<PAGE>
As filed with the Securities and Exchange Commission on March 25, 1998
Registration No. 333-
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
(INCLUDING EXHIBITS)
FIRSTBANCORPORATION, INC.
----------------------------------------------------
(Exact name of small business issuer in its charter)
South Carolina 6712 57-1033905
- ------------------------------- ------------------ -------------------
(State or other jurisdiction of (Primary SICC No.) (I.R.S. Employer
incorporation or organization) Identification No.)
1121 Boundary Street
Beaufort, South Carolina 29901
(803) 521-5600
------------------------------------------------
(Address and telephone number of principal
executive offices and place of business)
John F. Breyer, Jr., Esquire
Victor L. Cangelosi, Esquire
BREYER & AGUGGIA
1300 I Street, N.W., Suite 470 East
Washington, D.C. 20005
(202) 737-7900
---------------------------------------------------------------
(Name, address and telephone number of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
===============================================================================================================
Calculation of Registration Fee
===============================================================================================================
Proposed Maximum Proposed Maximum
Title of Each Class of Amount Being Proposed Offering Aggregate Offering Amount of
Securities Being Registered Registered Price(1) Price(1) Registration Fee
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 Par Value 220,000 $18.00 $3,960,000 $1,169
===============================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o).
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PROSPECTUS
FIRSTBANCORPORATION, INC.
(Holding Company for FirstBank, N.A. and Proposed Holding Company
for FirstBank of the Midlands, N.A.)
Between 180,000 and 220,000 Shares of Common Stock
FirstBancorporation, Inc. ("Company") is the holding company for FirstBank, N.A.
("Bank"), a national bank headquartered in Beaufort, South Carolina. The
Company is offering for sale between 180,000 and 220,000 additional shares of
its common stock, par value $0.01 per share ("Common Stock"), first to holders
of Common Stock as of the close of business on _____, 1998 ("Rights Holders" and
"Record Date," respectively) ("Rights Offering"), and then to the general public
with preference given to persons who are permanent residents of Beaufort,
Lexington or Richland Counties of South Carolina ("Community Offering"). The
Rights Offering and the Community Offering are collectively referred to as the
"Offering." Orders for Common Stock submitted by members of the general public
will not be filled if the maximum number of shares of Common Stock being offered
are subscribed for by the Rights Holders. The net offering proceeds will
contribute to the initial capitalization of "FirstBank of the Midlands, N.A.," a
national bank in formation ("New Bank"). Subject to the receipt of final
regulatory approval, the New Bank will be headquartered in Columbia, South
Carolina, and will operate as a wholly-owned subsidiary of the Company.
Consummation of the Offering is subject to the receipt of final regulatory
approval for the New Bank to commence business.
- --------------------------------------------------------------------------------
OFFERING SUMMARY
The purchase price per share was determined arbitrarily by the Company's Board
of Directors. See "RISK FACTORS -- Arbitrary Purchase Price."
Purchase Price Per Share: $18.00
Minimum Midpoint Maximum
------- -------- -------
Number of shares: 180,000 200,000 220,000
Gross offering proceeds: $3,240,000 $3,600,000 $3,960,000
Estimated offering expenses: $ 100,000 $ 100,000 $ 100,000
Estimated net proceeds: $3,140,000 $3,500,000 $3,860,000
Estimated net proceeds per share: $ 17.44 $ 17.50 $ 17.55
The Offering will terminate at ___:____ ___.m., Eastern time, on _______ ___,
1998, unless extended by the Company.
Rights Holders have the non-transferable right to subscribe for up to a maximum
of one additional share of Common Stock for every seven shares owned as of the
close of business on the Record Date. All other persons may subscribe for up to
$100,000 of Common Stock (5,555 shares), but no fewer than 50 shares of Common
Stock. All funds received from subscribers will be held in a separately
insured, non-interest bearing deposit account at the Bank until the completion
or termination of the Offering. The Company has the absolute right to reject
any subscription order in whole or in part at anytime before the completion of
the Offering, and if it does so in part the subscriber does not have the right
to cancel the remainder of his or her subscription.
- --------------------------------------------------------------------------------
For a discussion of certain risks that each prospective investor should
consider, see "RISK FACTORS" beginning on page 1 of this Prospectus.
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency, and
they are not guaranteed by the Bank and will not be guaranteed by the New Bank.
Neither the Securities and Exchange Commission, the Federal Reserve Board, the
Office of the Comptroller of the Currency, the Federal Deposit Insurance
Corporation, nor any state securities regulator has approved or disapproved
these securities or determined if this Prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
For additional information about the offering, please refer to the more detailed
information in this Prospectus. For assistance, please contact
____________________ at (843) ____- _________.
The date of this Prospectus is ______________ __, 1998.
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information in this Prospectus. This
summary is not complete and should be read in connection with and is qualified
in its entirety by the more detailed information and the consolidated financial
statements (including notes thereto) presented elsewhere in this Prospectus.
The purchase of Common Stock is subject to certain risks. See "RISK FACTORS."
FirstBancorporation, Inc.
The Company was incorporated on February 28, 1995 under South Carolina law
and became the holding company for the Bank on November 1, 1995. The Company is
a registered bank holding under the Bank Holding Company Act of 1956, as amended
("BHCA"), and regulated by the Federal Reserve Board ("Federal Reserve"). To
date, the Company's primary asset has been its investment in all of the
outstanding capital stock of the Bank and its primary business has been
directing the affairs of the Bank. The Company has applied to the Federal
Reserve to acquire all of the outstanding capital stock of the Bank upon the
formation of the New Bank. Upon the formation of the New Bank, the Company will
also direct the affairs of the New Bank as a result of its ownership of all the
New Bank's outstanding capital stock. At December 31, 1997, the Company's total
assets were $91.7 million, total liabilities were $83.7 million and
stockholders' equity was $8.0 million. The Company's main office is located at
1121 Boundary Street, Beaufort, South Carolina and its telephone number is (843)
521-5600. See "BUSINESS OF THE COMPANY."
FirstBank, N.A.
The Bank is a national bank headquartered in Beaufort, South Carolina. The
Bank is the successor to The Savings Bank of Beaufort County, FSB, a federally-
chartered stock savings bank that was formed in 1986 as a de novo institution
-------
and that converted to a national bank effective June 5, 1995. The Bank's main
office is located at 1121 Boundary Street, Beaufort, South Carolina and its
telephone number is (843) 521-5600.
The Bank is regulated by the Office of the Comptroller of the Currency
("OCC") and the Federal Deposit Insurance Corporation ("FDIC"). The Bank's
deposits are insured by the FDIC under the Savings Association Insurance Fund
("SAIF"). The Bank is a member of the Federal Home Loan Bank ("FHLB") System
and the Federal Reserve System ("FRS").
The Bank is a community bank whose principal business is attracting
deposits from the general public and using those funds to originate loans
secured by real estate, including construction loans, located in its primary
market area of Beaufort County (excluding Hilton Head Island), South Carolina.
To a lesser extent, the Bank also originates residential lot loans, commercial
real estate loans and consumer loans. The Bank also invests in U.S. Government
and agency securities. See "BUSINESS OF THE BANK." The Bank operates from its
main office in Beaufort, South Carolina, a full-service branch office on Lady's
Island in Beaufort, South Carolina, and a full-service branch office in
Bluffton, South Carolina. The Bank faces strong competition for the origination
of loans and the attraction of deposits. See "RISK FACTORS -- Competition."
FirstBank of the Midlands, N.A. (in formation)
On February 19, 1998, the OCC granted preliminary approval for the New Bank
to operate as a national bank under the name "First Bank of the Midlands, N.A"
subject to the FDIC's grant of deposit insurance to the New Bank, the Federal
Reserve's approval of the New Bank to operate as a wholly-owned subsidiary of
the Company, and the completion of the Offering. The New Bank has applied to
the FDIC to obtain deposit insurance for its deposit accounts under the Bank
Insurance Fund ("BIF"). As a national bank, the New Bank will be required to be
a member of the FRS.
(i)
<PAGE>
Generally, the New Bank intends to offer the same loan and deposit products
and services as the Bank. The New Bank intends to engage in a general
commercial and retail banking business directed primarily towards the needs of
small to medium-sized businesses, professionals and individuals residing in
Richland and Lexington Counties of South Carolina. Initially, the New Bank will
operate from its main office located in downtown Columbia, South Carolina. See
"PROPOSED BUSINESS OF NEW BANK."
The Offering
The Company is offering for sale between 180,000 and 220,000 shares of
Common Stock ("Offering Range") at a purchase price of $18.00 per share
("Purchase Price"). The Purchase Price was determined arbitrarily by the
Company's Board of Directors. See "RISK FACTORS -- Arbitrary Purchase Price."
The Rights Offering and the Community Offering will be conducted
concurrently. Only Rights Holders may participate in the Rights Offering. If
you are a Rights Holder, you will have the non-transferrable right to subscribe
for a maximum of one share of Common Stock for every seven shares held as of the
close of business on the Record Date. If Rights Holders do not subscribe for
all the shares being offered, the remaining shares will be offered for sale in
the Community Offering to members of the general public with preference given to
permanent residents of Beaufort, Lexington or Richland Counties of South
Carolina ("Local Community"). If you are not a Rights Holder, you may subscribe
for up to $100,000 of Common Stock (5,555 shares), but no fewer than 50 shares
of Common Stock. The Company has the absolute right to reject any subscription
order in whole or in part at anytime before the completion of the Offering, and
if it does so in part the subscriber does not have the right to cancel the
remainder of his or her subscription.
As of the close of business on the Record Date, there were 692,748 shares
of Common Stock issued and outstanding. Assuming the successful completion of
the Offering, the number of issued and outstanding shares of Common Stock would
range from 872,748 to 912,748 shares depending on the final number of shares
sold. Purchasers of Common Stock in the Offering will experience immediate and
substantial dilution in net tangible book value per share of the Common Stock.
See "RISK FACTORS -- Dilution."
Consummation of the Offering is subject to the receipt of final regulatory
approval for the New Bank to commence business. If the New Bank does not
receive such final regulatory approval, the Offering will be terminated,
accepted subscriptions for shares of Common Stock will be of no further force or
effect and all subscription funds will be returned promptly to subscribers
together with interest. See "THE OFFERING --Conditions to the Offering and
Release of Funds."
Procedure for Subscribing for Common Stock
The Rights Offering and the Community Offering will both terminate at
__:___ __.m., Eastern time, on ______ ___, 1998, unless extended by the Company.
All subscription forms, together with full payment for all shares subscribed
for, must be physically received by the Bank by that time or else they will be
null and void. Subscription forms may be hand delivered to the Bank or sent by
U.S. mail or by private delivery service. If sent by U.S. mail or private
delivery service, the subscriber assumes the risk of untimely delivery.
Subscriptions for Common Stock accepted by the Company may not be revoked under
any circumstances. Payment for Common Stock may be made in cash (only if
delivered in person to the Bank) or by check made payable to
"FirstBancorporation, Inc." All funds received from subscribers will be held in
a separately insured, non-interest bearing deposit account at the Bank until the
completion or termination of the Offering. See "THE OFFERING --How to
Subscribe."
(ii)
<PAGE>
Use of Proceeds
The actual net proceeds of the Offering cannot be determined until after
the completion of the Offering when the actual number of shares sold and the
final offering expenses are known. However, the net proceeds are estimated to
range from $3.1 million to $3.9 million based on the Offering Range and the
Purchase Price ($18.00 per share). Subject to the receipt of final regulatory
approval for the New Bank to commence business, the Company will contribute the
net proceeds to the New Bank as part of its initial capitalization. See "USE OF
PROCEEDS."
Dividends
Neither the Company nor the Bank (including the Bank's predecessor, The
Savings Bank of Beaufort County, FSB) has ever paid cash dividends, although
stock dividends have been paid periodically. In order to support the operations
of the Bank and the New Bank, the Company does not expect to pay cash dividends
in the foreseeable future, but may continue to pay stock dividends subject to
the determination of the Company's Board of Directors. See "DIVIDEND POLICY."
Market for Common Stock
The market for the Common Stock is highly illiquid and the Offering is not
expected to materially increase liquidity. The Common Stock is not traded on an
established market but in privately negotiated transactions, and there are no
regularly quoted bid or asked prices for the Common Stock. See "RISK FACTORS --
Absence of Market for Common Stock."
Risk Factors
See "RISK FACTORS" beginning on page 1 for a discussion of certain risks
related to the Offering that should be considered by all prospective investors.
(iii)
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following tables set forth certain information concerning the
consolidated financial condition and results of operations of the Company and
its subsidiary at the dates and for the periods indicated. This information is
qualified in its entirety by reference to the detailed information contained in
the Consolidated Financial Statements and Notes thereto presented elsewhere in
this Prospectus. All per share data has been adjusted for all stock dividends
paid.
At December 31,
-------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands)
SELECTED FINANCIAL CONDITION DATA:
Total assets....................... $91,699 $91,733 $83,047 $77,311 $73,154
Loans receivable, net.............. 80,064 78,150 72,026 68,900 65,141
Loans held-for-sale................ 676 663 251 -- --
Investment securities
held-to-maturity.................. -- -- -- 2,755 2,999
Investment securities
available-for-sale................ 2,182 2,485 2,630 -- --
Cash and amounts due from banks.... 4,127 4,721 4,197 3,359 2,164
Deposits........................... 77,462 78,300 74,905 69,273 67,249
FHLB borrowings.................... 5,050 5,600 1,000 1,000 --
Amounts due to depository
institutions...................... 305 200 238 870 185
Stockholders' equity............... 7,981 7,045 6,517 5,895 5,374
Year Ended December 31,
-------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands, except per share amounts)
SELECTED OPERATING DATA:
Interest income.................... $ 7,542 $ 6,920 $ 6,296 $ 5,184 $ 5,109
Interest expense................... 3,423 3,281 3,106 2,220 2,352
------- ------- ------- ------- -------
Net interest income................ 4,119 3,639 3,190 2,964 2,757
Provision for loan losses.......... 165 162 192 179 149
------- ------- ------- ------- -------
Net interest income after
provision for loan losses......... 3,954 3,477 2,998 2,785 2,608
Non-interest income................ 952 737 587 512 512
Non-interest expense............... 3,378 3,391 2,707 2,474 2,301
------- ------- ------- ------- -------
Income before provision for
income taxes...................... 1,528 823 878 823 819
Provision for income taxes......... 581 322 351 302 309
------- ------- ------- ------- -------
Net income......................... $ 947 $ 501 $ 527 $ 521 $ 510
======= ======= ======= ======= =======
Basic earnings per share........... $ 1.37 $ 0.73 $ 0.78 $ 0.78 $ 0.76
Diluted earnings per share......... 1.29 0.69 0.71 0.71 0.70
(footnotes on following page)
(iv)
<PAGE>
SELECTED OTHER DATA:
At December 31,
-------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Number of:
Real estate loans outstanding.... 2,085 1,875 1,544 1,328 1,299
Deposit accounts................. 7,651 7,442 7,428 7,542 6,314
Full service offices............. 3 3 3 3 3
SELECTED OPERATING RATIOS:
At or For the Year Ended December 31,
------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Performance Ratios:
Return on average assets (net
income divided by average
assets).......................... 1.04% 0.57% 0.65% 0.70% 0.71%
Return on average equity (net
income divided by average
equity).......................... 12.73 7.41 8.51 9.29 10.01
Interest rate spread (difference
between average yield on
interest-earning assets and
average cost of interest-bearing
liabilities)..................... 4.27 3.95 3.81 3.95 3.70
Net interest margin (net interest
income as a percentage of average
interest-earning assets)......... 4.82 4.43 4.20 4.19 3.97
Non-interest expense to year-end
assets........................... 3.68 3.70 3.26 3.20 3.15
Non-interest expense to average
assets........................... 3.70 3.86 3.34 3.31 3.16
Average interest-earning assets to
interest-bearing liabilities..... 113.67 111.93 110.00 108.90 109.30
Asset Quality Ratios:
Allowance for loan losses to total
loans at end of period........... 0.90 0.80 0.65 0.49 0.36
Net charge-offs to average
outstanding loans during the
period........................... 0.08 0.02 0.09 0.12 0.20
Ratio of nonaccrual loans to
total assets..................... 0.47 0.44 0.16 0.35 0.17
Capital Ratios:
Average equity to average assets.. 8.16 7.71 7.64 7.49 7.08
(v)
<PAGE>
RISK FACTORS
Before investing in shares of the Common Stock offered hereby, prospective
investors should carefully consider the matters presented below, in addition to
matters discussed elsewhere in this Prospectus. Certain risk factors discussed
below relate to the operations of the Bank. The New Bank's operations will be
subject to the same risks.
Certain Lending Risks
Construction Lending Risks. The Bank is an active originator of
construction loans. At December 31, 1997, the Bank had $5.9 million of
construction loans, representing 7.4% of total loans, of which $2.2 million were
speculative construction loans, meaning that at the time the loan was originated
there was no commitment for permanent financing for the finished property.
Construction lending involves greater credit risk than one- to- four family
mortgage lending. Construction loans generally have higher loan balances than
one- to- four family mortgage loans. In addition, the potential for cost
overruns because of the inherent difficulties in estimating construction costs
and, therefore, collateral values and the difficulties and costs associated with
monitoring construction progress, among other things, are major contributing
factors to this greater credit risk. Speculative construction loans have the
added risk that there is not an identified buyer for the completed home when the
loan is originated, with the risk that the builder will have to service the
construction loan debt and finance other carrying costs of the completed
property for an extended time period until a buyer is identified. Furthermore,
the demand for construction loans and the ability of construction loan borrowers
to service their debt depends highly on the state of the general economy,
including market interest rate levels, and the state of the economy of the
Bank's primary market area. A material downturn in economic conditions would be
expected to have a material adverse effect on the credit quality of the
construction loan portfolio, and may require management to reassess the adequacy
of the Bank's allowance for loan losses and to establish additional provisions
for loan losses, which would have a material adverse effect on net income. See
"BUSINESS OF THE BANK --Lending Activities -- Construction Lending" and "--
Allowance for Loan Losses."
Second Home Lending Risks. Vacationers and tourism are major contributors
to the economy of the Bank's primary market area. Accordingly, the Bank
originates one- to- four family mortgage loans secured by second residences. At
December 31, 1997, $3.6 million, or 7.6%, of the Bank's one- to- four family
mortgage loan portfolio was secured by second residences, generally vacation
homes. Lending on second residences is generally considered riskier than lending
on primary residences because borrowers are more likely to default on their
second residence obligations than their primary residence obligations in the
event of financial hardship. See "BUSINESS OF THE BANK -- Lending Activities --
One- to- Four Family Real Estate Lending."
Residential Lot Lending Risks. At December 31, 1997, the Bank had $2.7
million of residential lot loans, representing 3.4% of total loans. Residential
lot loans are generally made to individuals to purchase a residential building
lot on which to build a home.
Residential lot lending entails significant additional risks compared to
residential property lending. The repayment of such loans can be significantly
affected by adverse conditions in the real estate market. Furthermore, in the
event of default and the repossession of the land by the Bank, vacant land is
generally less marketable than improved land with a finished home. To minimize
these risks, the Bank generally limits this type of lending to its market area
and to individuals with above average credit histories. See "BUSINESS OF THE
BANK -- Lending Activities -- Residential Lot Lending."
Commercial Real Estate Lending. At December 31, 1997, the Bank's commercial
real estate loan portfolio amounted to $10.6 million, or 13.3% of total loans.
Commercial real estate lending generally involves greater credit risk than one-
to- four family mortgage lending. Because payments on loans secured by
commercial properties often depend upon the successful operation and management
of the properties, repayment of such loans may be affected
1
<PAGE>
by adverse conditions in the real estate market or the economy, among other
things. See "BUSINESS OF THE BANK -- Lending Activities -- Commercial Real
Estate Lending."
Commercial Business Lending. At December 31, 1997, the Bank's commercial
business loan portfolio amounted to $4.8 million, or 6.0% of total loans.
Furthermore, subject to market conditions and other factors, the New Bank
intends to emphasize commercial business lending activities to small and medium-
sized businesses and professionals within its primary market area. Commercial
business lending generally involves greater credit risk than one- to- four
family mortgage lending. Although commercial business loans are often
collateralized by equipment, inventory, accounts receivable or other business
assets, the liquidation value of these assets in the event of a borrower default
is often an insufficient source of repayment because accounts receivable may be
uncollectible and inventories and equipment may be obsolete or of limited use.
Furthermore, commercial business loans may be unsecured in certain cases. See
"BUSINESS OF THE BANK -- Lending Activities -- Commercial Business Lending."
Consumer Lending Risks. At December 31, 1997, the Bank's consumer loan
portfolio amounted to $9.5 million, or 11.9% of total loans. Consumer lending is
also generally viewed to involve greater credit risk than one-to four-family
mortgage lending. Collateral such as automobiles, boats and other personal
property depreciate rapidly and are often an inadequate repayment source if a
borrower defaults. In addition, consumer loan repayments depend on the
borrower's continuing financial stability and are more likely to be adversely
affected by job loss, divorce, illness, personal bankruptcy and other financial
hardship. See "BUSINESS OF THE BANK -- Lending Activities -- Consumer Lending."
Geographic Concentration of Credit Risk. A substantial portion of the
Bank's loan portfolio is secured by real estate, either as primary or secondary
collateral, located in its primary market area. Recent economic conditions have
been generally favorable in the Bank's market area. However, no assurances can
be given that such favorable economic conditions will continue. Accordingly,
this geographic concentration of credit risk could have a material adverse
effect on the Bank's financial condition and results of operations to the extent
there is a material deterioration in that area's economy and real estate values.
See "BUSINESS OF THE BANK -- Market Area" and "-- Lending Activities."
Interest Rate Risk
Changes in interest rates can have significant effects on the Bank's
profitability. The Bank's ability to make a profit, like that of most financial
institutions, depends largely on its net interest income, which is the
difference between the interest income received from its interest-earning assets
(such as loans and investment securities) and the interest expense incurred in
connection with its interest-bearing liabilities (such as deposits and
borrowing). The Bank's net interest income and the market value of its assets
and liabilities could be significantly affected by changes in interest rates. In
a rising interest rate environment, the Bank anticipates that its net interest
income could be adversely affected as liabilities could reprice to higher market
rates more quickly than assets. In addition, rising interest rates may adversely
affect the Bank's earnings because they may cause a decrease in customer demand
for loans. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- Asset and Liability Management."
Changes in interest rates also can affect the average life of loans and
mortgage-backed securities. During periods of declining interest rates, loans
and mortgage-backed securities prepay faster as loans are prepaid and refinanced
at lower interest rates. During such periods, the Bank generally will not be
able to reinvest the proceeds of any such prepayments at comparable yields.
Conversely, during periods of rising interest rates, the rate of prepayments
generally slows. Moreover, volatility in interest rates also can result in
disintermediation, or the flow of funds away from savings institutions into
direct investments, such as U.S. Government and corporate securities and other
investment vehicles which, because of the absence of federal insurance premiums
and reserve requirements, generally pay higher rates of return than savings
institutions.
2
<PAGE>
No Prior Operating History for the New Bank
The opening of the New Bank is subject to the receipt of final regulatory
approvals from the OCC, the FDIC and the Federal Reserve, none of which have
been received as of the date of this Prospectus. The New Bank has no prior
operating history because it is a new business venture. It is highly likely that
the New Bank will incur operating losses during its early years of operation,
and no assurances can be given as to the ultimate success of its operations. Any
losses incurred by the New Bank will have an adverse effect on the Company's
consolidated results of operations.
Arbitrary Purchase Price
The Purchase Price ($18.00 per share) was determined arbitrarily by the
Company's Board of Directors with the guidance of an independent consulting firm
that assessed current market conditions, the current market value of peer group
institutions and projections for future growth and earnings of the Company
assuming the operations of the New Bank. Because the Purchase Price was
determined arbitrarily, there can be no assurance that the Common Stock may be
resold at or above that price. See "MARKET FOR COMMON STOCK" and "THE OFFERING."
Risks Related to Changes in Economic Conditions
The success of the Company and the Bank will depend, to a certain extent,
upon economic and political conditions, both local and national, as well as
governmental monetary policies. Conditions such as inflation, recession,
unemployment, changes in interest rates, reductions in the money supply and
other factors beyond the control of the Company and the Bank may adversely
affect the Bank's deposit levels and loan demand and, therefore, the earnings of
the Bank and the Company. A decline in the South Carolina economy or in the
economy of the Bank's primary market area could have an adverse effect on the
Bank's business, including the demand for new loans, refinancing activity, the
ability of borrowers to repay outstanding loans and the value of the Bank's
collateral. The Bank could be adversely affected by a decline in economic
conditions or real estate values in its primary service area even if conditions
or values elsewhere in the United States or in South Carolina remain stable or
improve. See "BUSINESS OF THE BANK -- Market Area" and "-- Competition."
Dilution
Purchasers of Common Stock in the Offering will experience immediate and
substantial dilution in net tangible book value per share of the Common Stock.
See "DILUTION."
Absence of Market for Common Stock
The market for the Common Stock is highly illiquid and the Offering is not
expected to materially increase liquidity. The Common Stock is not traded on an
established market but in privately negotiated transactions, and there are no
regularly quoted bid or asked prices for the Common Stock. An investor should
consider the potentially illiquid and long-term nature of an investment in the
Common Stock before making an investment decision. See "MARKET FOR COMMON
STOCK."
Competition
The Bank faces intense competition both in making loans and attracting
deposits. Competition for loans principally comes from commercial banks, savings
associations, credit unions, mortgage banking companies and insurance companies.
Historically, commercial banks, savings associations and credit unions have been
the Bank's most direct competition for deposits. The Bank also competes with
short-term money market funds and with other financial institutions, such as
brokerage firms and insurance companies, for deposits. In competing for loans,
the Bank may be forced to offer lower loan interest rates periodically.
Conversely, in competing for deposits, the Bank
3
<PAGE>
may be forced to offer higher deposit interest rates periodically. Either case
or both cases could adversely affect net interest income. See "BUSINESS OF THE
BANK -- Competition."
Voting Control by Management and Employees
As of the close of business on the Record Date, the Bank's directors and
executive officers and their associates beneficially owned 289,011 shares of
Common Stock, or 37.20% of the total outstanding shares. These persons are
expected to subscribe for approximately 38,512 additional shares in the
Offering. Based on their expected ownership after the Offering and the exercise
of stock options that these individuals have or may receive, these persons could
ultimately control approximately 35.90% of the outstanding shares of the Common
Stock (assuming the sale of 220,000 shares in the Offering and that the shares
issued under the stock option plan are authorized but unissued shares) and could
permit management to benefit from certain statutory and regulatory provisions,
as well as certain provisions in the Company's Articles of Incorporation and
Bylaws, that may tend to promote the continuity of existing management. If these
individuals were to act as a group or in concert with each other, they could
have significant influence over the outcome of any stockholder vote requiring a
majority vote and in the election of directors and could effectively exercise
veto power in matters requiring the approval of stockholders, such as certain
business combinations. Management, therefore, might have the power to authorize
actions that may be viewed as contrary to the best interests of non-affiliated
holders of the common stock and might have veto power over actions that such
holders may deem to be in their best interests. See "ESTIMATED MANAGEMENT
PURCHASES IN THE OFFERING," "MANAGEMENT OF THE COMPANY AND THE BANK -- Executive
Compensation" and "RESTRICTIONS ON ACQUISITION OF THE COMPANY."
Anti-Takeover Provisions and Statutory Provisions That Could Discourage Hostile
Acquisitions of Control
Provisions in the Company's Articles of Incorporation and Bylaws, the
corporation law of South Carolina, and certain federal regulations may make it
difficult and expensive to pursue a tender offer, change in control or takeover
attempt that management opposes. As a result, stockholders who might desire to
participate in such a transaction may not have an opportunity to do so. Such
provisions will also make the removal of the current board of directors or
management of the Company, or the appointment of new directors, more difficult.
These provisions include: limitations on the acquisition of more than 10% of the
Company's common stock; supermajority voting requirements for certain business
combinations; the election of directors to staggered terms of three years; the
elimination of cumulative voting for directors; and the removal of directors
without cause only upon the vote of holders of 80% of the outstanding voting
shares. The Articles of Incorporation also contains provisions regarding the
timing and content of stockholder proposals and nominations and limiting the
calling of special meetings. See "RESTRICTIONS ON ACQUISITION OF THE COMPANY."
Provisions of Employment and Severance Agreements
The employment and severance agreements of senior officers of the Company
and the Bank provide for cash severance payments and/or the continuation of
health, life and disability benefits in the event of their termination of
employment following a change in control of the Company or the Bank. If a change
in control had occurred at December 31, 1997, the aggregate value of the
severance benefits available to these executive officers under the agreements
would have been approximately $632,000. These agreements may have the effect of
increasing the costs of acquiring the Company, thereby discouraging future
attempts to take over the Company or the Bank. For information, see "MANAGEMENT
OF THE COMPANY AND THE BANK -- Executive Compensation."
Risks of Regulation
The Company and the Bank operate in a highly regulated environment and are
subject to supervision by several governmental regulatory agencies, including
the OCC, the FDIC, the Federal Reserve and the SEC. Laws and regulations
currently applicable to the Company and the Bank may change, and there is no
assurance that such changes will not adversely affect the business of the
Company and the Bank. See "REGULATION."
4
<PAGE>
USE OF PROCEEDS
The actual net proceeds of the Offering cannot be determined until after
the completion of the Offering when the actual number of shares sold and the
final offering expenses are known. However, the net proceeds are estimated to
range from $3.1 million to $3.9 million based on the Offering Range and the
Purchase Price. Subject to the receipt of final regulatory approval for the New
Bank top commence business, the Company intends to contribute the net proceeds
to the New Bank to fund its business activities. Initially, the New Bank expects
to invest such funds in short-term U.S. Government and agency securities until
such funds may, subject to market conditions, be invested in loans. See
"PROPOSED BUSINESS OF NEW BANK."
MARKET FOR COMMON STOCK
The market for the Common Stock is highly illiquid and the Offering is not
expected to materially increase liquidity. The Common Stock is not traded on an
established market but in privately negotiated transactions, and there are no
regularly quoted bid or asked prices for the Common Stock. As of the close of
business on the Record Date, the Company had 692,748 shares of Common Stock
issued and outstanding, 656 shareholders of record, and an estimated _____
shareholders holding shares in nominee or "street" name.
The following table sets forth the high and low sales prices of the Common
Stock (adjusted for all stock dividends paid) in trades known to management
during fiscal years 1997 and 1996. Other trades may have occurred during these
periods at prices unknown to management.
Price Per Share
---------------
Quarter Ended High Low
------------- ---- ---
March 31, 1996 $11.26 $11.26
June 30, 1996 11.82 11.82
September 30, 1996 11.82 11.82
December 31, 1996 11.82 11.82
March 31, 1997 11.82 11.82
June 30, 1997 14.00 13.00
September 30, 1997 -- --
December 31, 1997 14.00 14.00
Since December 31, 1997, the last known trade known to management between
unaffiliated parties occurred on February 11, 1998 and involved 425 shares at
$15.00 per share.
DIVIDENDS
Neither the Company nor the Bank (including the Bank's predecessor, The
Savings Bank of Beaufort County, FSB) has ever paid cash dividends, although
stock dividends of 10% were paid in each of fiscal years 1997, 1994 and 1993 and
stock dividends of 5% were paid in each of fiscal years 1988, 1989, 1990, 1991,
1992, 1995 and 1996. In order to support the operations of the Bank and the New
Bank, the Company does not expect to pay cash dividends in the foreseeable
future, but may continue to pay stock dividends subject to the determination of
the Company's Board of Directors and applicable regulatory restrictions. For
information regarding the regulatory restrictions applicable to the payment of
dividends, see "REGULATION -- Regulation of the Bank -- Dividends".
5
<PAGE>
CAPITALIZATION
The following table presents, as of December 31, 1997, the historical
capitalization of the Company, and the pro forma capitalization of the Company
based on the sale of the number of shares of Common Stock at the minimum,
midpoint and maximum of the Offering Range and after deducting estimated
Offering expenses of $100,000. A change in the number of shares to be issued in
the Offering would materially affect pro forma consolidated capitalization.
<TABLE>
<CAPTION>
Holding Company
Pro Forma Consolidated Capitalization
Based Upon the Sale of
-------------------------------------------
180,000 200,000 220,000
Capitalization Shares at Shares at Shares at
as of $18.00 $18.00 $18.00
December 31, 1997 Per Share Per Share Per Share
----------------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Deposits(1)....................... $77,462 $ 77,462 $ 77,462 $ 77,462
New Bank debt(2).................. -- 2,500 2,500 2,500
FHLB advances..................... 5,050 5,050 5,050 5,050
------- -------- -------- --------
Total deposits and
borrowed funds................... $82,512 $ 85,012 $ 85,012 $ 85,012
======= ======== ======== ========
Stockholders' equity:
Preferred stock:
1,000,000 shares, $0.01
par value per share,
authorized; none issued
or outstanding................. $ -- $ -- $ -- $ --
Common Stock:
2,000,000 shares, $0.01
par value per share,
authorized; specified number
of shares assumed to be
issued and outstanding......... 7 9 9 9
Additional paid-in capital...... 6,249 9,387 9,747 10,107
Retained earnings(3)............ 1,740 1,740 1,740 1,740
Less:
Net unrealized losses on
available for sale securities.. (15) (15) (15) (15)
------- -------- -------- --------
Total stockholders' equity........ $ 7,981 $ 11,121 $ 11,481 $ 11,841
======= ======== ======== ========
</TABLE>
(footnotes on following page)
6
<PAGE>
- ---------------
(1) Funds withdrawn from deposit accounts at the Bank to purchase Common Stock
are not reflected and will reduce pro forma deposits by the amount of the
withdrawals.
(2) The Company has received a commitment from a third party bank to borrow up
to $2.5 million. The loan proceeds will be contributed to the New Bank as
part of its initial capitalization. See "BUSINESS OF THE NEW BANK --Initial
Capitalization."
(3) Retained earnings are substantially restricted by applicable regulatory
capital requirements. See "REGULATION -- Regulation of the Bank --
Dividends."
DILUTION
The net tangible book value of the Company as of December 31, 1997 was $7.8
million or $11.32 per share of Common Stock. "Net tangible book value" per share
represents the Company's total tangible assets reduced by its total liabilities
and divided by the number of shares of Common Stock outstanding. After giving
effect to the sale by the Company of 220,000 shares of Common Stock in the
Offering at the Purchase Price of $18.00 per share for estimated net proceeds to
the Company of $3.9 million, the Company's pro forma net tangible book value as
of December 31, 1997 would have been $11.7 million or $12.87 per share. This
represents an immediate increase in net tangible book value of $1.55 per share
to existing shareholders and an immediate dilution of $5.13 per share to new
investors purchasing Common Stock on the Offering, as illustrated in the
following table:
<TABLE>
<S> <C> <C>
Price per share...................................................... $18.00
Net tangible book value per share as of December 31, 1997........... $11.32
Increase attributable to new investors.............................. 1.55
------
Pro forma net tangible book value per share as of December 31, 1997.. 12.87
------
Dilution to new investors............................................ $ 5.13
======
</TABLE>
7
<PAGE>
CAPITAL COMPLIANCE
The following table presents certain capital ratios for the Company at
December 31, 1997, and as adjusted as of such date to give effect to the
issuance and sale of the shares of Common Stock (after giving effect to the
payment of estimated offering expenses) at the Purchase Price. This information
should be read in conjunction with the Consolidated Financial Statements and the
related notes thereto set forth elsewhere herein.
Capital Ratios
------------------------------------------
At Minimum
December 31, As Regulatory
1997 Adjusted(1) Requirement(2)
---- ----------- --------------
Capital Ratios:
Tier 1 capital to risk-weighted
assets......................... 12.1% 17.1% 4.0%
Total capital to risk-weighted
assets(3)...................... 13.3 18.2 8.0
Leverage ratio(4)............... 8.6 12.3 5.0
- ---------------
(1) Based on the issuance of 220,000 shares at the maximum of the Offering Range
at the Purchase Price.
