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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
June 30, 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 August 6, 2003
was 3,507,911.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Peoples Bancorporation, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands except share data)
June 30, June 30, December 31,
2003 2002 2002
Unaudited Unaudited Audited
--------- --------- -------
ASSETS
CASH AND DUE FROM BANKS ......................................................... $ 10,764 $ 13,882 $ 9,474
INTEREST-BEARING DEPOSITS IN OTHER BANKS ........................................ 17 19 33
FEDERAL FUNDS SOLD .............................................................. 19,108 38,454 2,635
-------- -------- --------
Total cash and cash equivalents ............................................ 29,889 52,355 12,142
SECURITIES
Available for sale ......................................................... 63,094 56,419 80,163
Held for investment (market value of
$5,089, $3,177 and $4,248) ............................................. 4,845 3,059 4,123
Other investments, at cost ............................................... 2,057 1,884 1,884
LOANS-less allowance for loan losses
of $3,220, $2,785 and $2,850 ............................................... 275,961 225,228 247,637
MORTGAGE LOANS HELD FOR SALE .................................................... 40,337 13,100 55,026
PREMISES AND EQUIPMENT, net of accumulated
depreciation and amortization .............................................. 9,802 8,816 9,539
ACCRUED INTEREST RECEIVABLE ..................................................... 1,824 1,788 1,976
CASH SURRENDER VALUE OF LIFE INSURANCE .......................................... 2,253 1,368 2,202
OTHER ASSETS .................................................................... 1,738 1,713 1,430
-------- -------- --------
TOTAL ASSETS ........................................................... $431,800 $365,730 $416,122
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
DEPOSITS
Noninterest-bearing ........................................................ $ 44,584 $ 39,341 $ 40,614
Interest-bearing ........................................................... 314,410 265,381 287,560
-------- -------- --------
Total deposits ......................................................... 358,994 304,722 328,174
SECURITIES SOLD UNDER REPURCHASE
AGREEMENTS ................................................................. 29,233 22,776 35,331
NOTES PAYABLE TO FEDERAL HOME LOAN BANK ......................................... 5,000 5,000 17,000
ACCRUED INTEREST PAYABLE ........................................................ 1,557 1,191 1,575
OTHER LIABILITIES ............................................................... 1,485 1,320 1,295
-------- -------- --------
Total Liabilities ...................................................... 396,269 335,009 383,375
-------- -------- --------
SHAREHOLDERS' EQUITY
Common Stock - 10,000,000 shares authorized, $1.67
Par value per share, 3,507,911 shares, 3,341,370 shares
and 3,507,911 shares outstanding, respectively ........................... 5,858 5,580 5,858
Additional paid-in capital ...................................................... 25,758 22,855 25,758
Retained Earnings ............................................................... 3,423 1,756 446
Accumulated other comprehensive income .......................................... 492 530 685
-------- -------- --------
Total Shareholders' Equity ............................................. 35,531 30,721 32,747
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ...................................... $431,800 $365,730 $416,122
======== ======== ========
2
Peoples Bancorporation, Inc. and Subsidiaries
Consolidated Statements of Income
(Dollars in thousands except share data) Three Months Ended Six Months Ended
Unaudited June 30, June 30,
2003 2002 2003 2002
---- ---- ---- ----
INTEREST INCOME
Interest and fees on loans .................................. $ 4,541 $ 4,228 $ 9,068 $ 8,607
Interest on securities
Taxable ................................................. 571 624 1,301 1,089
Tax-exempt .............................................. 45 35 87 72
Interest on federal funds ................................... 39 139 65 198
---------- ---------- ---------- ----------
Total interest income .......................................... 5,196 5,026 10,521 9,966
---------- ---------- ---------- ----------
INTEREST EXPENSE
Interest on deposits ........................................ 1,729 1,875 3,457 3,406
Interest on federal funds purchased and securities
sold under repurchase agreements ........................ 107 120 240 244
Interest on notes payable Federal Home Loan Bank ........... 79 62 154 133
---------- ---------- ---------- ----------
Total interest expense ......................................... 1,915 2,057 3,851 3,783
---------- ---------- ---------- ----------
Net interest income ............................................ 3,281 2,969 6,670 6,183
PROVISION FOR LOAN LOSSES ...................................... 329 198 458 511
---------- ---------- ---------- ----------
Net interest income after provision for loan losses ............ 2,952 2,771 6,212 5,672
NON-INTEREST INCOME
Service fees and other income ............................... 665 627 1,287 1,150
Mortgage banking ............................................ 2,761 759 4,872 1,638
Gain on sale of available for sale securities .............. 6 0 7 0
---------- ---------- ---------- ----------
3,432 1,386 6,166 2,788
NON-INTEREST EXPENSES
Salaries and benefits ....................................... 2,092 1,517 4,145 3,001
Occupancy ................................................... 149 122 298 245
Equipment ................................................... 224 180 476 332
Marketing and advertising ................................... 109 112 173 186
Communications .............................................. 65 53 128 111
Printing and supplies ....................................... 66 52 131 105
Bank paid loan costs ........................................ 140 180 254 334
Other operating expenses .................................... 685 474 1,319 884
---------- ---------- ---------- ----------
Total noninterest expenses ........................ 3,530 2,690 6,924 5,198
---------- ---------- ---------- ----------
Income before income taxes .................................. 2,854 1,467 5,454 3,262
PROVISION FOR INCOME TAXES ..................................... 1,043 526 1,986 1,171
---------- ---------- ---------- ----------
