two public stock offerings. From these two
stock offerings the company raised $12,025,000 in additional capital. $4,500,000
of this additional capital was used to initially capitalize Bank of Anderson,
National Association in September of 1998 and $3,500,000 was used to initially
capitalize Seneca National Bank in February 1999. In January 1999, the Company
injected $1,000,000 in additional capital in The Peoples National Bank and
$1,000,000 in additional capital in Bank of Anderson, N. A. to provide for
future growth of these two subsidiaries. The remaining funds from the two stock
offerings are being held at the parent company level for future operating needs.
During 2000, the retention of earnings, net of dividends paid increased the
Company's capital by $1,987,000. Any future capital expenditures are expected to
be minimal.
PAYMENT of DIVIDENDS
If a national bank's surplus fund equals the amount of its capital
stock, the directors may declare quarterly, semi-annual or annual dividends out
of the bank's net profits, after deduction of losses and bad debts. If the
surplus fund does not equal the amount of capital stock, a dividend may not be
paid until one-tenth of the bank's net profits of the preceding half year, in
the case of quarterly or semi-annual dividends, or the preceding two years, in
the case of an annual dividend, are transferred to the surplus fund.
24
The approval of the Comptroller is required if the total of all
dividends declared by a national bank in any calendar year will exceed the total
of its retained net profits of that year combined with its retained net profits
for the preceding two years, less any required transfers to surplus or a fund
for the retirement of any preferred stock. The Comptroller's regulations provide
that provisions for possible credit losses cannot be added back to net income
and charge-offs cannot be deducted from net income in calculating the level of
net profits available for the payment of dividends.
The payment of dividends by the Banks may also be affected or limited
by other factors, such as the requirements to maintain adequate capital above
regulatory guidelines. In addition, if, in the opinion of the Comptroller, a
bank under its jurisdiction is engaged in or is about to engage in an unsafe or
unsound practice (which, depending on the financial condition of the bank, could
include the payment of dividends), the Comptroller may require, after notice and
hearing, that such bank cease and desist from such practice. The Comptroller has
indicated that paying dividends that deplete a national bank's capital base to
an inadequate level would be an unsafe and unsound banking practice. The Federal
Reserve, the Comptroller and the FDIC have issued policy statements that provide
that bank holding companies and insured banks should generally only pay
dividends out of current operating earnings.
In 2000, The Peoples National Bank paid dividends of $436,287 to the
Company, which paid those dividends to its shareholders, compared to $398,079 in
1999. Bank of Anderson and Seneca National Bank paid no dividends in 2000 or
1999.
MONETARY POLICIES and EFFECT OF INFLATION
The earnings of bank holding companies are affected by the policies of
regulatory authorities, including the Board of Governors of the Federal Reserve
System, in connection with its regulation of the money supply. Various methods
employed by the Federal Reserve Board include open market operations in U. S.
Government securities, changes in the discount rate on member bank borrowings
and changes in reserve requirements against member bank deposits. These methods
are used in varying combinations to influence overall growth and distribution of
bank loans, investments and deposits, and their use may also affect interest
rates charged on loans or paid on deposits. The monetary policies of the Federal
Reserve Board have had a significant effect on the operating results of
commercial banks in the past and are expected to continue to do so in the
future.
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principals which require the measurement of
financial position and results of operations in terms of historical dollars,
without consideration of changes in the relative purchasing power over time due
to inflation. Unlike most other industries, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant effect on a financial
institution's performance that does the effect of inflation. Interest rates do
not necessarily change in the same magnitude as the prices of goods and
services.
25
While the effect of inflation on banks is normally not as significant
as is its influence on those businesses that have large investments in plant and
inventories, it does have an effect. During periods of high inflation, there are
normally corresponding increases in the money supply, and banks will normally
experience above average growth in assets, loans and deposits. Also, general
increases in the prices of goods and services will result in increased operating
expenses.
CORRESPONDENT BANKING
Correspondent banking involves the provision of services by one bank to
another bank, which cannot, or chooses not to, provide that service for itself
from an economic, regulatory or practical standpoint. The Banks purchase
correspondent services offered by larger banks, including check collections,
purchase of Federal Funds, security safekeeping, investment services, over-line
and liquidity loan participations and sales of loans to or participations with
correspondent banks.
The Banks sell loan participations to correspondent banks with respect
to loans that exceed the Banks' lending limits. Managements of the Banks have
established correspondent relationships with Wachovia Bank, N. A., Charlotte,
North Carolina and The Bankers Bank, Atlanta, Georgia. As compensation for
services provided by a correspondent, the Banks maintain certain balances with
such correspondents in non-interest bearing accounts.
DATA PROCESSING
The Company has a data processing department, which performs a full
range of data processing services for the Banks. Such services include an
automated general ledger, deposit accounting, loan accounting and data
processing.
SUPERVISION AND REGULATION
The Company and the Banks operate in a highly regulated environment,
and their business activities are governed by statute, regulation and
administrative policies. To the extent that the following information describes
statutory and regulatory provisions, it is qualified in its entirety by
reference to such statutes and regulations. Any change in applicable law or
regulation may have a material effect on the business of the Company and the
Banks.
As discussed below under the caption "Recent Legislation", Congress has
recently adopted extensive changes in the laws governing the financial services
industry. Among the changes adopted are creation of the financial holding
company, a new type of bank holding company with powers that greatly exceed
those of standard holding companies, and creation of the financial subsidiary, a
subsidiary that can be used by national banks to engage in many, though not all,
26
of the same activities in which a financial holding company may engage. The
legislation also establishes the concept of functional regulation whereby the
various financial activities in which financial institutions engage are overseen
by the regulator with the relevant regulatory experience. Neither the Company
nor the Banks has yet made a decision as to how to adapt the new legislation to
its use. Accordingly, the following discussion relates to the supervisory and
regulatory provisions that apply to the Company and the Banks as they currently
operate.
The business activities of the Company and Banks are closely supervised
by a number of federal regulatory agencies, including the Federal Reserve Board,
the Comptroller of the Currency (the "Comptroller") and the Federal Deposit
Insurance Corporation (the "FDIC"). The Company is regulated by the Federal
Reserve Board under the Federal Bank Holding Company Act of 1956, as amended,
which requires every bank holding company to obtain the prior approval of the
Federal Reserve Board before acquiring more than 5% of the voting shares of any
bank or all or substantially all of the assets of a bank, and before merging or
consolidating with another bank holding company. The Federal Reserve Board
(pursuant to regulation and published policy statements) has maintained that a
bank holding company must serve as a source of financial strength to its
subsidiary banks. In adhering to the Federal Reserve Board policy the Company
may be required to provide financial support to a subsidiary bank at a time
when, absent such Federal Reserve Board policy, the Company may not deem it
advisable to provide such assistance.
Under the Riegel-Neal Interstate Banking and Branching Efficiency Act
of 1994, the Company, and any other adequately capitalized bank holding company
located in South Carolina can acquire a bank located in any other state, and a
bank holding company located outside South Carolina can acquire any South
Carolina-based bank, in either case subject to certain deposit percentages and
other restrictions. The legislation also provides that in any state that has not
previously elected to prohibit out-of-state banks from operating interstate
branches within its territory, adequately capitalized and managed bank holding
companies can consolidate their multi-state bank operations into a single bank
subsidiary and branch interstate through acquisitions. De novo branching by an
out-of-state bank is permitted only if the laws of the host state expressly
permit it. The authority of a bank to establish, and operate branches within a
state continue to be subject to applicable state branching laws. South Carolina
law was amended effective July 1, 1996, to permit such interstate branching, but
not de novo branching by an out-of-state bank.
The Riegel-Neal Act, together with legislation adopted in South
Carolina, resulted in a number of South Carolina banks being acquired by large
out-of-state bank holding companies. Size gives the larger banks certain
advantages in competing for business from larger customers. These advantages
include higher lending limits and the ability to offer services in other areas
of South Carolina and the region. As a result, the Company does not generally
27
attempt to compete for the banking relationships of large corporations and
businesses, but concentrates its efforts on small to medium-sized businesses and
on individuals. The Company believes it has competed effectively in this market
segment by offering quality, personal service.
A bank holding company is generally prohibited from acquiring control
of any company that is not a bank and from engaging in any business other than
the business of banking or managing and controlling banks. However, there are
certain activities which have been identified by the Federal Reserve Board to be
so closely related to banking as to be a proper incident thereto thus
permissible for bank holding companies, including the following activities:
acting as an investment or financial advisor to subsidiaries and certain outside
companies; leasing personal and real property or acting as a broker with respect
thereto; providing management consulting advice to nonaffiliated banks and
non-bank depository institutions; operating collection agencies and credit
bureaus; acting as a futures commission merchant; providing data processing and
data transmission services; acting as an insurance agent or underwriter with
respect to limited types of insurance; performing real estate appraisals;
arranging commercial real estate equity financing; providing securities
brokerage services; and underwriting and dealing in obligations of the United
States, the states and their political subdivisions.
As discussed below under "Recent Legislation", a bank holding company
that meets certain requirements may now qualify as a financial holding company
and thereby significantly increase the variety of services it may provide and
the investments it may make.
The Company also is subject to limited regulation by the South Carolina
State Board of Financial Institutions (the "State Board"). Consequently, the
Company must give notice to, or receive the approval of, the State Board
pursuant to applicable law and regulations prior to engaging in the acquisition
of South Carolina banking institutions or holding companies. The Company also
may be required to file with the State Board periodic reports with respect to
its financial condition and operation, management and inter-company relations
between the Company and its subsidiaries.
As national banks, the Banks are subject to supervision by the
Comptroller and, to a limited extent, the FDIC and the Federal Reserve Board.
With respect to expansion, the Banks may establish branch offices anywhere
within the State of South Carolina. In addition, the Banks are subject to
various other state and federal laws and regulations, including state usury
laws, laws relating to fiduciaries, consumer credit and laws relating to branch
banking. The Banks' loan operations are subject to certain federal consumer
credit laws and regulations promulgated thereunder, including, but not limited
to; the federal Truth-In-Lending Act, governing disclosures of credit terms to
consumer borrowers; the Home Mortgage Disclosure Act, requiring financial
institutions to provide certain information concerning their mortgage lending;
the Equal Credit Opportunity Act and the Fair Housing Act, prohibiting
discrimination on the basis of certain prohibited factors in extending credit;
the Fair Credit Reporting Act, governing the use and provision of information to
credit reporting agencies; the Bank Secrecy Act, dealing with, among other
things, the reporting of certain currency transactions; and the Fair Debt
Collection Act, governing the manner in which consumer debts may be collected by
28
collection agencies. The deposit operations of the Banks are subject to the
Truth in Savings Act, requiring certain disclosures about rates paid on savings
accounts; the Expedited Funds Availability Act, which deals with disclosure of
the availability of funds deposited in accounts and the collection and return of
checks by banks; the Right to Financial Privacy Act, which imposes a duty to
maintain certain confidentiality of consumer financial records and the
Electronic Funds Transfer Act and regulations promulgated thereunder, which
govern automatic deposits to and withdrawals from deposit accounts and
customers' rights and liabilities arising from the use of automated teller
machines and other electronic banking services.
The Banks are subject to the requirements of the Community Reinvestment
Act (the "CRA"). The CRA imposes on financial institutions an affirmative and
ongoing obligation to meet the credit needs of their local communities,
including low- and moderate-income neighborhoods, consistent with the safe and
sound operation of those institutions. Each financial institution's actual
performance in meeting community credit needs is evaluated as part of the
examination process, and also is considered in evaluating mergers, acquisitions
and applications to open a branch or facility.
Loans and extensions of credit by national banks are subject to legal
lending limitations. Under federal law, a national bank may grant unsecured
loans and extensions of credit in an amount up to 15% of its unimpaired capital
and surplus to any person. In addition, a national bank may grant loans and
extensions of credit to a single person up to 10% of its unimpaired capital and
surplus, provided that the transactions are fully secured by readily marketable
collateral having a market value determined by reliable and continuously
available price quotations. This 10% limitation is separate from, and in
addition to, the 15% limitation for unsecured loans. Loans and extensions of
credit may exceed the general lending limits if they qualify under one of
several exceptions. Such exceptions include, among others, certain loans or
extensions of credit arising from the discount of commercial or business paper,
the purchase of banker's acceptances, loans secured by documents of title, loans
secured by U. S. obligations and loans to or guaranteed by the federal
government.
Both the Company and the Banks are subject to regulatory capital
requirements imposed by the Federal Reserve Board and the Comptroller (see
"CAPITAL ADEQUACY and RESOURCES").
Failure to meet capital guidelines could subject the Banks to a variety
of enforcement remedies, including the termination of deposit insurance by the
FDIC and placing the Banks in receivership.