(2) Based on the risk-based capital guidelines of the Federal Reserve, the
Company is required to maintain a Tier 1 capital risk-weighted assets ratio
of 4.00% and a total capital to risk-weighted assets ratio of 8.00%. The
Bank is subject to similar capital requirements also adopted by the OCC. At
December 31, 1997, the Company and the Bank each exceeded their respective
regulatory requirements. See "REGULATION."
(3) Assumes application of a risk-weighting factor of 100% (the average risk-
weighting factor for the Company's total assets at December 31, 1997) to the
net proceeds of the Offering.
(4) The leverage ratio is defined as the ratio of Tier 1 capital to average
total assets.
The Bank's regulatory capital will be unaffected by the Offering because the
net proceeds of the Offering will be contributed to the New Bank. See
"REGULATION -- Regulation of the Bank -- Capital Requirements" for a discussion
of the Bank's compliance with its regulatory capital requirements at December
31, 1997. At December 31, 1997, assuming that 220,000 shares of Common Stock
are issued at the maximum of the Offering Range, the New Bank's pro forma Tier 1
capital ratio would be 17.1%, its pro forma total capital ratio would be 18.2%
and its pro forma leverage ratio would be 12.3%.
8
<PAGE>
FIRSTBANCORPORATION, INC.
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income for the years ended
December 31, 1997 and 1996 have been audited by J.W. Hunt and Company, LLP,
independent auditors, whose report thereon appears elsewhere in this Prospectus.
These statements should be read in conjunction with the Consolidated Financial
Statements and related Notes included elsewhere herein.
Year Ended December 31,
-------------------------
1997 1996
------------ -----------
INTEREST AND DIVIDEND INCOME:
Interest on loans................................... $7,281,594 $6,634,443
Interest on securities available-for-sale.......... 104,175 119,322
Other interest income.............................. 108,765 120,362
Dividends-Federal Reserve Bank and
Federal Home Loan Bank............................ 47,555 45,931
---------- ----------
Total interest and dividend income.............. 7,542,089 6,920,058
---------- ----------
INTEREST EXPENSE:
Deposits........................................... 3,215,938 3,125,187
Federal Home Loan Bank advances.................... 206,747 155,460
---------- ----------
Total interest expense.......................... 3,422,685 3,280,647
---------- ----------
NET INTEREST INCOME................................. 4,119,404 3,639,411
PROVISION FOR LOAN LOSSES........................... 165,000 162,000
---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES.................................... 3,954,404 3,477,411
---------- ----------
NONINTEREST INCOME:
Loan related fees.................................. 210,522 116,180
Other service charges and fees..................... 700,468 577,077
Rental income...................................... 40,915 43,603
---------- ----------
Total noninterest income........................ 951,905 736,860
---------- ----------
NONINTEREST EXPENSES:
Compensation and benefits.......................... 1,735,195 1,553,094
Occupancy.......................................... 291,413 275,314
Insurance.......................................... 93,910 617,948
Furniture and equipment............................ 259,928 234,915
Data processing.................................... 152,042 156,330
Account analysis charges........................... 187,135 119,380
Professional fees.................................. 107,791 115,973
Supplies and printing.............................. 103,144 70,275
Marketing.......................................... 87,393 61,942
Telephone and postage.............................. 119,477 101,552
Automobile......................................... 7,598 8,787
Regulatory fees.................................... 36,158 34,532
Automated teller system............................ 43,232 13,667
Other expenses..................................... 208,878 188,084
Loan origination costs deferred.................... (54,982) (160,831)
---------- ----------
Total noninterest expenses..................... 3,378,312 3,390,962
---------- ----------
INCOME BEFORE INCOME TAXES.......................... 1,527,997 823,309
PROVISION FOR INCOME TAXES:
Federal............................................ 515,705 276,647
State.............................................. 64,934 45,851
---------- ----------
Total........................................... 580,639 322,498
---------- ----------
NET INCOME.......................................... $ 947,358 $ 500,811
========== ==========
Basic earnings per common share:
Weighted average shares outstanding................ 690,285 686,042
========== ==========
Net income per weighted average number of shares
outstanding........................................ $1.37 $0.73
========== ==========
Diluted earnings per common share:
Weighted average shares outstanding................ 735,507 725,813
========== ==========
Net income per weighted average number of shares
outstanding........................................ $1.29 $0.69
========== ==========
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Bank. The information contained in this section
should be read in conjunction with the Consolidated Financial Statements and
accompanying Notes thereto and the other sections contained in this Prospectus.
Operating Strategy
The Bank is a community bank whose principal business is attracting
deposits from the general public and using those funds to originate loans
secured by real estate, including construction loans, located in its primary
market area of Beaufort County (excluding Hilton Head Island), South Carolina.
To a lesser extent, the Bank also originates residential lot loans, commercial
real estate loans and consumer loans. The Bank also invests in U.S. Government
and agency securities. The Bank intends to continue to fund its assets
primarily with retail deposits, although FHLB-Atlanta advances may be used as a
supplemental source of funds. See "BUSINESS OF THE BANK."
The Bank's profitability depends primarily on its net interest income,
which is the difference between the income it receives on its loan and
investment portfolio and its cost of funds, which consists of interest paid on
deposits and borrowings. Net interest income is also affected by the relative
amounts of interest-earning assets and interest-bearing liabilities. When
interest-earning assets equal or exceed interest-bearing liabilities, any
positive interest rate spread will generate net interest income. The Bank's
profitability is also affected by the level of other operating income and
expenses. Other operating income includes service charges and fees, gain on
sale of mortgage loans and gain on sale of investments. Other operating
expenses primarily include compensation and benefits, occupancy and equipment
expenses, deposit insurance premiums and data processing expenses. The Bank's
results of operations are also significantly affected by general economic and
competitive conditions, particularly changes in market interest rates,
government legislation and regulation and monetary and fiscal policies.
The Bank's business strategy is to operate as a well-capitalized,
profitable and independent financial institution dedicated to financing
community credit needs and providing quality customer service. The Bank
emphasizes the origination for retention in its portfolio of adjustable-rate
loans in order to reduce its interest rate risk. Fixed-rate loans with
maturities of 15 years or more are generally originated for sale in the
secondary market.
Asset and Liability Management
The Bank's asset and liability management program is designed to decrease
the Bank's vulnerability to material changes in interest rates or "interest rate
risk." The principal determinant of the exposure of the Bank's earnings to
interest rate risk is the timing difference between the repricing or maturity of
the Bank's interest-earning assets and the repricing or maturity of its
interest-bearing liabilities. If the maturities or repricings of the Bank's
assets and liabilities were perfectly matched, and if the interest rate borne by
its assets and liabilities were equally flexible and moved concurrently (neither
of which is the case) the impact on net interest income of any material changes
in interest rates would be minimal.
The Bank's asset and liability policies are directed toward the objectives
of maintaining the interest rate sensitivity of the Bank's assets and matching
the maturities of the Bank's interest-earning assets and interest-bearing
liabilities to the extent practical. At December 31, 1997, the Bank's total
interest-bearing liabilities due within one year exceeded interest-earning
assets due within one year by approximately $17.1 million, resulting in a
cumulative one-year negative gap to total earning assets ratio of 18.65%. The
Bank is constantly monitoring and attempting to control or improve its short-
term gap position through periodic review of asset and liability repricing and
through its internal analysis of the effects of changing rate environments on
its net interest income.
10
<PAGE>
A significant part of the Bank's program of asset and liability management
has been to emphasize the origination of adjustable rate and/or short-term
loans, which includes adjustable rate residential mortgage ("ARM") loans and
short-term construction loans. At December 31, 1997, residential real estate
mortgage loans that provided for repayment or interest-rate adjustment within
three years totaled approximately $38.9 million, and represented approximately
48.1% of total loans receivable. The Bank sells in the secondary market almost
all of the 15 to 30 year fixed-rate mortgage loans it originates. Generally, a
commitment to sell such loans, subject to approval, is in place at the time of
origination of these loans. The Bank generally holds such loans in its
portfolio only for the length of time it takes to receive funding from the
purchaser of the loan. In fiscal 1997, the Bank originated approximately $9.2
million of ARM loans versus $13.4 million of fixed rate loans. ARM loans are
generally originated for retention in the portfolio. In fiscal 1997, the Bank
advanced approximately $13.4 million against approved construction loan lines,
which are usually for a term of less than one year and indexed to the prime
rate. When long-term rates decline, residential mortgage demand typically favors
fixed-rate lending. Should a lower long-term rate environment such as this
occur, the Bank would have more difficulty in maintaining the level of its
current portfolio of ARM loans because of the potential for increased
refinancings.
Another strategic objective of the Bank's asset and liability management
effort has been to originate short-term consumer and commercial business loans.
These loans are usually originated with variable interest rates. At December
31, 1997, consumer loans totaled $9.5 million, or approximately 11.9% of total
loans, and commercial business loans totaled $4.8 million, or 6.0% of total
loans. Consumer and commercial loans are considered to involve greater credit
risk than residential loans. See "RISK FACTORS -- Certain Lending Risks" and
"BUSINESS OF THE BANK -- Lending Activities."
The Bank's objective is to increase its retail deposit base by promoting
the growth of transaction accounts and by maintaining competitive rates in order
to retain and attract longer-term certificates of deposit. During fiscal 1996
the Bank started its "Privilege Plus" campaign designed to attract transaction
accounts. As of December 31, 1997, the Bank's total Now, Money Market and non
interest-bearing demand deposit accounts totaled $34.6 million or 44.7% of total
deposits at that date.
11
<PAGE>
The following table presents the Bank's interest sensitivity gap between
interest-earning assets and interest-bearing liabilities at December 31, 1997.
<TABLE>
<CAPTION>
0-3 4-12 1-2 3-4 Over 5
Months Months Years Years Years Total
-------- -------- ------- -------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans.................................... $ 21,248 $ 25,666 $20,660 $ 6,143 $ 7,751 $81,468
GNMA mortgage-backed securities.......... -- 1,405 -- -- -- 1,405
Overnight and other investments.......... 2,715 -- -- -- 130 2,845
-------- -------- ------- -------- ------- -------
Total interest earning assets.......... 23,963 27,071 20,660 6,143 7,881 85,718
Interest-bearing liabilities:
Regular savings.......................... 5,176 -- -- -- -- 5,176
NOW and money market accounts............ 27,933 -- -- -- -- 27,933
Certificate accounts..................... 11,215 19,165 7,092 206 -- 37,678
FHLB borrowing........................... 4,650 -- 400 -- -- 5,050
-------- -------- ------- -------- ------- -------
Total rate sensitive liabilities........ 48,974 19,165 7,492 206 -- 75,837
-------- -------- ------- -------- ------- -------
Excess (deficiency) of interest
sensitive assets over interest
sensitive liabilities.................... $(25,011) $ 7,906 $13,168 $ 5,937 $ 7,881 $ 9,881
======== ======== ======= ======== ======= =======
Cumulative excess (deficiency)
of interest sensitive assets over
interest sensitive liabilities........... $(25,011) $(17,105) $(3,937) $ 2,000 $ 9,881
======== ======== ======= ======== =======
Ratio of interest-sensitive assets
to interest-sensitive liabilities........ 48.9% 141.3% 275.8% 2,982.0% N/A
Cumulative ratio of interest-earning
assets to interest-bearing liabilities.. 48.9% 74.9% 94.8% 102.6% 113.0%
</TABLE>
The following table sets forth certain information relating to the Bank's
earning assets and interest-bearing liabilities which are estimated to mature or
are scheduled to reprice within one year.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1997 1996
------------ -----------
(In thousands)
<S> <C> <C>
Earning assets maturing or
repricing within one year......................... $ 51,034 $ 50,394
Interest-bearing liabilities maturing
or repricing within one year...................... 68,139 66,161
Deficiency of earning assets over interest-
bearing liabilities as a percent of total assets.. (18.65)% (18.48)%
Percent of assets to liabilities maturing
or repricing within one year...................... 74.90% 76.17%
</TABLE>
12
<PAGE>
Average Balances, Interest and Average Yields/Cost
The following table sets forth, for the periods indicated, information
regarding average balances of assets and liabilities as well as the total dollar
amounts of interest income from average interest-earning assets and interest
expense on average interest-bearing liabilities, resultant yields, interest rate
spread, net interest margin, and ratio of average interest-earning assets to
average interest-bearing liabilities. Average balances for a period have been
calculated using average daily balances during such period.
<TABLE>
<CAPTION>
Year Ended December 31,
At ---------------------------------------------------------
December 31, 1997 1996
1997 ---------------------------- ---------------------------
------------ Interest Interest
Yield/ Average and Yield/ Average and Yield/
Cost Balance Dividends Cost Balance Dividends Cost
---- ------- --------- ---- ------- --------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Total net loans(1)............................ 8.85% $81,221 $7,282 8.97% $77,610 $6,634 8.55%
FHLB overnight investments.................... 6.25 1,815 101 5.56 1,862 108 5.80
Interest-bearing time deposits
with other banks........................... 4.68 135 7 5.19 199 11 5.53
Other investments............................. 6.34 2,350 152 6.47 2,539 167 6.58
---- ------- ------ ---- ------- ------ ----
Total interest-earning assets.............. 8.69 85,521 7,542 8.82 82,210 6,920 8.42
Non-interest-earning assets................... 5,662 5,534
------- -------
Total assets............................... $91,183 $87,744
======= =======
Interest-bearing liabilities:
NOW and money market accounts................. 2.67 $27,479 818 2.98 $25,462 719 2.82%
Other savings................................. 2.33 5,479 126 2.30 6,457 152 2.35
Certificates of deposit....................... 5.90 38,847 2,272 5.83 38,879 2,255 5.80
---- ------- ------ ---- ------- ------ ----
Total interest-bearing deposits............. 4.37 71,805 3,216 4.47 70,798 3,126 4.42
FHLB advances................................. 6.54 3,429 207 6.03 2,650 155 5.85
---- ------- ------ ---- ------- ------ ----
Total interest-bearing liabilities.......... 4.51 75,234 3,423 4.55 73,448 3,281 4.47
Non-interest-bearing liabilities:
Non-interest-bearing deposits................. 6,441 6,289
Other liabilities............................. 2,065 1,246
------- -------
Total liabilities........................... 83,740 80,983
Stockholders' equity........................... 7,443 6,761
------- -------
Total liabilities and stockholders' equity.. 91,183 87,744
Net interest income............................ $4,119 $3,639
====== ======
Interest rate spread........................... 4.18% 4.27% 3.95%
==== ==== ====
Net interest margin............................ 4.82% 4.43%
==== ====
Ratio of average interest-earning
assets to average interest-
bearing liabilities........................... 1.14x 1.12x
==== ====
- -------------------
</TABLE>
(1) Does not include interest on non-accrual loans.
13
<PAGE>
Rate/Volume Analysis
The following table sets forth the effects of changing rates and volumes on
net interest income of the Bank. Information is provided with respect to (i)
effects on net interest income attributable to changes in volume (changes in
volume multiplied by prior rate); (ii) effects on net interest income
attributable to changes in rate (changes in rate multiplied by prior volume)and
(iii) the net change (the sum of the prior columns). The changes attributable to
changes in both rate and volume are allocated proportionately to the changes in
rate and the changes in volume.
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December 31,
1997 1996
Compared to December Compared to December
31, 1996 31, 1995
Increase (Decrease) Increase (Decrease)
Due to Due to
------------------------ ------------------------
Rate Volume Net Rate Volume Net
---- ------ --- ---- ------ ---
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1)....... $332 $316 $648 $107 $514 $621
FHLB overnight investments (4) (3) (7) (26) 31 5
Time deposits in other
banks.................... (1) (3) (4) (1) -- (1)
Investments............... (3) (12) (15) 16 (17) (1)
---- ---- ---- ---- ---- ----
Total interest income... 324 298 622 96 528 624
Interest-bearing
liabilities:
Interest-bearing NOW and
MMA accounts............. 40 59 99 16 61 77
Other savings............. (3) (23) (26) (21) (55) (76)
Certificates of deposit... 19 (2) 17 (67) 233 166
Short-term borrowing...... 4 40 44 (12) (18) (30)
Long-term borrowing....... 2 6 8 -- 38 38
---- ---- ---- ---- ---- ----
Total interest expense... 62 80 142 (84) 259 175
---- ---- ---- ---- ---- ----
Net interest income........ $262 $218 $480 $180 $269 $449
==== ==== ==== ==== ==== ====
- ---------------
</TABLE>
(1) Does not include interest on non-accrual loans.
14
<PAGE>
Yields Earned and Rates Paid
The following table sets forth, at the date and for the periods indicated,
the weighted average yields earned on the Bank's assets and the weighted average
interest rates paid on the Bank's liabilities, together with the net yield on
interest-earning assets.
<TABLE>
<CAPTION>
At Year Ended December 31,
December 31, -------------------------
1997 1997 1996
------------- ---- ----
<S> <C> <C> <C>
Weighted average yield earned on:
Total net loans...................... 8.85% 8.97% 8.55%
FHLB overnight investments........... 6.25 5.56 5.80
Interest bearing time deposits
with other banks.................... 4.68 5.19 5.53
Other investments.................... 6.34 6.47 6.58
All interest-earning assets.......... 8.69 8.82 8.42
Weighted average rate paid on:
NOW and money market accounts........ 2.67 2.98 2.82
Other savings........................ 2.33 2.30 2.35
Certificates of deposit.............. 5.90 5.83 5.80
FHLB advances........................ 6.54 6.03 5.85
All interest-bearing liabilities..... 4.51 4.55 4.47
Interest rate spread (spread between
weighted average rate on all
interest-earning assets and all
interest-bearing liabilities)..... 4.18 4.27 3.95
Net interest margin (net interest
income (expense) as a percentage of
average interest-earning assets).... N/A 4.82 4.43
</TABLE>
Comparison of Financial Condition at December 31, 1997 and 1996
Total assets remained unchanged at $91.7 million at December 31, 1997 and
1996. Loans receivable, net, increased 2.6% from $78.1 million at December 31,
1996 to $80.1 million at December 31, 1997. This increase was funded by cash and
cash equivalents and proceeds from maturing securities available-for-sale. Cash
and cash equivalents decreased from $7.9 million at December 31, 1996 to $6.1
million at December 31, 1997, while securities available-for-sale decreased from
$2.5 million at December 31, 1996 to $2.2 million at December 31, 1997. Premises
and equipment, net, increased from $1.1 million at December 31, 1996 to $1.3
million at December 31, 1997 as a result of the purchase of computer hardware as
part of the Bank's upgrade of network computer equipment and upgrades in data
processing systems. Total deposits decreased 1.0% from $78.3 million at December
31, 1996 to $77.5 million at December 31, 1997 primarily as a result of a 4.1%
decrease in time deposits from $39.3 million at December 31, 1996 to $37.7
million at December 31, 1996. Management attributes the decrease in time
deposits to increased competition for funds, particularly from securities
brokerage firms and mutual funds in light of the relatively higher investment
return opportunities offered by the stock market. Total stockholders' equity
increased 14.3% from $7.0 million at December 31, 1996 to $8.0 million at
December 31, 1997 as a result of retained net income.
15
<PAGE>
Comparison of Operations for the Fiscal Years Ended December 31, 1997 and 1996
Net Income. Net income increased 89.0% from $501,000 in 1996 ($0.73 per
basic earnings per common share and $0.69 per share on a diluted basis) to
$947,000 in 1997 ($1.37 per basic earnings per common share and $1.29 per share
on a diluted basis) primarily as a result of a 13.9% increase in net interest
income from $3.6 million in 1996 to $4.1 million in 1997.
Net Interest Income. Net interest income increased 13.9% from $3.6 million
in 1996 to $4.1 million in 1997. The Bank's interest rate spread increased from
3.94% in 1996 to 4.27% in 1997 as the average yield on interest-earning assets
increased from 8.42% in 1996 to 8.82% in 1997 while the average rate paid on
interest-bearing liabilities only increased from 4.47% in 1996 to 4.55% in 1997.
Total interest and dividend income increased 8.7% from $6.9 million in 1996
to $7.5 million in 1997. Interest and fees on loans increased from $6.6 million
in 1996 to $7.3 million in 1997 because of the combined effect of an increase in
the average balance of loans from $77.6 million in 1996 to $81.2 million in 1997
and an increase in the average yield on loans from 8.55% in 1996 to 8.97% in
1997. The growth in interest income on loans was offset by a reduction in both
interest on securities available-for-sale and other interest income (FHLB
overnight deposits) as the Bank reduced the average balance of these investments
to fund loan demand.
Total interest expense increased 3.0% from $3.3 million in 1996 to $3.4
million in 1997. The average balance of interest-bearing liabilities increased
from $73.4 million in 1996 to $75.2 million in 1997 and the average rate paid on
interest-bearing liabilities increased from 4.47% in 1996 to 4.55% in 1997.
Provision for Loan Losses. Provisions for loan losses are charges to
earnings to bring the total allowance for loan losses to a level considered
adequate by management to provide for probable known and inherent loan losses
based on management's evaluation of the collectibility of the loan portfolio. In
determining the adequacy of the allowance for loan losses, management considers
past loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect a borrower's ability to repay, the estimated value of
any underlying collateral, and current economic conditions. Although management
uses the best information available, future adjustments to the allowance may be
necessary as a result of changes in economic, operating, regulatory and other
conditions that may be beyond the Bank's control. While the Bank maintains its
allowance for loan losses at a level that management considers as adequate to
provide for probable known and inherent losses, there can be no assurance that
further additions will not be made to the allowance for loan losses or that
actual losses will not exceed the estimated amounts. See "BUSINESS OF THE
BANK -- Lending Activities -- Allowance for Loan Losses."
The provision for loan losses was relatively unchanged and was $162,000 in
1996 and $165,000 in 1997. At December 31, 1997, the Bank's allowance for loan
losses to total loans was 0.90%.
Noninterest Income. Total noninterest income increased 29.2% from $737,000
in 1996 to $952,000 in 1997 primarily as a result of a higher level of loan
related fees attributable to higher loan volume and a higher level of other
service charges and fees attributable to larger numbers of transaction deposit
accounts.
Noninterest Expenses. Total noninterest expenses were $3.4 million in both
1997 and 1996. Insurance expense was $618,000 in 1996 compared to $94,000 in
1997 as a result of the one-time, industry-wide special SAIF assessment paid in
1996, which for the Bank was $475,000. As a result of the SAIF recapitalization,
the FDIC substantially reduced deposit insurance premiums. Since January 1,
1997, the Bank has paid deposit insurance premiums at the rate of $0.065 per
$100 of deposits as opposed to $0.23 per $100 of deposits before the SAIF
recapitalization. Furniture and equipment expense increased from $235,000 in
1996 to $260,000 in 1997 as a result of the write-off of obsolete computer
equipment and the depreciation on new equipment. Supplies and printing expense
increased from $70,000 in 1996 to $103,000 in 1997 as a result of supplies for
the conversion to an in-house data processing system and increased check
printing expense. Automated teller machine expense increased from $14,000 in
1996 to $43,000 in 1997 as a result of a full year of expense associated with
the Bank's sole automated
16
<PAGE>
teller machine in the Bluffton branch office. The increases in the other
categories of noninterest expenses are primarily attributable to general
inflationary increases.
Provision for Income Taxes. The Company pays Federal corporate income
taxes and South Carolina bank taxes. The provision for income taxes increased
from $322,000 in 1996 to $581,000 in 1997 as a result of higher income before
income taxes. The effective tax rate was 39.2% in 1996 and 38.0% in 1997.
Liquidity and Capital Resources
The Bank's primary sources of funds are customer deposits, proceeds from
principal and interest payments on and the sale of loans, maturing securities
and FHLB advances. While maturities and scheduled amortization of loans are a
predictable source of funds, deposit flows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions and competition.
National banks are not subject to any prescribed regulatory liquidity
requirements. However, the Bank must maintain an adequate liquidity to ensure
that funds are available to fund loan originations and deposit withdrawals, to
satisfy other financial commitments and to take advantage of investment
opportunities. The Bank generally maintains sufficient cash and short-term
investments to meet short-term liquidity needs. At December 31, 1997, the Bank
had cash and cash equivalents of $6.1 million, interest-bearing time deposits
with banks of $99,000, and marketable securities available-for-sale of $1.4
million. At December 31, 1997, the Bank also maintained an uncommitted credit
facility with the FHLB-Atlanta, which provided for immediately available
advances up to an aggregate amount of $11.0 million, of which $5.1 million was
outstanding.
The Bank's primary investing activity is the origination of permanent
mortgage loans. During the years ended December 31, 1997 and 1996, the Bank
originated $28.0 million and $25.1 million of such loans, respectively. At
December 31, 1997, the Bank had loan commitments totalling $3.4 million, unused
lines of credit of $10.3 million and standby letters of credit totalling
$288,000. The Bank anticipates that it will have sufficient funds available to
meet current loan commitments. Certificates of deposit that are scheduled to
mature in less than one year from December 31, 1997 totalled $30.4 million.
Historically, the Bank has been able to retain a significant amount of its
deposits as they mature.
OCC regulations require the Bank to maintain specific amounts of regulatory
capital. As of December 31, 1997, the Bank complied with all regulatory capital
requirements as of that date with a Tier 1 leverage capital ratio of 8.6% of
adjusted total assets and a total capital ratio of 13.1% of total risk weighted
assets. For a detailed discussion of regulatory capital requirements, see
"REGULATION -- Regulation of the Bank -- Capital Requirements."
Impact of Accounting Pronouncements and Regulatory Policies
Accounting by Creditors for Impairment of a Loan. See Note 5 of Notes to
Consolidated Financial Statements for a discussion of Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment
of a Loan" and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures." The Bank adopted SFAS No. 114 and SFAS No.
118 effective January 1, 1995, and their adoption did not have a material effect
on the Bank's financial condition or results of operations.
Disclosure of Certain Significant Risks and Uncertainties. In December 1994
the Accounting Standards Executive Committee issued Statement of Position
("SOP") 94-6, "Disclosure of Certain Significant Risks and Uncertainties." SOP
94-6 applies to financial statements prepared in conformity with generally
accepted accounting principles ("GAAP") by all nongovernmental entities. The
disclosure requirements in SOP 94-6 focus primarily on risks and uncertainties
that could significantly affect the amounts reported in the financial statements
in the near-term functioning of the reporting entity. The risks and
uncertainties discussed in SOP 94-6 stem from the nature of the entity's
operations, from the necessary use of estimates in the preparation of the
entity's financial statements and
17
<PAGE>
from significant concentrations in certain aspects of the entity's operations.
SOP 94-6 is effective for financial statements issued for fiscal years ending
after December 15, 1995 and did not have a material impact on the financial
condition or results of operations of the Bank.
Accounting for Stock-Based Compensation. SFAS No. 123, "Accounting for
Stock-Based Compensation," establishes financial accounting and reporting
standards for stock-based employee compensation plans. This statement encourages
all entities to adopt a new method of accounting to measure compensation cost of
all employee stock compensation plans based on the estimated fair value of the
award at the date it is granted. Companies are, however, allowed to continue to
measure compensation cost for those plans using the intrinsic value based method
of accounting, which generally does not result in compensation expense
recognition for most plans. Companies that elect to remain with the existing
accounting method are required to disclose in a footnote to the financial
statements pro forma net income and, if presented, earnings per share, as if
this statement had been adopted. The accounting requirements of this statement
are effective for transactions entered into in fiscal years that begin after
December 15, 1995; however, companies are required to disclose information for
awards granted in their first fiscal year beginning after December 15, 1994.
Earnings Per Share. SFAS No. 128, "Earnings Per Share," issued in February
1997, establishes standards for computing and presenting earnings per share
("EPS") and applies to entities with publicly-held common stock or potential
common stock. It replaces the presentation of primary EPS with a presentation of
basic EPS and requires the dual presentation of basic and diluted EPS on the
face of the income statement. This statement is effective for financial
statements issued for periods ending after December 15, 1997 including interim
periods; earlier applications not permitted. This statement requires restatement
of all prior period EPS data presented. The adoption of the provisions of SFAS
No. 128 is not expected to have a material impact on the Bank.
Disclosure of Information About Capital Structure. SFAS No. 129,
"Disclosure of Information About Capital Structure," establishes standards for
disclosing information about an entity's capital structure and applies to all
entities. SFAS No. 129 continues the previous requirements to disclose certain
information about an entity's capital structure found in Accounting Principles
Board ("APB") Opinions No. 10, "Omnibus Opinion - 1966," and No. 15, "Earnings
Per Share," and SFAS No. 47, "Disclosure of Long-Term Obligations," for entities
that were subject to those standards. SFAS No. 129 is effective for financial
statements for periods ending after December 15, 1997. SFAS No. 129 contains no
change in disclosure requirements for entities that were previously subject to
the requirements of APB Opinions Nos. 10 and 15 and SFAS No. 47. The adoption of
the provisions of SFAS No. 129 is not expected to have a material impact on the
Bank.
Comprehensive Income. SFAS No. 130, "Reporting Comprehensive Income,"
issued in July 1997, establishes standards for reporting and presentation of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. It requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
presented with the same prominence as other financial statements. SFAS No. 130
requires that companies (i) classify items of other comprehensive income by
their nature in a financial statement and (ii) display the accumulated balance
of other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the statement of financial condition.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comprehensive purposes is required.
Disclosure About Segments. SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information," issued in June 1997, establishes standards
for disclosure about operating segments in annual financial statements and
selected information in interim financial reports. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise." SFAS No. 131 becomes effective for the
Bank's fiscal year ending December 31, 1998, and requires that comparative
information from earlier years be restated to conform
18
<PAGE>
to its requirements. The adoption of the provisions of SFAS No. 131 is not
expected to have a material impact on the Bank.
Year 2000 Compliance
Because the Bank's business depends heavily upon computers, failure of the
Bank's computer systems, or the computer systems of other entities to which the
Bank's computers are linked or on which the Bank's computer systems depend, to
operate properly after December 31, 1999, would have a material adverse effect
on the Bank. Although the Bank has prepared a plan for addressing Year 2000
compliance issues and believes that its computer systems will not experience any
significant problems with the changeover to the Year 2000, the Bank has not yet
completed systems testing for compliance. Furthermore, the Bank has not yet
received confirmation from all of the other entities with which its systems are
linked or upon which its systems depend that such entities do not expect to
encounter material compliance problems. In addition, computer problems
experienced by the Bank's customers and others could cause economic disruptions
that would materially and adversely affect the Bank. Therefore, there can be no
assurance that the Bank will not experience Year 2000 compliance problems, or
that such problems, if experienced, will not have a material adverse effect on
the Bank.
Effect of Inflation and Changing Prices
The consolidated financial statements and related financial data presented
herein have been prepared in accordance with GAAP, which require the measurement
of financial position and operating results in terms of historical dollars
without considering the change in the relative purchasing power of money over
time due to inflation. The primary impact of inflation is reflected in the
increased cost of the Bank's operations. Unlike most industrial companies,
virtually all the assets and 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 do general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services.
BUSINESS OF THE COMPANY
The Company is a bank holding company registered under the BHCA and
regulated by the Federal Reserve. Currently, the Bank is the Company's only
wholly-owned subsidiary and the current business of the Company has consisted
primarily of directing the affairs of the Bank. Upon the formation of the New
Bank, the New Bank will also be a wholly-owned subsidiary of the Company and the
Company's business will then also consist of directing the affairs of the New
Bank. In the future, the Company may acquire or organize other operating
subsidiaries in addition to the New Bank, although there are no current plans,
arrangements, agreements or understandings, written or oral, to do so.
The Company uses the premises, furniture and equipment of the Bank to
conduct its operations. The Company has entered into a lease for the New Bank's
premises in Columbia, South Carolina. See "BUSINESS OF THE NEW BANK --
Properties."
To date, the Company has confronted the same competition confronted by the
Bank because the Company's primary business has been holding the outstanding
capital stock of the Bank. See "BUSINESS OF THE BANK --Competition." However,
the Company will confront additional competition when it becomes the holder of
all of the New Bank's outstanding capital stock. See "BUSINESS OF THE NEW BANK--
Competition."
19
<PAGE>
BUSINESS OF THE BANK
General
The Bank is a national bank regulated by the OCC. The Bank is the successor
to The Savings Bank of Beaufort County, FSB, a federally-chartered stock savings
bank that was formed as a de novo institution in 1986 and that converted to a
national bank charter on June 5, 1995. The Bank reorganized as a wholly-owned
subsidiary of the Company on November 1, 1995.
The Bank operates, and intends to continue to operate, as a community bank
devoted to serving the personal banking needs of residents of its primary market
area, as well as the commercial banking needs of small businesses owned and
operated by those residents. The Bank's business primarily consists of
attracting deposits from the general public and using these funds to originate
loans secured by real estate, including construction loans, located in its
primary market area. To a lesser extent, the Bank also originates commercial
real estate loans and consumer loans. The Bank conducts its business from its
main office located in downtown Beaufort, South Carolina, a full service branch
office located on Lady's Island in Beaufort, South Carolina, and a full service
branch office located in Bluffton, South Carolina. See "-- Properties."
Market Area
The Bank's primary market area is Beaufort County, South Carolina,
excluding Hilton Head Island. The economy of this area depends heavily on
services catering to the retirement and tourism industries. The area is noted
for its beaches, state park, historical sites and fishing. The U.S. military
presence in Beaufort County is significant with the Marine Corps Recruit Depot
at Parris Island and the Marine Corps Air Station and the Naval Hospital, both
in Beaufort. Currently, these military installations are not expected to be
closed as a result of the findings and recommendations of the U.S. Defense
Department Base Closure Study; however, future military realignments could have
material adverse effect on the local economy.
Land use in Beaufort County in primarily residential. Beaufort County is
experiencing steady population growth, which creates a continued demand for
mortgage loan funds. According to the 1990 Census, the population of Beaufort
County has increased from approximately 65,000 in 1980 to 86,000 in 1990. In
March 1997, the U.S. Census Bureau estimated the 1996 Beaufort County population
at 103,000.
The financial condition and operations of the Bank depend heavily on the
state of the economy of Beaufort County. No assurances can be given regarding
the future state of the economy. See "RISK FACTORS -- Risks Related to Changes
in Economic Conditions."
The Bank faces strong competition from many financial institutions
operating in Beaufort County for deposits and loan originations. See "--
Competition."
Lending Activities
General. At December 31, 1997, the Bank's total loans receivable, net, was
$80.1 million, or 87.3% of total assets. The Bank has traditionally concentrated
its lending activities on the origination of conventional first mortgage loans
secured by one- to- four family properties, with such loans amounting to $47.2
million, or 58.9% of the total loans receivable portfolio at December 31, 1997.
20
<PAGE>
Loan Portfolio Analysis. The following table sets forth the composition of
the Bank's loan portfolio (excluding loans held-for-sale) as of the dates
indicated.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------
1997 1996
------------------ ------------------
Amount Percent Amount Percent
-------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage loans:
One- to- four family.......... $47,188 58.9% $48,680 62.3%
Lot loans..................... 2,686 3.4 2,721 3.5
Commercial real estate........ 10,649 13.3 9,490 12.1
Construction.................. 5,949 7.4 6,183 7.9
------- ----- ------- -----
Total mortgage loans......... 66,472 83.0 67,074 85.8
Other loans:
Open-ended home equity........ 5,851 7.3 5,059 6.5
Other installment loans....... 3,676 4.6 3,659 4.7
Commercial loans.............. 4,793 6.0 2,988 3.8
------- ----- ------- -----
Total other loans............ 14,320 17.9 11,706 15.0
------- ----- ------- -----
Total loans.................. $80,792 100.9 $78,780 100.8
Less:
Allowance for loan losses..... $ (728) (0.9) $ (630) (0.8)
------- ----- ------- -----
Total loans receivable, net.. $80,064 100.0% $78,150 100.0%
======= ===== ======= =====
</TABLE>
One- to- Four Family Real Estate Lending. Primarily as a result of the Bank
being the successor to a thrift institution (The Savings Bank of Beaufort
County, FSB) and the demand for real estate loans in its primary market area,
the Bank has concentrated its lending activities on the origination of loans
secured by first mortgage loans on existing one- to- four family residences
located in its primary market area.
