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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2000 File Number 000-22054
COMMUNITY BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
South Carolina 57-0966962
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
791 Broughton St., Orangeburg, South Carolina 29115
(Address of Principal Executive Office, Zip Code)
Registrant's Telephone Number, Including Area Code: (803) 535-1060
Securities Registered Pursuant to Section 12(b) of the Act:
Common Stock, No Par Value - American Stock Exchange
(Title of Class) - (Name of each exchange on which registered)
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all the
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X. No _.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value voting and non-voting common equity held by
non-affiliates on February 27, 2001 was approximately $26,206,000. As of
February 27, 2001 there were 3,199,180 shares of the Registrant's Common Stock,
no par value, outstanding. For purposes of the foregoing calculation only, all
directors and executive officers of the Registrant have been deemed affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's Proxy Statement for the 2001 Annual Meeting of
Shareholders - Part III
10-K TABLE OF CONTENTS
Part I Page
Item 1 Description of Business ............................................................ 1
Item 2 Description of Property ............................................................ 9
Item 3 Legal Proceedings .................................................................. 10
Item 4 Submission of Matters to a Vote of Security Holders ................................ 10
Part II
Item 5 Market for Common Equity and Related Stockholder Matters ........................... 10
Item 6 Selected Financial Data ............................................................ 11
Item 7 Management's Discussion and Analysis of Financial Position and Operations .......... 11
Item 7A Quantitative and Qualitative Disclosures about Market Risk ......................... 27
Item 8 Financial Statements and Supplementary Data ........................................ 29
Independent Auditor's Report ....................................................... 31
Consolidated Balance Sheets, December 31, 2000 and 1999 ............................ 32
Consolidated Statements of Income, Years Ended December 31, 2000, 1999 and 1998 .... 33
Consolidated Statements of Changes in Shareholders' Equity, Years Ended December ... 35
31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows, Years Ended December 31, 2000, 1999 and
1998 .......................................................................... 37
Notes to Consolidated Financial Statements ......................................... 39
Quarterly Data for 2000 and 1999 ................................................... 62
Item 9 Changes In and Disagreements with Accountants on Accounting and Financial
Disclosure .................................................................... 63
Part III
Item 10 Directors and Executive Officers *
Item 11 Executive Compensation *
Item 12 Security Ownership of Certain Beneficial Owners and Management *
Item 13 Certain Relationships and Related Transactions *
Part IV
Item 14 Exhibits and Reports on Form 8-K .................................................. 64
* Incorporated by reference to Registrant's Proxy Statement for 2001
Annual Meeting of Shareholders
PART I
Item 1. Description of Business
Form of organization
Community Bankshares, Inc. (CBI) is a South Carolina corporation and a
bank holding company. CBI commenced operations on July 1, 1993, upon
effectiveness of the acquisition of the Orangeburg National Bank as a wholly
owned subsidiary. In June 1996 CBI acquired all the stock of Sumter National
Bank, which is also a wholly owned subsidiary. In July 1998 CBI acquired all the
stock of Florence National Bank, which is also a wholly owned subsidiary.
Orangeburg National Bank (the Orangeburg bank) is a national bank,
chartered in 1987, operating from two offices located in Orangeburg, South
Carolina.
Sumter National Bank (the Sumter bank) is a national bank, chartered in
1996, operating from one office located in Sumter, South Carolina.
Florence National Bank (the Florence bank) is a national bank,
chartered in 1998, operating from one office located in Florence, South
Carolina.
Business of banking
The Orangeburg, Sumter and Florence banks (hereafter referred to as the
Banks) offer a full array of commercial bank services. Deposit services include
business and personal checking accounts, NOW accounts, savings accounts, money
market accounts, various term certificates of deposit, IRA accounts, and other
deposit services. The Federal Deposit Insurance Corporation insures deposits up
to applicable limits. Most of the Banks' deposits are attracted from individuals
and small businesses.
The Banks offer secured and unsecured, short-to-intermediate term
loans, with floating and fixed interest rates for commercial and consumer
purposes. Consumer loans include: car loans, home equity improvement loans
secured by first and second mortgages, personal expenditure loans, education
loans, and the like. Commercial loans include short-term unsecured loans, short
and intermediate term real estate mortgage loans, loans secured by listed
stocks, loans secured by equipment, inventory, accounts receivable, and the
like. The Banks do not and will not discriminate against any applicant for
credit on the basis of race, color, creed, sex, age, marital status, familial
status, handicap, or derivation of income from public assistance programs.
Other services offered by the Banks include safe deposit boxes, night
depository service, VISA and Master Card charge cards (through a correspondent),
tax deposits, sale of U.S. Treasury bonds, notes and bills and other U. S.
government securities (through a correspondent), and twenty-four hour automated
teller service. Each of the Banks has ATMs and they are all part of the Star and
Cirrus networks.
Competition
The market for financial institutions in Orangeburg, Sumter, and
Florence is highly competitive. Banks generally compete with other financial
institutions through the banking services and products offered, the pricing of
services, the level of service provided, the convenience and availability of
services, and the degree of expertise and personal concern with which services
are offered. The Banks encounter strong competition from most of the financial
institutions in their market areas.
The market area for the Orangeburg bank generally encompasses an area
extending nine miles around the city of Orangeburg. The market area for the
Sumter bank generally encompasses the county of Sumter. The market area for the
Florence bank generally encompasses the city of Florence. In the conduct of
certain banking business, the Banks also compete with credit unions, consumer
finance companies, insurance companies, money market mutual funds, and other
financial institutions, some of which are not subject to the same degree of
regulation and restrictions imposed upon the Banks. Many of these competitors
have substantially greater resources and lending limits than the Banks and offer
certain services, such as international banking and trust services, that the
Banks do not provide. The Banks believe, however, that their relatively small
size permits them to offer more personalized services than many of their
competitors. The Banks attempt to compensate for their lower lending limits by
participating larger loans with other institutions, often with each other.
Most of the other financial institutions in the Orangeburg, Sumter, and
Florence areas are branch offices of large, regional banks. The financial
institution with the largest deposit base in the city of Orangeburg, SC is First
National Bank with deposits of $170 million. The following chart illustrates the
relative position of the Orangeburg bank and other financial institutions in the
marketplace in terms of their deposits as of June 30, 2000, 1999 and 1998.
Orangeburg, S. C. Comparative Bank Deposits
June 2000 June 1999 June 1998
Bank Deposit $ % market Deposit $ % market Deposit $ % market
--------- -------- --------- -------- --------- --------
(Dollar amounts in millions)
Orangeburg National Bank ............ $118 22.2% $108 21.1% $ 92 18.4%
First National Bank ................ 170 32.0% 160 31.4% 154 30.8%
First Union National Bank ........... 40 7.5% 48 9.4% 61 12.2%
Bank of America ..................... 99 18.6% 97 19.1% 97 19.4%
BB&T ................................ 85 16.0% 88 17.4% 90 18.0%
Wachovia ............................ 12 2.3% - -
Credit unions ....................... 8 1.5% 8 1.6% 6 1.2%
---- ----- ---- ----- ---- -----
Total deposits ...................... $532 100.0% $509 100.0% $500 100.0%
==== ===== ==== ===== ==== =====
Source: FDIC and NCUA websites
The financial institution with the largest deposit base in Sumter
County is SAFE (Shaw Air Force Employees) Federal Credit Union with deposits of
$254 million. It should be noted, however, the SAFE does not provide deposit
information by branches and the total represented herein includes deposits in
adjacent counties. The following chart illustrates the relative position of the
Sumter bank and other financial institutions in the marketplace in terms of
their deposits as of June 30, 2000, 1999 and 1998.
Sumter, S. C. Comparative Bank Deposits
June 2000 June 1999 June 1998
Bank Deposit $ % market Deposit $ % market Deposit $ % market
--------- -------- --------- -------- --------- --------
(Dollar amounts in millions)
Sumter National Bank ............... $ 57 6.4% $ 51 6.0% $ 38 4.9%
BB&T ............................... 107 12.0% 103 11.9% 97 12.6%
National Bank of SC ................ 224 25.2% 221 25.6% 176 22.8%
Bank of America .................... 74 8.3% 73 8.4% 78 10.1%
First Citizens Bank and Trust ...... 18 2.0% 18 2.1% 16 2.1%
Wachovia Bank of SC ................ 147 16.5% 150 17.4% 151 19.6%
Citizens Bank ...................... 9 1.0% 6 0.7% -
Centura Bank ....................... - 0.0% 3 0.3% -
SAFE FCU * ......................... 254 28.6% 236 27.5% 215 27.6%
Other .............................. - 0.0% 1 0.1% 2 0.3%
---- ----- ---- ----- ---- -----
Total deposits ..................... $890 100.0% $862 100.0% $773 100.0%
==== ===== ==== ===== ==== =====
Source: FDIC and NCUA websites
* includes deposits outside of Sumter County
2
The financial institution with the largest deposit base in the city of
Florence, SC is BB&T with deposits of $227 million. The following chart
illustrates the relative position of the Florence bank and other financial
institutions in the marketplace in terms of their deposits as of June 30, 2000,
1999 and 1998.
Florence, S. C. Comparative Bank Deposits
June 2000 June 1999 June 1998
BANK Deposit $ % market Deposit $ % market Deposit $ % market
--------- -------- --------- -------- --------- --------
(Dollar amounts in millions)
Florence National Bank* .................... $ 29 2.8% $ 15 1.3% $ -
Wachovia Bank, NA .......................... 198 19.3% 216 18.2% 213 17.3%
Branch Banking & Trust Company of SC ....... 227 22.1% 211 17.8% 209 16.9%
Peoples FS&LA of SC ........................ 180 17.6% 184 15.5% 187 15.2%
First Union National Bank .................. 88 8.6% 99 8.4% 106 8.6%
Bank of America ............................ 81 7.9% 79 6.6% 109 8.9%
Centura (formerly Pee Dee State Bank) ..... 41 4.0% 75 6.3% 91 7.4%
National Bank of SC ........................ 25 2.4% 74 6.2% 76 6.2%
Citizens Bank .............................. 65 6.3% 65 5.5% 65 5.3%
Florence County National Bank .............. 22 2.1% 23 2.0% -
First Reliance ............................. 43 4.2% - -
Others ..................................... 27 2.6% 145 12.2% 176 14.3%
------ ----- ------ ----- ------ -----
Total ...................................... $1,025 100.0% $1,185 100.0% $1,230 100.0%
====== ===== ====== ===== ====== =====
Source: FDIC and NCUA websites
* opened July 6, 1998
Dependence on Major Customers
The Banks do not consider themselves dependent on any single customer
or small group of customers, either in the deposit or lending areas.