Bank regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations beyond their current levels.
However, management of the Company is unable to predict whether and when higher
capital requirements would be imposed and, if so, at what levels and on what
schedule.
29
A joint rule promulgated by the Federal Reserve Board, the FDIC and the
Comptroller provides that the banking agencies must include in their evaluations
of a bank's capital adequacy an assessment of the exposure to declines in the
economic value of the bank's capital due to changes in interest rates. The
agencies have issued statements that describe the process the banking agencies
will use to measure and assess the exposure of a bank's net economic value to
changes in interest rates.
Another joint rule promulgated by the financial institution regulators
further provides that the risk-based capital guidelines must take account of
concentration of credit risk and the risk of non-traditional activities. The
rule explicitly identifies concentration of credit risk and the risk arising
from other sources, as well as an institution's overall capital adequacy.
The Company is a legal entity separate and distinct from the Banks.
Most of the revenues of the Company are expected to continue to result from
dividends paid to the Company by the Banks. There are statutory and regulatory
requirements applicable to the payment of dividends by subsidiary banks as well
as by the Company to its shareholders. See "PAYMENT OF DIVIDENDS."
As national banks, the Banks are subject to examinations and reviews by
the Comptroller. The examinations are typically completed on-site and are
subject to off-site review as well. The Banks also submit to the FDIC quarterly
reports of condition, as well as such additional reports as may be required by
the national banking laws.
The Banks are required to pay semiannual assessments to the FDIC. Since
January 1997, the assessments imposed on all FDIC deposits for deposit insurance
has an effective rate ranging from 0 to 27 basis points per $100 of insured
deposits, depending on the institution's capital position and other supervisory
factors. However, because legislation enacted in 1996 requires that both
SAIF-insured and BIF-insured deposits pay a pro rata portion of the interest due
on the obligations issued by the Financing Corporation ("FICO"), the FDIC is
currently assessing BIF-insured deposits an additional 1.26 basis points per
$100 of deposits, and SAIF-insured deposits an additional 6.30 basis points per
$100 of deposits, to cover those obligations. The FICO assessment will continue
to be adjusted quarterly to reflect changes in the assessment bases of the
respective funds based on quarterly Call Report and Thrift Financial Report
submissions.
As a bank holding company, the Company is required to file with the
Federal Reserve Board an annual report of its operations at the end of each
fiscal year and such additional information as the Federal Reserve Board may
require pursuant to the Act. The Federal Reserve Board may also make examination
of the Company and any subsidiaries.
The scope of regulation and permissible activities of the Company and
the Banks are subject to change by future federal and state legislation.
30
Recent Legislation
On November 12, 1999, the President signed the Gramm-Leach-Bliley Act,
which makes it easier for affiliations between banks, securities firms and
insurance companies to take place. The Act removes Depression-era barriers that
had separated banks and securities firms, and seeks to protect the privacy of
consumers' financial information. Most of the provisions of the Act require the
applicable regulators to adopt regulations in order to implement these
provisions, and a substantial number of regulations have already been adopted.
Under provisions of the new legislation, which became effective March
11, 2000, banks, securities firms and insurance companies are able to structure
new affiliations through a holding company structure or through a financial
subsidiary. The legislation created a new type of bank holding company called a
"financial holding company" which has powers much more extensive than those of
standard holding companies. These expanded powers include authority to engage in
"financial activities," which are activities that are (1) financial in nature;
(2) identical to activities that are financial in nature; or (3) complementary
to a financial activity and that do not impose a safety and soundness risk.
Significantly, the permitted financial activities for financial holding
companies include authority to engage in merchant banking and insurance
activities, including insurance portfolio investing. A bank holding company can
qualify as a financial holding company and expand the services it offers only if
all of its subsidiary depository institutions are well-managed, well-capitalized
and have received a rating of "satisfactory" on their last Community
Reinvestment Act examination.
The legislation also created another new type of entity called a
"financial subsidiary." A financial subsidiary may be used by a national bank or
a group of national banks to engage in many of the same activities permitted for
a financial holding company, though several of these activities, including real
estate development or investment, insurance or annuity underwriting, insurance
portfolio investing and merchant banking, are reserved for financial holding
companies. A bank's investment in a financial subsidiary affects the way in
which the bank calculates its regulatory capital, and the assets and liabilities
of financial subsidiaries may not be consolidated with those of the bank. The
bank must also be certain that its risk management procedures are adequate to
protect it from financial and operational risks created both by itself and by
any financial subsidiary. Further, the bank must establish policies to maintain
the separate corporate identities of the bank and its financial subsidiary and
to prevent each from becoming liable for the obligations of the other.
The Act also established the concept of "functional supervision,"
meaning that similar activities should be regulated by the same regulator.
Accordingly, the Act spells out the regulatory authority of the bank regulatory
agencies, the Securities and Exchange Commission and state insurance regulators
so that each type of activity is supervised by a regulator with corresponding
expertise. The Federal Reserve Board is intended to be an umbrella supervisor
with the authority to require a bank holding company or financial holding
company or any subsidiary of either to file reports as to its financial
condition, risk management systems, transactions with depository institution
subsidiaries and affiliates, and compliance with any federal law that it has
authority to enforce.
Although the Act reaffirmed that states are the regulators for
insurance activities of all persons, including federally chartered banks, the
Act prohibits states from preventing depository institutions and their
affiliates from conducting insurance activities.
The Act also established a minimum federal standard of privacy to
protect the confidentiality of a consumer's personal financial information and
gives the consumer the power to choose how personal financial information may be
used by financial institutions. The privacy provisions of the Act have been
implemented by regulations of various federal agencies.
31
The Company anticipates that the Act and the regulations adopted
pursuant to the Act will be likely to create new opportunities for it to offer
expanded services to customers in the future, though the Company has not yet
determined what the nature of the expanded services might be or when the Company
might find it feasible to offer them. The Company further expects that the Act
will increase competition from larger financial institutions that are currently
more capable than the Company of taking advantage of the opportunity to provide
a broader range of services. However, the Company continues to believe that its
commitment to providing high quality, personalized service to customers will
permit it to remain competitive in its market area.
The Company elected to become a financial holding company effective
June 23, 2000, but it has not yet used that status to engage in any activities
that are not also permissible for bank holding companies.
EMPLOYEES
The Company and the Banks presently employ ninety-two (92) full-time
and fifteen (15) part-time persons. Management believes that its employee
relations are good.
ITEM 2. PROPERTIES
The Company's corporate office is located at 1818 East Main Street in
Easley, South Carolina. The property consists of a three-story brick building
containing approximately 10,670 square feet on 0.665 acres of land owned by the
Company. Currently, the Company occupies approximately 4,300 square feet and
leases the remaining floor space to third parties. The Company also owns an
adjacent office building located at 1814 East Main Street in Easley, South
Carolina. The property consists of a two-story brick building containing
approximately 6,624 square feet on 0.566 acres of land owned by the Company.
This building houses the Company's centralized operational support functions,
32
including central operations, data processing, accounting, financial reporting,
human resources, audit, compliance and purchasing.
The main office of The Peoples National Bank is located at 1800 East
Main Street in Easley, South Carolina. The property consists of a two-story
brick building of approximately 10,412 square feet, which is constructed on 1.75
acres of land owned by The Peoples National Bank. Improvements include a
three-lane drive-through teller installation, vault, night depository, and safe
deposit facilities and a drive-through automated teller machine.
The Peoples National Bank owns and operates three branch facilities:
one in Powdersville, South Carolina located approximately seven miles east of
the Bank's main office containing approximately 3,158 square feet in a one-story
brick building situated on 0.812 acres of land; a second branch office in
Pickens, South Carolina located approximately ten miles west of the Bank's main
office containing approximately 6,688 square feet in a two-story building on
0.925 acres of land; and a third office in Easley located approximately 4 miles
west of the Bank's main office containing approximately 3,523 square feet in a
one and one-half story building situated on l.077 acres of land. All branch
facilities have improvements including drive-through teller installations,
drive-through automated teller machines, vault, night depository and safe
deposit facilities.
Bank of Anderson, National Association operates out of one location in
Anderson, South Carolina. The two-story building contains approximately 6,992
square feet and is situated on 1.935 acres of land in Anderson, South Carolina,
which is owned by Bank of Anderson.
Seneca National Bank operates out of a two-story brick building
containing approximately 6,688 square feet situated on 1.097 acres of land in
Seneca, South Carolina, which is owned by Seneca National Bank.
All locations of the Company and the Banks are considered suitable and
adequate for their intended purposes. Management believes that insurance
coverage on the foregoing properties is adequate.
33
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various legal proceedings and claims that
arise in the ordinary course of its business. Any litigation is vigorously
defended by the Company and, in the opinion of management based on consultation
with external legal counsel, any outcome of such litigation would not materially
affect the Company's consolidated financial position or results of operations.
On July 20, 2000, Thomas T. Brittain commenced a lawsuit against
Peoples National Bank in the Court of Common Pleas for Pickens County, South
Carolina, Thirteenth Judicial Circuit. Plaintiff, a former employee of Peoples
National Bank, seeks as unspecified amount of actual and punitive damages for
alleged breach of an employment contract and termination in violation of public
policy. The Company intends to vigorously defend the suit and is presently
unable to determine the amount of liability, if any, the Company may have.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter ended December 31,
2000 to a vote of security holders of the Company.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
During the period covered by this report and to date, there has been no
established trading market for the Company's stock.
The following table summarizes the range of high and low prices for the
Company's Common Stock of which management has knowledge for each quarterly
period over the last two years (prices have been adjusted to reflect the 5%
stock dividends issued January 14, 2000 and January 5, 2001):
Sales Price of the Company's Common Stock
Quarter Ended Low High
------------- --- ----
March 31, 1999 ..................... $ 13.54 $ 13.54
June 30, 1999 ...................... $ 15.34 $ 15.34
September 30, 1999 ................. $ 16.25 $ 16.25
December 31, 1999 .................. $ 17.15 $ 17.15
March 31, 2000 ..................... $ 18.05 $ 18.05
June 30, 2000 ...................... $ 18.05 $ 18.05
September 30, 2000 ................. $ 17.10 $ 17.10
December 31, 2000 .................. $ 16.62 $ 16.62
34
As of March 1, 2000, the number of holders of record of the Company's
common stock was 1,095 and the number of issued and outstanding shares was
3,168,046.
During 2000 the Company paid four quarterly cash dividends. Cash
dividends of $0.035 per common share were declared by the Company's Board of
Directors on each of March 13, 2000, June 12, 2000, September 11, 2000 and $0.04
per common share was declared by the Company's Board of Directors on October 11,
2000. In addition, on each of July 13, 1992, July 12, 1993, November 14, 1994,
November 13, 1995, October 15, 1996, October 14, 1997, November 9, 1998,
December 13, 1999 and October 11, 2000 the Company declared 5% stock dividends
to shareholders. It is the policy of the Board of Directors of the Company to
reinvest earnings for such a period of time as is necessary to ensure the
success of the operations of the Company and of the Banks. Future dividends will
depend on the Company's earnings, capital requirements, financial condition and
other factors considered relevant by the Board of Directors of the Company (see
Item 1, "PAYMENT of DIVIDENDS").
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR FINANCIAL SUMMARY
(All amounts, except per share data, in thousands)
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
INCOME STATEMENT DATA
Net interest income ......................... $ 9,561 $ 7,455 $ 5,327 $ 4,583 $ 4,022
Provision for loan losses ................... 681 571 194 325 260
Other operating income ...................... 2,631 1,768 1,224 757 591
Other operating expenses .................... 7,803 6,534 4,475 3,072 2,751
Net income .................................. 2,431 1,375 1,261 1,304 1,065
PER SHARE DATA *
Net income per common share -
Basic .................................... $ 0.81 $ 0.44 $ 0.52 $ 0.67 $ 0.55
Cash dividends declared ..................... $ 0.15 $ 0.14 $ 0.14 $ 0.12 $ 0.12
BALANCE SHEET DATA
Total Assets ................................ $259,500 $213,913 $151,671 $113,417 $ 99,723
Total Deposits .............................. 205,634 168,776 120,100 96,190 80,194
Total Loans (Net) ........................... 199,995 146,998 86,924 75,862 65,404
Investment Securities ....................... 36,515 35,654 36,100 24,173 19,087
Total Earning Assets ........................ 239,759 198,480 142,097 105,592 94,989
Shareholders' Equity ........................ 25,815 23,346 22,471 9,510 8,378
OTHER DATA
Return on average assets .................... 1.01% 0.74% 0.96% 1.21% 1.21%
Return on average equity .................... 9.78% 5.91% 8.71% 14.34% 13.30%
* Per share data has been restated to reflect 5% stock dividends in 1996, 1997,
1998, 1999 and 2000 and the two-for-one stock split in 1997.
