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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
[X] Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
1934 For the fiscal year ended December 31, 2001
or
[ ] Transition Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the transition period from to
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Commission file no. 33-76644
COMMUNITYCORP
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(Name of Issuer in Its Charter)
South Carolina 57-1019001
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1100 N. Jefferies Blvd.
Walterboro, South Carolina 29488
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(Address of Principal Executive Offices) (Zip Code)
(843) 549-2265
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Issuer's Telephone Number, Including Area Code
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-K in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 11, 2002 was $8,387,145. This calculation is based
upon $45, the last trade price of the common stock of which the Company is
aware. There is no active trading market for the common stock and trades are
limited and sporadic.
There were 300,000 shares of the Company's common stock issued and
outstanding as of the record date, March 11, 2002.
Transitional Small Business Disclosure Format. (Check one): Yes [ ] No [X]
DOCUMENTS INCORPORATED BY REFERENCE
Company's 2001 Annual Report and Proxy Statement for the 2002 Annual
Meeting of Shareholders.
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Item 1. Description of Business
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This Report contains statements which constitute forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These statements are based on many
assumptions and estimates and are not guarantees of future performance. Our
actual results may differ materially from those projected in any forward-looking
statements, as they will depend on many factors about which we are unsure,
including many factors which are beyond our control. The words "may," "would,"
"could," "will," "expect," "anticipate," "believe," "intend," "plan," and
"estimate," as well as similar expressions, are meant to identify such
forward-looking statements. Potential risks and uncertainties include, but are
not limited to:
. significant increases in competitive pressure in the banking and financial
services industries;
. changes in the interest rate environment which could reduce anticipated or
actual margins;
. changes in political conditions or the legislative or regulatory
environment;
. general economic conditions, either nationally or regionally and especially
in primary service area, becoming less favorable than expected resulting
in, among other things, a deterioration in credit quality;
. changes occurring in business conditions and inflation;
. changes in technology;
. changes in monetary and tax policies;
. changes in the securities markets; and
. other risks and uncertainties detailed from time to time in our filings
with the Securities and Exchange Commission.
General
Communitycorp was organized in 1995 to serve as a bank holding company for Bank
of Walterboro. The bank commenced business on May 1, 1989 as a South Carolina
state-chartered bank headquartered in Walterboro, South Carolina. The principal
business activity of the Company is to provide banking services to domestic
markets, principally in Colleton County and Northern Charleston County, South
Carolina. The Company opened an additional branch in 1998 in Ravenel, South
Carolina. The Company opened a branch on Forest Hills Road in Walterboro for the
purpose of accepting deposit transactions in 2001.
Our primary source of revenue is interest income and fees, which we earn by
lending and investing our capital and the funds which are held on deposit.
Because loans generally earn higher rates of interest than investments, the bank
seeks to employ as many of its deposit funds as possible in the form of loans to
individuals and businesses. To ensure sufficient liquidity, we also maintain a
portion of the Bank's deposits in cash, government securities, deposits with
other financial institutions, and overnight loans of excess reserves (known as
"federal funds sold") to correspondent banks. The revenue which the bank earns
(prior to deducting its overhead expenses) is essentially a function of the
amount of the Bank's loans and deposits, as well as the profit margin ("interest
spread") and fee income.
2
Marketing Focus
Our bank primarily serves the city of Walterboro and the surrounding area of
Colleton County, South Carolina. The bank's extended market area also includes
the north side of Charleston County, South Carolina where the Ravenel branch is
located. The Bank strives to maintain its business in these market areas.
Banking Services
The bank strives to provide its customers with the breadth of products and
services comparable to those offered by large regional banks, while maintaining
the quick response and personal service of a locally owned and managed bank. We
offer a full range of deposit services and originate commercial and personal
loans.