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under
federal and state law. To the extent that the following information describes
statutory and regulatory provisions, it is qualified in its entirety by
reference to such statutes and regulations. Any change in applicable law or
regulation may have a material effect on the business of CBI and the Banks.
As discussed below under the caption "Recent Legislation", Congress has
recently adopted extensive changes in the laws governing the financial services
industry. Among the changes adopted are creation of the financial holding
company, a new type of bank holding company with powers that greatly exceed
those of standard holding companies, and creation of the financial subsidiary, a
subsidiary that can be used by national banks to engage in many, though not all,
of the same activities in which a financial holding company may engage. The
legislation also establishes the concept of functional regulation whereby the
various financial activities in which financial institutions engage are overseen
by the regulator with the relevant regulatory experience. Neither CBI nor the
Banks has yet made a decision as to how to adapt the new legislation to its use.
Accordingly, the following discussion relates to the supervisory and regulatory
provisions that apply to CBI and the Banks as they currently operate.
Regulation of Bank Holding Companies
General
As a bank holding company registered under the Bank Holding Company Act
("BHCA"), CBI is subject to the regulations of the Federal Reserve. Under the
BHCA, CBI's activities and those of its subsidiaries are limited to banking,
managing or controlling banks, furnishing services to or performing services for
its subsidiaries or engaging in any other activity which the Federal Reserve
determines to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto. The BHCA prohibits CBI from acquiring direct
or indirect control of more than 5% of the outstanding voting stock or
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substantially all of the assets of any bank or from merging or consolidating
with another bank holding company without prior approval of the Federal Reserve.
The BHCA also prohibits CBI from acquiring control of any bank operating outside
the State of South Carolina unless such action is specifically authorized by the
statutes of the state where the Bank to be acquired is located.
Additionally, the BHCA prohibits CBI from engaging in or from acquiring
ownership or control of more than 5% of the outstanding voting stock of any
company engaged in a non-banking business unless such business is determined by
the Federal Reserve to be so closely related to banking as to be properly
incident thereto. The BHCA generally does not place territorial restrictions on
the activities of such non-banking-related activities.
As discussed below under "Recent Legislation", a bank holding company
that meets certain requirements may now qualify as a financial holding company
and thereby significantly increase the variety of services it may provide and
the investments it may make.
CBI is also subject to limited regulation and supervision by the South
Carolina State Board of Financial Institutions. A South Carolina bank holding
company may be required to provide the State Board with information with respect
to the financial condition, operations, management and inter-company
relationships of the holding company and its subsidiaries. The State Board also
may require such other information as is necessary to keep itself informed about
whether the provisions of South Carolina law and the regulations and orders
issued thereunder by the State Board have been complied with, and the State
Board may examine any bank holding company and its subsidiaries. Furthermore,
pursuant to applicable law and regulations, the Company must receive approval
of, or give notice to (as applicable) the State Board prior to engaging in the
acquisition of banking or non-banking institutions or assets.
Obligations of Holding Company to its Subsidiary Banks
A number of obligations and restrictions are imposed on bank holding
companies and their depository institution subsidiaries by Federal law and
regulatory policy that are designed to reduce potential loss exposure to the
depositors of such depository institutions and to the FDIC insurance funds in
the event the depository institution is in danger of becoming insolvent or is
insolvent. For example, under the policy of the Federal Reserve, a bank holding
company is required to serve as a source of financial strength to its subsidiary
depository institutions and to commit resources to support such institutions in
circumstances where it might not do so absent such policy. In addition, the
"cross-guarantee" provisions of the Federal Deposit Insurance Act, as amended
("FDIA"), require insured depository institutions under common control to
reimburse the FDIC for any loss suffered or reasonably anticipated by either the
Savings Association Insurance Fund ("SAIF") or the Bank Insurance Fund ("BIF")
of the FDIC as a result of the default of a commonly controlled insured
depository institution or for any assistance provided by the FDIC to a commonly
controlled insured depository institution in danger of default. The FDIC may
decline to enforce the cross-guarantee provisions if it determines that a waiver
is in the best interest of the SAIF or the BIF or both. The FDIC's claim for
damages is superior to claims of stockholders of the insured depository
institution or its holding company but is subordinate to claims of depositors,
secured creditors and holders of subordinated debt (other than affiliates) of
the commonly controlled insured depository institutions.
The FDIA also provides that amounts received from the liquidation or
other resolution of any insured depository institution by any receiver must be
distributed (after payment of secured claims) to pay the deposit liabilities of
the institution prior to payment of any other general or unsecured senior
liability, subordinated liability, general creditor or stockholder. This
provision would give depositors a preference over general and subordinated
creditors and stockholders in the event a receiver is appointed to distribute
the assets of the Bank.
4
Any capital loans by a bank holding company to any of its subsidiary
banks are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary bank. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
Under the National Bank Act, if the capital stock of a national bank is
impaired by losses or otherwise, the OCC is authorized to require payment of the
deficiency by assessment upon the Bank's shareholders', pro rata, and to the
extent necessary, if any such assessment is not paid by any shareholder after
three months notice, to sell the stock of such shareholder to make good the
deficiency.
Capital Adequacy Guidelines for Bank Holding Companies and National Banks
The Federal Reserve has adopted risk-based and leverage capital
adequacy guidelines for holding companies and banks that are members of the
Federal Reserve System subject to its regulation. The capital guidelines and
CBI's capital position are summarized in Note 20 to the Financial Statements,
contained elsewhere in this report. All three of the Banks are considered well
capitalized.
Failure to meet capital guidelines could subject the Banks to a variety
of enforcement remedies, including the termination of deposit insurance by the
FDIC and a prohibition on the taking of brokered deposits.
The risk-based capital standards of both the Federal Reserve Board and
the FDIC explicitly identify concentrations of credit risk and the risk arising
from non-traditional activities, as well as an institution's ability to manage
these risks, as important factors to be taken into account by the agencies in
assessing an institution's overall capital adequacy. The capital guidelines also
provide that an institution's exposure to a decline in the economic value of its
capital due to changes in interest rates be considered by the agencies as a
factor in evaluating a bank's capital adequacy. The Federal Reserve Board also
has recently issued additional capital guidelines for bank holding companies
that engage in certain trading activities.
Payment of Dividends
CBI is a legal entity separate and distinct from the Banks. Most of the
revenues of CBI result from dividends paid to CBI by the Banks. There are
statutory and regulatory requirements applicable to the payment of dividends by
subsidiary banks as well as by CBI to its shareholders.
Each national banking association is required by federal law to obtain
the prior approval of the OCC for the payment of dividends if the total of all
dividends declared by the board of directors of such bank in any year will
exceed the total of (i) such bank's net profits (as defined and interpreted by
regulation) for that year plus (ii) the retained net profits (as defined and
interpreted by regulation) for the preceding two years, less any required
transfers to surplus. In addition, national banks can only pay dividends to the
extent that retained net profits (including the portion transferred to surplus)
exceed bad debts (as defined by regulation).
The payment of dividends by CBI and the Banks may also be affected or
limited by other factors, such as the requirements to maintain adequate capital
above regulatory guidelines. In addition, if, in the opinion of the applicable
regulatory authority, a bank under its jurisdiction is engaged in or is about to
engage in an unsafe or unsound practice (which, depending on the financial
condition of the Banks, could include the payment of dividends), such authority
may require, after notice and hearing, that such bank cease and desist from such
practice. The OCC has indicated that paying dividends that deplete a national
bank's capital base to an inadequate level would be an unsafe and unsound
banking practice. The Federal Reserve, the OCC and the FDIC have issued policy
statements, which provide that bank holding companies and insured banks should
generally only pay dividends out of current operating earnings.
5
Certain Transactions by CBI with its Affiliates
Federal law regulates transactions among CBI and its affiliates,
including the amount of the Banks' loans to or investments in nonbank affiliates
and the amount of advances to third parties collateralized by securities of an
affiliate. Further, a bank holding company and its affiliates are prohibited
from engaging in certain tie-in arrangements in connection with any extension of
credit, lease or sale of property or furnishing of services.
FDIC Insurance Assessments
Because Orangeburg National Bank's, Sumter National Bank's, and
Florence National Bank's deposits are insured by the BIF, the Banks are subject
to semiannual insurance assessments imposed by the FDIC. Since January 1, 1997,
the assessments imposed on all FDIC deposits for deposit insurance have an
effective rate ranging from 0 to 27 basis points per $100 of insured deposits,
depending on the institution's capital position and other supervisory factors.
However, because legislation enacted in 1996 requires that both SAIF-insured and
BIF-insured deposits pay a pro rata portion of the interest due on the
obligations issued by the Financing Corporation ("FICO"), the FDIC is currently
assessing BIF-insured deposits an additional 1.26 basis points per $100 of
deposits, and SAIF-insured deposits an additional 6.30 basis points per $100 of
deposits, to cover those obligations. The FICO assessment will continue to be
adjusted quarterly to reflect changes in the assessment bases of the respective
funds based on quarterly Call Report and Thrift Financial Report submissions.
