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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 FISCAL YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NUMBER 33-76644
COMMUNITYCORP
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
SOUTH CAROLINA 57-1019001
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1100 N. JEFFERIES BLVD. WALTERBORO, SOUTH CAROLINA 29488
- -------------------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 843/549-2265
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT - NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $5 PER SHARE
- --------------------------------------------------------------------------------
(Title of class)
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 periods that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent fliers 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 information or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ X].
The aggregate market value (computed on the basis of the most recent trades of
which the Registrant was aware) of shares of the Common Stock ($5 par value per
share) held by non-affiliates of the registrant as of March 13, 2000 was
$8,557,830. The market value calculation assumes that all shares beneficially
owned by members of the Board of Directors of the Registrant are shown owned by
"affiliates", a status which each of the directors individually disclaims.
The number of shares outstanding of the issuer's classes of common stock as of
March 13, 2000 - 300,000 shares of Common Stock, $5 Par Value.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
No documents have been incorporated by reference.
PAGE 1 OF 45 SEQUENTIALLY NUMBERED PAGES.
PART I
ITEM 1. BUSINESS
GENERAL. Communitycorp (the "Company or "Registrant") is a South Carolina
corporation organized for the purpose of becoming a bank holding company for the
Bank of Walterboro (the "Bank"), under the Bank Holding Company Act. The Company
was incorporated on March 13, 1995. Effective September 11, 1995 the Registrant
acquired, in exchange for its own shares of common stock, all of the outstanding
common stock of the Bank.
SUBSIDIARY. Bank of Walterboro is a state-chartered commercial bank operating
from two offices located at 1100 North Jefferies Boulevard, Walterboro, South
Carolina and at 6225 Savannah Highway, Ravenel, South Carolina. The Bank's
primary market area is Northern Charleston and Colleton Counties in South
Carolina. Depository accounts are insured by the Federal Deposit Insurance
Corporation up to the maximum amount permitted by law. The Bank received its
charter on October 11, 1988, and opened for business on May 1, 1989.
The Bank offers a full range of deposit services for individuals and businesses.
Deposit products include checking accounts, savings accounts, certificate of
deposit, money market accounts and IRA's.
The Bank offers short to intermediate term commercial and consumer loans for a
variety of purposes on both a secured and unsecured basis. The primary
commercial market for these loans is small to medium sized businesses located in
the Colleton County area. Commercial loans may be made to companies to acquire
fixed assets, for general operating purposes, or to finance inventory or
accounts receivables, as well as for other purposes. Consumer loans are made to
finance the purchase of real estate, automobiles, mobile homes, boats, other
recreational items, or for home improvements, education or personal investments.
The Bank has not obtained a material portion of its deposits from any single
person or few persons nor is a material portion of the Bank's loans concentrated
within a single industry or group of related industries. Management has no
reason to believe that the loss of any depositor or a few of the larger
depositors would have a materially adverse effect upon the operations of the
Bank or erode its deposit base.
EMPLOYEES. As of March 13, 2000, the Company and the Bank had twenty-six
full-time and two part-time employees. Neither the Company nor the Bank is a
party to a collective bargaining agreement, and they consider their relations
with employees to be good.
COMPETITION AND MARKET AREA. The Company and the Bank conduct business in terms
substantially the same as a typical commercial bank offering a full range of
banking services, with the exception of trust services. The Company's
capitalization allows the Company to compete effectively in it's market.
Correspondent banks are used to meet customer credit needs that exceed the
Bank's lending limits.
The Bank competes in a very competitive market for deposits and loans against
four commercial banks, two savings and loans and one credit union. None of the
bank's competitors are headquartered in Colleton County except for one savings
and loan. The Bank prides itself in providing prompt, efficient, courteous
service and subscribes to the theory that funds resulting from local depositors
should be reinvested in the depositor's community.
The Bank strongly feels that decisions regarding credit and services of a bank
can best be made at a local level and that stability and continuity of
management within a bank without frequent transfers is important to the
financial well-being of its customers.
PAGE 2 OF 45 SEQUENTIALLY NUMBERED PAGES.
SUPERVISION AND REGULATION. The Company is a bank holding company within the
meaning of the Bank Holding Company Act of 1956, as amended (the "Act"), and is
registered with the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") and the South Carolina State Board of Financial
Institutions (the "State Board"). The Company is required to file semi-annual
reports with the Federal Reserve Board and such additional information as that
Board may require pursuant to the Act, and to file annual reports with the State
Board.
The Company also is subject to examination by the Federal Reserve Board and the
State Board and is required to obtain Federal Reserve Board and State Board
approval prior to acquiring, directly or indirectly, ownership or control of any
voting shares of a bank if, after such acquisition, it would own or control,
directly or indirectly, more than 5% of the voting stock of such bank, unless it
already owns a majority of the voting stock of such bank. Furthermore, a bank
holding company is, with limited exceptions, prohibited from acquiring direct or
indirect ownership or control of any voting stock of any company which is not a
bank or a bank holding company and must engage only in the business of banking
or managing and controlling banks or furnishing services to or performing
services for its subsidiary banks. One of the exceptions to this prohibition is
the ownership of shares of a company, the activities of which the Federal
Reserve Board has determined to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto.
A bank holding company and its subsidiaries are prohibited from engaging in
certain tie-in arrangements in connection with the extension of credit or
provisions of any property or service. Thus, an affiliate of a bank holding
company may not extend credit, lease or sell property, furnish any services or
fix or vary the consideration for such on the condition that (I) the customer
must obtain or provide some additional credit, property or services from or to
its bank holding company or subsidiaries thereof, or (ii) the customer may not
obtain some other credit, property or services from a competitor, except to the
extent reasonable conditions are imposed to assure the soundness of the credit
extended.
Stockholders of the Company's common stock are entitled to receive dividends as
and when declared by the Company's Board of Directors out of funds legally
available therefore under the laws of the State of South Carolina. The Company's
ability to pay dividends is dependent on the amount of dividends paid by the
Bank and any other subsidiary of the Company.
In August 1989, the Financial Institutions Reform Recovery and Enforcement Act
of 1989 ("FIRREA") was enacted. FIRREA provides, among other things, for a
phased-in increase in the rate on annual insurance assessments paid by a bank,
including the Bank, whose deposits are insured by the new Bank Insurance Fund of
the FDIC. FIRREA also imposes liability on an institution, the deposits of which
are insured by the FDIC for certain potential obligations to the FDIC incurred
in connection with assistance to other FDIC insured institutions under common
control with such institutions.
In December 1991, a major banking bill entitled the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA") was enacted. FDICIA substantially
revised the bank regulatory and funding provisions of the Federal Deposit
Insurance Act and makes other revisions to several other federal banking
statutes. Among other things, FDICIA defined new regulatory standards in such
areas as asset quality, earnings and competition and revised existing regulatory
standards for powers of state banks, real estate lending, capital adequacy, and
other items.
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, 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.
PAGE 3 OF 45 SEQUENTIALLY NUMBERED PAGES.
The 1994 Act also removed substantially all of the existing prohibitions on
interstate branching by banks. On and after June 1, 1997, a bank operating in
any state may establish one or more branches within any other state without, as
currently required, the establishment of a separate banking structure within the
other state. Interstate branching is allowed earlier than the automatic phase-in
date of June 1, 1997, as long as the legislatures of both states involved have
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 the Bank, the Company cannot predict the
actual impact of such legislation on the competitive position of the Bank.
The Company cannot predict what other legislation might be enacted or what other
regulations might be adopted, or if enacted or adopted, the affect thereof on
the Company and/or the Bank.
SOURCES AND AVAILABILITY OF FUNDS. The resources essential to the business of
the Company and its subsidiary, the Bank, consist primarily of funds derived
from deposits. The Company's banking subsidiary uses these funds to make loans
and to fund its investment portfolio. The availability of such funds is
primarily dependent upon the economic policies of the government, the economy in
general and the general credit market for loans.
MONETARY POLICY AND ECONOMIC CONTROLS. The earnings of the Company's subsidiary
bank, and therefore, to a large extent the earnings of the Company, are affected
by the policies of regulatory authorities, including the Federal Reserve System.
An important function of the Federal Reserve System is to regulate the national
supply of bank credit in order to combat recession and curb inflation. Among the
instruments used to attain these objectives are open market operations in U.S.
Government securities and changes in the reserve requirements applicable to
member bank deposits. These instruments are used in varying combinations to
influence overall growth and distribution of bank loans, investments and
deposits, and their use also may affect interest rates charged on loans or paid
for deposits.
DEPENDENCE UPON SINGLE CUSTOMER OR GROUP OF CUSTOMERS. Neither the Company nor
the Bank is dependent upon a single customer or a group of a few customers.
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.
PAGE 4 OF 45 SEQUENTIALLY NUMBERED PAGES.
ITEM 2. PROPERTIES
The Company owns a 5,400 square foot facility located at 1100 North Jefferies
Boulevard, Walterboro, South Carolina, which is its corporate banking office.
Construction on this facility was completed in 1989 at a total cost, including
land, furniture and fixtures of $775,345. All corporate headquarters as well as
normal banking services and operations are housed at this location. The facility
has a second floor which would allow for expansion consisting of 2,700 square
feet. The existing building was built to adequately serve the anticipated needs
of the Bank for the foreseeable future.
The Company opened its second banking location at 6225 Savannah Highway,
Ravenel, South Carolina. This 3,622 square foot facility opened for business on
October 6, 1997 and provides traditional banking services. The total cost of
this facility, including land, and furniture and fixtures was $930,344.
ITEM 3. LEGAL PROCEEDINGS
The nature of the Company's business and that of the Bank generates a certain
amount of litigation involving matters arising in the ordinary course of
business. In the opinion of management of the Company, none of the legal
proceedings currently pending or threatened to which the Company or its
subsidiary Bank is a party or of which any of their properties is subject, is
reasonably likely to have any material adverse effect on the business or
financial condition of the Company or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders in the fourth quarter of
1999.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
As of December 31, 1999, there were 610 holders of the Company's Common Stock.
Currently, there is no established trading market for the Company's Common
Stock. Based on information known to management, its Common Stock has traded in
the range of $ 30.00 to $ 45.00 per share.
Holders of the Company's Common Stock are entitled to such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available thereof. The Company paid cash dividends of $.40 and $.31 per share
during 1999 and 1998, respectively. Any cash dividends paid by the Bank are paid
to the Company as the sole shareholder of the Bank.
No representations can be made as to if or when the Company will pay cash
dividends in the future. Future dividend policy of the Company is subject to the
discretion of the Board of Directors and will depend upon a number of factors,
including future earnings, financial condition, cash need, and general business
conditions. The Company's ability to pay dividends will depend entirely upon the
Bank's abilities to distribute dividends to the Company. As a state bank, the
Bank is subject to legal limitations on the amount of dividends it is permitted
to pay. Furthermore, neither the Bank 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.
PAGE 5 OF 45 SEQUENTIALLY NUMBERED PAGES.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data concerning the
Company. The selected financial data has been derived from the consolidated
financial statements which have been audited by Tourville, Simpson & Caskey,
L.L.P., independent accountants. This information should be read in conjunction
with Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Year ended December 31 1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- --------
(Dollars in thousands,
except per share)
BALANCE SHEET:
Securities available-for-sale $ 18,760 $ 10,744 $ 9,395 $ 10,188 $ 4,965
Securities held-to-maturity 5,327 5,192 6,301 6,810 5,008
Allowance for loan losses 1,087 929 743 639 617
Net loans 58,576 50,950 40,614 34,515 29,598
Premises and equipment - net 1,776 1,906 1,999 1,262 818
Total assets 96,695 89,503 65,075 56,778 47,848
Non-interest bearing deposits 9,953 8,533 6,064 5,674 4,690
Interest bearing deposits 76,982 71,816 50,879 44,391 35,950
Total deposits 86,935 80,349 56,943 50,065 40,640
Short-term borrowings 290 410 480 - 990
Total liabilities 87,891 81,333 57,841 50,395 42,234
Total shareholders' equity 8,805 8,170 7,234 6,383 5,614
RESULTS OF OPERATIONS:
Interest income $ 6,905 $ 5,748 $ 4,749 $ 4,151 $ 3,557
Interest expense 3,168 2,674 2,131 1,937 1,524
--------- --------- --------- --------- --------
Net interest income 3,737 3,074 2,618 2,214 2,033
Provision for loan losses 360 260 135 130 125
--------- --------- --------- --------- --------
Net interest income after provision 3,377 2,814 2,483 2,084 1,908
Other income 465 342 258 224 176
Other expenses 1,810 1,630 1,329 1,072 952
Income tax expense 652 500 468 417 397
--------- --------- --------- --------- --------
Net income $ 1,380 $ 1,026 $ 944 $ 819 $ 735
========= ========= ========= ========= ========
CASH DIVIDENDS PAID: $ 119 $ 93 $ 84 $ 75 $ 63
========= ========= ========= ========= ========
PER SHARE DATA:
Weighted average common
shares outstanding 296,522 298,390 298,646 299,420 300,000
Net income $ 4.65 $ 3.44 $ 3.16 $ 2.73 $ 2.45
Cash dividends paid $ .40 $ .31 $ .28 $ .25 $ .21
Period end book value $ 30.15 $ 27.37 $ 24.24 $ 21.32 $ 18.71
PAGE 6 OF 45 SEQUENTIALLY NUMBERED PAGES.