. Deposit Services. The bank offers a full range of deposit services that are
typically available in most banks and savings and loan associations,
including checking accounts, NOW accounts, savings accounts, and other time
deposits of various types, ranging from daily money market accounts to
longer-term certificates of deposit. The transaction accounts and time
certificates are tailored to our principal market area at rates competitive
to those offered by other banks in the area. In addition, we offer certain
retirement account services, such as Individual Retirement Accounts (IRAs).
All deposit accounts are insured by the Federal Deposit Insurance
Corporation (the "FDIC") up to the maximum amount allowed by law. The bank
solicits these accounts from individuals, businesses, associations and
organizations, and governmental authorities.
. Loan Products. The bank offers a full range of commercial and personal
loans. Commercial loans include both secured and unsecured loans for
working capital (including loans secured by inventory and accounts
receivable), business expansion (including acquisition of real estate and
improvements), and purchase of equipment and machinery. Consumer loans
include equity lines of credit and secured and unsecured loans for
financing automobiles, home improvements, education, and personal
investments. The bank also makes real estate construction and acquisition
loans. The bank's lending activities are subject to a variety of lending
limits imposed by federal law. While differing limits apply in certain
circumstances based on the type of loan or the nature of the borrower
(including the borrower's relationship to us), in general we are subject to
a loans-to-one-borrower limit of an amount equal to 15% of the bank's
unimpaired capital and surplus. We may not make any loans to any director,
officer, employee, or 10% shareholder of the bank unless the loan is
approved by our board of directors and is made on terms not more favorable
to such a person than would be available to a person not affiliated with
us.
. Other Services. Other bank services include cash management services, safe
deposit boxes, travelers checks, direct deposit of payroll and social
security checks, and automatic drafts for various accounts. The bank is
associated with Honor and Plus networks of automated teller machines that
may be used by our customers throughout South Carolina and other regions.
The bank also offers VISA credit card services through a correspondent bank
as an agent for us.
3
Competition
Banks generally compete with other financial institutions through the selection
of banking products and services offered, the pricing of services, the level of
service provided, the convenience and availability of services, and the degree
of expertise and the personal manner in which services are offered. South
Carolina law permits statewide branching by banks and savings institutions, and
many financial institutions in the state have branch networks. Consequently,
commercial banking in South Carolina is highly competitive. As of December 31,
2000, there were approximately four commercial banks, two savings and loan
institutions, and one credit union in the same area as Bank of Walterboro. Many
large banking organizations currently operate in the Bank's market area, several
of which are controlled by out-of-state ownership. In addition, competition
between commercial banks and thrift institutions (savings institutions and
credit unions) has been intensified significantly by the elimination of many
previous distinctions between the various types of financial institutions and
the expanded powers and increased activity of thrift institutions in areas of
banking which previously had been the sole domain of commercial banks. Recent
legislation, together with other regulatory changes by the primary regulators of
the various financial institutions, has resulted in almost total elimination of
practical distinctions between a commercial bank and a thrift institution.
Consequently, competition among financial institutions of all types is largely
unlimited with respect to legal authority to provide most financial services.
SUPERVISION AND REGULATION
Both the company and the bank are subject to extensive state and federal banking
laws and regulations which impose specific requirements or restrictions on and
provide for general regulatory oversight of virtually all aspects of operations.
These laws and regulations are generally intended to protect depositors, not
shareholders. The following summary is qualified by reference to the statutory
and regulatory provisions discussed. Changes in applicable laws or regulations
may have a material effect on our business and prospects. Beginning with the
enactment of the Financial Institution Report Recovery and Enforcement Act in
1989 and following with the FDIC Improvement Act in 1991, numerous additional
regulatory requirements have been placed on the banking industry in the past
several years, and additional changes have been proposed. Our operations may be
affected by legislative changes and the policies of various regulatory
authorities. We cannot predict the effect that fiscal or monetary policies,
economic control, or new federal or state legislation may have on our business
and earnings in the future.
Gramm-Leach-Bliley Act
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 on November 12, 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 permits bank 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.