35
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The following discussion is intended to assist in understanding the
financial condition and results of operations of the Company and should be read
in conjunction with the consolidated financial statements of the Company
included herein.
DISCUSSION OF CHANGES IN FINANCIAL CONDITION
Total assets increased $45,587,000, or 21.3%, from $213,913,000 at
December 31, 1999 to $259,500,000 at December 31, 2000.
The Company experienced significant loan growth during 2000 as total
outstanding loans, the largest single category of assets, increased $53,439,000,
or 36.0%, from $148,579,000 at December 31, 1999 to $202,018,000 at December 31,
2000, as a result of an increase in the amount of outstanding loans at the
Company's three bank subsidiaries. Total loans outstanding at December 31, 2000
for The Peoples National Bank amounted to $141,317,000, a $31,047,000, or 28.2%,
increase over the $110,270,000 reported at December 31, 1999. Total loans
outstanding at December 31, 2000 for Bank of Anderson amounted to $42,310,000, a
$16,324,000, or 62.8%, increase over the $25,986,000 reported at December 31,
1999. Total loans outstanding at December 31, 2000 for Seneca National Bank
amounted to $18,391,000, a $6,068,000, or 49.2%, increase over the $12,323,000
reported at December 31, 1999. A significant portion of the loan growth at Bank
of Anderson and Seneca National Bank is attributable to the fact that each
commenced business relatively recently (September 1998 and February 1999,
respectively).
Premises and equipment increased $1,169,000, or 16.8%, during the
period ending December 31, 2000. This increase is largely attributable to the
purchase of an office building in Easley intended to house company personnel, as
well as building costs associated with the completion of the Pendleton Street
office of Peoples National Bank and a major renovation of the Powdersville
office of Peoples National Bank.
The Company's securities portfolios, collectively, at amortized cost,
remained relatively stable for 2000 when compared to 1999. Cash and due from
bank's balances increased $2,955,000, or 45.4%, to $9,462,000 at December 31,
2000. The increase was largely the result of additional uncollected funds in
correspondent bank accounts at year-end resulting from a larger deposit base.
Interest-bearing deposits in other banks decreased $5,004,000 or 100% due to a
$5,000,000 Certificate of Deposit purchased from the Federal Home Loan Bank of
Atlanta that matured January 31, 2000. The amount of Federal funds sold at
December 31, 2000 was $1,180,000, a decrease of $8,020,000, or 87.2%, from the
amount sold at December 31,1999. The decrease in Federal funds sold was largely
attributable to the increase in loans experienced by the Banks in 2000.
36
Accrued interest receivable, comprised largely of accrued interest on
the Company's loans, increased $272,000, or 17.6%, to $1,816,000 at December 31,
2000. The increase resulted from the increase in outstanding loans experienced
by the Company in 2000.
Other assets, comprised largely of cash surrender value on life
insurance policies on key executives, prepaid expenses, other real estate owned
and deferred income taxes, increased $357,000, or 17.9%, to $2,351,000 at
December 31, 2000. This increase is largely attributable to an increase of
$259,000 in other real estate owned to $478,000 at December 31, 2000 and an
increase in the cash surrender value of life insurance policies of approximately
$55,000.
Total liabilities increased $43,118,000, or 22.6%, to $233,685,000 at
December 31, 2000 largely as a result of a $36,858,000, or 21.8%, increase in
total deposits at the Company's bank subsidiaries. Of the $43,118,000 increase
in total deposits, $15,755,000, or 36.5%, is attributable to new deposits
generated by Bank of Anderson, N. A. and $8,784,000, or 20.4%, is attributable
to new deposits generated by Seneca National Bank. The remaining increase
resulted from continued growth in deposits at The Peoples National Bank. The
majority of the deposit growth during 2000 was in interest-bearing deposits,
largely certificates of deposit and interest-bearing transaction accounts.
Other interest-bearing liabilities, comprised of securities sold under
repurchase agreements, Federal Funds Purchased and Federal Home Loan Bank
borrowings, increased $5,383,000. Of the $5,383,000 increase, securities sold
under repurchase agreements decreased $1,277,000 or 9.0%, Federal Funds
Purchased increased $3,660,000 from $0 and Federal Home Loan Bank borrowings
increased $3,000,000, or 60.0% during 2000 from December 31, 1999 levels. The
increase in Federal Funds Purchased and Federal Home Loan Bank borrowings is
largely attributable to the growth in loans at all three subsidiary banks
including an increase of $10,330,000 or 155.1 % in mortgage loans held for sale
at Peoples National Bank.
Shareholders' equity increased $2,469,000, or 10.6%, from December 31,
1999 to December 31, 2000 as a result of net earnings for the period of
$2,431,000 and the exercise of stock options under the Company's Stock Option
Plans in the amount of $34,000. These additions to shareholders equity were
partially offset by the declaration and payment of cash dividends in 2000 and a
decrease in the amount of net unrealized losses on the Company's "available for
sale" securities portfolio of $448,000 during the period.
37
EARNINGS PERFORMANCE
2000 Compared to 1999
Overview
The consolidated Company's operations for the twelve-months ended
December 31, 2000 resulted in net income of $2,431,000, or $0.81 per basic share
($0.78 per diluted share), compared to $1,375,000, or $0.44 per basic share
($0.42 per diluted share) for the twelve-months ended December 31, 1999. The
increase in the Company's net income of $1,056,000, or 76.8%, for 2000 resulted
largely from a significant increase in total interest income, largely from
loans, coupled with a significant increase in non-interest income during 2000.
In particular, both Bank of Anderson and Seneca National Bank experienced
significant increases in net income as both of these relatively new banks
continued to develop their businesses. For the twelve-months ended December 31,
2000, Peoples National Bank recorded net income of $2,182,000, an increase of
$464,000, or 27.0%, over 1999 net income of $1,718,000. For the twelve-months
ended December 31, 2000, Bank of Anderson recorded net income of $221,000, an
increase of $379,000 over the net loss of $158,000 recorded in 1999. For the
twelve-months ended December 31, 2000, Seneca National Bank recorded net income
of $41,000; an increase of $245,000 over the net loss of $204,000 recorded in
1999.
Interest Income, Interest Expense and Net Interest Income
The Company's net interest income increased $2,106,000, or 28.3%, to
$9,561,000 for the year-ended December 31, 2000 compared to $7,455,000 for the
year-ended December 31, 1999. The increase is largely attributable to an
increase in interest income on loans of $5,546,000 or 52.3%, resulting from an
increase in the balance of outstanding loans during 2000.
The Company's total interest income increased $5,258,000, or 38.7%, to
$18,835,000 in 2000 compared to $13,577,000 for 1999. As previously disclosed,
the increase is largely attributable to an increase in loan interest income of
$5,546,000 resulting from an increase in the average outstanding balance of
loans in 2000 when compared to 1999.
Total interest expense increased $3,152,000, or 51.5% to $9,274,000 in
2000 compared to $6,122,000 for 1999. This increase is attributable to an
increase of $2,829,000, or 52.1 %, in interest paid on deposit accounts, an
increase of $257,000, or 50.9%, on securities sold under repurchase agreements,
and an increase of $55,000, or 321.6%, on borrowings from the Federal Home Loan
Bank. The increases in the amount of interest paid on these categories of
interest-bearing liability accounts in 2000 are largely attributable to the
increases in the average outstanding balances for these types of accounts in
2000 when compared to 1999.
38
Provision and Allowance for Loan Losses
The Company's provision for loan losses was $681,000 in 2000 compared
to $571,000 for 1999, a $110,000 or 19.3% increase. This increase is largely
attributable to the increase in the volume of outstanding loans during 2000 when
compared to 1999. The Peoples National Bank made provisions for loan losses of
$403,000 in 2000 compared to $204,000 in 1999. Bank of Anderson made provisions
for loan losses of $198,000 in 2000 compared to $219,000 in 1999 as it continued
to establish its allowance for loan losses. Seneca National Bank made provisions
for loan losses of $80,000 in 2000 compared to $148,000 in 1999 as it continued
to establish its allowance for loan losses. During fiscal year 2000, the Company
experienced net charge-offs of $239,000, or 0.13% of average outstanding loans,
compared to net charge-offs of $83,000, or 0.07% of average outstanding loans in
fiscal 1999. The increase in net charge-offs is attributable to $233,000 in net
charge-offs at The Peoples National Bank, $3,000 in net charge-offs at Bank of
Anderson, N. A., and $3,000 in net charge-offs at Seneca National Bank. At
December 31, 2000, the allowance for loan losses as a percentage of outstanding
loans was 1.00% compared to 1.06% at December 31, 1999.
At December 31, 1999 the Company had $993,000 in non-accrual loans, one
$67,000 restructured loan, and $108,000 in loans past due 90 days or more and
still accruing interest and $478,000 in other real estate owned, compared to
$628,000, $150,000, $0 and $219,000, respectively at December 31, 1999.
Non-performing assets as a percentage of loans and other real estate owned were
0.81% and 0.67% at December 31, 2000 and 1999, respectively.
In the cases of non-performing loans, management of the Company has
reviewed the carrying value of any underlying collateral. In those cases where
the collateral value may be less than the carrying value of the loan the Company
has taken specific write-downs to the loan, even though such loan may still be
performing. Management of the Company does not believe it has any non-accrual
loan that individually could materially impact the reserve for loan losses or
long-term future operating results of the Company.
The Company records real estate acquired through foreclosure at the
lower of cost or estimated market value less estimated selling costs. Estimated
market value is based upon the assumption of a sale in the normal course of
business and not on a quick liquidation or distressed basis. Estimated market
value is established by independent appraisal at the time the acquisition is
completed. Management believes that other real estate owned at December 31, 2000
will not require significant write-downs in future accounting periods, and
therefore will not have a significant effect on the Company's future operations.
Other Income
Total consolidated other income, including securities transactions,
increased $863,000, or 48.8% in 2000. This increase is largely attributable to
an increase of $477,000 in origination and service release fees on mortgage
39
loans generated by the Company, net income of $231,000 associated with an
overdraft privilege product introduced at Peoples National Bank in 2000, and an
increase of $91,000 in service charge income on deposit accounts resulting from
a larger deposit base. The Company did not record any gains or losses on the
sale of securities in either of 2000 or 1999.
Other Expenses
Total non-interest or other expenses increased $1,269,000, or 19.4%, to
$7,803,000 in 2000 compared to $6,534,000 in 1999. The significant increase in
overall non-interest expense is indicative of a significantly larger scale of
operations for the Company. Salaries and benefits, the largest component of
non-interest expense, increased $723,000, or 19.1% to $4,502,000 in 2000
compared to $3,779,000 in 1999. The increase in salaries and benefits for the
comparative periods is primarily attributable to the additional staffing
associated with the Company's mortgage lending activities during 2000 and normal
additional staffing and salary increases throughout the Company.
Occupancy expense increased $72,000, or 24.2%, to $370,000 in 2000
compared to $298,000 in 1999. The increase in occupancy expense for the two
comparative periods is attributable to an increase in depreciation, maintenance
expenses and utilities associated with the new branch facility of The Peoples
National Bank occupied during the fourth quarter of 1999 and the renovated
facility of The Peoples National Bank completed in 2000. Equipment expense
increased $46,000, or 8.2%, to $606,000 in 2000 compared to $560,000 in 1999.
The increase for the comparative periods is attributable to increases in
depreciation and maintenance expense associated with the Company's overall
growth.
Miscellaneous other operating expense increased $428,000, or 22.6%, to
$2,325,000 in 2000 compared to $1,897,000 in 1999. The increase in miscellaneous
other operating expenses is attributable to the overall continued growth of the
Company and its three subsidiary banks.
1999 Compared to 1998
Overview
The consolidated Company's operations for the twelve-months ended
December 31, 1999 resulted in net income of $1,375,000, or $0.44 per basic share
($0.42 per diluted share), compared to $1,261,000, or $0.52 per basic share
($0.49 per diluted share) for the twelve-months ended December 31, 1998. The
increase in the Company's net income of $114,000, or 9.0%, for 1999 resulted
largely from a significant increase in total interest income, largely from
loans, coupled with a significant increase in non-interest income during 1999.
The decreases in basic and diluted earnings per share in 1999 are attributable
to an increase in the number of outstanding shares of common stock as a result
of the two public stock offerings completed in the third quarter of 1998. 1999's
results were significantly affected by early operating losses of both Bank of
Anderson, N. A., which commenced operations in September 1998, and Seneca
40
National Bank, which commenced operations in February 1999. For the
twelve-months ended December 31, 1999, Bank of Anderson recorded net losses of
$158,000 and Seneca National Bank recorded net losses of $204,000. The Peoples
National Bank recorded net profits of $1,718,000 in 1999, an increase of
$50,000, or 3.0%, over 1998 net profits.
