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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, 1997
Commission file number: 0-18460
COMMUNITY CAPITAL CORPORATION
(Exact name of Registrant as specified in its charter)
South Carolina 57-0866395
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
109 Montague Avenue
Greenwood, South Carolina 29646
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(Address of principal
executive offices) (Zip Code)
Registrant's telephone number, including area code: (864) 941-8200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class On Which Reported
- ------------------- ---------------------
Common Stock, par value $1.00 per share American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant on March 23, 1998 was approximately $46,829,278 based upon the last
sale price reported for such date on the American Stock Exchange. On that date,
the number of shares outstanding of the Registrant's common stock, $1.00 par
value, was 2,924,034.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement in connection with its 1998 Annual
Meeting of Stockholders (Part III).
PART I
Item 1. Business.
General
Community Capital Corporation (the "Company") is a multi-bank
holding company headquartered in Greenwood, South Carolina. The Company was
incorporated under the laws of the State of South Carolina on April 8, 1988 as a
holding company for Greenwood Bank & Trust (the "Greenwood Bank") which opened
in 1989.
The Company was formed principally in response to perceived
opportunities resulting from takeovers of several South Carolina-based banks by
large southeastern regional bank holding companies. In many cases, when these
consolidations occur, local boards of directors are dissolved and local
management is relocated or terminated. The Company believes this situation
creates favorable opportunities for new community banks with local management
and local directors. Management believes that such banks can be successful in
attracting individuals and small to medium-sized businesses as customers who
wish to conduct business with a locally owned and managed institution that
demonstrates an active interest in their business and personal financial
affairs.
In 1994, the Company made the strategic decision to expand beyond
the Greenwood County area by creating an organization of independently managed
community banks that serve their respective local markets but which share a
common vision and benefit from the strength, resources and economies of a larger
institution. In 1995, the Company opened Clemson Bank & Trust (the "Clemson
Bank") in Clemson, South Carolina. In 1997, the Company opened the Bank of
Barnwell County (the "Barnwell Bank"), The Bank of Belton (the "Belton Bank")
and The Bank of Newberry County (the "Newberry Bank," and collectively with the
Barnwell Bank and the Belton Bank, the "New Banks"). Each of these five
community banks (collectively, the "Banks") operates as a wholly-owned
subsidiary of the Company and engages in a general commercial banking business,
emphasizing the banking needs of individuals and small to medium-sized
businesses in each Bank's primary service area. The Belton Bank, the Greenwood
Bank and the Newberry Bank are state chartered Federal Reserve member banks,
while the Barnwell Bank and the Clemson Bank are state chartered nonmember
banks.
The Company formed Community Trust Services Company in the fourth
quarter of 1997 as a wholly-owned subsidiary to perform trust services for the
Banks.
Formation of New Banks in 1997
On February 28, 1997, the Barnwell Bank was formed in Barnwell,
South Carolina through the Company's acquisition of all of the common stock of
the Barnwell Bank using $7.5 million of the proceeds from the Company's February
11, 1997 public offering of common stock (the "Offering").
On March 25, 1997, the Belton Bank was formed in Belton, South
Carolina through the Company's acquisition of all of the common stock of the
Belton Bank using $3.5 million of the proceeds from the Offering.
On July 10, 1997, the Newberry Bank was formed in Newberry, South
Carolina through the Company's acquisition of all of the common stock of the
Newberry Bank using $3.3 million of the proceeds from the Offering.
Branch Acquisitions
On April 7, 1997, the Barnwell Bank acquired certain assets and
assumed certain deposits and other liabilities associated with five bank
branches formerly owned by Carolina First Bank ("Carolina First") and located in
the communities of Barnwell, Blackville, Salley, Springfield and Williston,
South Carolina. Included in the assets acquired were certain loans associated
with the Carolina First branches, as well as the real property owned or leased
by Carolina First for the operation of such branches, and related furniture,
equipment and other fixed operating assets.
On February 25, 1998, the Belton Bank and the Clemson Bank each
entered into Purchase and Assumption Agreements to acquire certain assets and
deposits associated with three branch offices of Carolina First. The Clemson
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Bank will acquire a branch located in Abbeville County, South Carolina which has
approximately $5,000,000 in deposits and $600,000 in loans (unaudited). The
Belton Bank will acquire two branches in Anderson County, South Carolina which
have approximately $39,000,000 in deposits and $1,500,000 in loans (unaudited).
Market Areas
The Greenwood Bank has three banking locations, two of which are
located in Greenwood, South Carolina and the other is located in Ninety Six,
South Carolina. The Greenwood Bank has entered into an agreement with The
Palmetto Bank for the sale of substantially all of the assets associated with
the Ninety Six branch. This sale is expected to close in the second quarter of
1998. See "Managements's Discussion and Analysis of Financial Position and
Results of Operations - Liquidity Management and Capital Resources."
The Clemson Bank has one banking location in Clemson, South
Carolina; the Barnwell Bank has six banking locations in Aiken, Barnwell and
Orangeburg Counties, South Carolina; the Belton Bank has one banking location in
Belton, South Carolina; and the Newberry Bank has one banking location in
Newberry, South Carolina.
The following table sets forth certain information concerning the
Banks at December 31, 1997:
Number of Total Total Total
Bank Locations Assets Loans Deposits
- ---- --------- ------ ----- --------
(Dollars in thousands)
Barnwell Bank................. 6 $77,546 $39,065 $59,832
Belton Bank................... 1 16,472 11,015 12,946
Clemson Bank.................. 1 28,259 16,773 20,654
Greenwood Bank................ 3 109,702 77,964 81,459
Newberry Bank................. 1 16,241 5,120 12,946
Each Bank offers a full range of commercial banking services,
including checking and savings accounts, NOW accounts, IRA accounts, and other
savings and time deposits of various types ranging from money markets to
long-term certificates of deposit. The Banks also offer a full range of consumer
credit and short-term and intermediate-term commercial and personal loans. Each
Bank conducts residential mortgage loan origination activities pursuant to which
mortgage loans are sold to investors in the secondary markets. Servicing of such
loans is not retained by the Banks.
The Banks also offer trust and related fiduciary services which are
administered by the Company's wholly-owned subsidiary, Community Trust Services
Company. Discount securities brokerage services are available through a
third-party brokerage service which has contracted with Community Financial
Services, Inc., a wholly-owned subsidiary of the Greenwood Bank.
The Company performs data processing functions for the Banks upon
terms that the managements of the Banks believe is competitive with those
offered by unaffiliated third-party service bureaus. The Company also
administers certain operating functions for the Banks where cost savings can be
achieved. Included in such operations are regulatory compliance, personnel, and
internal audit functions. The Company's costs associated with the performance of
such services are allocated between the Banks based on each Bank's total assets.
Lending Activities
General. Through the Banks, the Company offers a range of lending
services, including real estate, consumer, and commercial loans, to individuals
and small business and other organizations that are located in or conduct a
substantial portion of their business in the Banks' market areas. The Company's
total loans at December 31, 1997, were $149 million, or 65.6% of total earning
assets. The interest rates charged on loans vary with the degree of risk,
maturity, and amount of the loan, and are further subject to competitive
pressures, availability of funds, and government regulations. The Company has no
foreign loans or loans for highly leveraged transactions.
2
The Company's primary focus has been on commercial and installment
lending to individuals and small to medium-sized businesses in its market areas,
as well as residential mortgage loans. These loans totaled approximately
$77 million, and constituted approximately 51.7% of the Company's loan
portfolio, at December 31, 1997.
The following table sets forth the composition of the Company's loan
portfolio for each of the five years in the period ended December 31, 1997.
Loan Composition
(Dollars in thousands)
December 31,
------------------------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
Commercial, financial and agricultural 23.94% 24.19% 21.12% 19.05% 24.19%
Real estate:
Construction ...................... 25.89 11.68 13.42 12.37 8.61
Mortgage:
Residential .................... 25.22 29.62 35.62 39.13 27.48
Commercial(1) .................. 16.81 26.57 22.45 21.87 21.81
Consumer and other ................... 8.14 7.94 7.39 7.58 17.91
----------- ----------- ----------- ----------- -----------
Total loans ................. 100.00% 100.00% 100.00% 100.00% 100.00%
=========== =========== =========== =========== ===========
Total loans (dollars) ....... $ 44,634 $ 50,565 $ 63,204 $ 80,546 $ 149,127
=========== =========== =========== =========== ===========
- ----------
(1) The majority of these loans are made to operating businesses where real
property has been taken as additional collateral.
Loan Approval. Certain credit risks are inherent in the loan making
process. These include prepayment risks, risks resulting from uncertainties in
the future value of collateral, risks resulting from changes in economic and
industry conditions, and risks inherent in dealing with individual borrowers. In
particular, longer maturities increase the risk that economic conditions will
change and adversely affect collectibility. The Company attempts to minimize
loan losses through various means and uses standardized underwriting criteria.
These means include the use of policies and procedures including officer and
customer lending limits, and loans in excess of certain limits must be approved
by the Board of Directors of the relevant Banks.
Loan Review. The Company has a continuous loan review process
designed to promote early identification of credit quality problems. All loan
officers are charged with the responsibility of reviewing all past due loans in
their respective portfolios. Each of the Banks establishes watch lists of
potential problem loans.
Deposits
The principal sources of funds for the Banks are core deposits,
consisting of demand deposits, interest-bearing transaction accounts, money
market accounts, saving deposits, and certificates of deposit. Transaction
accounts include checking and negotiable order of withdrawal (NOW) accounts
which customers use for cash management and which provide the Banks with a
source of fee income and cross-marketing opportunities, as well as a low-cost
source of funds. Time and savings accounts also provide a relatively stable
source of funding. The largest source of funds for the Banks is certificates of
deposit. Certificates of deposit in excess of $100,000 are held primarily by
customers in the Banks' market areas. Deposit rates are set weekly by senior
management of each of the Banks, subject to approval by management of the
Company. Management believes that the rates the Banks offer are competitive with
other institutions in the Banks' market areas.
