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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended Commission file
March 31, 2003 000-20616
PEOPLES BANCORPORATION, INC.
----------------------------
(Exact name of registrant as specified in its charter)
South Carolina 57-09581843
-------------- -----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1818 East Main Street, Easley, South Carolina 29640
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (864) 859-2265
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 whether the registrant
is an accelerated filer (as defined in
Rule 12 b-2 of the Exchange Act).
Yes [ ] No [X]
The number of outstanding shares of the issuer's $1.67 par value
common stock as of May 6, 2003 was 3,507,911.
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Peoples Bancorporation, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands except share data)
March 31, 2003 December 31, 2002
Unaudited Audited
--------- -------
ASSETS
CASH AND DUE FROM BANKS .................................................................. $ 14,616 $ 9,474
INTEREST-BEARING DEPOSITS IN OTHER BANKS ................................................. 8 33
FEDERAL FUNDS SOLD ....................................................................... 8,448 2,635
-------- --------
Total cash and cash equivalents ..................................................... 23,072 12,142
SECURITIES
Available for sale .................................................................. 75,533 80,163
Held for investment (market value of $4,723, and $4,248) ............................ 4,545 4,123
Other investments, at cost ........................................................ 2,079 1,884
LOANS-less allowance for loan losses of $2,932 and $2,850 ................................ 262,604 247,637
MORTGAGE LOANS HELD FOR SALE ............................................................. 44,143 55,026
PREMISES AND EQUIPMENT, net of accumulated
depreciation and amortization ....................................................... 9,534 9,539
ACCRUED INTEREST RECEIVABLE .............................................................. 1,874 1,976
OTHER ASSETS ............................................................................. 3,795 3,632
-------- --------
TOTAL ASSETS .................................................................... $427,179 $416,122
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
DEPOSITS
Noninterest-bearing ................................................................. $ 65,041 $ 40,614
Interest-bearing .................................................................... 287,026 287,560
-------- --------
Total deposits .................................................................. 352,067 328,174
SECURITIES SOLD UNDER REPURCHASE
AGREEMENTS .......................................................................... 32,562 35,331
FEDERAL FUNDS PURCHASED .................................................................. 400 0
NOTES PAYABLE TO FEDERAL HOME LOAN BANK .................................................. 5,000 17,000
ACCRUED INTEREST PAYABLE ................................................................. 1,476 1,575
OTHER LIABILITIES ........................................................................ 1,606 1,295
-------- --------
Total Liabilities ............................................................... 393,111 383,375
-------- --------
SHAREHOLDERS' EQUITY
Common Stock - 10,000,000 shares authorized, $1.67
Par value per share, 3,507,911 shares outstanding,
respectively ...................................................................... 5,858 5,858
Additional paid-in capital ............................................................... 25,758 25,758
Retained Earnings ........................................................................ 1,858 446
Accumulated other comprehensive income ................................................... 594 685
-------- --------
Total Shareholders' Equity ...................................................... 34,068 32,747
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............................................... $427,179 $416,122
======== ========
2
Peoples Bancorporation, Inc. and Subsidiaries
Consolidated Statements of Income
(Dollars in thousands except share data)
(Unaudited)
Three Months Ended
March 31,
---------
2003 2002
---- ----
INTEREST INCOME
Interest and fees on loans ...................................................... $ 4,527 $ 4,379
Interest on securities
Taxable ..................................................................... 730 465
Tax-exempt .................................................................. 42 37
Interest on federal funds ....................................................... 26 59
---------- ----------
Total interest income .............................................................. 5,325 4,940
---------- ----------
INTEREST EXPENSE
Interest on deposits ............................................................ 1,728 1,531
Interest on federal funds purchased and securities
sold under repurchase agreements ............................................ 133 124
Interest on notes payable Federal Home Loan Bank ................................... 75 71
---------- ----------
Total interest expense ............................................................. 1,936 1,726
---------- ----------
Net interest income ................................................................ 3,389 3,214
PROVISION FOR LOAN LOSSES .......................................................... 129 313
---------- ----------
Net interest income after provision for loan losses ................................ 3,260 2,901
NON-INTEREST INCOME
Service fees and other income ................................................... 622 523
Mortgage banking ................................................................ 2,111 879
Gain on sale of available for sale securities .................................. 1 0
---------- ----------
2,734 1,402
NON-INTEREST EXPENSES
Salaries and benefits ........................................................... 2,053 1,484
Occupancy ....................................................................... 149 123
Equipment ....................................................................... 252 152
Marketing and advertising ....................................................... 64 74
Communications .................................................................. 63 58
Printing and supplies ........................................................... 65 53
Bank paid loan costs ............................................................ 114 154
Other operating expenses ........................................................ 634 410
---------- ----------
Total noninterest expenses ............................................ 3,394 2,508
---------- ----------
Income before income taxes ...................................................... 2,600 1,795