Regulation of the Banks
Orangeburg National Bank, Sumter National Bank, and Florence National
Bank are also subject to examination by the OCC bank examiners. In addition, the
Banks are subject to various other state and federal laws and regulations,
including state usury laws, laws relating to fiduciaries, consumer credit and
laws relating to branch banking. The Banks' loan operations are subject to
certain federal consumer credit laws and regulations promulgated thereunder,
including, but not limited to: the federal Truth-In-Lending Act, governing
disclosures of credit terms to consumer borrowers; the Home Mortgage Disclosure
Act, requiring financial institutions to provide certain information concerning
their mortgage lending; the Equal Credit Opportunity Act and the Fair Housing
Act, prohibiting discrimination on the basis of certain prohibited factors in
extending credit; the Fair Credit Reporting Act, governing the use and provision
of information to credit reporting agencies; the Bank Secrecy Act, dealing with,
among other things, the reporting of certain currency transactions; and the Fair
Debt Collection Act, governing the manner in which consumer debts may be
collected by collection agencies. The deposit operations of the Banks are
subject to the Truth in Savings Act, requiring certain disclosures about rates
paid on savings accounts; the Expedited Funds Availability Act, which deals with
disclosure of the availability of funds deposited in accounts and the collection
and return of checks by banks; the Right to Financial Privacy Act, which imposes
a duty to maintain certain confidentiality of consumer financial records and the
Electronic Funds Transfer Act and regulations promulgated thereunder, which
govern automatic deposits to and withdrawals from deposit accounts and
customers' rights and liabilities arising from the use of automated teller
machines and other electronic banking services.
The Banks are subject to the requirements of the Community Reinvestment
Act (the "CRA"). The CRA imposes on financial institutions an affirmative and
ongoing obligation to meet the credit needs of their local communities,
including low- and moderate-income neighborhoods, consistent with the safe and
sound operation of those institutions. Each financial institution's actual
performance in meeting community credit needs is evaluated as part of the
examination process, and also are considered in evaluating mergers, acquisitions
and applications to open a branch or facility.
Other Safety and Soundness Regulations
Prompt Corrective Action. The federal banking agencies have broad
powers under current federal law to take prompt corrective action to resolve
problems of insured depository institutions. The extent of these powers depends
upon whether the institutions in question are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" or
"critically undercapitalized."
6
A bank that is "undercapitalized" becomes subject to provisions of the
FDIA restricting payment of capital distributions and management fees; requiring
the OCC to monitor the condition of the bank; requiring submission by the bank
of a capital restoration plan; restricting the growth of the bank's assets and
requiring prior approval of certain expansion proposals. A bank that is
"significantly undercapitalized" is also subject to restrictions on compensation
paid to senior management of the bank, and a bank that is "critically
undercapitalized" is further subject to restrictions on the activities of the
bank and restrictions on payments of subordinated debt of the bank. The purpose
of these provisions is to require banks with less than adequate capital to act
quickly to restore their capital and to have the OCC move promptly to take over
banks that are unwilling or unable to take such steps.
Brokered Deposits. Under current FDIC regulations, "well capitalized"
banks may accept brokered deposits without restriction, "adequately capitalized"
banks may accept brokered deposits with a waiver from the FDIC (subject to
certain restrictions on payments of rates), while "undercapitalized" banks may
not accept brokered deposits. The regulations provide that the definitions of
"well capitalized", "adequately capitalized" and "undercapitalized" are the same
as the definitions adopted by the agencies to implement the prompt corrective
action provisions described in the previous paragraph.
Interstate Banking
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 ("Riegel-Neal"), CBI and any other adequately capitalized bank holding
company located in South Carolina can acquire a bank located in any other state,
and a bank holding company located outside South Carolina can acquire any South
Carolina-based bank, in either case subject to certain deposit percentage and
other restrictions. Rieglel-Neal also provides that, in any state that has not
previously elected to prohibit out-of-state banks from operating interstate
branches within its territory, adequately capitalized and managed bank holding
companies can consolidate their multistate bank operations into a single bank
subsidiary and branch interstate through acquisitions. De novo branching by an
out-of-state bank is permitted only if it is expressly permitted by the laws of
the host state. The authority of a bank to establish and operate branches within
a state will continue to be subject to applicable state branching laws. South
Carolina law was amended, effective July 1, 1996, to permit such interstate
branching but not de novo branching by an out-of-state bank.
The Riegel-Neal Act, together with legislation adopted in South
Carolina, resulted in a number of South Carolina banks being acquired by large
out-of-state bank holding companies. Size gives the larger banks certain
advantages in competing for business from larger customers. These advantages
include higher lending limits and the ability to offer services in other areas
of South Carolina and the region. As a result, the Banks do not generally
attempt to compete for the banking relationships of large corporations, but
concentrates their efforts on small to medium-sized businesses and on
individuals. CBI believes its Banks have competed effectively in this market
segment by offering quality, personal service.
Legislative Proposals
Other proposed legislation which could significantly affect the
business of banking has been introduced or may be introduced in Congress from
time to time. CBI cannot predict the future course of such legislative proposals
or their impact on CBI should they be adopted.
Recent Legislation
On November 12, 1999, the President signed the Gramm-Leach-Bliley Act,
which makes it easier for affiliations between banks, securities firms and
insurance companies to take place. The Act removes Depression-era barriers that
had separated banks and securities firms, and seeks to protect the privacy of
consumers' financial information. Most of the provisions of the Act require the
applicable regulators to adopt regulations in order to implement these
provisions, and a significant number of regulations have already been adopted.
7
Under provisions of the new legislation, which were effective March 11,
2000, banks, securities firms and insurance companies are able to structure new
affiliations through a holding company structure or through a financial
subsidiary. The legislation creates a new type of bank holding company called a
"financial holding company" which has powers much more extensive than those of
standard holding companies. These expanded powers include authority to engage in
"financial activities," which are activities that are (1) financial in nature;
(2) identical to activities that are financial in nature; or (3) complimentary
to a financial activity and that do not impose a safety and soundness risk.
Significantly, the permitted financial activities for financial holding
companies include authority to engage in merchant banking and insurance
activities, including insurance portfolio investing. A bank holding company can
qualify as a financial holding company and expand the services it offers only if
all of its subsidiary depository institutions are well-managed, well-capitalized
and have received a rating of "satisfactory" on their last Community
Reinvestment Act examination.
The legislation also creates another new type of entity called a
"financial subsidiary." A financial subsidiary may be used by a national bank or
a group of national banks to engage in many of the same activities permitted for
a financial holding company, though several of these activities, including real
estate development or investment, insurance or annuity underwriting, insurance
portfolio investing and merchant banking, are reserved for financial holding
companies. A bank's investment in a financial subsidiary affects the way in
which the bank calculates its regulatory capital, and the assets and liabilities
of financial subsidiaries may not be consolidated with those of the bank. The
bank must also be certain that its risk management procedures are adequate to
protect it from financial and operational risks created both by itself and by
any financial subsidiary. Further, the bank must establish policies to maintain
the separate corporate identities of the bank and its financial subsidiary and
to prevent each from becoming liable for the obligations of the other.
The Act also establishes the concept of "functional supervision,"
meaning that similar activities should be regulated by the same regulator.
Accordingly, the Act spells out the regulatory authority of the bank regulatory
agencies, the Securities and Exchange Commission and state insurance regulators
so that each type of activity is supervised by a regulator with corresponding
expertise. The Federal Reserve Board is intended to be an umbrella supervisor
with the authority to require a bank holding company or financial holding
company or any subsidiary of either to file reports as to its financial
condition, risk management systems, transactions with depository institution
subsidiaries and affiliates, and compliance with any federal law that it has
authority to enforce.
Although the Act reaffirms that states are the regulators for insurance
activities of all persons, including federally-chartered banks, the Act
prohibits states from preventing depository institutions and their affiliates
from conducting insurance activities.
The Act also establishes a minimum federal standard of privacy to
protect the confidentiality of a consumer's personal financial information and
gives the consumer the power to choose how personal financial information may be
used by financial institutions.
CBI anticipates that the Act and the regulations adopted pursuant to
the Act will be likely to create new opportunities for it to offer expanded
services to customers in the future, though CBI has not yet determined what the
nature of the expanded services might be or when CBI might find it feasible to
offer them. CBI further expects that the Act will increase competition from
larger financial institutions that are currently more capable than CBI of taking
advantage of the opportunity to provide a broader range of services. However,
CBI continues to believe that its commitment to providing high quality,
personalized service to customers will permit it to remain competitive in its
market area.
8
Fiscal and Monetary Policy
Banking is a business which depends to a large extent on interest rate
differentials. In general, the difference between the interest paid by a bank on
its deposits and its other borrowings, and the interest received by a bank on
its loans and securities holdings, constitutes the major portion of a bank's
earnings. Thus, the earnings and growth of CBI are subject to the influence of
economic conditions generally, both domestic and foreign, and also to the
monetary and fiscal policies of the United States and its agencies, particularly
the Federal Reserve. The Federal Reserve regulates the supply of money through
various means, including open-market dealings in United States government
securities, the discount rate at which banks may borrow from the Federal
Reserve, and the reserve requirements on deposits. The nature and timing of any
changes in such policies and their impact on CBI cannot be predicted.
Employees
At December 31, 2000 the Corporation employed 84 full time equivalent
employees. Of these, the Orangeburg bank employed 38, the Sumter bank employed
19, the Florence bank employed 11 and 16 were employed by the holding company.
Management believes that its employee relations are excellent.
Item 2. Description of Property
The Corporation's Orangeburg bank owns land located at 1820 Columbia
Road NE, in Orangeburg, South Carolina. The Orangeburg bank maintains its main
office at this address. The total investment in this real estate was $245,000.
The Bank operates from a one-story building of approximately 7,000 square feet.
The Bank's investment in the building is $536,000.
The Orangeburg bank also owns a building, which was previously a branch
of the bank, at the corner of Broughton and Glover Streets in Orangeburg. The
Bank's investment in the land is $120,000. The Bank's investment in the building
plus its improvements and renovations is $83,000. The Orangeburg bank currently
rents this facility to the Corporation for office space. In June 1999 the Bank
moved into a new branch facility located adjacent to the old building. This new
branch office is approximately 6,500 square feet and the total investment in it
was approximately $790,000, with an additional investment of $78,000 in land
improvements.
The foregoing properties are owned in fee simple by the Orangeburg
bank. Management believes that insurance coverage on the foregoing properties is
adequate.