Competition
Banks generally compete with other financial institutions through
the selection of banking products and services offered, the pricing of services,
the level of service provided, the convenience and availability of services, and
the degree of expertise and the personal manner in which services are offered.
South Carolina law permits
3
statewide branching by banks and savings institutions, and many financial
institutions in the state have branch networks. Consequently, commercial banking
in South Carolina is highly competitive. South Carolina law also permits
regional interstate banking whereby bank holding companies in certain
southeastern states are allowed to acquire depository institutions within South
Carolina. Many large banking organizations currently operate in the respective
market areas of the Banks, several of which are controlled by out-of-state
ownership. In addition, competition between commercial banks and thrift
institutions (savings institutions and credit unions) has been intensified
significantly by the elimination of many previous distinctions between the
various types of financial institutions and the expanded powers and increased
activity of thrift institutions in areas of banking which previously had been
the sole domain of commercial banks. Recent legislation, together with other
regulatory changes by the primary regulators of the various financial
institutions, has resulted in the almost total elimination of practical
distinctions between a commercial bank and a thrift institution. Consequently,
competition among financial institutions of all types is largely unlimited with
respect to legal ability and authority to provide most financial services.
Furthermore, as a consequence of legislation recently enacted by the United
States Congress, out-of-state banks not previously allowed to operate in South
Carolina will be allowed to commence operations and compete in the Banks'
primary service areas if the South Carolina legislature does not elect to limit
the reach of such federal legislation within South Carolina. See "Government
Supervision and Regulation -- Interstate Banking."
Each of the Banks faces increased competition from both
federally-chartered and state-chartered financial and thrift institutions, as
well as credit unions, consumer finance companies, insurance companies and other
institutions in the Banks' respective market areas. Some of these competitors
are not subject to the same degree of regulation and restriction imposed upon
the Banks. Many of these competitors also have broader geographic markets and
substantially greater resources and lending limits than the Banks and offer
certain services that the Banks do not currently provide. In addition, many of
these competitors have numerous branch offices located throughout the extended
market areas of the Banks that the Company believes may provide these
competitors with an advantage in geographic convenience that the Banks do not
have at present. Such competitors may also be in a position to make more
effective use of media advertising, support services, and electronic technology
than can the Banks.
Currently there are two other commercial banks, one savings
institution and one credit union operating in the Barnwell Bank's primary
service areas; three other commercial banks, one savings institution and no
credit unions operating in the Belton Bank's primary service area; three other
commercial banks, one savings institution, and one credit union operating in the
Clemson Bank's primary service area; five other commercial banks, two savings
institutions, and seven credit unions operating in the Greenwood Bank's primary
service area; and six other commercial banks, one savings institution, and one
credit union operating in the Newberry Bank's primary service area.
Employees
The Company currently has twenty-three full-time employees and three
part-time employees, the Barnwell Bank has thirty-four full-time employees and
four part-time employees, the Belton Bank has six full-time employees and one
part-time employee, the Clemson Bank has eight full-time employees and one
part-time employee, the Greenwood Bank has thirty-nine full-time employees and
two part-time employees, and the Newberry Bank has eight full-time employees and
one part-time employee. Community Trust Services Company has two full-time
employees.
Government Supervision and Regulation
General
The Company and the Banks are subject to an extensive collection of
state and federal banking laws and regulations which impose specific
requirements and restrictions on, and provide for general regulatory oversight
with respect to, virtually all aspects of the Company's and the Banks'
operations. The Company and the Banks are also affected by government monetary
policy and by regulatory measures affecting the banking industry in general. The
actions of the Federal Reserve System affect the money supply and, in general,
the Banks' lending abilities in increasing or decreasing the cost and
availability of funds to the Banks. Additionally, the Federal Reserve System
regulates the availability of bank credit in order to combat recession and curb
inflationary pressures in the economy by open market operations in United States
government securities, changes in the discount rate on member bank borrowings,
changes in the reserve requirements against bank deposits and limitations on
interest rates which banks may pay on time and savings deposits.
4
The Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA") and the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA") have significantly changed the commercial banking industry
through, among other things, revising and limiting the types and amounts of
investment authority, significantly increasing minimum regulatory capital
requirements, and broadening the scope and power of federal bank and thrift
regulators over financial institutions and affiliated persons in order to
protect the deposit insurance funds and depositors. These laws, and the
resulting implementing regulations, have subjected the Banks and the Company to
extensive regulation, supervision and examination by the Federal Reserve System
and the FDIC. This change has resulted in increased administrative, professional
and compensation expenses in complying with a substantially increased number of
new regulations and policies. The regulatory structure created by these laws
gives the regulatory authorities extensive authority in connection with their
supervisory and enforcement activities and examination policies.
The following is a brief summary of certain statutes, rules and
regulations affecting the Company and the Banks. This summary is qualified in
its entirety by reference to the particular statutory and regulatory provisions
referred to below and is not intended to be an exhaustive description of the
statutes or regulations applicable to the business of the Company and the Banks.
Any change in applicable laws or regulations may have a material adverse effect
on the business and prospects of the Company and the Banks.
The Company
The Company is a bank holding company within the meaning of the
Federal Bank Holding Company Act of 1956, as amended (the "BHCA"), and the South
Carolina Banking and Branching Efficiency Act of 1996, as amended (the "South
Carolina Act"). The Company is registered with both the Federal Reserve System
and the South Carolina State Board of Financial Institutions (the "State
Board"). The Company is required to file with both of these agencies annual
reports and other information regarding its business operations and those of its
subsidiaries. It is also subject to the supervision of, and to regular
examinations by, these agencies. The BHCA requires every bank holding company to
obtain the prior approval of the Federal Reserve Board before (i) it or any of
its subsidiaries (other than a bank) acquires substantially all of the assets of
any bank, (ii) it acquires ownership or control of any voting shares of any bank
if after such acquisition it would own or control, directly or indirectly, more
than 5% of the voting shares of such bank, or (iii) it merges or consolidates
with any other bank holding company. Under the South Carolina Act, it is
unlawful without the prior approval of the State Board for any South Carolina
bank holding company (i) to acquire direct or indirect ownership or control of
more than 5% of the voting shares of any bank or any other bank holding company,
(ii) to acquire all or substantially all of the assets of a bank or any other
bank holding company, or (iii) to merge or consolidate with any other bank
holding company.
The BHCA and the Federal Change in Bank Control Act, together with
regulations promulgated by the Federal Reserve Board, require that, depending on
the particular circumstances, either the Federal Reserve Board's approval must
be obtained or notice must be furnished to the Federal Reserve Board and not
disapproved prior to any person or company acquiring control of a bank holding
company, such as the Company, subject to certain exemptions for certain
transactions.
Under the BHCA, a bank holding company is generally prohibited from
engaging in, or acquiring direct or indirect control of more than 5% of the
voting shares of any company engaged in, nonbanking activities, unless the
Federal Reserve Board, by order or regulation, has found those activities to be
so closely related to banking or managing or controlling banks as to be a proper
incident thereto. Some of the activities that the Federal Reserve Board has
determined by regulation to be proper incidents to the business of a bank
holding company include making or servicing loans and certain types of leases,
engaging in certain insurance and discount brokerage activities, performing
certain data processing services, acting in certain circumstances as a fiduciary
or investment or financial adviser, owning savings associations and making
investments in certain corporations or projects designed primarily to promote
community welfare. The Company is also restricted in its activities by the
provisions of the Glass-Steagall Act of 1933, which prohibits the Company from
owning subsidiaries that are engaged principally in the issue, flotation,
underwriting, public sale or distribution of securities. The regulatory
requirements to which the Company is subject also set forth various conditions
regarding the eligibility and qualifications of its directors and officers.
5
The Banks
The operations of the Belton Bank, the Greenwood Bank and the
Newberry Bank are subject to various statutory requirements and rules and
regulations promulgated and enforced primarily by the State Board, the Federal
Reserve System, and the FDIC. As South Carolina-chartered banking corporations
with FDIC deposit insurance, the Clemson Bank and the Barnwell Bank are also
subject to various statutory requirements and rules and regulations promulgated
and enforced primarily by the State Board and the FDIC. The State Board and the
FDIC regulate or monitor all areas of the Banks' respective operations,
including security devices and procedures, adequacy of capitalization and loss
reserves, loans, investments, borrowings, deposits, mergers, issuances of
securities, payment of dividends, interest rates payable on deposits, interest
rates or fees chargeable on loans, establishment of branches, corporate
reorganizations, maintenance of books and records, and adequacy of staff
training to carry on safe lending and deposit gathering practices.
The Federal Reserve System and the FDIC also require the Banks to
maintain certain capital ratios (see "Federal Capital Regulations"), and the
provisions of the Federal Reserve Act require the Belton Bank, the Greenwood
Bank and the Newberry Bank to observe certain restrictions on any extensions of
credit to the Company, or with certain exceptions, other affiliates, on
investments in the stock or other securities of other banks, and on the taking
of such stock or securities as collateral on loans to any borrower. In addition,
the Banks are prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, or the providing of any property or
service. The regulatory requirements to which the Banks are subject also set
forth various conditions regarding the eligibility and qualification of their
directors and officers.
Dividends
Although the Company is not presently subject to any direct legal or
regulatory restrictions on dividends (other than the South Carolina state
business corporation law requirements that dividends may be paid only if such
payment would not render the Company insolvent or unable to meet its obligations
as they come due), the Company's ability to pay cash dividends will depend
primarily upon the amount of dividends paid by each of the Banks and any other
subsequently acquired entities. The Banks are subject to regulatory restrictions
on the payment of dividends, including the prohibition of payment of dividends
from each Bank's capital. All dividends of the Banks must be paid out of the
respective undivided profits then on hand, after deducting expenses, including
losses and bad debts. In addition, as a member of the Federal Reserve System,
each of the Belton Bank, the Greenwood Bank and the Newberry Bank is prohibited
from declaring a dividend on its shares of common stock until its surplus equals
its stated capital, unless there has been transferred to surplus no less than
one-tenth of such bank's net profits of the preceding two consecutive half-year
periods (in the case of an annual dividend) and the approval of the Federal
Reserve Board is required if the total of all dividends declared by any of the
Belton Bank, the Greenwood Bank or the Newberry Bank in any calendar year
exceeds the total of its net profits for that year combined with that Bank's
retained net profits for the preceding two years, less any required transfers to
surplus. The Banks are subject to various other federal and state regulatory
restrictions on the payment of dividends, including receipt of the approval of
the South Carolina Commissioner of Banking prior to paying dividends to the
Company.