Net income .................................................. $ 1,811 $ 941 $ 3,468 $ 2,091
========== ========== ========== ==========
INCOME PER COMMON SHARE:
BASIC ....................................................... $ 0.52 $ 0.27 $ 0.99 $ 0.60
========== ========== ========== ==========
DILUTED ..................................................... $ 0.50 $ 0.26 $ 0.95 $ 0.58
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES:
BASIC ....................................................... 3,507,911 3,503,972 3,507,911 3,499,506
========== ========== ========== ==========
DILUTED ..................................................... 3,638,263 3,618,165 3,634,852 3,605,769
========== ========== ========== ==========
DIVIDENDS PAID PER COMMON SHARE ................................ $ 0.07 $ 0.06 $ 0.14 $ 0.11
========== ========== ========== ==========
3
Peoples Bancorporation, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
for the six months ended June 30, 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 ......................................... 2,091 2,091
Other comprehensive income, net of
tax:
Unrealized holding gains on
securities available for sale ................... 356 356
----------
Comprehensive income ............................... 2,447
Cash Dividends ..................................... (367) (367)
Proceeds from stock options ........................ 12,761 21 69 90
---------- ---------- ---------- ---------- ---------- ----------
Balance, June 30, 2002 ............................. 3,341,370 $ 5,580 $ 22,855 $ 1,756 $ 530 $ 30,721
========== ========== ========== ========== ========== ==========
Balance, December 31, 2002* ........................ 3,507,911 $ 5,858 $ 25,758 $ 446 $ 685 $ 32,747
Net Income ......................................... 3,468 3,468
Other comprehensive income, net of
tax:
Unrealized holding losses on
securities available for sale ................... (188) (188)
Less reclassification
adjustments for gains
included in net income .......................... (5) (5)
----------
Comprehensive income ............................... 3,275
Cash Dividends ..................................... (491) (491)
---------- ---------- ---------- ---------- ---------- ----------
Balance, June 30, 2003 ............................. 3,507,911 $ 5,858 $ 25,758 $ 3,423 $ 492 $ 35,531
========== ========== ========== ========== ========== ==========
* 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)
Six months Ended
June 30,
2003 2002
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income .......................................................................... $ 3,468 $ 2,091
Adjustments to reconcile net income to net cash provided
by (used in) operating activities
(Gain) on sale of premises and equipment ............................................ (7) (6)
(Gain) on sale of securities available for sale ..................................... (7) 0
Provision for loan losses ........................................................... 458 511
Depreciation and amortization ....................................................... 405 296
Amortization and accretion (net) of premiums and
discounts on securities ........................................................... 188 46
Origination of mortgage loans held for sale ......................................... (274,717) (159,071)
Sale of mortgage loans held for sale ................................................ 289,406 186,896
(Increase) decrease in accrued interest receivable .................................. 153 (105)
Increase in other assets ............................................................ (361) (415)
Decrease in accrued interest payable ................................................ (18) (27)
Increase in other liabilities ....................................................... 303 362
--------- ---------
Net cash provided by operating activities ......................................... 19,271 30,578
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities held for investment ......................................... (405) 0
Purchases of securities available for sale .......................................... (45,471) (33,611)
Purchase of other investments ....................................................... (195) (69)
Proceeds from the maturity of securities held to maturity ........................... 275 575
Proceeds from the maturity of securities available for sale ......................... 3,200 0
Proceeds from the sale of securities available for sale ............................. 5,999 0
Proceeds from the call of securities available for sale ............................. 44,265 5,400
Proceeds from principal pay downs ................................................... 8,026 2,400
Net increase in loans ............................................................... (28,782) (14,980)
Proceeds from the sale of premises and equipment .................................... 44 0
Purchase of premises and equipment .................................................. (712) (1,152)
--------- ---------
Net cash used in investing activities ............................................. (13,756) (41,437)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits ............................................................ 30,821 67,920
Net increase (decrease) in securities sold under repurchase
agreements ........................................................................ (6,098) 2,130
Net decrease in notes payable Federal Home Loan Bank ................................ (12,000) (18,985)
Proceeds from stock options exercised .............................................. 0 90
Cash dividend ....................................................................... (491) (367)
--------- ---------
Net cash provided by financing activities ......................................... 12,232 50,788
--------- ---------
Net increase in cash and cash equivalents ......................................... 17,747 39,929
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ........................................... 12,142 12,426
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................................... $ 29,889 $ 52,355
========= =========
CASH PAID FOR
Interest .......................................................................... $ 3,869 $ 3,809
========= =========
Income Taxes ...................................................................... $ 1,778 $ 776
========= =========
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 and June 20, 2003, payable April 4, 2003
and July 7, 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 six
months ended June 30, 2003 and 2002 was 3,507,911 and 3,499,506, respectively.