The Bank offers both fixed-rate one- to- four family mortgage loans and ARM
loans using documentation approved by the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). Fixed-rate
loans are offered for a term between 15 and 30 years and are generally sold to
the FHLMC or private investors, primarily other financial institutions. See "--
Loan Originations, Sales and Purchases." At December 31, 1997, fixed rate
one-to-four family mortgage loans with maturities between seven and 30 years
amounted to $6.4 million or 8.1% of the one- to- four family mortgage loan
portfolio.
The Bank offers ARM loans at rates and terms competitive with market
conditions. At December 31, 1997, $30.7 million, or 38.3%, of the Bank's total
loan portfolio consisted of ARM loans. ARM loans are retained primarily for the
Bank's portfolio. Currently, the Bank originates ARM loans with interest rates
that adjust annually based on the one-year or three-year U.S. Treasury security
constant maturity index after a fixed rate of interest that is charged for the
initial three year term. ARM loans are generally subject to an annual interest
rate adjustment limit of 2.0% and a lifetime interest rate adjustment limit of
6.0%. ARM loans are typically based on a 30-year amortization schedule. The Bank
qualifies the borrowers on its ARM loans based on the current market interest
rate. The Bank's ARM loans do not provide for negative amortization.
Borrower demand for ARM loans versus fixed-rate mortgage loans is a
function of the level of interest rates, the expectations of changes in the
level of interest rates and the difference between the initial interest rates
and fees charged for each type of loan. The relative amount of fixed-rate
mortgage loans and ARM loans that can be originated at any time is largely
determined by the demand for each in a competitive environment.
21
<PAGE>
The retention of ARM loans in the Bank's loan portfolio helps reduce the
Bank's exposure to changes in interest rates. There are, however, unquantifiable
credit risks resulting from the potential of increased costs due to changed
rates to be paid by the customer. It is possible that during periods of rising
interest rates the risk of default on ARM loans may increase as a result of
repricing and the increased payments required by the borrower. See "RISK
FACTORS -- Interest Rate Risk." In addition, although ARM loans allow the Bank
to increase the sensitivity of its asset base to changes in the interest rates,
the extent of this interest sensitivity is limited by the annual and lifetime
interest rate adjustment limits. Because of these considerations, the Bank has
no assurance that yields on ARM loans will be sufficient to offset increases in
the Bank's cost of funds. The Bank believes these risks, which have not had a
material adverse effect on the Bank to date, generally are less than the risks
associated with holding fixed-rate loans in portfolio during an increasing
interest rate environment.
Fixed-rate loans and ARM loans customarily include "due on sale" clauses,
which give the Bank the right to declare a loan immediately due and payable in
the event the borrower sells or otherwise disposes of the real property subject
to the mortgage and the loan is not paid.
The Bank generally requires title insurance to assure the status of its
lien on all loans where real estate is the primary collateral. The Bank also
requires that fire and casualty insurance (and, if appropriate, flood, wind,
storm and hail insurance) be maintained in an amount at least equal to the
outstanding loan balance.
One- to- four family residential mortgage loans typically do not exceed 80%
of the appraised value of the security property. The Bank requires private
mortgage insurance on the loan amount in excess of 80% of the appraised value of
the security property. Appraisals are generally performed by certified
independent appraiser.
At December 31, 1997, $3.6 million, or 7.6%, of the Bank's one- to- four
family mortgage loan portfolio was secured by second residences, generally
vacation homes. Lending on second residences is generally considered riskier
than lending on primary residences because borrowers are more likely to default
on their second residence obligations than their primary residence obligations
in the event of financial hardship. See "RISK FACTORS --Certain Lending Risks --
Second Home Lending."
Residential Lot Lending. At December 31, 1997, loans secured by first
mortgages on residential building lots amounted to $2.7 million, or 3.4% total
loans. Such loans enable the borrower to purchase real estate on which to build
a future home and are generally made with loan-to-value ratios of up to 80%.
Residential lot loans are generally made on an amortizing basis with maturities
of five years or less or on an interest-only basis for one year or less. The
Bank may renew a lot loan under then market interest rate terms subject to the
borrowers continuing creditworthiness and a principal reduction of 5% or more.
Residential lot loans frequently become sources of owner construction loans.
Residential lot lending entails significant additional risks compared to
residential property lending. The repayment of such loans can be significantly
affected by adverse conditions in the real estate market. Furthermore, in the
event of default and the repossession of the land by the Bank, vacant land is
generally less marketable than improved land with a finished home. To minimize
these risks, the Bank generally limits this type of lending to its market area
and to individuals with above average credit histories.
Construction Lending. The Bank actively originates two types of residential
construction loans secured by properties located in its primary market area: (i)
speculative construction loans to home builders and (ii) custom construction
loans to either home builders or prospective homeowners. To a substantially
lesser extent, the Bank originates commercial construction loans to small
businesses in its primary market area. At December 31, 1997, construction loans
totaled $5.9 million or 7.4% of total loans.
At December 31, 1997, speculative construction loans amounted to $2.2
million, or 36.9% of the construction loan portfolio at that date. Speculative
construction loans are made to home builders and are termed "speculative"
because the home builder does not have, at the time of loan origination, a
signed contract with a home
22
<PAGE>
buyer who has a commitment for permanent financing with either the Bank or
another lender for the finished home. The home buyer may be identified either
during or after the construction period. The Bank's risk is that the builder
will not be able to service the debt on the speculative construction loan and/or
pay real estate taxes and other carrying costs of the completed home for a
significant time after the completion of construction until the home buyer is
identified. Presently, the Bank lends to approximately 10 local builders with
whom the Bank has longstanding business relationships. The Bank generally limits
the aggregate amount of loans outstanding to one builder at any one time to
approximately $600,000 (usually financing for five homes). Speculative
construction loans are originated for a term of nine to 12 months, with interest
rates ranging from 0.5% to 2.0% above the prime lending rate, and with a
loan-to-value ratio of no more than 80% of the appraised estimated value of the
completed property. At December 31, 1997, the largest aggregate speculative
construction loan balance to one borrower amounted to $485,000, which was
performing according to terms.
Unlike speculative construction loans, custom construction loans are
usually made directly to the home buyer. Custom construction loans are generally
originated for a term of 12 months or less at fixed interest rates or variable
rates equal to 1% to 2% above the prime rate. Loan-to-value ratios are generally
no more than 80% of the appraised estimated value of the completed property or
cost, whichever is less. At December 31, 1997, the largest outstanding custom
construction loan had an outstanding balance of $336,000 and was performing
according to its terms.
To a substantially lesser extent, the Bank also provides construction
financing for commercial properties to small businesses in its primary market
area. Commercial construction loans are generally made on the same terms as
residential construction loans. At December 31, 1997, commercial construction
loans amounted to $633,000, the largest of which was for the development of a
mobile home park located in Beaufort, South Carolina, and had an outstanding
balance of $299,000. Such loan was performing according to its terms at December
31, 1997.
Prior to preliminary approval of any construction loan application, an
appraiser approved by the Board of Directors inspects the site and reviews the
existing or proposed improvements, identifies the market for the proposed
project, and analyzes the pro forma data and assumptions on the project. In the
case of a speculative or custom construction loan, the Bank reviews the
experience and expertise of the builder. After preliminary approval has been
given, the application is processed, which includes obtaining credit reports,
financial statements and tax returns on the borrowers and guarantors, an
independent appraisal of the property, and any other expert reports necessary to
evaluate the proposed project. In the event of cost overruns, the Bank requires
that the borrower use its own funds to maintain the original amount.
The Bank's construction loan documents require that construction loan
proceeds be disbursed in increments as construction progresses. Disbursements
are based on periodic on-site inspections by an appraiser or Bank inspector
approved by the Board of Directors. The Bank regularly monitors the construction
loan portfolio and the economic conditions and housing inventory. The Bank
believes that the internal monitoring system helps reduce many of the risks
inherent in its construction lending.
Construction lending affords the Bank the opportunity to achieve higher
interest rates and fees with shorter terms to maturity than does its single-
family permanent mortgage lending. Construction lending, however, is generally
considered to involve a higher degree of risk than single-family permanent
mortgage lending because of the inherent difficulty in estimating both a
property's value at completion of the project and the estimated cost of the
project. The nature of these loans is such that they are generally more
difficult to evaluate and monitor. If the estimate of construction cost proves
to be inaccurate, the Bank may be required to advance funds beyond the amount
originally committed to permit completion of the project. If the estimate of
value upon completion proves to be inaccurate, the Bank may be confronted with a
project whose value is insufficient to assure full repayment. Projects may also
be jeopardized by disagreements between borrowers and builders and by the
failure of builders to pay subcontractors. Loans to builders to construct homes
for which no purchaser has been identified carry more risk because the payoff
for the loan depends on the builder's ability to sell the property prior to the
time that the construction loan is due. The Bank has sought to address these
risks by adhering to strict underwriting policies,
23
<PAGE>
disbursement procedures, and monitoring practices. In addition, because the
Bank's construction lending is in its primary market area, changes in the local
economy and real estate market could adversely affect the Bank's construction
loan portfolio. See "RISK FACTORS -- Certain Lending Risks."
Commercial Real Estate Lending. At December 31, 1997, commercial real
estate loans totaled $10.6 million, or 13.3% of total loans. The average size of
the commercial real estate loan in the Bank's loan portfolio is approximately
$102,000. Commercial real estate loans are secured by professional offices,
small retail stores and other commercial properties. Commercial real estate
loans are generally structured on an amortization schedule of up to 15 years,
with variable rates of interest based on the prime lending rate or the U.S.
Treasury Bill rate. Generally, loan-to-value ratios may not exceed 80% of the
appraised value of the underlying property as determined by an independent
appraiser. The Bank requires annual financial statements from its commercial
business borrowers and, if the borrower is a corporation, personal guarantees
from the principals. In assessing the value of such guarantees, the Bank reviews
the individuals' personal financial statements, credit reports, tax returns and
other financial information.
Commercial real estate lending entails significant additional risks
compared to residential property lending. These loans typically involve large
loan balances to single borrowers or groups of related borrowers. The payment
experience on such loans typically depends on the successful operation of the
real estate project. These risks can be significantly affected by supply and
demand conditions in the market for office and retail space, and, as such, may
be subject to a greater extent to adverse conditions in the economy generally.
To minimize these risks, the Bank generally limits this type of lending to its
market area and to borrowers with which it has substantial experience or who are
otherwise well known to management. See "RISK FACTORS -- Certain Lending Risks."
Commercial Business Lending. The Bank's commercial business lending
activities focuses primarily on small to medium size businesses owned by
individuals well known to the Bank and who reside in the Bank's primary market
area. At December 31, 1997, commercial business loans amounted to $4.8 million,
or 6.0% of total loans.
Commercial business loans may be unsecured loans, but generally are secured
by various types of business collateral other than real estate (i.e., inventory,
equipment, etc.). Commercial business loans are generally made in amounts up to
$250,000 and may be either lines of credit or term loans. Lines of credit are
generally renewable and made for a one-year term. Lines of credit are generally
variable rate loans indexed to the prime rate. Term loans are generally
originated with three to five year maturities on a fully amortizing basis. As
with commercial real estate loans, the Bank generally requires annual financial
statements from its commercial business borrowers and, if the borrower is a
corporation, personal guarantees from the principals.
At December 31, 1997, the largest commercial business loan had an
outstanding balance of $243,000 and was secured by marketable equity securities.
Such loan was performing according to its terms at December 31, 1997.
Commercial business lending generally involves greater risk than
residential mortgage lending and involves risks that are different from those
associated with residential, commercial and multi-family real estate lending.
Real estate lending is generally considered to be collateral based lending with
loan amounts based on predetermined loan to collateral values and liquidation of
the underlying real estate collateral is viewed as the primary source of
repayment in the event of borrower default. Although commercial business loans
are often collateralized by equipment, inventory, accounts receivable or other
business assets, the liquidation of collateral in the event of a borrower
default is often not a sufficient source of repayment because accounts
receivable may be uncollectible and inventories and equipment may be obsolete or
of limited use, among other things. Accordingly, the repayment of a commercial
business loan depends primarily on the creditworthiness of the borrower (and any
guarantors), while liquidation of collateral is a secondary and often
insufficient source of repayment.
As part of its commercial business lending activities, the Bank issues
standby letters of credit as an accommodation to its borrowers. At December 31,
1997, the Bank had outstanding standby letters of credit of $288,000. See "--
Loan Commitments and Letters of Credit."
24
<PAGE>
Consumer Lending. At December 31, 1997, consumer loans totaled $9.5
million, or 11.9%, of total loans. Subject to market conditions and other
factors, the Bank intends to continue to actively market consumer loans.
Consumer loans generally have shorter terms to maturity or repricing and higher
interest rates than the long-term, fixed-rate mortgage loans. The Bank's
consumer loans consist of loans secured by automobiles, boats and recreational
vehicles, second mortgages on residences, and unsecured loans for personal or
household purposes.
The largest component of the Bank's consumer loan portfolio is home equity
revolving credit lines secured by a first or second mortgage on the borrowers'
residence. Home equity lines of credit are made for variable rates of interest
tied to the prime lending rate with a loan-to-value ratio of up to 80%, taking
into account any outstanding first mortgage loan. At December 31, 1997, home
equity lines of credit amounted to $5.9 million, or 7.3%, of total loans and the
largest approved home equity line of credit had a credit line of $500,000.
Consumer loans secured by deposit accounts, automobiles, boats and other
personal property are made at fixed rates of interest for terms of five years or
less. At December 31, 1997, the largest category of such loans were secured
deposit account loans with aggregate outstanding balances of $925,000. The Bank
does not engage in indirect consumer lending through automobile or boat dealers.
At December 31, 1997, unsecured consumer loans amounted to $1.9 million, or
2.4% of total loans. Unsecured loans are made for a maximum of five years at
fixed or variable interest rates. Unsecured loans are offered primarily to high
net worth individuals with whom the Bank has had a longstanding relationship.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans which are unsecured or secured by
rapidly depreciating assets such as automobiles, particularly used automobiles.
In such cases, any repossessed collateral for a defaulted consumer loan may not
provide an adequate source of repayment of the outstanding loan balance as a
result of the greater likelihood of damage, loss or depreciation. The remaining
deficiency often does not warrant further substantial collection efforts against
the borrower beyond obtaining a deficiency judgment. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, and
thus are more likely to be adversely affected by job loss, divorce, illness or
personal bankruptcy. Furthermore, the application of various federal and state
laws, including federal and state bankruptcy and insolvency laws, may limit the
amount which can be recovered on such loans. Such loans may also give rise to
claims and defenses by a consumer loan borrower against an assignee of such
loans such as the Bank, and a borrower may be able to assert against such
assignee claims and defenses that it has against the seller of the underlying
collateral. At December 31, 1997, $49,000, or less than 0.5% of the Bank's
consumer loan portfolio, was 90 days or more past due. See "RISK FACTORS --
Certain Lending Risks."
Loan Maturity. The following table sets forth, as of December 31, 1997,
information regarding the dollar amount of loans maturing in the Bank's loan
portfolio based on their contractual terms to maturity, but does not include
potential prepayments. Demand loans, loans having no stated schedule of
repayments and no stated maturity, and overdrafts are reported as due in one
year or less. Loan balances do not include undisbursed loan proceeds, unearned
discounts, unearned income, and allowance for loan losses.
Within After 1 Year
1 Year Through 5 Years After 5 Years Total
------ --------------- ------------- -----
(Dollars in thousands)
Commercial................ $3,664 $1,129 $-- $ 4,793
Real estate/construction.. 5,738 180 31 5,949
------ ------ --- -------
Total................ $9,402 $1,309 $31 $10,742
====== ====== === =======
25
<PAGE>
The following table sets forth the dollar amount of all loans due after
December 31, 1998, which have fixed interest rates and have floating or
adjustable interest rates.
Fixed Floating or
Rates Adjustable Rates
------ ----------------
(In thousands)
Commercial................ $1,129 $ --
Real estate/construction.. 67 113
------ ----
Total................ $1,196 $113
====== ====
Loan Solicitation and Processing. The Bank solicits loans through
advertisements and referrals by officers, directors and employees of the Bank.
The Bank also employs full-time loan originators. Applications for one- to-four
family mortgage loans are written on documentation meeting FNMA and FHLMC
standards, and other loan applications are underwritten and closed based on the
Bank's own guidelines. Title insurance is generally obtained to protect the Bank
from a possible title risk. All mortgage loans require fire and casualty
insurance (and, if appropriate, flood, wind, storm and hail insurance) on
appurtenant structures.
For fixed-rate one- to- four family mortgage loans that are originated for
sale, loan approval authority is vested in loan officers of the Bank who follow
FHLMC guidelines or with the investor purchasing the loan. For loans that are
originated for the Bank's portfolio, loan approval authority is vested in
individual officers, a loan committee or the full Board of Directors depending
on the dollar amount of the total proposed lending relationship. An individual
loan officer may approve a loan if the proposed total lending relationship is
under $200,000. The Loan Committee, consisting of designated Board members and
senior Bank officers, may approve a loan if the proposed total lending
relationship is between $200,000 and $350,000. The full Board of Directors is
required to approve any loan if the total proposed lending relationship exceeds
$350,000.
Upon receipt of a loan application from a prospective borrower, a credit
report and other data are obtained to verify specific information relating to
the loan applicant's employment, income and credit standing. If any real estate
is offered as collateral, an appraisal of the real estate is generally
undertaken by an independent appraiser approved by the Bank. Applicants are
promptly notified of the decision of the Bank. Interest rates are subject to
change if the approved loan is not closed within the time of the commitment.
Loan Originations, Sales and Purchases. The Bank's primary lending activity
has been the origination of one- to- four family residential mortgage loans. The
Bank generally originates ARM loans for retention in its portfolio. Fixed-rate
one- to- four family mortgage loans are generally sold to the FHLMC and other
institutions, primarily other financial institutions. The Bank generally does
not assume any "pipeline risk" (i.e., the risk that the value of the loan will
decline during the period between the time the loan is originated and the time
of sale because of changes in market interest rates) when it sells loans because
it obtains a purchase commitment from the prospective purchaser at the time it
commits to fund the loan at a given interest rate. The Bank is not an active
purchaser of loans.
26
<PAGE>
The following table sets forth total loans originated, purchased, sold and
repaid during the periods indicated.
Year Ended December 31,
-------------------------
1997 1996
------------ -----------
(In thousands)
Total loans and loans held-for-sale
at beginning of year.................. $ 79,443 $ 72,747
Loans originated:
Real estate mortgage:
Permanent............................. 24,491 21,801
Construction.......................... 13,531 13,371
Other Loans:
Consumer loans........................ 3,810 3,886
Commercial loans...................... 11,483 12,077
-------- --------
Total loans originated............... 53,315 51,135
Net decrease in equity lines of credit.. (19) (572)
Loans purchased......................... -- --
Loans sold.............................. (14,165) (7,521)
Transfers to real estate owned,
charge-offs and increases in
deferred loan fees.................... (53) (314)
Loan principal repayments............... (37,053) (36,032)
-------- --------
Total loans and loans held-for-sale
at end of year........................ $ 81,468 $ 79,443
======== ========
Loan Commitments and Letters of Credit. The Bank issues, without a fee,
commitments to approved residential mortgage loan applicants conditioned upon
the occurrence of certain events. Such commitments are made in writing on
specified terms and conditions and are honored for up to 30 days. At December
31, 1997, the Bank had total such commitments to extend credit of $3.4 million.
See Note 15 of Notes to Consolidated Financial Statements.
As an accommodation to its commercial business borrowers, the Bank issues
standby letters of credit in favor of entities for whom the Bank's borrowers are
performing work or other services. At December 31, 1997, the Bank had
outstanding standby letters of credit of $288,000. See Note 15 of Notes to the
Consolidated Financial Statements.
Loan Origination and Other Fees. In addition to interest earned on loans
and fees for making loan commitments, the Bank receives loan origination fees or
"points" for originating loans. Loan origination fees charged to the borrower
for originating a loan are based on a percentage of the principal amount of the
mortgage loan.
Fees vary with the volume and type of loans and commitments made and
purchased and the competitive conditions present in mortgage markets, which in
turn respond to the demand for and availability of money. The Bank also
receives other fees and charges relating to existing loans, such as late charges
and fees collected in connection with a change in borrower or other loan
modifications. As required by GAAP, loan origination fees and certain
origination expenses are amortized over the life of the related loan, and the
Bank defers loan origination fees
27
<PAGE>
and certain direct loan origination costs. Such costs and fees are recognized
as an adjustment to yield over the lives of the related loans utilizing a method
of amortization that approximates the level yield method.
Commitment fees to originate loans are deferred and, if the commitment is
exercised, recognized over the life of the loan as an adjustment of yield. If
the commitment expires unexercised, commitment fees are recognized in income
upon expiration of the commitment.
Nonperforming Assets and Delinquencies. When a borrower fails to make a
required payment when due, the Bank institutes collection procedures. The first
notice is mailed to the borrower ten to 15 days after the payment due date.
Attempts to contact the borrower by telephone generally begin approximately 25
days after the payment due date. If a satisfactory response is not obtained,
continuous follow-up contacts are attempted until the loan has been brought
current. In most cases, delinquencies are cured promptly; however, if by the
90th day of delinquency, or sooner if the borrower is chronically delinquent and
all reasonable means of obtaining payment on time have been exhausted,
foreclosure, according to the terms of the security instrument and applicable
law, is initiated. If management determines on the 90th day of delinquency that
all remedies to cure the delinquency have been exhausted, the loan generally is
placed on nonaccrual status if the collateral status is such that the interest
or principal are unlikely to be recouped. All previously recorded accrued
interest income is reversed. Consumer loans are charged off when amounts are
determined to be uncollectible.
The Bank's Board of Directors is informed monthly as to the status of all
mortgage and consumer loans with outstanding balances in excess of $10,000 that
are delinquent 60 days or more and are classified "substandard." The Board of
Directors is informed of the status of all loans currently in foreclosure, and
the status of all foreclosed and repossessed property owned by the Bank.
28
<PAGE>
The following table sets forth information with respect to the Bank's non-
performing assets at the dates indicated.
At December 31,
------------------------
1997 1996
------------ ----------
(Dollars in thousands)
Loans accounted for on a
non-accrual basis(1):
Residential.......................... $ 405 $ 308
Commercial........................... 3 46
Consumer............................. 21 36
----- -----
Total............................... 429 390
Accruing loans which are contractually
past due 90 days or more:
Residential.......................... 27 100
Commercial........................... 150 12
Consumer............................. 28 --
----- -----
Total............................... 205 112
Total of non-accrual loans and
90 day past due loans.................. 634 502
----- -----
Real estate owned....................... 127 228
Restructured loans...................... -- --
----- -----
Total nonperforming assets.......... $ 761 $ 730
===== =====
Total loans delinquent 90 days
or more, accruing and non-accruing,
to net loans........................... 0.79% 0.64%
Total loans delinquent 90 days
or more, accruing and non-accruing,
to total assets........................ 0.69% 0.55%
Gross interest income of $38,000 would have been recorded for the year ended
December 31, 1997 if nonaccrual loans had been current according to their
original terms and had been outstanding throughout the entire year. Interest
income of $27,000 on such was included in net income for such year.
Foreclosed Real Estate. At December 31, 1997, the Bank had foreclosed real
estate of $127,000 consisting of a single-family home resulting from the
foreclosure of a builder construction loan and two residential building lots.
See Note 1 of Notes to Consolidated Financial Statements for a discussion of the
Bank's accounting for foreclosed real estate.
Asset Classification. Under the Bank's loan classification system, problem
assets are classified as "substandard," if certain characteristics exist. The
Bank considers a loan for substandard status if it has a balance greater than
$10,000 and is more than 60 days past due. In addition, a past due loan that
has potential for "some loss" will be classified as a substandard loan; however,
this category is also used for well secured loans that, because of their past
due status, need to be monitored.
When an institution classifies problem assets as substandard, it establishes
specific allowances for loan losses based on estimates of losses for each
substandard loan. General allowances are also established to recognize the
29
<PAGE>
inherent risk associated with lending activities, but which, unlike specific
allowances, have not been allocated to particular problem assets. When an
institution determines a loan to be not recoverable, it considers the loan to
be a loss and charges-off the loan against its allowance for loan losses. An
institution's determination as to the classification of its assets and the
amount of its valuation allowances is subject to review by the institution's
regulator, the OCC, who can order the establishment of additional general or
specific loss allowances.
At December 31, 1997 and 1996, the aggregate amounts of the Bank's
substandard assets were $361,000 and $524,000, respectively. Substandard assets
are monitored monthly by the Bank's Board of Directors.
Allowance for Loan Losses. The Bank has established a systematic
methodology for the determination of provisions for loan losses. The
methodology is set forth in a formal policy and takes into consideration the
need for an overall general valuation allowance as well as specific allowances
that are tied to individual loans. The allowance for loan losses is increased
by charges to income and decreased by charge-offs (net of recoveries).
Management's periodic evaluation of the adequacy of the allowance is based on
past loan loss experience, known and inherent risks in the loan portfolio,
adverse situations that may affect the borrower's ability to repay, the
estimated value of any underlying collateral and current economic conditions.
Such evaluations are particularly susceptible to changes in economic, operating
or other conditions that may be beyond the Bank's control.
The following table sets forth an analysis of the Bank's allowance for loan
losses for the periods indicated. When recoveries are recognized from charge-
offs to the allowance for loan losses, the allowance for loan losses is credited
to the extent of the charge-off. Likewise, any subsequent loss that may occur
from the disposition of collateral is charged to current period expense.
Year Ended December 31,
-----------------------------
1997 1996
---- ----
(Dollars in thousands)
Balance at beginning of period................. $ 630 $ 470
Charge-offs:
Residential................................... 19 7
Commercial.................................... 21 4
Consumer...................................... 32 19
----- -----
Total charge-offs........................... 72 30
Recoveries:
Residential................................... 2 1
Commercial.................................... -- 12
Consumer...................................... 3 15
----- -----
Total recoveries............................ 5 28
Net charge-offs................................ 67 2
Provision for possible loan losses............. 165 162
----- -----
Balance at end of period....................... $ 728 $ 630
===== =====
Ratio of allowance to total loans
outstanding at end of period.................. 0.90% 0.80%
Ratio of net charge-offs to average
loans outstanding during period............... 0.08% 0.02%
30
<PAGE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the dates indicated.
<TABLE>
At December 31,
----------------------------------------------------------
1997 1996
---------------------------- ---------------------------
As a % % of As a % % of
of Out- Loans in of Out- Loans in
standing Category standing Category
Loans in to Total Loans in to Total
Amount Category Loans Amount Category Loans
------ -------- -------- ------ -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Permanent mortgage........................... $ 146 0.25% 71.60% $ 90 0.15% 77.20%
Construction................................. 21 0.25 10.70 20 0.31 7.90
Consumer...................................... 318 3.34 11.80 224 2.57 11.10
Commercial.................................... 39 0.80 5.90 80 2.68 3.80
Unallocated................................... 204 -- -- 217 -- --
----- ---- -------- ------ -------- --------
Total allowance for loan losses............. $ 728 0.90% 100.00% $631 0.80% 100.00%
===== ==== ======== ====== ======== ========
</TABLE>
Investment Activities
At December 31, 1997, the investments of the Company were its equity
investment in the Bank and the organizational costs incident to the New Bank.
As a national bank, the Bank is permitted under federal law to invest in various
types of liquid assets, including U.S. Treasury obligations, securities of
various federal agencies and of state and municipal governments, deposits at the
FHLB-Atlanta, certificates of deposit of federally insured institutions, certain
bankers' acceptances and federal funds. Subject to various restrictions, the
Bank may also invest a portion of its assets in commercial paper and corporate
debt securities. The Bank is also required to maintain investments in FHLB of
Atlanta stock and Federal Reserve Bank of Richmond stock as a condition of
membership in each institution. Neither the Company nor the Bank invests in
high yielding, non-investment grade securities, or "junk-bonds." See Note 4 of
Notes to Consolidated Financial Statements.
The following table sets forth the composition of the Bank's securities
portfolio at the dates indicated. At December 31, 1997 and 1996, the Bank's
entire securities portfolio was designated as available-for-sale.
At December 31,
--------------------------------------------------
1997 1996
------------------------ ------------------------
Carrying Percent of Carrying Percent of
Value(1) Portfolio Value(1) Portfolio
----------- ----------- ----------- -----------
(Dollars in thousands)
U.S. Government and
agency obligations......... $ 548 24.8% $ 548 21.9%
Mortgage-backed securities.. 130 5.9 130 5.2
FHLB stock.................. 99 4.5 99 3.9
Federal Reserve Bank stock.. 1,429 64.8 1,726 69.0
------ ----- ------ -----
Total..................... $2,206 100.0% $2,503 100.0%
====== ===== ====== =====
- ------------------
(1) The market value of the investment portfolio amounted to $2.2 million and
$2.5 million at December 31, 1997 and 1996, respectively.
31
<PAGE>
The following table sets forth the maturities and weighted average yields
of the debt securities in the Bank's investment securities portfolio at December
31, 1997.
<TABLE>
<CAPTION>
Less Than One to Five to Over Ten
One Year Five Years Ten Years Years
--------------------- ----------------- --------------- --------------
Amount Yield Amount Yield Amount Yield Amount Yield
-------- ----------- --------- ------ ------- ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and
agency obligations............ $99 5.85% $ -- --% $ -- --% $ -- --%
GNMA mortgage-backed
securities (1)................ -- -- -- -- -- -- 1,429 6.60
FHLB stock (2)................. -- -- -- -- -- -- 548 7.25
Federal Reserve Bank stock(2).. -- -- -- -- -- -- 130 5.00
-------- --------- ------- ------
Total........................ $99 5.85 $ -- -- $ -- -- $2,107 6.73
======== ========= ======= ======
- -------------------
</TABLE>
(1) Mortgage-backed securities have rates that adjust annually to the one year
constant maturity treasury index.
(2) FHLB and Federal Reserve Bank stock have no stated maturity and are assumed
to be over 10 years.
At December 31, 1997 and 1996, the Bank held no investment securities
(other than U.S. Government and agency securities and mutual funds which invest
exclusively in such securities) which had an aggregate book value in excess of
10% of the Bank's retained earnings at those respective dates.
Deposits
General. The Bank offers a wide array of deposit accounts as set forth in
the following table. Deposits are the primary source of funds for the Bank's
lending and investment activities. None of the deposit instruments offered by
the Bank have rates subject to regulation. Deposit inflows and outflows vary
widely and are influenced by prevailing interest rates and money market
conditions. Transaction account balances are influenced considerably by the
time of the month and general economic activity. The Bank's ability to attract
and retain deposits and the Bank's cost of funds has been, and will continue to
be, significantly affected by market conditions.
Most of the Bank's deposits are obtained from residents of South Carolina,
principally from residents in Beaufort County, the Bank's largest deposit
market. In addition, the Bank has accepted brokered deposits typically in
denominations of $99,000 from out-of-state depositors at rates comparable to
rates offered to local depositors. At December 31, 1997, brokered deposits
totaled approximately $8.0 million.
32
<PAGE>
The following table sets forth information concerning the Bank's time
deposits and other interest-bearing deposits at December 31, 1997.
<TABLE>
<CAPTION>
Weighted
Average Percentage
Interest Original Minimum of Total
Rate Term Checking and Savings Deposits Amount Balance Deposits
- ---- ---- ----------------------------- ------ ------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C>
2.09% -- NOW accounts $ 500 $16,580 23.42%
3.54 -- Money market accounts 1,000 11,353 16.04
2.33 -- Savings accounts 100 5,176 7.31
Certificates of Deposit
-----------------------
5.52 6 months or less Fixed-term, fixed-rate 500 9,151 12.93
5.82 Over 6 through 12 months Fixed-term, fixed-rate 500 11,174 15.78
6.15 Over 1 through 2 years Fixed-term, fixed-rate 500 9,279 13.11
6.41 Over 2 years Fixed-term, fixed-rate 500 4,933 6.97
5.84 Various Fixed rate IRA/KEOGH 500 3,142 4.44
------- ------
TOTAL $70,788 100.00%
======= ======
</TABLE>
The following table indicates the amount of jumbo certificates of deposit
by time remaining until maturity at December 31, 1997. Jumbo certificates of
deposit require minimum deposits of $100,000.
Maturity Period Amount
- --------------- ------
(In thousands)
Three months or less.................. $2,389
Over three through six months......... 1,924
Over six through twelve months........ 3,021
Over twelve months.................... 1,496
------
Total............................ $8,830
======
33
<PAGE>
The following table sets forth the balances and changes in dollar amounts
of savings deposits in the various types of savings accounts offered by the Bank
at the dates indicated.
At December 31,
--------------------------------------------------
1997 1996
----------------------------- ------------------
Percent Percent
of Increase of
Amount Total (Decrease) Amount Total
-------- -------- ---------- -------- --------
(Dollars in thousands)
Non-interest-bearing....... $ 6,675 8.6% $ (494) $ 7,169 9.2%
NOW and money market
checking.................. 27,933 36.1 2,061 25,872 33.0
Regular savings accounts... 5,176 6.7 (794) 5,970 7.6
Certificates of deposit
maturing(1)(2):
Within 1 year............. 30,380 39.1 (690) 31,070 39.7
After 1 year, but within
3 years.................. 7,092 9.2 (344) 7,436 9.5
After 3 years............ 206 0.3 (577) 783 1.0
------- ----- ------ ------- -----
Total................. $77,462 100.0% $ (838) $78,300 100.0%
======= ===== ====== ======= =====
- -------------
(1) At December 31, 1997 and 1996, jumbo certificates amounted to $8.8 million
and $10.5 million, respectively.
(2) IRA accounts included in certificate balances are $3.1 million and $3.4
million at December 31, 1997 and 1996, respectively.
Time Deposits by Rates
The following table sets forth the time deposits in the Bank classified by
rates at the dates indicated.
At December 31,
------------------------------
1997 1996
---- ----
(In thousands)
2.00 - 3.99%.................. $ 41 $ 125
4.00 - 5.99%.................. 22,675 28,631
6.00 - 7.99%.................. 14,962 10,533
------- -------
Total......................... $37,678 $39,289
======= =======
Time Deposits by Maturities
The following table sets forth the amount and maturities of time deposits
at December 31, 1997.
<TABLE>
<CAPTION>
Amount Due
-----------------------------------------------------------------
Less One Over Over Percent
Than to Two to Three to of Total
One Two Three Four After Certificate
Year Years Years Years 4 Years Total Accounts
---- ----- ----- ----- ------- ----- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
2.00 - 3.99%.................. $ 41 $ -- $ -- $ -- $ -- $ 41 0.11%
4.00 - 5.99%.................. 21,033 1,417 152 64 10 22,676 60.18
6.00 - 7.99%.................. 9,306 4,712 811 85 47 14,961 39.71
------- ------- ----- ----- ---- ------- ------
Total......................... $30,380 $ 6,129 $ 963 $ 149 $ 57 $37,678 100.00%
======= ======= ===== ===== ==== ======= ======
</TABLE>
34
<PAGE>
Savings Activities. The following table sets forth the savings activities
of the Bank for the periods indicated.
Year Ended December 31,
---------------------------
1997 1996
------- --------
(In thousands)
Beginning balance................ $78,300 $74,905
Interest credited................ 3,127 3,111
Net increase (decrease) in
savings deposits................ (3,965) 284
------- -------
Ending balance................... $77,462 $78,300
======= =======
Borrowing
The Bank uses FHLB of Atlanta advances to support additional loan demand
and other funding needs. At December 31, 1997, the Bank had a borrowing
capacity of $11.0 million at the FHLB-Atlanta, of which $5.1 million was
outstanding.
The following tables set forth certain information regarding the Bank's
short-term borrowings at the end of and during the periods indicated.