FIRREA
FIRREA has had a significant impact on the operations of all
financial institutions, including the Banks. FIRREA, among other things,
abolished the Federal Savings and Loan Insurance Corporation and established two
new insurance funds under the jurisdiction of the FDIC: the Savings Association
Fund and the Bank Insurance Fund (see "FDIC Regulations"). FIRREA also imposed,
with certain exceptions, a "cross guaranty" on the part of commonly controlled
depository institutions such as the Banks. Under this provision, if one
depository institution subsidiary of a multi-bank holding company fails or
requires FDIC assistance, the FDIC may assess a commonly controlled depository
institution for the estimated losses suffered by the FDIC. Consequently, each of
the Banks is subject to assessment by the FDIC related to any loss suffered by
the FDIC arising out of the operations of the other Banks. The FDIC's claim is
junior to the claims of nonaffiliated depositors, holders of secured
liabilities, general creditors and subordinated creditors but is superior to the
claims of shareholders.
6
FDIC Regulations
The FDIC establishes rates for the payment of premiums by federally
insured banks and thrifts for deposit insurance. Deposits in the Banks are
insured by the FDIC up to a maximum amount (generally $100,000 per depositor,
subject to aggregation rules), and the FDIC maintains an insurance fund for
commercial banks with insurance premiums from the industry used to offset losses
from insurance payouts when banks fail. The Banks pay premiums to the FDIC on
their deposits. In 1993, the FDIC adopted a rule which establishes a risk-based
deposit insurance premium system for all insured depository institutions,
including the Banks. Under the 1993 rule, a depository institution pays to the
FDIC a premium of from $0.00 to $0.31 per $100 of insured deposits depending on
its capital levels and risk profile, as determined by its primary federal
regulator on a semi-annual basis. During 1997, each Bank's assessment rate was
$500 per quarter for insured deposits.
Federal Capital Regulations
In an effort to achieve a measure of capital adequacy that is more
sensitive to the individual risk profiles of financial institutions, pursuant to
the provisions of the FDICIA, the Federal Reserve Board, the FDIC, and other
federal banking agencies have adopted risk-based capital adequacy guidelines for
banking organizations insured by the FDIC, including each of the Banks. These
guidelines redefine traditional capital ratios to take into account assessments
of risks related to each balance sheet category, as well as off-balance sheet
financing activities. The guidelines define a two-tier capital framework. Tier 1
capital consists of common and qualifying preferred shareholders' equity,
excluding the unrealized gain (loss) on available-for-sale securities, less
goodwill and other adjustments. Tier 2 capital consists of mandatory
convertible, subordinated and other qualifying term debt, preferred stock not
qualifying for Tier 1, and the allowance for credit losses up to 1.25% of
risk-weighted assets. Under the guidelines, institutions must maintain a
specified minimum ratio of "qualifying" capital to risk-weighted assets. At
least 50% of an institution's qualifying capital must be "core" or "Tier 1"
capital, and the balance may be "supplementary" or "Tier 2" capital. The
guidelines imposed on the Company and the Banks include a minimum leverage ratio
standard of capital adequacy. The leverage standard requires top-rated
institutions to maintain a minimum Tier 1 capital to assets ratio of 3%, with
institutions receiving less than the highest rating required to maintain a
minimum ratio of 4% or greater, based upon their particular circumstances and
risk profiles. As of December 31, 1997, the guidelines required achievement of a
minimum ratio of total capital to risk-weighted assets of 8% and a minimum ratio
of Tier 1 capital to risk-weighted assets of 4%.
Each of the Company's and Bank's leverage and risk-based capital
ratios at December 31, 1997, exceeded their respective fully phased-in minimum
requirements.
Other Regulations
Interest and certain other charges collected or contracted for by
the Banks are subject to state usury laws and certain federal laws concerning
interest rates. The Banks' loan operations are also subject to certain federal
laws applicable to credit transactions, such as the federal Truth-In-Lending Act
governing disclosures of credit terms to consumer borrowers, the Community
Reinvestment Act of 1977 requiring financial institutions to meet their
obligations to provide for the total credit needs of the communities they serve,
including investing their assets in loans to low- and moderate-income borrowers,
the Home Mortgage Disclosure Act of 1975 requiring financial institutions to
provide information to enable public officials to determine whether a financial
institution is fulfilling its obligations to help meet the housing needs of the
community it serves, the Equal Credit Opportunity Act prohibiting discrimination
on the basis of race, creed or other prohibited factors in extending credit, the
Fair Credit Reporting Act governing the manner in which consumer debts may be
collected by collection agencies, and the rules and regulations of the various
federal agencies charged with the responsibility of implementing such federal
laws. The deposit operations of the Banks also are subject to the Right to
Financial Privacy Act, which imposes a duty to maintain confidentiality of
consumer financial records and prescribes procedures for complying with
administrative subpoenas of financial records, and the Electronic Funds Transfer
Act and Regulation E issued by the Federal Reserve Board to implement that Act,
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.
Interstate Banking
On September 29, 1994, the federal government enacted the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "1994
Act"). The provisions of the 1994 Act became effective on September 29, 1995,
7
at which time eligible bank holding companies in any state were permitted, with
Federal Reserve Board approval, to acquire banking organizations in any other
state. As such, all existing regional compacts and substantially all existing
regional limitations on interstate acquisitions of banking organizations have
been eliminated.
The 1994 Act also removed substantially all of the existing
prohibitions on interstate branching by banks. Since June 1, 1997, a bank
operating in any state has been entitled to establish one or more branches
within any other state without, as formerly required, the establishment of a
separate banking structure within the other state. Interstate branching was
allowed earlier than the automatic phase-in date of June 1, 1997, as long as the
legislatures of both states involved had adopted statutes expressly permitting
such branching to take place at an earlier date.
On May 7, 1996, South Carolina adopted the South Carolina Act which
became effective on July 1, 1996. The South Carolina Act permits the acquisition
of South Carolina banks and bank holding companies by, and mergers with,
out-of-state banks and bank holding companies with the prior approval of the
State Board. The South Carolina Act also permits South Carolina state banks,
with prior approval of the State Board, to operate branches outside the State of
South Carolina. Although the 1994 Act has the potential to increase the number
of competitors in the marketplace of each of the Banks, the Company cannot
predict the actual impact of such legislation on the competitive position of the
Banks.
Advisory Note Regarding Forward-Looking Statements
Certain of the statements contained in this PART I, Item 1
(Business) and in PART II, Item 7 (Management's Discussion and Analysis of
Financial Condition and Results of Operations) that are not historical facts are
forward-looking statements subject to the safe harbor created by the Private
Securities Litigation Reform Act of 1995. The Company cautions readers of this
Annual Report on Form 10-K that such forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from those expressed or implied by such forward-looking statements. Although the
Company's management believes that their expectations of future performance are
based on reasonable assumptions within the bounds of their knowledge of their
business and operations, there can be no assurance that actual results will not
differ materially from their expectations.
Factors which could cause actual results to differ from expectations
include, among other things, the challenges, costs and complications associated
with the continued development of the New Banks as start-up operations with no
history of operating profits; the ability of the Company to effectively
integrate and staff the operations of the New Banks as well as the operations
allocated to the base of deposits acquired in connection with branch
acquisitions; the ability of the Company to retain and deploy in a timely manner
the cash associated with branch acquisitions into assets with satisfactory
yields and credit risk profiles; the potential that loan charge-offs may exceed
the allowance for loan losses or that such allowance will be increased as a
result of factors beyond the control of the Company; the Company's dependence on
senior management; competition from existing financial institutions operating in
the Company's market areas as well as the entry into such areas of new
competitors with greater resources, broader branch networks and more
comprehensive services; the potential adverse impact on net income of rapidly
declining interest rates; adverse changes in the general economic conditions in
the geographic markets served by the Company; the challenges and uncertainties
in the implementation of the Company's expansion and development strategies; the
potential negative effects of future legislation affecting financial
institutions; and other factors described in this report and in other reports
filed by the Company with the Securities and Exchange Commission.
Item 2. Properties.
The Company and the Greenwood Bank own approximately two acres of
land comprised of several parcels in Greenwood, South Carolina. The Company's
executive offices are located at 302A Montague Street, Greenwood, South Carolina
on land owned by the Company. The Greenwood Bank's executive offices and primary
banking location are in an approximately 8,200 square foot building located at
109 Montague Street in Greenwood on land owned by the Greenwood Bank. The
Greenwood Bank also operates a branch location of approximately 2,400 square
feet on Greenwood's Highway 72 by-pass. The land and building housing this
branch are leased by the Greenwood Bank from Robert C. Coleman, a director of
the Company and the Greenwood Bank. The Greenwood Bank's branch in Ninety Six is
located on approximately two-thirds of an acre of land in Ninety-Six, South
Carolina which the Company leases from John W. Drummond, a director of the
Company and the Greenwood Bank. The Greenwood
8
Bank owns an approximately 715 square foot building located on such leased land.
As noted in "Item 1. Business," substantially all of the assets of the Ninety
Six branch, including the Company's leasehold interest, are expected to be sold
or otherwise transferred to The Palmetto Bank in the second quarter of 1998.
The Barnwell Bank operates out of an approximately 2,900 square foot
building located on a quarter acre parcel at 1810 Main Street in Barnwell, South
Carolina. The land and building are owned by the Barnwell Bank. The Barnwell
Bank also operates five branches located in Aiken, Barnwell and Orangeburg
Counties in South Carolina. Of the six banking locations of the Barnwell Bank,
one is leased from a third party and five are owned by the Barnwell Bank.