4
SUPERVISION AND REGULATION (continued)
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 we face 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
us. From time to time other changes are proposed to laws affecting the Banking
industry, and these changes could have a material effect on our business and
prospects. We cannot predict the nature or the extent of the effect on our
business and earnings of fiscal or monetary policies, economic controls, or new
federal or state legislation.
Communitycorp
Because it owns the outstanding capital stock of the bank, the company is a bank
holding company under the federal Bank Holding Company Act of 1956 and the South
Carolina Banking and Branching Efficiency Act.
The Bank Holding Company Act. Under the Bank Holding Company Act, the company is
subject to periodic examination by the Federal Reserve and required to file
periodic reports of its operations and any additional information that the
Federal Reserve may require. Our activities at the bank and holding company
level are limited to:
. banking and managing or controlling banks;
. furnishing services to or performing services for its subsidiaries; and
. engaging in other activities that the Federal Reserve determines to be so
closely related to banking
. and managing or controlling banks as to be a proper incident thereto.
Investments, Control, and Activities. With certain limited exceptions, the Bank
Holding Company Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before:
. acquiring substantially all the assets of any bank;
. acquiring direct or indirect ownership or control of any voting shares of
any bank if after the acquisition it would own or control more than 5% of
the voting shares of such bank (unless it already owns or controls the
majority of such shares); or
. merging or consolidating with another bank holding company.
In addition, and subject to certain exceptions, the Bank Holding Company Act and
the Change in Bank Control Act, together with regulations thereunder, require
Federal Reserve approval prior to any person or company acquiring "control" of a
bank holding company. Control is conclusively presumed to exist if an individual
or company acquires 25% or more of any class of voting securities of a bank
holding company. Control is rebuttably presumed to exist if a person acquires
10% or more, but less than 25%, of any class of voting securities and either the
company has registered securities under Section 12 of the Securities Exchange
Act of 1934 or no other person owns a greater percentage of that class of voting
securities immediately after the transaction. The company's common stock is
registered under the Securities Exchange Act of 1934. The regulations provide a
procedure for challenge of the rebuttable control presumption.
5
SUPERVISION AND REGULATION (continued)
Communitycorp (continued)
Under the Bank Holding Company Act, a bank holding company is generally
prohibited from engaging in, or acquiring direct or indirect control of more
than 5% of the voting shares of any company engaged in nonbanking activities
unless the Federal Reserve Board, by order or regulation, has found those
activities to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto. Some of the activities that the Federal
Reserve Board has determined by regulation to be proper incidents to the
business of a bank holding company include:
. making or servicing loans and certain types of leases;
. engaging in certain insurance and discount brokerage activities;
. performing certain data processing services;
. acting in certain circumstances as a fiduciary or investment or financial
adviser;
. owning savings associations; and
. making investments in certain corporations or projects designed primarily
to promote community welfare.
The Federal Reserve Board imposes certain capital requirements on the company
under the Bank Holding Company Act, including a minimum leverage ratio and a
minimum ratio of "qualifying" capital to risk-weighted assets. These
requirements are described below under "Capital Regulations." Subject to its
capital requirements and certain other restrictions, the company is able to
borrow money to make a capital contribution to the bank, and these loans may be
repaid from dividends paid from the bank to the company. Our ability to pay
dividends is subject to regulatory restrictions as described below in "Bank of
Walterboro - Dividends." The company is also able to raise capital for
contribution to the bank by issuing securities without having to receive
regulatory approval, subject to compliance with federal and state securities
laws.
Source of Strength; Cross-Guarantee. In accordance with Federal Reserve Board
policy, the company is expected to act as a source of financial strength to the
bank and to commit resources to support the bank in circumstances in which the
company might not otherwise do so. Under the Bank Holding Company Act, the
Federal Reserve Board may require a bank holding company to terminate any
activity or relinquish control of a nonbank subsidiary, other than a nonbank
subsidiary of a bank, upon the Federal Reserve Board's determination that such
activity or control constitutes a serious risk to the financial soundness or
stability of any subsidiary depository institution of the bank's holding
company. Further, federal bank regulatory authorities have additional discretion
to require a bank holding company to divest itself of any bank or nonbank
subsidiary if the agency determines that divestiture may aid the depository
institution's financial condition.