The weighted average number of common shares outstanding for diluted net income
per common share was 3,634,852 and 3,605,769 for the six months ended June 30,
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.
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30,
-------- --------
2003 2002 2003 2002
---- ---- ---- ----
Net income, as reported ...................................... $ 1,811 $ 941 $ 3,468 $ 2,091
Deduct: total stock-based employee compensation
expense determined under fair value based method
for all awards, Net of related tax effects ................. (11) (15) (22) (30)
------------ ------------ ------------ ---------
Pro forma net income ......................................... $ 1,800 $ 926 $ 3,446 $ 2061
============ ============ ============ =========
Net income per common share
Basic - as reported ........................................ $ 0.52 $ 0.27 $ 0.99 $ 0.60
============ ============ ============ =========
Basic - pro forma .......................................... $ 0.51 $ 0.26 $ 0.98 $ 0.59
============ ============ ============ =========
Diluted - as reported ...................................... $ 0.50 $ 0.26 $ 0.95 $ 0.58
============ ============ ============ =========
Diluted - pro forma ........................................ $ 0.49 $ 0.26 $ 0.95 $ 0.57
============ ============ ============ =========
6
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.
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 and six-month periods ending June 30, 2003 are
not necessarily indicative of the results to be attained for any other period.
Critical Accounting Policies
Peoples Bancorporation, Inc. (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, including in this report, the Company may publish
forward-looking statements relating to such matters as anticipated financial
8
performance, business prospects, technological developments, new 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 report 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 Company's consolidated net income for the second quarter of 2003 was
$1,811,000 or $0.50 per diluted share compared to $941,000 or $0.26 per diluted
share for the second quarter of 2002, an increase of 92.5%. Net income for the
six months ended June 30, 2003 was $3,468,000 or $0.95 per diluted share
compared to $2,091,000 or $0.58 per diluted share for the six months ended June
30, 2002, an increase of 65.9%. Return on average equity for the six months and
three months ended June 30, 2003 was 20.82% and 21.18% compared to 14.36% and
12.65% for the six months and three months ended June 30, 2002. Return on
average assets for the six months and three months ended June 30, 2003 was 1.65%
and 1.69% compared to 1.27% and 1.08% for the six months and three months ended
June 30, 2002. The increases in the Company's net income, earnings per 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 $2,633,000 for the six months
ended June 30, 2003 compared to net earnings of $1,595,000 for the six months
ended June 30, 2002, an increase of 65.1%. Bank of Anderson, N. A. recorded net
earnings of $595,000 for the six months ended June 30, 2003 compared to net
earnings of $354,000 for the six months ended June 30, 2002, an increase of
68.1%. Seneca National Bank recorded net earnings of $256,000 for the six months
ended June 30, 2003 compared to net earnings of $149,000 for the six months
ended June 30, 2002, an increase of 71.8%. Key factors for the Company's results
of operations are discussed throughout the Management's Discussion and Analysis
below.
Interest Income, Interest Expense and Net Interest Income
The largest component of the Company's income is net 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 $312,000 or 10.5% to $3,281,000 in the quarter ended June
30, 2003 compared to $2,969,000 in the quarter ended June 30, 2002. For the six
months ended June 30, 2003 net interest income before provision for loan losses
increased $487,000 or 7.9% to $6,670,000 compared to $6,183,000 for the six
months ended June 30, 2002. The increase in the net interest income resulted
primarily from larger average balances in earning assets at the Company's bank
subsidiaries, and was partially offset by a decrease in the yields on earning
assets. The Company's net interest margin for the six months and three months
ended June 30, 2003 was 3.36% and 3.25%, respectively, compared to 3.99% and
3.65%, respectively, for the six months and three months ended June 30, 2002.