PROVISION FOR INCOME TAXES ......................................................... 943 645
---------- ----------
Net income ...................................................................... $ 1,657 $ 1,150
========== ==========
INCOME PER COMMON SHARE:
BASIC ........................................................................... $ 0.47 $ 0.33
========== ==========
DILUTED ......................................................................... $ 0.46 $ 0.32
========== ==========
WEIGHTED AVERAGE COMMON SHARES:
BASIC ........................................................................... 3,507,911 3,495,039
========== ==========
DILUTED ......................................................................... 3,631,417 3,602,011
========== ==========
DIVIDENDS PAID PER COMMON SHARE .................................................... $ 0.07 $ 0.05
========== ==========
3
Peoples Bancorporation, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
for the three months ended March 31, 2002 and 2003
(Dollars in thousands except share data)
(Unaudited)
Accumulated
Common stock Additional other Total
------------ paid-in Retained comprehensive shareholders'
Shares Amount capital earnings income equity
------ ------ ------- -------- ------ ------
Balance, December 31, 2001 * ............... 3,328,609 $ 5,559 $ 22,786 $ 32 $ 174 $ 28,551
Net Income ................................. 1,150 1,150
Other comprehensive income, net of tax:
Unrealized holding losses on
securities available for sale ........... (167) (167)
Less reclassification
adjustments for gains
included in net income .................. 0 0
-----------
Comprehensive income ....................... 983
Cash Dividends ............................. (167) (167)
Proceeds from stock options ................ 0 0 0 0
----------- ---------- ---------- ---------- ------------- ------------
Balance, March 31, 2002 .................... 3,328,609 $ 5,559 $ 22,786 $ 1,015 $ 7 $ 29,367
=========== ========== ========== ========== ============= ============
Balance, December 31, 2002 * ............... 3,507,911 $ 5,858 $ 25,758 $ 446 $ 685 $ 32,747
Net Income 1,657 1,657
Other comprehensive income, net of tax:
Unrealized holding losses on
securities available for sale ........... (91) (91)
Less reclassification
adjustments for gains
included in net income .................. 0 0
-----------
Comprehensive income ....................... 1,566
Cash Dividends ............................. (245) (245)
Proceeds from stock options ................ 0 0 0 0
----------- ---------- ---------- ---------- ------------- ------------
Balance, March 31, 2003 .................... 3,507,911 $ 5,858 $ 25,758 $ 1,858 $ 594 $ 34,068
=========== = ======== ========== ========== ============= ============
* Share data has been restated to reflect 5% stock dividends issued in January
2002 and November 2002.
4
Peoples Bancorporation, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Three months Ended
March 31,
---------
2003 2002
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income .......................................................................... $ 1,657 $ 1,150
Adjustments to reconcile net income to net cash provided
by (used in) operating activities
Gain on sale of premises and equipment .............................................. (13) 0
Gain on sale of securities available for sale ....................................... (1) 0
Provision for loan losses ........................................................... 129 313
Depreciation and amortization ....................................................... 210 144
Amortization and accretion (net) of premiums and
discounts on securities ........................................................... 78 11
Origination of mortgage loans held for sale ........................................ (117,650) (85,234)
Sale of mortgage loans held for sale ............................................... 128,533 104,228
(Increase) decrease in accrued interest receivable .................................. 102 (9)
(Increase) decrease in other assets ................................................. (164) 36
Decrease in accrued interest payable ................................................ (99) (57)
Increase in other liabilities ....................................................... 373 390
--------- ---------
Net cash provided by (used in) operating activities ............................... 13,155 20,972
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available for sale .......................................... (21,896) (11,900)
Purchase of other investments ....................................................... (195) (68)
Proceeds from the maturity of securities held to maturity ........................... 275 1,310
Proceeds from the sale of securities available for sale ............................. 1,000 0
Proceeds from the call of securities available for sale ............................. 21,150 1,000
Proceeds from principal pay downs ................................................... 3,463 575
Net increase in loans ............................................................... (15,096) (6,626)
Proceeds from the sale of premises and equipment .................................... 39 0
Purchase of premises and equipment .................................................. (244) (422)
--------- ---------
Net cash used in investing activities ............................................. (11,504) (16,131)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits ............................................................ 23,893 30,384
Net increase (decrease) in securities sold under repurchase
agreements ........................................................................ (2,769) 2,969
Net increase in Federal funds purchased ............................................ 400 0
Net decrease in notes payable Federal Home Loan Bank ................................ (12,000) (18,985)
Cash dividend ....................................................................... (245) (167)
--------- ---------
Net cash provided by financing activities ......................................... 9,279 14,201
--------- ---------
Net increase in cash and cash equivalents ......................................... 10,930 19,042
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ........................................... 12,142 12,426
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................................... $ 23,072 $ 31,468
========= =========
CASH PAID FOR
Interest .......................................................................... $ 2,035 $ 1,717
========= =========
Income Taxes ...................................................................... $ 492 $ 140
========= =========
5
PEOPLES BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of these policies is included in the 2002 Annual Report on Form
10-K and incorporated herein by reference.