South Carolina State Regulation. As a bank holding company registered under the
South Carolina Banking and Branching Efficiency Act, we are subject to
limitations on sale or merger and to regulation by the South Carolina Board of
Financial Institutions. We must receive the Board's approval prior to engaging
in the acquisition of banking or nonbanking institutions or assets, and we must
file periodic reports with respect to our financial condition and operations,
management, and intercompany relationships between the company and its
subsidiaries.
6
SUPERVISION AND REGULATION (continued)
Bank of Walterboro
The bank operates as a South Carolina state bank and is subject to examination
by the South Carolina Board of Financial Institutions. Deposits in the bank are
insured by the FDIC up to a maximum amount, which is generally $100,000 per
depositor subject to aggregation rules.
The South Carolina Board of Financial Institutions and the FDIC regulate or
monitor virtually all areas of the bank's operations, including:
. security devices and procedures;
. adequacy of capitalization and loss reserves;
. loans;
. investments;
. borrowings;
. deposits;
. mergers;
. issuances of securities;
. payment of dividends;
. interest rates payable on deposits;
. interest rates or fees chargeable on loans;
. establishment of branches;
. corporate reorganizations;
. maintenance of books and records; and
. adequacy of staff training to carry on safe lending and deposit gathering
practices.
The South Carolina Board of Financial Institutions requires the bank to maintain
specified capital ratios and imposes limitations on the bank's aggregate
investment in real estate, bank premises, and furniture and fixtures. The FDIC
requires the bank to prepare quarterly reports on the bank's financial condition
and to conduct an annual audit of its financial affairs in compliance with its
minimum standards and procedures.
Under the FDIC Improvement Act, all insured institutions must undergo regular on
site examinations by their appropriate banking agency. The cost of examinations
of insured depository institutions and any affiliates may be assessed by the
appropriate agency against each institution or affiliate as it deems necessary
or appropriate. Insured institutions are required to submit annual reports to
the FDIC, their federal regulatory agency, and their state supervisor when
applicable. The FDIC Improvement Act directs the FDIC to develop a method for
insured depository institutions to provide supplemental disclosure of the
estimated fair market value of assets and liabilities, to the extent feasible
and practicable, in any balance sheet, financial statement, report of condition
or any other report of any insured depository institution. The FDIC Improvement
Act also requires the federal banking regulatory agencies to prescribe, by
regulation, standards for all insured depository institutions and depository
institution holding companies relating, among other things, to the following:
. internal controls;
. information systems and audit systems;
. loan documentation;
. credit underwriting;
. interest rate risk exposure; and
. asset quality.
7
SUPERVISION AND REGULATION (continued)
Bank of Walterboro (continued)
Deposit Insurance. The FDIC establishes rates for the payment of premiums by
federally insured banks and thrifts for deposit insurance. A separate Bank
Insurance Fund and Savings Association Insurance Fund are maintained for
commercial banks and savings associations with insurance premiums from the
industry used to offset losses from insurance payouts when banks and thrifts
fail. In 1993, the FDIC adopted a rule which establishes a risk-based deposit
insurance premium system for all insured depository institutions. Under this
system, until mid-1995 depository institutions paid to Bank Insurance Fund or
Savings Association Insurance Fund from $0.23 to $0.31 per $100 of insured
deposits depending on its capital levels and risk profile, as determined by its
primary federal regulator on a semiannual basis. Once the Bank Insurance Fund
reached its legally mandated reserve ratio in mid-1995, the FDIC lowered
premiums for well-capitalized banks, eventually eliminating premiums for
well-capitalized banks, with a minimum semiannual assessment of $1,000. However,
in 1996 Congress enacted the Deposit Insurance Funds Act of 1996, which
eliminated even this minimum assessment. It also separated the Financial
Corporation assessment to service the interest on its bond obligations. The
amount assessed on individual institutions by the Financial Corporation
assessment is in addition to the amount paid for deposit insurance according to
the risk-related assessment rate schedule. Increases in deposit insurance
premiums or changes in risk classification will increase the bank's cost of
funds, and we may not be able to pass these costs on to our customers.