The Belton Bank operates out of an approximately 1600 square foot
building located on approximately five areas of land at 711 Anderson Street in
Belton, South Carolina. The land is owned by the Belton Bank and the building is
leased by the Belton Bank from the Company.
The Clemson Bank operates out of an approximately 9,100 square foot
building located on approximately one and one-half acres of land at 528 Old
Greenville Highway in Clemson, South Carolina. The land and building are owned
by the Clemson Bank.
The Newberry Bank operates out of an approximately 2,000 square foot
building located on approximately two acres of land on Johnston Street in
Newberry, South Carolina. The land is owned by the Newberry Bank and the
building is leased from an unrelated third party.
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.
The common stock of the Company (the "Common Stock") commenced
trading on the American Stock Exchange on February 11, 1997 under the symbol
"CYL". Although prior to such listing the Common Stock was quoted on the OTC
Bulletin Board, trading and quotations of the Common Stock were limited and
sporadic. Management is not aware of the prices at which all shares of Common
Stock traded prior to its listing on the American Stock Exchange. The range of
prices known to management prior to February 11, 1997 were $11.00 to $15.00 in
1997 and $10.00 to $13.00 in 1996. The table below reflects the high and low
sales price per share for the Common Stock reported on the American Stock
Exchange for the periods indicated.
Year Quarter High Low
1997 Fourth ......................... $15.00 $13.75
Third ......................... 14.75 12.00
Second ......................... 12.88 11.12
First (from February 11, 1997).. 12.25 11.00
As of March 23, 1998, there were 2,924,034 shares of Common Stock
outstanding held by approximately 1,357 shareholders of record.
The Company has not declared or distributed any cash dividends to
its shareholders since its organization in 1988, and it is not likely that any
cash dividends will be declared in the near term. The Board of Directors of the
Company intends to follow a policy of retaining any earnings to provide funds to
operate and expand the business of the Company and the Banks for the foreseeable
future. The future dividend policy of the Company is subject to the
9
discretion of the Board of Directors and will depend upon a number of factors,
including future earnings, financial condition, cash requirements, and general
business conditions. The Company's ability to distribute cash dividends will
depend entirely upon the Banks' abilities to distribute dividends to the
Company. As state banks, the Banks are subject to legal limitations on the
amount of dividends each is permitted to pay. In particular, the Banks must
receive the approval of the State Board prior to paying dividends to the
Company. Furthermore, neither the Banks nor the Company may declare or pay a
cash dividend on any of their capital stock if they are insolvent or if the
payment of the dividend would render them insolvent or unable to pay their
obligations as they become due in the ordinary course of business. See
"Government Supervision and Regulation -- Dividends."
During the fiscal year ended December 31, 1997, the Company sold an
aggregate of 14,519 shares of Common Stock to its employee stock ownership plan
without registration under the Securities Act of 1933, as amended (the "1933
Act"). The following sets forth the dates and amounts of such sales:
Date Shares Proceeds
---- ------ --------
March 1, 1997 3,924 $43,164.00
April 1, 1997 793 9,020.38
May 1, 1997 2,090 24,035.00
June 1, 1997 706 8,825.00
July 1, 1997 1,792 21,616.00
August 1, 1997 478 6,692.00
September 1, 1997 880 11,660.00
October 1, 1997 1,388 20,473.00
November 1, 1997 1,528 21,201.00
December 1, 1997 940 13,512.50
In each case, all of the shares were sold at the quoted market price at the time
of sale and were issued pursuant to the exemption from registration contained in
Section 4(2) of the 1933 Act as a transaction, not involving a general
solicitation, in which the purchaser was purchasing for investment. The Company
believes that the purchaser was given and had access to detailed financial and
other information with respect to the Company and possessed requisite financial
sophistication . The Company did not sell any other equity securities during the
fiscal year ended December 31, 1997 which were not registered under the 1933
Act.
10
Item 6. Selected Financial Data
The following selected consolidated financial data for the five
years ended December 31, 1997 are derived from the consolidated financial
statements and other data of the Company. The consolidated financial statements
for the years ended December 31, 1993 through 1997, were audited by Tourville,
Simpson & Henderson, independent auditors. The selected consolidated financial
data should be read in conjunction with the consolidated financial statements of
the Company, including the accompanying notes, included elsewhere herein.
- -----------------------------------------------------------------------------------------------------------------
Year Ended December 31, (Dollars in thousands) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
Income Statement Data:
Interest income $ 14,443 $ 8,201 $ 6,217 $ 4,403 $ 3,834
Interest expense 7,172 4,006 2,948 1,693 1,600
--------- --------- --------- --------- ---------
Net interest income 7,271 4,195 3,269 2,710 2,234
Provision for loan losses 608 187 112 14 80
--------- --------- --------- --------- ---------
Net interest income after provision for
loan losses 6,663 4,008 3,157 2,696 2,154
Net securities gains (losses) (1) 17 (22) (79) 22
Noninterest income 1,572 1,122 729 530 714
Noninterest expense 7,248 4,141 3,069 2,261 2,121
--------- --------- --------- --------- ---------
Income before income taxes and
accounting change 986 1,006 795 886 769
Applicable income taxes 220 300 261 301 256
--------- --------- --------- --------- ---------
Income before accounting change 766 706 534 585 513
Accounting change -- -- -- -- 47
--------- --------- --------- --------- ---------
Net income $ 766 $ 706 $ 534 $ 585 $ 560
========= ========= ========= ========= =========
Balance Sheet Data:
Assets $ 248,861 $ 115,959 $ 96,100 $ 65,071 $ 58,970
Earning assets 227,372 106,770 89,233 59,269 54,978
Securities (1) 77,480 25,479 23,699 8,704 9,036
Loans (2) 149,127 80,546 63,204 50,565 44,634
Allowance for loan losses 1,531 837 671 581 567
Deposits 186,861 89,862 73,138 49,146 45,992
Federal Home Loan Bank advances 16,350 4,889 6,244 5,925 6,756
Shareholders' equity 31,928 13,556 12,932 6,079 5,420
Per Share Data (3):
Basic earnings per share (3) $ 0.29 $ 0.58 $ 0.58 $ 0.94 $ 0.83
Diluted earnings per share (3) 0.28 0.55 0.53 0.90 0.83
Book value (period end) (4) 10.99 11.12 10.68 9.62 8.80
Tangible book value (period end) (4) 9.92 11.08 10.64 9.58 8.71
Performance Ratios:
Return on average assets 0.40% 0.67% 0.68% 0.97% 1.03%
Return on average equity 2.68 5.41 5.69 10.17 10.94
Net interest margin (5) 4.16 4.29 4.49 4.78 4.39
Efficiency (6) 81.96 77.28 76.78 69.81 71.95
Asset Quality Ratios:
Allowance for loan losses to period
end loans 1.03% 1.04% 1.06% 1.15% 1.27%
Net charge-offs to average loans 0.15 0.03 0.03 -- 0.03
Nonperforming assets to period end loans and
foreclosed property (2) (7) 0.63 0.23 0.02 0.04 0.40
Capital and Liquidity Ratios:
Average equity to average assets 14.92% 12.37% 11.99% 9.46% 9.39%
Leverage (4.00% required minimum) 12.08 11.62 13.21 9.42 9.10
Risk-based capital
Tier I 17.65 15.58 18.46 11.04 10.89
Total 18.61 16.54 19.41 12.09 12.04
Average loans to average deposits 76.78 88.06 93.03 98.21 90.52
- -----------------------------------------------------------------------------------------------------------------
11
1) Securities held to maturity are stated at amortized cost, and securities
available for sale are stated at fair value.
2) Loans are stated net of unearned income, before allowance for loan losses.
3) All share and per share data have been adjusted to reflect the 5% Common
Stock dividends in September 1993, April 1994, August 1995, and May 1996.
Basic earnings per share and diluted earnings per share have been restated
for the adoption of Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" as of December 31, 1997.
4) Excludes the effect of any outstanding stock options.
5) Net interest income dividend by average earning assets.
6) Noninterest expense divided by the sum of net interest income and
noninterest income, net of gains and losses on sales of assets.
7) Nonperforming loans and nonperforming assets do not include loans past due
90 days or more that are still accruing interest.
Quarterly Operating Results
1997 Quarter ended 1996 Quarter ended
- -------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands except per share) Dec. 31 Sept. 30 June 30 March 31 Dec. 31 Sept. 30 June 30 March 31
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income $ 2,127 $ 2,005 $ 1,875 $ 1,264 $ 1,112 $ 1,083 $ 1,044 $ 956
Provision for loan losses 276 108 136 88 64 18 55 50
Noninterest income 487 417 404 263 239 289 316 295
Noninterest expense 2,184 2,093 1,773 1,198 1,183 1,059 993 906
Net income 138 200 269 159 124 192 204 186
Basic earnings per share 0.05 0.07 0.09 0.08 0.10 0.16 0.17 0.15
Diluted earnings per share 0.05 0.07 0.09 0.08 0.10 0.15 0.16 0.14
- -------------------------------------------------------------------------------------------------------------------------------
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the
preceding "Selected Financial Data" and the Company's Financial Statements and
the Notes thereto and the other financial data included elsewhere in this Annual
Report. The financial information provided below has been rounded in order to
simplify its presentation. However, the ratios and percentages provided below
are calculated using the detailed financial information contained in the
Financial Statements, the Notes thereto and the other financial data included
elsewhere in this Annual Report.