At December 31,
----------------------
1997 1996
---- ----
Weighted average rate paid on:
FHLB borrowings - short term.............. 6.50% 6.95%
At December 31,
----------------------
Year Ended December 31, 1997 1996
---- ----
(Dollars in thousands)
Maximum amount of borrowings outstanding
at any month end:
FHLB borrowings - short term............... $4,700 $4,650
Approximate average short-term borrowings
outstanding with respect to:
FHLB borrowings - short term............... 2,762 2,071
Approximate weighted average rate paid on:
FHLB borrowings - short term............... 5.85% 5.64%
Competition
The Bank faces intense competition in its primary market area for the
attraction of savings deposits (its primary source of lendable funds) and in the
origination of loans. Its most direct competition for savings deposits has
historically come from commercial banks, credit unions, other thrifts operating
in its market area, and other financial institutions such as brokerage firms and
insurance companies. As of December 31, 1997, there were seven commercial banks
(including the Bank), a thrift institution, two credit unions and three
securities brokerage firms operating in Beaufort County. Particularly in times
of high interest rates, the Bank has faced additional significant competition
for investors' funds from short-term money market securities and other corporate
and government securities. The Bank's competition for loans comes from
commercial banks, thrift institutions, credit unions and
35
<PAGE>
mortgage bankers. Such competition for deposits and the origination of loans
may limit the Bank's growth in the future. See "RISK FACTORS -- Competition."
Subsidiary Activities
The Bank has one wholly-owned subsidiary, First Securities Corporation
("First Securities"), that is engaged in discount brokerage activities. At
December 31, 1997, the Bank's investment in First Securities was $76,000.
Properties
The Bank's main office is a 7,500 square foot building located at 1121
Boundary Street, Beaufort, South Carolina. The office was opened in 1986. The
office building is leased from First Patriots Partnership, a South Carolina
general partnership among Colden R. Battey, Jr., Richard L. Gray, Russell L.
Jeter, Carson R. Rentz and Robert A. Kerr, all of whom are directors of the
Company and the Bank. The Bank also leases additional parking space adjacent to
the main office from First Patriots Partnership. See "MANAGEMENT OF THE COMPANY
AND THE BANK -- Transactions with the Bank."
The Bank operates a 2,100 square foot branch office located on U.S. Highway
21 on Lady's Island in Beaufort, South Carolina. The office was opened in 1988.
The building is leased from Richard L. Gray, a director of the Company and the
Bank. See "MANAGEMENT OF THE COMPANY AND THE BANK -- Transactions with the
Bank."
The Bank owns and operates a 8,700 office located at One Burnt Church Road,
Bluffton, South Carolina. The Bank occupies approximately 3,850 square feet as
a branch office and leases the remaining space. The office was opened in 1993.
In September 1996, the Bank established its first ATM at this branch office.
Personnel
As of December 31, 1997, the Bank had 43 full-time and four part-time
employees, none of whom is represented by a collective bargaining unit. The
Bank believes its relationship with its employees is good.
Legal Proceedings
Periodically, there have been various claims and lawsuits involving the
Bank, such as claims to enforce liens, condemnation proceedings on properties in
which the Bank holds security interests, claims involving the making and
servicing of real property loans and other issues incident to the Bank's
business. The Bank is not a party to any pending legal proceedings that it
believes would have a material adverse effect on the financial condition or
operations of the Bank.
36
<PAGE>
PROPOSED BUSINESS OF NEW BANK
General
The New Bank will be a national bank regulated by the OCC. The New Bank
will be headquartered in Columbia, South Carolina, and its main office will be
located in Columbia's downtown business district. The New Bank will be subject
to the same regulations as the Bank. See "REGULATION." The New Bank will
operate as a wholly-owned subsidiary of the Company.
Reasons for Chartering the New Bank
The Company's decision to charter the New Bank and expand its operations
beyond Beaufort County was prompted primarily by three factors. The first
reason is diversification. The Beaufort County economy in which the Bank
operates depends heavily on the housing demands by vacationers and retirees, and
the concentration of the Bank's loan portfolio in residential mortgage loans
reflects this demand. The Company believes that the demographics of the New
Bank's primary market area, with a younger population that participates in the
workforce, is conducive to higher demand for consumer and small business loans.
The second reason for expansion is the opportunity for deposit growth. The
Bank's current deposit market share in Beaufort County (excluding Hilton Head
Island) is estimated by management at 20%, and management believes that the
prospects for future growth are limited given competitive conditions.
The final reason for expansion into the Columbia market is to take
advantage of a perceived void for local community banks created by recent
acquisitions of several banks by large multi-bank holding companies. Despite
the intense competition that the New Bank will confront, the Company believes
that there is a demand in local communities for community banks with local
management and local decision making authority.
Market Area
The New Bank's primary market area will be the Counties of Lexington and
Richland in central South Carolina, which comprise the Columbia Metropolitan
Area. A broad cross-section of business is located in these counties, including
healthcare (Blue Cross/Blue Shield, Palmetto Health Alliance and Lexington
Medical Center), financial services (Policy Management Systems Corp.), specialty
chemicals (Allied Fibers, Carolina Eastman and Westinghouse Corporation),
trucking and shipping (United Parcel Service and Southeastern Freight Lines),
meat packaging (Louis Rich), and industrial production (Cooper Power Tools and
Pirelli Cable), among others.
According to recent published statistics, Lexington and Richland Counties
have experienced population growth (10.5% between 1980 and 1990, compared to
11.7% for the State of South Carolina) and relatively low unemployment (ranging
between 3.8% and 4.6% for the last five years, compared to a range of 4.7% and
6.8% for the State of South Carolina over the same period).
Competition
Like the Bank, the New Bank will face intense competition for originating
loans and attracting deposits. In its market area analysis of the Columbia
Metropolitan area, the Company has identified 35 financial institutions of
varying size operating a total of 157 offices within the area. See "RISK
FACTORS -- Competition."
Initial Capitalization
The New Bank's charter application to the OCC discloses the New Bank's
initial capitalization at $5.0 million. The New Bank's initial capitalization
will be funded from the net proceeds of the Offering (up to $3.5 million) and a
third party bank loan to be obtained by the Company (up to $2.5 million).
37
<PAGE>
The Company has received a written commitment from a third party bank for a
loan with a principal amount of up to $2.5 million on the following terms and
conditions:
1. The interest rate will be based on the prime lending rate, adjustable
annually.
2. The loan amount will be reduced by the amount by which the net
proceeds of the Offering exceed $3.0 million to a floor of $2.0 million at the
Company's option.
3. The loan will be for a term of up to 10 years with no principal
amortization in years one to five and with monthly amortization thereafter.
4. The Company will not pledge of the capital stock of either the Bank
or the New Bank for any subsequent borrowing.
Proposed Business Activities
The New Bank proposes to engage in a general commercial and retail banking
business, emphasizing the needs of small to medium size businesses,
professionals, and individuals residing in its primary market area. Unlike the
Bank, the New Bank's business strategy is to operate more like a community bank
with a higher percentage of its loan portfolio represented by commercial
business loans and consumer loans rather than one- to- four family mortgage
loans, an investment securities portfolio that represents a larger percent of
total assets, and a higher percentage of deposits represented by transaction
accounts rather than certificates of deposit.
The New Bank intends to engage in the same lending activities as the Bank
with an emphasis on commercial business lending and consumer lending, which are
inherently riskier than one- to- four family mortgage lending. See "RISK
FACTORS -- Certain Lending Risks." The terms and conditions under which the New
Bank will originate loans, and the volume of originations, will depend on market
conditions and other factors.
The New Bank intends to maintain a larger investment portfolio than the
Bank. Management estimates that the New Bank's investment portfolio would
average approximately 25% of total assets. Management considers this larger
investment portfolio appropriate since it expects the New Bank's loan portfolio
to comprise a larger percentage of short-term consumer and commercial business
loans and because it expects to establish a deposit base weighted toward
transaction accounts, both of which would require greater liquidity needs. The
New Bank intends to invest in securities of the type in which the Bank currently
invests. See "BUSINESS OF THE BANK -- Investment Activities."
The New Bank intends to offer the same type of deposit accounts as the
Bank. See "BUSINESS OF THE BANK -- Deposits." Subject to market conditions,
the New Bank intends to establish a deposit base that is weighted more toward
transaction accounts than certificates of deposit. Unlike most thrift
institutions, community banks generally have a larger percentage of deposits
represented by transaction accounts, which are generally lower cost accounts
than certificates of deposit.
The successful implementation of the New Bank's business strategy cannot be
assured and involves significant risks. For example, adverse economic
conditions may limit loan demand or competition may force the New Bank to offer
lower loan interest rates to attract loans. Furthermore, the New Bank may be
forced to offer higher deposit rates in order to attract operating funds.
Accordingly, it is highly likely that the New Bank will incur operating losses
in its initial years of operations and no assurances can be given when and if
operations will become profitable. See "RISK FACTORS -- No Prior Operating
History for the New Bank."
38
<PAGE>
Properties
Initially, the New Bank will operate from its main office located at 1900
Assembly Street, Columbia, South Carolina. On February 23, 1998, the Company
entered into a 5-year lease with an unaffiliated party for this location.
The New Bank will use the same data processing system as the Bank. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Year 2000 Compliance."
MANAGEMENT OF THE COMPANY AND THE BANK
The Company's Board of Directors consists of ten directors. The Board is
divided into three classes with staggered terms, and each director is elected
for a three-year term after their initial election by shareholders. All
directors of the Company also serve as directors of the Bank.
Directors
<TABLE>
<CAPTION>
Year Year of
Elected Expiration
Name Age(1) Position Director(2) of Term
---- ------ -------- ----------- -------
<S> <C> <C> <C> <C>
Colden R. Battey, Jr. 62 Chairman of the Board of the 1986 2001
Company and the Bank
James A. Shuford, III 46 President, Chief Executive 1993 2000
Officer and Director of the
Company and the Bank
Richard L. Gray 67 Director 1986 2000
Robert A. Kerr 77 Director 1988 2000
William C. Robinson 56 Director 1986 2000
Russell L. Jeter 56 Director 1986 2001
James D. Neighbors 67 Director 1986 2001
Laurance H. Davis, Jr. 68 Director 1986 1999
Jerry H. Reeves, III 67 Director 1993 1999
Carson R. Rentz 74 Director 1986 1999
</TABLE>
- --------------------
(1) At December 31, 1997.
(2) Includes prior service on the Board of Directors of the Bank and its
predecessor, The Savings Bank of Beaufort County, FSB.
Executive Officers Who Are Not Directors
<TABLE>
<CAPTION>
Name Age(1) Position
---- ------ -----------------------------------------------------------
Company Bank
------- ----
<S> <C> <C> <C>
James L. Pate, III 46 Senior Vice President and Senior Vice President and
Chief Financial Officer Chief Financial Officer
Bryan K. Newton 41 -- Senior Loan Officer
Richard E. Morgan, Jr. 38 -- Chief Credit Officer
</TABLE>
- ---------------
(1) At December 31, 1997.
39
<PAGE>
Biographical Information
The principal occupation(s) of each of the above individuals for the past
five years, as well as other information, is set forth below. No family
relationships exist between or among the individuals.
Colden R. Battey, Jr. is a Senior Partner of Harvey & Battey Law Firm,
Beaufort, South Carolina.
James A. Shuford, III has been President and Chief Executive Officer of the
Company and the Bank since 1993. Prior to that time, he was an officer of First
Union National Bank of South Carolina (formerly, South Carolina Federal Savings
Bank).
Richard L. Gray is President of Grayco, a lumber and home products company.
Robert A. Kerr is a retired commercial bank executive.
William C. Robinson is a certified public accountant.
Russell L. Jeter is President and Owner of Jeter Construction Company,
Beaufort, South Carolina, a paving contractor.
James D. Neighbors is retired after serving as President of the Bank from
1986 to 1993.
Laurance H. Davis, Jr. is Secretary of Bundy Appraisal and Management,
Inc., Beaufort South Carolina, since 1992; Former President and Chief Executive
Officer of Carolina Management Corporation, Beaufort, South Carolina.
Jerry H. Reeves, III is President and owner of Resort Services, Inc.,
Bluffton, South Carolina, a wholesale bed and bath linen supplier.
Carson R. Rentz is President and owner of Coastal Contractors, Inc.,
Beaufort, South Carolina, a residential and commercial construction company.
James L. Pate, III has been Senior Vice President and Chief Financial
Officer of the Company and the Bank since 1995. Prior to that time he was an
independent real estate appraiser, and officer of Carolina First Bank and South
Carolina Federal Savings Bank.
Bryan K. Newton has been Senior Vice President and Senior Loan Officer of
the Company and the Bank since 1992.
Richard E. Morgan, Jr. has been Senior Vice President and Chief Credit
Officer of the Bank since February 1998. Prior to that time he was an
independent real estate appraiser, and an officer of Carolina First Bank and
South Carolina Federal Savings Bank.
Directors' Compensation
The Bank pays all directors' fees. The Chairman of the Board receives a
monthly fee of $800. Each director who serves on the Executive Committee
receives a monthly fee of $600. Except for James A. Shuford, III, all other
directors receive a monthly fee of $500. Total fees paid to directors during
the fiscal year ended December 31, 1997 were $61,200.
40
<PAGE>
Committees of the Board of Directors
The Boards of Directors of the Company and the Bank conduct their business
through meetings and committees of the Boards. During the fiscal year ended
December 31, 1997, the Board of Directors of the Company held four meetings and
the Board of Directors of the Bank held 13 meetings. No director of the Company
or the Bank attended fewer than 75% of the total meetings of the Boards and
committees on which such Board member served during this period.
The Board of Directors has standing Audit, Executive, Personnel and
Compensation, and Nominating Committees, among others.
The Executive Committee, consisting of Messrs. Battey, Gray, Jeter, Kerr,
and Shuford, acts with the authority of the Board of Directors when the full
Board is not in session. The Executive Committee met 18 times during fiscal
year 1997.
The Audit Committee, consisting of Messrs. Robinson, Davis and Kerr,
reports directly to the Board of Directors on all matters concerning the
financial operation of the Company and the Bank, including compliance review,
annual audits, bank operation, internal auditing procedures and selection of
audit personnel. This committee met three times during fiscal year 1997.
The Personnel and Compensation Committee, consisting of Messrs. Kerr, Gray,
Jeter and Neighbors (Messrs. Battey and Shuford are ex-officio members), reviews
personnel for promotion to officer positions and establishes guidelines for
staff compensation. This committee met twice during fiscal year 1997.
The full Board of Directors of the Company acts as the Nominating Committee
for selecting the nominees for election as directors. The Board of Directors
met once in its capacity as the Nominating Committee during fiscal year 1997.
Executive Compensation
Summary Compensation Table. The following information is furnished for
Mr. Shuford. No executive officer of the Bank received salary and bonus in
excess of $100,000 during the year ended December 31, 1997.
<TABLE>
<CAPTION>
Annual Compensation
----------------------------------------------------------------------------
Name and Other Annual Number of All Other
Position Year Salary Bonus Compensation Options Compensation
- -------- ---- ------ ----- ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
James A. Shuford, III 1997 $105,923 $15,750 $9,467(1) -- $2,711(2)
President 1996 99,781 4,900 9,510 -- 1,767
1995 91,109 10,260 9,129 2,205 1,454
</TABLE>
- -------------------------
(1) Includes health and life insurance premium payments ($6,167) and other
perquisites ($3,300).
(2) Matching contribution made by the Bank under the 401(k) Plan.
Employment Agreement. Effective November 15, 1995, the Company and the Bank
entered into an amended and restated employment agreement (the "Agreement") with
James A. Shuford, III, President and Chief Executive Officer of the Company and
the Bank, to reflect the addition of the Company as a party to Mr. Shuford's
prior employment agreement dated October 20, 1993. The Agreement provides for
18-month term which is extended each month for an additional month. Currently,
all compensation and benefits provided to Mr. Shuford under the Agreement are
provided by the Bank. The Agreement provides for annual salary review by the
Board of Directors of the Bank. Mr. Shuford's current base salary is $111,000.
In addition, Mr. Shuford is eligible to participate in all benefit or incentive
plans which the Bank makes available to similarly situated senior executive
officers.
41
<PAGE>
In the event of Mr. Shuford's termination without cause during the term of
the Agreement, the Bank is obligated to continue payment of Mr. Shuford's then
current base salary through the expiration of the current term of the Agreement.
In the event of Mr. Shuford's involuntary termination following a change in
control of the Company or the Bank (as defined in the Agreement), the Bank is
obligated to provide Mr. Shuford with a payment equal to 2.999 times the highest
base salary payable during any of the five fiscal years preceding his
termination. In addition, Mr. Shuford would be eligible to receive continued
coverage for a three-year period at the Bank's expense under the Bank's other
employee benefit programs. Mr. Shuford would receive similar payments and
benefits in the event of his resignation following a change in control upon the
occurrence of certain events, including a reduction in the level of his
compensation prior to the change in control. In the event that a change of
control of the Company or the Bank had occurred on January 1, 1998, based solely
on the cash compensation paid to Mr. Shuford during 1997 and excluding the value
of any other employee benefits which may be payable, Mr. Shuford would have
received a payment of approximately $333,000.
The Company and the Bank have entered into employment agreements with other
senior officers on substantially the same terms as provided for in the
employment agreement with Mr. Shuford. In addition, the Company and the Bank
have entered into severance agreements with certain senior officers who are not
covered by an employment agreement that provide for payments in the event of a
change in control of the Company and the Bank. Assuming that a change in
control had occurred on January 1, 1998, based solely on the aggregate cash
compensation paid to these other senior officers and excluding the value of any
other employee benefits which may be payable, such other officers would have
received aggregate severance payments of approximately $299,000.
Option Grants. No options were granted to Mr. Shuford during the fiscal
year ended December 31, 1997.
Option Exercise/Value Table. The following information is presented for
Mr. Shuford.
<TABLE>
<CAPTION>
Dollar
Number of Unexercised Value of Unexercised
Number of Options at Fiscal Year End In-the-Money Options
Shares Dollar Unexercised Options at Fiscal Year End
Acquired on Value --------------------------- ----------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James A. Shuford, III -- -- 2,426 13,341 $7,959 $49,266
</TABLE>
Transactions with the Bank
The Bank, as successor to The Savings Bank of Beaufort County, FSB, has
entered into noncancelable operating leases for its main office facility and for
additional office space and parking with First Patriots Partnership
("Partnership"), a partnership among Directors Battey, Gray, Jeter, Rentz, and
Kerr. These leases provide for lease terms of 20 years, expiring in 2013. The
lease is subject to rent escalation provisions which are computed every five
years during the life of the lease. The Bank paid $74,000 in related lease
expense for fiscal year 1997.
The Bank, as successor to The Savings Bank of Beaufort County, FSB, has also
entered into an operating lease with Director Gray for the Bank's Lady's Island
Branch Office. The lease term is five years, expiring in 1998, with two
additional 5-year renewable options, subject to rent escalations based on the
Consumer Price Index for All Urban Consumers published by the Bureau of Labor
Statistics of the United States Department of Labor. The Bank paid $40,740 in
related lease expense for fiscal year 1997.
The Bank is required under federal law not make any loan or extension of
credit in any manner to any of its executive officers or directors, or to any
person who directly or acting through or in concert with one or more persons,
owns, controls, or has the power to vote more than 10% of any class of voting
securities of such institution, or to any company controlled by such executive
officer, director, or person, or to any political or campaign committee the
funds or services of which will benefit such executive officer, director, or
person or which is
42
<PAGE>
controlled by such executive officer, director, or person, unless such loan or
extension of credit is made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other persons and does not involve more than the normal risk
of repayment or present other unfavorable features. The Bank, therefore, is
prohibited from making any new loans or extensions of credit to the Bank's
executive officers and directors and at different rates or terms than those
offered to the general public and has adopted a policy to this effect. The Bank
makes loans to its directors, officers, and employees in the ordinary course of
business on substantially the same terms, including interest rate and
collateral, as similar loans to unrelated parties. Management believes that
such loans do not involve more than normal risk of collectability or present
other unfavorable features. All loans to related parties, and any subsequent
renewal thereof, are approved by a majority of the Board of Directors of the
Bank, with the related party abstaining from the vote. At December 31, 1997,
loans to executive officers and directors amounted to approximately
$1.2 million, all of which performing according to their respective terms at
that date.
MANAGEMENT OF THE NEW BANK
The New Bank's Board of Directors will consist of eight directors. The
Board is divided into three classes with staggered terms, and each director is
elected for a three-year term after their initial election by shareholders.
Directors
<TABLE>
<CAPTION>
Year Year of
Elected Expiration
Name Age(1) Position Director(2) of Term
---- ----- -------- ----------- --------
<S> <C> <C> <C> <C>
Thomas E. Suggs 49 Chairman of the Board 1998 1999
F. Wayne Lovelace 46 President, Chief Executive
Officer and Director 1998 1999
Colden R. Battey, Jr. 62 Director 1998 2000
James A. Shuford, III 46 Director 1998 2000
Henry Vincent Ford 39 Director 1998 2000
Robert R. Bowers 44 Director 1998 2001
Karen S. Faber 35 Director 1998 2001
Charles D. Beaman, Jr. 46 Director 1998 2001
</TABLE>
- -------------------
(1) At December 31, 1997.
Executive Officers Who Are Not Directors
Name Age(1) Position
- ---- ------ --------
James L. Pate, III 46 Senior Vice President and Chief Financial Officer
_____________
(1) At December 31, 1997.
Biographical Information
The principal occupation(s) of each of the above individuals for the past
five years, as well as other information, is set forth below. No family
relationships exist between or among the individuals.
43
<PAGE>
Thomas E. Suggs has been the owner of Rooney, McArthur and Suggs, a
property and casualty insurance agency in Columbia, South Carolina, since 1993.
Prior to 1993, he was a Director and served as Executive Vice President of South
Carolina Federal Savings Bank, Columbia, South Carolina. Prior to his
employment with South Carolina Federal Savings Bank, Mr. Suggs was a senior
officer of South Carolina National Bank in Columbia. Mr. Suggs is active in
civic and community activities in Columbia, South Carolina. He has twice served
as Chairman of the Greater Columbia Chamber of Commerce and currently serves on
the Providence Foundation Board of the Providence Hospital in Columbia.
Mr. Suggs is also active in the affairs of the University of South Carolina.
F. Wayne Lovelace is the proposed Chief Executive Officer of the New Bank.
From August 1974 until September 1997, Mr. Lovelace held positions with First
Citizens Bank in Columbia. Since September 1997, Mr. Lovelace has been an
employee of the Company. Mr. Lovelace's position prior to leaving First
Citizen's Bank was Vice President of Commercial Lending. He has also served as
a Board member and member of the Executive Committee of Junior Achievement of
Greater Columbia, Inc. and has been active in the United Way of the Midlands for
a number of years. Mr. Lovelace has also served as an Executive Committee
member for the South Carolina Bankers Association. Mr. Lovelace served as a
Board member for the Columbia Housing Development Corporation. Mr. Lovelace has
served as an Executive Committee member and a Board Member of the Greater
Columbia Chamber of Commerce.
Colden R. Battey, Jr. is a Senior Partner of Harvey & Battey Law Firm,
Beaufort, South Carolina.
James A. Shuford, III has been President and Chief Executive Officer of the
Company and the Bank since 1993. Prior to that time, he was an officer of First
Union National Bank of South Carolina (formerly South Carolina Federal Savings
Bank).
Henry Vincent Ford is Vice President of Community Development for Richland
Memorial Hospital, the largest medical facility in Columbia, South Carolina. He
is native of Columbia and has served as Executive Director of The Boys & Girls
Club as well as The Sickle Cell Foundation prior to his tenure with Richland
Memorial. Mr. Ford is currently the Chairman of the Board for Richland County
School District I. He is active in civic and community affairs in Columbia,
South Carolina.
Robert R. Bowers is a partner in Bowers, Elkins and Associates, an
insurance firm specializing in estate planning and pension and profit sharing.
Mr. Bowers has been a partner in that firm since 1986. The firm's clientele
consists primarily of professionals and other high net worth individuals.
Mr. Bowers has resided in Columbia for over 30 years.
Karen S. Faber currently serves as a Board member of Paradyme, Inc., an
employment organization, which is family owned. Prior to her career with
Paradyme, she was Executive Vice President with US Personnel for nine years and
instrumental in the success of this company and its sale in 1996. Ms. Faber has
been active in many community and civic affairs in Columbia and has resided
there for over 15 years.
Charles D. Beaman, Jr. has been President of Palmetto Health Alliance since
February 1998. Palmetto Health Alliance was formed through the merger of
Baptist Healthcare System of South Carolina and Richland Memorial Hospital,
Columbia, South Carolina. Prior to the merger he was President and Chief
Executive Officer of Baptist Healthcare System of South Carolina.
James L. Pate, III has been Senior Vice President and Chief Financial
Officer of the Company and the Bank since 1995. Prior to that time he was an
independent real estate appraiser, and an officer of Carolina First Bank and
South Carolina Federal Savings Bank.
44
<PAGE>
Directors' Compensation
The Chairman of the Board will receive a monthly fee of $500. Other
members of the Board of Directors will each receive a monthly fee of $350.
Committees of the Board of Directors
The New Bank's Board of Directors will conduct their business through
meetings and committees of the Boards. Committees of the Board of Directors
have not yet been established, but the New Bank expects to establish Loan,
Community Reinvestment and Audit Committees.
Executive Compensation
Initially, F. Wayne Lovelace, the proposed President and Chief Executive
Officer of the New Bank, will be the only employee of the New Bank who will
receive an employment or severance agreement. In the future, the Company and
the New Bank may extend employment or severance agreements to other employees of
the New Bank.
Mr. Lovelace has been employed with the Company since September 1997 under
the terms of an employment agreement entered into on September 3, 1997. The
employment agreement had an initial term of six months and has been extended for
an additional six months. The agreement is subject to review at annual
intervals at the discretion of the Board of Directors. The agreement provides
for Mr. Lovelace's salary and performance bonus incentives, and also provides
for conditions under which he would be compensated in case of termination.
REGULATION
Regulation of the Bank
General. As a federally insured national bank, the Bank is subject to
extensive regulation. Lending activities and other investments must comply with
various statutory and regulatory requirements, including prescribed minimum
capital standards. The Bank is regularly examined by the OCC and the FDIC and
files periodic reports concerning its activities and financial condition with
those regulatory agencies. The Bank's relationship with depositors and
borrowers also is regulated to a great extent by both federal law and the laws
of the State of South Carolina, especially in such matters as the ownership of
savings accounts and the form and content of mortgage documents.
The federal banking laws and regulations govern all areas of the operation
of the Bank, including reserves, loans, mortgages, capital, issuance of
securities, payment of dividends and establishment of branches. Federal
regulatory agencies also have the general authority to limit the dividends paid
by insured banks and bank holding companies if such payments should be deemed to
constitute an unsafe and unsound practice. The respective primary federal
regulators of the Company and the Bank have authority to impose penalties,
initiate civil and administrative actions and take other steps intended to
prevent banks from engaging in unsafe or unsound practices.
Deposit Insurance. The FDIC insures deposits at the Bank to the maximum
extent permitted by law. The Bank currently pays deposit insurance premiums to
the FDIC based on a risk-based assessment system established by the FDIC for all
SAIF-member institutions. Under applicable regulations, institutions are
assigned to one of three capital groups which are based solely on the level of
an institution's capital --"well capitalized," "adequately capitalized," and
"undercapitalized" -- which are defined in the same manner as the regulations
establishing the prompt corrective action system under the Federal Deposit
Insurance Act ("FDIA"), as discussed below. These three groups are then divided
into three subgroups which reflect varying levels of supervisory concern, from
those which are considered to be healthy to those which are considered to be of
substantial supervisory concern. The matrix so created results in nine
assessment risk classifications, with rates that until September 30, 1996 ranged
from .23% for well capitalized, financially sound institutions with only a few
minor weaknesses to .31% for undercapitalized
45
<PAGE>
institutions that pose a substantial risk of loss to the SAIF unless effective
corrective action is taken. The FDIC is authorized to raise assessment rates in
certain circumstances. The Bank's assessments expensed for the year ended
December 31, 1997, equaled $49,000.
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged or
is engaging in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations, or has violated any applicable law, regulation, order or
any condition imposed by an agreement with the FDIC. It also may suspend
deposit insurance temporarily during the hearing process for the permanent
termination of insurance, if the institution has no tangible capital. If
insurance of accounts is terminated, the accounts at the institution at the time
of termination, less subsequent withdrawals, shall continue to be insured for a
period of six months to two years, as determined by the FDIC. Management is
aware of no existing circumstances which could result in termination of the
deposit insurance of the Bank.
Prompt Corrective Action. Each federal banking agency (including the OCC)
is required to implement a system of prompt corrective action for institutions
which it regulates. The federal banking agencies have promulgated substantially
similar regulations to implement this system of prompt corrective action. Under
the regulations, an institution shall be deemed to be: (i) "well capitalized" if
it has a total risk-based capital ratio of 10.0% or more, has a Tier I risk-
based capital ratio of 6.0% or more, has a Tier I leverage capital ratio of 5.0%
or more and is not subject to specified requirements to meet and maintain a
specific capital level for any capital measure; (ii) "adequately capitalized" if
it has a total risk-based capital ratio of 8.0% or more, has a Tier I risk-based
capital ratio of 4.0% or more, has a Tier I leverage capital ratio of 4.0% or
more (3.0% under certain circumstances) and does not meet the definition of
"well capitalized;" (iii) "undercapitalized" if it has a total risk-based
capital ratio that is less than 8.0%, has a Tier I risk-based capital ratio that
is less than 4.0% or has a Tier I leverage capital ratio that is less than 4.0%
(3.0% under certain circumstances); (iv) "significantly undercapitalized" if it
has a total risk-based capital ratio that is less than 6.0%, has a Tier I risk-
based capital ratio that is less than 3.0% or a Tier I leverage capital ratio
that is less than 3.0%; and (v) "critically undercapitalized" if it has a ratio
of tangible equity to total assets that is equal to or less than 2.0%.
A federal banking agency may, after notice and an opportunity for a
hearing, reclassify a well capitalized institution as adequately capitalized and
may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or engaging in
an unsafe or unsound practice. (The FDIC may not, however, reclassify a
significantly undercapitalized institution as critically undercapitalized.)
An institution generally must file a written capital restoration plan which
meets specified requirements, as well as a performance guaranty by each company
that controls the institution, with the appropriate federal banking agency
within 45 days of the date that the institution receives notice or is deemed to
have notice that it is undercapitalized, significantly undercapitalized or
critically undercapitalized. Immediately upon becoming undercapitalized, an
institution shall become subject to various mandatory and discretionary
restrictions on its operations.
At December 31, 1997, the Bank was categorized as "well capitalized" under
the OCC prompt corrective action regulations.
Standards for Safety and Soundness. The federal banking regulatory
agencies have prescribed regulatory standards for all insured depository
institutions relating to: (i) internal controls, information systems and
internal audit systems; (ii) loan documentation; (iii) credit underwriting;
(iv) interest rate risk exposure; (v) asset growth; (iv) asset quality;
(vii) earnings and (vii) compensation, fees and benefits. The Guidelines set
forth the safety and soundness standards that the federal banking agencies use
to identify and address problems at insured depository institutions before
capital becomes impaired. If the OCC determines that the Bank fails to meet any
standard prescribed by the Guidelines, the agency may require the Bank to submit
to the agency an acceptable plan to achieve compliance with
46
<PAGE>
the standard, as required by the FDIA. The final regulations establish
deadlines for the submission and review of such safety and soundness compliance
plans.
Capital Requirements. The OCC's regulations establish two capital
standards for national banks: a leverage requirement and a risk-based capital
requirement. In addition, the OCC may, on a case-by-case basis, establish
individual minimum capital requirements for a national bank that vary from the
requirements which would otherwise apply under OCC regulations. A national bank
that fails to satisfy the capital requirements established under the OCC's
regulations will be subject to such administrative action or sanctions as the
OCC deems appropriate.
The leverage ratio requires a minimum ratio of "Tier 1 capital" to adjusted
total assets of 3% for national banks rated Composite 1 under the CAMEL rating
system for banks. National banks not rated Composite 1 are required to maintain
a minimum ratio of Tier 1 capital to adjusted total assets of 4% to 5%,
depending upon the level and nature of risks of their operations. For purposes
of the OCC's leverage requirement, Tier 1 capital generally consists of tangible
capital plus certain intangibles. At December 31, 1997, the Bank's Tier 1
leverage ratio was 8.6%.
The OCC risk-based capital requirement requires national banks to maintain
"total capital" equal to at least 8% of total risk-weighted assets. For
purposes of the risk-based capital requirement, "total capital" means Tier 1
capital (as described above) plus "Tier 2 capital" (as described below),
provided that the amount of Tier 2 capital may not exceed the amount of Tier 1
capital, less certain assets. The components of Tier 2 capital generally
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general loan and lease loss allowances up to a
maximum of 1.35% of risk weighted assets. Total risk-weighed assets include all
assets, including certain off-balance sheet items, multiplied by a risk weight,
ranging from 0% to 100%, based on the risk inherent in the type of asset. At
December 31, 1997, the Bank's risked-based capital ratio was 12.0%.
The OCC has revised its risk-based capital requirements to permit it to
require higher level of capital for an institution in light of its interest rate
risk. In addition, the OCC has proposed that a bank's interest rate risk
exposure would be quantified using either the measurement system set forth in
the proposal or the institution's internal model for measuring such exposure, if
such model is determined to be adequate by the institution's examiner. Small
institutions that are highly capitalized and have minimal interest rate risk,
such as the Bank, would be exempt from the rule unless otherwise determined by
the OCC. Management of the Bank has not determined what effect, if any, the
OCC's proposed interest rate risk component would have on the Bank's capital if
adopted as proposed.
Dividends. Dividends from the Bank constitute the major source of funds
for dividends which may be paid by the Company. Federal law and OCC regulations
provide that all dividends by a national bank must be paid out of current or
retained net profits, after deducting reserves for losses and bad debts.
Federal Law further restricts the payment of dividends out of net profits by
prohibiting a national bank from declaring a dividend on its shares of common
stock until the surplus fund equals the amount of capital stock or, if the
surplus fund does not equal the amount of capital stock, until one-tenth of the
bank's net profits for the preceding half year in the case of quarterly or semi-
annual dividends, or the preceding two half-year periods in the case of annual
dividends, are transferred to the surplus fund. In addition, the prior approval
of the OCC is required for the payment of a dividend if the total of all
dividends declared by a national bank in any calendar year would exceed the
total of its net profits for the year combined with its net profits for the two
preceding years, less any required transfers to surplus or a fund of the
retirement of any preferred stock.
The OCC has the authority to prohibit the payment of dividends by a
national bank when it determines such payment to be an unsafe and unsound
banking practice. In addition, the Bank would be prohibited by federal statute
and the OCC's prompt corrective action regulations from making any capital
distribution if, after giving effect to the distribution, the Bank would be
classified as "undercapitalized" under the OCC's regulations. See "-- Prompt
Corrective Action." Moreover, the OCC also has the general authority to limit
the dividends paid by national banks if such payments should be deemed to
constitute an unsafe and unsound practice.
47
<PAGE>
Liquidity. National banks are not subject to any prescribed regulatory
liquidity requirements. At December 31, 1997, the Bank believed that it
maintained sufficient liquid assets to meet its commitments at that date.
Loans-to-One-Borrower. Federal law limits the amount of loans that the
Bank can extend to any one borrowers and the borrower's related entities.
Generally, this limit is 15% of the Bank's unimpaired capital and surplus, plus
an additional 10% of unimpaired capital and surplus, if such loan is secured by
readily-marketable collateral, which is defined to include certain financial
instruments and bullion. At December 31, 1997 the Bank's loans-to-one borrower
limit was approximately $1.3 million. At December 31, 1997, the Bank was in
compliance with this requirement.