Transactions With Affiliates and Insiders. The bank is subject to the provisions
of Section 23A of the Federal Reserve Act, which places limits on the amount of
loans or extensions of credit to, or investments in, or certain other
transactions with, affiliates and on the amount of advances to third parties
collateralized by the securities or obligations of affiliates. The aggregate of
all covered transactions is limited in amount, as to any one affiliate, to 10%
of the bank's capital and surplus and, as to all affiliates combined, to 20% of
the bank 's capital and surplus. Furthermore, within the foregoing limitations
as to amount, each covered transaction must meet specified collateral
requirements. Compliance is also required with certain provisions designed to
avoid the taking of low quality assets.
The bank is also subject to the provisions of Section 23B of the Federal Reserve
Act which, among other things, prohibits an institution from engaging in certain
transactions with certain affiliates unless the transactions are on terms
substantially the same, or at least as favorable to such institution or its
subsidiaries, as those prevailing at the time for comparable transactions with
nonaffiliated companies. The bank is subject to certain restrictions on
extensions of credit to executive officers, directors, certain principal
shareholders, and their related interests. Such extensions of credit (i) must be
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with third parties
and (ii) must not involve more than the normal risk of repayment or present
other unfavorable features.
Dividends. The bank is subject to regulatory restrictions on the payment of
dividends, including a prohibition of payment of dividends from its capital. All
dividends must be paid out of the undivided profits then on hand, after
deducting expenses, including losses and bad debts. In addition, under the FDIC
Improvement Act, the bank may not pay a dividend if, after paying the dividend,
the bank would be undercapitalized. See "Capital Regulations" below.
8
SUPERVISION AND REGULATION (continued)
Bank of Walterboro (continued)
Branching. Under current South Carolina law, we may open bank branch offices
throughout South Carolina with the prior approval of the South Carolina Board of
Financial Institutions. In addition, with prior regulatory approval, the bank
may acquire existing banking operations in South Carolina. Furthermore, federal
legislation has recently been passed which permits interstate branching. The new
law permits out-of-state acquisitions by bank holding companies, interstate
branching by banks if allowed by state law, interstate merging by banks, and de
novo branching by banks if allowed by state law. North Carolina has passed
legislation that, in effect, prohibits de novo branching by South Carolina banks
into North Carolina.
Community Reinvestment Act. The Community Reinvestment Act requires that, in
connection with examinations of financial institutions within their respective
jurisdictions, a financial institution's primary federal regulator (this is the
FDIC for our bank) shall evaluate the record of each financial institution in
meeting the credit needs of its local community, including low and moderate
income neighborhoods. These factors are also considered in evaluating mergers,
acquisitions, and applications to open a branch or facility. Failure to
adequately meet these criteria could impose additional requirements and
limitations on the bank.
Other Regulations. Interest and other charges collected or contracted for by the
bank are subject to state usury laws and federal laws concerning interest rates.
The bank's loan operations are also subject to federal laws applicable to credit
transactions, such as:
. the federal Truth-In-Lending Act, governing disclosures of credit terms to
consumer borrowers;
. the Home Mortgage Disclosure Act of 1975, requiring financial institutions
to provide information to enable the public and public officials to
determine whether a financial institution is fulfilling its obligation to
help meet the housing needs of the community it serves;
. the Equal Credit Opportunity Act, prohibiting discrimination on the basis
of race, creed or other prohibited factors in extending credit;
. the Fair Credit Reporting Act of 1978, governing the use and provision of
information to credit reporting agencies;
. the Fair Debt Collection Act, governing the manner in which consumer debts
may be collected by collection agencies; and
. the rules and regulations of the various federal agencies charged with the
responsibility of implementing such federal laws.