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.
GENERAL
Communitycorp is a South Carolina corporation organized on March 13, 1995 to be
a bank holding company (the Company). The Company's subsidiary, Bank of
Walterboro, is a state-chartered commercial bank with two banking locations. The
Bank's main office and operations center is located at 1100 North Jefferies
Boulevard, Walterboro, South Carolina. The Bank opened its first branch on
October 6, 1997 at 6225 Savannah Highway, Ravenel, South Carolina. The Company's
primary market area is Colleton and Charleston Counties. Depository accounts are
insured by the Federal Deposit Insurance Corporation up to the maximum amount
permitted by law. The Bank, which received its charter on October 11, 1988 and
opened for business on May 1, 1989, is dedicated to providing prompt, efficient,
personal service to its customers. A full range of deposit services for
individuals and businesses are offered by the Bank. Deposit products include
checking accounts, savings accounts, certificates of deposit, money market
accounts, and IRA's.
The Company is primarily engaged in the business of attracting deposits from the
general public and using these deposits together with other funds to make
commercial, consumer, and real estate loans. The Company's operating results
depend to a substantial extent on the difference between interest and fees
earned on loans, investments, and services, and the Company's interest expense,
consisting principally of interest paid on deposits. Unlike most industrial
companies, virtually all of the assets and liabilities of financial institutions
are monetary. As a result, interest rates have a greater effect on the financial
institution's performance. In addition to competing with other traditional
financial institutions, the Company also competes for savings dollars with
non-traditional financial intermediaries such as mutual funds. This has resulted
in a highly competitive market area which demands the type of personal service
and attention granted by Bank of Walterboro.
The earnings and growth of the banking industry and the Company are and will be
affected by general conditions of the economy and by the fiscal and monetary
policies of the federal government and its agencies, including the Board of
Governors of the Federal Reserve System (the Board). The Board regulates money
and credit conditions and, as a result, has a strong influence on interest rates
and on general economic conditions. The effect of such policies in the future on
the business and earnings of the Company cannot be predicted with certainty.
As of December 31, 1999, the Company had nineteen full-time and one part-time
employee in the Walterboro branch and seven full-time and one part-time employee
at the Ravenel branch.
PAGE 7 OF 45 SEQUENTIALLY NUMBERED PAGES.
RESULTS OF OPERATIONS
This discussion and analysis is intended to assist the reader in understanding
the financial condition and results of operations of Communitycorp and its
subsidiary, Bank of Walterboro. This commentary should be read in conjunction
with the consolidated financial statements and the related notes and the other
statistical information in this report.
1999 COMPARED TO 1998
Net income for the year ended December 31, 1999 was $1,379,803, or $4.65 per
share, compared to $1,026,338, or $3.44 per share, for the year ended December
31, 1998. An increase in net interest income of $663,438 over the 1998 amount of
$3,073,762 contributed to this overall increase. Other income increased
$123,420, or 36.07%, over 1998. Other expenses increased from $1,629,416 for
1998 to $1,810,490 for 1999. The increase in other expenses is primarily
attributable to an increase in salaries and employee benefits of $101,897 from
1998 to 1999. Annual pay raises for the staff at both locations contributed to
this increase.
1998 COMPARED TO 1997
Net income for the year ended December 31, 1998 was $1,026,338, or $3.44 per
share, compared to $944,374, or $3.16 per share, for the year ended December 31,
1997. An increase in net interest income of $456,132 over the 1997 amount of
$2,617,630 contributed to this overall increase. Other income increased $83,150,
or 32.10%, over 1997. Other expenses increased from $1,329,266 for 1997 to
$1,629,416 for 1998. A primary reason for the $300,150 increase in other
expenses was attributable to salaries and employee benefits, which in addition
to normal pay raises, was also affected by salaries paid for a full year in 1998
at the Ravenel branch compared to only three months in 1997.
NET INTEREST INCOME
GENERAL. To a large degree, earnings are dependent on net interest income. It
represents the difference between interest earned on assets and interest paid on
liabilities. Interest rate spread and net interest margin are two significant
elements in analyzing the Company's net interest income. Interest rate spread is
the difference between the yield on average earning assets and the rate on
average interest bearing liabilities. Net interest margin is net interest income
divided by earning assets.
Net interest income increased from $3,073,762 in 1998 to $3,737,200 in 1999,
resulting in an increase of 21.58%. Income from loans increased by 17.00% to
$5,212,989 for 1999 as compared to $4,455,655 for 1998. This increase was
attributable to the growth in the loan portfolio from $51,879,654 in 1998 to
$59,663,015 in 1999. There was also an increase in investment income of
$314,618, an increase of 37.55% over the 1998 amount of $837,905. The net
interest spread and net interest margin were 3.70% and 4.28% in 1999 as compared
to 3.80% and 4.51% in 1998.
Net interest income increased from $2,617,630 in 1997 to $3,073,762 in 1998,
resulting in an increase of 17.43%. Income from loans increased by 25.41% to
$4,455,655 for 1998 as compared to $3,552,858 for 1997. This increase was
attributable to the growth in the loan portfolio from $41,357,114 in 1997 to
$51,879,654 in 1998. There was a decrease in investment income of $149,512 from
the 1997 amount of $987,417 as the Company elected to shift its resources among
interest-earning assets. The net interest spread and net interest margin were
3.80% and 4.51% in 1998 as compared to 3.86% and 4.61% in 1997.
PAGE 8 OF 45 SEQUENTIALLY NUMBERED PAGES.
NET INTEREST INCOME - CONTINUED
AVERAGE BALANCES, INCOME, EXPENSES, AND RATES. The following table sets forth,
for the periods indicated, the weighted average yields earned, the weighted
average yields paid, the net interest spread, and the net interest margin on
earning assets. The table also indicates the average monthly balance and the
interest income or expense by specific categories.
AVERAGE BALANCES, INCOME, EXPENSES, AND RATES
1999 1998
--------------------------------- -------------------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
-------- --------- --------- --------- ----------- ---------
(Dollars in thousands)
ASSETS:
Taxable securities (1) $ 14,649 $ 888 6.06% $ 10,282 $ 670 6.52%
Tax-exempt securities (1) 6,211 264 4.25% 3,771 168 4.46%
Federal funds sold 11,092 540 4.87% 8,175 455 5.57%
Loans (2) 55,288 5,213 9.43% 45,905 4,455 9.70%
--------- --------- --------- -----------
Total earning assets 87,240 6,905 7.91% 68,133 5,748 8.43%
--------- -----------
Cash and due from banks 3,912 3,296
Allowance for loan losses (974) (793)
Premises and equipment 1,849 1,975
Other assets 1,468 1,055
--------- ---------
Total assets $ 93,495 $ 73,666
========= =========
LIABILITIES:
Interest bearing deposits $ 74,775 3,149 4.21% $ 57,316 2,655 4.63%
Short-term borrowings 467 19 4.07% 414 19 4.59%
--------- --------- --------- -----------
Total interest-
bearing liabilities 75,242 3,168 4.21% 57,730 2,674 4.63%
--------- -----------
Non-interest bearing deposits 8,966 7,786
Accrued interest and
other liabilities 724 543
Shareholders' equity 8,563 7,607
--------- ---------
Total liabilities and
shareholders' equity $ 93,495 $ 73,666
========= =========
Net interest income/
interest rate spread $ 3,737 3.70% $ 3,074 3.80%
========= ========= =========== ==========
Net interest margin on earning assets 4.28% 4.51%
========= ==========
(1) Averages for securities are stated at historical cost.
(2) The effect of loans in non-accrual status and fees collected is not
significant to the computations. All loans and deposits are domestic.
PAGE 9 OF 45 SEQUENTIALLY NUMBERED PAGES.
NET INTEREST INCOME - CONTINUED
ANALYSIS OF CHANGES IN NET INTEREST INCOME. Net interest income can also be
analyzed in terms of the impact of changing rates and changing volume. The
following table describes the extent to which changes in interest rates and
changes in the volume of earning assets and interest bearing liabilities have
affected the Company's interest income and interest expense during the periods
indicated. Information on changes in each category attributable to (i) changes
due to volume (change in volume multiplied by prior period rate), (ii) changes
due to rates (changes in rates multiplied by prior period volume) and (iii)
changes in rate and volume (change in rate multiplied by the change in volume)
is provided as follows:
ANALYSIS OF CHANGES IN NET INTEREST INCOME
1999 compared to 1998
Due to increase (decrease) in
(Dollars in thousands) Volume Rate Volume/Rate Total
------ -------- ----------- ------
EARNING ASSETS
Taxable securities $ 273 $ (39) $ (16) $ 218
Tax-exempt securities 132 (20) (16) 96
Federal funds sold 181 (68) (28) 85
Loans 1,029 (221) (50) 758
-------- -------- -------- --------
Total interest income 1,615 (348) (110) 1,157
-------- -------- -------- --------
INTEREST-BEARING LIABILITIES
Interest bearing deposits 895 (300) (101) 494
Short-term borrowings 2 (2) - -
-------- -------- -------- --------
Total interest expense 897 (302) (101) 494
-------- -------- -------- --------
Net interest income $ 718 $ (46) $ (9) $ 663
======== ======== ======== ========
1998 compared to 1997
Due to increase (decrease) in
(Dollars in thousands) Volume Rate Volume/Rate Total
------ -------- ----------- ------
EARNING ASSETS
Deposits in other banks $ (1) $ - $ - $ (1)
Taxable securities (191) 13 (3) (181)
Tax-exempt securities 32 - - 32
Federal funds sold 245 1 1 247
Loans 895 5 1 901
-------- -------- -------- --------
Total interest income 980 19 (1) 998
-------- -------- -------- --------
INTEREST-BEARING LIABILITIES
Interest bearing deposits 470 58 13 541
Short-term borrowings 2 (1) - 1
-------- -------- -------- --------
Total interest expense 472 57 13 542
-------- -------- -------- --------
Net interest income $ 508 $ (38) $ (14) $ 456
======== ======== ======== ========
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.
PAGE 10 OF 45 SEQUENTIALLY NUMBERED PAGES.
NET INTEREST INCOME - CONTINUED
The following table presents the Company's rate sensitivity at each of the time
intervals indicated as of December 31, 1999. The table may not be indicative of
the Company's rate sensitivity position at other points in time.
INTEREST SENSITIVITY ANALYSIS
After six
Within After three through Within Greater than
three through six twelve one One Year or
(Dollars in thousands) months months months year Nonsensitive Total
--------- --------- --------- --------- ------------ --------
ASSETS
Interest earning assets:
Federal funds sold and
securities purchased under
agreements to resell $ 4,670 $ - $ - $ 4,670 $ - $ 4,670
Investment securities 235 201 183 619 23,468 24,087
Loans (1) 11,165 4,144 9,671 24,980 33,979 58,959
--------- --------- --------- --------- --------- ---------
Total 16,070 4,345 9,854 $ 30,269 $ 57,447 $ 87,716
--------- --------- --------- ========= ========= =========
LIABILITIES
Interest bearing liabilities:
Demand deposits 26,187 - - 26,187 - 26,187
Savings deposits 19,238 - - 19,238 - 19,238
Time deposits 16,407 12,688 10,413 39,508 2,002 41,510
Short-term borrowings 290 - - 290 - 290
--------- --------- --------- --------- --------- ---------
Total 62,122 12,688 10,413 $ 85,223 $ 2,002 $ 87,225
--------- --------- --------- ========= ========= =========
Period gap (46,052) (8,343) (559) (54,954) 55,445
Cumulative gap (46,052) (54,395) (54,954) (54,954) 491
Ratio of cumulative gap to
total earning assets (52.50)% (62.01)% (62.65)% (62.65)% 0.56%
- ---------------------
(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 and securities purchased under agreements to
resell are reflected at the earliest pricing interval due to the immediately
available nature of the instruments. 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. Short-term borrowings are reflected in the earliest repricing period since
these borrowings mature daily.
PAGE 11 OF 45 SEQUENTIALLY NUMBERED PAGES.
NET INTEREST INCOME - CONTINUED
The Company generally would benefit from increasing market rates of interest
when it has an asset-sensitive gap and generally would benefit from decreasing
market rates of interest when it is liability sensitive. The Company currently
is liability sensitive over periods with maturity dates of less than twelve
months. However, the Company's gap analysis is not a precise indicator of its
interest sensitive position. The analysis presents 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.