Interest Income, Interest Expense and Net Interest Income
Net interest income, before provision for loan losses, the major
component of the Company's income, is the amount by which interest and fees on
interest-earning assets exceeds the interest paid on interest-bearing deposits
and other interest-bearing funds. The Company's net interest income increased
$2,128,000, or 40.0%, to $7,455,000 for the year-ended December 31, 1999
compared to $5,327,000 for the year-ended December 31, 1998. The increase is
largely attributable to an increase in interest income on loans of $3,105,000 or
41.4%, resulting from an increase in the volume of outstanding loans during 1999
coupled with an increase in interest income on taxable investment securities of
$539,000 or 37.7%, resulting from an increase in the volume of average
outstanding securities in 1999.
The Company's total interest income increased $3,734,000, or 38.0%, to
$13,577,000 in 1999 compared to $9,843,000 for 1998. As previously disclosed,
the increase is largely attributable to an increase in loan interest income of
$3,105,000 coupled with an increase in interest income on taxable investment
securities resulting from an increase in the average outstanding volume of these
categories of interest-earning assets in 1999 when compared to 1998.
Total interest expense increased $1,606,000, or 35.6% to $6,122,000 in
1999 compared to $4,516,000 for 1998. This increase is attributable to an
increase of $1,210,000, or 28.7 %, on interest-bearing deposit accounts, an
increase of $335,000, or 180.1%, on securities sold under repurchase agreements,
and an increase of $61,000, or 54.0%, on borrowings from the Federal Home Loan
Bank. The increases in the amount of interest paid on these categories of
interest-bearing liability accounts in 1999 are largely attributable to an
increase in the volume of outstanding balances in these types of accounts in
1999 when compared to 1998.
Provision and Allowance for Loan Losses
The Company's provision for loan losses was $571,000 in 1999 compared
to $194,000 for 1998, a $377,000, or 194.3% increase. This increase is
attributable to the significant increase in the volume of outstanding loans
during 1999 when compared to 1998. The Peoples National Bank made provisions for
loan losses of $204,000 in 1999 compared to $101,000 in 1998. Bank of Anderson
made provisions for loan losses of $219,000 in 1999 compared to $93,000 in 1998
as it continued to establish its allowance for loan losses. Seneca National
Bank, which commenced operations in February 1999, made provisions for loan
losses of $148,000 in 1999 as it began to establish its allowance for loan
losses. During fiscal 1999, the Company experienced net charge-offs of $83,000,
or 0.07% of average outstanding loans, compared to net charge-offs of $88,000,
or 0.11% of average outstanding loans in fiscal 1998. All net charge-offs for
41
1999 and 1998 are attributable to loans charged off at The Peoples National
Bank. At December 31, 1999, the allowance for loan losses as a percentage of
outstanding loans was 1.06% compared to 1.24% at December 31, 1998.
At December 31, 1999 the Company had $628,000 in non-accrual loans, one
$150,000 restructured loan, no loans past due 90 days or more and still accruing
interest and $219,000 in other real estate owned, compared to $617,000, $8,000,
$0 and $101,000, respectively at December 31, 1998. Non-performing assets as a
percentage of loans and other real estate owned were 0.42% and 0.74% at December
31, 1999 and 1998, respectively.
Other Income
Total consolidated other income, including securities transactions,
increased $544,000, or 44.4% in 1999. This increase is largely attributable to
an increase of $297,000 in origination and service release fees on mortgage
loans generated by the Company in 1999 coupled with an increase of $167,000 in
service charge income on deposit accounts resulting from a larger deposit base.
During 1999, the Company recorded gains on the sale of other real estate of
$9,000 compared to none in 1998. The Company did not record any gains or losses
on the sale of securities in either of 1999 or 1998.
Other Expenses
Total non-interest or other expenses increased $2,059,000, or 46.0%, to
$6,534,000 in 1999 compared to $4,475,000 in 1998. The significant increase in
overall non-interest expense is indicative of a significantly larger scale of
operations for the Company. Salaries and benefits, the largest component of
non-interest expense, increased $1,247,000, or 49.3% to $3,779,000 in 1999
compared to $2,532,000 in 1998. The large increase in salaries and benefits for
the comparative periods is primarily attributable to the addition of several key
employees at the parent company level in the second half of 1998, the staffing
of Bank of Anderson in the third quarter of 1998, the staffing of Seneca
National Bank in the first quarter of 1999, additional staffing associated with
the Company's mortgage lending activities during 1999 and additional staffing
and normal salary increases at The Peoples National Bank.
Occupancy expense increased $93,000, or 45.4%, to $298,000 in 1999
compared to $205,000 in 1998. The increase in occupancy expense for the two
comparative periods is attributable to an increase in depreciation, maintenance
expenses and utilities associated with the new facilities for Bank of Anderson,
Seneca National Bank, the Company's new corporate headquarters occupied during
the fourth quarter of 1998 and the new branch facility of The Peoples National
Bank occupied during the fourth quarter of 1999. Equipment expense increased
$201,000, or 56.0%, to $560,000 in 1999 compared to $359,000 in 1998. The
increase for the comparative periods is attributable to increases in
depreciation and maintenance expense associated with the Company's Wide Area
Network installed in 1998, and new equipment for Bank of Anderson, Seneca
42
National Bank, the Company's new corporate headquarters and the new branch
facility for The Peoples National Bank.
Miscellaneous other operating expense increased $518,000, or 37.6%, to
$1,897,000 in 1999 compared to $1,374,000 in 1998. The increase in miscellaneous
other operating expenses is primarily attributable to increases in marketing and
advertising expenses for all three of the Company's banking subsidiaries,
additional printing and supplies expense, telephone expense and other expenses
associated with Bank of Anderson, Seneca National Bank and the new branch
facility of The Peoples National Bank.
ITEM 7A QUALITATIVE AND QUANTITATIVE DISCLUSURES ABOUT MARKET RISK
Reference is made to page 20 through page 22 "Market Risk - Interest
Rate Sensitivity" included in Business under Item 1 of this Annual Report on
Form 10-K.
43
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements are filed with this report:
- - Independent Auditor's Report.
- - Consolidated Balance Sheets as of December 31, 2000 and 1999.
- - Consolidated Statements of Income for the years ended December 31, 2000,
1999 and 1998.
- - Consolidated Statements of Shareholders' Equity for the years ended
December 31, 2000, 1999 and 1998.
- - Consolidated Statements of Cash Flows for the years ended December 31,
2000, 1999 and 1998.
- - Notes to Financial Statements.
44
PEOPLES BANCORPORATION, INC. AND SUBSIDIARIES
REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
45
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
Peoples Bancorporation, Inc.
Easley, South Carolina
We have audited the accompanying consolidated balance sheets of
Peoples Bancorporation, Inc. and Subsidiaries as of December 31, 2000 and 1999,
and the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 2000. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Peoples Bancorporation, Inc. and Subsidiaries as of December 31, 2000 and 1999
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.
Elliott, Davis & Company, LLP
January 31, 2001
Greenville, South Carolina
46
PEOPLES BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except share information)
December 31,
------------
2000 1999
---- ----
ASSETS
CASH AND DUE FROM BANKS .................................................................. $ 9,462 $ 6,507
INTEREST - BEARING DEPOSITS IN OTHER BANKS ............................................... 43 5,047
FEDERAL FUNDS SOLD ....................................................................... 1,180 9,200
--------- ---------
Total cash and cash equivalents ..................................................... 10,685 20,754
SECURITIES
Available for sale .................................................................... 31,673 30,184
Held for investment (fair value $3,794 and $4,438) .................................... 3,754 4,445
Other investments, at cost ............................................................ 1,088 1,025
LOANS - less allowance for loan losses of $2,023 and $1,581 .............................. 183,003 140,336
LOANS HELD FOR SALE ...................................................................... 16,992 6,662
PREMISES AND EQUIPMENT, net of accumulated depreciation .................................. 8,138 6,969
ACCRUED INTEREST RECEIVABLE .............................................................. 1,816 1,544
OTHER ASSETS ............................................................................. 2,351 1,994
--------- ---------
$ 259,500 $ 213,913
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS
Noninterest-bearing ................................................................... $ 28,716 $ 19,953
Interest-bearing ...................................................................... 176,918 148,823
--------- ---------
Total deposits ...................................................................... 205,634 168,776
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS .............................................. 14,157 15,434
FEDERAL FUNDS PURCHASED .................................................................. 3,660 -
NOTES PAYABLE TO FEDERAL HOME LOAN BANK .................................................. 8,000 5,000
ACCRUED INTEREST PAYABLE ................................................................. 1,721 1,154
OTHER LIABILITIES ........................................................................ 513 203
--------- ---------
Total liabilities ................................................................... 233,685 190,567
--------- ---------
COMMITMENTS AND CONTINGENCIES - Notes 9, 11 and 12
SHAREHOLDERS' EQUITY
Common stock - 10,000,000 shares authorized; $1.67 par value
per share; 3,168,046 shares and 2,987,627 shares outstanding ........................ 5,290 4,989
Additional paid-in capital ............................................................ 20,587 18,867
Accumulated other comprehensive loss .................................................. (62) (510)
--------- ---------
25,815 23,346
--------- ---------
$ 259,500 $ 213,913
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
47
PEOPLES BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands except share information)
For the years ended December 31,
--------------------------------
2000 1999 1998
---- ---- ----
INTEREST INCOME
Interest and fees on loans ................................................... $16,157 $10,611 $ 7,506
Interest on securities
Taxable .................................................................... 2,086 1,969 1,430
Tax-exempt ................................................................. 195 214 229
Interest on federal funds sold ............................................... 397 783 678
------- ------- -------
Total interest income ................................................... 18,835 13,577 9,843
------- ------- -------
INTEREST EXPENSE
Interest on deposits ......................................................... 8,256 5,427 4,217
Interest on federal funds purchased and securities sold
under repurchase agreements ................................................ 789 521 186
Interest on notes payable Federal Home Loan Bank ............................. 229 174 113
------- ------- -------
Total interest expense .................................................. 9,274 6,122 4,516
------- ------- -------
Net interest income ..................................................... 9,561 7,455 5,327
PROVISION FOR LOAN LOSSES ....................................................... 681 571 194
------- ------- -------
Net interest income after provision for loan losses ..................... 8,880 6,884 5,133
------- ------- -------
NONINTEREST INCOME
Service fees and other income ................................................ 2,631 1,768 1,224
------- ------- -------
NONINTEREST EXPENSES
Salaries and benefits ........................................................ 4,502 3,779 2,532
Occupancy .................................................................... 370 298 205
Equipment .................................................................... 606 560 359
Marketing and advertising .................................................... 231 270 164
Communications ............................................................... 241 177 89
Other operating expenses ..................................................... 1,853 1,450 1,126
------- ------- -------
7,803 6,534 4,475
------- ------- -------
Income before income taxes .............................................. 3,708 2,118 1,882
PROVISION FOR INCOME TAXES ...................................................... 1,277 743 621
------- ------- -------
Net income .............................................................. $ 2,431 $ 1,375 $ 1,261
======= ======= =======
BASIC NET INCOME PER COMMON SHARE ............................................... $ .81 $ .44 $ .52
======= ======= =======
DILUTED NET INCOME PER COMMON SHARE ............................................. $ .78 $ .42 $ .49
======= ======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
48
PEOPLES BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended December 31, 2000, 1999 and 1998
(Amounts in thousands except share information)
Accumulated
other Total
Common stock Additional compre- share-
------------ paid-in Retained hensive holders'
Shares Amount capital earnings loss equity
------ ------ ------- -------- ---- ------
BALANCE, DECEMBER 31, 1997 ............................. 1,687,250 $ 2,818 $ 5,158 $ 1,553 $ (19) $ 9,510
Net income .......................................... - - - 1,261 - 1,261
Other comprehensive income, net of tax:
Unrealized holding losses on securities
available for sale ............................... - - - - (29) (29)
----------
Comprehensive income ................................ - - - - - 1,232
Stock dividend (5%) ................................. 130,733 218 1,481 (1,699) - -
Cash in lieu of fractional shares on stock dividend . - - - (4) - (4)
Cash dividends ($.14 per share) ..................... - - - (300) - (300)
Proceeds from stock options exercised ............... 21,033 35 49 - - 84
Proceeds from sale of stock net of issuance costs ... 925,000 1,545 10,404 - - 11,949
--------- --------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1998 ............................. 2,764,016 4,616 17,092 811 (48) 22,471
---------
Net income .......................................... - - - 1,375 - 1,375
Other comprehensive income, net of tax:
Unrealized holding losses on securities
available for sale .............................. - - - - (462) (462)
----------
Comprehensive income ................................ - - - - - 913
Stock dividend (5%) ................................. 141,857 237 1,543 (1,780) - -