Federal Reserve System. Regulation D promulgated by the Federal Reserve
imposes reserve requirements on all depository institutions that maintain
transaction accounts or non personal time deposits. These reserves may be in
the form of cash or non-interest-bearing deposits with the regional Federal
Reserve Bank. NOW accounts and other types of accounts that permit payments or
transfers to third parties fall within the definition of transaction accounts
and are subject to Regulation D reserve requirements, as are any non personal
time deposits at a bank. Under Regulation D, a bank must establish reserves
equal to 0% of the first $4.4 million of net transaction accounts, 3% of the
next $44.9 million, and 10% plus $1.56 million of the remainder. The reserve
requirement on non-personal time deposits with original maturities of less than
1-1/2 years is 0%. As of December 31, 1997, the Bank met its reserve
requirements.
Affiliate Transactions. The Company and the Bank are separate and distinct
legal entities. Various legal limitations restrict the Bank from lending or
otherwise supplying funds to the Company (an "affiliate"), generally limiting
such transactions with the affiliate to 10% of the Bank's capital and surplus
and limiting all such transactions to 20% of the Bank's capital and surplus.
Such transactions, including extensions of credit, sales of securities or assets
and provision of services, also must be on terms and conditions consistent with
safe and sound banking practices, including credit standards, that are
substantially the same or at least as favorable to the Bank as those prevailing
at the time for transactions with unaffiliated companies.
Federally insured banks are subject, with certain exceptions, to certain
restrictions on extensions of credit to their parent holding companies or other
affiliates, on investments in the stock or other securities of affiliates and on
the taking of such stock or securities as collateral from any borrower. In
addition, such banks are prohibited from engaging in certain tie-in arrangements
in connection with any extension of credit or the providing of any property or
service.
Community Reinvestment Act. Banks are also subject to the provisions of
the Community Reinvestment Act of 1977 ("CRA"), which requires the appropriate
federal bank regulatory agency, in connection with its regular examination of a
bank, to assess the bank's record in meeting the credit needs of the community
serviced by the bank, including low and moderate income neighborhoods. The
regulatory agency's assessment of the bank's record is made available to the
public. Further, such assessment is required of any bank which has applied,
among other things, to establish a new branch office that will accept deposits,
relocate an existing office or merge or consolidate with, or acquire the assets
or assume the liabilities of, a federally regulated financial institution. The
bank received a "satisfactory" rating during its latest CRA examination.
Regulation of the Company
General. The Company is a bank holding company registered as such with the
Federal Reserve and subject to comprehensive regulation by the Federal Reserve
under the BHCA and the regulations thereunder. The Company is required to file
with the Federal Reserve annual reports and such additional information as the
Federal Reserve may require and is subject to regular examinations by the
Federal Reserve. The Federal Reserve also has extensive enforcement authority
over bank holding companies, including, among other things, the ability to
assess civil money penalties, to issue cease and desist or removal orders and to
require that a holding company divest subsidiaries
48
<PAGE>
(including its bank subsidiaries). Generally, enforcement actions may be
initiated for violations of law and regulations and unsafe or unsound practices.
Under Federal Reserve policy, a bank holding company must serve as a source
of strength for its subsidiary banks. Under this policy the Federal Reserve may
require, and has required, a holding company to contribute additional capital to
an undercapitalized subsidiary bank.
Under the BHCA, the Company must obtain Federal Reserve approval before:
(i) acquiring, directly or indirectly, ownership or control of any voting shares
of another bank or bank holding company if, after such acquisition, it would own
or control more than 5% of such shares (unless it already owns or controls the
majority of such shares); (ii) acquiring all or substantially all of the assets
of another bank or bank holding company; or (iii) merging or consolidating with
another bank holding company.
Any direct or indirect acquisition by a bank holding company or its
subsidiaries of more than 5% of the voting shares of, or substantially all of
the assets of, any bank located outside of the state in which the operations of
the bank holding company's banking subsidiaries are principally conducted, may
not be approved by the Federal Reserve unless the laws of the state in which the
bank to be acquired is located specifically authorize such an acquisition. See
"-- Interstate Banking and Branching." Since September 30, 1995, federal law
permits well capitalized and well managed bank holding companies to acquire
control of an existing bank in any state.
The BHCA also prohibits a bank holding company, with certain exceptions,
from acquiring direct or indirect ownership or control of more than 5% of the
voting shares of any company that is not a bank or bank holding company and from
engaging directly or indirectly in activities other than those of banking,
managing or controlling banks, or providing services for its subsidiaries.
Under the BHCA, the Federal Reserve is authorized to approve the ownership of
shares by a bank holding company in any company, the activities of which the
Federal Reserve has determined to be so closely related to the business of
banking or managing or controlling banks as to be a proper incident thereto.
The list of activities determined by regulation to be closely related to banking
within the meaning of the BHCA includes, among other things: operating a
savings institution, mortgage company, finance company, credit card company or
factoring company; performing certain data processing operations; providing
certain investment and financial advice; underwriting and acting as an insurance
agent for certain types of credit-related insurance; leasing property on a full-
payout, non-operating basis; selling money orders, travelers' checks and U.S.
Savings Bonds; real estate and personal property appraising; providing tax
planning and preparation services; and, subject to certain limitations,
providing securities brokerage services for customers.
Interstate Banking and Branching. The Riegle-Neal Interstate Banking and
Branching Act of 1994 ("Riegle-Neal") was enacted to ease restrictions on
interstate banking. Effective September 29, 1995, Riegle-Neal allows the
Federal Reserve to approve an application of an adequately capitalized and
adequately managed bank holding company to acquire control of, or acquire all or
substantially all of the assets of, a bank located in a state other than such
holding company's home state, without regard to whether the transaction is
prohibited by the laws of any state. The Federal Reserve may not approve the
acquisition of the bank that has not been in existence for the minimum time
period (not exceeding five years) specified by the statutory laws of the host
state. Riegle-Neal also prohibits the FRB form approving an application if the
applicant (and its depository institution affiliates) controls or would control
more than 10% of the insured deposits in the Untied States or 30% or more of the
deposits in the target bank's home state or in any state in which the target
bank maintains a branch. Riegle-Neal does not affect the authority of states to
limit the percentage of total insured deposits in the state which may be held or
controlled by a bank or bank holding company to the extent such limitation does
not discriminate against out-of-state banks or bank holding companies.
Individual states may also waive the 30% state-wide concentration limit
contained in the Act. Generally, South Carolina law permits any bank holding
company to acquire banks or bank holding companies located in South Carolina
subject to the requirements that the laws of the state in which the acquiring
bank holding company is located permit bank holding companies located in South
Carolina to acquire banks or bank holding companies in the acquiror's state and
that the South Carolina bank sought to be acquired has been in existence for at
least five years.
49
<PAGE>
Additionally, beginning on June 1, 1997, the federal banking agencies were
authorized to approve interstate merger transactions without regard to whether
such transaction is prohibited by the law of any state, unless the home state of
one of the banks opts out Riegle-Neal by adopting a law after the date of
enactment of Riegle-Neal and prior to June 1, 1997 which applies equally to all
out-of-state banks and expressing prohibits merger transactions involving out-
of-state banks. Interstate acquisitions of branches are permitted only if the
law of the state in which the branch is located permits such acquisitions.
Interstate mergers and branch acquisitions are also be subject to the nationwide
and statewide insured deposit concentration amounts described above.
Riegle-Neal authorizes the OCC and FDIC to approve interstate branching de
novo by national and state banks, respectively, only in states which
specifically allow for such branching. Riegle-Neal also requires the
appropriate federal banking agencies to prescribe regulations by June 1, 1997
which prohibit any out-of-state bank from using the interstate branching
authority primarily for the purpose of deposit production. These regulations
must include guidelines to ensure that interstate branches operated by an out-
of-state bank in a host state are reasonably helping to meet the credit needs of
the communities which they serve.
Dividends. The Federal Reserve has issued a policy statement on the
payment of cash dividends by bank holding companies, which expresses the Federal
Reserve's view that a bank holding company should pay cash dividends only to the
extent that the company's net income for the past year is sufficient to cover
both the cash dividends and a rate of earning retention that is consistent with
the company's capital needs, asset quality and overall financial condition. The
Federal Reserve also indicated that it would be inappropriate for a company
experiencing serious financial problems to borrow funds to pay dividends.
Furthermore, under the prompt corrective action regulations adopted by the
Federal Reserve pursuant to FDICIA, the Federal Reserve may prohibit a bank
holding company from paying any dividends if the holding company's bank
subsidiary is classified as "undercapitalized" under the prompt corrective
action regulations.
Generally, bank holding companies are required to give the Federal Reserve
prior written notice of any purchase or redemption of its outstanding equity
securities if the gross consideration for the purchase or redemption, when
combined with the net consideration paid for all such purchases or redemptions
during the preceding 12 months, is equal to 10% or more of their consolidated
net worth. The Federal Reserve may disapprove such a purchase or redemption of
it determines that the proposal would constitute an unsafe or unsound practice
or would violate any law, regulation, Federal Reserve order, or any condition
imposed by, or written agreement with, the Federal Reserve. This notification
requirement does not apply to any company that meets the well-capitalized
standard for commercial banks, has a safety and soundness examination rating of
at least at "2" and is not subject to any unresolved supervisory issues.
Capital Requirements. The Federal Reserve has established capital adequacy
requirements for bank holding companies that generally parallel the capital
requirements for national banks. For bank holding companies with consolidated
assets of less than $150 million, like the Company, compliance is measured on a
bank-only basis. See "-- Regulation of the Bank -- Capital Requirements" and
Note 17 of Notes to Consolidated Financial Statements.
SECURITY OWNERSHIP OF MANAGEMENT
As of the close of business on the Record Date, the Company had 692,748
shares of Common Stock issued and outstanding. The following table sets forth,
as of the close of business on the Record Date, on an historical and on a pro
forma basis, giving effect to the sale of a maximum of 220,000 shares in the
Offering, certain information as to each director and the shares of Common Stock
beneficially owned by all directors and executive officers of the Company as a
group.
50
<PAGE>
Name and Address
of Beneficial Owner Beneficial Ownership (1)
- ------------------- ------------------------
Shares Percent
------ -------
Colden R. Battey, Jr. 62,145(2) 8.79%
Russell L. Jeter 48,659(3) 6.88
James D. Neighbors 15,397 2.22
Laurance H. Davis, Jr. 1,100 0.16
Richard L. Gray 72,472(4) 10.25
Robert A. Kerr 21,329(5) 3.06
Jerry H. Reeves, III 6,732(6) 0.97
Carson R. Rentz 28,746(7) 4.07
William C. Robinson 25,619(8) 3.62
James A. Shuford, III 2,815(9) 0.40
All Executive Officers and 289,011(10) 37.20
Directors as a group (15 persons)
- ---------------------------
(1) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended ("Exchange Act"), a person is deemed to be the beneficial owner,
for purposes of this table, of any shares of the Company's Common Stock if
he or she has voting and/or investment power with respect to such security
or has a right to acquire, through the exercise of outstanding options or
otherwise, beneficial ownership at any time within 60 days from the Record
Date. The table includes shares owned by spouses, other immediate family
members in trust, shares held in retirement accounts or funds for the
benefit of the named individuals, and other forms of ownership, over which
shares the named persons possess voting and/or investment power.
(2) Includes pro-rata ownership of shares held by the Harvey & Battey Law Firm
pension plan, of which Mr. Battey is a senior partner, over which shares
Mr. Battey has voting and investment power. Includes 14,046 shares subject
to outstanding stock options exercisable within 60 days of the Record Date.
(3) Includes 14,046 shares subject to outstanding stock options exercisable
within 60 days of the Record Date.
(4) Includes 14,046 shares subject to outstanding stock options exercisable
within 60 days of the Record Date.
(5) Includes 4,459 shares subject to outstanding stock options exercisable
within 60 days of the Record Date.
(6) Includes 3,032 shares subject to outstanding stock options exercisable
within 60 days of the Record Date.
(7) Includes 14,046 shares subject to outstanding stock options exercisable
within 60 days of the Record Date.
(8) Includes 14,046 shares subject to outstanding stock options exercisable
within 60 days of the Record Date.
(9) Includes 2,426 shares subject to outstanding stock options exercisable
within 60 days of the Record Date.
(10) Includes an aggregate of 84,144 shares subject to outstanding stock options
exercisable within 60 days of the Record Date.
ESTIMATED MANAGEMENT PURCHASES IN THE OFFERING
The following table sets forth certain information as to the approximate
intended purchases of Common Stock by directors and officers of the Bank and the
New Bank, including their associates. None of the individuals has entered into
a binding agreement with respect to his or her intended purchases. Accordingly,
actual purchases could be more or less than indicated. Directors and officers
will pay the same $18.00 per share Purchase Price for the Common Stock as all
other subscribers.
51
<PAGE>
<TABLE>
<CAPTION>
As a Percentage of Offering Based On
------------------------------------
Aggregate Minimum Midpoint Maximum
Name Shares Purchase Price Offering Offering Offering
- ---- ------ -------------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Colden R. Battey, Jr. 6,871 $123,678 3.94% 3.53% 3.20%
James A. Shuford, III 1,000 18,000 0.57 0.51 0.47
Russell L. Jeter 4,945 89,010 2.83 2.54 2.31
James D. Neighbors 2,200 39,600 1.26 1.13 1.03
Laurence H. Davis, Jr. 157 2,826 0.09 0.08 0.07
Richard L. Gray 8,347 150,246 4.78 4.29 3.89
Robert A. Kerr 2,410 43,380 1.38 1.24 1.12
Jerry H. Reeves, III 529 9,522 0.30 0.27 0.25
Carson R. Rentz 2,100 37,800 1.20 1.08 0.98
William C. Robinson 1,653 29,754 0.95 0.85 0.77
Thomas E. Suggs 1,700 30,600 0.97 0.87 0.79
F. Wayne Lovelace 2,000 36,000 1.15 1.03 0.93
Henry Vincent Ford 100 1,800 0.06 0.05 0.05
Robert R. Bowers 1,000 18,000 0.57 0.51 0.47
Karen S. Faber 1,500 27,000 0.86 0.77 0.70
Charles D. Beaman, Jr. 1,000 18,000 0.57 0.51 0.47
Other executive officers
as a group 1,000 18,000 0.57 0.51 0.47
------ -------- ----- ----- -----
All officers and directors 38,512 $693,216 22.08% 19.81% 17.96%
as a group (19 persons) ====== ======== ===== ===== =====
</TABLE>
THE OFFERING
General
The Company is offering for sale a minimum of 180,000 and a maximum of
220,000 shares of its Common Stock at a price of $18.00 per share to raise gross
proceeds of between $3.2 million and $4.0 million for the Company. Rights Holder
will have the non-transferrable right to subscribe for a maximum of one share of
Common Stock for every seven shares held as of the close of business on the
Record Date. If Rights Holders do not subscribe for all the shares being
offered, the remaining shares will be offered for sale in the Community Offering
to members of the general public with preference given to permanent residents of
the Local Community. Persons other than Rights Holder may subscribe for up to
$100,000 of Common Stock (5,555 shares), but no fewer than 50 shares of Common
Stock. The Company has the absolute right to reject any subscription order in
whole or in part at anytime before the completion of the Offering, and if it
does so in part the subscriber does not have the right to cancel the remainder
of his or her subscription.
Subscriptions to purchase shares will be received until ____ p.m.,
_________, Eastern Time, on _______, 1998, unless all of the shares are earlier
sold or the Offering is earlier terminated or extended by the Company. See "--
Conditions to the Offering and Release of Funds" below. The Company reserves the
right to terminate the Offering at any time or to extend the expiration date for
additional periods not to extend beyond_______, 1998. Written notice of an
extension of the offering period shall be given prior to the commencement of
each extended offering period to all persons who are already subscribers at the
time of the extension but such notice will not alter the binding nature of
subscriptions already accepted by the Company. Extension of the Offering may
cause an increase in the Company's expenses.
52
<PAGE>
Following acceptance by the Company, subscriptions are binding on
subscribers and may not be revoked by subscribers except with the consent of the
Company. The Company may, in its sole discretion, allocate shares among
subscribers in the event of an over-subscription for the shares of Common Stock.
In determining which subscriptions to accept, in whole or in part, the Company
may take into account the order in which subscriptions are received, a
subscriber's potential to do business with, or to direct customers to, the Bank
and/or the New Bank, and the Company's desire to have a broad distribution of
stock ownership, and other considerations.
In the event the Company rejects all, or accepts less than all, of any
subscription, the Company will refund promptly without interest the amount
remitted that corresponds to $18.00 multiplied by the number of shares as to
which the subscription is not accepted. If the Company accepts a subscription
but in its discretion subsequently elects to cancel all or part of such
subscription, the Company will refund promptly without interest the amount
remitted which corresponds to $18.00 multiplied by the number of shares as to
which the subscription is canceled.
Stock certificates representing shares duly subscribed and paid for will be
issued by the Company promptly after the Offering conditions are satisfied,
including the receipt of all applicable regulatory approvals.
Conditions to the Offering and Release of Funds
Subscription proceeds accepted by the Company will be promptly deposited in
a separately insured, non-interest bearing deposit account at the Bank until the
completion or termination of the Offering. See "-- How to Subscribe."
Consummation of the Offering is subject to the receipt of final regulatory
approval for the New Bank to commence business. If the New Bank does not
receive such final regulatory approval, the Offering will be terminated. If the
Offering is terminated, accepted subscription agreements will be of no further
force or effect and the full amount of subscription funds will be returned
promptly to subscribers, together with interest earned thereon, without
deduction of any fees, commissions, or expenses. In such event, organizational,
offering, and pre-opening costs and expenses of the New Bank will be paid by the
New Bank's organizers.
How to Subscribe
The Offering will terminate at ___:____ __.m., Eastern time, on ______ ___,
1998, unless extended by the Company. All subscription forms, together with
full payment for all shares subscribed for, must be physically received by the
Bank by that time or else they will be null and void. Subscription forms may be
hand delivered to the Bank or sent to the Bank by U.S. mail or by private
delivery service. If sent by U.S. mail or private delivery service, the
subscriber assumes the risk of untimely delivery. Subscriptions for Common
Stock accepted by the Company may not be revoked under any circumstances.
Payment for Common Stock may be made in cash (only if delivered in person to the
Bank) or by check or money order made payable to "FirstBancorporation, Inc."
All funds received from subscribers will be held in a separately insured, non-
interest bearing deposit account at the Bank until the completion or termination
of the Offering.
Selling Arrangements
The Company will sell the Common Stock directly without the assistance of a
marketing firm or underwriter. Directors and executive officers of the Company
may participate in the solicitation of offers to purchase Common Stock. The
Company will rely on Rule 3a4-1 under the Exchange Act, and sales of Common
Stock will be conducted within the requirements of Rule 3a4-1, so as to permit
directors and executive officers of the Company to participate in the sale of
Common Stock. No director, officer, or employee of the Company will be
compensated in connection with his/her participation by the payment of
commissions or other remuneration based either directly or indirectly on the
transactions in the Common Stock.
53
<PAGE>
RESTRICTIONS ON ACQUISITION OF THE COMPANY
General
Certain provisions in the Company's Articles of Incorporation and Bylaws
and in its management remuneration together with provisions of South Carolina
corporate law, may have anti-takeover effects.
Restrictions in the Company's Articles of Incorporation and Bylaws
A number of provisions of the Company's Articles of Incorporation and
Bylaws deal with matters of corporate governance and certain rights of
stockholders. The following discussion is a general summary of the provisions of
the Articles of Incorporation and Bylaws which might be deemed to have a
potential "anti-takeover" effect. These provisions may have the effect of
discouraging a future takeover attempt that is not approved by the Board of
Directors, but which individual Company stockholders may deem to be in their
best interests or in which stockholders may receive a substantial premium for
their shares over then current market prices. As a result, stockholders who
might desire to participate in such a transaction may not have an opportunity to
do so. Such provisions will also render the removal of the current Board of
Directors or management of the Company more difficult. The following description
of certain of the provisions of the Articles of Incorporation and Bylaws of the
Company is necessarily general and reference should be made in each case to such
Articles of Incorporation and Bylaws, which are incorporated herein by
reference. See "ADDITIONAL INFORMATION" as to how to obtain a copy of these
documents.
Board of Directors. The Board of Directors of the Company is divided into
three classes, each of which shall contain approximately one-third of the whole
number of members of the Board. Each class shall serve a staggered term, with
approximately one-third of the total number of directors being elected each
year. The Articles of Incorporation and Bylaws provide that the size of the
Board shall be determined by a two-thirds vote of directors then in office. The
Articles of Incorporation and the Bylaws provide that any vacancy occurring in
the Board, including a vacancy created by an increase in the number of directors
or resulting from death, resignation, retirement, disqualification, removal from
office or other cause, may be filled for the remainder of the unexpired term
exclusively by a majority vote of the directors then in office whether or not a
quorum. The classified Board is intended to provide for continuity of the Board
of Directors and to make it more difficult and time consuming for a stockholder
group to fully use its voting power to gain control of the Board of Directors
without the consent of the incumbent Board of Directors of the Company. The
Articles of Incorporation of the Company provides that a director may be removed
from the Board of Directors prior to the expiration of his term only for cause,
upon the vote of at least two-thirds of the outstanding shares of voting stock.
In the absence of these provisions, the vote of the holders of a majority of the
shares could remove the entire Board, with or without cause, and replace it with
persons of such holders' choice. The provisions can only be amended by the
shareholders with the affirmative vote of holders of at least two-thirds of the
shares of common stock entitled to vote.
Cumulative Voting, Special Meetings and Action by Written Consent. The
Articles of Incorporation do not provide for cumulative voting for any purpose.
Moreover, special meetings of stockholders of the Company may be called only by
the Board of Directors of the Company, the chairman of the Board of Directors,
the President, or as otherwise required by law. The Articles of Incorporation
also provide that any action required or permitted to be taken by the
stockholders of the Company may be taken only at an annual or special meeting
and prohibits stockholder action by written consent in lieu of a meeting.
Authorized Shares. The Articles of Incorporation authorizes the issuance of
2,000,000 shares of Common Stock and 1,000,000 shares of serial preferred stock.
The shares of Common Stock and preferred stock were authorized in an amount
greater than that to be issued in the Offering to provide the Company's Board of
Directors with as much flexibility as possible to effect, among other
transactions, financings, acquisitions, stock dividends, stock splits and
employee stock options. However, these additional authorized shares may also be
used by the Board of Directors consistent with its fiduciary duty to deter
future attempts to gain control of the Company. The Board
54
<PAGE>
of Directors also has sole authority to determine the terms of any one or more
series of Preferred Stock, including voting rights, conversion rates, and
liquidation preferences. As a result of the ability to fix voting rights for a
series of Preferred Stock, the Board has the power, to the extent consistent
with its fiduciary duty, to issue a series of Preferred Stock to persons
friendly to management in order to attempt to block a post-tender offer merger
or other transaction by which a third party seeks control, and thereby assist
management to retain its position. The Company's Board of Directors currently
has no plans for the issuance of additional shares.
Certain Bylaw Provisions. The Articles of Incorporation and Bylaws of the
Company also require a stockholder who intends to nominate a candidate for
election to the Board of Directors, or to raise new business at a stockholder
meeting to give not less than 30 nor more than 90 days notice to the Secretary
of the Company. The notice provision requires a stockholder who desires to raise
new business to provide certain information to the Company concerning the nature
of the new business, the stockholder and the stockholder's interest in the
business matter. Similarly, a stockholder wishing to nominate any person for
election as a director must provide the Company with certain information
concerning the nominee and the proposing stockholder.
Anti-takeover Effects of the Company's Articles of Incorporation and Bylaws and
Management Remuneration
The provisions described above are intended to reduce the Company's
vulnerability to takeover attempts and certain other transactions that have not
been negotiated with and approved by members of its Board of Directors. The
provisions of the employment and severance agreements with senior officers of
the Company and the Bank may also discourage takeover attempts by increasing the
costs to be incurred by the Bank and the Company in the event of a takeover. See
"MANAGEMENT OF THE COMPANY AND THE BANK -- Executive Compensation -- Employment
Agreement."
The Company's Board of Directors believes that the provisions of the
Articles of Incorporation, Bylaws and the employment and severance agreement are
in the best interest of the Company and its stockholders. An unsolicited non-
negotiated proposal can seriously disrupt the business and management of a
corporation and cause it great expense. Accordingly, the Board of Directors
believes it is in the best interests of the Company and its stockholders to
encourage potential acquirors to negotiate directly with management and that
these provisions will encourage such negotiations and discourage non-negotiated
takeover attempts. It is also the Board of Directors' view that these provisions
should not discourage persons from proposing a merger or other transaction at a
price that reflects the true value of the Company and that otherwise is in the
best interest of all stockholders.
South Carolina Anti-takeover Statutes
South Carolina has enacted two statutes which provide the Company with
protection against takeover attempts. The "Business Combination Act" provides
that an "interested shareholder" (generally defined as a person owning more than
10% of a South Carolina corporation's outstanding voting stock) may not engage
in a business combination with such corporation for a period of two years
following the date he became an interested shareholder unless the transaction is
approved in advance by the corporation's board of directors or certain
exemptions apply. Following the expiration of this two-year period, any
business combination with an interested shareholder must be approved by a
majority vote of the disinterested stockholders or meet certain fair price and
other procedural requirements.
The "Control Share Acquisition Act" generally precludes a person who
acquires voting shares of a South Carolina corporation in excess of specified
thresholds of the voting power in the corporation from voting the shares held in
excess of the applicable threshold unless voting rights for such shares are
approved by a majority vote of the corporation's disinterested stockholders.
These thresholds are (i) one-fifth or more but less than one-third of all voting
power, (ii) one-third or more but less than a majority of all voting power, and
(iii) a majority or more of all voting power. The protection of the Control
Share Acquisition Act apply to a corporation unless the corporation's articles
of incorporation or bylaws provide that the provisions of the "Control Share
Acquisition Act" do not apply. Neither the Company's Articles of Incorporation
nor Bylaws contain such a provision.
55
<PAGE>
DESCRIPTION OF COMMON STOCK
Common Stock
The Company is authorized to issue 3,000,000 shares of stock, of which
2,000,000 shares are designated Common Stock and 1,000,000 shares are designated
serial preferred stock. As of the close of business on the Record Date there
were 692,748 shares of Common Stock issued and outstanding, and no shares of
serial preferred stock are issued or outstanding. The Company expects to issue a
minimum of 180,000 and a maximum of 220,000 shares of Common Stock and no shares
of serial preferred stock in connection with the Offering.
Voting Rights. The holders of Company Common Stock possess exclusive voting
rights in the Company, except to the extent that shares of serial preferred
stock issued in the future may have voting rights, if any. Each holder of Common
Stock will be entitled to one vote for each share held of record on all matters
submitted to a vote of holders of the Common Stock.
Dividends. Subject to such preferences as may be applicable to any shares
of preferred stock which may be issued in the future, the holders of Common
Stock are entitled to such dividends as the Board of Directors may declare from
time to time out of funds legally available therefore and are entitled to share
pro rata in liquidating and other distributions to shareholders. South Carolina
generally prohibits the Company from paying dividends if, after giving effect to
a proposed dividend, (i) the Company would be unable to pay its debts as they
become due in the normal course of business or (ii) the Company's total assets
would be less than its total liabilities, plus the sum that would be needed to
satisfy the preferential rights upon dissolution of shareholders whose
preferential rights are superior to those receiving the dividend. The ability
of the Company to pay dividends depends primarily on the ability of the Bank to
pay dividends to the Company. See "REGULATION -- Regulation of the Bank --
Dividends" for a discussion of the ability of the Bank to pay dividends. As a
newly formed bank, the New Bank will be restricted from paying any dividends for
its initial three years of operation.
Other Characteristics. Holders of the Common Stock will not have preemptive
rights with respect to any additional shares of Common Stock which may be
issued. Therefore, the Board of Directors may sell shares of capital stock of
the Company without first offering it to existing stockholders. The Common Stock
is not subject to call for redemption and the outstanding shares of Common Stock
when issued and upon receipt by the Company of the offering price will be fully
paid and non-assessable.
Serial Preferred Stock
None of the 1,000,000 authorized shares of serial preferred stock of the
Company will be issued in the Offering. The Board of Directors of the Company is
authorized, without stockholder approval, to issue serial preferred stock and to
fix and state voting powers, designations, preferences or other special rights
of such shares and the qualifications, limitations and restrictions thereof. If
and when issued, the serial preferred stock is likely to rank prior to the
Common Stock as to dividend rights, liquidation preferences, or both, and may
have full or limited voting rights which could adversely affect the voting power
of holders of Common Stock. The Board of Directors has no present intention to
issue any of the serial preferred stock.
SHARES ELIGIBLE FOR FUTURE SALE
The Company's Articles of Incorporation authorizes the issuance of
2,000,000 shares of Common Stock. Upon completion of the Offering, there will be
outstanding a minimum of 872,748 and a maximum of 912,748 shares of Common
Stock.
All shares of Common Stock issued in the Offering will be available for
resale in the public market without restriction or further registration under
the Securities Act of 1933, as amended ("Securities Act"), except for shares
purchased by affiliates of the Company (in general, any person who has a control
relationship with the Company)
56
<PAGE>
or shares exchanged by affiliates in the Reorganization, which shares will be
subject to the resale limitations of Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including a person who may be deemed to be an
"affiliate" of the Company as that term is defined under the Securities Act, is
entitled to sell, within any three-month period, a number of restricted shares
as to which at least two years have elapsed from the later of the acquisition of
such shares from the Company or an affiliate of the Company in an amount that
does not exceed the greater of (i) one percent of the then outstanding shares of
Common Stock (8,727 and 9,127 shares based upon 872,748 and 912,748 shares to be
outstanding at the minimum and the maximum immediately after the Offering), or
(ii) if the Common Stock is quoted on the National Market System of the Nasdaq
Stock Market or a stock exchange, the average weekly trading volume of the
Common Stock during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject to certain requirements as to the manner of sale,
notice, and the availability of current public information about the Company.
However, a person who is not deemed to have been an affiliate of the Company
during the 90 days preceding a sale by such person and who has beneficially
owned shares as to which at least three years has elapsed from the later of the
acquisition of such shares from the Company or an affiliate of the Company is
entitled to sell them without regard to the volume, manner of sale, or notice
requirements of Rule 144.
TRANSFER AGENT AND REGISTRAR
Registrar and Transfer Company, Cranford, New Jersey acts as the transfer
agent and registrar for the Common Stock.
LEGAL OPINIONS
The legality of the Common Stock will be passed upon for the Company by
Breyer & Aguggia, Washington, D.C. Breyer & Aguggia has consented to the
references herein to its opinion, which is filed as exhibit to the Registration
Statement. See "ADDITIONAL INFORMATION."
EXPERTS
The Consolidated Financial Statements of the Company as of December 31,
1997 and 1996 and for the years ended December 31, 1997 and 1996 included herein
in reliance on the report of J.W. Hunt and Company, LLP, independent auditors,
appearing elsewhere herein, and upon the authority of said firm as experts in
auditing and accounting.
AVAILABLE INFORMATION
The Company is subject to the periodic reporting requirements of the
Exchange Act. Accordingly, the Company files reports, proxy statements and
other information with the Securities and Exchange Commission ("Commission"),
which are available for inspection and copying at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and at Seven World Trade Center, Suite 1300, New York, New York
10048. Copies of these documents may also be obtained from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates, or may be obtained through the
Commission's Internet address at http://www.sec.gov.
The Company will furnish to its shareholders annual reports containing
audited financial statements and will make available copies of quarterly reports
for the first three quarters of each fiscal year containing unaudited interim
consolidated financial information.
57
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission, under the Securities Act, a
Registration Statement on Form SB-2 (No. 333-_____) (including all amendments
and exhibits thereto, the "Registration Statement") with respect to the
securities offered hereby. This Prospectus does not contain all of the
information in the Registration Statement, certain parts of which are omitted
according to the rules and regulations of the Commission. The Registration
Statement, including exhibits and any amendments, is available for inspection
and copying as set forth above. Statements contained in this Prospectus as to
the contents of any contract or other document are not necessarily complete, and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
58
<PAGE>
FIRSTBANCORPORATION, INC. AND SUBSIDIARY
Index To Consolidated Financial Statements
<TABLE>
<CAPTION>
Pages
<S> <C>
Independent Auditor's Report.......................................... F-1
Consolidated Balance Sheets at December 31, 1997 and 1996............. F-2
Consolidated Statements of Income for the Years Ended December 31,
1997 and 1996........................................................ 9
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended December 31, 1997 and 1996................................ F-3
Consolidated Statements of Cash Flows for the Years Ended December
31, 1997 and 1996.................................................... F-4
Notes to Consolidated Financial Statements............................ F-6
</TABLE>
All schedules are omitted because the required information is either not
applicable or is included in the consolidated financial statements or related
notes.
59
<PAGE>
[LETTERHEAD OF J.W. HUNT AND COMPANY, LLP APPEARS HERE]
INDEPENDENT AUDITORS' REPORT
============================
To the Stockholders and the Board of Directors
FirstBancorporation, Inc.