Net interest income is also impacted by other significant factors, including
changes in the volume and mix of earning assets and interest-bearing
liabilities.
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. 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 loan loss allowance will not
be required.
Additions to the allowance for loan losses, which are expensed as the provision
for loan losses on the Company's Statements of Operations, are made periodically
to maintain the allowance at an appropriate level based on management's analysis
of the potential risk in the loan portfolio. Currently, the allowance for loan
losses is evaluated on an overall portfolio basis. Although an informal
allocation was used in the past, management intends to implement a more formal
allocation system in the future. This system will allocate the allowance to loan
categories, and will be implemented at the time the size and mix of the
portfolio support such a system. 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 judgments 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.
The reserve for loan losses was 1.82% and 1.79% of total loans on December 31,
1999 and 1998, respectively. Management's goal will be to keep the reserve at
1.75% to 2.00% of total loans. As the Company continues to mature, management
will evaluate its reserve policy and adjust the policy based on historical loss
experience, changes in economic conditions, growth in the portfolio, and
evaluations of specific loans. Management believes the level of the allowance
for loan losses is sufficient to provide for potential losses in the loan
portfolio.
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. 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.
PAGE 12 OF 45 SEQUENTIALLY NUMBERED PAGES.
PROVISION AND ALLOWANCE FOR LOAN LOSSES - CONTINUED
ALLOWANCE FOR LOAN LOSSES 1999 1998
-------------- --------------
Loans outstanding at end of year $ 59,663,015 $ 51,879,654
============== ==============
Average amount of loans outstanding $ 55,287,891 $ 45,905,458
============== ==============
Balance, beginning of year $ 929,482 $ 743,260
-------------- --------------
Loans charged off:
Real estate-construction - -
Real estate-mortgage - 2,000
Commercial and industrial 151,400 64,544
Consumer 77,646 25,565
-------------- --------------
Total loans charged off 229,046 92,109
Recoveries of previous loan losses:
Real estate-construction - -
Real estate-mortgage - -
Commercial and industrial 2,166 14,981
Consumer 24,378 3,350
-------------- --------------
Total recoveries 26,544 18,331
-------------- --------------
Net charge-offs 202,502 73,778
-------------- --------------
Provision charged to operations 360,000 260,000
-------------- --------------
Balance, end of year $ 1,086,980 $ 929,482
============== ==============
Ratios:
Net charge-offs to average loans outstanding .36% .16%
Net charge-offs to loans at end of year .34% .14%
Allowance for loan losses to average loans 1.96% 2.02%
Allowance for loan losses to loans, end of year 1.82% 1.79%
Net charge-offs to allowance for loan losses 18.63% 7.94%
Net charge-offs to provision for loan losses 56.25% 28.38%
NONPERFORMING ASSETS. The following table sets forth the Company's nonperforming assets for the dates indicated:
1999 1998
------------- --------------
Nonaccrual loans $ 703,795 $ 866,785
Restructured or impaired loans - -
-------------- --------------
Total nonperforming loans $ 703,795 $ 866,785
============== ==============
Loans 90 days or more past due and still accruing interest $ 10,551 $ 4,956
============== ==============
POTENTIAL PROBLEM LOANS. At December 31, 1999, through their internal review
mechanisms the Company had identified $177,341 of criticized loans and $849,290
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.
PAGE 13 OF 45 SEQUENTIALLY NUMBERED PAGES.
NON-INTEREST INCOME AND EXPENSE
NON-INTEREST INCOME. Other income increased $123,420 or 36.07% to $465,567 for
the year ended December 31, 1999. Service charges on deposit accounts increased
from $311,086 for 1998 to $409,784 for the year ended December 31, 1999. NSF and
overdraft fees increased $81,007 or 39.24% to $287,421 for the year ended
December 31, 1999 and contributed a significant portion of the increase in
service charges on deposit accounts.
Other income increased $83,150 or 32.10% to $342,147 for the year ended December
31, 1998. Service charges on deposit accounts increased from $238,051 for 1997
to $311,086 for the year ended December 31, 1998. NSF and overdraft fees
increased $40,904 or 24.71% to $206,414 for the year ended December 31, 1998 as
compared to the same period a year earlier. In addition, fees from check sales
increased from $16,754 in 1997 to $20,210 for the year ended December 31, 1998.
NON-INTEREST EXPENSE. The Company had an increase in non-interest expense of
$181,074, or 11.11%, to a total of $1,810,490 for the year ended December 31,
1999. Annual pay raises contributed to an increase of $101,897, or 13.15%, in
salaries and employee benefits. Equipment expense increased $14,332, or 16.17%,
to $102,968 at December 31, 1999. Other operating expense increased $62,331, or
12.03%, over the 1998 amount of $517,947.
The Company had an increase in non-interest expense of $300,150, or 22.58%, to a
total of $1,629,416 for the year ended December 31, 1998. Annual pay raises and
a full twelve months of salaries for the staff at the Ravenel branch contributed
to an increase of $172,252, or 28.59%, in salaries and employee benefits. Net
occupancy expense increased $20,877, or 9.19%, to $248,097 at December 31, 1998.
Other operating expense increased $62,458, or 13.71%, over the 1997 amount of
$455,489.
INCOME TAXES. The Company's income tax expense for 1999 was $652,474, an
increase of $152,319 over the 1998 expense of $500,155. The increase in the
expense results primarily from increased income before taxes. The Company's
effective tax rates for the years ended December 31, 1999 and 1998 were 32.11%
and 32.77%, respectively.
EARNING ASSETS
LOANS. Loans are the largest category of earning assets and typically provide
higher yields than 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 $55,287,891 in 1999
compared to $45,905,458 in 1998, an increase of $9,382,433, or 20.44%. At
December 31, 1999, total loans were $59,663,015 compared to $51,879,654 at
December 31, 1998.
The Company's ratio of loans to deposits was 68.63% on December 31, 1999 as
compared to 64.57% on December 31, 1998. The loan to deposit ratio is used to
monitor a financial institution's potential profitability and efficiency of
asset distribution and utilization. Generally, a higher loan to deposit ratio is
indicative of higher interest income since loans yield a higher return than
alternative investment vehicles. Management has concentrated on maintaining
quality in the loan portfolio while continuing to increase the deposit base.
PAGE 14 OF 45 SEQUENTIALLY NUMBERED PAGES.
EARNING ASSETS - CONTINUED
The Company extends credit primarily to consumers and small businesses in
Walterboro and Ravenel, South Carolina, and to customers in surrounding areas.
The Company's service area is mixed in nature. Walterboro is a regional business
center whose economy contains elements of medium and light manufacturing, higher
education, regional health care, and distribution facilities. Outside the
incorporated city limits of Walterboro, the economy includes manufacturing,
agriculture, timber, and recreational activities. Loan growth in the Ravenel
area is also expected to come primarily from consumer loans and small businesses
in neighboring Charleston County. No particular category or segment of the
economies previously described are expected to grow or contract
disproportionately in 2000. Management is of the opinion that the loan portfolio
is adequately diversified. There are no significant concentrations of loans in
any particular individuals or industry or group of related individuals or
industries. The loan demand remains strong in the Company's market area,
supported in part, by customers moving from larger financial institutions after
recent mergers.
LOAN PORTFOLIO COMPOSITION
1999 1998
---------------------------- -----------------------------
Percent of Percent of
Amount Total Amount Total
-------------- ------------- -------------- ------------
Real estate-construction $ 2,658,856 4.46% $ 4,252,190 8.20%
Real estate-mortgage 16,957,202 28.42 11,471,045 22.11
Commercial and industrial 25,478,493 42.70 26,031,926 50.18
Consumer and other loans 14,568,464 24.42 10,124,493 19.51
-------------- ------------- -------------- ------------
Total gross loans 59,663,015 100.00% 51,879,654 100.00%
============= ============
Allowance for loan losses (1,086,980) (929,482)
-------------- --------------
Total net loans $ 58,576,035 $ 50,950,172
============== ==============
Real estate mortgage loans increased $5,486,157 or 47.83% to $16,957,202 at
December 31, 1999. Consumer and all other loans increased $4,443,971, or 43.89%,
to $14,568,464 at December 31, 1999. Commercial and industrial loans decreased
$553,433 to $25,478,493 at December 31, 1999.
MATURITIES AND SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES
The following table summarizes the loan maturity distribution, by type, at
December 31, 1999 and related interest rate characteristics:
One year One to After
or less five years five years Total
-------------- -------------- -------------- --------------
Real estate-construction $ 1,137,773 $ 1,521,083 $ - $ 2,658,856
Real estate-mortgage 6,180,432 10,476,017 300,753 16,957,202
Commercial and industrial 11,190,666 14,139,747 148,080 25,478,493
Consumer and other 6,470,669 8,019,841 77,954 14,568,464
-------------- -------------- -------------- --------------
$ 24,979,540 $ 34,156,688 $ 526,787 $ 59,663,015
============== ============== ============== ==============
Loans maturing after one year with:
Fixed interest rates $ 34,683,475
Floating interest rates -
--------------
$ 34,683,475
PAGE 15 OF 45 SEQUENTIALLY NUMBERED PAGES.
EARNING ASSETS - CONTINUED
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 in the above table.
SHORT-TERM INVESTMENTS. Short-term investments, which consist of federal funds
sold and securities purchased under agreements to resell, averaged $11,091,822
in 1999, as compared to $8,175,065 in 1998. At December 31, 1999, short-term
investments totaled $4,670,000. These funds are a primary source of the
Company's liquidity and are generally invested in an earning capacity on an
overnight basis.
INVESTMENT SECURITIES. The investment securities portfolio is a significant
component of the Company's total earning assets. Total securities, stated at
historical cost, averaged $20,860,361 in 1999, compared to $14,053,391 in 1998.
At December 31, 1999, the total securities portfolio was $24,086,897. Securities
designated as available-for-sale totaled $18,759,768 and were recorded at
estimated fair value, and securities designated as held-to-maturity totaled
$5,327,129 and were recorded at amortized cost. The investment objectives of the
Company include maintaining and investing in a portfolio of high quality and
highly liquid investments with competitive returns. Based on these objectives,
the Company's investments are primarily in U.S. Treasuries and obligations of
U.S. Government Agencies.
INVESTMENT PORTFOLIO. The following tables summarize the carrying value of
investment securities as of the indicated dates and weighted average yields of
those securities at December 31, 1999 and 1998.
INVESTMENT SECURITIES PORTFOLIO COMPOSITION
December 31,
--------------------------------
HELD-TO-MATURITY (1) 1999 1998
-------------- --------------
U.S. Treasury and U.S. Government Agencies $ 1,000,000 $ 200,068
Obligations of states and political subdivisions 4,061,650 4,390,314
Mortgage-backed securities 265,479 602,053
-------------- --------------
$ 5,327,129 $ 5,192,435
============== ==============
AVAILABLE-FOR-SALE (1)
U.S. Treasury and U.S. Government Agencies $ 15,965,613 $ 8,868,075
Obligations of states and political subdivisions 2,491,863 1,460,288
Mortgage-backed securities 302,292 415,688
-------------- --------------
$ 18,759,768 $ 10,744,051
============== ==============
(1) Held-to-maturity securities are stated at amortized cost and
available-for-sale securities are stated at fair value.
PAGE 16 OF 45 SEQUENTIALLY NUMBERED PAGES.
INVESTMENT PORTFOLIO - CONTINUED
INVESTMENT SECURITIES MATURITY DISTRIBUTION AND YIELDS
1999
---------------------------------------------------------
Available-for-Sale Yield(1) Held-to-Maturity Yield(1)
------------------ ----- ---------------- -----
U.S. Treasury and U.S. Government
Agencies due:
Within one year $ - -% $ - -
After one year but
within five years 13,932,552 6.03% 1,000,000 7.06%
After five years but
within ten years 2,033,061 6.47% - -
------------ -----------
15,965,613 6.09% 1,000,000 7.06%
------------ -----------
Obligations of state and political subdivisions due:
Within one year 300,460 6.35% 294,979 6.41%
After one year but
within five years 814,485 5.01% 1,458,340 6.18%
After five years but
within ten years 1,048,185 6.35% 1,312,698 5.75%
After ten years 328,733 5.68% 995,633 6.24%
------------ -----------
2,491,863 5.82% 4,061,650 6.07%
------------ -----------
Mortgage-backed securities due:
Within one year - 23,119 5.64%
After one year but
within five years - 122,419 6.27%
After five years but
within ten years - 119,941 7.01%
After ten years 302,292 6.47% - -
------------ -----------
302,292 6.47% 265,479 6.55%
------------ -----------
Total due:
Within one year 300,460 6.35% 318,098 6.35%
After one year but
within five years 14,747,037 5.97% 2,580,759 6.53%
After five years but
within ten years 3,081,246 6.43% 1,432,639 5.86%
After ten years 631,025 6.06% 995,633 6.24%
------------ -----------
$ 18,759,768 6.06% $ 5,327,129 6.28%
============ ===========
- ---------------------
(1) Tax equivalent yield has been calculated using an incremental rate of 34%.