Cash in lieu of fractional shares on stock dividend . - - - (8) - (8)
Cash dividends ($.14 per share) ..................... - - - (398) - (398)
Proceeds from stock options exercised ............... 81,754 136 232 - - 368
--------- --------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1999 ............................. 2,987,627 4,989 18,867 - (510) 23,346
---------
Net income .......................................... - - - 2,431 - 2,431
Other comprehensive income, net of tax:
Unrealized holding gains on
securities available for sale ................... - - - - 448 448
----------
Comprehensive income ................................ - - - - - 2,879
Stock dividend (5%) ................................. 150,420 251 1,736 (1,987) - -
Cash in lieu of fractional shares on stock dividend . - - - (8) - (8)
Cash dividends ($.14 per share) ..................... - - - (436) - (436)
Proceeds from stock options exercised ............... 29,999 50 (16) - - 34
--------- --------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 2000 ............................. 3,168,046 $ 5,290 $ 20,587 $ - $ (62) $ 25,815
========= ========= ========= ======== ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
49
PEOPLES BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands except share information)
For the years ended December 31,
--------------------------------
2000 1999 1998
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ...................................................................... $ 2,431 $ 1,375 $ 1,261
Adjustments to reconcile net income to net cash provided
by (used for) operating activities
Gain on sale of premises and equipment ........................................ - (13) (10)
Provision for loan losses ..................................................... 681 571 194
Provision for deferred income taxes ........................................... (181) (79) (159)
Depreciation .................................................................. 524 464 247
Net amortization of premiums and accretion of discounts on securities ......... 31 195 76
Origination of mortgage loans held for sale ................................... (112,367) (75,720) -
Sale of mortgage loans held for sale .......................................... 102,037 69,058 -
Increase in accrued interest receivable ....................................... (262) (622) (43)
(Increase) decrease in other assets ........................................... (357) (724) 42
Increase in accrued interest payable .......................................... 567 287 6
Increase (decrease) in other liabilities ...................................... 491 (58) (138)
--------- --------- ---------
Net cash provided by (used for) operating activities ..................... (6,405) (5,266) 1,476
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities held for investment ..................................... - (327) (708)
Purchases of securities available for sale ...................................... (5,628) (10,383) (37,416)
Proceeds from the maturity of securities available for sale ..................... 3,980 7,405 16,252
Proceeds from the sale and call of securities available for sale ................ 1,433 3,060 9,900
Net increase in loans ........................................................... (43,587) (53,899) (11,256)
Proceeds from the sale of premises and equipment ................................ - 43 82
Purchase of premises and equipment .............................................. (1,693) (2,373) (2,570)
--------- --------- ---------
Net cash used for investing activities ................................... (45,495) (56,474) (25,716)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits ........................................................ 36,858 48,684 23,910
Net increase in federal funds purchased ......................................... 3,660 - -
Net increase (decrease) in securities sold under repurchase agreements .......... (1,277) 9,455 1,546
Net increase (decrease) in notes payable to Federal Home Loan Bank ................. 3,000 3,000 (31)
Proceeds from the sale of stock and exercise of stock options ................... 34 368 12,033
Cash dividends paid ............................................................. (436) (398) (300)
Cash in lieu of fractional shares on stock dividends ............................ (8) (8) (4)
--------- --------- ---------
Net cash provided by financing activities ................................ 41,831 61,101 37,154
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents ..................... (10,069) (639) 12,914
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ....................................... 20,754 21,393 8,479
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR ............................................. $ 10,685 $ 20,754 $ 21,393
========= ========= =========
CASH PAID FOR
Interest ........................................................................ $ 8,707 $ 5,835 $ 4,510
========= ========= =========
Income taxes .................................................................... $ 1,169 $ 836 $ 648
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
50
PEOPLES BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES
Principles of consolidation and nature of operations
The consolidated financial statements include the accounts of Peoples
Bancorporation, Inc. (the "Company") and its wholly-owned subsidiaries, The
Peoples National Bank, Bank of Anderson, N.A., and Seneca National Bank
(collectively referred to as the "Banks"). The Company formed Bank of
Anderson, N.A. and Seneca National Bank during 1998 with the proceeds, net
of issuance costs, from two stock offerings totaling $11,948,814. The
capital from the offerings was invested $5.5 million in Bank of Anderson,
$3.5 million in Seneca National Bank and $1 million in The Peoples National
Bank. Bank of Anderson, N. A. and Seneca National Bank commenced operations
in the third quarter of 1998 and the first quarter of 1999, respectively.
All significant intercompany balances and transactions have been
eliminated. The Banks operate under national bank charters and provide full
banking services to customers. The Banks are subject to regulation by the
Office of the Comptroller of the Currency. The Company is subject to
regulation by the Federal Reserve Board.
Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of interest and noninterest income and expenses during the
reporting period. Actual results could differ from those estimates.
Concentrations of credit risk
The Banks make loans to individuals and small businesses located primarily
in upstate South Carolina for various personal and commercial purposes. The
Banks have diversified loan portfolios and borrowers' abilities to repay
loans is not dependent upon any specific economic sector.
Securities
The Company accounts for securities in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." Debt securities are classified
upon purchase as available for sale, held for investment, or trading. Such
assets classified as available for sale are carried at fair value.
Unrealized holding gains or losses are reported as a component of
shareholders' equity (accumulated other comprehensive loss) net of deferred
income taxes. Securities classified as held for investment are carried at
cost, adjusted for the amortization of premiums and the accretion of
discounts into interest income using a methodology which approximates a
level yield of interest over the estimated remaining period until maturity.
To qualify as held for investment, the Company must have the ability and
intent to hold the securities to maturity. Trading securities are carried
at market value. The Company has no trading securities. Gains or losses on
dispositions of securities are based on the difference between the net
proceeds and the adjusted carrying amount of the securities sold, using the
specific identification method.
Loans and allowance for loan losses
Loans are stated at the amount of unpaid principal reduced by an allowance
for loan losses. Interest is calculated using the simple interest method on
daily balances of the principal amounts outstanding. An allowance for loan
losses is established through a provision for loan losses charged to
operations. Loans are charged against the allowance when management
believes that the collectibility of the principal is unlikely. The
allowance is an amount that management believes will be adequate to absorb
possible losses on existing loans that may become uncollectible based on
evaluations of the collectibility of loans and prior loan loss experience;
however, management's judgment is based upon a number of assumptions about
future events, which are believed to be reasonable, but which may or may
not prove valid. 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 allowance for loan losses will not be required. Accrual of
interest is discontinued on a loan when management believes, after
considering economic and business conditions and collection efforts, that
the borrower's financial condition is such that collection of interest is
doubtful. (Continued)
51
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, Continued
Loans and allowance for loan losses, continued
The Company accounts for impaired loans in accordance with SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". This standard requires
that all creditors value loans at the loan's fair value if it is probable
that the creditor will be unable to collect all amounts due according to
the terms of the loan agreement. Fair value may be determined based upon
the present value of expected cash flows, market price of the loan, if
available, or value of the underlying collateral. Expected cash flows are
required to be discounted at the loan's effective interest rate. SFAS No.
114 was amended by SFAS No. 118 to allow a creditor to use existing methods
for recognizing interest income on an impaired loan and by requiring
additional disclosures about how a creditor recognizes interest income on
an impaired loan.
Under SFAS No. 114, when the ultimate collectibility of an impaired loan's
principal is in doubt, wholly or partially, all cash receipts are applied
to principal. Once the reported principal balance has been reduced to zero,
future cash receipts are applied to interest income, to the extent that any
interest has been foregone. Further cash receipts are recorded as
recoveries of any amounts previously charged off.
A loan is also considered impaired if its terms are modified in a troubled
debt restructuring. For these accruing impaired loans, cash receipts are
typically applied to principal and interest receivable in accordance with
the terms of the restructured loan agreement. Interest income is recognized
on these loans using the accrual method of accounting.
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value in the aggregate.
Net unrealized losses are provided for in a valuation allowance by charges
to operations.
Real estate
Real estate acquired through foreclosure is carried at the lower of cost or
fair value, adjusted for net selling costs. Fair values of real estate
owned are reviewed regularly and writedowns are recorded when it is
determined that the carrying value of real estate exceeds the fair value
less estimated costs to sell. Costs relating to the development and
improvement of such property are capitalized, whereas those costs relating
to holding the property are charged to expense. At December 31, 2000 and
1999 real estate owned by the Company totaled $477,000 and $219,000,
respectively, and is included in other assets. During 2000 and 1999, the
Company transferred loans to real estate acquired in foreclosure of
$282,900 and $311,700, respectively.
Premises and equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method over the
estimated useful lives of the assets. Additions to premises and equipment
and major replacements or betterments are added at cost. Maintenance,
repairs, and minor replacements are charged to expense when incurred. When
assets are retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the accounts and any gain or loss is
reflected in income.
Income taxes
The provision for income taxes includes deferred taxes on temporary
differences between the recognition of certain income and expense items for
tax and financial statement purposes. Income taxes are computed on the
liability method as described in SFAS No. 109, "Accounting for Income
Taxes".
Statements of cash flows
In accordance with the provisions of SFAS No. 95, "Statement of Cash
Flows", the Company considers cash and cash equivalents to be those amounts
included in the balance sheet captions "Cash and Due From Banks",
"Interest-bearing Deposits in Other Banks" and "Federal Funds Sold".
(Continued)
52
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, Continued
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current presentation. These reclassifications have no effect on previously
reported net income.
Risk and Uncertainties
In the normal course of its business the Company encounters two significant
types of risk: economic and regulatory. There are three main components of
economic risk: interest rate risk, credit risk, and market risk. The
Company is subject to interest rate risk to the degree that its
interest-bearing liabilities mature or reprice at different speeds, or on
different bases, than its interest-earning assets. Credit risk is the risk
of default on the Company's loan portfolio that results from borrowers'
inability or unwillingness to make contractually required payments. Market
risk reflects changes in the value of collateral underlying loans
receivable, the valuation of real estate held by the Company, and the
valuation of loans held for sale and mortgage-backed securities available
for sale.
The Company is subject to the regulations of various government agencies.
These regulations can and do change significantly from period to period.
The Company also undergoes periodic examinations by the regulatory
agencies, which may subject it to further changes with respect to asset
valuations, amounts of required loss allowances, and operating
restrictions, resulting from the regulators' judgments based on information
available to them at the time of their examination.
Recently issued accounting standards
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
All derivatives are to be measured at fair market value and recognized in
the balance sheet as assets and liabilities. SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities" was issued
in June 2000 and amends the accounting and reporting standards of SFAS No.
133 for certain derivative instruments and hedging activities. The two
statements are to be adopted concurrently and are effective for fiscal
years and quarters beginning after June 15, 2000. The Company does not
currently use derivative instruments. Therefore, the adoption of SFAS No.
133 and SFAS No. 138 did not have a material impact on the presentation of
the Company's financial results or financial position.
Other accounting standards that have been issued or proposed by the
Financial Accounting Standards Board that do not require adoption until a
future date are not expected to have a material impact on the consolidated
financial statements upon adoption.
NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANKS
The Banks are required to maintain average reserve balances with the
Federal Reserve Bank based upon a percentage of deposits. The average amounts of
these reserve balances at December 31, 2000 and 1999 were approximately
$1,092,000 and $512,300, respectively.