Beaufort, South Carolina
We have audited the accompanying consolidated balance sheets of
FirstBancorporation, Inc., and Subsidiary as of December 31, 1997 and 1996, and
the related consolidated statements of income, changes in stockholders' equity
and cash flows for each of the years in the two-year period ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these 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 financial statements. An audit also includes
assessing the accounting principles used and 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FirstBancorporation,
Inc. and Subsidiary at December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the two-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ J.W. Hunt and Company, LLP
Columbia, South Carolina
January 30, 1998
F-1
<PAGE>
FIRSTBANCORPORATION, INC. AND SUBSIDIARY
----------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1997 AND 1996
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996
---- ----
ASSETS
------
<S> <C> <C> <C>
Cash and amounts due from banks $ 4,126,603 $ 4,721,174
Interest-bearing deposits with banks 1,968,995 3,149,854
-------------------------------------
Total cash and cash equivalents 6,095,598 7,871,028
Interest-bearing time deposits with banks 99,000 199,177
Securities available-for-sale 2,182,412 2,485,075
Real estate loans held-for-sale 676,279 663,316
Loans receivable - net of loans in process 80,792,015 78,780,166
Less, allowance for loan losses (728,043) (630,557)
-------------------------------------
80,063,972 78,149,609
-------------------------------------
Accrued interest receivable 555,537 502,412
Premises and equipment, net 1,288,233 1,147,127
Foreclosed real estate 126,500 227,510
Deferred organization costs 123,233 135,547
Deferred tax asset 263,987 185,172
Prepaid expenses and other assets 224,064 167,176
-------------------------------------
Total assets $ 91,698,815 $ 91,733,149
=====================================
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES:
<S> <C> <C> <C>
Demand deposits $ 34,608,201 $ 33,041,216
Savings deposits 5,176,093 5,969,522
Time deposits 37,677,994 39,289,281
-------------------------------------
Total deposits 77,462,288 78,300,019
Federal Home Loan Bank advances 5,050,000 5,600,000
Amounts due to depository institutions (non-interest bearing) 305,315 200,117
Advance payments by borrowers for taxes and insurance 54,630 76,473
Accrued liabilities:
Interest payable 208,410 119,059
Expenses payable 173,025 213,569
Other 464,146 179,233
-------------------------------------
Total liabilities 83,717,814 84,688,470
-------------------------------------
STOCKHOLDERS' EQUITY:
Preferred stock - $0.01par value, shares authorized - 1,000,000, issued and
outstanding - none
Common stock - $0.01 par value, shares authorized - 2,000,000, issued
and outstanding - 690,323 - 1997; issued and outstanding - 627,587 - 1996 6,903 6,276
Additional paid-in capital 6,248,777 5,441,306
Unrealized loss on securities available-for-sale, net of applicable
deferred income taxes (14,497) (10,931)
Retained earnings 1,739,818 1,608,028
-------------------------------------
Total stockholders' equity 7,981,001 7,044,679
-------------------------------------
Total liabilities and stockholders' equity $ 91,698,815 $ 91,733,149
=====================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
- -------------------------------------------------------------------------
STATEMENTS
- ----------
F-2
<PAGE>
FIRSTBANCORPORATION, INC. AND SUBSIDIARY
----------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY,
YEARS ENDED DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNREALIZED
LOSS ON
SECURITIES
AVAILABLE-FOR-SALE,
NET OF
COMMON STOCK ADDITIONAL APPLICABLE TOTAL
NUMBER PAID-IN RETAINED DEFERRED STOCKHOLDERS'
OF SHARES AMOUNT CAPITAL EARNINGS INCOME TAXES EQUITY
--------- ------ ------- -------- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance,
January 1, 1996 595,848 $ 5,958 $ 5,037,021 $ 1,493,810 $ (19,325) $ 6,517,464
Issuance of 29,738
shares of stock for
5% stock dividend 29,738 298 386,295 (386,593) - -
Stock options exercised 2,001 20 17,990 - - 18,010
Net income - - - 500,811 - 500,811
Change in unrealized
loss on securities
available-for-sale, net
of applicable deferred
income taxes of
$5,144 - - - - 8,394 8,394
-------------------------------------------------------------------------------------
Balance,
December 31, 1996 627,587 6,276 5,441,306 1,608,028 (10,931) 7,044,679
Issuance of 62,736 shares
of stock for 10% stock
dividend 62,736 627 814,941 (815,568) - -
Net income - - - 947,358 - 947,358
Stock issuance cost - - (7,470) - - (7,470)
Change in unrealized
loss on securities
available-for-sale, net
of applicable deferred
income taxes of
$2,185 - - - - (3,566) (3,566)
-------------------------------------------------------------------------------------
Balance,
December 31, 1997 690,323 $ 6,903 $ 6,248,777 $ 1,739,818 $ (14,497) $ 7,981,001
=====================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
- -------------------------------------------------------------------------
STATEMENTS
- ----------
F-3
<PAGE>
FIRSTBANCORPORATION, INC. AND SUBSIDIARY
----------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS, YEARS ENDED DECEMBER 31, 1997 AND 1996
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 947,358 $ 500,811
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred loan fees and discounts (27,018) (3,654)
Provision for loan losses 165,000 162,000
Depreciation and amortization 266,762 202,949
Deferred income taxes (78,815) (43,992)
Gain on sale of foreclosed real estate (4,573) (50,393)
Increase in interest receivable (53,125) (5,967)
Increase in prepaid expenses and other assets (56,888) (65,965)
Originations of loans sold to investors (14,164,921) (7,521,386)
Proceeds from sales of loans to investors 14,164,921 7,521,386
Disbursements on loans serviced for others (1,611,484) (1,227,215)
Receipts on loans serviced for others 1,710,947 1,226,719
Increase in real estate loans held for sale (12,963) (411,966)
Increase in accrued interest payable 89,351 14,398
Increase (decrease) in accrued expenses (40,543) 162,695
Increase in other liabilities 284,913 56,585
-----------------------------------
Net cash provided by operating activities 1,578,922 517,005
-----------------------------------
Cash flows from investing activities:
Purchase of securities available-for-sale (98,602) (97,315)
Maturities of interest-bearing time deposits with banks 100,177 -
Principal repayments of securities available-for-sale 387,060 350,613
Purchase of Federal Home Loan Bank stock and
dividends received - (103,800)
Loans originated, net (2,193,574) (6,546,392)
Proceeds from sales of foreclosed real estate 149,534 530,500
Capital expenditures (387,101) (293,894)
-----------------------------------
Net cash used by investing activities (2,042,506) (6,160,288)
-----------------------------------
Cash flows from financing activities:
Net increase in demand deposit accounts 1,566,985 3,631,534
Net decrease in savings deposit accounts (793,429) (1,329,939)
Net increase (decrease) in time deposits (1,611,287) 1,093,499
Proceeds from Federal Home Loan Bank advances 16,450,000 15,150,000
Repayment of Federal Home Loan Bank advances (17,000,000) (10,550,000)
Increase (decrease) in amounts due to depository
institutions 105,198 (37,973)
Decrease in advance payments by borrowers
for taxes and insurance (21,843) (7,188)
Stock issuance costs (7,470) -
Proceeds from stock options exercised - 18,010
-----------------------------------
Net cash provided (used) by financing activities (1,311,846) 7,967,943
-----------------------------------
</TABLE>
(Continued) - 1.
F-4
<PAGE>
FIRSTBANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS,
YEARS ENDED DECEMBER 31, 1997 AND 1996
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net increase (decrease) in cash and cash equivalents $ (1,775,430) $ 2,324,660
Cash and cash equivalents at beginning of year 7,871,028 5,546,368
-----------------------------------
Cash and cash equivalents at end of year $ 6,095,598 $ 7,871,028
===================================
Supplemental disclosure of cash flow information:
Cash paid for:
Interest on deposits and borrowings $ 3,333,334 $ 3,110,789
===================================
Income taxes $ 637,505 $ 400,160
===================================
Supplemental disclosures of noncash investing activities:
Non-cash transfers during the year for transfer
of loans receivable to foreclosed real estate $ 43,951 $ 264,752
===================================
Change in unrealized loss on securities
available-for-sale, net of applicable deferred
income taxes $ (3,566) $ 8,394
===================================
</TABLE>
(Concluded) - 2.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
- -------------------------------------------------------------------------
STATEMENTS
- ----------
F-5
<PAGE>
FIRSTBANCORPORATION, INC. AND SUBSIDIARY
========================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION:
FirstBancorporation, Inc. (the Company) was organized under the laws of the
State of South Carolina on February 28, 1995, for the purpose of becoming a bank
holding company for FirstBank, N.A. (formerly known as The Savings Bank of
Beaufort County, F.S.B.). Pursuant to the provisions of the Bank Holding Company
Act, application was filed during April 1995, with the Board of Governors of the
Federal Reserve System for the Company to become a bank holding company by
acquiring the Bank and approval was granted on June 15, 1995.
In accordance with the terms of the Plan of Reorganization, FirstBank, N.A.
(FirstBank) became a wholly-owned subsidiary of FirstBancorporation, Inc. on
November 1, 1995. The Company issued 595,848 shares of common stock in exchange
for the outstanding common stock of FirstBank on a one-for-one basis.
Acquisition of FirstBank was recorded at historical cost in a manner similar to
the pooling of interest method and the issuance of $5,042,979 of common stock
was recorded by the Company.
On June 5, 1995, a plan of conversion was completed whereby The Savings Bank of
Beaufort County, F.S.B., a federal stock savings bank chartered on March 18,
1986 by the Federal Home Loan Bank Board, predecessor of the Office of Thrift
Supervision (OTS), became a national bank and changed its name to "FirstBank,
N.A." Upon completion of the conversion, FirstBank became subject to the
provisions of the National Bank Act, as amended, and the regulations and rules
issued thereunder by the Office of the Comptroller of the Currency (OCC).
FirstBank is no longer subject to the regulatory jurisdiction of the OTS.
The aggregate number of shares of all classes of capital stock which the Company
has authority to issue is three million (3,000,000), of which two million
(2,000,000) shall be common stock, par value $.01 per share, amounting in the
aggregate to $20,000, and of which one million (1,000,000) shall be serial
preferred stock, par value $.01 per share, amounting in the aggregate to
$10,000.
In 1996, First Securities Corporation (FSC) was incorporated in South Carolina.
FSC was organized to provide alternative investment services in FirstBank's
service area. At December 31, 1996, FSC was inactive and none of its authorized
common stock had been issued. FSC began operations in the second quarter of
1997 and is a wholly-owned subsidiary of FirstBank.
F-6
<PAGE>
FIRSTBANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1 ORGANIZATION (CONTINUED):
The Company has filed an application for a new bank charter with the OCC and the
Federal Deposit Insurance Corporation (FDIC) for approval of its acquisition of
all of the stock of FirstBank of the Midlands (in organization). FirstBank of
the Midlands (FBM) in organization is being sponsored by the Company.
Management anticipates preliminary approval for issuance of the Bank's charter
and Federal Deposit Insurance will be granted to FBM's organizers by the OCC and
the FDIC. This newly formed bank will be a wholly-owned subsidiary of the
Company and is expected to begin operations in the latter half of 1998.
FirstBank's primary source of revenue is providing loans to customers, who are
predominately small and middle-market businesses and individuals in the area
encompassing the northern two-thirds of Beaufort County, South Carolina.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accounting and reporting policies of the Company, FirstBank and FSC conform
with generally accepted accounting principles and with the prevailing practices
within the banking industry.
PRINCIPLES OF CONSOLIDATION:
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, FirstBank. All significant intercompany
balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES:
The preparation of consolidated 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 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.
CASH AND CASH EQUIVALENTS:
For purposes of presentation in the consolidated statements of cash flows, cash
and cash equivalents are defined as amounts included in the balance sheets under
the captions "Cash and amounts due from banks" and "Interest-bearing deposits
with banks".
F-7
<PAGE>
FIRSTBANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
SECURITIES AVAILABLE-FOR-SALE:
Securities that may be sold prior to maturity for asset/liability management
purposes, or that may be sold in response to changes in interest rates, changes
in prepayment risk, to increase regulatory capital or other similar factors, are
classified as available-for-sale and are carried at fair value. Unrealized
gains and losses on securities available-for-sale are recognized as direct
increases or decreases, net of deferred income taxes, in stockholders' equity
until realized. Gains and losses on the sale of securities available-for-sale
are recognized using the specific identification method. Federal Home Loan Bank
(FHLB) and Federal Reserve Bank (FRB) stock are carried at cost.
Premiums and discounts are recognized in interest income using methods
approximating the interest method over the period to maturity.
LOANS HELD FOR SALE:
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value in the aggregate. Net
unrealized losses, if any, are recognized through a valuation allowance by
charges to income.
FirstBank originates loans for sale in the secondary market generally without
recourse under commitments or other arrangements in place prior to loan
origination. Sales are completed at or near the loan origination date. All fees
and other income from these activities are recognized in income when loan sales
are completed.
LOANS RECEIVABLE:
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding principal adjusted for any charge-offs, the allowance for loan
losses, and any deferred fees or costs on originated loans and unamortized
premiums or discounts on purchased loans.
Loan origination fees and certain direct origination costs are capitalized and
recognized as an adjustment of the yield of the related loan.
The accrual of interest on impaired loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due. When
interest accrual is discontinued, all unpaid accrued interest is reversed.
Interest income is subsequently recognized only to the extent cash payments are
received in excess of principal payments due.
F-8
<PAGE>
FIRSTBANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
LOANS RECEIVABLE (CONTINUED):
The allowance for loan losses is increased by charges to income and decreased by
charge-offs (net of recoveries). Management's periodic evaluation of the
adequacy of the allowance is based on FirstBank's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrower's ability to repay, the estimated value of any underlying
collateral, and current economic conditions.
FORECLOSED REAL ESTATE:
Real estate properties acquired through foreclosure or in full or partial
satisfaction of the related loan are to be sold and are initially recorded at
fair value, less estimated disposal costs, at the date of foreclosure,
establishing a new cost basis. After foreclosure, valuations are periodically
performed by management and the real estate is carried at the lower of carrying
amount or fair value less estimated cost to sell. Revenue and expenses from
operations are included in other expenses.
PREMISES AND EQUIPMENT:
Land is stated at cost. Office equipment, furnishings, and buildings are stated
at cost less accumulated depreciation and amortization computed using the
straight-line method over the estimated useful lives of the assets. Estimated
useful lives are 31-1/2 years for buildings and three to five years for
furniture and equipment.
MARKETING EXPENSES:
The costs of marketing is expensed as incurred.
DEFERRED ORGANIZATION COSTS, PREOPENING COSTS AND STOCK
OFFERING COSTS:
Organization costs are amortized using the straight-line method over a period of
five years from the commencement of operations.
Costs associated with the conversion to a national bank are amortized using the
straight-line method over a period of twenty-five years.
Preopening costs associated with the organization of FBM have been expensed as
incurred. Stock issuance costs, incurred to date, have been charged to
additional paid-in capital.
F-9
<PAGE>
FIRSTBANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
AMOUNTS DUE TO DEPOSITORY INSTITUTIONS:
FirstBank invests excess funds on deposit at other depository institutions
(including amounts intended for payment of issued and outstanding checks) on a
daily basis in overnight interest-bearing accounts. Accordingly, issued and
outstanding checks are recorded as a liability.
INCOME TAXES:
Deferred tax assets and liabilities are reflected at currently enacted income
tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes. The provision for income taxes of each entity is
recorded as if the entity filed a separate return.
RETIREMENT PLAN:
FirstBank has a contributory 401(k) plan covering substantially all employees.
Contributions to the plan are made on a matching basis of 75% up to a maximum of
6% of employees' plan contributions. Total contributions to the plan were
$31,441 and $17,992 for 1997 and 1996, respectively.
LEASE COMMITMENTS:
FirstBank has entered into operating lease agreements for land, buildings, and
equipment used in operations. The agreements expire over various terms with the
longest such term extending to the year 2013. Certain of the leases are subject
to rent escalation provisions. In addition, FirstBank pays maintenance,
property taxes and insurance on the leased properties.
EARNINGS PER SHARE:
Basic earnings per common share are calculated on the basis of the weighted
average number of shares outstanding during the year. Diluted earnings per
common share includes stock options which have been granted but not exercised.
All common share and per share amounts have been restated to reflect the 1997
stock dividend.
OFF-BALANCE-SHEET INSTRUMENTS:
In the ordinary course of business, FirstBank has entered into off-balance-sheet
financial instruments consisting of commitments to extend credit and stand-by
letters of credit. Such financial instruments are recorded in the financial
statements when they are funded or related fees are incurred or received.
F-10
<PAGE>
FIRSTBANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
LOAN SERVICING:
The cost of mortgage servicing rights is amortized in proportion to, and over,
the period of estimated net servicing revenues. Impairment of mortgage
servicing rights is assessed at each reporting date based on the fair value of
those rights. Fair values are estimated using discounted cash flows based on a
current market interest rate. Mortgage servicing rights were not impaired at
December 31, 1997 and 1996.
FAIR VALUES OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used in estimating fair values of
financial instruments as disclosed herein:
Cash and short-term instruments. The carrying amounts of cash and short-
term instruments approximate their fair value.
Securities available-for-sale. Fair values for securities are based on
quoted market prices.
Loans receivable. For variable-rate loans that reprice frequently and have
no significant change in credit risk, fair values are based on carrying
values. Fair values for certain mortgage loans (for example, one-to-four
family residential) and other consumer loans are based on quoted market
prices of similar loans sold, adjusted for differences in loan
characteristics. Fair values for commercial real estate and commercial
loans are estimated using discounted cash flow analyses, using interest
rates currently being offered for loans with similar terms to borrowers of
similar credit quality. Fair values for impaired loans are estimated using
discounted cash flow analyses or underlying collateral values, where
applicable.
Deposit liabilities. The fair values disclosed for demand deposits are, by
definition, equal to the amount payable on demand at the reporting date
(that is, their carrying amounts). Fair values for certificates of deposit
are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule of
aggregated expected monthly maturities on time deposits.
Federal Home Loan Bank advances. Fair value of the advances are estimated
using discounted cash flow analyses based on FirstBank's current
incremental borrowing rate for similar types of borrowing arrangements.
F-11
<PAGE>
FIRSTBANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED):
Accrued interest and amounts due to depository institutions. The carrying
amounts approximate their fair values.
Off-balance-sheet instruments. Fair values for off-balance-sheet lending
commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and
the counterparties' credit standings.
OTHER:
Certain amounts previously reported have been restated in order to conform with
current year presentation. Such reclassifications had no effect on net income.
NOTE 3 - RESTRICTIONS ON CASH AND DUE FROM BANKS:
As a member of the Federal Reserve System, FirstBank is required by regulation
to maintain an average cash reserve balance with the FRB or in vault cash. The
average daily reserve balance requirement for December 31, 1997 and 1996, was
met by vault cash held by FirstBank.
At December 31, 1997, FirstBank had due from bank balances in excess of
federally insured limits of approximately $375,000. Management believes the risk
associated with exceeding these limits is balanced by the stability of the
depository institutions involved.
NOTE 4 - SECURITIES AVAILABLE-FOR-SALE:
Securities available-for-sale consist of the following:
<TABLE>
<CAPTION>
............................... 1997 ..............................
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
Mortgage-backed securities $ 1,428,793 $ - $ (23,383) $ 1,405,410
U.S. Government securities 98,602 - - 98,602
Federal Home Loan Bank
stock 548,100 - - 548,100
Federal Reserve Bank stock 130,300 - - 130,300
-----------------------------------------------------------------------
Total $ 2,205,795 $ - $ (23,383) $ 2,182,412
=======================================================================
</TABLE>
F-12
<PAGE>
FIRSTBANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4 - SECURITIES AVAILABLE-FOR-SALE (CONTINUED):
<TABLE>
<CAPTION>
............................... 1996 ..............................
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
Mortgage-backed securities $1,725,460 $ - $(17,631) $1,707,829
U.S. Government securities 98,846 - - 98,846
Federal Home Loan Bank
stock 548,100 - - 548,100
Federal Reserve Bank stock 130,300 - - 130,300
-----------------------------------------------------------------------
Total $2,502,706 $ - $(17,631) $2,485,075
=======================================================================
</TABLE>
The mortgage-backed securities held at December 31, 1997 and 1996, consist
solely of GNMA Adjustable Rate Mortgage Securities and mature generally between
24 and 29 years. The actual lives of these securities may be shorter as a result
of prepayments. The U.S. Government securities mature in 1998. Other securities
consist of the required capital stock of the FHLB and the FRB and have no
contractual maturity.
There were no realized gains or losses on sales of investment securities during
the two-year period ending December 31, 1997.
At December 31, 1997 and 1996, the FHLB stock was pledged as collateral on the
FHLB advances and securities with carrying values of approximately $1,154,000
and $1,807,000, respectively, were pledged to secure public deposits and for
other purposes as required and permitted by law.
NOTE 5 - LOANS RECEIVABLE:
Loans receivable at December 31, 1997 and 1996, consisted of the following:
1997 1996
---- ----
Mortgage loans:
Permanent $60,522,713 $60,891,924
Construction 5,949,087 6,182,712
-----------------------------------------
Total mortgage loans 66,471,800 67,074,636
-----------------------------------------
Other loans:
Consumer loans 9,527,554 8,717,516
Commercial loans 4,792,661 2,988,014
-----------------------------------------
Total other loans 14,320,215 11,705,530
-----------------------------------------
Loans receivable $80,792,015 $78,780,166
=========================================
F-13
<PAGE>
FIRSTBANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5 - LOANS RECEIVABLE (CONTINUED):
FirstBank's loan portfolio consists principally of adjustable rate residential
first mortgage loans to individuals for single family homes in the northern
two-thirds of Beaufort County. At December 31, 1997, FirstBank's total loan
portfolio included adjustable rate loans totaling approximately $18.1 million,
having interest rate adjustments indexed to prime, and approximately $34.8
million of adjustable rate loans, having interest rate adjustments indexed to
the one or three year U.S. Treasury bill adjusted to a constant maturity. Future
market factors may, in certain instances, affect the correlation of the interest
rate adjustment with the rates FirstBank pays on the short-term deposits and
FHLB advances that have been primarily utilized to fund these loans.
Transactions in the allowance for loan losses are summarized as follows:
1997 1996
---- ----
Beginning balance $ 630,557 $ 470,198
Provision (charged to income) 165,000 162,000
Recoveries of charge-offs 5,000 26,993
Charge-offs (72,514) (28,634)
---------------------------------------
Ending balance $ 728,043 $ 630,557
=======================================
Real estate mortgage loans include investments of $663,232 and $1,709,611 in
participating interests on loans originated and serviced by other financial
institutions as of December 31, 1997 and 1996, respectively.
Real estate mortgage loans exclude loans serviced for others of $9,871,666 and
$4,392,204 as of December 31, 1997 and 1996, respectively. Servicing loans for
others generally consists of collecting mortgage payments, maintaining escrow
accounts and disbursing payments to investors. Loan servicing income is recorded
on the accrual basis and includes servicing fees from investors and certain
charges collected from borrowers, such as late payment fees.
Impairment of loans having recorded investments of $286,743 and $389,663 at
December 31, 1997 and 1996, have been recognized in conformity with Statement of
Financial Accounting Standards No. 114, Accounting by Creditors for Impairment
of a Loan, as amended by Statement of Financial Accounting Standards No. 118,
Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosure. The average recorded investment in impaired loans during 1997 and
1996, was $392,316 and $261,613. The total allowance for loan losses related to
these loans was $55,970 and $48,340 at December 31, 1997 and 1996, respectively.
Interest income on impaired loans of $32,359 and $26,263 was recognized for cash
payments received in 1997 and 1996, respectively.
F-14
<PAGE>
FIRSTBANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6 - PREMISES AND EQUIPMENT:
Premises and equipment at December 31, 1997 and 1996, consists of the following:
1997 1996
---- ----
Cost:
Land $ 251,000 $ 251,000
Buildings and leasehold improvements 461,576 457,405
Equipment and furnishings 1,820,046 1,446,655
---------------------------
Total cost 2,532,622 2,155,060
Less, accumulated depreciation and amortization (1,244,389) (1,007,933)
---------------------------
Premises and equipment - net $1,288,233 $ 1,147,127
===========================
Depreciation expense charged to operations was $245,995 and $182,662 in 1997 and
1996, respectively.
NOTE 7 - LEASES:
FirstBank has entered into noncancelable operating leases for a main office
facility and for additional office space and parking with a partnership in which
certain of FirstBank's directors are partners. FirstBank has also entered into a
lease with a director of FirstBank for a branch facility on Lady's Island, South
Carolina. The leases require FirstBank to pay for all utilities, property taxes
and hazard insurance related to the leased properties.
The main office facility lease provides for a lease term of 20 years, expiring
in 2013. The lease is subject to rent escalation provisions which are computed
every five years during the life of the lease.
The Lady's Island branch facility lease provides for a five-year lease expiring
in 1998. FirstBank has two remaining five year options to renew this lease. The
renewal options include certain rent escalations.
Aggregate future minimum lease payments (exclusive of approximately $46,000 per
year for the five years beginning 1999, representing estimated lease payments on
the Lady's Island branch facility under the renewal option) under all operating
leases are as follows:
Year ending December 31:
1998 $ 156,803
1999 125,223
2000 125,223
2001 125,223
2002 125,223
Thereafter 1,262,765
-------------------
Total minimum payments $ 1,920,460
===================
F-15
<PAGE>
FIRSTBANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7 - LEASES (CONTINUED):
Total rental expense for the years ended December 31, 1997 and 1996, was
approximately $161,000 for each of the two years.
NOTE 8 - DEPOSITS:
Certificates of deposits, each with a minimum denomination of $100,000, were
approximately $8.8 million and $10.5 million at December 31, 1997 and 1996,
respectively.
At December 31, 1997, the scheduled maturities of certificates of deposit are as
follows (in thousands of dollars):
1998 $30,380
1999 6,129
2000 963
2001 149
2002 57
-------------------
Total $37,678
===================
As a former federal savings bank, FirstBank's deposits are insured by the
Savings Association Insurance Fund (SAIF) of the FDIC. To recapitalize the
reserves of SAIF, a special assessment on institutions with SAIF-insured
deposits was approved by the U.S. Congress. FirstBank expensed approximately
$445,000 for the special assessment during 1996.
NOTE 9 - FEDERAL HOME LOAN BANK ADVANCES:
FirstBank has an $11 million line-of-credit with the FHLB of Atlanta. At
December 31, 1997 and 1996, advances from the FHLB of Atlanta were $5.05 million
and $5.6 million, respectively. At December 31, 1997, the maturity dates and
interest rates on the advances were as follows (in thousands of dollars):
ADVANCE
MATURITY DATE INTEREST RATE AND TYPE AMOUNT
------------- ---------------------- ------
Repayment at any time 6.50% variable $4,200
June 1998 6.65% fixed 500
June 2001 6.92% fixed 350
-----------------
$5,050
=================
As security for advances, FirstBank, under a blanket floating lien, is required
to maintain qualifying mortgages with unpaid principal balances, when discounted
at 75% of the unpaid principal balances, at least equal to 100% of its
outstanding advances. All stock in the FHLB is also pledged to secure these
advances. Advance agreements contain penalty provisions for early repayment if
current advance rates are lower than the interest rates on the advances being
repaid.
F-16
<PAGE>
FIRSTBANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9 - FEDERAL HOME LOAN BANK ADVANCES (CONTINUED):
Such advances during 1997 and 1996 are summarized as follows:
1997 1996
---- ----
Maximum amount of advances at any month end $6,300,000 $5,600,000
================================
Average borrowings during the year $3,428,355 $2,649,727
================================
Weighted average interest rate during the year 6.03% 5.85%
================================
NOTE 10 - INCOME TAXES:
The Company files consolidated federal income tax returns on a calendar-year
basis.
The provision for income taxes for the two years ended December 31, 1997
consists of the following:
1997 1996
---- ----
Currently payable:
Federal $589,579 $336,524
State 67,690 29,967
--------------------------------------
Total 657,269 366,491
--------------------------------------
Deferred tax benefit:
Federal (70,061) (40,046)
State (6,569) (3,947)
--------------------------------------
Total (76,630) (43,993)
--------------------------------------
Total income taxes $580,639 $322,498
=======================================
Effective tax rate 38.0% 39.2%
======================================
The provision for income taxes for 1997 and 1996 differed from amounts computed
by applying the statutory federal rate to income before income taxes as follows:
1997 1996
---- ----
Income taxes at statutory rate on
pre-tax income $519,519 $279,925
State income taxes, net of federal
tax benefit 40,339 17,173
Other, net 20,781 25,400
-------------------------------------
Total provision $580,639 $322,498
=====================================
F-17
<PAGE>
FIRSTBANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10 - INCOME TAXES (CONTINUED):
The sources of deferred tax assets and liabilities at December 31, 1997 and 1996
are as follows:
1997 1996
---- ----
Gross deferred assets:
Allowance for loan losses $254,739 $222,233
Deferred loan fees 34,896 -
Unrealized losses on securities available-for-sale 8,885 6,700
Other 9,018 -
-----------------------
Total 307,538 228,933
-----------------------
Gross deferred liabilities:
Federal Home Loan Bank stock dividends (43,551) (43,551)
Other - (210)
-----------------------
Total (43,551) (43,761)
-----------------------
Net deferred tax asset $263,987 $185,172
=======================
NOTE 11 - STOCK OPTIONS:
Options to purchase shares of the Company's common stock have been granted to
its directors and officers. Under the 1996 Stock Option Plan up to 17,325 shares
of common stock were authorized to be granted to selected key employees and
nonemployee directors in the form of incentive and nonqualified stock options. A
committee of the Board of Directors determines the dates options shall be
granted and exercised, the period of vesting schedule and the term of the
exercise period (not to exceed 10 years). Under the 1987 Non-Qualified Stock
Option Plan, 112,386 shares of common stock were authorized and granted to
outside directors of the Bank. These options expire in 2006. Upon the
acquisition of FirstBank by the Company, all options granted under this stock
option plan of FirstBank remain in effect with no change in the terms.
Information concerning the options outstanding is summarized as follows (all
amounts have been retroactively restated for stock dividends):
F-18
<PAGE>
FIRSTBANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11 - STOCK OPTIONS (CONTINUED):
<TABLE>
<CAPTION>
............... 1997 .............. .............. 1996 .............
OPTION OPTION
PRICE PRICE
SHARES PER SHARE SHARES PER SHARE
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Outstanding, January 1 105,885 $6.41 - 11.82 97,315 $6.41 - 10.72
Granted 5,700 11.82 - 14.00 9,924 10.30 - 11.25
Exercised - - 10,571 9.00
Expired (3,121) - (2,001) -
------------------ -------------------
Outstanding, December 31 108,464 6.41 - 11.82 105,885 6.41 - 11.82
================== ===================
Exercisable, December 31 85,739 76,893
================== ===================
</TABLE>
The Company accounts for its stock-based compensation plans using the provisions
of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25). In 1995, Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation (SFAS 123) was issued and is
effective for transactions entered into after December 15, 1995. Under the
provisions of SFAS 123, companies can elect to account for stock-based
compensation plans using a fair-value-based method or continue measuring
compensation expense for those plans using the intrinsic value method prescribed
in APB 25. The Company elected to continue to account for stock-based
compensation using the intrinsic value method. SFAS 123 did not have an impact
on the Company's results of operations or financial position.
NOTE 12 - RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS OR ADVANCES:
The Bank, as a national bank, is subject to certain restrictions regarding the
transfer of funds to the Company in the form of cash dividends, loans, or
advances. The approval of the OCC is required to pay dividends in excess of
FirstBank's net profits for the current year plus retained net profits (net
profits less dividends paid) for the preceding two years, less any required
transfers to surplus. As of December 31, 1997, $1,867,913 of FirstBank's
retained earnings are available for distribution to the Company as dividends
without prior regulatory approval.
Under FRB regulations, FirstBank also is limited as to the amount it may loan to
the Company unless such loans are collateralized by specified obligations. The
maximum amount available for transfer from FirstBank to the Company in the form
of loans or advances approximated $1,572,851 at December 3l, 1997.
F-19
<PAGE>
FIRSTBANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13 - RELATED PARTY TRANSACTIONS:
During 1997 and 1996, FirstBank had loan relationships with certain related
parties; principally, directors and executive officers, their immediate families
and their business interests. All of these relationships were in the ordinary
course of business. Total loans outstanding to this group (including immediate
families and business interests) amounted to $1,203,791 at December 31, 1997,
and $1,416,864 at December 31, 1996. During 1997, $488,103 of new loans were
originated to this group. Repayments of $701,175 were made during 1997.
Related party deposits totaled approximately $2,451,000 and $2,450,000 at
December 31, 1997 and 1996, respectively.
NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES:
FirstBank is involved at times in various litigation arising out of the normal
course of business. In the opinion of FirstBank's legal counsel, there is no
pending or threatened litigation of any material consequence at this time.
FirstBank is negotiating the purchase of real property in Ridgeland, South
Carolina. If the negotiation is successful, FirstBank intends to hold the
property for a potential branch office at this location.
The Company has entered into contracts that provide certain officers salary
continuation plans for up to three years in the event of a change in control of
the Company.
YEAR 2000 CONSIDERATIONS
Many existing computer programs use only two digits to identify a year in the
date field. These programs were designed and developed without considering the
impact of the upcoming change in the century. If uncorrected, many applications
could fail or create erroneous results by or at the year 2000. The year 2000
issue affects virtually all organizations.
The Corporation uses the services of outside software vendors for certain of its
data processing applications. Based on discussions with software vendors,
management does not expect the cost of addressing any year 2000 issue will be a
material event or uncertainty that would cause its reported financial
information not to be necessarily indicative of future operating results or
future financial condition, or that the costs or consequences of incomplete or
untimely resolution of any year 2000 issue represent a known material event or
uncertainty that is reasonably likely to affect its future financial results, or
cause its reported financial information not to be necessarily indicative of
future operating results or future financial condition.
F-20
<PAGE>
FIRSTBANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15 - FINANCIAL INSTRUMENTS:
FirstBank 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 and to
reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit, standby letters of credit and
financial guarantees. These instruments involve, to varying degrees, elements of
credit, interest-rate, or liquidity risk in excess of the amounts recognized in
the balance sheet. The contract amounts of these instruments reflect the extent
of involvement FirstBank has in particular classes of financial instruments.
FirstBank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit, standby
letters of credit and financial guarantees written is represented by the
contractual amount of those instruments. FirstBank uses the same credit policies
in making commitments and conditional obligations as it does for
on-balance-sheet instruments.
COMMITMENTS TO EXTEND CREDIT:
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 many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Commitments to extend credit at fixed rates
exposes FirstBank to some degree of interest-rate risk. FirstBank evaluates each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by FirstBank upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral held varies but
may include real property, equipment and income-producing commercial properties.
Standby letters of credit and financial guarantees written are conditional
commitments issued by FirstBank guaranteeing the performance of a customer to a
third party. Those guarantees are primarily issued to support public and private
borrowing arrangements. All standby letters of credit outstanding at December
31, 1997, expire in 1998. The credit risk involved in issuing a letter of credit
is essentially the same as that involved in extending loan facilities to
customers. The amount of collateral obtained if deemed necessary by FirstBank is
based on management's credit evaluation of the customer. FirstBank has not been
required to perform on any financial guarantees during the past three years and
has not incurred any losses on its commitments during the past three years.
F-21
<PAGE>
FIRSTBANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15 - FINANCIAL INSTRUMENTS (CONTINUED):
The estimated fair value of FirstBank's financial instruments at December 31,
1997 and 1996, are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 6,095,598 $ 6,095,598 $7,871,028 $7,871,028
Time deposits with banks 99,000 99,000 199,177 199,177
Securities available-for-sale 2,182,412 2,182,412 2,485,075 2,485,075
Loans receivable - net 80,063,972 80,250,247 78,149,609 79,079,805
Accrued interest receivable 555,537 555,537 502,412 502,412
Financial liabilities:
Deposits 77,462,288 77,529,026 78,300,019 78,426,021
Federal Home Loan Bank advances 5,050,000 5,059,257 5,600,000 5,601,896
Amounts due to depository
institutions 305,315 305,315 200,117 200,117
Unrecognized financial instruments:
Commitments to extend credit 3,371,000 3,371,000 3,163,000 3,163,000
Lines-of-credit 10,327,000 10,327,000 8,212,000 8,212,000
Standby letters of credit 288,000 288,000 194,000 194,000
</TABLE>
NOTE 16 - FIRST BANK OF THE MIDLANDS, IN ORGANIZATION:
On August 20, 1997, the Company's Board of Directors approved the sponsorship of
a new national bank, FirstBank of the Midlands (FBM), to be located in Columbia,
South Carolina, subject to regulatory approval. FBM will offer general banking
services in the Columbia area.
Upon the organization of FBM, the Company proposes to acquire all of the common
stock of FBM for $5.0 million. The acquisition of FBM's common stock is expected
to be primarily funded with the sale of up to $3.5 million of additional common
stock of the Company at a price that will be determined by the Company's Board
of Directors.
The Company expects to obtain up to $2.5 million in debt from a third party
financial institution to provide the remaining initial capital for FBM.
FBM will operate in office space leased under a noncancellable operating lease
with an initial term of 5 years beginning on April 1, 1998. The lease terms
provide for three, three-year renewal options. The landlord will be responsible
for improvements and property taxes on the leased property up to the amount paid
for 1997 taxes. FBM will be required to pay any property tax increases over 1997
taxes. Annual base rent in lease years one through five is $90,750. Subsequent
lease renewals will increase lease payments by the greater of 12.5% or the
increase in the Consumer Price Index.
F-22
<PAGE>
FIRSTBANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 17 - REGULATORY MATTERS:
The Company 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 Company's consolidated financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company must meet specific capital guidelines that involve quantitative measures
of the Company's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Company'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 Company to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1997, that the
Company meets all capital adequacy requirements to which the Company is subject.
As of September 22, 1997, the most recent notification from the OCC categorized
FirstBank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Company must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed the Company's categories.
The Company's and FirstBank's actual capital amounts and ratios are also
presented in the table as follows (in thousands of dollars):
<TABLE>
<CAPTION>
MINIMUM REQUIRED
MINIMUM REQUIRED TO BE WELL CAPITALIZED
FOR CAPITAL UNDER PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------ ----------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1997:
Tier I Capital (to
Average Assets):
Consolidated $ 7,854 8.7% $ 3,608 4.0% $ 4,509 5.0%
FirstBank 7,737 8.6% 3,607 4.0% 4,508 5.0%
Tier I Capital (to
Risk Weighted
Assets):
Consolidated 7,854 12.1% 2,587 4.0% 3,880 6.0%
FirstBank 7,737 12.0% 2,587 4.0% 3,880 6.0%
</TABLE>
F-23
<PAGE>
FIRSTBANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 17 - REGULATORY MATTERS (CONTINUED):
<TABLE>
<CAPTION>
MINIMUM REQUIRED
MINIMUM REQUIRED TO BE WELL CAPITALIZED
FOR CAPITAL UNDER PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------ ----------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to
Risk Weighted
Assets):
Consolidated $ 8,582 13.3% $ 5,173 8.0% $ 6,470 10.0%
FirstBank 8,465 13.1% 5,173 8.0% 6,467 10.0%
At December 31, 1996:
Tier I Capital (to
Average Assets):
Consolidated 6,948 7.8% 3,578 4.0% 4,473 5.0%
FirstBank 6,889 7.7% 3,578 4.0% 4,472 5.0%
Tier I Capital (to
Risk Weighted
Assets):
Consolidated 6,948 11.0% 2,528 4.0% 3,793 6.0%
FirstBank 6,889 10.9% 2,527 4.0% 3,790 6.0%
Total Capital (to
Risk Weighted
Assets):
Consolidated 7,579 12.0% 5,057 8.0% 6,321 10.0%
FirstBank 7,520 11.9% 5,054 8.0% 6,319 10.0%
</TABLE>
NOTE 18 - CONCENTRATION OF CREDIT RISK:
Although FirstBank has a diversified loan portfolio, a substantial portion of
its borrowers' ability to honor their contracts depends upon the economy of
Beaufort County, South Carolina, and the surrounding area.
