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2008 SHAREHOLDERS LETTERWithout question 2008 was the most difficult year in our Company’s history. As the nation found itself in the midst of the worst economic recession since the Great Depression, we discovered that even community banks were not immune from problems born on Wall Street. Having earned in excess of $4 million in each of 2005, 2006, and 2007, Peoples Bancorporation experienced a net loss in 2008 – our first in many years – of $8.3 million. This loss comes after an unbroken string of twenty consecutive years of profitability for our Company, and we have now focused efforts on generating revenue and controlling expenses with renewed vigor in response to these difficult economic times. Several factors contributed to this net loss, the most significant of which was a provision for loan losses of $13.8 million. To put that into perspective, consider that the Company had never provided as much as $1 million in any single year prior to 2008. Actual loan charge-offs for 2008 were $8.9 million, exceeding the combined loan charge-offs for the Company’s 22-year history prior to 2008. Real estate development was in severe distress in this country, and virtually all banks that had loaned money in that sector experienced losses, ours being no exception. Another contributing factor was a severe interest margin squeeze in the banking industry that was created when the Federal Reserve lowered interest rates by 400 basis points in an attempt to soften the impacts of the recession. This margin squeeze, along with asset quality issues, led to our net interest income being down by $2.2 million from the prior year. When the United States Treasury took the completely unprecedented action of placing both Fannie Mae and Freddie Mac into conservatorship, the negative impact to the Company was over $3.0 million, due to the fact that our banks held preferred shares in Freddie Mac. These shares were double-A rated just weeks prior to the takeover of those two government-sponsored enterprises, and many shares were owned by approximately 2,000 community banks like ours, banks with typically conservative risk profiles. We have taken proactive, conservative steps to shore up our asset quality, not the least of which was more than doubling our reserves against possible loan losses from $4.3 million to $9.2 million during 2008. It is important to realize that all three of our subsidiary banks remain “well capitalized” according to federal government guidelines, and in this economic environment it is often stated that, “Capital is king.” Peoples Bancorporation was deemed by the U. S. Treasury Department to be healthy enough to participate in the Troubled Asset Relief Program, and so we are currently evaluating the prospect of allowing the Treasury to invest up to $12.7 million in our Company. With the ongoing economic recession that faces every household in the nation, we have worked diligently to improve our net interest margin, control overhead expenses, and protect asset quality. We will certainly weather this economic storm as we have in the past, and we believe that solid, profitable, community banking has always been our niche and will remain our focus going forward. While we are not pleased with the financial results of 2008, we believe that we are well positioned for the future, in spite of the difficult economy that will undoubtedly persist in the near term. Last of all, we appreciate your continued support and patronage of our banks, and we continue our pledge to you for excellence and personal service. PEOPLES BANCORPORATION SENIOR MANAGEMENT COMMITTEE |
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