53
NOTE 3 - SECURITIES
Securities are summarized as follows as of December 31 (tabular
amounts in thousands):
2000
----
Unrealized holding
Amortized ------------------ Fair
cost Gain Loss value
---- ---- ---- -----
SECURITIES AVAILABLE FOR SALE:
U. S. TREASURY SECURITIES
Maturing after one but within five years ................. $ 250 $ - $ 1 $ 249
------- ------- ------- -------
OBLIGATIONS OF OTHER U. S. GOVERNMENT
AGENCIES AND CORPORATIONS
Maturing within one year ................................. 1,516 - 8 1,508
Maturing after one but within five years ................. 20,624 - 54 20,570
Maturing after five but within ten years ................. 4,496 - 45 4,451
Maturing after ten years ................................. 4,881 14 - 4,895
------- ------- ------- -------
31,517 14 107 31,424
------- ------- ------- -------
Total securities available for sale .................. $31,767 $ 14 $ 108 $31,673
======= ======= ======= =======
SECURITIES HELD FOR INVESTMENT:
OBLIGATIONS OF STATES AND POLITICAL
SUBDIVISIONS
Maturing within one year ................................. $ 510 $ 1 $ - $ 511
Maturing after one but within five years ................. 2,502 34 - 2,536
Maturing after five but within ten years ................. 642 8 - 650
Maturing after ten years ................................. 100 - 3 97
------- ------- ------- -------
Total securities held for investment ................. $ 3,754 $ 43 $ 3 $ 3,794
======= ======= ======= =======
1999
----
Unrealized holding
Amortized ------------------ Fair
cost Gain Loss value
---- ---- ---- -----
SECURITIES AVAILABLE FOR SALE:
U. S. TREASURY SECURITIES
Maturing after one but within five years ................. $ 249 $ - $ 2 $ 247
------- ------- ------- -------
OBLIGATIONS OF OTHER U. S. GOVERNMENT
AGENCIES AND CORPORATIONS
Maturing within one year ................................. 1,399 - 9 1,390
Maturing after one but within five years ................. 23,254 - 582 22,672
Maturing after five but within ten years ................. 3,197 - 115 3,082
Maturing after ten years ................................. 2,858 - 65 2,793
------- ------- ------- -------
30,708 - 771 29,937
------- ------- ------- -------
Total securities available for sale .................. $30,957 $ - $ 773 $30,184
======= ======= ======= =======
(Continued)
54
NOTE 3 - SECURITIES, Continued
1999
----
Unrealized holding
Amortized ------------------ Fair
cost Gain Loss value
---- ---- ---- -----
SECURITIES HELD FOR INVESTMENT:
OBLIGATIONS OF STATES AND POLITICAL
SUBDIVISIONS
Maturing within one year ..................................... $ 684 $ 2 $ - $ 686
Maturing after one but within five years ..................... 2,050 16 - 2,066
Maturing after five but within ten years ..................... 1,611 - 15 1,596
Maturing after ten years ..................................... 100 - 10 90
------ ------ ------ ------
Total securities held for investment ..................... $4,445 $ 18 $ 25 $4,438
====== ====== ====== ======
OTHER INVESTMENTS, AT COST
The Banks are required to own certain stock investments in the Federal Home
Loan Bank of Atlanta, the Federal Reserve Bank, and the Bankers Bank as member
institutions. The stock is generally pledged against any borrowings from these
institutions (see Note 8). No ready market exists for the stock and it has no
quoted market value. However, redemption of these stocks has historically been
at par value. The Company's investments in stock are summarized below (tabular
amounts in thousands):
December 31,
------------
2000 1999
---- ----
Federal Reserve Bank ............................. $ 396 $ 397
Federal Home Loan Bank of Atlanta ................ 637 573
Bankers Bank ..................................... 55 55
------ ------
$1,088 $1,025
====== ======
Securities with carrying amounts of $26,512,000 and $25,578,000 at
December 31, 2000 and 1999, respectively, were pledged to secure public deposits
and for other purposes required or permitted by law.
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are summarized as follows (tabular amounts in thousands):
December 31,
------------
2000 1999
---- ----
Commercial and industrial - not secured by real estate . $ 24,084 $ 25,677
Commercial and industrial - secured by real estate ..... 45,668 32,248
Residential real estate - mortgage ..................... 58,540 43,015
Residential real estate - construction ................. 37,308 26,013
Loans to individuals for household, family
and other personal expenditures .................... 19,426 14,964
-------- --------
185,026 141,917
Less allowance for loan losses ......................... 2,023 1,581
-------- --------
$183,003 $140,336
======== ========
Changes in the allowance for loan losses were as follows:
For the years ended December 31,
--------------------------------
2000 1999 1998
---- ---- ----
BALANCE, BEGINNING OF YEAR ........... $ 1,581 $ 1,093 $ 987
Provision for loan losses .......... 681 571 194
Loans charged off,
net of recoveries .............. (239) (83) (88)
------- ------- -------
BALANCE, END OF YEAR ................. $ 2,023 $ 1,581 $ 1,093
======= ======= =======
(Continued)
55
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES, Continued
At December 31, 2000 and 1999 nonaccrual loans amounted to $993,000
and $628,000, respectively. Foregone interest income was approximately $64,000,
$59,600 and $59,500 on nonaccrual loans for 2000, 1999 and 1998, respectively.
At December 31, 2000 and 1999, there were no impaired loans.
NOTE 5 - PREMISES AND EQUIPMENT
The principal categories and estimated useful lives of premises and
equipment are summarized below (tabular amounts in thousands):
December, 31
Estimated ------------
useful lives 2000 1999
------------ ---- ----
Land ........................................................................................ $ 1,678 $ 1,498
Building and improvements ................................................................... 15 - 40 years 5,599 4,323
Furniture, fixtures and equipment ........................................................... 3 - 10 years 3,479 3,223
------- -------
10,756 9,044
Less accumulated depreciation ............................................................... 2,618 2,094
------- -------
8,138 6,950
Construction in process ..................................................................... - 19
------- -------
$ 8,138 $ 6,969
======= =======
Depreciation expense of approximately $524,000, $464,000 and
$247,000 for 2000, 1999 and 1998, respectively, is included in occupancy and
equipment expenses in the accompanying consolidated statements of income.
NOTE 6 - DEPOSITS
The amounts and scheduled maturities of deposits are as follows
(tabular amounts in thousands):
December 31,
------------
2000 1999
---- ----
Time certificates maturing
Within one year .................................... $102,248 $101,372
After one but within two years ..................... 19,604 5,466
After two but within three years ................... 1,102 755
After three but within four years .................. 142 197
After four years ................................... 819 237
-------- --------
123,915 108,027
Transaction and savings accounts ..................... 81,719 60,749
-------- --------
$205,634 $168,776
======== ========
Certificates of deposit in excess of $100,000 totaled approximately
$53,627,000 and $38,008,000, at December 31, 2000 and 1999, respectively.
Interest expense on certificates of deposit in excess of $100,000 was
approximately $2,735,000 in 2000, $1,396,000 in 1999, and $986,000 in 1998.
56
NOTE 7 - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Securities sold under repurchase agreements are summarized as
follows (tabular amounts in thousands):
December 31,
------------
2000 1999
---- ----
U. S. Government securities with an amortized
cost of $11,322,000($11,246,000 fair value) and
$14,807,000($14,409,000 fair value)at December 31, 2000
and 1999, respectively, collateralize the agreements..... $14,157 $15,434
======= =======
The Banks enter into sales of securities under agreements to
repurchase. These obligations to repurchase securities sold are reflected as
liabilities in the consolidated balance sheets. The dollar amount of securities
underlying the agreements remains in the asset accounts. The securities
underlying the agreements are book entry securities maintained by a safekeeping
agent. The weighted average interest rate of these agreements was 4.36 percent
and 4.07 percent at December 31, 2000 and 1999, respectively. The agreements
mature daily. Securities sold under agreements to repurchase averaged
$17,435,000 and $12,803,000 during 2000 and 1999, respectively. The maximum
amounts outstanding at any month-end were $32,613,000 and $16,595,000 during
2000 and 1999, respectively.
NOTE 8 - NOTES PAYABLE TO FEDERAL HOME LOAN BANK (FHLB)
The Peoples National Bank had various notes payable aggregating
$8,000,000 and $5,000,000 at December 31, 2000 and 1999. At December 31, 2000
$3,000,000 of these notes bear interest at 6.35 percent and mature daily.
$5,000,000 of the notes bear interest at 4.82 percent and mature in December
2010. At December 31, 1999 the interest rate on the notes payable was 4.95
percent. The notes payable at December 31, 1999 were called by the FHLB in the
first quarter of 2000. At December 31, 2000 and 1999, the notes were
collateralized by mortgage loans aggregating approximately $31,628,000 and
$20,265,000, respectively, and by FHLB stock owned by Peoples National Bank.
Additional borrowings under similar terms are available by pledging additional
collateral and purchasing additional stock in the FHLB.
NOTE 9 - UNUSED LINES OF CREDIT
The Banks have unused short-term lines of credit to purchase Federal
Funds from unrelated banks totaling $13,850,000 at December 31, 2000. These
lines of credit are available on a one to seven day basis for general corporate
purposes.
The Peoples National Bank has the ability to borrow an additional
$28,661,000 or 16 percent of total assets from the FHLB as of December 31, 2000.
The Bank of Anderson has the ability to borrow an additional $5,835,000 or 10
percent of total assets, and the Seneca National Bank has the ability to borrow
an additional $2,716,000 or 10 percent of total assets. The borrowings are
available by pledging collateral and purchasing additional stock in the FHLB.
57
NOTE 10 - INCOME TAXES
Provision for income taxes consists of the following:
For the years ended December 31,
--------------------------------
2000 1999 1998
---- ---- ----
Current tax provision
Federal ............................... $ 1,351 $ 759 $ 711
State ................................. 107 63 69
------- ------- -------
Total current taxes ............ 1,458 822 780
Deferred tax benefit .................... (181) (79) (159)
------- ------- -------
Provision for income taxes ..... $ 1,277 $ 743 $ 621
======= ======= =======
Income taxes are different from the tax expense computed by
applying the statutory federal income tax rate of 34 percent to income before
income taxes. The reasons for these differences are as follows:
For the years ended December 31,
--------------------------------
2000 1999 1998
---- ---- ----
Tax expense at statutory rate ................. $ 1,261 $ 720 $ 640
Increase (decrease) in taxes resulting from:
State income taxes net of federal benefit . 71 63 45
Tax-exempt interest ....................... (56) (65) (63)
Other ..................................... 1 25 (1)
------- ------- -------
Provision for income taxes .............. $ 1,277 $ 743 $ 621
======= ======= =======
Deferred tax assets (liabilities) result from temporary differences in
the recognition of revenue and expenses for tax and financial statement
purposes. The sources and the cumulative tax effect of temporary differences are
as follows:
December 31,
------------
2000 1999
---- ----
Allowance for loan losses .................................... $ 688 $ 538
Deferral of loan origination fees and costs .................. (17) (33)
Tax depreciation in excess of book depreciation .............. (173) (130)
Deferred compensation ........................................ 41 -
Unrealized holding losses on securities available for sale ... 32 263
Tax deferral of business start-up costs ...................... 33 43
Other ........................................................ - (45)
----- -----
604 636
Valuation allowance .......................................... (153) (135)
----- -----
$ 451 $ 501
===== =====
Net deferred tax assets are included in other assets.
58
NOTE 11 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Banks are parties to financial instruments with off-balance
sheet risk in the normal course of business to meet the financing needs of their
customers. These financial instruments include commitments to extend credit and
standby letters of credit. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amounts recognized in
the balance sheets. The contract amounts of those instruments reflect the extent
of involvement the Banks have in particular classes of financial instruments.
The Banks use the same credit policies in making commitments and conditional
obligations as they do for on-balance sheet instruments.
Financial instruments whose contract amounts represent
off balance sheet credit risk (amounts in thousands):
December 31,
------------
2000 1999
---- ----
Commitments to extend credit ................... $45,555 $39,052
Standby letters of credit ...................... 4,891 5,054
Commitments to extend credit are agreements to lend as long as there is
no violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may require payment
of a fee. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The Banks evaluate each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained by the Banks upon
extension of credit is based on management's credit evaluation.
NOTE 12 - LEGAL CONTINGENCIES
The Company has, from time to time, various lawsuits and claims
arising from the conduct of its business. Such items are not expected to have
any material adverse effect on the financial position or results of operations
of the Company.
NOTE 13 - RELATED PARTY TRANSACTIONS
At December 31, 2000 and 1999, certain officers, directors,
employees, related parties and companies in which they have 10 percent or more
beneficial ownership, were indebted to the Banks in the aggregate amount of
$7,659,000 and $6,117,000, respectively. During 2000, $2,448,000 of new loans
were made to this group and repayments of $906,000 were received.
NOTE 14 - COMMON STOCK AND EARNINGS PER SHARE
SFAS No. 128, "Earnings per Share" requires that the Company present
basic and diluted net income per common share. The assumed conversion of stock
options creates the difference between basic and diluted net income per common
share. Income per share is calculated by dividing net income by the weighted
average number of common shares outstanding for each period presented. The
weighted average number of common shares outstanding for basic net income per
common share was 3,017,000 in 2000, 3,134,000 in 1999 and 2,445,000 in 1998. The
weighted average number of common shares outstanding for diluted net income per
common share was 3,123,000 in 2000, 3,250,000 in 1999, and 2,569,000 in 1998.
The Company declared or issued five percent common stock dividends
in 2000, 1999, and 1998. Net income per common share in prior years has been
restated to reflect these transactions.
NOTE 15 - RESTRICTION OF DIVIDENDS
The ability of the Company to pay cash dividends is dependent upon
receiving cash in the form of dividends from the Banks. Federal banking
regulations restrict the amount of dividends that can be paid and such dividends
are payable only from the retained earnings of the Banks. At December 31, 2000
the Banks' retained earnings were approximately $9,077,000.