The Corporation's Sumter bank owns land located at 683 Bultman Drive,
in Sumter, South Carolina. The Sumter bank maintains its main office at this
address. The total investment in this real estate was $317,000. The Bank
operates from a one-story building of approximately 6,500 square feet. The
Bank's investment in the building is $606,000.
The foregoing property is owned in fee simple by the Sumter bank.
Management believes that insurance coverage on the foregoing properties is
adequate.
The Florence bank is leasing approximately 1.7 acres of land located at
2009 Hoffmeyer Road in Florence, South Carolina. This land is the site of the
main office for Florence National Bank. The details of the lease are discussed
in Note 6 to the financial statements contained elsewhere in this report. The
Corporation has constructed a one-story building for the Florence bank of
approximately 7,500 share feet on the leased site. The building cost
approximately $724,000.
9
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted for a vote of the security holders during the
fourth quarter of 2000.
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
The Corporation's shares of Common Stock are traded on the American
Stock Exchange (the AMEX) under the ticker symbol SCB.
The following table summarizes the range of high and low prices for the
Corporation's Common Stock as reported on the American Stock Exchange for each
quarterly period over the last two years.
Sales price of the Corporation's Common Stock
Quarter ended High Low
------------- ---- ---
Mar. 31, 1999 $13.78 $12.29
June 30, 1999 $13.48 $11.51
Sept. 30, 1999 $14.01 $11.29
Dec. 31, 1999 $13.78 $11.16
Mar. 31, 2000 $12.88 $10.88
June 30, 2000 $12.50 $10.75
Sept. 30, 2000 $12.56 $11.13
Dec. 31, 2000 $11.87 $10.56
The above amounts have been restated for a five-percent stock dividend paid on
January 31, 2000.
During 2000 the Corporation had a stock sales volume of 181,500 shares compared
to 262,900 shares in 1999.
There were 1,391 holders of record of the Corporation's Common Stock
(no par value) as of December 31, 2000 compared to 1,419 the prior year.
During 2000 The Corporation authorized and paid quarterly cash
dividends totaling 22 cents per share. The total cost of these dividends was
$645,000 or 20% of after tax profits. During 1999 the Corporation authorized and
paid two semi-annual cash dividends totaling 19 cents per share. The total cost
of these payments was $608,000 or 28% of after tax profits. The dividend policy
of the Corporation is subject to the discretion of the Board of Directors and
depends upon a number of factors, including earnings, financial condition, cash
needs and general business conditions, as well as applicable regulatory
considerations. Subject to ongoing review of these circumstances, the Board
expects to maintain a reasonable, safe, and sound dividend payment policy.
The current source of dividends to be paid by the Corporation is
dividends of its banking subsidiaries. Accordingly, the payment of dividends by
the Corporation is indirectly subject to the same laws and regulations that
govern the payment of dividends by national banking associations. National banks
may pay dividends only out of present and past earnings with numerous
limitations designed to ensure that the Banks have adequate capital to operate
safely and soundly (See Item 1. Description of Business - Supervision and
Regulation - Payment of Dividends.). At December 31, 2000 the Banks could pay up
to $4,518,000 in dividends without special approval of the Comptroller of the
Currency.
10
Item 6. Selected Financial Data
The following is a summary of the consolidated financial position and
results of operations of the Corporation for the years ended December 31, 1996
through December 31, 2000.
For the years ended December 31, 2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Financial Condition (Dollar amounts in thousands, except per share data)
Investment securities .................... $ 53,566 $ 43,935 $ 34,148 $ 32,452 $ 25,787
Net loans receivable .................... 192,653 155,153 116,336 90,811 67,953
Total assets ............................. 273,323 228,030 182,281 134,574 105,461
Total deposits ........................... 218,811 184,364 147,630 117,167 89,851
Long-term obligations .................... 20,350 19,420 9,490 1,060 1,130
Stockholders' equity ..................... $ 23,139 $ 20,245 $ 19,659 $ 13,037 $ 12,104
Earnings Summary
Interest income .......................... $ 20,301 $ 15,550 $ 12,320 $ 9,820 $ 7,261
Interest expense ......................... (9,975) (6,958) (5,554) (4,374) (3,279)
--------- --------- --------- --------- ---------
Net interest income ...................... 10,326 8,592 6,766 5,446 3,982
Provision for loan losses ................ (688) (612) (484) (358) (227)
Other operating income ................... 1,868 1,317 1,055 768 503
Other operating expenses ................. (6,552) (6,066) (5,107) (4,004) (3,097)
--------- --------- --------- --------- ---------
Net income before taxes .................. 4,954 3,231 2,230 1,852 1,161
Income taxes ............................. (1,807) (1,049) (663) (636) (411)
--------- --------- --------- --------- ---------
Net income ............................... $ 3,147 $ 2,182 $ 1,567 $ 1,216 $ 750
========= ========= ========= ========= =========
Per share data
Basic earnings per share ................ $ 0.99 $ 0.68 $ 0.52 $ 0.44 $ 0.29
Diluted earnings per share .............. $ 0.98 $ 0.68 $ 0.51 $ 0.43 $ 0.29
Dividends ............................... $ 0.22 $ 0.19 $ 0.15 $ 0.14 $ 0.14
Per share information is adjusted for a 5% stock dividend paid on Jan. 31, 2000
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
INTRODUCTION
The discussion and data presented below analyze major factors and
trends regarding the financial position and results of operations of Community
Bankshares Inc. and its subsidiaries for the three year period ended December
31, 2000.
Forward Looking Statements
Statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations which are not historical in nature
are intended to be, and are hereby identified as `forward looking statements'
for purposes of the safe harbor provided by Section 21E of the Securities
Exchange Act of 1934, as amended. The Corporation cautions readers that forward
looking statements, including without limitation, those relating to the
Corporation's future business prospects, revenues, working capital, liquidity,
capital needs, interest costs, and income, are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
indicated in the forward looking statements, due to several important factors
herein identified, among others, and other risks and factors identified from
time to time in the Corporation's reports filed with the Securities and Exchange
Commission.
11
Business of the Corporation and the Banks
Community Bankshares Inc. is a bank holding company. It was
incorporated on November 30, 1992, and commenced operations July 1, 1993, by
acquiring Orangeburg National Bank. CBI now owns three banking subsidiaries:
Orangeburg National Bank, Sumter National Bank, and Florence National Bank. CBI
provides item and data processing and other technical services for its banking
subsidiaries. The consolidated financial report for 2000 represents the
operations of the holding company and its three banks. (Parent-only financial
statements are presented in the footnotes to the consolidated financial
statements.)
Orangeburg National Bank is a national banking association and
commenced operations in November 1987. It operates two offices in Orangeburg,
South Carolina. Sumter National Bank is a national banking association and
commenced operations in June 1996. It operates one office in Sumter, South
Carolina. Florence National Bank is a national banking association and commenced
operations in July 1998. It operates one office in Florence, South Carolina. The
banks provide commercial banking services in their respective communities. Their
primary customer markets are consumers and small businesses.
Stock Split and Stock Dividend
On July 21, 1997, the Corporation effected a two-for-one split of its
common shares outstanding. On January 31, 2000 the Corporation effected a
five-percent stock dividend. All references to per share information contained
in this discussion have been adjusted accordingly.
DISTRIBUTION OF ASSETS AND LIABILITIES
The following table presents the average balance sheets, the average
yield and the interest earned on earning assets, and the average rate and the
interest paid on interest bearing liabilities for the years ended December 31,
2000, 1999 and 1998.
12
Years ended December 31, 2000 1999 1998
Interest Interest Interest
Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/
Assets Balance Expense (1) Rates (1) Balance Expense (1) Rates (1) Balance Expense (1) Rates (1)
------- ----------- --------- ------- ----------- --------- ------- ----------- ---------
(Dollar amounts in thousands)
Interest bearing deposits ........... $ 1,024 $ 64 6.25% $ 1,937 $ 101 5.21% $ 2,385 $ 126 5.28%
Investment securities taxable ....... 47,377 3,025 6.38% 39,856 2,458 6.17% 30,096 1,915 6.36%
Investment securities--tax exempt ... 807 32 6.01% 783 30 5.81% 341 14 6.22%
Federal funds sold .................. 6,670 430 6.45% 10,967 555 5.06% 10,626 568 5.35%
Loans receivable (2) ................ 179,654 16,750 9.32% 139,215 12,406 8.91% 103,500 9,697 9.37%
-------- ------- -------- ------- -------- -------
Total interest earning assets ....... 235,532 20,301 8.62% 192,758 15,550 8.07% 146,948 12,320 8.38%
Cash and due from banks ............. 8,582 8,896 6,499
Allowance for loan losses ........... (2,186) (1,692) (1,281)
Premises and equipment .............. 4,564 4,549 3,622
Other assets ........................ 3,232 2,251 1,718
-------- -------- --------
Total assets ........................ $249,724 $206,762 $157,506
======== ======== ========
Liabilities and
Shareholders' Equity
Interest bearing deposits
Savings ............................. $ 33,445 $ 1,358 4.06% $ 28,321 $ 943 3.33% $ 22,235 $ 774 3.48%
Interest bearing
transaction accounts .............. 21,039 329 1.56% 17,417 269 1.54% 14,028 253 1.80%
Time deposits ....................... 119,949 6,905 5.76% 96,761 4,901 5.07% 73,045 4,018 5.50%
-------- ------- -------- ------- -------- -------
Total interest bearing deposits ..... 174,433 8,592 4.93% 142,499 6,113 4.29% 109,308 5,045 4.62%
Short term borrowing ................ 4,501 218 4.84% 5,210 170 3.26% 3,225 119 3.69%
FHLB advances ....................... 19,385 1,165 6.01% 12,335 675 5.47% 6,905 390 5.65%
-------- ------- -------- ------- -------- -------
Total interest bearing liabilities .. 198,319 9,975 5.03% 160,044 6,958 4.35% 119,438 5,554 4.65%
Noninterest bearing demand deposits . 28,531 26,124 19,536
Other liabilities ................... 1,421 978 942
Shareholders' equity ................ 21,453 19,616 17,590
-------- -------- --------
Total liabilities
and shareholders' equity ......... $249,724 $206,762 $157,506
======== ======== ========
Interest rate spread (3) ............ 3.59% 3.72% 3.73%
Net int. income and net yield
on earning assets (4) ............ $10,326 4.38% $ 8,592 4.46% $ 6,766 4.60%
1. Computed on a fully taxable equivalent basis using a federal tax rate of
34%.