STATEMENT OF CASH FLOWS
Cash includes currency and coin, cash items in process of collection,
amounts due from banks and federal funds sold. All have maturities of three
months or less.
COMMON STOCK
The Board of Directors declared cash dividends of $0.07 per common share to
shareholders of record March 21, 2003 payable April 4, 2003.
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 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 for the three
months ended March 31, 2003 and 2002 was 3,507,911 and 3,495,039, respectively.
The weighted average number of common shares outstanding for diluted net income
per common share was 3,631,417 and 3,602,011 for the three months ended March
31, 2003 and 2002.
The following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of
Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation, to
stock-based employee compensation.
Quarter ended March 31,
2003 2002
---- ----
Net income, as reported ............................ $ 1,657 $ 1,150
Deduct: total stock-based employee compensation
expense determined under fair value based method
for all awards, Net of related tax effects ....... (11) (15)
------------ ---------
Pro forma net income ............................... $ 1,646 $ 1,135
============ =========
Net income per common share
Basic - as reported .............................. $ 0.47 $ 0.33
============ =========
Basic - pro forma ................................ $ 0.47 $ 0.32
============ =========
Diluted - as reported ............................ $ 0.46 $ 0.32
============ =========
Diluted - pro forma .............................. $ 0.45 $ 0.32
============ =========
The Company issued a five-percent common stock dividend in January 2002
and November 2002. Per share data in 2002 has been restated to reflect these
transactions.
6
MANAGEMENT'S OPINION
The accompanying unaudited financial statements of Peoples Bancorporation,
Inc. have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial information and
with the instructions to Form 10-Q according to guidelines set forth by the
Securities and Exchange Commission. Accordingly, they do not include all
information and notes required by accounting principles generally accepted in
the United States of America for complete financial statements. However, in the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for the fair presentation have been included.
The results of operations for any interim period are not necessarily indicative
of the results to be expected for an entire year.
7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and related notes and with the statistical
information and financial data appearing in this report as well as the 2002
Annual Report of Peoples Bancorporation, Inc. on Form 10-K. Results of
operations for the three-month period ending March 31, 2003 are not necessarily
indicative of the results to be attained for any other period.
Critical Accounting Policies
The Company has adopted various accounting policies that govern the
application of accounting principles generally accepted in the United States in
the preparation of the Company's financial statements. The significant
accounting policies of the Company are described in Item 8, Note 1 to the
Consolidated Financial Statements in the 2002 Annual Report of Peoples
Bancorporation, Inc. on Form 10-K.
Certain accounting policies involve significant judgments and
assumptions by management that have a material impact on the carrying value of
certain assets and liabilities; management considers such accounting policies to
be critical accounting policies. The judgments and assumptions used by
management are based on historical experience and other factors, which are
believed to be reasonable under the circumstances. Because of the nature of the
judgments and assumptions made by management, actual results could differ from
these judgments and estimates that could have a material impact on the carrying
values of assets and liabilities and the results of operations of the Company.
Of these significant accounting policies, the Company considers its
policies regarding the allowance for loan losses (the "Allowance") to be its
most critical accounting policy due to the significant degree of management
judgment involved in determining the amount of the Allowance. The Company has
developed policies and procedures for assessing the adequacy of the Allowance,
recognizing that this process requires a number of assumptions and estimates
with respect to its loan portfolio. The Company's assessments may be impacted in
future periods by changes in economic conditions, the impact of regulatory
examinations, and the discovery of information with respect to borrowers, which
is not known to management at the time of the issuance of the consolidated
financial statements. Refer to the discussion under Provision and Allowance for
Loan Losses, Loan Loss Experience section of the Company's 2002 Annual Report on
Form 10-K and the Allowance for Loan Losses and Provision for Loan Losses
sections of this report on Form 10-Q for a detailed description of the Company's
estimation process and methodology related to the allowance for loan losses.
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
8
products and similar matters. All statements that are not historical facts are
"forward-looking statements." Words such as "estimate," "project," "intend,"
"expect," "believe," "anticipate," "plan," and similar expressions identify
forward-looking statements. 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.
Overview
The Company is a bank holding company with 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").
Currently, 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.
9
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EARNINGS PERFORMANCE
Overview
The consolidated Company's net income for the first quarter of 2003 was
$1,657,000 or $0.46 per diluted share compared to $1,150,000 or $0.32 per
diluted share for the first quarter of 2002, an increase of $507,000 or 44.1%.