General
As a one-bank holding company for the Greenwood Bank, the Company
grew from approximately $21.5 million in assets, $11.7 million in loans, $16.6
million in deposits, and $4.6 million in shareholders' equity at December 31,
1989, to approximately $65.1 million in assets, $50.6 million in loans, $49.1
million in deposits, and $6.1 million in shareholders' equity at December 31,
1994. The opening of the Clemson Bank in June 1995 resulted in a year-over-year
decrease of the Company's earnings per share for the year ended December 31,
1995. The Clemson Bank became profitable in September 1996, and at December 31,
1996, the Company had approximately $116.0 million in assets, $80.5 million in
loans, $89.9 million in deposits, and $13.6 million in shareholders' equity. Due
to the acquisitions of the New Banks and the Carolina First Branches and net
proceeds from the Offering, the Company has grown to $248.9 million in assets,
$149.1 million in loans, $186.9 million in deposits, and $31.9 million in
shareholders' equity at December 31, 1997. The start-up expenditures associated
with the New Banks, including the time and expense required to attract
customers, deposits, and earning assets, and an increase in the number of
outstanding shares of common stock from the Offering, have resulted in a
year-over-year decrease in the Company's earnings per share.
Management has emphasized maintaining strong asset quality through a
credit underwriting and review system which includes both bank level and
centralized controls. Over the five-year period ended December 31, 1997, the
Company had an average net charge-off ratio of 0.07%. At December 31, 1997,
nonperforming assets as a percentage of total loans was 0.63%.
During 1996, the Company made the decision to acquire and capitalize
the three New Banks. To capitalize the New Banks, the Company sold 1,665,000
shares of its common stock in the Offering, resulting in net proceeds of $16.9
million. Of the net proceeds, the Company used $7.2 million to capitalize the
Barnwell Bank, $3.5 million to capitalize the Belton Bank, and $3.3 million to
capitalize the Newberry Bank. In accordance with the agreements with the
organizers of the New Banks and subject to the New Banks being opened, the
Company agreed to include organizational and preopening costs in the initial
capitalization of the New Banks. The goodwill associated with the acquisitions
totaled $826,000 and is being amortized over a five-year period on a
straight-line basis.
12
On April 7, 1997, the Barnwell Bank acquired net loans (including
accrued interest receivable) of approximately $14.9 and premises and equipment
of approximately $2.0 million and assumed deposits (including accrued interest
payable) of approximately $55.1 million of five branches located in Aiken,
Barnwell and Orangeburg Counties, South Carolina from Carolina First Bank (the
"Carolina First Branches"). In connection with the purchase of the Carolina
First Branches, the Barnwell Bank paid a premium of $2.5 million which is being
amortized over a fifteen-year period on a straight-line basis.
During 1997, the Company experienced dilution of its return on
equity and earnings per share due to the increased number of shares of common
stock from the Offering, expenses incurred in connection with the acquisition
and opening of the New Banks, and losses incurred by the Belton Bank and the
Newberry Bank. Tangible book value per share was also negatively affected by the
intangibles associated with the acquisition of the Carolina First Branches and
the New Banks. The Company believes that the dilution of earnings per share,
return on equity, and tangible book value per share will be outweighed by the
long-term benefits and shareholder value the Company expects to derive from the
purchase of the New Banks and the acquisition of the Carolina First Branches.
However, there can be no assurance that the Company will be able to achieve
these goals.
On February 25, 1998, the Clemson Bank and the Belton Bank entered
into Purchase and Assumption Agreements with Carolina First Bank whereby the
Belton Bank will acquire certain assets and assume deposits of two branch
offices of Carolina First Bank in Anderson County, South Carolina and the
Clemson Bank will acquire certain assets and assume deposits of a branch office
in Calhoun Falls, South Carolina. The Belton Bank and the Clemson Bank will each
pay a premium to Carolina First Bank equal to 6.5% of the deposits other than
certificates of deposit greater than or equal to $100,000 assumed on the date of
closing. The Company anticipates that the total deposits will be approximately
$40 million and the loans will be approximately $5 million based on the
unaudited balances at December 31, 1997.
Results of Operations
Year ended December 31, 1997, compared with year ended December 31,
1996
Net interest income increased $3.1 million, or 73.3%, to $7.3
million in 1997 from $4.2 million in 1996. The increase in net interest income
was due primarily to an increase in average earning assets. Average earning
assets increased $77.1 million, or 78.9%, due to investable proceeds from the
Offering, the acquisition and opening of the New Banks, and the acquisition of
the Carolina First Branches.
The Company's net interest spread and net interest margin were 3.35%
and 4.16%, respectively, in 1997 compared to 3.44% and 4.29% in 1996. The
decreases in the net interest spread and net interest margin were primarily the
result of the growth in the volume of investment securities, traditionally lower
yielding assets than loans, as a percentage of average earning assets. Proceeds
from the Offering and net cash received from the acquisition of the Carolina
First Branches were invested in debt securities until the Company is able to
shift the funds to loans to achieve the Company's targeted loan-to-deposit ratio
and maximize earnings.
The provision for loan losses was $608,000 in 1997 compared to
$187,000 in 1996. The increase in the provision was primarily the result of the
growth in the loan portfolio from the acquisition and opening of the New Banks
and the Banks' efforts to maintain their respective allowances for loan losses
at levels sufficient to cover known and inherent losses in their loan
portfolios.
Noninterest income increased $432,000, or 37.9%, to $1.6 million in
1997 from $1.1 million in 1996, primarily attributable to increased service
charges on deposit accounts and increased fees from mortgage loan originations.
The increase in service charges on deposit accounts was attributable to the
increase in the number of deposit accounts from acquisitions during the year and
the growth of the New Banks. Due to the continued low mortgage lending rates,
the Company was able to originate mortgage loans for qualified borrowers and
sell them to investors under pre-existing commitments or originate loans which
the Company did not fund. Income from the origination of mortgage loans was
$271,000 in 1997 compared to $207,000 in 1996.
Noninterest expense increased $3.1 million, or 75.0%, to $7.2
million in 1997 from $4.1 million in 1996. The primary component of noninterest
expense is salaries and benefits, which increased $1.4 million, or 69.8%, to
$3.3 million in 1997 from $2.0 million in 1996. The increase is attributable to
an increase in the number of employees due to the acquisitions of the New Banks
and the creation during 1997 of Community Trust Services Company which provides
trust services for the Banks. Other categories of expenses increased due to the
acquisitions of the New Banks and the Carolina First Branches. Net occupancy
expense was $479,000 in 1997 compared to $287,000 in 1996, and furniture and
equipment expense was $771,000 in 1997 compared to $305,000 in 1996. The Company
recorded amortization of intangible assets related to the acquisitions of
$246,000 in 1997 compared to only $14,000 in 1996. The Company's efficiency
ratio was 81.96% in 1997 compared to 77.28% in 1996.
13
Net income increased $60,000, or 8.5%, to $766,000 in 1997 from
$706,000 in 1996. The increase in net income was due primarily to increases in
net interest income due to asset growth from acquisitions. Return on average
assets during 1997 was 0.40% compared to 0.67% during 1996, and return on
average equity was 2.68% during 1997 compared to 5.41% during 1996.
Year ended December 31, 1996, compared with year ended December 31,
1995
Net interest income increased $926,000, or 28.3%, to $4.2 million in
1996 from $3.3 million in 1995. The increase in net interest income was due
primarily to an increase in average earning assets. Average earning assets
increased $24.9 million, or 34.2%, primarily as a result of the opening of the
Clemson Bank in June 1995, the opening of a new Greenwood Bank branch in
February 1995, and the continuing growth of the Greenwood Bank.
The Company's net interest spread and net interest margin were 3.44%
and 4.29%, respectively, in 1996 as compared to 3.62% and 4.49% in 1995. The
decrease in the net interest spread and the net interest margin was primarily
the result of the growth in the volume of investment securities as a percentage
of average earning assets in order to improve liquidity and lower the
loans-to-assets ratio.
The provision for loan losses was $187,000 in 1996 compared to
$112,000 in 1995. The increase in the provision was primarily the result of
general growth in the Company's loan portfolio. The Company experienced net
charge-offs of $21,000 in 1996, resulting in a ratio of net charge-offs to
average loans of 0.03%.
Noninterest income increased $432,000, or 61.1%, to $1.1 million in
1996 from $707,000 in 1995, primarily attributable to increased service charges
on deposit accounts, increased fees from mortgage loan originations, and
increased commissions on sales of mutual funds. In 1996, the Company's mortgage
loan origination fees increased due to the decrease in mortgage lending rates.
Noninterest expense increased $1.1 million, or 34.9%, to $4.1
million in 1996 from $3.1 million in 1995. The primary component of noninterest
expense is salaries and benefits, which increased $549,000, or 38.9%, to $2.0
million in 1996 from $1.4 million in 1995. The increase is primarily
attributable to an increase in the number of employees due to the opening in
1995 of the Clemson Bank and the Greenwood Bank's trust and mutual funds
departments. The Company also hired additional employees in anticipation of
opening the New Banks. Net occupancy expense for 1996 was $287,000, an increase
of $105,000 compared to $182,000 in 1995, and furniture and equipment expense
increased $65,000 to $305,000 in 1996 from $240,000 in 1995. The Company's
efficiency ratio in 1996 was 77.28% compared to 76.78% in 1995.
Net income increased $172,000, or 32.2%, to $706,000 in 1996 from
$534,000 in 1995. The increase in net income was due primarily to increases in
net interest income and noninterest income. Return on average assets during 1996
was 0.67% compared to 0.68% during 1995, and return on average equity was 5.41%
during 1996 compared to 5.69% during 1995.
14
Net Interest Income
General. The largest component of the Company's net income is its
net interest income, which is the difference between the income earned on assets
and interest paid on deposits and borrowings used to support such assets. Net
interest income is determined by the yields earned on the Company's
interest-earning assets and the rates paid on its interest-bearing liabilities,
the relative amounts of interest-earning assets and interest-bearing liabilities
and the degree of mismatch and the maturity and repricing characteristics of its
interest-earning assets and interest-bearing liabilities. Net interest income
divided by average interest-earning assets represents the Company's net interest
margin.
Average Balances, Income Expenses and Rates. The following tables
set forth, for the periods indicated, certain information related to the
Company's average balance sheet and its average yields on assets and average
costs of liabilities. Such yields are derived by dividing income or expense by
the average balance of the corresponding assets or liabilities. Average balances
have been derived from the daily balances throughout the periods indicated.