The decrease in net interest margin resulted primarily from the decrease in the
yields on earning assets, which resulted from falling market interest rates.
10
The Company's total interest income for the second quarter of 2003 was
$5,196,000 compared to $5,026,000 for the second quarter of 2002, an increase of
$170,000 or 3.4%. Total interest income for the six months ended June 30, 2003
was $10,521,000 compared to $9,966,000 for the six months ended June 30, 2002,
an increase of $555,000 or 5.6%. Interest and fees on loans, the largest
component of total interest income, increased $313,000 in the second quarter of
2003 to $4,541,000 compared to $4,228,000 for the second quarter of 2002, an
increase of 7.4%. Interest and fees on loans increased $461,000 for the six
months ended June 30, 2003 to $9,068,000 compared to $8,607,000 for the six
months ended June 30, 2002, an increase of 5.4%. The increase in interest and
fees on loans, as well as the increase in total interest income, resulted
primarily from the higher average balances in the various types of earning
assets, and was partially offset by the lower market interest rates that were
experienced at the Company's bank subsidiaries during the first half of 2003
when compared to the first half of 2002.
The Company's total interest expense for the second quarter of 2003 was
$1,915,000 compared to $2,057,000 for the second quarter of 2002, a decrease of
$142,000 or 6.9%. Total interest expense for the six months ended June 30, 2003
was $3,851,000 compared to $3,783,000 for the six months ended June 30, 2002, an
increase of $68,000 or 1.8%. Interest expense on deposits, the largest component
of total interest expense, decreased $146,000 in the second quarter of 2003 to
$1,729,000 compared to $1,875,000 for the second quarter of 2002, a decrease of
7.8%. Interest expense on deposits increased $51,000 for the six months ended
June 30, 2003 to $3,457,000 compared to $3,406,000 for the six months ended June
30, 2002, an increase of 1.5%. Interest on federal funds purchased and
securities sold under repurchase agreements, the second largest component of
total interest expense, decreased $13,000 or 10.8% to $107,000 in the second
quarter of 2003 compared to $120,000 for the second quarter of 2002. Interest on
federal funds purchased and securities sold under repurchase agreements
decreased $4,000 or 1.6% to $240,000 in the first half of 2003 compared to
$244,000 for the first half of 2002. Interest on notes payable to the Federal
Home Loan Bank, the third largest component of total interest expense, increased
$17,000 or 27.4% to $79,000 in the second quarter of 2003 compared to $62,000
for the second quarter of 2002. Interest on notes payable to the Federal Home
Loan Bank increased $21,000 or 15.8% to $154,000 in the first half of 2003
compared to $133,000 for the first half of 2002. The decrease in interest
expense among the various types of interest-bearing liabilities is largely
attributable to lower market interest rates experienced at the Company's bank
subsidiaries during the first half of 2003 when compared to the first half of
2002, and was partially offset by the higher average balances in some of the
accounts. For certain other types of interest-bearing liabilities, the higher
average balances in the accounts had a greater impact than the lower market
interest rates, to which the increase in interest expense in these accounts is
largely attributable.
11
Provision for Loan Losses
The provision for loan losses charged to operations during the three months
and six months ended June 30, 2003 was $329,000 and $458,000, respectively,
compared to $198,000 and $511,000, respectively, for the three months and six
months ended June 30, 2002. The changes in the Company's provision for loan
losses for the second quarter and first half of 2003 are 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 half of 2003, The
Peoples National Bank made provision of $325,000 compared to $400,000 for the
first half of 2002. Bank of Anderson, N.A. made provision of $80,000 for the
first six months of 2003, compared to $70,000 for the same period of 2002.
Seneca National Bank made provision of $53,000 during the first half of 2003
compared to $41,000 for the first half of 2002.
Non-interest Income
Non-interest income increased $2,046,000 or 147.6% to $3,432,000 for the
second quarter of 2003 compared to $1,386,000 for the second quarter of 2002.