Return on average equity for the three months ended March 31, 2003 was 20.46%
compared to 16.13% for the three months ended March 31, 2002. Return on average
assets for the three months ended March 31, 2003 was 1.60% compared to 1.47% for
the three months ended March 31, 2002. The increases in the Company's net
income, earnings per fully diluted share, return on average equity, and return
on average assets in 2003 are attributable to increased earnings at the
Company's bank subsidiaries. The Peoples National Bank recorded net earnings of
$1,243,000 for the three months ended March 31, 2003 compared to net earnings of
$859,000 for the three months ended March 31, 2002, an increase of $384,000 or
44.7%. Bank of Anderson, N. A. recorded net earnings of $300,000 for the three
months ended March 31, 2003 compared to net earnings of $210,000 for the three
months ended March 31, 2002, an increase of $90,000 or 42.9%. Seneca National
Bank recorded net earnings of $123,000 for the three months ended March 31, 2003
compared to net earnings of $77,000 for the three months ended March 31, 2002,
an increase of $46,000 or 59.7%. Earnings in the Banks are presented before
inter-bank elimination entries.
Interest Income, Interest Expense and Net Interest Income
The largest component of the Company's net income is interest income. Net
interest income, which is the difference between the interest earned on assets
and the interest paid for the liabilities used to fund those assets, measures
the gross profit from lending and investing activities and is the primary
contributor to the Company's earnings. Net interest income before provision for
loan losses increased $175,000 or 5.4% to $3,389,000 for the quarter ended March
31, 2003 compared to $3,214,000 for the quarter ended March 31, 2002. The
increases in the net interest income resulted primarily from an increase in
interest income attributable to a larger volume of interest earning assets in
the 2003 period. The Company's net interest margin was 3.47% for the quarter
ended March 31, 2003 compared to 4.39% for the quarter ended March 31, 2002.
The Company's total interest income for the first quarter of 2003 was
$5,325,000 compared to $4,940,000 for the first quarter of 2002, an increase of
$385,000 or 7.8%. Interest and fees on loans, the largest component of total
interest income, increased $148,000 in the first quarter of 2003 to $4,527,000
compared to $4,379,000 for the first quarter of 2002, an increase of 3.4%. The
10
increase in interest and fees on loans is attributable to a larger base of
outstanding loans and mortgage loans held for sale for the first quarter of 2003
when compared to the same period in 2002. Interest income on taxable investment
securities increased $265,000, or 56.99% to $730,000 in the 2003 period, as a
result of an increase in the volume of outstanding taxable securities.
The Company's total interest expense for the first quarter of 2003 was
$1,936,000 compared to $1,726,000 for the first quarter of 2002, an increase of
$210,000 or 12.2%. Interest expense on deposits, the largest component of total
interest expense, increased $197,000 in the first quarter of 2003 to $1,728,000
compared to $1,531,000 for the first quarter of 2002, an increase of 12.9%.
Interest on federal funds purchased and securities sold under repurchase
agreements, the second largest component of total interest expense, increased
$9,000 or 7.3% to $133,000 in the first quarter of 2003 compared to $124,000 for
the first quarter of 2002. Interest on notes payable to the Federal Home Loan
Bank, the third largest component of total interest expense, increased $4,000 or
5.6% to $75,000 in the first quarter of 2003 compared to $71,000 for the same
period of 2002. The increase in interest expense among each of deposits, federal
funds purchased and securities sold under repurchase agreements, and notes
payable to the Federal Home Loan Bank for the three-months ending March 31, 2003
is largely attributable to higher average balances in those types of accounts.
Provision for Loan Losses
The Company's provision for loan losses during the three months ended
March 31, 2003 was $129,000 compared to $313,000 for the three months ended
March 31, 2002, a decrease of $184,000 or 58.8%. The decrease in the Company's
provision for loan losses for the first quarter of 2003 is based on management's
evaluation of the Company's overall credit quality and its estimate of loan
losses inherent in the loan portfolio. During the first quarter of 2003, The
Peoples National Bank made provision of $75,000 compared to provision of
$250,000 in the first quarter of 2002. Bank of Anderson, N. A. made provision of
$30,000 for the first quarter of 2003, compared to $40,000 for the first quarter
of 2002. Seneca National Bank made provision of $24,000 during the first quarter
of 2003, compared to $23,000 for the first quarter of 2002.