The contractual amounts of credit-related financial instruments such as
commitments to extend credit and letters of credit represent the amounts of
potential accounting loss should the contract be fully drawn upon, the customer
default, and the value of any existing collateral become worthless.
NOTE 19 - FIRST SECURITIES CORPORATION:
FSC completed its first year of operations with assets of approximately $73,000
at December 31, 1997, gross commission income of $40,400 and a net loss of
$24,350 for the year ended December 31, 1997.
F-24
<PAGE>
FIRSTBANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 20 - CONDENSED FINANCIAL STATEMENTS:
Presented below are the condensed financial statements for FirstBancorporation,
Inc. (parent company only):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
Balance Sheet:
Assets:
Cash $ 15,586 $ 19,394
Investment in banking subsidiary 7,864,255 6,985,696
Other assets 109,847 39,589
---------------------------------------------
Total assets $ 7,989,688 $ 7,044,679
=============================================
Liabilities:
Amounts due to banking subsidiary $ 7,241 $ -
Other liabilities 1,446 -
Stockholders' equity 7,981,001 7,044,679
---------------------------------------------
Total liabilities and stockholders' equity $ 7,989,688 $ 7,044,679
=============================================
Statement of Income:
Dividends from banking subsidiary $ 100,000 $ 61,125
---------------------------------------------
Expenses:
Compensation 16,915 -
Amortization 7,887 7,887
Other 31,275 20,304
---------------------------------------------
Income before equity in undistributed earnings of subsidiary 43,923 32,934
Applicable income tax benefit 21,310 8,907
Equity in undistributed earnings of subsidiary 882,125 458,970
---------------------------------------------
Net income $ 947,358 $ 500,811
=============================================
</TABLE>
F-25
<PAGE>
FIRSTBANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 20 - CONDENSED FINANCIAL STATEMENTS (CONTINUED):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
Statement of Cash Flows:
Cash flows from operating activities:
Net income $ 947,358 $ 500,811
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization expense 7,887 7,887
Increase in other assets (78,145) (8,907)
Increase (decrease) in other liabilities 8,687 (39,537)
Undistributed earnings of subsidiary (882,125) (458,970)
---------------------- ----------------------
Net cash provided by operating activities 3,662 1,284
Cash flows from financing activities:
Common stock issued - 18,010
Stock issuance cost (7,470) -
---------------------- ----------------------
Net increase (decrease) in cash and cash equivalents (3,808) 19,294
Cash at beginning of year 19,394 100
---------------------- ----------------------
Cash at end of year $ 15,586 $ 19,394
====================== ======================
</TABLE>
THESE NOTES ARE INTEGRAL PART OF THE ACCOMPANYING CONSOLIDATED FINANCIAL
- ------------------------------------------------------------------------
STATEMENTS
- ----------
F-26
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
Prospectus in connection with the offering made hereby, and, if given or made,
such other information or representation must not be relied upon as having been
authorized by the Company, the Bank and the New Bank. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby to any person or in any jurisdiction in which such
offer or solicitation is not authorized or in which the person making such offer
or solicitation is not qualified to do so, or to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction. Neither the
delivery of this Prospectus nor any sale hereunder shall under any circumstances
create any implication that there has been no change in the affairs of the
Company, the Bank or the New Bank since any of the dates as of which information
is furnished herein or since the date hereof.
Table of Contents Page
----------------- ----
Prospectus Summary.......................................................
Selected Consolidated Financial Information..............................
Risk Factors.............................................................
Use of Proceeds..........................................................
Market for Common Stock..................................................
Dividends................................................................
Capitalization...........................................................
Dilution.................................................................
Capital Compliance.......................................................
FirstBancorporation, Inc. Consolidated
Statements of Income...................................................
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................
Business of the Company..................................................
Business of the Bank.....................................................
Proposed Business of New Bank............................................
Management of the Company and the Bank...................................
Management of the New Bank...............................................
Regulation...............................................................
Security Ownership of Management.........................................
Estimated Management Purchases in the Offering...........................
The Offering.............................................................
Restrictions on Acquisition of the Company...............................
Description of Common Stock..............................................
Shares Eligible for Future Sale..........................................
Transfer Agent and Registrar.............................................
Legal Opinions...........................................................
Experts..................................................................
Available Information....................................................
Additional Information...................................................
Index to Consolidated Financial Statements...............................
Until the later of ______ __, 1998, or 90 days after commencement of the
offering of Common Stock, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
FIRSTBANCORPORATION, INC.
[Logo]
180,000 to 220,000 Shares
of
Common Stock
----------------
Prospectus
----------------
_____________ __, 1998
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Officers and Directors
Articles XIII and XIV of the Articles of Incorporation of
FirstBancorporation, Inc. requires indemnification of directors, officers
and employees to the fullest extent permitted by South Carolina law.
Sections 33-8-510 through Section 33-8-550 of the South Carolina Business
Corporation Act sets forth circumstances under which directors, officers,
employees and agents may be insured or indemnified against liability which
they may incur in their capacities:
33-8-510 AUTHORITY TO INDEMNIFY.--(a) Except as provided in subsection
(d), a corporation may indemnify an individual made a party to a proceeding
because he is or was a director against liability incurred in the proceeding if:
(1) he conducted himself in good faith; and
(2) he reasonably believed:
(i) in the case of conduct in his official capacity with the corporation,
that his conduct was in its best interest; and
(ii) in all other cases, that his conduct was at least not opposed to its
best interest; and
(3) in the case of any criminal proceeding, he had no reasonable cause to
believe his conduct was unlawful.
(b) A director's conduct with respect to an employee benefit plan for a
purpose he reasonably believed to be in the interests of the participants in and
beneficiaries of the plan is conduct that satisfies the requirement of
subsection (a)(2)(ii).
(c) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent is not, of
itself, determinative that the director did not meet the standard of conduct
described in this section.
(d) A corporation may not indemnify a director under this section:
(1) in connection with a proceeding by or in the right of the corporation
in which the director was adjudged liable to the corporation; or
(2) in connection with any other proceeding charging improper personal
benefit to him, whether or not involving action in his official capacity, in
which he was adjudged liable on the basis that personal benefit was improperly
received by him.
(e) Indemnification permitted under this section in connection with a
proceeding by or in the right of the corporation is limited to reasonable
expenses incurred in connection with the proceeding.
33-8-520 MANDATORY INDEMNIFICATION.--Unless limited by its articles of
incorporation, a corporation shall indemnify a director who was wholly
successful, on the merits or otherwise, in the defense of Any proceeding to
which he was a party because he is or was a director of the corporation against
reasonable expenses incurred by him in connection with the proceeding.
33-8-530 ADVANCE FOR EXPENSES.--(a) A corporation may pay for or reimburse
the reasonable expenses incurred by a director who is a party to a proceeding in
advance of final disposition of the proceeding if:
(1) the director furnishes the corporation a written affirmation of his
good faith belief that he has met the standard of conduct described in Section
33-8-510;
(2) the director furnishes the corporation a written undertaking,
executed personally or on his behalf, to repay the advance if it is ultimately
determined that he did not meet the standard of conduct; and
(3) a determination is made that the facts then known to those making the
determination would not preclude indemnification under this subchapter.
(b) The undertaking required by subsection (a)(2) must be an unlimited
general obligation of the director but need not be secured and may be accepted
without reference to financial ability to make repayment.
(c) Determinations and authorizations of payments under this section must
be made in the manner specified in Section 33-8-550.
II-1
<PAGE>
33-8-540 COURT-ORDERED INDEMNIFICATION.--Unless a corporation's articles of
incorporation provide otherwise, a director of the corporation who is a party to
a proceeding may apply for indemnification to the court conducting the
proceeding or to another court of competent jurisdiction. On receipt of an
application, the court after giving any notice the court considers necessary may
order indemnification if it determines:
(1) the director is entitled to mandatory indemnification under Section
33-8-520, in which case the court also shall order the corporation to pay the
director's reasonable expenses incurred to obtain court-ordered indemnification;
or
(2) the director is fairly and reasonably entitled to indemnification in
view of all the relevant circumstances, whether or not he met the standard of
conduct set forth in Section 33-8-510 or was adjudged liable as described in
Section 33-8-510(d), but if he was adjudged so liable his indemnification is
limited to reasonable expenses incurred.
33-8-550 DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION.--(a) A
corporation may not indemnify a director under Section 33-8-510 unless
authorized in the specific case after a determination has been made that
indemnification of the director is permissible in the circumstances because he
has met the standard of conduct set forth in Section 33-8-510.
(b) The determination must be made:
(1) by the board of directors by majority vote of a quorum consisting of
directors not at the time parties to the proceeding;
(2) if a quorum cannot be obtained under subdivision (1), by majority
vote of a committee duly designated by the board of directors (in which
designation directors who are parties may participate), consisting solely of two
or more directors not at the time parties to the proceeding;
(3) by special legal counsel:
(i) selected by the board of directors or its committee in the manner
prescribed in item (1) or (2); or
(ii) if a quorum of the board of directors cannot be obtained under
subdivision (1) and a committee cannot be designated under subdivision (2),
selected by majority vote of the full board of directors (in which selection
directors who are parties may participate); or
(4) by the shareholders, but shares owned by or voted under the control
of directors who are at the time parties of the proceeding may not be voted on
the determination.
(c) Authorization of indemnification and evaluation as to reasonableness
of expenses must be made in the same manner as the determination that
indemnification is permissible, except that, if the determination is made by
special legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses must be made by those entitled under subsection
(b)(3) to select counsel.
II-2
<PAGE>
Item 25. Other Expenses of Issuance and Distribution(1)
Legal fees and expenses............... $ 50,000
EDGAR, printing, postage and mailing.. 20,000
Stock valuation expense............... 7,500
Accounting fees....................... 5,000
Data processing fees and expenses..... 5,000
SEC filing fee........................ 1,169
Blue Sky filing fees and expenses..... 7,500
Other................................. 3,831
--------
Total............................. $100,000
========
Item 26. Recent Sales of Unregistered Securities.
Not Applicable
Item 27. Exhibits
The exhibits filed as part of this Registration Statement are as
follows:
(a) List of Exhibits
3.1 -- Articles of Incorporation of FirstBancorporation, Inc. (incorporated
by reference to Exhibit 3.1 contained in the Company's Current Report
on Form 8-K dated November 7, 1995)
3.2 -- Bylaws of FirstBancorporation, Inc. (incorporated by reference to
Exhibit 3.2 contained in the Company's Current Report on Form 8-K
dated November 7, 1995)
4 -- Specimen Stock Certificate for Common Stock
5 -- Opinion of Breyer & Aguggia regarding legality of securities
registered
10.1 -- Employment Agreement with James A. Shuford, III (incorporated by
reference to Exhibit 10(g) contained in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1995)
10.2 -- Employment Agreement with James L. Pate, III.
10.3 -- Employment Agreement with Richard E. Morgan, Jr.
10.4 -- Employment Agreement with F. Wayne Lovelace.
10.5 -- 1996 Stock Option Plan (incorporated by reference to Exhibit A
appended to the Company's 1996 annual meeting proxy statement)
10.6 -- Qualified Incentive Stock Option Plan (incorporated by reference to
Exhibit 10(b) contained in the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1995)
10.7 -- Amended and Restated Non-Qualified Stock Option Plan (incorporated by
reference to Exhibit 10(c) contained in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1995)
II-3
<PAGE>
10.8 -- Non-qualified Stock Option for Robert A. Kerr (incorporated by
reference to Exhibit 10(d) contained in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1995)
10.9 -- Lease for Company's main office (incorporated by reference to Exhibit
10(e) contained in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1995)
10.10 -- Lease for Company's branch office (incorporated by reference to
Exhibit 10(f) contained in the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1995)
10.11 -- Lease for Columbia, South Carolina office.
21 -- Subsidiaries of FirstBancorporation, Inc.
23.1 -- Consent of J.W. Hunt and Company, LLP
23.2 -- Consent of Breyer & Aguggia (contained in opinion included as
Exhibit 5)
24 -- Power of Attorney (contained in signature page)
99 -- Stock order form.
Item 28. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act of 1933, as amended ("Securities Act");
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement.
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each post-
effective amendment as a new registration statement of the securities offered,
and the offering of the securities at that time shall be the initial bona fide
offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(4) The undersigned registrant hereby undertakes to provide the
underwriter at the closing specified in the underwriting agreement, certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
II-4
<PAGE>
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act, and is therefore, unenforceable. In the event
that a claim for indemnification against liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of Beaufort, State of South Carolina on March 25, 1998.
FIRST BANCORPORATION, INC.
By: /s/ James A. Shuford, III
--------------------------------------------
James A. Shuford, III
President and Chief Executive Officer
(Duly Authorized Representative)
POWER OF ATTORNEY
We, the undersigned directors and officers of First Bancorporation, Inc. do
hereby severally constitute and appoint James A. Shuford, III, our true and
lawful attorney and agent, to do any and all things and acts in our names in the
capacities indicated below and to execute all instruments for us and in our
names in the capacities indicated below which said James A. Shuford, III may
deem necessary or advisable to enable First Bancorporation, Inc. to comply with
the Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with the
Registration Statement on Form SB-2 relating to the offering of First
Bancorporation, Inc.'s Common Stock, including specifically but not limited to,
power and authority to sign for us or any of us in our names in the capacities
indicated below the Registration Statement and any and all amendments (including
post-effective amendments) thereto; and we hereby ratify and confirm all that
James A. Shuford, III shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ James A. Shuford, III President, Chief Executive March 25, 1998
- -------------------------- Officer and Director
James A. Shuford, III (Principal Executive Officer)
/s/ James L. Pate, III Senior Vice President March 25, 1998
- -------------------------- (Principal Financial and
James L. Pate, III Accounting Officer)
/s/ Colden R. Battey, Jr. Chairman of the Board and March 25, 1998
- -------------------------- Director
Colden R. Battey, Jr.
/s/ Laurance H. Davis, Jr. Director and Secretary March 25, 1998
- --------------------------
Laurance H. Davis, Jr.
/s/ Richard L. Gray Director March 25, 1998
- --------------------------
Richard L. Gray
/s/ Russell L. Jeter Director March 25, 1998
- --------------------------
Russell L. Jeter
<PAGE>
/s/ Robert A. Kerr, Sr. Director March 25, 1998
- --------------------------
Robert A. Kerr, Sr.
/s/ James D. Neighbors Director March 25, 1998
- --------------------------
James D. Neighbors
/s/ Jerry H. Reeves, III Director March 25, 1998
- --------------------------
Jerry H. Reeves, III
/s/ Carson R. Rentz Director March 25, 1998
- --------------------------
Carson R. Rentz
/s/ William C. Robinson Director March 25, 1998
- --------------------------
William C. Robinson
<PAGE>
As filed with the Securities and Exchange Commission on March 25, 1998
Registration No. 333-_____
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
FIRSTBANCORPORATION, INC.
-------------------------------------------------------------
(Exact name of registrant as specified in charter)
South Carolina 6712 57-1033905
- ------------------------------- ----------------- -------------------
(State or other jurisdiction of (Primary SICC No.) (I.R.S. Employer
incorporation or organization) Identification No.)
1121 Boundary Street
Beaufort, South Carolina 29901
(803) 521-5600
-------------------------------------------------------------
(Address and telephone number of principal executive offices)
John F. Breyer, Jr., Esquire
Victor L. Cangelosi, Esquire
BREYER & AGUGGIA
Suite 470 East
1300 I Street, N.W.
Washington, D.C. 20005
------------------------------
(Name and address of agent for service)
<PAGE>
INDEX TO EXHIBITS
3.1 -- Articles of Incorporation of FirstBancorporation, Inc. (incorporated
by reference to Exhibit 3.1 contained in the Company's Current Report
on Form 8-K dated November 7, 1995)
3.2 -- Bylaws of FirstBancorporation, Inc. (incorporated by reference to
Exhibit 3.2 contained in the Company's Current Report on Form 8-K
dated November 7, 1995)
4 -- Specimen Stock Certificate for Common Stock
5 -- Opinion of Breyer & Aguggia regarding legality of securities
registered
10.1 -- Employment Agreement with James A. Shuford, III (incorporated by
reference to Exhibit 10(g) contained in the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1995)
10.2 -- Employment Agreement with James L. Pate, III.
10.3 -- Employment Agreement with Richard E. Morgan, Jr.
10.4 -- Employment Agreement with F. Wayne Lovelace.
10.5 -- 1996 Stock Option Plan (incorporated by reference to Exhibit A
appended to the Company's 1996 annual meeting proxy statement)
10.6 -- Qualified Incentive Stock Option Plan (incorporated by reference to
Exhibit 10(b) contained in the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1995.
10.7 -- Amended and Restated Non-Qualified Stock Option Plan (incorporated by
reference to Exhibit 10(c) contained in the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1995)
10.8 -- Non-qualified Stock Option for Robert A. Kerr (incorporated by
reference to Exhibit 10(d) contained in the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1995)
10.9 -- Lease for Company's main office (incorporated by reference to Exhibit
10(e) contained in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1995)
10.10 -- Lease for Company's branch office (incorporated by reference to
Exhibit 10(f) contained in the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1995)
10.11 -- Lease for Columbia, South Carolina office.
21 -- Subsidiaries of FirstBancorporation, Inc.
23.1 -- Consent of J.W. Hunt and Company, LLP
23.2 -- Consent of Breyer & Aguggia (contained in opinion included as Exhibit
5)
24 -- Power of Attorney (contained in signature page)
99 -- Stock order form.
<PAGE>
Exhibit 4
- ------ ------
NUMBER SHARES
- ------ ------
FIRSTBANCORPORATION, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF SOUTH CAROLINA
COMMON STOCK SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NONASSESSABLE SHARES, $.01 PER SHARE PAR VALUE, OF THE COMMON
STOCK OF
FIRSTBANCORPORATION, INC., a South Carolina corporation. The shares represented
by this Certificate are transferable only on the books of the Corporation by the
holder hereof in person or by Attorney upon surrender of this Certificate
properly endorsed. The shares represented by this Certificate are not a deposit
or account and are not insured by the Federal Deposit Insurance Corporation or
any other government agency.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to
be executed by its duly authorized officers and its Corporate Seal to be
hereunto affixed.
SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
[SEAL]
<PAGE>
FIRSTBANCORPORATION, INC.
The shares represented by this Certificate are issued subject to all the
provisions of the Articles of Incorporation and Bylaws of FirstBancorporation,
Inc. ("Corporation") as from time to time amended (copies of which are on file
at the principal executive offices of the Corporation).
The Articles of Incorporation include provisions that generally prohibit
any person (including an individual or a company) from directly or indirectly
offering to acquire or acquiring the beneficial ownership of (i) more than
fifteen percent (15%) or more of the voting stock of the Corporation, unless
such acquisition has been approved in advance by the affirmative vote of the
holders of at least two-thirds of the outstanding shares of the voting stock or
by the affirmative vote of at least two-thirds of the Corporation's directors
then in office; (ii) more than ten percent (10%) or more of the voting stock
without obtaining in advance all regulatory approvals required under applicable
federal and state statutes; and (iii) more than ten percent (10%) or more of the
voting stock unless such acquisition has been approved in advance by a two-
thirds vote of the Corporation's directors then in office, or unless such
acquisition has received all federal and state regulatory approvals and a
complete copy of all notices, submissions and documents and other information
filed by such person with the regulatory authorities has been furnished to the
Corporation's Board of Directors.
The Board of Directors is authorized by resolution(s), from time to time
adopted, to provide for the issuance of preferred stock in series and to fix and
state the powers, designations, preferences and relative, participating,
optional or other special rights of the shares of each such series and the
qualifications, limitations and restrictions thereof. The Corporation will
furnish to any shareholder upon request and without charge a full description of
each class of stock and any series thereof.
The shares represented by this Certificate may not be cumulatively voted in
the election of directors.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as through they were written out in full
according to applicable laws or regulations.
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT -- Custodian under Uniform Gifts to
-------- ---------
(Cust) (Minor)
Minors Act
-------------------
(State)
Additional abbreviations may also be used though not in the above list.
For value received, ___________________________________________ hereby
sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------------
- -------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
shares
- -------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney,
- ----------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
-----------------
-----------------------------------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED
By
----------------------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION,
(Banks, Stockbrokers, Savings and Loan Associations and Credit Unions) WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM PURSUANT TO
SEC RULE 17 or 15.
<PAGE>
[LETTERHEAD OF BREYER & AGUGGIA APPEARS HERE]
Attorneys at Law
EXHIBIT 5
March 25, 1998
Board of Directors
FirstBancorporation, Inc.
1121 Boundary Street
Beaufort, South Carolina 29901
RE: FirstBancorporation, Inc.
Registration Statement on Form SB-2
Gentlemen:
You have requested our opinion as special counsel for FirstBancorporation,
Inc., a South Carolina corporation, in connection with the above-referenced
registration statement filed with the Securities and Exchange Commission under
the Securities Act of 1933, as amended.
In rendering this opinion, we understand that the common stock of
FirstBancorporation, Inc. will be offered and sold in the manner described in
the Prospectus, which is part of the Registration Statement. We have examined
such records and documents and made such examination as we have deemed relevant
in connection with this opinion.
Based upon the foregoing, it is our opinion that the shares of common stock
of FirstBancorporation, Inc. will upon issuance be legally issued, fully paid
and nonassessable.
This opinion is furnished for use as an exhibit to the Registration
Statement. We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "LEGAL
OPINIONS."
Very truly yours,
/s/ BREYER & AGUGGIA
BREYER & AGUGGIA
Washington, D.C.
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective as of November 21, 1995, by and between
FirstBank, N.A. (the "Bank"), Beaufort, South Carolina; FirstBancorporation,
Inc. (the "Company"), a South Carolina corporation; and JAMES L. PATE, III (the
"Executive").
WHEREAS, the Bank wishes to assure itself of the services of Executive for
the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Bank on a
full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to serve as
Senior Vice President of the Bank. During said period, Executive also agrees to
serve, if elected, as an officer of the Company or any subsidiary or affiliate
of the Company or the Bank.
2. TERMS AND DUTIES.
(a) The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of twelve (12) full
calendar months thereafter. Commencing on the first anniversary date, and
continuing at each anniversary date thereafter, the term of this Agreement shall
be automatically extended for an additional year without further action by the
Bank or Executive unless either party shall have served written notice on the
other party not later than sixty (60) days prior to the expiration of the
current term of the Agreement of its intention that this Agreement shall
terminate at the end of such term.
(b) During the period of his employment hereunder, except for periods of
absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, Executive shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties
hereunder including activities and services related to the organization,
operation and management of the Bank.
<PAGE>
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute the
salary and benefits paid for the duties described in Sections 1 and 2. The Bank
shall pay Executive as compensation a salary of $63,650 per year ("Base
Salary"). Such Base Salary shall be payable in accordance with the customary
payroll practices of the Bank. During the period of this Agreement, Executive's
Base Salary shall be reviewed at least annually; the first such review will be
made not later than one year from the date of this Agreement. Such review shall
be conducted by a Committee designated by the Board, and the Board may increase
Executive's Base Salary. In addition to the Base Salary provided in this
Section 3(a), the Bank shall provide Executive with all such other benefits as
are provided uniformly to permanent full-time employees of the Bank.
(b) In addition to the Base Salary provided for by paragraph (a) of this
Section 3, the Bank shall pay or reimburse Executive for all reasonable travel
and other obligations under this Agreement and may provide such additional
compensation in such form and such amounts as the Board may from time to time
determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Bank of Executive's full-time employment hereunder for any
reason other than a Change in Control, as defined in Section 5(a) hereof; death;
retirement, as defined in Section 6 hereof; or for Cause, as defined in Section
7 hereof; (ii) Executive's resignation from the Bank's employ, upon (A) unless
consented to by the Executive, a material change in Executive's function,
duties, or responsibilities, which change would cause Executive's position to
become one of lesser responsibility, importance, or scope from the position and
attributes thereof described in Sections 1 and 2, above, (any such material
change shall be deemed a continuing breach of this Agreement), (B) a relocation
of Executive's principal place of employment by more than 35 miles from its
location at the effective date of this Agreement, or a material reduction in the
benefits and perquisites to Executive from those being provided as of the
effective date of this Agreement, (C) the liquidation or dissolution of the
Bank, or (D) any breach of this Agreement by the Bank. Upon the occurrence of
any event described in clauses (A), (B), (C), or (D), above, Executive shall
have the right to elect to terminate his employment under this Agreement by
resignation upon not less than sixty (60) days prior written notice given within
a reasonable period of time not to exceed, except in case of a continuing
breach, four calendar months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, the Bank shall pay
Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the
-2-
<PAGE>
case may be, as severance pay or liquidated damages, or both, a sum equal to six
(6) months Base Salary in a lump sum within 30 days of the Date of Termination.
(c) Upon the occurrence of an Event of Termination, the Bank will cause to
be continued for a period of six (6) months (or such longer period as may be
required under applicable law) life, medical, dental and disability coverage
substantially identical to the coverage maintained by the Bank for Executive
prior to his termination.
5. CHANGE IN CONTROL.
(a) No benefit shall be paid under this Section 5 unless there shall have
occurred a Change in Control of the Company or the Bank. For purposes of this
Agreement, a "Change in Control" of the Company or the Bank shall be deemed to
occur if and when (a) an offeror other than the Company purchases shares of the
common stock of the Company or the Bank pursuant to a tender or exchange offer
for such shares, (b) any person (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) is or becomes the beneficial
owner, directly or indirectly, of securities of the Company or the Bank
representing 25% or more of the combined voting power of the Company's then
outstanding securities, (c) the membership of the board of directors of the
Company or the Bank changes as the result of a contested election, such that
individuals who were directors at the beginning of any twenty-four month period
(whether commencing before or after the date of adoption of this Plan) do not
constitute a majority of the Board at the end of such period, or (d)
shareholders of the Company or the Bank approve a merger, consolidation, sale or
disposition of all or substantially all of the Company's or the Bank's assets,
or a plan of partial or complete liquidation.
(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred or the Board of the Bank or the Company has
determined that a Change in Control has occurred, Executive shall be entitled to
the benefits provided in paragraphs (c), (d) and (e) of this Section 5 upon his
subsequent involuntary termination of employment at any time during the term of
this Agreement (or voluntary termination following a Change of Control following
any demotion, loss of title, office or significant authority, reduction in his
annual compensation or benefits, or relocation of his principal place of
employment by more than 35 miles from its location immediately prior to the
Change in Control), unless such termination is because of his death, retirement
as provided in Section 7, termination for Cause, or termination for Disability.
Notwithstanding the foregoing, the Executive shall be entitled to the benefits
provided in paragraphs (c), (d) and (e) of this Section 5 in the event of his
involuntary termination of employment during the six-month period preceding the
public announcement of a transaction that would otherwise constitute a Change of
Control under this Agreement.
(c) Upon the occurrence of a Change in Control followed by the Executive's
termination of employment, the Bank shall pay Executive, or in the event of his
subsequent death, his beneficiary or beneficiaries, or his estate, as the case
may be, as severance pay
-3-
<PAGE>
or liquidated damages, or both, a sum equal to two (2) times the Executive's
Base Salary. Such payment shall be made in a lump sum paid within ten (10) days
of the Executive's Date of Termination.
(d) Upon the occurrence of a Change in Control followed by the Executive's
termination of employment, the Bank will cause to be continued life, medical,
dental and disability coverage substantially identical to the coverage
maintained by the Bank for Executive prior to his severance. In addition,
Executive shall be entitled to receive the value of employer contributions that
would have been made on the Executive's behalf over the remaining term of the
agreement to any tax-qualified retirement plan sponsored by the Bank as of the
Date of Termination. Such coverage and payments shall cease upon the expiration
of twenty-four (24) months.
(e) Upon the occurrence of a Change in Control, the Executive shall be
entitled to receive benefits due him under, or contributed by the Company or the
Bank on his behalf, pursuant to any retirement, incentive, profit sharing,
bonus, performance, disability or other employee benefit plan maintained by the
Bank or the Company on the Executive's behalf to the extent that such benefits
are not otherwise paid to the Executive upon a Change in Control.
(f) Notwithstanding the preceding paragraphs of this Section 5, in the
event that the aggregate payments or benefits to be made or afforded to the
Executive under this Section would be deemed to include an "excess parachute
payment" under (S)280G of the Internal Revenue Code, such payments or benefits
shall be payable or provided to Executive over the minimum period necessary to
reduce the present value of such payments or benefits to an amount which is one
dollar ($1.00) less than three (3) times the Executive's "base amount" under
(S)280G(b)(3) of the Internal Revenue Code.
6. TERMINATION UPON RETIREMENT; DEATH OF EXECUTIVE.
Termination by the Bank of Executive based on "Retirement" shall mean
retirement at age 65 or in accordance with any retirement arrangement
established with Executive's consent with respect to him. Upon termination of
Executive upon Retirement, Executive shall be entitled to all benefits under any
retirement plan of the Bank or the Company and other plans to which Executive is
a party. Upon the death of the Executive during the term of this Agreement,
the Bank shall pay to Executive's estate the compensation due to the Executive
through the last day of the calendar month in which his death occurred.
7. TERMINATION FOR CAUSE.
For purposes of this Agreement, "Termination for Cause" shall include
termination because of the Executive's personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any law,
rule, or regulation (other than traffic violations or similar
-4-
<PAGE>
offenses) or final cease-and-desist order, or material breach of any provision
of this Agreement. For purposes of this Section, no act, or the failure to act,
on Executive's part shall be "willful" unless done, or omitted to be done, not
in good faith and without reasonable belief that the action or omission was in
the best interest of the Bank or its affiliates. Notwithstanding the foregoing,
Executive shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to him a copy of a resolution duly adopted by
the affirmative vote of not less than three-fourths of the members of the Board
at a meeting of the Board called and held for that purpose (after reasonable
notice to Executive and an opportunity for him, together with counsel, to be
heard before the Board), finding that in the good faith opinion of the Board,
Executive was guilty of conduct justifying termination for Cause and specifying
the reasons thereof. The Executive shall not have the right to receive
compensation or other benefits for any period after termination for Cause. Any
stock options granted to Executive under any stock option plan or any unvested
awards granted under any other stock benefit plan of the Bank, the Company, or
any subsidiary or affiliate thereof, shall become null and void effective upon
Executive's receipt of Notice of Termination for Cause pursuant to Section 9
hereof, and shall not be exercisable by Executive at any time subsequent to such
Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean (A) if Executive's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, the date specified in the Notice
of Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal there from having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues
-5-
<PAGE>
the resolution of such dispute with reasonable diligence. Notwithstanding the
pendency of any such dispute, the Bank will continue to pay Executive his full
compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to, Base Salary) and continue him as a participant
in all compensation, benefit and insurance plans in which he was participating
when the notice of dispute was given, until the dispute is finally resolved in
accordance with this Agreement. Amounts paid under this Section are in addition
to all other amounts due under this Agreement and shall not be offset against or
reduce any other amounts due under this Agreement.
8. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Bank. The Company, however, guarantees all
payments and the provision of all amounts and benefits due hereunder to
Executive and, if such payments are not timely paid or provided by the Bank,
such amounts and benefits shall be paid or provided by the Company.
9. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Bank or any
predecessor of the Bank and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to the Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
10. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Bank, the Company and their respective successors and assigns.
11. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by any estoppel against the enforcement of any provision
of this Agreement,
-6-
<PAGE>
except by written instrument of the party charged with such waiver or estoppel.
No such written waiver shall be deemed a continuing waiver unless specifically
stated therein, and each such waiver shall operate only as to the specific term
or condition waived and shall not constitute a waiver of such term or condition
for the future as to any act other than that specifically waived.
12. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
13. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
14. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of South
Carolina, unless otherwise specified herein; provided, however, that in the
event of a conflict between the terms of this Agreement and any applicable
federal or state law or regulation, the provisions of such law or regulation
shall prevail.
15. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within one
hundred (100) miles from the location of the Bank, in accordance with the rules
of the American Arbitration Bank then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
16. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Bank, if successful pursuant to a legal judgment,
arbitration or settlement.
-7-
<PAGE>
17. INDEMNIFICATION.
The Bank shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under law against all expenses and liabilities reasonably incurred by
him in connection with or arising out of any action, suit or proceeding in which
he may be involved by reason of his having been a director or officer of the
Bank (whether or not he continues to be a directors or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgment, court costs and attorneys' fees and
the cost of reasonable settlements.
18. SUCCESSOR TO THE BANK OR THE COMPANY.
The Bank and the Company shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Company, expressly
and unconditionally to assume and agree to perform the Bank's or the Company's
obligations under this Agreement, in the same manner and to the same extent that
the Bank or the Company would be required to perform if no such succession or
assignment had taken place.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and their seal to be affixed hereunto by a duly authorized officer or
director, and Executive has signed this Agreement, all on the 21 day of
November, 1995.
ATTEST: FIRST BANK, N.A.
/s/ James A. Shuford, III BY: /s/ Colden R. Battey, Jr.
- ---------------------------- ------------------------------
[SEAL]
ATTEST: FIRSTBANCORPORATION, INC.
/s/ James A. Shuford, III BY: /s/ Colden R. Battey, Jr.
- ---------------------------- ------------------------------
[SEAL]
WITNESS:
/s/ James A. Shuford, III BY: /s/ James L. Pate, III
- ---------------------------- ------------------------------
James L. Pate, III
-9-
<PAGE>
EXHIBIT 10.3
AGREEMENT
This AGREEMENT is made effective as of February 18, 1998 by and between
FIRSTBANK, N.A. (the "BANK") and RICHARD E. MORGAN, JR. ("EXECUTIVE").
WHEREAS, the BANK desires to employ EXECUTIVE as Senior Vice President and
Chief Credit Officer and to protect his position therewith for the period
provided in this Agreement in the event of a Change in Control (as defined
herein); and
NOW, THEREFORE, in consideration of the foregoing and upon the other terms
and conditions hereinafter provided, the parties hereto agree as follows:
1. Term Of Agreement
The term of this Agreement shall be deemed to have commenced as of the date
first above written and shall continue for a period of twenty-four (24) full
calendar months thereafter. Commencing on the first annual anniversary of the
commencement date of this Agreement and continuing at each annual anniversary of
the commencement date thereafter, the Board of Directors of the BANK ("Board")
may extend the Agreement for an additional twelve (12) months. The Board will
conduct a performance evaluation of EXECUTIVE for purposes of determining
whether to extend the Agreement, and the results of the vote on any extension of
this Agreement shall be included in the minutes of the Board's meeting.
2. Payments To EXECUTIVE Upon Change In Control.
(a) Upon the occurrence of a Change in Control (as herein defined) followed
within twelve (12) months of the effective date of the Change in Control by the
voluntary or involuntary termination of EXECUTIVE's employment, other than for
Cause, as defined in Section 2(c) hereof, the provisions of Section 3 shall
apply. For purposes of this Agreement, "voluntary termination" shall be limited
to the circumstances in which EXECUTIVE elects to voluntarily terminate his
employment within twelve (12) months of the effective date of a Change in
Control following any demotion, loss of title, office or significant authority,
reduction in his annual compensation or benefits (other than a reduction
affecting the Bank's personnel generally), or relocation of his principal place
of employment by more than 35 miles from its location immediately prior to the
Change in Control.