The deposit operations of the bank also are subject to:
. the Right to Financial Privacy Act, which imposes a duty to maintain
confidentiality of consumer financial records and prescribes procedures for
complying with administrative subpoenas of financial records; and
. the Electronic Funds Transfer Act and Regulation E issued by the Federal
Reserve Board to implement that act, which governs automatic deposits to
and withdrawals from deposit accounts and customers' rights and liabilities
arising from the use of automated teller machines and other electronic
banking services.
9
SUPERVISION AND REGULATION (continued)
Bank of Walterboro (continued)
Capital Regulations. The federal bank regulatory authorities have adopted
risk-based capital guidelines for banks and bank holding companies that are
designed to make regulatory capital requirements more sensitive to differences
in risk profiles among banks and bank holding companies and account for
off-balance sheet items. The guidelines are minimums, and the federal regulators
have noted that banks and bank holding companies contemplating significant
expansion programs should not allow expansion to diminish their capital ratios
and should maintain ratios in excess of the minimums. We have not received any
notice indicating that either the company or the bank is subject to higher
capital requirements. The current guidelines require all bank holding companies
and federally-regulated banks to maintain a minimum risk-based total capital
ratio equal to 8%, of which at least 4% must be Tier 1 capital. Tier 1 capital
includes common shareholders' equity, qualifying perpetual preferred stock, and
minority interests in equity accounts of consolidated subsidiaries, but excludes
goodwill and most other intangibles and excludes the allowance for loan and
lease losses. Tier 2 capital includes the excess of any preferred stock not
included in Tier 1 capital, mandatory convertible securities, hybrid capital
instruments, subordinated debt and intermediate term-preferred stock, and
general reserves for loan and lease losses up to 1.25% of risk-weighted assets.
Under these guidelines, banks' and bank holding companies' assets are given
risk-weights of 0%, 20%, 50%, or 100%. In addition, certain off-balance sheet
items are given credit conversion factors to convert them to asset equivalent
amounts to which an appropriate risk-weight applies. These computations result
in the total risk-weighted assets. Most loans are assigned to the 100% risk
category, except for first mortgage loans fully secured by residential property
and, under certain circumstances, residential construction loans, both of which
carry a 50% rating. Most investment securities are assigned to the 20% category,
except for municipal or state revenue bonds, which have a 50% rating, and direct
obligations of or obligations guaranteed by the United States Treasury or United
States Government agencies, which have a 0% rating.
The federal bank regulatory authorities have also implemented a leverage ratio,
which is equal to Tier 1 capital as a percentage of average total assets less
intangibles, to be used as a supplement to the risk-based guidelines. The
principal objective of the leverage ratio is to place a constraint on the
maximum degree to which a bank holding company may leverage its equity capital
base. The minimum required leverage ratio for top-rated institutions is 3%, but
most institutions are required to maintain an additional cushion of at least 100
to 200 basis points.
The FDIC Improvement Act established a new capital-based regulatory scheme
designed to promote early intervention for troubled banks which requires the
FDIC to choose the least expensive resolution of bank failures. The new
capital-based regulatory framework contains five categories of compliance with
regulatory capital requirements, including "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized." To qualify as a "well capitalized" institution, a
bank must have a leverage ratio of no less than 5%, a Tier 1 risk-based ratio of
no less than 6%, and a total risk-based capital ratio of no less than 10%, and
the bank must not be under any order or directive from the appropriate
regulatory agency to meet and maintain a specific capital level. Currently, we
qualify as "well capitalized."