Non-interest Income
Non-interest income increased $1,331,000 or 95.0% to $2,734,000 for the
first quarter of 2003 compared to $1,402,000 for the first quarter of 2002. The
increase in non-interest income resulted largely from a $1,232,000 or 140.2%
increase in fees associated with the origination of residential mortgages to
$2,111,000 for the quarter ended March 31, 2003, compared to $879,000 for the
quarter ended March 31, 2002. A $99,000 or 18.9% increase in service fees on
deposits also contributed to the increase in non-interest income. A gain of
$1,000 was realized on the sale of available-for-sale securities during the
first quarter of 2003. No gain or loss was realized on the sale of securities
during the first three months of 2002.
11
Non-interest Expense
Total non-interest expense increased $886,000 or 35.3% to $3,394,000 for
the first quarter of 2003 from $2,508,000 for the first quarter of 2002.
Salaries and benefits, the largest component of non-interest expense, increased
$569,000 or 38.3% to $2,053,000 for the first quarter of 2003 from $1,484,000
for the first quarter of 2002. The increase in salaries and benefits is
primarily attributable to additional staffing associated with the Company's
continued growth and normal salary increases throughout the Company. Occupancy
expense increased $26,000 or 21.1% to $149,000 in the first quarter of 2003
compared to $123,000 in the first quarter of 2002. The increase in building
expense is partially attributable to the opening of a new mortgage origination
office in Greenville, South Carolina by Peoples National Bank. Equipment expense
increased $100,000 or 65.8% to $252,000 in the first quarter of 2003 compared to
$152,000 in the first quarter of 2002. The increase is due largely to the
depreciation and other expenses associated with the conversion to a new data
processing system during the third quarter of 2002. The increase in other
non-interest expense items resulted from continued growth experienced by the
Company during the period.
BALANCE SHEET REVIEW
Loans
Outstanding loans (which excludes mortgage loans held for sale)
represent the largest component of earning assets at 66.3% of total earning
assets. As of March 31, 2003, the Company held total gross loans outstanding of
$265,536,000. Gross loans increased $15,049,000 or 6.0% from $250,487,000 in
total gross loans outstanding at December 31, 2002 and increased $46,075,000 or
21.0% from $219,461,000 in total gross loans outstanding at March 31, 2002. The
increase resulted from new loans generated by the Company's three banking
subsidiaries. The following table summarizes outstanding loans by collateral
type.
March 31, December 31,
--------- ------------
Loan Portfolio Composition 2003 2002 2002
---- ---- ----
Commercial and Industrial - not secured by real estate .............. $ 36,071 $ 28,156 $ 35,548
Commercial and Industrial - secured by real estate ........................ 77,331 47,578 72,600
Residential real estate - mortgage ........................................ 76,208 75,206 69,579
Residential real estate - construction .................................... 54,521 45,109 48,452
Consumer loans ............................................................ 21,405 23,192 24,308
-------- -------- --------
Gross Loans .......................................................... $265,536 $251,173 $250,487
======== ======== ========
The interest rates charged on loans vary with the degree of risk, time to
maturity, and amount of the loan. Competitive pressures, money market rates,
availability of funds, and government regulation also influence interest rates.
The average yield on the Company's loans for the three months ended March 31,
2003 was 6.00% compared to 7.44% for the three months ended March 31, 2002.
Approximately 49.3% of the Company's loans are tied to the prime interest rate.
12
The Company's loan portfolio consists principally of residential mortgage
loans, commercial loans and consumer loans. Substantially all of these loans are
to borrowers located in South Carolina and are concentrated in the Company's
market areas.
The Company's real estate loans are primarily construction loans and other
loans secured by real estate, both commercial and residential, located within
the Company's trade areas. The Company does not predominantly pursue long-term,
fixed-rate mortgage loans for retention in its loan portfolio.
The Banks employ mortgage loan personnel who originate and package loans
that are pre-sold at origination to third parties and are classified as mortgage
loans held for sale for reporting purposes. At March 31, 2003 the Company held
$44,143,000 of mortgage loans held for sale compared to $55,026,000 at December
31, 2002 and $21,931,000 at March 31, 2002. The substantial swings in the level
of mortgage loans held for sale are due to wide fluctuations in the demand for
residential mortgages from time to time. During the three months ended March 31,
2003 the Company originated $117,650,000 and sold $128,533,000 in residential
mortgage loans.
The Company's commercial lending activity 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, and corporate borrowers, 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 an unsecured basis.
When taken, security usually consists of liens on inventories, receivables,
equipment, furniture, and fixtures. Unsecured commercial loans are generally
short-term with emphasis on repayment strengths and low debt-to-worth ratios. At
March 31, 2003 approximately $13,225,000 or 8.7% of commercial loans were
unsecured.
The Company's 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 that the loan portfolio is adequately diversified. The
Company has no foreign loans or loans for highly leveraged transactions. The
Company has very few agricultural loans.