Average Balances, Income and Expenses and Rates
- ------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
(Dollars in thousands) Balance Expense Rate Balance Expense Rate Balance Expense Rate
- ------------------------------------------------------------------------------------------------------------------------------
Assets:
Earning Assets
Loans (1) $ 113,080 $ 10,604 9.38% $ 71,298 $ 6,622 9.29% $ 55,018 $ 5,146 9.35%
Securities, taxable (2) 45,871 3,026 6.60 17,195 1,112 6.47 10,953 723 6.60
Securities, nontaxable 9,056 441 4.87 5,993 290 4.84 3,466 171 4.93
Nonmarketable equity
securities 2,751 133 4.83 1,724 87 5.05 1,630 70 4.29
Funds sold and other 4,074 239 5.87 1,538 90 5.85 1,777 107 6.02
--------- --------- --------- --------- --------- ---------
Total earning assets 174,832 14,443 8.26 97,748 8,201 8.39 72,844 6,217 8.53
--------- --------- --------- --------- --------- ---------
Cash and due from banks 5,231 3,080 2,758
Premises and equipment 6,883 3,408 2,288
Other assets 5,818 2,052 1,016
Allowance for loan losses (1,134) (746) (601)
--------- --------- ---------
Total assets $ 191,630 $ 105,542 $ 78,305
========= ========= =========
Liabilities:
Interest-Bearing Liabilities
Interest-bearing transaction
accounts $ 22,482 547 2.43 $ 7,719 151 1.96 $ 6,136 113 1.84
Savings deposits 30,659 1,335 4.35 21,175 928 4.38 14,693 590 4.02
Time deposits 78,572 4,443 5.65 41,476 2,346 5.66 30,053 1,719 5.72
Other short-term borrowings 5,326 318 5.97 5,070 283 5.58 2,479 145 5.85
Federal Home Loan Bank
advances 8,968 529 5.90 5,436 298 5.48 6,655 381 5.73
--------- --------- --------- --------- --------- ---------
Total interest-bearing
liabilities 146,007 7,172 4.91 80,876 4,006 4.95 60,016 2,948 4.91
--------- --------- --------- --------- --------- ---------
Demand deposits 15,567 10,591 8,258
Accrued interest and other
liabilities 1,471 1,015 643
Shareholders' equity 28,585 13,060 9,388
--------- --------- ---------
Total liabilities and
shareholders' equity $ 191,630 $ 105,542 $ 78,305
========= ========= =========
Net interest spread 3.35% 3.44% 3.62%
Net interest income $ 7,271 $ 4,195 $ 3,269
========= ========= =========
Net interest margin 4.16% 4.29% 4.49%
15
(1) The effect of loans in nonaccrual status and fees collected is not
significant to the computations. All loans and deposits are domestic.
(2) Average investment securities exclude the valuation allowance on securities
available for sale.
Analysis of Changes in Net Interest Income. The following tables set
forth the effect which the varying levels of earning assets and interest-bearing
liabilities and the applicable rates have had on changes in net interest income
from 1996 to 1997 and 1995 to 1996.
Analysis of Changes in Net Interest Income
- -----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997 Compared With 1996 1996 Compared With 1995
- -----------------------------------------------------------------------------------------------------------------------------
Variance Due to Variance Due to
(Dollars in thousands) Volume (1) Rate (1) Total Volume (1) Rate (1) Total
- -----------------------------------------------------------------------------------------------------------------------------
Earning Assets
Loans $ 3,917 $ 65 $ 3,982 $ 1,512 $ (36) $ 1,476
Securities, taxable 1,892 22 1,914 404 (15 389
Securities, nontaxable 149 2 151 122 (3) 119
Nonmarketable equity securities 50 (4) 46 4 13) 17
Funds sold and other 149 -- 149 (14) (3) (17)
---------- ---------- ---------- ---------- ---------- ----------
Total interest income 6,157 85 6,242 2,028 (44) 1,984
---------- ---------- ---------- ---------- ---------- ----------
Interest-Bearing Liabilities
Interest-bearing deposits:
Interest-bearing transaction accounts 351 45 396 31 7 38
Savings and market rate investments 413 (6) 407 280 58 338
Certificates and other time deposits 2,098 (1) 2,097 646 (19) 627
---------- ---------- ---------- ---------- ---------- ----------
Total interest-bearing deposits 2,862 38 2,900 957 46 1,003
Other short-term borrowings 14 21 35 145 (7) 138
Federal Home Loan Bank advances 207 24 231 (68) (15) (83)
---------- ---------- ---------- ---------- ---------- ----------
Total interest expense 3,083 83 3,166 1,034 24 1,058
---------- ---------- ---------- ---------- ---------- ----------
Net interest income $ 3,074 $ 2 $ 3,076 $ 994 $ (68) $ 926
========== ========== ========== ========== ========== ==========
(1) Volume-rate changes have been allocated to each category based on the
percentage of the total change.
Interest Sensitivity. The Company monitors and manages the pricing and
maturity of its assets and liabilities in order to diminish the potential
adverse impact that changes in interest rates could have on its net interest
income. The principal monitoring technique employed by the Company is the
measurement of the Company's interest sensitivity "gap," which is the positive
or negative dollar difference between assets and liabilities that are subject to
interest rate repricing within a given period of time. Interest rate sensitivity
can be managed by repricing assets or liabilities, selling securities available
for sale, replacing an asset or liability at maturity, or adjusting the interest
rate during the life of an asset or liability. Managing the amount of assets and
liabilities repricing in this same time interval helps to hedge the risk and
minimize the impact on net interest income of rising or falling interest rates.
16
The following table sets forth the Company's interest rate sensitivity at
December 31, 1997.
Interest Sensitivity Analysis
- ---------------------------------------------------------------------------------------------------------------------------------
After One After Three Greater Than
Within Through Through One Year
One Three Twelve Within or Non-
December 31, 1997 (Dollars in thousands) Month Months Months One Year sensitive Total
- ---------------------------------------------------------------------------------------------------------------------------------
Assets
Earning Assets
Loans (1) $ 59,399 $ 11,524 $ 23,229 $ 94,152 $ 54,297 $148,449
Securities 300 581 3,141 4,022 73,458 77,480
Funds sold and other 765 -- -- 765 -- 765
-------- -------- -------- --------- -------- --------
Total earning assets 60,464 12,105 26,370 98,939 127,755 226,694
-------- -------- -------- --------- -------- --------
Liabilities
Interest-bearing liabilities
Interest-bearing deposits
Demand deposits 30,562 -- -- 30,562 -- 30,562
Savings deposits 35,939 -- -- 35,939 -- 35,939
Time deposits 9,043 22,514 60,455 92,012 8,888 100,900
-------- -------- -------- --------- -------- --------
Total interest-bearing deposits 75,544 22,514 60,455 158,513 8,888 167,401
Other short-term borrowings 11,943 -- -- 11,943 -- 11,943
Federal Home Loan Bank advances 6,900 650 6,400 13,950 2,400 16,350
-------- -------- -------- --------- -------- --------
Total interest-bearing liabilities 94,387 23,164 66,855 184,406 11,288 195,694
-------- -------- -------- --------- -------- --------
Period gap $(33,923) $(11,059) $(40,485) $ (85,467) $116,467
======== ======== ======== ========= ========
Cumulative gap $(33,923) $(44,982) $(85,467) $ (85,467) $ 31,000
======== ======== ======== ========= ========
Ratio of cumulative gap to total earning assets (14.96)% (19.84)% 37.70% 37.70% 13.67%
- ---------------------------------------------------------------------------------------------------------------------------------
(1) Excludes nonaccrual loans.
The above table reflects the balances of interest-earning assets and
interest-bearing liabilities at the earlier of their repricing or maturity
dates. Overnight federal funds are reflected at the earliest pricing interval
due to the immediately available nature of the instruments. Debt securities are
reflected at each instrument's ultimate maturity date. Scheduled payment amounts
of fixed rate amortizing loans are reflected at each scheduled payment date.
Scheduled payment amounts of variable rate amortizing loans are reflected at
each scheduled payment date until the loan may be repriced contractually; the
unamortized balance is reflected at that point. Interest-bearing liabilities
with no contractual maturity, such as savings deposits and interest-bearing
transaction accounts, are reflected in the earliest repricing period due to
contractual arrangements which give the Company the opportunity to vary the
rates paid on those deposits within a thirty-day or shorter period. Fixed rate
time deposits, principally certificates of deposit, are reflected at their
contractual maturity date.
The Company generally would benefit from increasing market rates of
interest when it has an asset-sensitive gap position and generally would benefit
from decreasing market rates of interest when it is liability-sensitive. The
Company is liability sensitive over the one month, three month, and one year
time frames. However, the Company's gap analysis is not a precise indicator of
its interest sensitivity position. The analysis presents only a static view of
the timing of maturities and repricing opportunities, without taking into
consideration that changes in interest rates do not affect all assets and
liabilities equally. For example, rates paid on a substantial portion of core
deposits may change contractually within a relatively short time frame, but
those rates are viewed by management as significantly less interest-sensitive
than market-based rates such as those paid on non-core deposits. Accordingly,
management believes a liability-sensitive gap position is not as indicative of
the Company's true interest sensitivity as it would be for an organization which
depends to a greater extent on purchased funds to support earning assets. Net
interest income may be impacted by other significant factors in a given interest
rate environment, including changes in the volume and mix of earning assets and
interest-bearing liabilities.
17
Provision and Allowance for Loan Losses
General. The Company has developed policies and procedures for evaluating
the overall quality of its credit portfolio and the timely identification of
potential problem credits. On a quarterly basis, each Bank's Board of Directors
reviews and approves the appropriate level for that Bank's allowance for loan
losses based upon management's recommendations, the results of the internal
monitoring and reporting system, analysis of economic conditions in its markets,
and a review of historical statistical data for both the Company and other
financial institutions.