59
NOTE 16 - STOCK OPTION COMPENSATION PLANS
The Company has a stock option compensation plan through which the
Board of Directors may grant stock options to officers and employees to purchase
common stock of the Company at prices not less than 100 percent of the fair
value of the stock on the date of grant. The outstanding options become
exercisable in various increments beginning on the date of grant and expiring
five to ten years from the date of grant. The Company also has a directors'
stock option plan through which non-employee directors of the Company shall be
granted options to purchase 500 shares of common stock for each year served on
the board to a maximum of 5,000 options per director. The option price shall not
be less than 100 percent of the fair value of the stock on the grant date. The
outstanding options become exercisable on the grant date and expire at the
earlier of the end of the director's term or ten years from the grant date.
The Company applies Accounting Principles Board (APB) Opinion 25 and
related Interpretations in accounting for the plans. Accordingly, no
compensation cost has been charged to operations. Had compensation cost for the
plans been determined based on the fair value at the grant dates for awards
under the plans consistent with the accounting method available under SFAS No.
123, "Accounting for Stock-Based Compensation", the Company's net income and net
income per common share would have been reduced to the pro forma amounts
indicated below:
For the years ended December 31,
--------------------------------
2000 1999 1998
---- ---- ----
Net income (in thousands)
As reported ......................... $ 2,431 $ 1,375 $ 1,261
Pro forma ........................... 2,388 1,337 1,229
Basic net income per common share
As reported ......................... $ .81 $ .44 $ .52
Pro forma ........................... .79 .43 .50
Diluted net income per common share
As reported ......................... $ .78 $ .42 $ .49
Pro forma ........................... .76 .41 .48
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions for grants in 2000, 1999 and 1998: dividend yields from $.25 to $.15
per share, expected volatility from 5 to 15 percent, risk-free interest rates
from 6.50 to 4.75 percent and expected life of 10 years.
A summary of the status of the plans as of December 31, 2000, 1999 and
1998, and changes during the years ending on those dates is presented below (all
shares have been adjusted for stock dividends):
2000 1999 1998
---- ---- ----
Weighted Weighted Weighted
average average average
Shares exercise price Shares exercise price Shares exercise price
------ -------------- ------ -------------- ------ --------------
Outstanding at beginning
of year ........................... 214,106 $ 6.96 299,643 $ 3.89 290,375 $ 5.06
Granted ............................... 8,400 17.10 4,961 13.54 34,728 11.17
Exercised ............................. (39,869) 4.64 (90,134) 4.07 (23,650) 3.69
Forfeited or expired .................. (1,092) 11.23 (364) 4.27 (1,810) 4.27
------- ------- -------
Outstanding at end
of year ........................... 181,545 $ 9.03 214,106 $ 6.96 299,643 $ 3.89
======= ======= =======
(Continued)
60
NOTE 16 - STOCK OPTION COMPENSATION PLANS, Continued
2000 1999 1998
---- ---- ----
Options exercisable at year-end ............... 167,484 187,258 259,047
Weighted - average fair value of options
granted during the year ................... $ 17.10 $ 13.54 $ 11.17
Shares available for grant .................... 274,240 281,548 286,144
The following table summarizes information at December 31, 2000:
Options outstanding Options exercisable
------------------- -------------------
Weighted
average Weighted Weighted
Range of remaining average average
exercise Number contractual exercise Number exercise
prices outstanding life price exercisable price
------ ----------- ---- ----- ----------- -----
$ 4.30 44,057 4.5 years $ 4.30 44,057 $ 4.30
7.41 91,152 6.3 7.41 91,152 7.41
11.23 - 11.25 32,977 7.5 11.23 18,916 11.23
13.61 4,959 8.3 13.61 4,959 13.61
17.14 8,400 9.3 17.14 8,400 17.14
------- -------
181,545 167,484
======= =======
NOTE 17 - EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) retirement plan for all eligible
employees. Upon ongoing approval of the Board of Directors, the Company matches
employee contributions equal to fifty percent of the first four percent of such
contributions, subject to certain adjustments and limitations. Contributions to
the plan of $73,155, $58,447 and $33,088 were charged to operations during 2000,
1999 and 1998, respectively.
Supplemental benefits have been approved by the Board of Directors
for certain executive officers of The Peoples National Bank. These benefits are
not qualified under the Internal Revenue Code and they are not funded. However,
certain funding is provided informally and indirectly by life insurance
policies. The Company recorded expense related to these benefits of $42,705,
$37,712, and $33,388 in 2000, 1999, and 1998, respectively.
NOTE 18 - REGULATORY MATTERS
The Banks are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Banks' financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Banks
must meet specific capital guidelines that involve quantitative measures of the
Banks' assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The Banks' capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weighting, and other factors.
(Continued)
61
NOTE 18 - REGULATORY MATTERS, Continued
Quantitative measures established by regulation to ensure capital
adequacy require the Banks to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier I capital to risk-weighted assets, and of
Tier I capital to average assets. Management believes, as of December 31, 2000,
that the Banks meet all capital adequacy requirements to which they are subject.
As of December 31, 2000, the most recent notification from the
Office of the Comptroller of the Currency categorized the Banks as well
capitalized under the regulatory framework for prompt corrective action. There
are no conditions or events since that notification that management believes
have changed the Banks' categories. The Banks' actual capital amounts and ratios
and minimum regulatory amounts and ratios are presented as follows:
To be well
capitalized under
For capital prompt corrective
adequacy purposes action provisions
----------------- -----------------
Actual Minimum Minimum
------ ------- -------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(amounts in thousands)
The Peoples National Bank:
As of December 31, 2000
Total Capital (to risk-weighted assets) ................ $15,364 11.30% $10,877 8.00% $13,596 10.00%
Tier I Capital (to risk-weighted assets) ............... 14,073 10.35 5,439 4.00 8,158 6.00
Tier I Capital (to average assets) ..................... 14,073 8.20 6,865 4.00 8,581 5.00
As of December 31, 1999
Total Capital (to risk-weighted assets) ................ $13,448 11.73% $ 9,172 8.00% $11,465 10.00%
Tier I Capital (to risk-weighted assets) ............... 12,327 10.75 4,587 4.00 6,880 6.00
Tier I Capital (to average assets) ..................... 12,327 7.87 6,265 4.00 7,832 5.00
Bank of Anderson, N.A.:
As of December 31, 2000
Total Capital (to risk-weighted assets) ................ $ 5,829 13.77% $ 3,386 8.00% $ 4,233 10.00%
Tier I Capital (to risk-weighted assets) ............... 5,322 12.57 1,694 4.00 2,540 6.00
Tier I Capital (to average assets) ..................... 5,322 9.68 2,199 4.00 2,749 5.00
As of December 31, 1999
Total Capital (to risk-weighted assets) ................ $ 5,413 19.21% $ 2,254 8.00% $ 2,818 10.00%
Tier I Capital (to risk-weighted assets) ............... 5,101 18.10 1,127 4.00 1,691 6.00
Tier I Capital (to average assets) ..................... 5,101 12.61 1,618 4.00 2,023 5.00
Seneca National Bank:
As of December 31, 2000
Total Capital (to risk-weighted assets) ................ $ 3,514 19.12% $ 1,470 8.00% $ 1,838 10.00%
Tier I Capital (to risk-weighted assets) ............... 3,289 17.00 735 4.00 1,102 6.00
Tier I Capital (to average assets) ..................... 3,289 12.66 1,039 4.00 1,299 5.00
As of December 31, 1999
Total Capital (to risk-weighted assets) ................ $ 3,396 26.62% $ 1,021 8.00% $ 1,276 10.00%
Tier I Capital (to risk-weighted assets) ............... 3,248 25.46 510 4.00 765 6.00
Tier I Capital (to average assets) ..................... 3,248 20.19 643 4.00 804 5.00
62
NOTE 19 - FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments" requires disclosure of fair value information, whether or not
recognized in the balance sheets, when it is practical to estimate the fair
value. SFAS No. 107 defines a financial instrument as cash, evidence of an
ownership interest in an entity or contractual obligations which require the
exchange of cash or other financial instruments. Certain items are specifically
excluded from the disclosure requirements, including the Company's common stock,
premises and equipment and other assets and liabilities.
Fair value approximates carrying value for the following financial
instruments due to the short-term nature of the instrument: cash and due from
banks, interest-bearing deposits in other banks and federal funds sold.
Securities are valued using quoted fair market prices. Fair value
for the Company's off-balance sheet financial instruments is based on the
discounted present value of the estimated future cash flows.
Fair value for variable rate loans that reprice frequently, loans
held for sale, and for loans that mature in less than one year is based on the
carrying value. Fair value for fixed rate mortgage loans, personal loans, and
all other loans (primarily commercial) maturing after one year is based on the
discounted present value of the estimated future cash flows. Discount rates used
in these computations approximate the rates currently offered for similar loans
of comparable terms and credit quality.
Fair value for demand deposit accounts and interest-bearing accounts
with no fixed maturity date is equal to the carrying value. Certificate of
deposit accounts and securities sold under repurchase agreements maturing within
one year are valued at their carrying value. The fair value of certificate of
deposit accounts and securities sold under repurchase agreements maturing after
one year are estimated by discounting cash flows from expected maturities using
current interest rates on similar instruments.
Fair value for long-term debt is based on discounted cash flows
using the Company's current incremental borrowing rate. Discount rates used in
these computations approximate rates currently offered for similar borrowings of
comparable terms and credit quality.
The Company has used management's best estimate of fair value based
on the above assumptions. Thus, the fair values presented may not be the amounts
which could be realized in an immediate sale or settlement of the instrument. In
addition, any income taxes or other expenses which would be incurred in an
actual sale or settlement are not taken into consideration in the fair value
presented.