Allowance for Loan Losses
The allowance for loan losses at March 31, 2003 was $2,932,000 or 1.10% of
loans outstanding (which excludes mortgage loans held for sale) compared to
$2,850,000 or 1.14% of loans outstanding at December 31, 2002 and to $2,587,000
or 1.18% of loans outstanding at March 31, 2002. The allowance for loan losses
is based upon management's continuing evaluation of the collectability of past
due loans based on the historical loan loss experience of the Company, current
13
economic conditions affecting the ability of borrowers to repay, the volume of
loans, the quality of collateral securing non-performing and problem loans, and
other factors deserving recognition.
At March 31, 2003 the Company had $662,000 in non-accruing loans, no
restructured loans, $303,000 in loans more than ninety days past due and still
accruing interest, and $229,000 in other real estate owned. This compares to
$926,000 in non-accruing loans, no restructured loans, $5,000 in loans more than
ninety days past due on which interest was still being accrued, and $193,000 in
other real estate owned at December 31, 2002. At March 31, 2002, the Company had
$789,000 in non-accruing loans, no restructured loans, no loans more than ninety
days past due and still accruing interest, and $723,000 in other real estate
owned. Non-performing loans at March 31, 2003 consisted of $26,000 in commercial
loans, $619,000 in mortgage loans, and $17,000 in consumer loans. Non-performing
assets as a percentage of loans and other real estate owned was 0.39%, 0.37%,
and 0.64% at March 31, 2003, December 31, 2002, and March 31, 2002,
respectively.
Net charge-offs during the three months ended March 31, 2003 were $48,000
compared to net charge-offs of $14,000 for the three months ended March 31,
2002. The allowance for loan losses as a percentage of non-performing loans was
304%, 306%, and 328% as of March 31, 2003, December 31, 2002, and March 31,
2002, respectively.
The Company accounts for impaired loans in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") 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 provisions 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 then applied to principal. At each of March 31, 2003, March 31,
2002, and December 31, 2002 the Company had no impaired loans.
Securities
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
Company does not invest in corporate bonds nor does it hold any trading
securities. The Company uses its investment portfolio to provide liquidity for
unexpected deposit liquidation or loan generation, to meet the Company's
interest rate sensitivity goals, to secure public deposits, and to generate
income. At March 31, 2003 securities totaled $82,157,000, which represents 20.5%
of total earning assets. Securities decreased $4,013,000 or 4.7% from
$86,170,000 invested as of December 31, 2002 and increased $37,844,000 or 85.4%
from $44,313,000 invested as of March 31, 2002. The increase in securities, when
comparing March 31, 2003 to March 31, 2002, is primarily the result of the
investment of excess liquidity resulting from an increase in deposits at the
14
Company's bank subsidiaries. The decrease when comparing March 31, 2003 to
December 31, 2002 is largely the result of declining interest rates, U. S.
Government agencies called prior to the stated maturities and prepayments
associated with mortgage-backed securities accelerated.
At March 31, 2003 the Company's total investments classified as
available for sale had an amortized cost of $74,633,000 and a market value of
$75,533,000 for an unrealized gain of $900,000. This compares to an amortized
cost of $39,658,000 and a market value of $39,668,000 for an unrealized gain of
$10,000 on the Company's investments classified as available for sale at March
31, 2002. At December 31, 2002 the Company's total investments classified as
available for sale had an amortized cost of $79,125,000 and a market value of
$80,163,000 for an unrealized gain of $1,038,000.
Cash and Cash Equivalents
The Company's cash and cash equivalents increased $10,930,000 or 90.0%
to $23,072,000 at March 31, 2003 from $12,142,000 at December 31, 2002 and
decreased $8,396,000 or 26.7% from $31,468,000 at March 31, 2002. The swings in
the level of cash and cash equivalents are due to fluctuations in the Banks'
need for immediate liquidity.
Deposits
The Banks' primary source of funds for loans and investments is
deposits. Total deposits grew $23,893,000 or 7.3% to $352,067,000 at March 31,
2003 from $328,174,000 at December 31, 2002, and $84,880,000 or 31.8% from
$267,187,000 at March 31, 2002. The increase resulted from deposits generated by
each of the Banks. Competition for deposit accounts is primarily based on the
interest rates paid, location convenience, and services offered.
During the three months ended March 31, 2003, interest-bearing deposits
averaged $289,092,000 compared to $216,275,000 for the same period of 2002. From
time to time Peoples National Bank solicits certificates of deposit from various
sources through brokers and through a program designed to gather deposits via
the Internet. This is done to reduce the need for funding from other short-term
sources such as federal funds purchased and short-term borrowings from the
Federal Home Loan Bank of Atlanta. These non-traditional deposits are primarily
being used to fund Peoples National Bank's short-term mortgage lending
activities. There were no Internet or brokered deposits at March 31, 2003. At
December 31, 2002 Internet certificates of deposit totaled $990,000 and there
were no brokered deposits. At March 31, 2002 Peoples National Bank had
$8,960,000 in Internet certificates of deposit and $8,400,000 in brokered
deposits.