2. Nonaccruing loans are included in the average loan balances and income from
such loans is recognized on a cash basis.
3. Total interest earning assets yield less total interest bearing liabilities
rate.
4. Net yield equals net interest income divided by total interest earning
assets.
Earnings Performance, 2000 compared to 1999
The Corporation's net income was $3,147,000 or $.99 per share in 2000.
This compares to $2,182,000 or $.68 per share in 1999, an increase of $965,000,
or 44.2%.
This increase in earnings resulted from improved profit at all three
banks. Earnings at the Sumter bank increased to $908,000 in 2000 from $559,000
in 1999, an increase of 62.4% or $349,000. Earnings at the Orangeburg bank
increased to $2,243,000 in 2000 from $2,054,000 in 1999, an increase of 9.2% or
$189,000. Earnings at the Florence bank increased to $78,000 in 2000 from a loss
of $314,000 for 1999, an improvement of $392,000.
13
Interest Income and Interest Expense, 2000 compared to 1999
The Corporation's interest income increased substantially in 2000 from
1999. In 2000 the Corporation earned $20,301,000 in total interest income, up
from the prior year's $15,550,000. This represented a $4,751,000 or a 30.6%
increase. This growth was mostly the result of increased volume in the loan and
investment portfolios at the three banks.
Interest bearing deposits in other banks contributed $64,000 to
interest income in 2000, down from $101,000 the prior year, a decrease of
$37,000 or 36.6%. In 2000 the Corporation had an average of $1,024,000 in
interest bearing deposits, down from the prior year's $1,937,000, a decrease of
$913,000 or 47.1%. The average yield on these deposits during 2000 was 6.25%, up
from the prior year's 5.21%.
Investments contributed $3,025,000 to interest income in 2000, up from
$2,458,000 the prior year, an increase of $567,000 or 23.1%. The investment
portfolio averaged $47,377,000 in 2000, up from the prior year's $39,856,000, an
increase of $7,521,000 or 18.9%. The Corporation's investment portfolio consists
primarily of short-term U. S. government and agency debt issues. The average
yield on investments during 2000 was 6.38%, up from 6.17% in 1999.
The Corporation's tax-exempt securities portfolio earned $32,000 during
2000, up from $30,000 the prior year, an increase of $2,000 or 6.7%. The
portfolio averaged $807,000 in 2000, up from $783,000 in 1999, an increase of
$24,000 or 3.1%. The average yield was 6.01%, compared to 5.81% the prior year,
on a fully taxable equivalent basis.
Federal funds sold represent temporary surplus funds that one bank
lends to another. These funds are a source of day to day operating liquidity.
Federal funds sold contributed $430,000 to interest income in 2000, down from
$555,000 in the prior year, a decrease of $125,000 or 22.5%. The Corporation had
an average of $6,670,000 in federal funds during 2000, down from the prior
year's $10,967,000, a decrease of $4,297,000 or 39.2%. The average yield on
federal funds during 2000 was 6.45%, up from 5.06% in 1999. The decline in
federal funds sold was directly related to continued strong loan demand.
The Corporation's major source of interest income is the loan
portfolio, which contributed $16,750,000 to interest income in 2000, up from
$12,406,000 in the prior year, an increase of $4,344,000 or 35%. The average
loan portfolio for 2000 was $179,654,000 compared to the prior year's
$139,215,000, an increase of $40,439,000 or 29%. The average yield on loans
during 2000 was 9.32%, up from 8.91% in 1999.
The Corporation had average earning assets in 2000 of $235,532,000,
which earned a yield of 8.62%. The Corporation had average earning assets in
1999 of $192,758,000, which earned a yield of 8.07%. Average earning assets
increased $42,774,000 or 22.2%.
The category savings accounts consists of savings and money market
accounts. Total savings accounts averaged $33,445,000 in 2000, up from
$28,321,000 in the prior year, an increase of $5,124,000 or 18.1%. The cost of
these funds increased to 4.06% in 2000 from 3.33% in the prior year.
Interest bearing transaction accounts are the primary checking accounts
that the Banks offer customers. This overall category was $21,039,000 in 2000,
up from $17,417,000 in 1999, an increase of $3,622,000 or 20.8%. The average
cost of these funds was 1.56% in 2000 compared to 1.54% in the prior year.
Time deposits are the largest category of deposits, averaging
$119,949,000 in 2000, up from $96,761,000 in the prior year, an increase of
$23,188,000 or 24%. The cost of time deposits increased to 5.76% from 5.07%.
Short-term borrowing includes federal funds purchased and securities
sold under agreements to repurchase. The repurchase agreements are entered into
with a number of larger commercial customers. These accounts are not deposits;
they are considered other obligations of the Banks. Balances in these accounts
are subject to wide fluctuation, but they constitute a relatively small portion
of the balance sheet. The average balance for 2000 was $4,501,000, down from
$5,210,000 in the prior year, a decrease of $709,000 or 13.6%. The cost of these
funds increased to 4.84% from 3.26%.
14
The Banks are members of and have the ability to borrow from the
Federal Home Loan Bank (FHLB). The Banks had an average $19,385,000 outstanding
borrowing balance during 2000 at an average cost of 6.01%. The banks had an
average $12,335,000 outstanding during 1999 at an average cost of 5.47%.
Borrowings increased by $7,050,000 or 57.2%. These borrowings are mostly for
longer terms than other interest bearing liabilities and are part of the Banks'
on-going asset/liability management strategy. These loans are secured by a
blanket lien on the Banks' one-to-four family residential mortgage loan
portfolios or portions of their investment portfolios and the Banks' FHLB stock.
The Corporation had total interest bearing liabilities in 2000 of
$198,319,000 costing an average of 5.03% compared with interest bearing
liabilities in 1999 of $160,044,000 costing an average of 4.35%. Average
interest bearing liabilities increased $38,275,000 or 23.9%.
Earnings Performance, 1999 compared to 1998
The Corporation's net income was $2,182,000, or $.68 per share, in
1999. This compares to $1,567,000, or $.52 per share, in 1998, an increase of
$615,000, or 39%.
Management views this increase in earnings as primarily the result of a
212% increase in earnings at the Sumter bank to $559,000 in 1999 from $179,000
in 1998 and a $317,000 increase in earnings at the Orangeburg bank to $2,054,000
in 1999 from $1,737,000 in 1998. The Florence bank showed a net loss of $314,000
for the twelve-month period in 1999 compared to a net loss of $331,000 for six
months of operation in 1998.
Interest Income and Interest Expense, 1999 compared to 1998
The Corporation's interest income increased substantially in 1999 from
1998. In 1999 the Corporation earned $15,550,000 in total interest income, up
from the prior year's $12,320,000. This represented a $3,230,000 or a 26.2%
increase. This growth was mostly the result of increased volume in the loan and
investment portfolios at each of the three banks.
Interest bearing deposits in other banks contributed $101,000 to
interest income in 1999, down from $126,000 the prior year, a decrease of
$25,000 or 19.8%. In 1999 the Corporation had an average of $1,937,000 in
interest bearing deposits, down from the prior year's $2,385,000, a decrease of
$448,000 or 18.8%. The average yield on these deposits during 1999 was 5.21%,
down from the prior year's 5.28%.
Investments contributed $2,458,000 to interest income in 1999, up from
$1,915,000 the prior year, an increase of $543,000 or 28.4%. The investment
portfolio averaged $39,856,000 in 1999, up from the prior year's $30,096,000, an
increase of $9,760,000 or 32.4%. The Corporation's investment portfolio consists
primarily of short-term U. S. government and agency debt issues. The average
yield on investments during 1999 was 6.17%, down from 6.36% in 1998.
The Corporation's tax-exempt securities portfolio earned $30,000 during
1999, up from $14,000 the prior year. The portfolio averaged $783,000 in 1999,
up from $341,000 in 1998, an increase of $442,000 or 130%. The average yield was
5.81%, compared to 6.22% the prior year, on a fully taxable equivalent basis.
Federal funds sold contributed $555,000 to interest income in 1999,
down slightly from $568,000 in the prior year, a decrease of $13,000 or 2.3%.
The Corporation had an average of $10,967,000 in federal funds during 1999, up
from the prior year's $10,626,000, an increase of $341,000 or 3.2%. The average
yield on federal funds during 1999 was 5.06%, down from 5.35% in 1998.
The Corporation's loan portfolio contributed $12,406,000 to interest
income in 1999, up from $9,697,000 in the prior year, an increase of $2,709,000
or 28%. The average loan portfolio for 1999 was $139,215,000, compared to the
prior year's $103,500,000, an increase of $35,715,000 or 34.5%. The average
yield on loans during 1999 was 8.91%, down from 9.37% in 1998.
15
The Corporation had average earning assets in 1999 of $192,758,000,
which earned a yield of 8.07%. The Corporation had average earning assets in
1998 of $146,948,000, which earned a yield of 8.38%. Average earning assets
increased $45,810,000 or 31.2%.
The Corporation's savings accounts averaged $28,321,000 in 1999, up
from $22,235,000 in the prior year, an increase of $6,086,000 or 27.4%. The cost
of these funds decreased to 3.33% in 1999 from 3.48% in the prior year.
Interest bearing transaction accounts averaged $17,417,000 in 1999, up
from $14,028,000 in 1998, an increase of $3,389,000 or 24.2%. The average cost
of these funds was 1.54% in 1999, compared to 1.80% in the prior year.
Time deposits averaged $96,761,000 in 1999, up from $73,045,000 in the
prior year, an increase of $23,716,000 or 32.5%. The cost of time deposits
decreased to 5.07% from 5.50%.
Short-term borrowing averaged $5,210,000 in 1999, up from $3,225,000 in
the prior year, an increase of $1,985,000 or 61.5%. The cost of these funds
decreased to 3.26% from 3.69%.