The estimated fair values of the Company's financial instruments are
as follows (amounts in thousands):
December 31,
------------
2000 1999
---- ----
Carrying Fair Carrying Fair
amount value amount value
------ ----- ------ -----
Financial Assets:
Cash and due from banks ...................................... $ 9,462 $ 9,462 $ 6,507 $ 6,507
Interest-bearing deposits in other banks ..................... 43 43 5,047 5,047
Federal funds sold ........................................... 1,180 1,180 9,200 9,200
Securities available for sale ................................ 31,673 31,673 30,184 30,184
Securities held for investment ............................... 3,754 3,794 4,445 4,438
Other investments ............................................ 1,088 1,088 1,025 1,025
Loans (gross) ................................................ 185,026 183,175 141,917 141,605
Loans held for sale .......................................... 16,992 16,992 6,662 6,662
Financial Liabilities:
Deposits ..................................................... 205,634 217,531 168,776 168,437
Securities sold under repurchase agreements .................. 14,157 14,157 15,434 15,434
Federal funds purchased ...................................... 3,660 3,660 - -
Notes payable to Federal Home Loan Bank ...................... 8,000 8,000 5,000 5,000
(Continued)
63
NOTE 19 - FAIR VALUE OF FINANCIAL INSTRUMENTS, Continued
December 31,
------------
2000 1999
---- ----
Carrying Fair Carrying Fair
amount value amount value
------ ----- ------ -----
Financial Instruments with Off-Balance Sheet Risk:
Commitments to extend credit ............................. $45,555 $45,555 $39,052 $39,052
Standby letters of credit .................................. 4,891 4,891 5,054 5,054
NOTE 20 - CONDENSED FINANCIAL INFORMATION
Following is condensed financial information of Peoples Bancorporation,
Inc. (parent company only) (amounts in thousands):
CONDENSED BALANCE SHEETS
December 31,
------------
2000 1999
---- ----
ASSETS
Cash ........................................... $ 1,203 $ 2,305
Due from subsidiaries .......................... - 450
Investment in bank subsidiaries ................ 22,847 20,168
Premises and equipment ......................... 1,871 767
Other assets ................................... 69 79
------- -------
$25,990 $23,769
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Due to subsidiaries ............................ $ - $ 186
Other liabilities .............................. 175 237
Shareholders' equity ........................... 25,815 23,346
------- -------
$25,990 $23,769
======= =======
CONDENSED STATEMENTS OF INCOME
For the years ended December 31,
--------------------------------
2000 1999 1998
---- ---- ----
INCOME
Fees and dividends from subsidiaries ........ $2,225 $1,841 $ 522
Other income ................................ 12 6 23
------ ------ ------
2,237 1,847 545
------ ------ ------
EXPENSES
Salaries and benefits ....................... 1,164 964 295
Occupancy ................................... 63 56 18
Equipment ................................... 126 104 28
Other operating ............................. 459 293 73
------ ------ ------
1,812 1,417 414
(Continued)
64
NOTE 20 - CONDENSED FINANCIAL INFORMATION, Continued
For the years ended December 31,
--------------------------------
2000 1999 1998
---- ---- ----
EQUITY IN UNDISTRIBUTED NET INCOME OF BANK
SUBSIDIARIES ........................................................ 2,007 958 1,054
------- ------- -------
Income before income taxes ...................................... 2,432 1,388 1,185
INCOME TAX EXPENSE (BENEFIT) .......................................... 1 13 (76)
------- ------- -------
Net income ...................................................... $ 2,431 $ 1,375 $ 1,261
======= ======= =======
CONDENSED STATEMENTS OF CASH FLOWS
For the years ended December 31,
--------------------------------
2000 1999 1998
---- ---- ----
OPERATING ACTIVITIES
Net income ................................................................. $ 2,431 $ 1,375 $ 1,261
Adjustments to reconcile net income to net cash provided
by (used for) operating activities
Equity in undistributed net income of bank subsidiaries ................ (2,007) (958) (1,054)
Depreciation ........................................................... 41 32 16
Amortization ........................................................... 4 4 3
Decrease (increase) in other assets .................................... 6 56 (410)
Increase (decrease) in other liabilities ............................... (62) 127 57
-------- -------- --------
Net cash provided by (used for) operating activities ................ 413 636 (127)
-------- -------- --------
INVESTING ACTIVITIES
Investment in bank subsidiaries ............................................ - (5,609) (4,500)
Sale (purchase) of premises and equipment .................................. (1,145) 1,358 (1,238)
-------- -------- --------
Net cash used for investing activities .............................. (1,145) (4,251) (5,738)
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from the sale of stock and exercise of stock options .............. 34 368 12,033
Cash dividends ............................................................. (444) (398) (304)
Proceeds (repayment) of advances from subsidiaries ......................... 40 (81) -
-------- -------- --------
Net cash provided by (used for) financing activities ................ (370) (111) 11,729
-------- -------- --------
Net change in cash .................................................. (1,102) (3,726) 5,864
CASH, BEGINNING OF YEAR ...................................................... 2,305 6,031 167
-------- -------- --------
CASH, END OF YEAR ............................................................ $ 1,203 $ 2,305 $ 6,031
======== ======== ========
65
NOTE 21 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited condensed financial data by quarter for 2000 and 1999
is as follows (amounts, except per share data, in thousands):
Quarter ended
-------------
2000 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
Interest income ........................................ $ 4,251 $ 4,646 $ 4,914 $ 5,024
Interest expense ....................................... 1,977 2,273 2,430 2,594
---------- ---------- ---------- ----------
Net interest income ................................ 2,274 2,373 2,484 2,430
Provision for loan losses .............................. 163 155 180 183
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses ....................... 2,111 2,218 2,304 2,247
Noninterest income ..................................... 465 628 764 774
Noninterest expenses ................................... 1,787 1,952 2,007 2,057
---------- ---------- ---------- ----------
Income before income taxes ......................... 789 894 1,061 964
Provision for income taxes ............................. 263 312 365 337
---------- ---------- ---------- ----------
Net income ......................................... $ 526 $ 582 $ 696 $ 627
========== ========== ========== ==========
Basic net income per common share (1) .................. $ 0.16 $ 0.18 $ 0.21 $ 0.20
========== ========== ========== ==========
Diluted net income per common share (1) ................ $ 0.16 $ 0.17 $ 0.21 $ 0.18
========== ========== ========== ==========
Basic weighted average shares
outstanding (1) .................................... 3,137,822 3,145,753 3,165,745 3,067,766
========== ========== ========== ==========
Diluted weighted average shares
outstanding (1) .................................... 3,257,821 3,381,771 3,254,770 3,483,792
========== ========== ========== ==========
Quarter ended
-------------
1999 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
Interest income ........................................ $ 2,890 $ 3,130 $ 3,605 $ 3,952
Interest expense ....................................... 1,220 1,376 1,648 1,878
---------- ---------- ---------- ----------
Net interest income ................................ 1,670 1,754 1,957 2,074
Provision for loan losses .............................. 119 171 250 31
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses ....................... 1,551 1,583 1,707 2,043
Noninterest income ..................................... 368 383 479 538
Noninterest expenses ................................... 1,487 1,592 1,641 1,814
---------- ---------- ---------- ----------
Income before income taxes ......................... 432 374 545 767
Provision for income taxes ............................. 147 127 187 282
---------- ---------- ---------- ----------
Net income ......................................... $ 285 $ 247 $ 358 $ 485
========== ========== ========== ==========
Basic net income per common share (1) .................. $ .10 $ .08 $ .12 $ .16
========== ========== ========== ==========
Diluted net income per common share (1) ................ $ .09 $ .08 $ .12 $ .16
========== ========== ========== ==========
Basic weighted average shares
outstanding (1) .................................... 2,982,491 2,983,996 2,983,946 2,984,974
========== ========== ========== ==========
Diluted weighted average shares
outstanding (1) .................................... 3,081,043 3,202,414 3,092,702 3,095,226
========== ========== ========== ==========
(1) Per share data has been restated to reflect 5 percent stock dividends.
66
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no occurrence requiring a response to this item.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the captions "ELECTION OF DIRECTORS"
and "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" in the Proxy
Statement to be used in conjunction with the 2001 Annual Meeting of Shareholders
(the "Proxy Statement"), which will be filed within 120 days of the Company's
fiscal year end, is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
With the exception of information set forth under the captions "Board
Compensation Committee Report on Executive Compensation" and "Performance
Graph," which sub-sections are not incorporated herein by reference, the
information set forth under the caption "EXECUTIVE COMPENSATION" in the Proxy
Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information set forth under the caption "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" in the Proxy Statement is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "CERTAIN TRANSACTIONS" in
the Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) (1) and (2) Financial Statements and Financial Schedules
The following consolidated financial statements and report of
independent auditors of Peoples Bancorporation, Inc. and subsidiaries are
included in item 8 of this Annual Report on Form 10-K:
67
Report of Independent Auditors
Consolidated Statements of Condition - December 31, 2000 and 1999
Consolidated Statements of Income - Years ended December 31, 2000, 1999
and 1998
Consolidated Statements of Cash Flows - Years ended December 31, 2000,
1999 and 1998
Consolidated Statements of Shareholders' Equity - Years ended December
31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements - December 31, 2000
(a) (3) Listing of Exhibits:
Exhibit No. Description of Exhibit
3 (i) Articles of Incorporation as amended (incorporated by reference
to exhibits to Registrant's Registration Statement on Form 8-A).
3(ii) Bylaws (incorporated by reference to exhibits to Registrant's
Registration Statement on Form 8-A).
4.1 Specimen Common Stock Certificate (incorporated by reference to
exhibits to Registrant's Registration Statement on Form S-4
(Number 33-46649)).
10.2 Peoples Bancorporation, Inc. 1993 Incentive Stock Option Plan
(incorporated by reference to exhibits to Registrant's
Registration Statement on Form SB-1 (Number 33-78602)).
10.3 Non-competition, Severance and Employment Agreement entered into
between the Company and Robert E. Dye (incorporated by reference
to exhibits to Registrant's Annual Report on Form 10-KSB for the
year ended December 31, 1995).
10.4 Non-competition, Severance and Employment Agreement entered into
between the Company and R. Riggie Ridgeway (incorporated by
reference to exhibits to Registrant's Annual Report on Form
10-KSB for the year ended December 31, 1995).
10.5 Peoples Bancorporation, Inc 1997 Non-Employee Director Stock
Option Plan (incorporated by reference to exhibits to
Registrant's Form 10-KSB for the year ended December 31, 1997).
68
10.6 Salary Continuation Agreement between The Peoples National Bank
and Robert E. Dye, Sr., dated July 7, 1998 (incorporated by
reference to exhibits to Registrant's Form 10-KSB for the year
ended December 31, 1998).
10.7 Salary Continuation Agreement between The Peoples National Bank
and Ralph R. Ridgeway, dated July 7, 1998 (incorporated by
reference to exhibits to Registrant's Form 10-KSB for the year
ended December 31, 1998).
10.8 Non-competition, Severance and Employment Agreement entered into
between the Company and each of William B. West, David C. King
and F. Davis Arnette, Jr. (incorporated by reference to exhibits
to Registrant's Form 10-K for the year ended December 31, 1999).
21. Subsidiaries of the Registrant
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
2000.
69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Peoples Bancorporation, Inc.
Dated: March 15, 2001 By: s/Robert E. Dye
------------------------------------
Robert E. Dye
Chairman of the Board,
President and Chief
Executive Officer
Dated: March 15, 2001 By: s/William B. West
------------------------------------
William B. West
Senior Vice President
(Principal Financial and
Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
s/ F. Davis Arnette, Jr. Director March 15, 2001
- -----------------------------------
F. Davis Arnette, Jr.
s/ Garnet A. Barnes Director March 15, 2001
- -----------------------------------
Garnet A. Barnes
s/ James A. Black, Jr. Director March 15, 2001
- -----------------------------------
James A. Black, Jr.
s/ William A. Carr Director March 15, 2001
- -----------------------------------
William A. Carr
s/ Charles E. Dalton Director March 15, 2001
- -----------------------------------
Charles E. Dalton
70
s/ Robert E. Dye President, Chief March 15, 2001
- ----------------------------------- Executive Officer
Robert E. Dye and Director
s/ Robert E. Dye, Jr. Director March 15, 2001
- -----------------------------------
Robert E. Dye, Jr.
s/ W. Rutledge Galloway Director March 15, 2001
- -----------------------------------
W. Rutledge Galloway
s/ David C. King Director March 15, 2001
- -----------------------------------
David C. King
s/ Andrew M. McFall, III Director March 15, 2001
- -----------------------------------
Andrew M. McFall, III
s/ E. Smyth McKissick, III Director March 15, 2001
- -----------------------------------
E. Smyth McKissick, III
s/ Eugene W. Merritt, Jr. Director March 15, 2001
- -----------------------------------
Eugene W. Merritt, Jr.
s/ George B. Nalley, Jr. Director March 15, 2001
- -----------------------------------
George B. Nalley, Jr.
s/ Larry D. Reeves Director March 15, 2001
- -----------------------------------
Larry D. Reeves
s/ R. Riggie Ridgeway Secretary, March 15, 2001
- ----------------------------------- Treasurer and
R. Riggie Ridgeway Director
s/ Nell W. Smith Director March 15, 2001
- -----------------------------------
Nell W. Smith
s/ A. J. Thompson, Jr., M.D. Director March 15, 2001
- -----------------------------------
A. J. Thompson, Jr., M. D.
s/ William B. West Director March 15, 2001
- -----------------------------------
William B. West
71
EXHIBIT INDEX
Exhibit No. Description of Exhibit
3 (i) Articles of Incorporation as amended (incorporated by reference
to exhibits to Registrant's Registration Statement on Form 8-A).
3(ii) Bylaws (incorporated by reference to exhibits to Registrant's
Registration Statement on Form 8-A).
4.1 Specimen Common Stock Certificate (incorporated by reference to
exhibits to Registrant's Registration Statement on Form S-4
(Number 33-46649)).
10.2 Peoples Bancorporation, Inc. 1993 Incentive Stock Option Plan
(incorporated by reference to exhibits to Registrant's
Registration Statement on Form SB-1 (Number 33-78602)).
10.3 Noncompetition, Severance and Employment Agreement entered into
between the Company and Robert E. Dye (incorporated by reference
to exhibits to Registrant's Annual Report on Form 10-KSB for the
year ended December 31, 1995).
10.4 Noncompetition, Severance and Employment Agreement entered into
between the Company and R. Riggie Ridgeway (incorporated by
reference to exhibits to Registrant's Annual Report on Form
10-KSB for the year ended December 31, 1995).
10.5 Peoples Bancorporation, Inc 1997 Non-Employee Director Stock
Option Plan (incorporated by reference to exhibits to
Registrant's Form 10-KSB for the year ended December 31, 1997).
10.6 Salary Continuation Agreement between The Peoples National Bank
and Robert E. Dye, Sr., dated July 7, 1998 (incorporated by
reference to exhibits to Registrant's Form 10-KSB for the year
ended December 31, 1998).
10.7 Salary Continuation Agreement between The Peoples National Bank
and Ralph R. Ridgeway, dated July 7, 1998 (incorporated by
reference to exhibits to Registrant's Form 10-KSB for the year
ended December 31, 1998).
10.8 Non-competition, Severance and Employment Agreement entered into
between the Company and each of William B. West, David C. King
and F. Davis Arnette, Jr. (incorporated by reference to exhibits
to Registrant's Form 10-K for the year ended December 31, 1999).
21. Subsidiaries of the Registrant
72