The average interest rate paid on interest-bearing deposits was 2.42%
during the three months ended March 31, 2003 compared to 2.87% for the same
period of 2002. In pricing deposits, the Company considers its liquidity needs,
the direction and levels of interest rates, and local market conditions. At
March 31, 2003 interest-bearing deposits comprised 81.5% of total deposits
compared to 85.7% at March 31, 2002.
15
The Company's core deposit base consists largely of consumer time
deposits, 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, these core
deposits continue to provide the Company with a large source of relatively
stable funds. Core deposits as a percentage of total deposits averaged
approximately 80.3% and 75.5% for the three months ended March 31, 2003 and 2002
respectively. The Company closely monitors its reliance on certificates greater
than $100,000, which are generally considered to be less stable and less
reliable than core deposits.
Borrowings
The Company's borrowings are comprised of federal funds purchased,
securities sold under repurchase agreements, and both short-term and long-term
advances from the Federal Home Loan Bank of Atlanta. At March 31, 2003
short-term borrowings totaled $32,962,000 and were comprised of $400,000 in
Federal Funds Purchased and $32,562,000 in securities sold under repurchase
agreements. At December 31, 2002 short-term borrowings totaled $35,331,000 and
were comprised entirely of securities sold under repurchase agreements. At March
31, 2002 short-term borrowings totaled $23,615,000 and were comprised entirely
of securities sold under repurchase agreements. Short-term borrowings are used
primarily for the immediate cash needs of the Company. The Company also had
$5,000,000 of long-term advances from the Federal Home Loan Bank of Atlanta at
each of March 31, 2003, December 31, 2002, and March 31, 2002.
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 increased loan demand and
withdrawals from deposit accounts. 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 to borrow
funds on a short-term basis 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-term
and long-term funds on a secured basis. At March 31, 2003, The Peoples National
Bank had total secured borrowing capacity from the Federal Home Loan Bank of
Atlanta equal to $13,850,000. The unused portion of this secured line of credit
was $850,000 at April 30, 2003. Peoples National Bank has made an application
with the Federal Home Loan Bank of Atlanta for an additional $19,360,000 in
secured borrowings. If this application is approved, the additional borrowings
will be secured by a blanket lien on Peoples National Bank's home equity lines
of credit and commercial real estate loans. The Company's other two bank
subsidiaries, Bank of Anderson and Seneca National Bank, each have secured lines
of credit with the Federal Home Loan Bank at March 31, 2003 of $12,208,000 and
$3,493,0000, respectively, all of which is unused. At March 31, 2003, the Banks
had unused federal funds lines of credit with various correspondent banks
totaling $19,050,000.
Peoples Bancorporation, Inc., the parent holding company, has limited
liquidity needs, requiring liquidity to pay limited operating expenses and
dividends only.
16
The Company will have certain capital expenditures that will be made
during 2003. The Company began incurring costs for these projects during the
fourth quarter of 2002. These include the construction of a branch banking
facility for Bank of Anderson for approximately $800,000 when completed and the
possible renovation and expansion of the main office of Bank of Anderson for
approximately $800,000 when completed. The Company expects to fund these
expenditures with internally generated funds. The Company may additionally make
other lesser capital expenditures through the normal course of business.
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.
OFF-BALANCE SHEET RISK
The Company, through the operations of the Banks, makes contractual
commitments to extend credit in the ordinary course of its business activities.
These commitments are legally binding agreements to lend money to customers of
the Banks at predetermined interest rates for a specified period of time. At
March 31, 2003, the Banks had issued commitments to extend credit of $65,415,000
through various types of arrangements. The commitments generally expire in one
year. Past experience indicates that many of these commitments to extend credit
will expire not fully used. As described under Liquidity, the Company believes
that it has adequate sources of liquidity to fund commitments that are drawn
upon by the borrowers.
In addition to commitments to extend credit, the Banks also issue
standby letters of credit, which are assurances to a third party that they will
not suffer a loss if the Banks' customer fails to meet its contractual
obligation to the third party. Standby letters of credit totaled $4,202,000 at
March 31, 2003. Past experience indicates that many of these standby letters of
credit will expire unused. However, through its various sources of liquidity,
the Company believes that it will have the necessary resources to meet these
obligations should the need arise. Most of the standby letters of credit are
secured by various types of collateral. The Company believes that the risk of
loss associated with standby letters of credit is comparable to the risk of loss
associated with its loan portfolio. Moreover, the fair value associated with any
standby letters of credit issued by the Company is immaterial to the Company.