10
SUPERVISION AND REGULATION (continued)
Bank of Walterboro (continued)
Under the FDIC Improvement Act regulations, the applicable agency can treat an
institution as if it were in the next lower category if the agency determines
(after notice and an opportunity for hearing) that the institution is in an
unsafe or unsound condition or is engaging in an unsafe or unsound practice. The
degree of regulatory scrutiny of a financial institution increases, and the
permissible activities of the institution decreases, as it moves downward
through the capital categories. Institutions that fall into one of the three
undercapitalized categories may be required to do some or all of the following:
. submit a capital restoration plan;
. raise additional capital;
. restrict their growth, deposit interest rates, and other activities;
. improve their management;
. eliminate management fees; or
. divest themselves of all or a part of their operations.
Bank holding companies controlling financial institutions can be called upon to
boost the institutions' capital and to partially guarantee the institutions'
performance under their capital restoration plans.
These capital guidelines can affect us in several ways. If we grow at a rapid
pace, our capital may be depleted too quickly, and a capital infusion from the
holding company may be necessary which could impact our ability to pay
dividends. Our capital levels currently are adequate; however, rapid growth,
poor loan portfolio performance, poor earnings performance, or a combination of
these factors could change our capital position in a relatively short period of
time.
Failure to meet these capital requirements would mean that a bank would be
required to develop and file a plan with its primary federal banking regulator
describing the means and a schedule for achieving the minimum capital
requirements. In addition, such a bank would generally not receive regulatory
approval of any application that requires the consideration of capital adequacy,
such as a branch or merger application, unless the bank could demonstrate a
reasonable plan to meet the capital requirement within a reasonable period of
time.
Enforcement Powers. The Financial Institution Report Recovery and Enforcement
Act expanded and increased civil and criminal penalties available for use by the
federal regulatory agencies against depository institutions and certain
"institution-affiliated parties." Institution-affiliated parties primarily
include management, employees, and agents of a financial institution, as well as
independent contractors and consultants such as attorneys and accountants and
others who participate in the conduct of the financial institution's affairs.
These practices can include the failure of an institution to timely file
required reports or the filing of false or misleading information or the
submission of inaccurate reports. Civil penalties may be as high as $1,000,000 a
day for such violations. Criminal penalties for some financial institution
crimes have been increased to 20 years. In addition, regulators are provided
with greater flexibility to commence enforcement actions against institutions
and institution-affiliated parties. Possible enforcement actions include the
termination of deposit insurance. Furthermore, banking agencies' power to issue
cease-and-desist orders were expanded. Such orders may, among other things,
require affirmative action to correct any harm resulting from a violation or
practice, including restitution, reimbursement, indemnification or guarantees
against loss. A financial institution may also be ordered to restrict its
growth, dispose of certain assets, rescind agreements or contracts, or take
other actions as determined by the ordering agency to be appropriate.
11
SUPERVISION AND REGULATION (continued)
Bank of Walterboro (continued)
Effect of Governmental Monetary Policies. Our earnings are affected by domestic
economic conditions and the monetary and fiscal policies of the United States
government and its agencies. The Federal Reserve Bank's monetary policies have
had, and are likely to continue to have, an important impact on the operating
results of commercial banks through its power to implement national monetary
policy in order, among other things, to curb inflation or combat a recession.
The monetary policies of the Federal Reserve Board have major effects upon the
levels of bank loans, investments and deposits through its open market
operations in United States government securities and through its regulation of
the discount rate on borrowings of member banks and the reserve requirements
against member bank deposits. It is not possible to predict the nature or impact
of future changes in monetary and fiscal policies.
Employees
As of March 11, 2002, the Bank had thirty full-time and two part-time employees.
The Company had no employees.
Item 2. Description of Property
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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.
The Company acquired a 5500 square foot building at 110 Forest Hills Road in
Walterboro, South Carolina on November 16, 2000 and began using it as a branch
location in 2001. The Company anticipates renting out the remaining 3,000 square
feet. The total cost of the facility, including land, was $485,000.