The Banks had an average $12,335,000 outstanding in FHLB borrowings
during 1999 at an average cost of 5.47%. The Banks had an average $6,905,000
outstanding during 1998 at an average cost of 5.65%. Borrowings increased by
$5,430,000 or 78.6%.
The Corporation had average interest bearing liabilities in 1999 of
$160,044,000 costing an average of 4.35%, compared with interest bearing
liabilities in 1998 of $119,438,000 that cost an average of 4.65%. Average
interest bearing liabilities increased $40,606,000 or 34%.
Volume and Rate Variance Analysis
The table "Volume and Rate Variance Analysis" provides a summary of
changes in net interest income resulting from changes in volume and changes in
rate (The changes in volume are the difference between the current and prior
year's balances times the prior year's rate. The changes in rate are the
difference between the current and prior year's rate times the prior year's
balance.)
As reflected in the table, the increase in 2000 net interest income of
$1,734,000 is primarily due to changes in volume. Of the $4,751,000 increase in
interest income $3,748,000 or 79% was from volume growth in the loan portfolio.
Of the $3,017,000 increase in interest expense $1,276,000 or 42% was due to
volume increases for time deposits. Also, $728,000 or 24% of the increase was
due to rate changes in time deposits. During 1999 there was a similar pattern,
only more of the increase in net interest income came from changes in volume.
The prime interest rate has changed over the last three years. The
prime rate was 8.5% or lower from 1998 until mid-1999, when rates started to
climb. In July 1999 the prime was at 8.5%, by May 2000 it climbed to 9.5%. Only
in the first quarter of 2001 has the Federal Reserve moved to decrease rates.
Management anticipates that interest rates may decline another 50 to 100 basis
points during the first half of 2001 as the Federal Reserve attempts to
forestall further slowing of the economy. The Corporation is not aware of any
other immediately identifiable factors that would cause short-term interest
rates to decrease beyond these expectations in the near term. Therefore, as in
2000, any improvements in net interest income during 2001 are more likely to be
the result of changes in volume and the mix of earning assets and interest
bearing liabilities than changes in rates.
16
Volume and Rate Variance Analysis
2000 compared to 1999 1999 compared to 1998
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
Interest earning assets (Dollar amounts in thousands)
- -----------------------
Interest bearing deposits ................... $ (54) $ 17 $ (37) $ (24) $ (1) $ (25)
Investment securities taxable ............... 480 87 567 602 (59) 543
Investment securities--tax exempt ........... 1 1 2 17 (1) 16
Federal funds sold .......................... (252) 127 (125) 18 (31) (13)
Loans receivable ............................ 3,748 596 4,344 3,203 (494) 2,709
------- ------- ------- ------- ------- -------
Total interest income ....................... 3,923 828 4,751 3,816 (586) 3,230
------- ------- ------- ------- ------- -------
Interest bearing liabilities
Savings ..................................... 188 227 415 204 (35) 169
Interest bearing transaction accounts........ 57 3 60 55 (39) 16
Time deposits ............................... 1,276 728 2,004 1,221 (338) 883
------- ------- ------- ------- ------- -------
Total interest bearing deposits ............. 1,521 958 2,479 1,480 (412) 1,068
Short term borrowing ........................ (25) 73 48 66 (15) 51
FHLB advances ............................... 416 74 490 297 (12) 285
------- ------- ------- ------- ------- -------
Total interest expense ...................... 1,912 1,105 3,017 1,843 (439) 1,404
------- ------- ------- ------- ------- -------
Net interest income ............................ $ 2,013 $ (277) $ 1,734 $ 1,973 $ (147) $ 1,826
======= ======= ======= ======= ======= =======
PREMISES AND EQUIPMENT
Premises and equipment were $4,411,000 at December 31, 2000 compared to
$4,619,000 the prior year, a decrease of $208,000 or 4.5%. There were no
significant changes in the company's fixed asset accounts. Premises and
equipment are discussed further in Note 6 to the consolidated financial
statements.
INVESTMENT PORTFOLIO
The Corporation's investment portfolio consists primarily of short-term
U. S. government and agency debt issues. Investment securities averaged $48.2
million in 2000, $40.6 million in 1999 and $30.4 million in 1998. Note 4 to the
consolidated financial statements provides further information on the investment
portfolio.
The table below gives the amortized cost and fair value of the
Corporation's investment portfolio for the past three years.
17
2000 1999 1998
---- ---- ----
Amortized Fair Amortized Fair Amortized Fair
cost value cost value cost value
---- ----- ---- ----- ---- -----
Securities held-to-maturity (Dollar amounts in thousands)
U.S. government and agencies ............. $12,371 $12,217 $13,369 $12,919 $15,035 $15,076
State and local government ............... - - - - 251 253
------- ------- ------- ------- ------- -------
Total held-to-maturity .................. $12,371 $12,217 $13,369 $12,919 $15,286 $15,329
======= ======= ======= ======= ======= =======
Securities available-for sale
U.S. government and agencies ............. $38,599 $38,403 $28,931 $28,151 $16,921 $16,975
State and local government ............... 814 810 825 814 225 227
Other securities ......................... 1,982 1,982 1,601 1,601 1,660 1,660
------- ------- ------- ------- ------- -------
Total available for sale ................ $41,395 $41,195 $31,357 $30,566 $18,806 $18,862
======= ======= ======= ======= ======= =======
Information on the maturity distribution of the investment portfolio is
presented in Note 4 to the financial statements.
At December 31, 2000 the Corporation's available for sale portfolio
showed a net of tax other comprehensive loss in the equity section of the
balance sheet of $131,000 compared to $511,000 the prior year. The change in the
valuation of the investment portfolio was directly related to the changes in
market interest rates during the year. Management considers it unlikely that a
significant amount of investments will be sold prior to maturity and does not
regard the valuation as anything other than a temporary fluctuation in market
value.
LOAN PORTFOLIO
The average size of the loan portfolio in 2000 was $179.7 million,
compared to $139.2 million in 1999 and $103.5 million in 1998.
At December 31, 2000 the net loan portfolio was $192.7 million,
compared to $155.2 million the prior year, an increase of $37.5 million or
24.2%.
Management believes the loan portfolio is adequately diversified. There
are no foreign loans and few agricultural loans.
The table, "Loan Portfolio Composition," in the following section,
indicates the amounts of loans outstanding according to the type of loan at the
dates indicated.
Loan Portfolio Composition
The following table shows the composition of the loan portfolio for the
years ended December 31, 1996 through 2000.
Loan category 2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(Dollar amounts in thousands)
Commercial, financial and agricultural .............. $ 51,966 $ 39,752 $ 29,403 $21,690 $16,520
Real estate - construction .......................... 15,389 9,156 5,738 6,563 5,611
Real estate - mortgage .............................. 98,154 84,680 62,789 46,734 35,553
Installment loans to individuals .................... 29,270 23,033 19,325 16,348 11,021
Obligations of political subdivisions ............... 298 468 540 616 124
-------- -------- -------- ------- -------
Total loans - gross ............................ $195,077 $157,089 $117,795 $91,951 $68,829
======== ======== ======== ======= =======
18
Commercial, financial, and agricultural loans, primarily representing
loans made to small businesses, increased by $12.2 million or 30.7% during 2000.
These loans may be made on either a secured or an unsecured basis. When taken,
security usually consists of liens on inventories, receivables, equipment, and
furniture and fixtures. Unsecured business loans are generally short-term with
emphasis on repayment strengths and low debt to worth ratios.
Real estate loans consist of construction loans and loans secured by
mortgages. Construction loans are also generally secured with mortgages. Because
the Corporation's subsidiaries are community banks, real estate loans comprise
the bulk of the loan portfolio. Construction loans increased $6.2 million or
68.1% in 2000. Mortgage loans increased $13.5 million or 15.9% in 2000.
The Corporation generally does not compete with 15 and 30 year fixed
secondary market mortgage interest rates, so it has elected to pursue the
origination of mortgage loans that could be easily sold into the secondary
mortgage market. These loans are generally pre-qualified with the underwriters
to avoid problems in the sale of the loans. In 2000, 1999 and 1998 the
Corporation sold $5.9 million, $9.9 million and $12.1 million, respectively, in
such loans. These loans are sold at par so no gain or loss is recognized at the
time of sale. However, the origination and sale of these loans generates fee
income. The Corporation also makes mortgage loans for its own account. Such
loans are usually for a shorter term than loans originated to sell and usually
have a variable rather than a fixed interest rate.
Installment loans to individuals increased $6.2 million or 27.1% in
2000.
Interest income from the loan portfolio was $16.7 million in 2000
compared to $12.4 million in 1998, an increase of $4.3 million or 35%. The
average yield on the portfolio was 9.32% in 2000, compared to 8.91% in 1999.
Maturity Distribution of Loans
The following table sets forth the maturity distribution of the
Corporation's loans, by type, as of December 31, 2000 as well as the type of
interest on loans due after one year.
Category After one
year but
Within one within five Over five
year years years Total
---- ----- ----- -----
(Dollar amounts in thousands)
Commercial .......................... $24,903 $23,269 $ 4,092 $ 52,264
Real estate ......................... 33,724 52,277 27,542 113,543
Installment ......................... 10,113 18,175 982 29,270
------- ------- ------- --------
Total ............................... $68,740 $93,721 $32,616 $195,077
======= ======= ======= ========
Loans due after one year
Predetermined interest rate ......... $122,810
Floating interest rate. ............. 3,527
--------
Total ............................... $126,337
========
Lending Risks
Because extending credit involves a certain degree of risk, management
has established loan and credit policies designed to control both the types and
amounts of risks assumed and to minimize losses. Such policies include
limitations on loan-to-collateral values for various types of collateral,
requirements for appraisals of real estate collateral, problem loan management
practices and collection procedures, and nonaccrual and charge-off guidelines.
The Corporation also conducts internal loan reviews to monitor on an ongoing
basis the quality of its portfolio.
19
The Corporation has a geographic concentration of loans within its home
communities of Orangeburg, Sumter, and Florence, South Carolina, because its
primary business is community banking.