Non-interest income increased $3,378,000 or 121.2% to $6,166,000 for the first
half of 2003 compared to $2,788,000 for the first half of 2002. Mortgage banking
fee income, the largest component of non-interest income, increased $2,002,000
or 263.8% to $2,761,000 for the second quarter of 2003 compared to $759,000 for
the second quarter of 2002. Mortgage banking fee income increased $3,234,000 or
197.4% to $4,872,000 for the first half of 2003 compared to $1,638,000 for the
first half of 2002. The increase in mortgage banking fee income is largely
attributable to increased activity in customer refinancing activity due to
market interest rates that have been at historical lows. Service fees and other
income, the second largest component of non-interest income, increased $38,000
or 6.1% to $665,000 for the second quarter of 2003 compared to $627,000 for the
second quarter of 2002. Service fees and other income increased $137,000 or
11.9% to $1,287,000 for the first half of 2003 compared to $1,150,000 for the
first half of 2002. Gains of $6,000 and $7,000, respectively, were realized on
the sale of available-for-sale securities during the second quarter and first
half of 2003. No gain or loss was realized on the sale of securities during the
second quarter or first half of 2002.
Non-interest Expense
Total non-interest expense increased $840,000 or 31.2% to $3,530,000 for
the second quarter of 2003 from $2,690,000 for the second quarter of 2002. Total
non-interest expense increased $1,726,000 or 33.2% to $6,924,000 for the first
half of 2003 from $5,198,000 for the first half of 2002. Salaries and benefits,
the largest component of non-interest expense, increased $575,000 or 37.9%, to
$2,092,000 for the second quarter of 2003 from $1,517,000 for the second quarter
of 2002. Salaries and benefits increased $1,144,000 or 38.1%, to $4,145,000 for
the first half of 2003 from $3,001,000 for the first half of 2002. The increase
in salaries and benefits is primarily attributable to increases in commissions
12
paid due to elevated levels of mortgage loan activity, as well as additional
staffing associated with the Company's continued growth and normal salary
increases throughout the Company.
BALANCE SHEET REVIEW
Loans
Outstanding loans (which excludes mortgage loans held for sale) represent
the largest component of earning assets at 68.3% of total earning assets. As of
June 30, 2003, the Company held total gross loans outstanding of $279,181,000.
Gross loans increased $28,694,000 or 11.5% from $250,487,000 in total gross
outstanding loans at December 31, 2002 and increased $51,168,000 or 22.4% from
$228,013,000 in total gross loans outstanding at June 30, 2002. The increase
resulted from new loans generated by the Company's three banking subsidiaries.
The following table summarizes outstanding loans by collateral type:
June 30, December 31,
-------- ------------
Loan Portfolio Composition 2003 2002 2002
(Dollars in Thousands) ---- ---- ----
Commercial and Industrial - not secured by real estate ................. $ 37,866 $ 30,150 $ 35,548
Commercial and Industrial - secured by real estate ..................... 82,457 61,429 72,600
Residential real estate - mortgage ..................................... 81,409 67,558 69,579
Residential real estate - construction ................................. 55,785 43,227 48,452
Consumer loans ......................................................... 21,664 25,649 24,308
-------- -------- --------
Gross Loans ....................................................... $279,181 $228,013 $250,487
======== ======== ========
The interest rates charged on loans vary with the degree of risk, maturity
and amount of the loan. Competitive pressures, money market rates, availability
of funds, and government regulation also influence interest rates. The average
yield on the Company's loans for the six months and three months ended June 30,
2003 was 5.87% and 5.74%, respectively, compared to 7.20% and 7.07%,
respectively, for the six months and three months ended June 30, 2002.
Approximately 49.8% of the Company's loans are tied to the prime interest rate.
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 actively 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 June 30, 2003 the Company held
$40,337,000 of mortgage loans held for sale compared to $55,026,000 at December
31, 2002 and $13,100,000 at June 30, 2002. The substantial swings in the level
13
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 June 30,
2003, the Company originated $157,067,000 and sold $160,873,000 in residential
mortgages. During the six months ended June 30, 2003, the Company originated
$274,717,000 and sold $289,406,000 in residential mortgages.
The Company's commercial lending activity is directed principally towards
businesses whose demands for funds fall within each Banks' legal lending limits
and which are potential deposit customers of the Banks. This category of loans
includes loans made to individuals, partnerships, and corporations, 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 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
June 30, 2003 approximately $11,733,000 or 9.8% 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 few agricultural loans.
Allowance for Loan Losses
The allowance for loan losses at June 30, 2003 was $3,220,000 or 1.15% 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 compared to
$2,785,000 or 1.22% of loans outstanding at June 30, 2002. The allowance for
loan losses is based upon management's continuing evaluation of the
collectibility of past due loans based on the historical loan loss experience of
the Company, current economic conditions affecting the ability of borrowers to
repay, the volume of loans, the quality of collateral securing non-performing
and problem loans, and other factors deserving recognition.