Neither the Company nor the subsidiaries are involved in other
off-balance sheet contractual relationships or transactions that could result in
liquidity needs or other commitments or significantly impact earnings. The
Company did not have any obligations under non-cancelable operating lease
agreements at March 31, 2003.
17
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.
The Company and the Banks are required to maintain certain capital
ratios by federal banking regulators. The following table sets forth the capital
ratios for the Company and the Banks as of March 31, 2003:
CAPITAL RATIOS
(Amounts in Thousands)
Well Adequately
Capitalized Capitalized
Actual Requirement Requirement
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Company:
Total Risk-based Capital ............... $36,405 12.56% $30,212 10.00% $24,169 8.00%
Tier 1 Risk-based Capital .............. 33,474 11.08 18,127 6.00 12,084 4.00
Leverage Ratio ......................... 33,474 7.97 21,000 5.00 16,800 4.00
Peoples National Bank:
Total Risk-based Capital ............... $21,591 11.52% $18,742 10.00% $14,994 8.00%
Tier 1 Risk-based Capital .............. 19,787 10.56 11,243 6.00 7,495 4.00
Leverage Ratio ......................... 19,787 7.85 12,603 5.00 10,083 4.00
Bank of Anderson, N. A:
Total Risk-based Capital ............... $ 9,090 11.53% $ 7,884 10.00% $ 6,307 8.00%
Tier 1 Risk-based Capital .............. 8,315 10.55 4,729 6.00 3,153 4.00
Leverage Ratio ......................... 8,315 6.29 6,610 5.00 5,288 4.00
Seneca National Bank:
Total Risk-based Capital ............... $ 4,088 11.59% $ 3,527 10.00% $ 2,822 8.00%
Tier 1 Risk-based Capital .............. 3,736 10.60 2,115 6.00 1,410 4.00
Leverage Ratio ......................... 3,736 8.12 2,300 5.00 1,840 4.00
18
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Market risk is the risk of loss from adverse changes in market prices
and interest rates. The Company's market risk arises principally from interest
rate risk inherent in its lending, deposit, and borrowing activities. Management
actively monitors and manages its interest rate risk exposure. Although the
Company manages certain other risks, such as credit quality and liquidity risk,
in the normal course of business, management considers interest rate risk to be
its most significant market risk and the risk that could potentially have the
largest material effect on the Company's financial condition and results of
operations. Other types of market risks, such as foreign currency risk and
commodity price risk do not arise in the normal course of the Company's business
activities, although they may affect a few of the Company's customers
The primary objective of Asset and 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
interest-bearing liabilities. The relationship of rate-sensitive earning assets
to rate-sensitive interest-bearing liabilities is the principal factor in
projecting the effect that fluctuating interest rates will have on future net
interest income. Rate-sensitive assets and 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 next twelve months. At March 31, 2003, on a cumulative basis
through 12 months, rate-sensitive liabilities exceeded rate-sensitive assets by
$105,829,000. This liability-sensitive position is largely attributable to the
Company's short-term Certificates of Deposit, Money Market accounts and NOW
accounts, which totaled $117,862,000, $64,857,000 and $36,445,000, respectively,
at March 31, 2003, and which may reprice or mature within one year.
19
Item 4. CONTROLS AND PROCEDURES
(a) Based on their evaluation of the issuer's disclosure controls and
procedures (as defined in 17 C.F.R Sections 240.13a-14(c) and
240.15d-14(c)) as of a date within 90 days prior to the filing of this
quarterly report, the issuer's chief executive officer and chief
financial officer concluded that the effectiveness of such controls
and procedures was adequate.
(b) There were no significant changes in the issuer's internal controls or
in other factors that could significantly affect these controls
subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
20
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
None
(b) Reports on Form 8-K.
Peoples Bancorporation, Inc. filed a Current Report on Form 8-K dated
April 17, 2003, pursuant to Item 9 of that Form with respect to
information provided pursuant to Item 12 of that Form.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PEOPLES BANCORPORATION, INC.
Dated: May 6, 2003 By: /s/ Robert E. Dye, Sr.
------------------------
Robert E. Dye, Sr.
President and Chairman of the Board
Dated: May 6, 2003 By: /s/ William B. West
---------------------
William B. West
Sr. Vice President & CFO
(principal financial officer)
22
CERTIFICATIONS
I, Robert E Dye, Sr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Peoples
Bancorporation, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made know to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated: May 6, 2003 By: /s/ Robert E. Dye, Sr.
------------------------
Robert E. Dye, Sr.
President and Chairman of the Board
CERTIFICATIONS
I, William B. West, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Peoples
Bancorporation, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made know to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: May 6, 2003 By: /s/ William B. West
---------------------
William B. West
Sr. Vice President & CFO
(principal financial officer)