Additions to the allowance for loan losses, which are expensed as the
provision for loan losses on the Company's income statement, are made
periodically to maintain the allowance at an appropriate level based on
management's analysis of the potential risk in the loan portfolio. Loan losses
and recoveries are charged or credited directly to the allowance. The amount of
the provision is a function of the level of loans outstanding, the level of
nonperforming loans, historical loan loss experience, the amount of loan losses
actually charged against the reserve during a given period, and current and
anticipated economic conditions.
The Company's allowance for loan losses is based upon judgements and
assumptions of risk elements in the portfolio, future economic conditions and
other factors affecting borrowers. The process includes identification and
analysis of loss potential in various portfolio segments utilizing a credit risk
grading process and specific reviews and evaluations of significant problem
credits. In addition, management monitors the overall portfolio quality through
observable trends in delinquency, charge-offs, and general and economic
conditions in the service area. The adequacy of the allowance for loan losses
and the effectiveness of the Company's monitoring and analysis system are also
reviewed periodically by the banking regulators and the Company's independent
auditors.
Based on present information and an ongoing evaluation, management
considers the allowance for loan losses to be adequate to meet presently known
and inherent risks in the loan portfolio. Management's judgment as to the
adequacy of the allowance is based upon a number of assumptions about future
events which it believes to be reasonable but which may or may not be valid.
Thus, there can be no assurance that charge-offs in future periods will not
exceed the allowance for loan losses or that additional increases in the
allowance for loan losses will not be required. The Company does not allocate
the allowance for loan losses to specific categories of loans but evaluates the
adequacy on an overall portfolio basis utilizing a risk grading system.
The following table sets forth certain information with respect to the
Company's allowance for loan losses and the composition of charge-offs and
recoveries for each of the last five years.
Allowance for Loan Losses
- -----------------------------------------------------------------------------------------------------------------------
Year Ended December 31, (Dollars in thousands) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
Total loans outstanding at end of period, net of unearned
income $149,127 $80,546 $63,204 $50,565 $44,634
======== ======= ======= ======= =======
Average loans outstanding, net of unearned income $113,080 $71,298 $55,018 $46,305 $39,641
======== ======= ======= ======= =======
Balance of allowance for loan losses at beginning of period $ 837 $ 671 $ 581 $ 567 $ 500
Allowance for loan losses from acquisitions 255 -- -- -- --
Loan losses:
Commercial, financial and agricultural 92 -- 17 -- 5
Real estate - mortgage 9 -- -- -- --
Consumer 68 21 4 4 12
-------- ------- ------- ------- -------
Total loan losses 169 21 21 4 17
-------- ------- ------- ------- -------
Recoveries of previous loan losses:
Commercial, financial and agricultural -- -- -- -- --
Real estate - mortgage -- -- -- -- --
Consumer -- -- -- 4 4
-------- ------- ------- ------- -------
Total recoveries -- -- -- 4 4
-------- ------- ------- ------- -------
Net loan losses 169 21 21 -- 13
Provision for loan losses 608 187 112 14 80
-------- ------- ------- ------- -------
Balance of allowance for loan losses at end of period $ 1,531 $ 837 $ 671 $ 581 $ 567
======== ======= ======= ======= =======
Allowance for loan losses to period end loans 1.03% 1.04% 1.06% 1.15% 1.27%
Net charge-offs to average loans 0.15 0.03 0.03 -- 0.03
- -----------------------------------------------------------------------------------------------------------------------
18
Nonperforming Assets. The following table sets forth the Company's
nonperforming assets for the dates indicated.
Nonperforming Assets
- ------------------------------------------------------------------------------------------------------------------------------
December 31, (Dollars in thousands) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
Nonaccrual loans $ 678 $ 186 $ 13 $ 3 $ 179
Restructured or impaired loans - - - - -
------------ ----------- ----------- ------------ ----------
Total nonperforming loans 678 186 13 3 179
Other real estate owned 262 - - 19 -
------------ ----------- ----------- ------------ ----------
Total nonperforming assets $ 940 $ 186 $ 13 $ 22 $ 179
============ =========== =========== ============ ==========
Loans 90 days or more past due and still accruing interest $ 84 $ 54 $ 60 $ 39 $ -
Nonperforming assets to period end loans and
foreclosed property 0.63% 0.23% 0.02% 0.04% 0.40%
- ------------------------------------------------------------------------------------------------------------------------------
Accrual of interest is discontinued on a loan when management believes,
after considering economic and business conditions and collection efforts, that
the borrower's financial condition is such that the collection of interest is
doubtful. A delinquent loan is generally placed in nonaccrual status when it
becomes 90 days or more past due. When a loan is placed in nonaccrual status,
all interest which has been accrued on the loan but remains unpaid is reversed
and deducted from current earnings as a reduction of reported interest income.
No additional interest is accrued on the loan balance until the collection of
both principal and interest becomes reasonably certain. When a problem loan is
finally resolved, there may ultimately be an actual writedown or charge-off of
the principal balance of the loan which would necessitate additional charges to
earnings. For all periods presented, the additional interest income, which would
have been recognized into earnings if the Company's nonaccrual loans had been
current in accordance with their original terms, is immaterial.
Total nonperforming assets increased $754,000 to $940,000 at December 31,
1997, from $186,000 at December 31, 1996. This increase was primarily due to the
foreclosure on a piece of other real estate valued at $262,000 and one customer
owing $450,000 who was placed in nonaccrual status in December 1997.
Nonperforming assets were 0.63% of total loans and foreclosed property at
December 31, 1997. The allowance for loan losses to period end nonperforming
assets was 162.87% at December 31, 1997.
Potential Problem Loans. At December 31, 1997, through their internal
review mechanisms, the Banks had identified $2.2 million of criticized loans and
$2.9 million of classified loans. The results of this internal review process
are the primary determining factor in management's assessment of the adequacy of
the allowance for loan losses.
Noninterest Income and Expense
Noninterest Income. The largest component of noninterest income is service
charges on deposit accounts, which totaled $842,000 in 1997, a 63.5% increase
over the 1996 level of $515,000. The increase in service charges and other
noninterest income was primarily attributable to an increase in the customer
base due to the acquisitions of the New Banks and the Carolina First Branches.
Salaries and employee benefits increased $1.3 million, or 69.8%, to $3.3
million in 1997 from $2.0 million in 1996, primarily as a result of an increase
in the number of employees in order to staff the New Banks and the trust
services company. The acquisitions of the New Banks and the Carolina First
Branches also resulted in increases in all other categories of noninterest
expense. The Company is amortizing the intangible assets associated with the
acquisitions over periods ranging from five to fifteen years. During 1997, the
Company recorded amortization expense of $246,000 compared to $14,000 in 1996.
The factors above resulted in increases in net occupancy expense, furniture and
equipment expense, and other operating expenses. The Company's efficiency ratio,
which is noninterest expense as a percentage of the total of net interest income
plus noninterest income, net of gains and losses on the sale of assets, was
81.96% in 1997 compared to 77.28% in 1996 and 76.78% in 1995.
19
The following table sets forth, for the periods indicated, the
principal components of noninterest income:
Noninterest Income
- -----------------------------------------------------------------------------
Year Ended December 31, (Dollars in thousands) 1997 1996 1995
- -----------------------------------------------------------------------------
Service charges on deposit accounts $ 842 $ 515 $ 393
Residential mortgage origination fees 271 207 115
Securities gains (losses) (1) 17 (22)
Fees from sales of mutual funds 54 132 49
Other 405 355 242
------- ------ -----
Total noninterest income $ 1,571 $1,226 $ 777
======= ====== =====
- -----------------------------------------------------------------------------
Noninterest Expense. The following table sets forth, for the periods
indicated, the primary components of noninterest expense:
Noninterest Expense
- ------------------------------------------------------------------------------
Year Ended December 31, (Dollars in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------
Salaries and employee benefits $3,329 $1,960 $1,411
Net occupancy expense 479 287 182
Furniture and equipment expense 771 305 240
Director and committee fees 124 114 72
Amortization of intangibles and other assets 246 14 33
Data processing and supplies 151 176 110
Mortgage loan department expense 94 80 44
Banking assessments 44 3 59
Professional fees 205 132 116
Postage and freight and carriers 200 117 90
Supplies 451 228 186
Credit card expenses 120 94 65
Telephone expenses 214 74 51
Other 820 557 410
------ ------ ------
Total noninterest expense $7,248 $4,141 $3,069
====== ====== ======
Efficiency ratio 81.96% 77.28% 76.78%
- ------------------------------------------------------------------------------
Earning Assets
Loans. Loans are the largest category of earning assets and typically
provide higher yields than the other types of earning assets. Associated with
the higher loan yields are the inherent credit and liquidity risks which
management attempts to control and counterbalance. Loans averaged $113.1 million
in 1997 compared to $71.3 million in 1996, an increase of $41.8 million, or
58.6%. At December 31, 1997, total loans were $149.1 million compared to $80.5
million at December 31, 1996.
The increase in loans during 1997 was primarily due to the new markets
created by the acquisition of the New Banks and the purchase of approximately
$15.0 million in loans from the acquisition of the Carolina First Branches by
the Barnwell Bank. The Banks have also actively sought opportunities to
participate in loans originated by other financial institutions. The following
table sets forth the composition of the loan portfolio by category at the dates
indicated and highlights the Company's general emphasis on mortgage lending.