PAGE 17 OF 45 SEQUENTIALLY NUMBERED PAGES.
DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES
DEPOSITS. During 1999, the Company experienced significant growth in overall
deposits. Total average deposits increased from $65,101,363 in 1998 to
$83,741,369 in 1999. This represents an increase of $18,640,006 or 28.63% over
the 1998 amount. The following table summarizes the Bank's deposits for the
years ended December 31, 1999 and 1998.
DEPOSITS 1999 1998
-------------------------------- ---------------------------------
Percent Percent
Amount of Deposits Amount of Deposits
------------- -------------- -------------- ---------------
Non-interest bearing demand $ 9,952,976 11.45% $ 8,532,818 10.62%
Interest bearing transaction accounts 16,234,134 18.67 16,485,481 20.52
Savings 19,238,515 22.13 17,118,474 21.30
Time deposits of $100,000 and over 20,758,216 23.88 18,148,646 22.59
Other time deposits 20,751,530 23.87 20,063,350 24.97
-------------- -------------- -------------- -----------------
$ 86,935,371 100.00% $80,348,769 100.00%
============== =============== ============== =================
Core deposits, which exclude certificates of deposit of $100,000 or more,
provide a relatively stable funding source for the Company's loan portfolio and
other earning assets. The Company's core deposits were $66,177,155 and
$62,200,123 at December 31, 1999 and 1998, respectively. A stable base of
deposits is expected to be the Company's primary source of funding to meet both
its short-term and long-term liquidity needs in the future.
MATURITIES OF CERTIFICATES OF DEPOSIT OF $100,000 OR MORE
The maturity distribution of the Company's time deposits at December 31, 1999,
is shown in the following table.
After Three After Six
Within Through Through Twelve After Twelve
Three Months Six Months Months Months Total
------------ -------------- -------------- -------------- ------------
Certificates of deposit
of $100,000 or more $ 8,975,033 $ 6,082,154 $ 5,351,029 $ 350,000 $ 20,758,216
============== ============== ============== ============== ==============
Large certificate of deposit customers tend to be extremely sensitive to
interest rate levels, making these deposits less reliable sources of funding for
liquidity planning purposes than core deposits. Some financial institutions
partially fund their balance sheet using large certificates of deposit obtained
through brokers. These brokered deposits are generally expensive and are
unreliable as long-term funding sources. Accordingly, the Company does not
accept brokered deposits.
SHORT-TERM BORROWINGS. At December 31, 1999 and 1998, the Company had short term
borrowings which consisted of securities sold under agreements to repurchase of
$290,000 and $410,000, respectively. The maximum amount outstanding at any
month-end for the repurchase agreement was $810,000 and $815,000 for 1999 and
1998, respectively. The average interest rate paid on the repurchase agreement
was 4.06% and 4.53% for 1999 and 1998, respectively.
CAPITAL
The Federal Reserve Board and bank regulatory agencies require bank holding
companies and financial institutions to maintain capital at adequate levels
based on a percentage of assets and off-balance sheet exposures, adjusted for
risk weights ranging form 0% to 100%. The Federal Reserve guidelines also
contain an exemption from the capital requirements for bank holding companies
with less than $150 million in consolidated assets. Because the Company has less
than $150 million in assets, it is not currently subject to these rules.
PAGE 18 OF 45 SEQUENTIALLY NUMBERED PAGES.
CAPITAL - CONTINUED
Under the risk-based standard, capital is classified into two tiers. Tier 1
capital of the Company consists of common shareholders' equity, excluding the
unrealized gain (loss) on securities available-for-sale, minus certain
intangible assets. Tier 2 capital consists of the general reserve for loan
losses subject to certain limitations. A bank holding company's qualifying
capital base for purposes of its risk-based capital ratio consists of the sum of
its Tier 1 and Tier 2 capital. The regulatory minimum requirements are 4% for
Tier 1 and 8% for total risk-based capital. The holding company and banking
subsidiary are also required to maintain capital at a minimum level based on
quarterly average assets, which is known as the leverage ratio. Only the
strongest bank holding companies and banks are allowed to maintain capital at
the minimum requirement of 3%. All others are subject to maintaining ratios 100
to 200 basis points above the minimum.
RISK-BASED CAPITAL RATIOS
Tier 1 capital: The Bank The Company
-------------- --------------
Common shareholders' equity $ 9,055,906 $ 9,099,858
Less: intangibles - 7,875
-------------- --------------
Total Tier 1 capital 9,055,906 9,091,984
Tier 2 capital:
Allowable allowance for loan losses 831,962 832,201
-------------- --------------
Tier 2 capital additions 831,962 832,201
-------------- --------------
Total capital $ 9,887,869 $ 9,924,184
============== ==============
Risk adjusted assets $ 66,556,970 $ 66,576,074
============== ==============
Total assets $ 96,835,747 $ 96,695,261
============== ==============
Risk-based capital ratios:
Tier 1 capital 13.61% 13.66%
Total capital 14.86 14.91
Tier 1 leverage ratio 9.37 9.78
LIQUIDITY MANAGEMENT
The Company manages its liquidity from both the asset and liability side of the
balance sheet through the coordination of the relative maturities of its assets
and liabilities. Short-term liquidity needs are generally met from cash, due
from banks, federal funds sold and deposit levels. Management has established
policies and procedures governing the length of time to maturity on loans and
investments. Investments classified as available-for-sale are placed in this
category specifically to fund future liquidity needs, if necessary. The Company
maintained a high level of liquidity during 1999 which was attributable to the
growth in deposits during the year. In the opinion of management, the Company's
short-term and long-term liquidity needs can be adequately supported by the
Company's deposit base.
IMPACT OF INFLATION
The financial statements and related financial data presented herein have been
prepared in accordance with generally accepted accounting principles which
require the measurement of financial position and operating results in terms of
historical dollars, without considering changes in relative purchasing power
over time due to inflation. Unlike most industrial companies, virtually all of
the assets and the liabilities of a financial institution are monetary in
nature. As a result, interest rates generally have a more significant impact on
a financial institution's performance than does the effect of inflation.
While the effect of inflation on a bank is normally not as significant as its
influence on those businesses that have large investments in plant and
inventories, it does have an effect. Interest rates generally increase as the
rate of inflation increases, but the magnitude of the change in rates may not be
the same. While interest rates have traditionally moved with inflation, the
effect on income is diminished because both interest earned on assets and
interest paid on liabilities vary directly with each other. Also, increases in
the price of goods and services will generally result in increased operating
expenses.
PAGE 19 OF 45 SEQUENTIALLY NUMBERED PAGES.
ACCOUNTING AND FINANCIAL REPORTING ISSUES
In February 1998, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards (SFAS) 132, "Employers' Disclosures about
Pensions and Other Post-retirement Benefits." SFAS 132 amends SFAS 87, 88, and
106 and revises employer's disclosures about pensions and other post-retirement
benefit plans. It does not change the measurement or recognition of those plans.
At December 31, 1999, the Company was not affected by this Statement.
In June 1998, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards (SFAS) 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure these instruments at fair values. The accounting for
changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. The Company generally does not
purchase derivative instruments or enter into hedging activities. This Statement
was effective for fiscal years beginning after June 15, 1999, but was amended by
SFAS 137.
The Company was not affected by Financial Accounting Standards Board Statements
134, 135 or 136.
In 1999, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards (SFAS) 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133." As stated, this Statement delays the effective date for the
implementation of SFAS 133.
This Statement is effective for fiscal years beginning after June 15, 2000.
INDUSTRY DEVELOPMENTS
On November 4, 1999, the U.S. Senate and House of Representatives each passed
the Gramm-Leach-Bliley Act, previously known as the Financial Services
Modernization Act of 1999. The Act was signed into law by President Clinton in
November 1999. Among other things, the Act repeals the restrictions on banks
affiliating with securities firms contained in sections 20 and 32 of the
Glass-Steagall Act. The Act also creates a new "financial holding company" under
the Bank Holding Company Act, which will permit holding companies to engage in a
statutorily provided list of financial activities, including insurance and
securities underwriting and agency activities, merchant banking, and insurance
company portfolio investment activities. The Act also authorizes activities that
are "complementary" to financial activities. The Act is intended to grant to
community banks certain powers as a matter of right that larger institutions
have accumulated on an ad hoc basis. Nevertheless, the Act may have the result
of increasing the amount of competition that the Company faces from larger
institutions and other types of companies. In fact, it is not possible to
predict the full effect that the Act will have on the Company.
From time to time, various bills are introduced in the United States Congress
with respect to the regulation of financial institutions. Certain of these
proposals, if adopted, could significantly change the regulation of banks and
the financial services industry. The Company cannot predict whether any of these
proposals will be adopted or, if adopted, how these proposals would affect the
Company.
FORWARD LOOKING AND TREND INFORMATION
The management of the Company is not aware of any trends or events other than
those included in this discussion that are likely to have a material effect on
the Company's capital resources, liquidity, or operations. Also, no known
factors regarding regulatory matters are expected to affect the overall
operating results of the Company.
PAGE 20 OF 45 SEQUENTIALLY NUMBERED PAGES.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements identified in Item 14 of this Report on Form 10-K are
included herein on pages 26 through 45.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information as to the Board of Directors'
nominees for election as director and of those directors who will continue to
serve as such after the Annual Meeting.
YEAR FIRST YEAR
AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS AND ELECTED TERM
NAME (1) OTHER INFORMATION DIRECTOR EXPIRES
- ------------------- ----- ------------------------------------------------ ---------- ---------
BOARD NOMINEES
Calvert W. Huffines 50 President of The Huffines Company 1988 2003(2)
Real Estate Broker
Peden B. McLeod 59 Retired Code Commissioner and Director 1988 2003(2)
South Carolina Legislative Council
Partner in McLeod, Fraser & Cone Law Firm
Harold M. Robertson 76 Retired, Previous owner of Robertson Electric 1988 2003(2)
Company. Retired Member of Board of Directors
South Carolina Public Service Authority
DIRECTORS CONTINUING IN OFFICE
W. Roger Crook 58 Chief Executive Officer and President of the 1988 2001
Bank since its incorporation on October 11, 1988
Harry L. Hill 72 Retired, Former Vice President and Resident 1988 2001
Manager, Asten Dryer Fabrics, Inc., manufacturer
of dryer felts
Robert E. Redfearn 76 Retired, Former owner of Sea Spirits, Inc. 1988 2001
Grocery/Real Estate
Edisto Beach, S.C.
George W. Cone 54 Partner in Law Firm of McLeod, Fraser & Cone 1988 2002
Opedalis Evans 78 Retired - Former Merchant and Farmer, Islandton, 1988 2002
S.C.
J. Barnwell Fishburne 44 Owner, Fishburne & Company 1988 2002
Real Estate Sales and Rentals
- ----------
(1) At December 31, 1999
(2) Assuming re-election at the Annual Meeting
PAGE 21 OF 45 SEQUENTIALLY NUMBERED PAGES.
EXECUTIVE OFFICERS
W. ROGER CROOK, age 58, is Director, CEO and President of Communitycorp. He is
also CEO and President of the Bank since its incorporation on October 11, 1988.
Mr. Crook was actively involved in organizing the Bank. Prior to February 1988,
Mr. Crook was Vice President of Citizens & Southern National Bank, Walterboro,
South Carolina, for more than five years.
M. ELLISON YOUNG, age 62, is Vice President of Communitycorp. He has also been
Vice President since joining the Bank in October 1991. Prior to October 1990,
Mr. Young was Vice President and Branch Manager for The First Savings Bank,
Walterboro Branch, for more than five years.
GWENDOLYN P. BUNTON, age 46, Vice President and Treasurer of Communitycorp. Also
for the Bank, she has been Vice President and Cashier since December 1993,
Assistant Vice President and Cashier since April 1990, Cashier and Operations
Officer since May 1989. Mrs. Bunton joined Bank of Walterboro in February 1989.
Prior to February 1989, Mrs. Bunton was Loan Administrative Assistant III at
Citizens & Southern National Bank, Walterboro, South Carolina, for more than
five years.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors holds regular meetings monthly. The Board of
Directors has established an Audit Committee, an Executive Committee, an
Investment Committee and a Loan Committee. The Board does not have a
Compensation Committee and functions normally performed by a Compensation
Committee are performed by the Executive Committee. During the fiscal year ended
December 31, 1999, the Board held a total of 13 regular and special meetings.
Each director attended at least 75% of the aggregate of (i) the total number of
meetings of the Board of Directors and (ii) the total number of meetings held by
all Committees, of the Board of Directors on which he served.