Concentrations of credit also occur where a number of customers are
engaged in similar business activities. A concentration is defined as a
concentration of loans exceeding 10% of total loans. The banks regularly review
their business lending in an effort to detect, monitor and control such loan
concentrations. At December 31, 2000 the Corporation had no such loan
concentrations.
Nonaccrual and Past Due Loans
The nonaccrual, past due, and impaired loans and other real estate
owned are summarized in Note 5 to the consolidated financial statements. The
Corporation had no restructured loans in 2000 or 1999.
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(Dollar amounts in thousands)
Nonaccrual loans ............................................. $ 238 $ 90 $ 31 $ 81 $431
Accruing loans 90 days or more past due ...................... 93 6 187 - 93
------ ---- ---- ---- ----
Total ................................................... $ 331 $ 96 $218 $ 81 $524
====== ==== ==== ==== ====
Total as a % of outstanding loans ....................... 0.17% 0.06% 0.19% 0.09% 0.76%
====== ==== ==== ==== ====
Other Real Estate Owned ...................................... $ - $ - $266 $132 $ -
====== ==== ==== ==== ====
Impaired Loans (included in non accrual) ..................... $ 238 $ 90 $ 31 $ 81 $120
====== ==== ==== ==== ====
Gross income that would have been recorded for the year ended December
31, 2000 and 1999, if nonaccrual loans had been performing in accordance with
their original terms was approximately $32,641 and $2,100 respectively. No
interest income was recognized in the current period for the non-accrual loans.
The Corporation's nonaccrual loan policy is discussed in Note 2 to the
consolidated financial statements in the section labeled Loans Receivable. The
Corporation's policy on impaired loans is discussed in Note 2 to the
consolidated financial statements in the section labeled Allowance for Loan
Losses.
Nonaccrual loans and impaired loans were not material in relation to
the portfolio as a whole in 2000. Management is aware of no trends, events or
uncertainties that would cause nonaccrual loans to change materially in 2001.
Potential Problem Loans
At December 31, 2000 the Corporation's internal loan review program had
identified $992,000 (0.51% of the portfolio) in various loans where information
about credit problems of borrowers had caused management to have concerns about
the ability of the borrowers to comply with original repayment terms.
The amounts reflected above do not represent management's estimate of
the potential losses since a large proportion of these loans are secured by real
estate and other marketable collateral.
Secured versus Unsecured Loans
The Corporation does not aggressively seek to make unsecured loans,
since these loans may be somewhat more risky than collateralized loans. There
are, however, occasions when it is in the business interests of the Corporation
to provide short-term, unsecured loans to selected customers. In 2000 the
Corporation had $12.4 million in unsecured loans or 6.4% of its loan portfolio.
In 1999 the Corporation had $9.6 million in unsecured loans or 6.1% of its loan
portfolio.
20
Loan Participations
Periodically, the Corporation's banking subsidiaries enter into sales
or purchases of loan participations with one another and other financial
institutions. The banks generally only sell participations in loans that would
cause the bank to exceed its lending limitation to a single customer. As the
Banks' lending limits increase they may buy back such loan participations. Such
loans are usually commercial in nature, subject to the purchasing Bank's
standard underwriting requirements, and all risks associated with the portion of
the loan sold flow to the purchaser.
At the end of 2000 the three banks had $14,748,000 in loan
participations purchased. Of these loans $6,017,000 was with nonaffiliated
banks.
At the end of 2000 the three banks had $10,895,000 in loan
participations sold. Of these loans $2,164,000 was with nonaffiliated banks.
At the end of 1999 the three banks had $7,292,000 in loan
participations purchased. Of these loans, all but $564,000 were among the three
banks.
At the end of 1999 the three banks had $6,701,000 in loan
participations sold. Of these loans, all were sold among the three banks.
Other Real Estate
Other real estate, consisting of foreclosed properties, was $0 in 2000
and 1999 and $266,000 in 1998. Other real estate is initially recorded at the
lower of net loan balance or its estimated fair value, net of estimated disposal
costs. The estimate of fair value for foreclosed properties is determined by
appraisal at the time of acquisition.
SUMMARY OF LOAN LOSS EXPERIENCE
Allowance for Loan Losses
The allowance for loan losses is increased by the provision for loan
losses, which is a direct charge to expense. Losses on specific loans are
charged against the allowance in the period in which management determines that
such loans become uncollectable. Recoveries of previously charged-off loans are
credited to the allowance. At December 31, 2000 and 1999 the allowance for loan
losses was 1.24% and 1.23%, respectively, of total loans. The following table
provides details on the changes in the allowance for loan losses during the past
five fiscal years.
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(Dollar amounts in thousands)
Average amount of loans outstanding ................ $179,654 $139,215 $103,500 $ 81,167 $ 57,806
======== ======== ======== ======== ========
Allowance for loan losses - January 1 .............. $ 1,936 $ 1,459 $ 1,140 $ 876 $ 707
-------- -------- -------- -------- --------
Loan charge-offs:
Real estate ........................................ 78 0 7 0 0
Installment ........................................ 116 95 111 121 70
Credit cards and related plans ..................... 9 5 6 9 5
Commercial and other ............................... 33 80 56 2 11
-------- -------- -------- -------- --------
Total charge-offs .................................. 236 180 180 132 86
-------- -------- -------- -------- --------
Recoveries:
Real Estate ........................................ 3 0 0 0 4
Installment ........................................ 25 17 12 34 23
Credit cards and related plans ..................... 2 3 3 4 1
Commercial ......................................... 6 25 0 0 0
-------- -------- -------- -------- --------
Total recoveries ................................... 36 45 15 38 28
-------- -------- -------- -------- --------
Net charge-offs .................................... 200 135 165 94 58
Provision for loan losses .......................... 688 612 484 358 227
-------- -------- -------- -------- --------
Allowance for loan losses - Dec. 31 ................ $ 2,424 $ 1,936 $ 1,459 $ 1,140 $ 876
======== ======== ======== ======== ========
Ratios
Net charge-offs to average loans ................... 0.11% 0.10% 0.16% 0.12% 0.10%
outstanding
Net charge-offs to loans outstanding at ............ 0.10% 0.09% 0.14% 0.10% 0.08%
end of year
Allowance for loan losses to average loans ......... 1.35% 1.39% 1.41% 1.40% 1.52%
Allowance for loan losses to total loans ........... 1.24% 1.23% 1.24% 1.24% 1.27%
at end of year
Net charge-offs to allowance for loan losses ....... 8.25% 6.97% 11.31% 8.25% 6.62%
Net charge-offs to provision for loan losses........ 29.07% 22.06% 34.09% 26.25% 25.55%
Management reviews its allowance for loan losses in three broad
categories: commercial, real estate and installment loans. The combination of a
relatively short operating history and relatively high asset quality precludes
management from establishing a specific loan loss percentage for the computation
of the allowance for each category. Instead management assigns an estimated
percentage factor to each in the computation of the overall allowance. In
general terms, the real estate portfolio is subject to the least risk, followed
by the commercial loan portfolio, followed by the installment loan portfolio.
The Banks' internal and external loan review programs will from time to time
identify loans that are subject to specific weaknesses and such loans will be
reviewed for a specific loan loss allowance.
The Corporation operates three independent community banks in central
South Carolina. Under the provisions of the National Bank Act each board of
directors is responsible for determining the adequacy of its bank's loan loss
allowance. In addition, each bank is supervised and regularly examined by the
Office of the Comptroller of the Currency of the U. S. Treasury Department. As a
normal part of a safety and soundness examination, the OCC examiners will assess
21
and comment on the adequacy of a national bank's allowance for loan losses. The
allowance presented in this discussion is on an aggregated basis and as such
will generally show a substantial unallocated reserve that might not be present
if the Corporation were comprised of one operating bank subsidiary.
The nature of community banking is such that the loan portfolios will
be predominantly comprised of small and medium size business and consumer loans.
As community banks there is by definition a geographic concentration of loans
within the Banks' respective city or county. Management at each bank monitors
the loan concentrations and loan portfolio quality on an ongoing basis
including, but not limited to: quarterly analysis of loan concentrations,
monthly reporting of past dues, non-accruals, and watch loans, and quarterly
reporting of loan charge-offs and recoveries. These efforts focus on historical
experience and are bolstered by quarterly analysis of local and state economic
conditions, which is part of the Banks' assessment of the adequacy of their
allowances for loan losses.
Based on the current levels of non-performing and other problem loans,
management believes that loan charge-offs in 2001 will at least approximate the
2000 levels as such loans progress through the collection, foreclosure, and
repossession process. Management believes that the allowance for loan losses, as
of December 31, 2000 is sufficient to absorb the expected charge-offs and
provide adequately for the inherent losses that remain in the loan portfolio.
Management will continue to closely monitor the levels of non-performing and
potential problem loans and address the weaknesses in these credits to enhance
the amount of ultimate collection or recovery of these assets. Management
considers the levels and trends in non-performing and past due loans in
determining how historical loan loss rates are adjusted.
The following table presents the allocation of the allowance for loan
losses, as of December 31, 1996 through 2000, compared with the percent of loans
in the applicable categories to total loans.
% of % of % of % of % of
loans in loans in loans in loans in loans in
each each each each each
2000 category 1999 category 1998 category 1997 category 1996 category
---- -------- ---- -------- ---- -------- ---- -------- ---- --------
(Dollar amounts in thousands)
Commercial ................ $ 801 27% $ 660 28% $ 364 25% $ 336 24% $ 314 24%
Real estate ............... 752 58% 565 58% 385 58% 301 58% 313 60%
Installment ............... 487 15% 360 15% 388 16% 288 18% 188 16%
Unallocated ............... 384 0% 351 0% 322 0% 215 0% 61 0%
------ --- ------ --- ------ --- ------ --- ------ ---
Total ................ $2,424 100% $1,936 100% $1,459 100% $1,140 100% $ 876 100%
====== === ====== === ====== === ====== === ====== ===
The Corporation maintains an allowance for loan losses it believes
sufficient to cover estimated losses. The allowance is allocated to different
segments of the portfolio, based on management's expectations of risk in that
segment of the portfolio. This allocation is an estimate only and is not
intended to restrict the Corporation's ability to respond to losses. The
Corporation charges losses from any segment of the portfolio to the allowance,
regardless of the allocation.