20
Composition of Loan Portfolio
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
Percent Percent Percent Percent Percent
(Dollars in thousands) Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
- ----------------------------------------------------------------------------------------------------------------------------------
Commercial, financial
and agricultural $ 36,079 24.19% $15,348 19.05% $13,349 21.12% $12,231 24.19% $10,684 23.94%
Real estate
Construction 12,838 8.61 9,962 12.37 8,483 13.42 5,906 11.68 11,556 25.89
Mortgage-residential 40,977 27.48 31,519 39.13 22,515 35.62 14,978 29.62 11,258 25.22
Mortgage-nonresidential 32,518 21.81 17,616 21.87 14,190 22.45 13,436 26.57 7,504 16.81
Consumer 25,747 17.27 5,947 7.38 4,591 7.27 3,953 7.82 3,585 8.03
Other 968 0.64 154 0.20 76 0.12 61 0.12 47 0.11
-------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total loans 149,127 100.00% 80,546 100.00% 63,204 100.00% 50,565 100.00% 44,634 100.00%
====== ====== ====== ====== ======
Allowance for loan losses (1,531) (837) (671) (581) (567)
-------- ------- ------- ------- -------
Net loans $147,596 $79,709 $62,533 $49,984 $44,067
======== ======= ======= ======= =======
- ----------------------------------------------------------------------------------------------------------------------------------
The principal component of the Company's loan portfolio is real estate
mortgage loans. At December 31, 1997, this category totaled $73.5 million and
represented 49.3% of the total loan portfolio, compared to $49.1 million, or
61.0%, at December 31, 1996.
In the context of this discussion, a "real estate mortgage loan" is
defined as any loan, other than loans for construction purposes, secured by real
estate, regardless of the purpose of the loan. It is common practice for
financial institutions in the Company's market areas to obtain a security
interest in real estate, whenever possible, in addition to any other available
collateral. This collateral is taken to reinforce the likelihood of the ultimate
repayment of the loan and tends to increase the magnitude of the real estate
loan portfolio component.
Residential mortgage loans, which is the largest category of the Company's
loans, increased $9.5 million, or 30.0%, to $41.0 million at December 31, 1997,
from $31.5 million at December 31, 1996. Residential real estate loans consist
of first and second mortgages on single or multi-family residential dwellings.
Nonresidential mortgage loans, which include commercial loans and other loans
secured by multi-family properties and farmland, increased $14.9 million, or
84.6%, to $32.5 million at December 31, 1997, from $17.6 million at December 31,
1996. This increase in real estate lending was attributable to the new markets
in the local communities of the New Banks, the continued demand for residential
and commercial real estate loans in the Greenwood market, and loan growth at the
Clemson Bank. The Banks have been able to compete favorably for residential
mortgage loans with other financial institutions by offering fixed rate products
having three and five year call provisions.
Commercial, financial and agricultural loans increased $20.7 million, or
135.1%, to $36.1 million at December 31, 1997, from $15.3 million at December
31, 1996. This increase was primarily attributable to the Company, particularly
the New Banks, actively seeking participation loans from unrelated financial
institutions. Management believes that these participation loans do not have
more credit risk than other loans and provide a greater return than investment
securities.
Consumer loans increased $19.8 million, or 332.9%, to $25.7 million at
December 31, 1997, from $5.9 million at December 31, 1996. The growth in
consumer loans is primarily attributable to overall growth in the Company's loan
portfolio due to new markets created by the acquisitions. The Barnwell Bank and
the Belton Bank are in more rural areas, which typically have more consumer
loans as a percentage of the loan portfolio.
The Company's loan portfolio reflects the diversity of its markets. The
home office and branch offices of the Greenwood Bank are located in Greenwood
County, South Carolina. The economy of Greenwood contains elements of medium and
light manufacturing, higher education, regional healthcare, and distribution
facilities. The Clemson Bank moved into its permanent facility in Clemson, South
Carolina during 1997. Due to its proximity to a major interstate highway and
Clemson University, a state-supported university, management expects the area to
remain stable with continued growth. The Belton Bank and the Barnwell Bank are
in more rural areas and will have a higher concentration of consumer loans with
fewer opportunities for commercial lending. The Newberry Bank is located in
Newberry County, South Carolina and is in close proximity to an interstate
highway. The diversity of the economy creates opportunities for all types of
lending. The Company does not engage in foreign lending.
21
The repayment of loans in the loan portfolio as they mature is also a
source of liquidity for the Company. The following table sets forth the
Company's loans maturing within specified intervals at December 31, 1997.
Loan Maturity Schedule and Sensitivity to Changes in Interest Rates
- -------------------------------------------------------------------------------------------------
Over One Year
One Year Through Over Five
December 31, 1997 (Dollars in thousands) or Less Five Years Years Total
- -------------------------------------------------------------------------------------------------
Commercial, financial and agricultural $ 19,181 $ 15,778 $ 1,120 $ 36,079
Real estate 35,582 34,925 15,826 86,333
Consumer and other 7,345 16,594 2,776 26,715
Loans maturing after one year with:
Fixed interest rates $ 58,671
Floating interest rates 28,348
---------
$ 87,019
=========
The information presented in the above table is based on the contractual
maturities of the individual loans, including loans which may be subject to
renewal at their contractual maturity. Renewal of such loans is subject to
review and credit approval as well as modification of terms upon their maturity.
Consequently, management believes this treatment presents fairly the maturity
and repricing structure of the loan portfolio shown on the above table.
Investment Securities. The investment securities portfolio is a
significant component of the Company's total earning assets. Total securities
averaged $57.7 million in 1997, compared to $24.9 million in 1996 and $16.05
million in 1995. At December 31, 1997, the total securities portfolio was $77.5
million. Securities designated as available for sale totaled $73.6 million and
were recorded at estimated fair market value, and securities designated as held
to maturity totaled $675,000 and were recorded at amortized cost. The securities
portfolio also includes nonmarketable equity securities totaling $3.2 million
which are carried at cost because they are not readily marketable or have no
quoted market value. These include investment in Federal Reserve Bank stock and
Federal Home Loan Bank stock and the stock of four unrelated financial
institutions.. The increase in the portfolio during 1997 was primarily due to
the investment of proceeds from the Offering and from the acquisition of the
Carolina First Branches in debt securities.
The following table sets forth the book value of the securities held by
the Company at the dates indicated.
Book Value of Securities
- -----------------------------------------------------------------------
December 31, (Dollars in thousands) 1997 1996 1995
- -----------------------------------------------------------------------
U.S. Treasury $13,467 $ 6,420 $ 5,952
U.S. government agencies 46,236 11,150 11,546
State, county and municipal securities 13,573 5,367 4,550
Mortgage-backed securities 273 343 398
Nonmarketable equity securities 3,224 2,199 1,252
------- ------- -------
Total securities $76,773 $25,479 $23,698
======= ======= =======
- -----------------------------------------------------------------------
22
The following table sets forth the scheduled maturities and average yields
of securities held at December 31, 1997.
Investment Securities Maturity Distribution and Yields
- --------------------------------------------------------------------------------------------------------------------
After One But After Five But
Within One Within Five Within Ten
December 31, 1997 (Dollars in thousands) Year Years Years After Ten Years
- --------------------------------------------------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield
- --------------------------------------------------------------------------------------------------------------------
U.S. Treasury $2,841 6.06% $10,746 6.27% $ -- $ -- %
U.S. government agencies 699 5.77 22,051 6.83 23,464 7.19 300 10.35
State and political subdivisions (2) 482 6.76 2,301 6.85 1,453 7.52 9,641 8.26
------- ------- ------- ------
Total (1) $4,022 6.09% $35,098 6.66% $24,917 7.21% $9,941 8.32%
======= ======= ======= ======
(1) Excludes mortgage-backed securities totaling $278,000 with a yield of 6.813%
and nonmarketable equity securities.
(2) The yield on state and political subdivisions is presented on a tax
equivalent basis using a federal income tax rate of 34%.
Other attributes of the securities portfolio, including yields and
maturities, are discussed above in "---Net Interest Income--- Interest
Sensitivity."
23
Short-Term Investments. Short-term investments, which consist primarily of
federal funds sold and interest-bearing deposits with other banks, averaged $4.1
million in 1997, compared to $1.5 million in 1996 and $1.8 million in 1995. At
December 31, 1996, short-term investments totaled $765,000. These funds are a
source of the Banks' liquidity. Federal funds are generally invested in an
earning capacity on an overnight basis.
Deposits and Other Interest-Bearing Liabilities
Average interest-bearing liabilities increased $65.1 million, or 80.5%, to
$146.0 million in 1997, from $80.9 million in 1996. Average interest-bearing
deposits increased $61.3 million, or 87.1%, to $131.7 million in 1997, from
$70.4 million in 1996. These increases resulted from increases in most
categories of interest-bearing liabilities, primarily as a result of the
acquisition of the New Banks and the approximately $55 million of deposits
transferred upon the acquisition of the Carolina First Branches.
Deposits. Average total deposits increased $66.3 million, or 81.9%, to
$147.3 million during 1997, from $81.0 million during 1996. At December 31,
1997, total deposits were $186.9 million compared to $89.9 million a year
earlier, an increase of 107.9%.
The following table sets forth the deposits of the Company by category at
the dates indicated.
Deposits
- -----------------------------------------------------------------------------------------------------------------------------------
December 31 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
Percent Percent Percent Percent Percent
(Dollars in thousands) Amount of Deposits Amount of Deposits Amount of Deposits Amount of Deposits Amount of Deposits
------------------------------------------------------------------------------------------------------------
Demand deposit
accounts $ 19,460 10.41% $12,226 13.61% $ 9,447 12.92% $ 6,968 14.18% $4,974 10.81%
NOW accounts 30,562 16.36 8,296 9.23 8,028 10.98 7,158 14.56 5,050 10.98
Money market
accounts 20,812 11.14 14,035 15.62 9,498 12.98 4,815 9.80 5,679 12.35
Savings accounts 15,127 8.09 8,681 9.66 7,922 10.83 6,818 13.87 6,360 13.83
Time deposits less
than $100,000 73,827 39.51 34,745 38.66 26,161 35.77 15,893 32.34 15,503 33.71
Time deposits of
$100,000 or over 27,073 14.49 11,879 13.22 12,082 16.52 7,494 15.25 8,426 18.32
-------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total deposits $186,861 100.00% $89,862 100.00% $73,138 100.00% $49,146 100.00% $45,992 100.00%
======== ====== ======= ====== ======= ====== ======= ====== ======= ======
- -----------------------------------------------------------------------------------------------------------------------------------
Core deposits, which exclude certificates of deposit of $100,000 or more,
provide a relatively stable fund