The Audit Committee selects the Company's independent auditors, determines the
scope of the Annual Audit, determines whether the Company has adequate
administrative, operational and internal accounting controls and determines
whether the Company is operating according to established policies and
procedures. The members of the Audit Committee are George W. Cone, Opedalis
Evans, J. Barnwell Fishburne, Harry L. Hill and Robert E. Redfearn. The Audit
Committee met 3 times during 1999.
The Executive Committee established and monitors the Company's major policies,
reviews all proposed changes to policies prior to submission to the Board, and
monitors the Company's employee compensation and benefit programs. The Executive
Committee may act on behalf of the Board of Directors between meetings. Members
of the Executive Committee are George W. Cone, W. Roger Crook, Peden B. McLeod,
Harold M. Robertson and Robert Redfearn. The Executive Committee met 3 times
during 1999.
The Investment Committee establishes and monitors the Bank's investment policy
to insure the safety and liquidity of the Bank's investments and monitors the
Bank's assets, liabilities and interest rate policies and exposure. Members of
the Investment Committee are George W. Cone, W. Roger Crook and Peden B. McLeod.
The Investment Committee met 43 times during 1999.
The Loan Committee establishes and monitors the Bank's lending policies, reviews
compliance with policy, reviews loans where the borrower's liability exceeds
certain limits, monitors loans for credit quality and reviews all loans over 30
days past due. Members of the Loan Committee are George W. Cone, W. Roger Crook,
Calvert W. Huffines, Peden B. McLeod, John B. Fishburne and Harold M. Robertson.
The Loan Committee met 44 times during 1999.
The Board of Directors nominates candidates for election as directors; it has no
nominating committee. The Board of Directors will consider individuals
recommended by shareholders. Shareholders may make recommendations by writing to
Peden B. McLeod, Chairman of the Board, Communitycorp, Post Office Box 1707,
Walterboro, South Carolina 29488.
PAGE 22 OF 45 SEQUENTIALLY NUMBERED PAGES.
ITEM 11. EXECUTIVE COMPENSATION
The following information is furnished for the Chief Executive Officer of the
Company. No other executive officer of the Company received salary and bonuses
in excess of $100,000 during the fiscal year ended December 31,1999.
SUMMARY COMPENSATION TABLE
Annual Compensation
---------------------------- --------- -------------- ------------- ----------------- ------------------
---------------------------- --------- -------------- ------------- ----------------- ------------------
Other Annual All Other
Name and Salary Bonus Compensation Compensation
Principal Position Year ($) ($) ($) ($) (1)
---------------------------- --------- -------------- ------------- ----------------- ------------------
W. Roger Crook 1999 $ 104,000 $ 21,000 --- $ 22,962
President and Chief
Executive Officer 1998 100,000 15,000 --- 21,315
1997 86,000 12,000 --- 18,020
---------------------------- --------- -------------- ------------- ----------------- ------------------
(1) Included deferred compensation of $14,212, $13,265, and $12,000 in 1999,
1998, and 1997, respectively, and profit sharing contribution of $8,750,
$8,050, and $6,020 in 1999, 1998, and 1997, respectively.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
SHARED VOTING TOTAL SOLE AND TOTAL
NAME AND ADDRESS OF BENEFICIAL SOLE VOTING AND AND INVESTMENT SHARED VOTING AND PERCENT
OWNER INVESTMENT POWER POWER INVESTMENT POWER OF CLASS
----- ---------------- ----- ---------------- --------
OWNERS OF 5% OR MORE OF COMMON STOCK
Sea Spirits, Inc. (1) 24,822 - 0 - 24,822 8.74%
3205 Palmetto Blvd.
Edisto, SC 29438
DIRECTORS
George W. Cone (2) 3,329 2,600 5,929 2.09%
W. Roger Crook(3) 3,164 500 3,664 1.29%
Opedalis Evans 5,000 - 0 - 5,000 1.76%
Barnwell Fishburne(4) 7,096 1,561 8,657 3.05%
Harry L. Hill 3,807 - 0 - 3,807 1.34%
Calvert W. Huffines (5) 3,057 4,600 7,657 2.70%
Peden B. McLeod (6) 8,681 20,480 29,161 10.27%
Robert E. Redfearn (7) 500 24,822 25,322 8.92%
Harold Robertson (8) 8,932 2,534 11,466 4.04%
EXECUTIVE OFFICERS AND DIRECTORS 44,730 57,097 101,827 35.86%
AS A GROUP
(11 PERSONS)
(1)This corporation is controlled by Robert E. Redfearn, a director of the Bank.
(2)Includes 2,600 shares held by family members
(3)Includes 500 shares held by family members.
(4)Includes 1,561 shares held by family members.
(5)Includes 2,300 shares owned by a foundation controlled by Mr. Huffines and
2,300 shares owned by family members.
(6)Includes 20,480 shares held by family members.
(7)Includes 24,822 shares owned by Sea Spirits, Inc., a corporation which is
controlled by Mr. Redfearn.
(8)Includes 2,534 shares held by family members.
PAGE 23 OF 45 SEQUENTIALLY NUMBERED PAGES
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has had, and expects to have in the future, banking transactions in
the ordinary course of its business with principal officers, directors, and
their associates on substantially the same terms including interest rates and
collateral on loans, as those prevailing at the same time for comparable
transactions with others, and did not involve more than normal risk of
collectibility or present other unfavorable features. During 1999, the largest
aggregate amount of indebtedness of principal officers, directors and their
associates to the Company was $2,207,013 which represented 25.91% of the
Company's equity capital at the time. During 1999, the law firm of McLeod,
Fraser & Cone provided legal services to the Company in its ordinary course of
business and it is expected to continue to do so in the future. George W. Cone,
director of Communitycorp, is a partner of the McLeod, Fraser and Cone law firm.
Peden B. McLeod, Director and Chairman of the Board of Communitycorp, is also
partner in the law firm of McLeod, Fraser and Cone.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1)-(2) Financial Statements and Schedules:
The consolidated financial statements and schedules of the Company identified in
the accompanying index to financial statements at page 25 herein are filed as
part of this report.
(a)(3)Listing of Exhibits
3.1 *Articles of Incorporation. (Incorporated by reference to Exhibit
3.1 to Registrant's Form 10-K the fiscal year ended December 31, 1995)
3.2 *Bylaws of Communitycorp. (Incorporated by reference to Exhibit 3.2
to Registrant's Form 10-K for the fiscal year ended December 31, 1995)
(a)(3) 21 Subsidiaries of Registrant
Bank of Walterboro is the only subsidiary of Communitycorp.
(b)Reports on Form 8-K
There were no reports on Form 8-K filed during the fourth quarter ended December
31, 1999.
* Incorporated by reference as indicated.
PAGE 24 OF 45 SEQUENTIALLY NUMBERED PAGES.
COMMUNITYCORP AND SUBSIDIARY
Consolidated Financial Statements
Years Ended December 31, 1999, 1998, 1997
INDEX TO FINANCIAL STATEMENTS
Page #
------
Report of Tourville, Simpson & Caskey, L.L.P.
Independent Auditors......................................................................................... 26
Consolidated Balance Sheets as of
December 31, 1999 and 1998........................................................................... 27
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997.................................................................... 28
Consolidated Statements of Shareholders' Equity and Comprehensive Income
for the years ended December 31, 1999, 1998 and 1997................................................ 29
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.................................................................... 30
Notes to Consolidated Financial Statements................................................................... 31
PAGE 25 OF 45 SEQUENTIALLY NUMBERED PAGES.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Communitycorp
Walterboro, South Carolina
We have audited the accompanying consolidated balance sheets of Communitycorp as
of December 31, 1999 and 1998, and the related consolidated statements of
operations, changes in shareholders' equity and comprehensive income, and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and the significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Communitycorp as
of December 31, 1999 and 1998, and the consolidated results of their operations
and cash flows for each of the three years in the period ended December 31, 1999
in conformity with generally accepted accounting principles.
Tourville, Simpson & Caskey, L.L.P.
Columbia, South Carolina
March 1, 2000
PAGE 26 OF 45 SEQUENTIALLY NUMBERED PAGES.
COMMUNITYCORP
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
1999 1998
--------------- --------------
ASSETS
Cash and cash equivalents:
Cash and due from banks (Note B) $ 5,723,770 $ 3,864,460
Federal funds sold and securities purchased
under agreements to resell 4,670,000 15,610,000
-------------- --------------
10,393,770 19,474,460
Investment securities: (Note C)
Securities available-for-sale 18,759,768 10,744,051
Securities held to maturity (fair value of $5,210,028
in 1999 and $5,259,426 in 1998) 5,327,129 5,192,435
-------------- --------------
24,086,897 15,936,486
Loans (Note D) 59,663,015 51,879,654
Less allowance for loan losses (1,086,980) (929,482)
-------------- --------------
Loans, net 58,576,035 50,950,172
Premises and equipment, net (Note E) 1,776,320 1,905,761
Accrued interest receivable 1,004,529 790,130
Other assets 857,710 445,961
-------------- --------------
Total assets $ 96,695,261 $ 89,502,970
============== ==============
LIABILITIES
Deposits:
Non-interest bearing demand deposits $ 9,952,976 $ 8,532,818
Interest bearing demand 16,234,134 16,485,481
Money market accounts 4,074,980 3,387,373
Savings 15,163,535 13,731,101
Time deposits of $100,000 and over (Note F) 20,758,216 18,148,646
Other time deposits (Note F) 20,751,530 20,063,350
-------------- --------------
86,935,371 80,348,769
Short-term borrowings (Note H) 290,000 410,000
Accrued interest payable 509,943 498,256
Other liabilities 155,208 76,367
-------------- --------------
Total liabilities 87,890,522 81,333,392
-------------- --------------
Commitments and contingencies (Notes D and J)
SHAREHOLDERS' EQUITY (Note K)
Preferred stock - $5.00 par value; 3,000,000 shares
authorized and unissued - -
Common stock - $5.00 par value; 3,000,000 shares
authorized; 300,000 shares issued and outstanding 1,500,000 1,500,000
Capital surplus 1,731,708 1,731,708
Accumulated other comprehensive income (loss) (295,119) 39,620
Retained earnings 6,186,081 4,925,661
Treasury stock, at cost (7,999 shares in 1999 and 1,583 in 1998) (317,931) (27,411)
-------------- --------------
Total shareholders' equity 8,804,739 8,169,578
-------------- --------------
Total liabilities and shareholders' equity $ 96,695,261 $ 89,502,970
============== ==============
The accompanying notes are an integral part of the consolidated financial
statements.
PAGE 27 OF 45 SEQUENTIALLY NUMBERED PAGES.
COMMUNITYCORP
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
-------------- -------------- --------------
INTEREST INCOME:
Loans, including fees $ 5,212,989 $ 4,455,655 $ 3,552,858
Investment securities
Taxable 888,097 669,843 850,704
Tax-exempt 264,426 168,062 136,713
Federal funds sold and securities
purchased under agreements to resell 540,119 454,528 207,830
Time deposits with other banks - - 861
------------- -------------- --------------
6,905,631 5,748,088 4,748,966
------------- -------------- --------------
INTEREST EXPENSE:
Deposits 3,149,270 2,655,592 2,113,575
Short-term borrowings 19,161 18,734 17,761
------------- -------------- --------------
3,168,431 2,674,326 2,131,336
------------- -------------- --------------
NET INTEREST INCOME 3,737,200 3,073,762 2,617,630
Provision for loan losses (Note D) 360,000 260,000 135,000
------------- -------------- --------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,377,200 2,813,762 2,482,630
------------- -------------- --------------
OTHER INCOME:
Service charges on deposit accounts 409,784 311,086 238,051
Other 55,783 31,061 20,946
------------- -------------- --------------
465,567 342,147 258,997
------------- -------------- --------------
OTHER EXPENSES:
Salaries and employee benefits 876,633 774,736 602,484
Net occupancy expense 250,611 248,097 227,220
Equipment expense 102,968 88,636 44,073
Other operating expense (Note L) 580,278 517,947 455,489
------------- -------------- --------------
1,810,490 1,629,416 1,329,266
------------- -------------- --------------
INCOME BEFORE INCOME TAXES 2,032,277 1,526,493 1,412,361
Income tax expense (Note M) 652,474 500,155 467,987
------------- -------------- --------------
NET INCOME $ 1,379,803 $ 1,026,338 $ 944,374
============= ============== ==============
PER SHARE
Weighted average common shares outstanding 296,522 298,390 298,646
Net income $ 4.65 $ 3.44 $ 3.16
The accompanying notes are an integral part of the consolidated financial
statements.
PAGE 28 OF 45 SEQUENTIALLY NUMBERED PAGES.
COMMUNITYCORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Accumulated
Other
Common Stock Capital Comprehensive Retained Treasury
Shares Amount Surplus Income (Loss) Earnings Stock Total
-------- ------------ ------------ ------------- ----------- ------- -----
BALANCE,
DECEMBER 31, 1996 300,000 $ 1,500,000 $ 1,731,708 $ 38,800 $ 3,131,155 $ (18,411) $ 6,383,252
Net income 944,374 944,374
Other comprehensive income (369) (369)
Comprehensive income 944,005
---------
Cash dividends declared
- $.28 per share (83,697) (83,697)
Purchase of treasury
stock (10,000) (10,000)
------------ ------------ ------------ ------------ ------------- ------------ ------------
BALANCE,
DECEMBER 31, 1997 300,000 1,500,000 1,731,708 38,431 3,991,832 (28,411) 7,233,560
Net income 1,026,338 1,026,338
Other comprehensive income 1,189 1,189
---------
Comprehensive income 1,027,527
---------
Cash dividends declared
- $.31 per share (92,509) (92,509)
Sale of treasury stock 1,000 1,000
------------ ------------ ------------ ------------ ------------- ------------ ------------
BALANCE,
DECEMBER 31, 1998 300,000 1,500,000 1,731,708 39,620 4,925,661 (27,411) 8,169,578
Net income 1,379,803 1,379,803
Other comprehensive income (334,739) (334,739)
Comprehensive income 1,045,064
---------
Cash dividends declared
- $.40 per share (119,383) (119,383)
Purchase of treasury
stock (290,520) (290,520)
------------ ------------ ------------ ------------ ------------- ------------ ------------
BALANCE,
DECEMBER 31, 1999 300,000 $ 1,500,000 $ 1,731,708 $ (295,119) $ 6,186,081 $ (317,931) $ 8,804,739
============ ============ ============ ============ =========== =========== ============
The accompanying notes are an integral part of the consolidated financial
statements.
PAGE 29 OF 45 SEQUENTIALLY NUMBERED PAGES.
COMMUNITYCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,379,803 $ 1,026,338 $ 944,374
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 168,524 176,752 169,491
Provision for loan losses 360,000 260,000 135,000
Premium amortization less accretion 11,361 (4,922) 5,267
Deferred income tax provision (benefit) (183,311) (124,268) (56,384)
Amortization of loan fees and costs 10,233 19,179 35,609
Gain on sale of premises and equipment (18,500) - -
Increase in accrued interest receivable (214,399) (63,812) (35,618)
(Increase) decrease in other assets (52,811) (14,531) 29,481
Increase in accrued interest payable 11,687 155,595 60,793
Increase in other liabilities 78,841 814 27,373
------------- -------------- --------------
Net cash provided by operating activities 1,551,428 1,431,145 1,315,386
------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities available-for-sale 2,765,150 7,817,497 3,312,439
Purchases of securities available-for-sale (11,295,195) (9,154,630) (2,516,600)
Proceeds from maturities of securities held-to-maturity 1,541,834 3,534,612 600,292
Purchases of securities held-to-maturity (1,683,927) (2,431,641) (99,709)
Net increase in loans to customers (7,996,096) (10,615,497) (6,269,306)
Proceeds from the disposal of premises and equipment 18,500 - -
Purchases of premises and equipment (39,083) (83,458) (906,522)
Proceeds from maturity of time deposits with other banks - - 10,000
------------- -------------- --------------
Net cash used by investing activities (16,688,817) (10,933,117) (5,869,406)
------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits,
money market, and savings accounts 3,288,852 9,780,470 6,122,115
Net increase in time deposits 3,297,750 13,625,211 755,775
Net (decrease) increase in short-term borrowings (120,000) (70,000) 480,000
Cash dividends paid (119,383) (92,509) (83,697)
Purchase of treasury stock (290,520) - (10,000)
Sale of treasury stock - 1,000 -
------------- -------------- --------------
Net cash provided by financing activities 6,056,699 23,244,172 7,264,193
------------- -------------- --------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (9,080,690) 13,742,200 2,710,173
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 19,474,460 5,732,260 3,022,087
------------- -------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 10,393,770 $ 19,474,460 $ 5,732,260
============= ============== ==============
The accompanying notes are an integral part of the consolidated financial
statements.
PAGE 30 OF 45 SEQUENTIALLY NUMBERED PAGES.
COMMUNITYCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - Communitycorp, a bank holding company, (the Company), and its
subsidiary, Bank of Walterboro (the Bank), provide commercial banking services
to domestic markets principally in Charleston and Colleton Counties, South
Carolina. The consolidated financial statements include the accounts of the
parent company and its wholly-owned subsidiary after elimination of all
significant intercompany balances and transactions.
MANAGEMENT'S ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans, including
valuation allowances for impaired loans and the valuation of real estate
acquired in connection with foreclosures or in satisfaction of loans. In
connection with the determination of the allowances for losses on loans and
foreclosed real estate, management obtains independent appraisals for
significant properties. Management must also make estimates in determining the
estimated useful lives and methods for depreciating premises and equipment.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory agencies,
as an integral part of their examination process, periodically review the
Company's allowances for losses on loans and foreclosed real estate. Such
agencies may require the Company to recognize additions to the allowances based
on their judgments about information available to them at the time of their
examination. Because of these factors, it is possible that the allowances for
losses on loans and foreclosed real estate may change in the near term.
CONCENTRATIONS OF CREDIT RISK - Financial instruments which potentially subject
the Company to concentrations of credit risk consist principally of loans
receivable, investment securities, federal funds sold and amounts due from
banks. Management is not aware of any concentrations of loans to classes of
borrowers or industries that would be similarly affected by economic conditions.
Although the Company's loan portfolio is diversified, a substantial portion of
its borrowers' ability to honor the terms of their loans is dependent on
business and economic conditions in Colleton and Charleston Counties and
surrounding areas. Management does not believe credit risk is associated with
obligations of the United States, its agencies or its corporations. The Company
places its deposits and correspondent accounts with and sells its federal funds
to high credit quality institutions. By policy, time deposits are limited to
amounts insured by the FDIC. Management believes credit risk associated with
correspondent accounts is not significant.
INVESTMENT SECURITIES AVAILABLE-FOR-SALE - Investment securities
available-for-sale are carried at amortized cost and adjusted to estimated fair
value by recognizing the aggregate unrealized gains or losses in a valuation
account. Aggregate market valuation adjustments are recorded in shareholders'
equity net of deferred income taxes. Reductions in fair value considered by
management to be other than temporary are reported as a realized loss and a
reduction in the cost basis of the security. The adjusted cost basis of
securities available-for-sale is determined by specific identification and is
used in computing the gain or loss upon sale.
INVESTMENT SECURITIES HELD-TO-MATURITY - Investment securities held-to-maturity
are stated at cost, adjusted for amortization of premium and accretion of
discount computed by the straight-line method. The Company has the ability and
management has the intent to hold designated investment securities to maturity.
Reductions in market value considered by management to be other than temporary
are reported as a realized loss and a reduction in the cost basis of the
security.
PAGE 31 OF 45 SEQUENTIALLY NUMBERED PAGES.
COMMUNITYCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INTEREST AND FEES ON LOANS - Interest income on all loans is computed based upon
the unpaid principal balance. Interest income is recorded in the period earned.
The accrual of interest income is discontinued when a loan becomes 90 days past
due as to principal or interest. Management may elect to continue the accrual of
interest when the estimated net realizable value of collateral exceeds the
principal balance and accrued interest.
Loan origination and commitment fees and certain direct loan origination costs
(principally salaries and employee benefits) are being deferred and amortized to
income over the contractual life of the related loans or commitments, adjusted
for prepayments, using the level yield method.
ALLOWANCE FOR LOAN LOSSES - An allowance for possible loan losses is maintained
at a level deemed appropriate by management to provide adequately for known and
inherent risks in the loan portfolio. The allowance is based upon a continuing
review of past loan loss experience, current economic conditions which may
affect the borrowers' ability to pay and the underlying collateral value of the
loans. Loans which are deemed to be uncollectible are charged off and deducted
from the allowance. The provision for possible loan losses and recoveries on
loans previously charged off are added to the allowance.
Impaired loans are measured based on the present value of discounted expected
cash flows. When it is determined that a loan is impaired, a direct charge to
bad debt expense is made for the difference between the net present value of
expected future cash flows based on the contractual rate and the Company's
recorded investment in the related loan. The corresponding entry is to a related
valuation account. Interest is discontinued on impaired loans when management
determines that a borrower may be unable to meet payments as they become due.
PREMISES AND EQUIPMENT - Premises and equipment are stated at cost, less
accumulated depreciation. The provision for depreciation is computed by the
straight-line method. Rates of depreciation are generally based on the following
estimated useful lives: buildings - 40 years; furniture and equipment - 5 to 10
years. The cost of assets sold or otherwise disposed of, and the related
accumulated depreciation are eliminated from the accounts and the resulting
gains or losses are reflected in the income statement. Maintenance and repairs
are charged to current expense as incurred, and the costs of major renewals and
improvements are capitalized.
OTHER REAL ESTATE OWNED - Other real estate owned includes real estate acquired
through foreclosure and loans accounted for as in-substance foreclosures.
Collateral is considered foreclosed in substance when the borrower has little or
no equity in the fair value of the collateral, proceeds for repayment of the
debt can be expected to come only from the sale of the collateral and it is
doubtful that the borrower can rebuild equity or otherwise repay the loan in the
foreseeable future. Other real estate owned is initially recorded at the lower
of cost (principal balance of the former loan plus costs of improvements) or
estimated fair value.
Any write-downs at the dates of acquisition are charged to the allowance for
possible loan losses. Expenses to maintain such assets, subsequent write-downs
and gains and losses on disposal are included in other expenses.
INCOME AND EXPENSE RECOGNITION - The accrual method of accounting is used for
all significant categories of income and expense. Immaterial amounts of
insurance commissions and other miscellaneous fees are reported when received.
INCOME TAXES - Income taxes are the sum of amounts currently payable to taxing
authorities and the net changes in income taxes payable or refundable in future
years. Income taxes deferred to future years are determined utilizing a
liability approach. This method gives consideration to the future tax
consequences associated with differences between the financial accounting and
tax bases of certain assets and liabilities, principally the allowance for loan
losses, depreciable premises and equipment, and the cash basis tax accounting.
PAGE 32 OF 45 SEQUENTIALLY NUMBERED PAGES.
COMMUNITYCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
RETIREMENT AND DEFERRED COMPENSATION PLANS - The Company has a trusteed
non-contributory profit-sharing plan which provides retirement and other
benefits to all full-time employees who have worked 1,000 or more hours during
the calendar year and have put in one year of service. All eligible employees
must be at least age 21. Contributions are determined annually by the Board of
Directors. Expenses charged to earnings for the profit-sharing plan were
$46,525, $42,835 and $31,656 in 1999, 1998 and 1997, respectively. The Company's
policy is to fund contributions to the profit-sharing plan in the amount
accrued. In addition, the plan includes a "salary reduction" feature pursuant to
Section 401(k) of the Internal Revenue Code. Under the plan and present
policies, participants are permitted to make discretionary contributions up to
10% of annual compensation. The Company has waived its option of matching
employee contributions for this feature of the plan.
In addition, the Company has a non-qualified voluntary salary deferral plan for
the Company's Chief Executive Officer. Under the plan, the Chief Executive
Officer may defer up to 25% of his compensation and earn interest on the
deferred amount. Upon retirement, the total amount deferred and interest earned
are to be paid to the participant over a period not exceeding fifteen years.
Expenses charged to earnings for the salary deferral plan were $14,212, $13,625
and $12,000 in 1999, 1998 and 1997, respectively.
The Company does not provide post employment benefits to employees beyond the
plans described above.
EARNINGS PER SHARE - Earnings per share is calculated by dividing earnings by
the weighted average number of common shares outstanding during the year.
STATEMENT OF CASH FLOWS - For purposes of reporting cash flows, the Company
considers certain highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents. Cash equivalents include amounts
due from banks, federal funds sold, and securities purchased under agreements to
resell.
During 1999, 1998, and 1997, the Company paid $3,156,744, $2,518,731 and
$2,070,543, respectively, for interest. Cash paid for income taxes was $648,130,
$588,800 and $492,000 in 1999, 1998, and 1997, respectively.
Changes in the valuation account of securities available for sale, including the
deferred tax effects, are considered non-cash transactions for purposes of the
statement of cash flows and are presented in detail in the notes to the
financial statements.
COMPREHENSIVE INCOME - The Company adopted SFAS 130, REPORTING COMPREHENSIVE
INCOME, as of January 1, 1998. Accounting principles generally require that
recognized revenue, expenses, gains and losses be included in net income.
Although certain changes in assets and liabilities, such as unrealized gains and
losses on available-for-sale securities, are reported as a separate component of
the equity section of the balance sheet, such items, along with net income, are
components of comprehensive income. The adoption of SFAS 130 had no effect on
the Company's net income or shareholders' equity.