In reviewing the adequacy of the allowance for loan losses at the end
of each period, the Corporation considers historical loan loss experience,
current economic conditions, loans outstanding, trends in non-performing and
delinquent loans, and the quality of collateral securing problem loans. The
allowance for loan losses is management's best estimate of probable loan losses
that have been incurred as of December 31, 2000.
22
Provision for Loan Losses
The provision for loan losses is charged to earnings based on
management's continuing review and evaluation of the loan portfolio and general
economic conditions. In reviewing the adequacy of the provision for loan losses
during each period, the Corporation considers historical loan loss experience,
current economic conditions, loans outstanding, trends in non-performing and
delinquent loans, the quality of collateral securing problem loans, and the
results of its ongoing internal and external loan review process. Provisions for
loan losses totaled $688,000 and $612,000 in 2000 and 1999, respectively. Based
on the available information, the Corporation considers its 2000 provision for
loan losses adequate.
Net charge-offs in 2000 were $200,000 or 29.1% of the provision for
loan losses compared to $135,000 or 22.1% of the provision for loan losses in
the prior year. See "Allowance for Loan Losses" for a discussion of the factors
management considers in its review of the adequacy of the allowance and
provision for loan losses.
AVERAGE DEPOSITS
The Corporation's average deposits in 2000 were $203 million, compared
to $168.6 million in 1999, an increase of $34.4 million or 20.4%.
The total average deposits for the Corporation for the years ended
December 31, 2000, 1999 and 1998 are summarized below:
2000 1999 1998
---- ---- ----
Average Average Average Average Average Average
balance cost balance cost balance cost
------- ---- ------- ---- ------- ----
(Dollar amounts in thousands)
Noninterest bearing demand ........................ $ 28,531 $ 26,124 $ 19,536
Interest bearing transaction accounts ............. 21,039 1.56% 17,417 1.54% 14,028 1.80%
Savings-regular ................................... 8,414 2.12% 8,595 2.08% 10,774 2.38%
Savings- money market ............................. 25,031 4.73% 19,726 3.97% 11,461 4.96%
Time deposits less than $100,000 .................. 81,797 5.66% 39,406 5.09% 52,314 5.39%
Time deposits greater than $100,000 ............... 38,152 6.10% 57,355 5.14% 20,731 5.92%
-------- -------- --------
Total average deposits ............................ $202,964 $168,623 $128,844
======== ======== ========
At December 31, 2000 the Corporation had $36,830,000 in certificates of
deposit of $100,000 or more. The maturities of these certificates are disclosed
are as follows:
Maturity
(dollar amounts
in thousands)
Of 3 months or less 12,721
From 3 to 6 months 9,050
From 6 to 12 months 13,575
Over 12 months 3,356
-------
$38,702
=======
RETURN ON EQUITY AND ASSETS
The following table shows the return on assets (net income divided by
average total assets), return on equity (net income divided by average equity),
dividend payout ratio (dividends declared per share divided by net income per
share), and equity to assets ratio (average equity divided by average total
assets) for the years ended December 31, 2000, 1999 and 1998.
23
2000 1999 1998
---- ---- ----
Return on assets (ROA) ................ 1.26% 1.06% 0.99%
Return on equity (ROE) ................ 14.67% 11.12% 8.91%
Dividend payout ratio
(dividends/net income) ............. 20.50% 27.82% 28.91%
Equity as a percent of assets ......... 8.59% 9.49% 11.17%
SHORT-TERM BORROWINGS
The Corporation's short-term borrowings consist of federal funds
purchased and securities sold under agreements to repurchase, which generally
mature each business day. There was $9,352,000, $2,782,000, and $4,464,000
outstanding at year-end 2000, 1999 and 1998, respectively. Further information
is provided in the following table.
2000 1999 1998
---- ---- ----
(Dollar amounts in thousands)
Outstanding at year-end ....................... $9,352 $2,782 $4,464
Interest rate at year-end ..................... 5.01% 3.50% 3.00%
Maximum month-end balance during the year ..... $9,532 $6,473 $7,315
Average amount outstanding during the year .... $4,501 $5,210 $3,225
Weighted average interest
rate during the year ....................... 4.84% 3.26% 3.69%
FEDERAL HOME LOAN BANK ADVANCES
CBI's banking subsidiaries are members of the Federal Home Loan Bank of
Atlanta. As such they have access to long-term borrowing from the FHLB. There
were $20,350,000, $19,420,000 and $9.490.000 outstanding in such advances at
year-end 2000, 1999 and 1998, respectively. Further information on these
borrowings from the FHLB is provided in the following table.
2000 1999 1998
---- ---- ----
(Dollar amounts in thousands)
Outstanding at year-end ....................... $20,350 $19,420 $9,490
Interest rate at year-end ..................... 6.04% 5.55% 5.41%
Maximum month-end balance during the year ..... $20,350 $19,420 $9,560
Average amount outstanding during the year .... $19,385 $12,335 $6,905
Weighted average interest
rate during the year ....................... 6.01% 5.47% 5.65%
CAPITAL
Dividends
During 2000 CBI paid cash dividends to shareholders of 22 cents per
share, which totaled $645,000. This represented a dividend payout ratio
(dividends divided by net income) of 20.5%. In 1999 CBI paid cash dividends to
shareholders of 19 cents per share, which totaled $608,000. This represented a
dividend payout ratio of 27.8%.
Common Stock
Common stock at December 31, 2000 totaled $15,928,000 compared to
$14,207,000 the prior year, an increase of $1,721,000. This increase was
comprised of a transfer from retained earnings of $1,709,000, the market value
of a five-percent stock dividend on January 31, 2000, as well as smaller changes
associated with the exercise of stock options and shares issued by the dividend
reinvestment program.
24
Capital Adequacy
The Federal Reserve and federal bank regulatory agencies have adopted a
risk-based capital standard for assessing the capital adequacy of a bank holding
company or financial institution. The minimum required ratio is 8%. Orangeburg
National Bank, Sumter National Bank, and Florence National Bank are each
considered `well capitalized' for regulatory purposes. This category requires a
minimum risk based capital ratio of 10%. Detailed information on the
Corporation's capital position, as well as that of its subsidiary banks, is
provided in Note 20 to the consolidated financial statements. The Corporation
considers its current and projected capital position to be adequate.
NONINTEREST INCOME AND EXPENSE
Noninterest income, 2000 compared to 1999
Noninterest income increased to $1,868,000 in 2000 from $1,317,000 in
1999, a $551,000 or 41.8% increase. The major component of this change was in
service charge income, which in 2000 was $1,475,000 compared to $1,031,000 in
the prior year, a $444,000 or 43.1% increase. Most of this increase was related
to growth in the Florence and Sumter banks' returned check fees and deposit
account service charge income.
Noninterest expense, 2000 compared to 1999
Overall, non-interest expenses increased to $6,552,000 in 2000 from
$6,066,000 in 1999, an increase of $486,000 or 8%.
Personnel costs in 2000 were $3,779,000 compared to $3,493,000 the
prior year, an increase of $286,000 or 8.2%.
Premises and equipment expenses in 2000 were $942,000 compared to
$886,000 the prior year, a $56,000 or 6.3% increase.
Marketing expenses in 2000 were $207,000 compared to $180,000 the prior
year, a $27,000 or 15% increase.
Regulatory fees in 2000 were $140,000 compared to $155,000 the prior
year, a $15,000 or 9.7% decrease.
Supplies expense was $160,000 in 2000 compared to $155,000 in the prior
year, an increase of $5,000 or 3.1%.
Director fees were $137,000 in 2000 compared to $121,000 in the prior
year, an increase of $16,000 or 13.2%. Orangeburg National Bank pays outside
directors $600 per month. Sumter National Bank and Florence National Banks pays
outside directors $300 per month. The Florence bank began paying director fees
during 2000. CBI pays outside directors $200 per month.
FDIC insurance costs were $33,000 in 2000 compared to $23,000 in the
prior year, an increase of $10,000 or 43.4%.
All other expenses were $1,154,000 in 2000 compared to $1,053,000 in
the prior year, an increase of $101,000 or 9.6%.
Income Taxes, 2000 compared to 1999
The Corporation pays U. S. corporate income taxes and South Carolina
bank income taxes. The 2000 provision for income taxes was $1,807,000 compared
to $1,049,000 the prior year, an increase of $758,000 or 72.3%. The
Corporation's effective average tax rate is 36.5% in 2000 compared to 32.4% the
prior year. CBI was the beneficiary of the exercise of non-qualified stock
options on 27,500 shares during 1999. The tax benefit to the Corporation
approximated $89,000 and accounts for the temporary reduction in the effective
tax rate during 1999.
25
Noninterest income, 1999 compared to 1998
Noninterest income increased to $1,317,000 in 1999 from $1,055,000 in
1998, a $262,000 or 24.8% increase. The major component of this change was in
service charge income, which in 1999 was $1,031,000 compared to $798,000 in the
prior year, a $233,000 or 29.2% increase.
Noninterest expense, 1999 compared to 1998
Overall, non-interest expenses increased to $6,066,000 in 1999 from
$5,074,000 in 1998, an increase of $992,000 or 19.6%. The first full year of
operation of the new bank in Florence accounted for much of this increase.
Accordingly, many of the dollar and percentage changes discussed herein will be
larger than normal.
Personnel costs in 1999 were $3,493,000 compared to $2,911,000 the
prior year, an increase of $582,000 or 20%.
Premises and equipment expenses in 1999 were $886,000 compared to
$701,000 the prior year, a $185,000 or 26.4% increase.
Marketing expenses in 1999 were $180,000 compared to $166,000 the prior
year, a $14,000 or 8.4% increase.
Regulatory expenses in 1999 were $155,000 compared to $92,000 the prior
year, a $63,000 or 68.5% increase.
Supplies expense was $155,000 in 1999 compared to $174,000 in the prior
year, a decrease of $19,000 or 10.9%.
Director fee