At June 30, 2003 the Company had $914,000 in non-accruing loans, no
restructured loans, no loans more than ninety days past due and still accruing
interest, and $393,000 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 June 30, 2002, the Company had $691,000 in
14
non-accruing loans, no restructured loans, $20,000 in loans more than ninety
days past due and still accruing interest, and $723,000 in Other Real Estate
Owned. Non-performing loans at June 30, 2003 consisted of $61,000 in commercial
loans, $819,000 in mortgage loans, and $34,000 in consumer loans. Non-performing
assets as a percentage of loans and other real estate owned was 0.41%, 0.37%,
and 0.59% at June 30, 2003, December 31, 2002, and June 30, 2002, respectively.
Net charge-offs during the first six months of 2003 were $88,000 compared
to net charge-offs of $14,000 for the first six months of 2002 and net
charge-offs of $382,000 for the year ended December 31, 2002. The allowance for
loan losses as a percentage of non-performing loans was 352%, 306%, and 392% as
of June 30, 2003, December 31, 2002, and June 30, 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. When the ultimate collectibility of an impaired
loan's principal is in doubt, wholly or partially, all cash receipts are then
applied to principal. At June 30, 2003 the Company had $367,000 in impaired
loans and no impaired loans at December 31, 2002 and June 30, 2002.
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 June 30, 2003 securities totaled $69,996,000, which represents 17.1%
of total earning assets. Securities decreased $16,174,000 or 18.8% from
$86,170,000 invested as of December 31, 2002 and increased $8,634,000 or 14.1%
from $61,362,000 invested as of June 30, 2002. The increase in securities, when
comparing June 30, 2003 to June 30, 2002, is primarily the result of the
investment of excess liquidity from an increase in deposits at the Company's
bank subsidiaries. The decrease when comparing June 30, 2003 to December 31,
2002 resulted from the funding of the Company's mortgage lending activities and
core loan growth.
At June 30, 2003 the Company's total investments classified as
available for sale had an amortized cost of $62,348,000 and a market value of
$63,094,000 for an unrealized gain of $746,000. This compares to an amortized
cost of $55,615,000 and a market value of $56,419,000 for an unrealized gain of
$804,000 on the Company's investments classified as available for sale at June
30, 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.
15
Cash and Cash Equivalents
The Company's cash and cash equivalents increased $17,747,000 or 146.2%
to $29,889,000 at June 30, 2003 from $12,142,000 at December 31, 2002 and
decreased $22,466,000 or 43.0% from $52,355,000 at June 30, 2002. The swings in
the level of cash and cash equivalents are due to fluctuations in the Banks'
need for immediate liquidity.
Deposits
The Bank's primary source of funds for loans and investments is its
deposits. Total deposits grew $30,820,000 or 9.4% to $358,994,000 at June 30,
2003 from $328,174,000 at December 31, 2002 and increased $54,272,000 or 17.8%
from $304,722,000 at June 30, 2002. The increase resulted from deposits
generated by all of the Banks. Competition for deposit accounts is primarily
based on the interest rates paid, location convenience and services offered.
During the first six months of 2003, interest-bearing deposits averaged
$293,717,000 compared to $233,008,000 for the first six months 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. On June 30, 2003 there were no outstanding certificates garnered
through the Internet, and brokered deposits totaled $15,594,000. At December 31,
2002 Internet certificates of deposit totaled $990,000, and there were no
brokered deposits. On June 30, 2002 the outstanding certificates garnered
through the Internet totaled $4,450,000, and brokered deposits totaled
$1,900,000. These deposits are an attractive alternative funding source
available to use while continuing efforts to maintain and grow the banks' local
deposit base.
The average interest rate paid on interest-bearing deposits was 2.35%
for the first six months of 2003 compared to 2.90% for the first six months of
2002. In pricing deposits, the Company considers its liquidity needs, the
direction and levels of interest rates, and local market conditions. At June 30,
2003 interest-bearing deposits comprised 87.6% of total deposits compared to
87.1% at June 30, 2002.
The Company's core deposit base consists largely of consumer time
deposits, savings, 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 74.1% and
76.8% for the six months ended June 30, 2003 and June 30, 2002, respectively.
The Company closely monitors its reliance on certificates greater than $100,000,
which are generally considered less stable and less reliable than core deposits.