The components of other comprehensive income and related tax effects are as
follows:
Year Ended December 31,
------------------------------------------------
1999 1998 1997
------------- -------------- ---------------
Unrealized holding gains on
available-for-sale securities $ (510,366) $ 1,146 $ (559)
Reclassification adjustment for losses
(gains) in realized income - - -
------------- -------------- --------------
Net unrealized gains (510,366) 1,146 (559)
Tax effect 175,627 43 190
------------- -------------- --------------
Net-of-tax amount $ (334,739) $ 1,189 $ (369)
============= ============== ==============
PAGE 33 OF 45 SEQUENTIALLY NUMBERED PAGES.
COMMUNITYCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS - In the ordinary course of business,
the Company has entered into off-balance-sheet financial instruments consisting
of commitments to extend credit and letters of credit. These financial
instruments are recorded in the financial statements when they become payable by
the customer.
RECLASSIFICATIONS - Certain captions and amounts in the consolidated financial
statements of 1998 and 1997 were reclassified to conform with the 1999
presentations.
NOTE B - CASH AND DUE FROM BANKS
The Company is required by regulation to maintain an average cash reserve
balance based on a percentage of deposits. The average amounts of the cash
reserve balances at December 31, 1999 and 1998 were approximately $486,000 and
$405,000, respectively. These requirements were satisfied by vault cash.
NOTE C- INVESTMENT SECURITIES
The amortized cost and estimated market values of securities available-for-sale
at December 31, 1999 and 1998 were:
1999
-----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------- -------------- -------------- --------------
U.S. Treasuries $ 398,811 $ - $ 4,186 $ 394,625
U.S. Government Agencies
and corporations 16,254,565 927 382,212 15,873,280
Obligations of state and
political subdivisions 2,556,954 2,552 67,643 2,491,863
-------------- -------------- -------------- --------------
$ 19,210,330 $ 3,479 $ 454,041 $ 18,759,768
============== ============== ============== ==============
1998
----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------- -------------- -------------- --------------
U.S. Treasuries $ 399,805 $ 4,508 $ - $ 404,313
U.S. Government Agencies
and corporations 8,861,587 28,726 10,863 8,879,450
Obligations of state and
political subdivisions 1,422,855 38,721 1,288 1,460,288
-------------- -------------- -------------- --------------
$ 10,684,247 $ 71,955 $ 12,151 $ 10,744,051
============== ============== ============== ==============
The amortized cost and estimated market value of securities held-to-maturity at
December 31, 1999 and 1998 were:
1999
-----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------- -------------- -------------- --------------
U.S. Government Agencies
and corporations $ 1,265,479 $ 1,225 $ 8,786 $ 1,257,918
Obligations of state and
political subdivisions 4,061,650 11,977 121,517 3,952,110
-------------- -------------- -------------- --------------
$ 5,327,129 $ 13,202 $ 130,303 $ 5,210,028
============== ============== ============== ==============
PAGE 34 OF 45 SEQUENTIALLY NUMBERED PAGES.
COMMUNITYCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C- INVESTMENT SECURITIES - CONTINUED
1998
------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------- -------------- -------------- --------------
U.S. Government Agencies
and corporations $ 802,121 $ 6,250 $ 95 $ 808,276
Obligations of states and
political subdivisions 4,390,314 63,860 3,024 4,451,150
-------------- -------------- -------------- --------------
$ 5,192,435 $ 70,110 $ 3,119 $ 5,259,426
============== ============== ============== ==============
The amortized cost and estimated fair value of securities available-for-sale at
December 31, 1999 and 1998 based on their contractual maturities are summarized
below. Actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations without penalty.
1999 1998
-------------------------------- -------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
-------------- -------------- -------------- --------------
Due within one year $ 300,000 $ 300,460 $ 699,805 $ 704,312
Due after one year but within five years 15,065,166 14,747,037 5,871,472 5,896,458
Due after five years but within ten years 3,187,791 3,081,246 3,165,238 3,190,118
Due after ten years 355,000 328,733 530,000 537,475
-------------- -------------- -------------- --------------
18,907,957 18,457,476 10,266,515 10,328,363
Mortgage-backed securities 302,373 302,292 417,732 415,688
-------------- -------------- -------------- --------------
$ 19,210,330 $ 18,759,768 $ 10,684,247 $ 10,744,051
============== ============== ============== ==============
The amortized cost and estimated fair values of securities held-to-maturity at
December 31, 1999 and 1998 based on their contractual maturities are summarized
below. Actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations without penalty.
1999 1998
-------------------------------- -------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
-------------- -------------- -------------- --------------
Due within one year $ 294,979 $ 295,226 $ 635,118 $ 638,806
Due after one year but within five years 2,458,340 2,450,059 1,353,186 1,379,832
Due after five years but within ten years 1,312,698 1,257,605 1,451,702 1,474,645
Due after ten years 995,633 942,251 1,150,376 1,158,031
-------------- -------------- -------------- --------------
5,061,650 4,945,141 4,590,382 4,651,314
Mortgage-backed securities 265,479 264,887 602,053 608,112
-------------- -------------- -------------- --------------
$ 5,327,129 $ 5,210,028 $ 5,192,435 $ 5,259,426
============== ============== ============== ==============
At December 31, 1999 and 1998 investment securities with a book value of
$12,981,314 and $15,402,423 and a market value of $12,620,054 and $15,500,679,
respectively, were pledged as collateral to secure public deposits. There were
no sales of investment securities for the years ended December 31, 1999 and
1998.
PAGE 35 OF 45 SEQUENTIALLY NUMBERED PAGES.
COMMUNITYCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D - LOANS
Loans consisted of the following:
December 31,
------------------------------
1999 1998
-------------- --------------
Real estate - construction $ 2,658,856 $ 4,252,190
Real estate - mortgage 16,957,202 11,471,045
Commercial and industrial loans 25,478,493 26,031,926
Consumer and other 14,568,464 10,124,493
-------------- --------------
$ 59,663,015 $ 51,879,654
============== ==============
The Company identifies impaired loans through its normal internal loan review
process. Loans on the Company's problem loan watch list are considered
potentially impaired loans. These loans are evaluated in determining whether all
outstanding principal and interest are expected to be collected. Loans are not
considered impaired if a minimal delay occurs and all amounts due including
accrued interest at the contractual interest rate for the period of delay are
expected to be collected. At December 31, 1999 and 1998, management reviewed its
problem loan watch list and determined that no impairment on loans existed that
would have a material effect on the Company's consolidated financial statements.
The accrual of interest is discontinued on impaired loans when management
anticipates that a borrower may be unable to meet the obligations of the note.
Accrued interest through the date the interest is discontinued is reversed.
Subsequent interest earned is recognized only to the point that cash payments
are received. All payments are applied to principal if the ultimate amount of
principal is not expected to be collected.
As of December 31, 1999 and 1998, management had placed loans totaling $703,795
and $866,785, respectively, in nonaccrual status because the loans were not
performing as originally contracted. Loans ninety days or more past due and
still accruing interest were $10,551 and $4,956, at December 31, 1999 and 1998,
respectively. No impairment has been recognized because management has
determined that the discounted value of expected proceeds from the sale of
collateral, typically real estate, exceeds the carrying amount of these loans.
Transactions in the allowance for loan losses are summarized below:
1999 1998 1997
-------------- -------------- --------------
Balance, January 1 $ 929,482 $ 743,260 $ 638,688
Provision charged to expense 360,000 260,000 135,000
Recoveries 26,544 18,331 12,883
Charge-offs (229,046) (92,109) (43,311)
-------------- -------------- --------------
Balance, December 31 $ 1,086,980 $ 929,482 $ 743,260
============== ============== ==============
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the balance
sheets. The contractual or notional amounts of those instruments reflect the
extent of involvement the Company has in particular classes of financial
instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual or notional amount
of those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loans to customers.
PAGE 36 OF 45 SEQUENTIALLY NUMBERED PAGES.
COMMUNITYCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D - LOANS - CONTINUED
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since some of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary by the Company upon extension of credit is based on
management's credit evaluation of the counter-party.
Collateral held for commitments to extend credit and standby letters of credit
varies but may include accounts receivable, inventory, property, plant,
equipment and income-producing commercial properties.
The following table summarizes the Company's off-balance sheet financial
instruments whose contractual amounts represent credit risk:
December 31,
------------------------------
1999 1998
-------------- --------------
Commitments to extend credit $ 3,838,137 $ 3,910,501
Standby letters of credit 374,349 220,813
Management is not aware of any significant concentrations of loans to classes of
borrowers or industries that would be affected similarly by economic conditions.
At December 31, 1999, the Company was not committed to lend additional funds to
borrowers having loans in nonaccrual status.
NOTE E - PREMISES AND EQUIPMENT
Premises and equipment consisted of the following:
December 31,
------------------------------
1999 1998
-------------- --------------
Land $ 334,385 $ 334,385
Buildings and improvements 1,296,488 1,294,226
Furniture and equipment 1,074,784 1,066,164
-------------- --------------
2,705,657 2,694,775
Less, accumulated depreciation (929,337) (789,014)
-------------- --------------
$ 1,776,320 $ 1,905,761
============== ==============
NOTE F - DEPOSITS
At December 31, 1999, the scheduled maturities of time deposits were as follows:
2000 $ 39,508,757
2001 593,955
2002 940,736
2003 432,953
2004 33,345
--------------
$ 41,509,746
PAGE 37 OF 45 SEQUENTIALLY NUMBERED PAGES.
COMMUNITYCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G - RELATED PARTY TRANSACTIONS
Certain parties (principally certain directors and shareholders of the Company,
their immediate families and business interests) were loan customers of, and had
other transactions in the normal course of business with the Company. Related
party loans are made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
unrelated persons and do not involve more than normal risk of collectibility.
The aggregate dollar amount of loans to related parties was $2,086,905 and
$1,857,785 at December 31, 1999 and 1998, respectively. During 1999, $734,155 of
new loans were made to related parties, and repayments totaled $505,035. Legal
services were provided to the Company in the ordinary course of business by a
law firm in which two of the partners are directors of the Company. The amount
paid to this law firm for services rendered was $24,136, $23,321 and $19,600 for
the years ended December 31, 1999, 1998 and 1997, respectively.
NOTE H - SHORT-TERM BORROWINGS
Short-term borrowings payable at December 31, 1999 and 1998 consisted of
securities sold under agreements to repurchase which generally mature on a
one-day basis.
Information concerning securities sold under agreements to repurchase is
summarized as follows:
1999 1998
------------ -------------
Average balance during the year $ 466,548 $ 413,549
Average interest rate during the year 4.06% 4.53%
Maximum month-end balance during the year $ 810,000 $ 815,000
Under the terms of the agreement, the Company sells an interest in securities
issued by United States Government Agencies; and the Company agrees to
repurchase the same securities the following business day. The securities sold
under these agreements are the identical securities on the Company's balance
sheet captioned as securities purchased under agreements to resell. As of
December 31, 1999 and 1998, the par value and market value of the securities
held by the third-party for the underlying agreements were $346,000 and $450,000
and $305,184 and $451,007, respectively.
NOTE I - UNUSED LINES OF CREDIT
As of December 31, 1999, the Company had unused lines of credit to purchase
federal funds from other financial institutions totaling $2,500,000. These lines
of credit are available on a one to seven day basis for general corporate
purposes. The lenders have reserved the right not to renew their respective
lines.
NOTE J - COMMITMENTS AND CONTINGENCIES
The Company is subject to claims and lawsuits which arise primarily in the
ordinary course of business. At December 31, 1999, management is not aware of
any pending or threatened litigation or unasserted claims that could result in
losses, if any, that would be material to the financial statements.
NOTE K - SHAREHOLDERS' EQUITY
The ability of Communitycorp to pay cash dividends is dependent upon receiving
cash in the form of dividends from Bank of Walterboro. However, certain
restrictions exist regarding the ability of the Bank to transfer funds to
Communitycorp in the form of cash dividends. All of the Bank's dividends to the
Company are payable only from the undivided profits of the Bank. At December 31,
1999, the Bank's undivided profits were $5,824,199. The Bank is authorized to
pay cash dividends up to 100% of net income in any calender year without
obtaining the prior approval of the Commissioner of Banking provided that the
Bank received a composite rating of one or two at the last Federal or State
regulatory examination. Under Federal Reserve Board regulations, the amounts of
loans or advances from the Bank to the parent company are also restricted.
PAGE 38 OF 45 SEQUENTIALLY NUMBERED PAGES.
COMMUNITYCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE L - OTHER EXPENSES
Other expenses for the years ended December 31, 1999, 1998 and 1997 are
summarized as follows:
1999 1998 1997
-------------- -------------- --------------
Stationery, printing and postage $ 112,499 $ 101,218 $ 106,333
Advertising and promotion 26,625 29,397 22,568
Professional services 87,695 80,588 68,727
Directors fees 58,500 52,650 46,800
Telephone 24,823 25,265 13,584
ATM surcharges 42,485 26,076 5,225
ACH charges 26,373 21,455 20,975
Other 201,278 181,298 171,277
-------------- -------------- --------------
$ 580,278 $ 517,947 $ 455,489
============== ============== ==============
NOTE M - INCOME TAXES
Income tax expense included in the consolidated statement of operations for the
years ended December 31, 1999, 1998 and 1997 is summarized as follows:
1999 1998 1997
-------------- -------------- ---------------
Currently payable
Federal $ 600,400 $ 567,418 $ 475,991
State 59,758 56,962 48,418
-------------- -------------- --------------
660,158 624,380 524,409
-------------- -------------- --------------
Deferred
Federal (163,758) (108,409) (48,419)
State (19,553) (15,859) (8,193)
--------------- -------------- --------------
(183,311) (124,268) (56,612)
--------------- -------------- --------------
$ 476,847 $ 500,112 $ 467,797
============== ============== ==============
Income tax expense is allocated as follows:
To continuing operations $ 652,474 $ 500,155 $ 467,987
To shareholders' equity (175,627) (43) (190)
-------------- -------------- --------------
$ 476,847 $ 500,112 $ 467,797
============== ============== ==============
Deferred income taxes of $462,173, $278,862, and $154,594 were included in other
assets at December 31, 1999, 1998, and 1997, respectively. Deferred income taxes
result from temporary differences in the recognition of certain items of income
and expense for tax and financial reporting purposes.
PAGE 39 OF 45 SEQUENTIALLY NUMBERED PAGES.
COMMUNITYCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE M - INCOME TAXES - CONTINUED
The gross amounts of deferred tax assets and deferred tax liabilities as of
December 31, 1999, 1998 and 1997 are as follows:
1999 1998 1997
-------------- -------------- --------------
Deferred tax assets:
Allowance for loan losses $ 367,422 $ 321,048 $ 249,179
Available-for-sale securities 155,444 - -
Deferred compensation 34,849 27,752 27,455
Cash basis tax accounting - 32,857 -
Other 12,048 3,582 1,455
-------------- -------------- --------------
Total deferred tax assets 569,763 385,239 278,089
-------------- -------------- --------------
Deferred tax liabilities:
Accumulated depreciation 83,626 83,799 62,120
Cash basis tax accounting 19,447 - 38,177
Available-for-sale securities - 20,184 20,227
Other 4,517 2,394 2,971
-------------- -------------- --------------
Total deferred tax liabilities 107,590 106,377 123,495
-------------- -------------- --------------
Net deferred tax assets $ 462,173 $ 278,862 $ 154,594
============== ============== ==============
Deferred tax assets represent the future tax benefit of deductible differences
and, if it is more likely than not that a tax asset will not be realized, a
valuation allowance is required to reduce the recorded deferred tax assets to
net realizable value. Management has determined that it is more likely than not
that the entire deferred tax asset at December 31, 1999, 1998 and 1997 will be
realized, and accordingly, has not established a valuation allowance.
A reconciliation between the income tax expense and the amount computed by
applying the Federal statutory rate of 34% to income before income taxes
follows:
1999 1998 1997
-------------- -------------- --------------
Tax expense at statutory rate $ 690,974 $ 519,008 $ 480,203
State income tax, net of Federal income tax effect 38,085 27,158 23,763
Tax exempt interest income (99,824) (68,074) (55,575)
Disallowed interest expense 20,811 15,129 13,444
Other, net 2,428 6,934 6,152
-------------- -------------- --------------
$ 652,474 $ 500,155 $ 467,987
============== ============== ==============
NOTE N - FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the amount at which the asset or
obligation could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. Fair value estimates are made at a
specific point in time based on relevant market information and information
about the financial instruments. Because no market value exists for a
significant portion of the financial instruments, fair value estimates are based
on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors. The following methods and assumptions were used to estimate the fair
value of significant financial instruments:
CASH AND DUE FROM BANKS - The carrying amount is a reasonable estimate of fair
value.
FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL - Federal
funds sold and securities purchased under agreements to resell are for a term of
one day, and the carrying amount approximates the fair value.
INVESTMENT SECURITIES - The fair values of marketable securities held to
maturity are based on quoted market prices or dealer quotes. For securities
available-for-sale, fair value equals the carrying amount which is the quoted
market price. If quoted market prices are not available, fair values are based
on quoted market prices of comparable securities.
PAGE 40 OF 45 SEQUENTIALLY NUMBERED PAGES.
COMMUNITYCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE N - FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
LOANS - For certain categories of loans, such as variable rate loans which are
repriced frequently and have no significant change in credit risk and credit
card receivables, fair values are based on the carrying amounts. The fair value
of other types of loans is estimated by discounting the future cash flows using
the current rates at which similar loans would be made to the borrowers with
similar credit ratings and for the same remaining maturities.
DEPOSITS - The fair value of demand deposits, savings, and money market accounts
is the amount payable on demand at the reporting date. The fair values of
certificates of deposit are estimated using a discounted cash flow calculation
that applies current interest rates to a schedule of aggregated expected
maturities.
SHORT TERM BORROWINGS - The carrying value of securities sold under agreements
to repurchase is a reasonable estimate of fair value because these instruments
typically have terms of one day.
ACCRUED INTEREST RECEIVABLE AND PAYABLE - The carrying value of these
instruments is a reasonable estimate of fair value.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS - The carrying amount for loan
commitments and letters of credit, which are off-balance-sheet financial
instruments, approximates the fair value since the obligations are typically
based on current market rates.
The carrying values and estimated fair values of the Company's financial
instruments for the years ending December 31, 1999 and 1998 are as follows:
December 31, 1999 December 31, 1998
-------------------------------- ----------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
--------------- -------------- -------------- ------------
FINANCIAL ASSETS:
Cash and due from banks $ 5,723,770 $ 5,723,770 $ 3,864,460 $ 3,864,460
Federal funds sold and securities
purchased under agreements to resell 4,670,000 4,670,000 15,610,000 15,610,000
Securities available-for-sale 18,759,768 18,759,768 10,744,051 10,744,051
Securities held-to-maturity 5,327,129 5,210,028 5,192,435 5,259,426
Loans 59,663,015 59,570,582 51,879,654 52,097,177
Allowance for loan losses (1,086,980) (1,086,980) (929,482) (929,482)
Accrued interest receivable 1,004,529 1,004,529 790,130 790,130
FINANCIAL LIABILITIES:
Demand deposit, interest-bearing
transaction, and savings accounts $ 45,425,625 $ 45,425,625 $ 42,136,773 $ 42,136,773
Time deposits 41,509,746 41,606,099 38,211,996 38,370,663
Short-term borrowings 290,000 290,000 410,000 410,000
Accrued interest payable 509,943 509,943 498,256 498,256
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS:
Commitments to extend credit $ 3,838,137 $ 3,838,137 $ 3,910,501 $ 3,910,501
Standby letters of credit 374,349 374,349 220,813 220,813
PAGE 41 OF 45 SEQUENTIALLY NUMBERED PAGES.
COMMUNITYCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE O - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum ratios of Tier 1 and total capital as a
percentage of assets and off-balance-sheet exposures, adjusted for risk weights
ranging from 0% to 100%. Tier 1 capital consists of common shareholders' equity,
excluding the unrealized gain or loss on securities available for sale, minus
certain intangible assets. Tier 2 capital consists of the allowance for loan
losses subject to certain limitations. Total capital for purposes of computing
the capital ratios consists of the sum of Tier 1 and Tier 2 capital. Total
regulatory minimum requirements are 4% for Tier 1 and 8% for total risk-based
capital.
The Bank is also required to maintain capital at a minimum level based on
average assets, which is known as the leverage ratio. Only the strongest banks
are allowed to maintain capital at the minimum requirement of 3%. All others are
subject to maintaining ratios 1% to 2% above the minimum.
As of December 31, 1999, the most recent notification from the Bank's primary
regulator categorized the Bank as well-capitalized under the regulatory
framework for prompt-corrective action. There are no conditions or events that
management believes have changed the Bank's category.
The following table summarizes the capital amounts and ratios of the Bank and
the regulatory minimum requirements at December 31, 1999 and 1998.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------- --------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
--------- ------- ----------- ------- ---------- -----
DECEMBER 31, 1999
Total capital (to risk weighted assets) $9,887,869 14.86% $ 5,324,558 8.00% $ 6,655,697 10.00%
Tier 1 capital (to risk weighted assets) 9,055,906 13.61 2,662,279 4.00 3,993,418 6.00
Tier 1 capital (to average assets) 9,055,906 9.37 3,866,280 4.00 4,832,850 5.00
DECEMBER 31, 1998
Total capital (to risk weighted assets) $8,783,513 14.75% $ 4,765,481 8.00% $ 5,956,852 10.00%
Tier 1 capital (to risk weighted assets) 8,038,907 13.50 2,382,741 4.00 3,574,111 6.00
Tier 1 capital (to average assets) 8,038,907 9.74 3,301,160 4.00 4,126,450 5.00
The Federal Reserve Board has similar requirements for bank holding companies.
The Company is currently not subject to these requirements because the Federal
Reserve guidelines contain an exemption for bank holding companies with less
than $150,000,000 in consolidated assets.
PAGE 42 OF 45 SEQUENTIALLY NUMBERED PAGES.
COMMUNITYCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE P - COMMUNITYCORP (PARENT COMPANY ONLY)
Presented below are the condensed financial statements for Communitycorp (Parent
Company Only).
BALANCE SHEETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
------------- -------------
ASSETS
Cash $ 24,848 $ 66,056
Investment in banking subsidiary 8,760,788 8,078,527
Other assets 19,104 24,995
------------- -------------
Total assets $ 8,804,740 $ 8,169,578
============= =============
SHAREHOLDERS' EQUITY $ 8,804,740 $ 8,169,578
============= =============
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
INCOME 1999 1998 1997
------------ ------------- -------------
Dividends from banking subsidiary $ 370,000 $ 93,000 $ 50,000
EXPENSES
Other expenses 11,423 11,143 11,508
------------ ------------- -------------
INCOME BEFORE INCOME TAXES AND EQUITY IN
UNDISTRIBUTED EARNINGS OF BANKING SUBSIDIARY 358,577 81,857 38,492
Income tax benefit 4,226 4,346 3,914
Equity in undistributed earnings
of banking subsidiary 1,017,000 940,135 901,968
------------ ------------- -------------
NET INCOME $ 1,379,803 $ 1,026,338 $ 944,374
============ ============= =============
PAGE 43 OF 45 SEQUENTIALLY NUMBERED PAGES.
COMMUNITYCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE P - COMMUNITYCORP (PARENT COMPANY ONLY) - CONTINUED
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
CASH FLOWS FROM OPERATING ACTIVITIES 1999 1998 1997
------------ ------------- -------------
Net income $ 1,379,803 $ 1,026,338 $ 944,374
Adjustments to reconcile net income to net
cash provided by operating activities
Equity in undistributed earnings of
banking subsidiary (1,017,000) (940,135) (901,968)
Decrease in other assets 5,892 10,685 10,993
------------ ------------- -------------
Net cash provided by operating activities 368,695 96,888 53,399
------------ ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid (119,383) (92,509) (83,697)
Purchase of treasury stock (290,520) - (10,000)
Sale of treasury stock - 1,000 -
------------ ------------- -------------
Net cash used by financing activities (409,903) (91,509) (93,697)
------------ ------------- -------------
INCREASE (DECREASE) IN CASH (41,208) 5,379 (40,298)
CASH, BEGINNING 66,056 60,677 100,975
------------ ------------- -------------
CASH, ENDING $ 24,848 $ 66,056 $ 60,677
============ ============= =============
PAGE 44 AND 45 SEQUENTIALLY NUMBERED PAGES.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
COMMUNITYCORP
By:______________________________ Date: March 25, 2000
W. Roger Crook
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated:
______________________________ Date: March 25, 2000
W. Roger Crook, President, Director
(Chief Executive Officer)
______________________________ Date: March 25, 2000
Gwendolyn P. Bunton, Vice President
(Chief Financial Officer)
_______________________________ Date: March 25, 2000
Peden B. McLeod, Director
& Chairman of the Board
_______________________________ Date: March 25, 2000
George W. Cone, Director
& Corporate Secretary
_______________________________ Date: March 25, 2000
Opedalis Evans, Director
_______________________________ Date: March 25, 2000
J. Barnwell Fishburne, Director
_______________________________ Date: March 25, 2000
Harry L. Hill, Director
________________________________ Date: March 25, 2000
Calvert W. Huffines, Director
________________________________ Date: March 25, 2000
Robert E. Redfearn, Director
_________________________________ Date: March 25, 2000
Harold M. Robertson, Director
PAGE 45 OF 45 SEQUENTIALLY NUMBERED PAGES.