Item 3. Legal Proceedings.
- -------------------------
The Company may from time to time be a party to various legal proceedings
arising in the ordinary course of business, but management of the Company is not
aware of any pending or threatened litigation or unasserted claims or
assessments that are expected to result in losses, if any, that would be
material to the Company's business and operations.
Item 4. Submission of Matters to a Vote of Security Holders.
- -----------------------------------------------------------
No matter was submitted to a vote of security holders during the fourth quarter
of the fiscal year covered by this report.
12
Supervision and Regulation (continued)
Employees (continued)
Item 5. Market for Common Equity and Related Stockholder Matters.
- ----------------------------------------------------------------
In response to this Item, the information contained on page 44 of the Company's
Annual Report to Shareholders for the year ended December 31, 2001 is
incorporated herein by reference.
Item 6. Management's Discussion and Analysis or Plan of Operation
- -----------------------------------------------------------------
In response to this Item, the information contained on pages 8 through 21 of the
Company's Annual Report to Shareholders for the year ended December 31, 2001 is
incorporated herein by reference.
Item 7. Financial Statements
- ----------------------------
In response to this Item, the information contained on pages 22 through 42 of
the Company's Annual Report to Shareholders for the year ended December 31, 2001
is incorporated herein by reference.
Item 8. Changes in and Disagreements with Accountants on Accounting and
- -----------------------------------------------------------------------
Financial Disclosure
- --------------------
None.
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
- --------------------------------------------------------------------------------
with Section 16(a) of the Exchange Act
- --------------------------------------
In response to this Item, the information contained on pages 2 through 3 of the
company's Proxy Statement for the Annual Meeting of Shareholders to be held on
April 23, 2002 is incorporated herein by reference.
Item 10. Executive Compensation
- -------------------------------
In response to this Item, the information contained on page 7 of the Company's
Proxy Statement for the Annual Meeting of Shareholders to be held on April 23,
2002 is incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
In response to this Item, the information contained on page 6 of the Company's
Proxy Statement for the Annual Meeting of Shareholders to be held on April 23,
2002 is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions
- -------------------------------------------------------
In response to this Item, the information contained on page 5 of the Company's
Proxy Statement for the Annual Meeting of Shareholders to be held on April 23,
2002 is incorporated herein by reference.
Item 13. Exhibits, List and Reports on Form 8-K
- -----------------------------------------------
(a) The following documents are filed as part of this report:
13.1. Annual Report of Shareholders for the year ended December 31, 2001
21.1 Subsidiaries of the Company
(b) Reports on Form 8-K
-------------------
There were no reports filed on Form 8-K for the period ended December 31,
2001.
13
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BANK OF WALTERBORO
Date: March 26, 2002 By: /s/ W. Roger Crook
---------------------- --------------------------------------
W. Roger Crook.
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints W. Roger Crook, his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments to this Annual Report on Form 10-K, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto attorney-in-fact and agent
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant in the capacities and on the dates
indicated.
Signature Title Date
- --------- ----- ----
- -----------------------
W. Roger Crook President, Director (CEO) March 26, 2002
- -----------------------
Gwendolyn P. Bunton Vice President (CFO) March 26, 2002
- -----------------------
Peden B. McLeod Director March 26, 2002
& Chairman of the Board
- -----------------------
George W. Cone Director & Corporate Secretary March 26, 2002
- -----------------------
J. Barnwell Fishburne Director March 26, 2002
- -----------------------
Harry L. Hill Director March 26, 2002
- -----------------------
Calvert W. Huffines Director March 26, 2002
- -----------------------
Steven D. Murdaugh Director March 26, 2002
- -----------------------
Robert E. Redfearn Director March 26, 2002
- -----------------------
Harold M. Robertson Director March 26, 2002
14
INDEX TO EXHIBITS
13.1. Annual Report of Shareholders for the year ended December 31,
2001
21.1 Subsidiaries of the Company
15