16
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 June 30, 2003 short-term
borrowings totaled $29,233,000 and were comprised entirely of securities sold
under repurchase agreements. At December 31, 2002 short-term borrowings totaled
$47,331,000 and were comprised of $35,331,000 in securities sold under
repurchase agreements and $12,000,000 in short-term advances from the Federal
Home Loan Bank of Atlanta. At June 30, 2002 short-term borrowings totaled
$22,776,000 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 June 30, 2003, December 31,
2002, and June 30, 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 June 30, 2003 The Peoples National
Bank had total borrowing capacity from the Federal Home Loan Bank of Atlanta
equal to $35,405,560, and the unused portion of this line of credit was
$30,405,560. The Company's other two bank subsidiaries, Bank of Anderson and
Seneca National Bank, each had secured lines of credit with the Federal Home
Loan Bank of Atlanta at June 30, 2003 of $12,208,000 and $4,378,000
respectively, all of which was unused. At June 30, 2003 the Banks had unused
federal funds lines of credit totaling $32,450,000.
Peoples Bancorporation, Inc., the parent holding company, has limited
liquidity needs, and requires liquidity to pay limited operating expenses and
dividends only.
During the first six months of 2003, the Company had capital
expenditures of approximately $404,000 associated with the construction of a
branch banking facility for Bank of Anderson. The Company will additionally
spend approximately $400,000 in order to complete the construction of this
branch banking facility during the second half of 2003. The Company is also
considering other capital expenditures that may be made, in whole or in part,
during the remainder of 2003, including the renovation and expansion of the main
office of Bank of Anderson for approximately $800,000, as well as the possible
purchase of a tract of land at an undetermined price for a branch office of The
17
Peoples National Bank in Greenville. 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 and DERIVATIVE FINANCIAL INSTRUMENTS
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
June 30, 2003, the Banks had issued commitments to extend credit (excluding
commitments for residential mortgage loans designated for sale) of $69,345,000
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 $4,243,000 at
June 30, 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. Various types of collateral secure most of
the standby letters of credit. 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.
According to Statement of Financial Accounting Standards ("SFAS") No.
133, Accounting for Derivative Instruments and Hedging Activities, loan
commitments that relate to the origination or purchase of mortgage loans that
will be held for sale must be accounted for as derivative instruments.
Therefore, such commitments are recorded at fair value in derivative assets or
liabilities, with changes in fair value recorded in the net gain or loss on sale
of mortgage loans. The Company engages in the origination and sale of
residential mortgage loans and enters into commitments on an individual loan
basis to both originate and sell residential mortgage loans whereby the interest
rate on the loan to the borrower and to the end purchaser of the loan is
determined prior to funding (rate lock commitments). At June 30, 2003 the
Company had commitments outstanding to originate residential mortgage loans
under rate locks commitments from borrowers totaling $20,859,000.
Simultaneously, the Company had commitments to sell these
18
loans to third parties under rate lock commitments. The Company does not collect
any upfront fees when issuing a mortgage loan commitment to a potential borrower
and mortgages are sold to third parties at par value. The cumulative effect
under SFAS No. 133 for rate lock commitments as of June 30, 2003 for the Company
was immaterial.
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 June 30, 2003.
19
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 June 30, 2003:
CAPITAL RATIOS
(Amounts in Thousands)
Well Adequately
Capitalized Capitalized
Actual Requirement Requirement
------ ----------- -----------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Company:
Total Risk-based Capital ............... $38,259 12.17% $31,437 10.00% $25,150 8.00%
Tier 1 Risk-based Capital .............. 35,039 11.15 18,855 6.00 12,570 4.00
Leverage Ratio ......................... 35,039 8.26 21,210 5.00 16,968 4.00
Peoples National Bank:
Total Risk-based Capital ............... $22,950 11.70% $19,615 10.00% $15,692 8.00%
Tier 1 Risk-based Capital .............. 20,931 10.67 11,770 6.00 7,847 4.00
Leverage Ratio ......................... 20,931 8.20 12,763 5.00 10,210 4.00
Bank of Anderson, N. A:
Total Risk-based Capital ............... $ 9,433 11.70% $ 8,062 10.00% $ 6,450 8.00%
Tier 1 Risk-based Capital .............. 8,610 10.68 4,837 6.00 3,225 4.00
Leverage Ratio ......................... 8,610 6.77 6,359 5.00 5,087 4.00
Seneca National Bank:
Total Risk-based Capital ............... $ 4,247 11.56% $ 3,674 10.00% $ 2,939 8.00%
Tier 1 Risk-based Capital .............. 3,869 10.53 2,205 6.00 1,470 4.00
Leverage Ratio ......................... 3,869 8.22 2,353 5.00 1,883 4.00
20
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-based Compensation--Transition and Disclosure", an amendment of FASB
Statement No. 123, "Accounting for Stock-Based Compensation", to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. SFAS No. 148 also
amends the disclosure provisions of SFAS No. 123 and Accounting Pronouncement
Board ("APB") Opinion No. 28, "Interim Financial Reporting", to require
disclosure in the summary of significant accounting policies of the effects of
an entity's accounting policy with respect to stock-based employee compensation
on reported net income and earnings per share in annual and interim financial
statements. While SFAS No. 148 does not amend SFAS No. 123 to require companies
to account for employee stock options using the fair value method, the
disclosure provisions of SFAS No. 148 are applicable to all companies with
stock-based employee compensation, regardless of whether they account for that
compensation using the fair value method of SFAS No. 123 or the intrinsic value
method of APB Opinion No. 25. The provisions of SFAS No. 148 are effective for
annual financial statements for fiscal years ending after December 15, 2002, and
for financial reports containing condensed financial statements for interim
periods beginning after December 15, 2002. The Company has adopted the
disclosure provisions of SFAS No. 148 which had no impact on the financial
condition or operating results of the Company.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts and loan commitments that relate to the
origination of mortgage loans held for sale, and for hedging activities under
SFAS No. 133. SFAS No. 149 is generally effective for contracts entered into or
modified after June 30, 2003. The adoption of SFAS No. 149 will not have a
material impact on the financial condition or operating results of the Company.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances.) Many of those instruments
were previously classified as equity. SFAS No. 150 is generally effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. The adoption of SFAS No. 150 did not have a material impact on the
financial condition or operating results of the Company.
In June 2003, the American Institute of Certified Public Accountants
(AICPA) issued an exposure draft of a proposed Statement of Position (SOP),
Allowance for Credit Losses. The proposed SOP addresses the recognition and
measurement by creditors of the allowance for credit losses related to all
loans, as that term is defined in SFAS No. 114, Accounting by Creditors for
21
Impairment of a Loan. The proposed SOP provides that the allowance for credit
losses reported on a creditor's balance sheet should consist only of (1) a
component for individual loan impairment recognized and measured pursuant to
FASB Statement No. 114 and (2) one or more components of collective loan
impairment recognized pursuant to FASB Statement No. 5, Accounting for
Contingencies, and measured in accordance with the guidance in the proposed SOP.
The provisions of the proposed SOP would be effective for financial statements
for fiscal years beginning after December 15, 2003, with earlier application
permitted. The effect of initially applying the provisions of the proposed SOP
would be reported as a change in accounting estimate. Comments on the exposure
draft are due by September 19, 2003. The effect on the financial condition or
operating results of the Company related to the adoption of this proposed SOP
have not been determined, but would most likely be material.
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 June 30, 2003, on a cumulative basis
through 12 months, rate-sensitive liabilities exceeded rate-sensitive assets by
$120,196,000. This liability-sensitive position is largely attributable to the
Company's short-term Certificates of Deposit, Money Market accounts and NOW
accounts, which totaled $141,666,000, $59,409,000 and $38,304,000, respectively,
at June 30, 2003.
22
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.
23
PART II. OTHER INFORMATION
Item 4. Submission to a Vote of Security Holders
On May 20, 2003, The Company held its Annual Meeting of Shareholders. The result
of the 2003 Annual Meeting of Shareholders is as follows:
The following persons were elected as Directors to serve for a term set forth
below with 2,294,504 shares voted, representing 65.4% of the total voting
shares:
For Withheld Term (years)
--- -------- ------------
William A. Carr 2,270,362 24,142 3
Robert E. Dye, Jr. 2,279,867 14,637 3
W. Rutledge Galloway 2,269,024 25,480 3
E. Smyth McKissick, III 2,263,666 30,838 3
James A. Black, Jr. 2,288,761 5,743 3
William B. West 2,285,631 8,873 3
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.
24
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: August 7, 2003 By: /s/ Robert E. Dye, Sr.
------------------------
Robert E. Dye, Sr.
President and Chairman of the Board
Dated: August 7, 2003 By: /s/ William B. West
---------------------
William B. West
Sr. Vice President & CFO
(principal financial officer)
25
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 or not 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: August 7, 2003 By: /s/ Robert E. Dye, Sr.
------------------------
Robert E. Dye, Sr.
President and Chairman of the Board
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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 or not 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: August 7, 2003 By: /s/ William B. West
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William B. West
Sr. Vice President & CFO
(principal financial officer)
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