(b) A "Change in Control" shall be deemed to occur if and when if and when
(a) an offeror other than the FirstBancorporation, Inc. (the "Holding Company"),
the parent holding company of the BANK, purchases shares of the common stock of
the Holding Company pursuant to a tender or exchange offer for such shares, (b)
any person (as such term is used in Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) is or becomes the beneficial owner, directly or
indirectly, of securities of the Holding Company representing 25% or more of the
combined voting power of the Holding Company's then outstanding securities, (c)
the membership of the board of directors of the Holding Company changes as the
result of a contested election, such that individuals who were directors at the
beginning of any twenty-four
<PAGE>
month period (whether commencing before or after the date of adoption of this
Agreement) do not constitute a majority of the board of directors at the end of
such period, or (d) shareholders of the Holding Company approve a merger,
consolidation, sale or disposition of all or substantially all of the Holding
Company's assets, or a plan of partial or complete liquidation.
(c) EXECUTIVE shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of EXECUTIVE's intentional failure to
perform stated duties, personal dishonesty, incompetence, willful misconduct,
any breach of fiduciary duty involving personal profit, willful violation of any
law, rule, regulation (other than traffic violations or similar offenses) or
final cease and desist order, or any material breach of any material provision
of this Agreement. EXECUTIVE shall not have the right to receive compensation
or other benefits for any period after Termination for Cause.
3. Termination
(a) Upon the occurrence of a Change in Control, followed within twelve (12)
months of the effective date of a Change in Control by the voluntary or
involuntary termination of EXECUTIVE's employment other than Termination for
Cause, the BANK shall be obligated to pay EXECUTIVE, or in the event of his
subsequent death, his beneficiary or beneficiaries, or his estate, as the case
may be, as severance pay, a sum equal to one and one-half (1 1/2) times
Executive's annual compensation. For purposes of this Agreement, "annual
compensation" shall mean and include all wages, salary and bonus, if any, paid
(including accrued amounts) by the BANK as consideration for the Participant's
service during the twelve (12) month period ending on the last day of the month
preceding the effective date of a Change in Control, which is or would be
includable in the gross income of the Participant receiving the same for federal
income tax purposes. Such amount shall be paid to EXECUTIVE in a lump sum no
later than thirty (30) days after the date of his termination.
(b) Upon the occurrence of a Change in Control of the BANK followed within
twelve (12) months of the effective date of a Change in Control by EXECUTIVE's
voluntary or involuntary termination of employment, other than Termination for
Cause, the BANK shall cause to be continued life, medical, dental and disability
coverage substantially identical to the coverage maintained by the BANK for
EXECUTIVE prior to his severance. Such coverage and payments shall cease upon
expiration of eighteen (18) months from the date of EXECUTIVE's termination.
(c) Notwithstanding the preceding paragraphs of this Section 3, in the
event that the aggregate payments or benefits to be made or afforded to
EXECUTIVE under this Section, together with any other payments or benefits
received or to be received by EXECUTIVE in connection with a Change in Control,
would be deemed to include an "excess parachute payment" under Section 280G of
the Internal Revenue Code of 1986, as amended, then the payments or benefits to
be provided under this Section 3 shall be reduced to the extent necessary to
avoid treatment as an excess parachute payment with the allocation of the
reduction among such payments and benefits to be determined by EXECUTIVE.
2
<PAGE>
4. Effect On Prior Agreements And Existing Benefit Plans
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior agreement between the BANK and EXECUTIVE, except that
this Agreement shall not affect or operate to reduce any benefit or compensation
inuring to EXECUTIVE of a kind elsewhere provided. No provision of this
Agreement shall be interpreted to mean that EXECUTIVE is subject to receiving
fewer benefits than those available to him without reference to this Agreement.
5. No Attachment
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
EXECUTIVE and the BANK and their respective successors and assigns.
6. Modification And Waiver
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by an estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
7. Regulatory Suspension Or Removal
(a) If EXECUTIVE is suspended and/or temporarily prohibited from
participation in the conduct of the BANK's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act or similar
statute, rule or regulations, the BANK's obligations under this Agreement shall
be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the BANK may, in its
discretion, (i) pay all or part of the compensation withheld while its
obligations under this Agreement were suspended and (ii) reinstate (in whole or
in part) any of its obligations which were suspended.
(b) If EXECUTIVE is removed and/or permanently prohibited from
participating in the conduct of the BANK's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the Federal
3
<PAGE>
Deposit Insurance Act or similar statute, rule or regulations, all obligations
of the BANK under this Agreement shall terminate as of the effective date of
that order.
8. Severability
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
9. Headings For Reference Only
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
10. Governing Law
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of South Carolina, unless
preempted by Federal law as now or hereafter in effect.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within fifty
(50) miles from the location of the BANK, in accordance with the rules of the
American Arbitration Association then in effect.
11. Source Of Payments
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the BANK.
12. Payment Of Legal Fees
All reasonable legal fees paid or incurred by EXECUTIVE pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the BANK if EXECUTIVE is successful on the merits pursuant to a
legal judgment, arbitration or settlement.
13. Successor To The BANK
The BANK shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the BANK, expressly and
unconditionally to assume and agree to perform the BANK's
4
<PAGE>
obligations under this Agreement, in the same manner and to the same extent that
the BANK would be required to perform if no such succession or assignment had
taken place.
14. Signatures
IN WITNESS WHEREOF, the BANK has caused this Agreement to be executed and
its seal to be affixed hereunto by a duly authorized officer, and EXECUTIVE has
signed this Agreement, all on the 18 day of February, 1998.
ATTEST: FIRSTBANK, N.A.
/s/James L. Pate, III BY: /s/James A. Shuford, III
- ----------------------------- ---------------------------
[SEAL]
WITNESS:
/s/Kim H. Gentry /s/Richard E. Morgan, Jr.
- ---------------------------- ---------------------------
Richard E. Morgan, Jr.
NOTARY PUBLIC FOR SOUTH CAROLINA
MY COMMISSION EXPIRES 8-21-2000
5
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective as of September 3, 1997, by and between
FirstBancorporation, Inc. (the "Company"), a South Carolina corporation, and F.
Wayne Lovelace ("Executive").
WHEREAS, the Company wishes to assure itself of the services of Executive
for the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Company on a
full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to serve as
bank organizer, reporting to James A. Shuford, III.
2. TERMS AND DUTIES.
(a) The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of six (6) full
calendar months thereafter and is subject to renewal upon agreement of the
parties.
(b) During the period of his employment hereunder, except for periods of
absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, Executive shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties
hereunder including activities and services related to the organization,
operation and management of the Company.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute the
salary and benefits paid for the duties described in Sections 1 and 2. The
Company shall pay Executive as compensation a salary of $55,000 per year ("Base
Salary"). Such Base Salary shall be payable in accordance with the customary
payroll practices of the Company.
(b) In addition to the Base Salary provided for by paragraph (a) of this
Section 3, the Company shall pay or reimburse Executive for all reasonable
travel and other obligations under this Agreement and may provide such
additional compensation in such form and such amounts as the Board may from time
to time determine.
<PAGE>
This additional compensation shall include insurance benefits that are
equivalent to the insurance benefits provided to officers in similar positions,
monthly dues for Wildewood Country Club, monthly dues for the Palmetto Club or
similar facility, and a cellular telephone.
(c) Notwithstanding anything herein to the contrary, upon the opening of
Proposed Bank ("New Bank"), Executive's Base Salary shall be increased to
$65,000 and Executive shall be paid a one time bonus of $5,000. Executive's
Base Salary shall be increased to $75,000 and Executive shall receive an
additional bonus of $7,750 when deposits at New Bank average $10 million dollars
for a period of thirty (30) consecutive days.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during Executive's term of employment under this Agreement, the provisions of
this Section shall apply. As used in this Agreement, an "Event of Termination"
shall mean the termination by the Company of Executive's full-time employment
hereunder for any reason, other than Termination for Cause, as defined in
Section 7 hereof.
(b) Upon the occurrence of an Event of Termination, the Company shall pay
Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to sixty (60) days salary in a lump sum within 30
days of the Date of Termination.
(c) Upon the occurrence of an Event of Termination, the Company will cause
to be continued for a period of sixty (60) days (or such longer period as may be
required under applicable law) life, medical, dental and disability coverage
substantially identical to the coverage maintained by the Company for Executive
prior to his termination.
5. TERMINATION, DEATH OF EXECUTIVE OR RESIGNATION
Upon the death of Executive during the term of this Agreement, the Company
shall pay to Executive's estate the compensation due to Executive through the
last day of the calendar month in which his death occurred. Upon the voluntary
resignation of Executive during the term of this Agreement, the Company shall
pay to Executive the compensation due to Executive through his Date of
Termination.
6. TERMINATION FOR CAUSE.
For purposes of this Agreement, "Termination for Cause" shall include
termination because of Executive's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary
-2-
<PAGE>
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, or regulation (other than traffic violations
or similar offenses) or final cease-and-desist order, or material breach of any
provision of this Agreement. Executive shall not have the right to receive
compensation or other benefits for any period after Termination for Cause. Any
stock options granted to Executive under any stock option plan or any unvested
awards granted under any other stock benefit plan of the Company, or any
subsidiary or affiliate thereof, shall become null and void effective upon
Executive's receipt of Notice of Termination for Cause pursuant to Section 8
hereof, and shall not be exercisable by Executive at any time subsequent to such
Termination for Cause.
7. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any voluntary termination of employment by Executive during the
term of this Agreement, Executive agrees not to compete with New Bank and/or the
Company for a period of one (1) year following such termination in the City of
Columbia or in any city, town or county in which New Bank and/or the Company has
an office or has filed an application for regulatory approval to establish an
office, determined as of the effective date of such termination. Executive
agrees that during such period and within said cities, towns and counties,
Executive shall not work for or advise, consult or otherwise serve with,
directly or indirectly, any entity whose business materially competes with the
depository, lending or other business activities of New Bank and/or the Company.
The parties hereto, recognizing that irreparable injury will result to New Bank
and/or the Company, its business and property in the event of Executive's breach
of this Section 9(a) agree that in the event of any such breach by Executive,
New Bank and/or the Company will be entitled, in addition to any other remedies
and damages available, to an injunction to restrain the violation hereof by
Executive, Executive's partners, agents, servants, employers, employees and all
persons acting for or with Executive. Executive represents and admits that in
the event of the termination of his employment, Executive's experience and
capabilities are such that Executive can obtain employment in a business engaged
in other lines and/or of a different nature than New Bank and/or the Company,
and that the enforcement of a remedy by way of injunction will not prevent
Executive from earning a livelihood. Nothing herein will be construed as
prohibiting New Bank and/or the Company from pursuing any other remedies
available to New Bank and/or the Company for such breach or threatened breach,
including the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of New Bank and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of New Bank and the Company. Executive will not, during or
after the term of
-3-
<PAGE>
his employment, disclose any knowledge of the past, present, planned or
considered business activities of New Bank or the Company to any person, firm,
corporation, or other entity for any reason or purpose whatsoever. In the event
of a breach or threatened breach by Executive of the provisions of this Section,
New Bank and the Company will be entitled to an injunction restraining Executive
from disclosing, in whole or in part, the knowledge of the past, present,
planned or considered business activities of New Bank or the Company, or from
rendering any services to any person, firm, corporation, other entity to whom
such knowledge, in whole or in part, has been disclosed or is threatened to be
disclosed. Nothing herein will be construed as prohibiting New Bank and the
Company from pursuing any other remedies available to New Bank and the Company
for such breach or threatened breach, including the recovery of damages from
Executive.
8. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Company; provided, however, that upon the
commencement of operations of New Bank, such payments and any benefits to be
provided to Executive under this Agreement will be paid or provided by New Bank.
9. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Company or any
predecessor of the Company and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to Executive of
a kind elsewhere provided. No provision of this Agreement shall be interpreted
to mean that Executive is subject to receiving fewer benefits than those
available to him without reference to this Agreement.
10. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Company and their respective successors and assigns.
-4-
<PAGE>
11. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
12. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
13. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
14. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of South
Carolina, unless otherwise specified herein; provided, however, that in the
event of a conflict between the terms of this Agreement and any applicable
federal or state law or regulation, the provisions of such law or regulation
shall prevail.
15. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within one
hundred (100) miles from the location of the Company, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
-5-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
and its seal to be affixed hereunto by a duly authorized officer, and Executive
has signed this Agreement, all on the 3 day of September, 1997.
ATTEST: FIRSTBANCORPORATION, INC.
/s/ James L. Pate, III BY: /s/ James A. Shuford, III
- -------------------------- ------------------------
[SEAL]
WITNESS:
/s/ Shirley G. Pouth /s/ F. Wayne Lovelace
- -------------------------- ---------------------------
Executive
-6-
<PAGE>
EXHIBIT 10.11
LEASE
(Triple Net)
THIS LEASE, made as of the 25 day of February, 1998, by and between BANK TOWER
ASSOCIATES, a South Carolina general partnership ("Landlord") and
FIRSTBANCORPORATION, INC., a South Carolina corporation ("Tenant").
FOR valuable consideration, the receipt and sufficiency of which is hereby
acknowledged it is agreed as follows:
1. PREMISES. Subject to the terms and conditions set forth hereinafter,
--------
Landlord leases hereby to Tenant, and Tenant rents hereby from Landlord property
known as 1900 Assembly Street, Columbia, South Carolina (the "Premises"),
including a building of approximately 6,600 square feet (the "Building") and a
parking lot as shown on the attached Exhibit "A".
-----------
2. TERM OF LEASE.
-------------
A. The term of this Lease shall be for a period of five (5) years to
commence on the 1st day of April, 1998 or the month in which Tenant opens for
business, whichever first occurs. If Tenant opens for business prior to the
actual commencement of the Lease Term, Tenant shall pay prorata rent for the
number of days from and including the date Tenant opened for business to the
commencement date of the Lease Term (the "Fractional Term").
B. Notwithstanding anything herein to the contrary Tenant may
terminate this Lease within one hundred twenty (120) days from the date hereof
(the "Approval Date") on written notice to Landlord if the Tenant after good
faith effort is unable to obtain applicable governmental approval for the
operation of a banking facility on the Premises prior to the Approval Date.
This right to terminate the Lease shall end upon approval being obtained from
the Office of the Controller of the Currency (OCC), The Federal Deposit
Insurance Corporation (FDIC), The Security and Exchange Commission (SEC) and any
other governmental agency having jurisdiction in the matter or if Tenant fails
to give notice as aforesaid. Notwithstanding anything herein to the contrary,
if Tenant fails to give Landlord written notice of termination within one
hundred twenty-one (121) days from the date hereof Tenant shall have waived its
rights to terminate pursuant to this paragraph. If this Lease is terminated
prior to Landlord receiving two (2) months rent, the Tenant shall pay Landlord
the additional sum of $10,000.00.
C. Tenant shall have the option to extend this Lease for three (3)
consecutive renewal terms of three (3) years each (the "Renewal Term(s)")
provided that Tenant notifies Landlord in writing of its exercise of the said
renewal option at least six (6) months prior to the expiration of the Lease Term
or the preceding renewal term as the case may be (TIME IS OF THE ESSENCE). Upon
exercise of a renewal option Tenant shall be contractually bound hereunder for
the applicable Renewal Term.
1
<PAGE>
D. Notwithstanding anything herein to the contrary, Landlord may
terminate the renewal option(s) of this Lease but only for the purpose of
demolishing the Building for purposes of constructing a parking garage
(including expansion of the adjacent garage) in connection with the development
of an office building on Main Street adjacent to the NationsBank Plaza. To
terminate the remaining renewal options the Landlord must give written notice of
such termination to Tenant at least one year prior to the end of the initial
Lease Term or then pending renewal term as the case may be. The notice shall
contain an affidavit by Landlord that the termination is for the demolition
and/or development purposes mentioned above and that construction will commence.
3. RENT. Tenant agrees to pay to Landlord as annual rental for the
----
Premises the following amounts for the following time periods, one-twelfth
(1/12) of said annual rental to be paid monthly, in advance, on the first day of
each month during the applicable period.
A. $238.33 per day for the number of days Tenant has taken
possession of the Premises or has opened for business prior to commencement of
the Lease Term;
B. $85,800.00 per year ($7,150.00 per month) for the initial Lease
Term; and
C. The annual rental for each renewal term shall be increased by
twelve percent (12%) over the annual rental for the preceding term or renewal
term as the case may be.
4. USE OF PREMISES. Tenant agrees that the business to be operated by it
---------------
on the Premises shall be a banking facility with associated offices and will not
be operated in such a manner as to constitute a nuisance or a hazard and that in
connection with the operation of the business Tenant will observe and comply
with all applicable laws, ordinances, orders and regulations prescribed by
lawful authority having jurisdiction over the business operated in the Premises.
5. REPAIRS AND ALTERATIONS. Landlord shall be responsible for
-----------------------
maintenance and repair of the roof and structural components of the Building.
Except for roof and structural Landlord shall not be obligated to maintain the
Premises or any improvements located thereon or any fixtures or equipment
located therein during the Fractional Term, the Lease Term or any renewal
thereof. Notwithstanding the foregoing the HVAC system, roof, structure,
electrical and plumbing systems, and all other appurtenances to the Building
shall be in good working condition and reasonably acceptable to Tenant at the
commencement of the Lease Term. Further, the HVAC system shall be warranted by
Landlord to remain in good working condition for one (1) year from the
commencement date of this Lease.
Tenant agrees, at its sole cost and expense, to maintain, repair and
replace all of the improvements (other than roof and structural components)
including, but not limited to, HVAC (except for the first Lease year), plumbing,
electrical and all mechanical systems, plate glass, banking drive through
facilities, vaults, the parking and service areas and landscaped areas located
on the Premises in a good state of repair and to keep the Premises in a clean,
neat and orderly condition.
2
<PAGE>
With the exception of relocating and constructing a new Automated Teller
Machine (ATM) in the parking lot, renovation of the drive-up teller windows and
relocating the night depository, Tenant may not erect additional improvements on
the Premises or make alterations or renovations to the existing improvements
without Landlord's prior written consent, which consent shall not be
unreasonably withheld. Tenant shall hold Landlord harmless from any claim,
losses, damages or liens arising as a result of such additions or renovations.
Tenant shall provide Landlord with copies of all plans and specifications of
improvements or renovations made pursuant hereto. Landlord shall cause the
exterior of the Premises to be in compliance with the Americans with
Disabilities Act (ADA) at the commencement of the initial Lease Term. Tenant
shall be responsible for exterior compliance as to matters arising after the
commencement of the initial Lease Term and for all interior compliance.
6. UTILITIES AND EXPENSES. Tenant shall be responsible for electricity,
----------------------
lights, water, sewer, heat, janitor service or any other utility or service
consumed including any initial hookups or taps in connection with the occupancy
of the Premises by Tenant. Tenant shall be responsible for all other expenses
associated with the Premises including, without limitation, pest control,
landscape, and parking lot maintenance.
7. SIGNS. Tenant shall have the right to erect and maintain such sign or
-----
signs on the Premises as may be permitted by applicable law and subject to
Landlord's prior written consent which shall not be unreasonably withheld.
8. TAXES. Landlord shall pay during the Lease Term including any renewal
-----
terms all ad valorem taxes assessed against the Premises by the appropriate
governmental authorities. Tenant shall within 10 days following demand
reimburse Landlord for all taxes paid by Landlord which are in excess of the
taxes assessed for 1997 which shall be deemed additional rent. Landlord's
demand shall be accompanied by reasonable evidence of the increase in taxes.
Tenant shall pay all ad valorem taxes levied against any stock or merchandise,
furniture, furnishings, equipment and other property located in, on or upon the
Premises.
9. LIABILITY INSURANCE. Tenant shall provide and keep in force at its
-------------------
own expense during the Fractional Term, Lease Term and any renewal terms public
liability insurance for the protection of Landlord and Tenant and property
damage insurance coverage with respect to the contents of the Premises. The
insurance coverage to be provided by Tenant shall contain limits of not less
than $1,000,000.00 for injury or death to any one person and $2,000,000.00 for
injury or death for any accident, together with $500,000.00 for damage to
property.
10. FIRE AND EXTENDED COVERAGE INSURANCE. Landlord shall, at its cost and
------------------------------------
expense, procure and keep in effect a standard policy of fire and extended
coverage insurance in an amount equal to the insurable replacement value of the
Building and Landlord's other improvements upon and constituting a part of the
Premises. Said policy may provide coverage for Landlord's benefit for twelve
(12) months of loss of rents. Such policy shall be issued in the name of
Landlord and shall name Landlord's mortgagee(s) as a loss payee. Tenant shall
within ten (10) days following demand reimburse Landlord for any increase in the
cost of the insurance after 1997 carried pursuant hereto which shall be
additional rent. Landlord's demand shall be accompanied by reasonable
3
<PAGE>
evidence of the increased insurance premium.
11. DAMAGE OR DESTRUCTION BY FIRE, ETC. If the Building containing the
----------------------------------
Premises is damaged or destroyed by fire, flood, tornado, or by the elements, or
through casualty, or otherwise, after the commencement of and the Approval Date,
the parties shall have the option to terminate the Lease. Should both parties
agree to not terminate the Lease, the Lease shall continue in full force and
effect and Landlord, at its expense, shall promptly restore, repair or rebuild
same to the same condition as existed immediately prior to such damage or
destruction. The Tenant shall not be liable for rent during the portion it is
not able to carry on its business due to such damage or destruction or during
the repairs to said Premises.
12. HAZARDOUS SUBSTANCES. As used herein the term "Hazardous Substances"
--------------------
shall include, without limitation, explosives, flammables, radioactive
materials, asbestos, polychlorinated biphenyls (PCBs), chemicals known to cause
cancer or reproductive toxicity, pollutants, contaminants, hazardous wastes,
toxic substances or related materials, petroleum and petroleum products, and
substances declared to be hazardous or toxic under any law or regulation now or
hereafter enacted by any governmental authority. Tenant shall not cause or
permit to occur:
A. Any violation of any federal, state, or local law, ordinance, or
regulation now or hereafter enacted, related to environmental conditions on or
about the Premises, or arising from Tenant's use or occupancy of the Premises,
including, but not limited to, soil and ground water conditions; or
B. The use, generation, release, manufacture, refining, production,
processing, storage, or disposal of any Hazardous Substance on, under, or about
the Premises, or the transportation to or from the Premises of any Hazardous
Substance, except as specifically disclosed herein.
Tenant shall, at Tenant's expense, comply with all laws regulating the use,
generation, storage, transportation, or disposal of Hazardous Substances and
shall clean up any deposit, spill, discharge, or other release of Hazardous
Substances that occurs during the term of this Lease, including, without
limitation, compliance with the requirements of all governmental authorities
having jurisdiction. Tenant's obligations and liabilities hereunder shall
survive the expiration of this Lease.
13. INDEMNIFICATION. Tenant agrees hereby to indemnify and save Landlord
---------------
harmless from any and all actions, demands, liabilities, claims, losses or
litigation, including court costs and reasonable attorneys' fees arising out of
or connected with Tenant's occupancy or use of the Premises and/or which results
from any alleged act or negligence of Tenant or any condition existing on the
Premises or any obligation of Tenant under this Lease.
14. DEFAULT. As used in this Lease, the term "event of default" shall
-------
mean any one of the following:
A. The failure of Tenant to make any payment of rent by the fifth
(5th) day of
4
<PAGE>
the month in which the same becomes due and payable;
B. The failure of Tenant to fulfill any other duty or obligation
imposed on Tenant by this Lease;
C. The appointment of a receiver or the entry of an order declaring
Tenant bankrupt or the assignment by Tenant for the benefit of creditors or the
participation by Tenant in any other insolvency proceedings;
D. The taking of the leasehold interest of Tenant hereunder pursuant
to an execution on a judgment.
E. Notwithstanding any other provisions contained in this Lease, in
the event (a) Tenant or its successors or assignees shall become insolvent or
bankrupt, or if it or their interests under this Lease shall be levied upon or
sold under execution or other legal process, or (b) the depository institution
then operating on the Premises is closed, or is taken over by any depository
institution supervisory authority ("Authority") and if such Authority elects to
and does in fact continue paying rent and otherwise perform herewith, Landlord
may terminate this Lease only with the concurrence of any Receiver or Liquidator
appointed by such Authority; provided, that in the event this Lease is
terminated by the Receiver or Liquidator, the maximum claim of Landlord of rent,
damages, or indemnity for injury resulting from the termination, rejection, or
abandonment of the unexpired Lease shall in no event be in an amount in excess
of all accrued and unpaid rent to the date of termination.
Upon the happening of any "event of default", Landlord may at its option
accelerate payments due hereunder and terminate this Lease and expel Tenant and
recover reasonable legal fees and costs therefrom without prejudice to any other
remedy; provided, however, that before the exercise of such option in the event
of default, in the case of failure by Tenant in the payment of rent or the
payment of taxes or insurance costs or any other sums as required by this Lease,
Landlord shall first have given written notice of such event of default to
Tenant, which thereafter shall have five (5) days within which to remedy or
correct such monetary default, including the payment of any late fees or other
charges assessed by the lender of Landlord, and in the case of failure by Tenant
to perform any other condition imposed herein upon Tenant, Landlord shall have
first given written notice of such event of default to Tenant, which thereafter
shall have thirty (30) days (as to any event of default other than payment of
rent or other monetary default) within which to remedy or correct such default;
provided, that if such event of non-monetary default cannot reasonably be cured
within said thirty (30) day period, Tenant shall not be deemed in default
hereunder if cure is commenced within said period and diligently pursued
thereafter.
15. IDENTITY OF INTEREST. The execution of this Lease or the performance
--------------------
of any act pursuant to the provisions hereof shall not be deemed or construed to
have the effect of creating between Landlord and Tenant the relationship of
principal and agent or of a partnership or of a joint venture and the
relationship between them shall be and remain only that of Landlord and Tenant.
16. NOTICES AND REPORTS. Any notice, report, statement, approval,
-------------------
consent,
5
<PAGE>
designation, demand or request to be given and any option or election to be
exercised by a party under the provisions of this Lease shall be effective only
when made in writing and delivered, including telecopy or delivery by Federal
Express or other recognized overnight courier, or mailed by registered or
certified mail with postage prepaid, (notice by mail shall be deemed given on
the second day after mailing) to the other party at the address (or telecopy
number) given below:
If to Landlord: c/o Edens & Avant
1901 Main Street, Suite 900
Columbia, SC 29201
Attn: Asset Management
Telecopier: (803) 254-4983
If to Tenant: Firstbancorporation, Inc.
PO Box 2147
Beaufort, SC 29901-2147
Attn: James A. Shuford, III
Telecopier: (803) 521-5625
provided, however, that either party may designate a different address from time
to time by giving to the other party notice in writing of the change. Unless
otherwise designated by Landlord in writing rental payments shall be made by
Tenant to Landlord at the above address.
17. ENTRY OF LANDLORD. Landlord may enter the Premises during business
-----------------
hours:
A. To inspect or protect the Premises;
B. To exhibit the Premises to any prospective purchaser by
appointment only after normal business hours. No "for sale" or "for lease"
signs shall be permitted while Tenant occupies said Property.
No authorized entry by Landlord shall constitute an eviction of Tenant or a
deprivation of its rights or alter the obligation of Landlord or create any
right in Landlord adverse to the interest of Tenant hereunder.
18. OWNERSHIP OF IMPROVEMENTS AT LEASE EXPIRATION. At the expiration of
---------------------------------------------
the Lease, the improvements on the Premises shall be and remain the sole
property of Landlord. Provided that Tenant is not in default hereunder, any
trade fixtures and signs purchased and installed (at Tenant's expense), as
approved by Landlord, and used by Tenant in the operation of its business on the
Premises shall remain Tenant's sole property and Tenant shall have the right to
remove the same provided any damages in removal are repaired by Tenant.
19. QUIET ENJOYMENT. Landlord warrants that Tenant, upon observing and
---------------
complying with the terms, covenants and conditions of this Lease shall enjoy the
use and occupancy of the Premises during the Lease Term without any unreasonable
hindrance or interference.
6
<PAGE>
20. ENTIRE AGREEMENT. This Lease contains all of the understandings by
----------------
and between the parties hereto relative to the leasing of the Premises and all
prior or contemporaneous agreements relative thereto have been merged herein or
are voided by this instrument, which may be amended, modified, altered, changed,
revoked or rescinded in whole or in part only by an instrument in writing signed
by each of the parties hereto.
21. ASSIGNMENT AND SUBLETTING. Tenant shall not assign this Lease nor
-------------------------
sublet the Premises or any part thereof without the prior written consent of
Landlord which shall not be unreasonably withheld, provided, however, Tenant may
assign this Lease or sublet all or any part of the Premises to an entity in
which Tenant shall have the controlling interest, or to any parent of Tenant, or
to any entity with which Tenant merges.
22. EMINENT DOMAIN. If any person, corporation or authority, municipal,
--------------
public, private or otherwise, shall at any time during the term of this Lease or
any extension or renewal hereof, lawfully condemn and acquire title to the
Premises, or to any portion thereof in or by condemnation or other similar
proceeding, pursuant to any law, general, special or otherwise, the respective
rights of Landlord and Tenant shall be as hereinafter provided.
A. With regard to any condemnation award any apportionment shall be
made according to the laws of South Carolina.
B. The valuation of Landlord's and Tenant's interest and the
apportionment of any award shall be determined by agreement, or if they are
unable to agree, the value shall be determined by arbitration as hereinafter
provided.
23. WAIVER OF SUBROGATION. Landlord and Tenant hereby waive all rights of
---------------------
recovery and causes of action which either has or may have or which may arise
hereafter against the other, whether caused by negligence, intentional
misconduct or otherwise, for any damage to Premises, property or business caused
by any of the perils covered by fire and extended coverage, building and
contents, and business interruption insurance, or for which either party may be
reimbursed as a result of insurance coverage affecting any loss suffered by it,
provided, however, that the foregoing waivers shall apply only to the extent of
any recovery made by the parties hereto under any policy of insurance now or
hereafter issued, and further provided that the foregoing waivers do not
invalidate any policy of insurance of the parties hereto, now or hereafter
issued, it being stipulated by the parties hereto that the waivers shall not
apply in any case in which the application thereof would result in the
invalidation of any such policy of insurance.
24. SUBORDINATION AND ESTOPPEL AGREEMENTS. Tenant shall from time to time
-------------------------------------
provide Landlord or any mortgagee of Landlord with an estoppel letter, in a form
reasonably requested by Landlord, confirming the status of this Lease, including
whether or not any defaults exist. Tenant shall and does hereby subordinate to
any mortgages placed on the Premises by Landlord provided that the mortgagee
shall acknowledge Tenant's right to enjoy the undisturbed use of the Premises so
long as Tenant is not in default. Tenant shall execute such documents as may be
reasonably required from time to time in accordance herewith, however, it is
intended that the subordination provision hereof shall be automatic.
7
<PAGE>
25. HOLDING OVER. If Tenant holds over after termination of this Lease,
------------
the tenancy thereafter shall be from month to month subject to all terms,
conditions, and covenants of this Lease provided that the monthly rent shall be
increased by twenty-five percent (25%).
26. BINDING EFFECT. This Lease shall be binding upon and shall inure to
--------------
the benefit of the parties hereto, their respective heirs, successors and
assigns.
27. SEVERABILITY. If any term or provision of this Lease, or the
------------
application thereof to any person or circumstance shall, to any extent be
invalid or unenforceable, the remainder of this Lease, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and each
term and provision of this Lease shall be valid and enforced to the fullest
extent permitted by law.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals as of the
day and year first above written.
WITNESSES: BANK TOWER ASSOCIATES, a South Carolina
general partnership
By: Edens Tower Partners
/s/ Bill Kuhas
- ---------------------------
By: /s/ H. Dan Avant (SEAL)
---------------------------
Print Name: H. Dan Avant
- --------------------------- --------------------------
Title:
-------------------------------
FIRSTBANCORPORATION, INC., a South Carolina
corporation (SEAL)
/s/ F. W. Lovelace
- ----------------------------
By: /s/ James A. Shuford, III
------------------------
Print Name:
- ---------------------------- -------------------------------
Title:
------------------------------------
8
<PAGE>
EXHIBIT A
[MAP OF AREA SHOWING PROPERTY LEASED APPEARS HERE]
<PAGE>
Exhibit 21
Subsidiaries of the Registrant
Parent
- ------
FirstBancorporation, Inc.
Percentage Jurisdiction or
Subsidiaries of Ownership State of Incorporation
- ------------ ------------ ----------------------
FirstBank, N.A. 100% United States
First Securities Corporation (1) 100% South Carolina
_____________
(1) Wholly-owned by FirstBank, N.A.
<PAGE>
EXHIBIT 23.1
[LETTERHEAD OF J.W. HUNT AND COMPANY, LLP]
CONSENT OF INDEPENDENT AUDITORS
===============================
The Board of Directors
FirstBancorporation, Inc.
Beaufort, South Carolina
We consent to the use in this Registration Statement on Form SB-2 of
FirstBancorporation, Inc., of our report dated January 30, 1998, on the
consolidated financial statements of FirstBancorporation, Inc. and Subsidiary
contained in the Prospectus, which is a part of such Registration Statement. We
also consent to the reference to us under the heading "Experts" contained in
such Prospectus.
/s/ J.W. HUNT AND COMPANY, LLP
Columbia, South Carolina
March 25, 1998
<PAGE>
EXHIBIT 99
FIRSTBANCORPORATION, INC.
SUBSCRIPTION FORM
================================================================================
NUMBER OF SHARES
Fill in the number of shares you wish to purchase and the total amount due. No
fractional shares will be issued. Stockholders as of the close of business on
_______ __, 1998 ("Rights Holders") have the non-transferable right to subscribe
for up to a maximum of one additional share of Common Stock for every seven
shares owned as of the close of business on _________ __, 1998 ("Record Date").
All other persons may subscribe for up to $100,000 of Common Stock (5,555
shares), but no fewer than 50 shares of Common Stock.
METHOD OF PAYMENT
Check the appropriate boxes that show how you wish to pay for the stock. If
paying by check or money order, make it payable to "FirstBancorporation, Inc."
Cash will be accepted only if hand delivered to _______________________.
STOCK REGISTRATION
Print the name(s) in which you want the stock registered. If you are a Rights
Holder, to protect your rights over other purchasers as described in the
Prospectus, you must take ownership in at least one of the registered owners'
names. Subscription rights are nontransferable. Enter the Social Security Number
(or Tax ID Number) of one registered owner; only one number is required. See the
reverse side of this form for registration guidelines.
NASD AFFILIATION
The NASD's Interpretation with respect to Free Riding and Withholding restricts
the sale of certain initial public offerings to certain NASD members, affiliates
and family members. For an exemption from these restrictions, such persons must
comply with the following conditions: (i) to not sell or transfer the shares for
a period of three months following issuance and (ii) to report this subscription
in writing to the applicable NASD member within one day of payment therefor. By
signing this Stock Order Form, you are certifying that you will comply with
applicable NASD regulations.
TELEPHONE INFORMATION
Please enter the daytime telephone number where you may be contacted in the
event we cannot execute your order as given.
STOCK OWNERSHIP VERIFICATION
If you were a stockholder as of the close of business on the Record Date (______
__, 1998), indicate the number of shares you owned on that date in order to
insure proper identification of your purchase right or preference.
ACKNOWLEDGMENT
Please read the acknowledgement statement carefully and sign on the signature
line. When purchasing as a custodian, corporate officer, etc., add your full
title to your signature. Enter the Social Security number (or Tax ID number) of
the registered owner and date the form; only one number is required.
The Offering will expire at __:__ _.m., Eastern Time, on _________, __, 1998,
unless extended by FirstBancorporation. This order form must be properly
completed and received by _______________ with full payment prior to the
expiration date.
Number Purchase Total
of Shares Price Amount
______________ X $18.00 = $___________
[_] Enclosed is check or money order payable to "FirstBancorporation, Inc."
[_] Cash (hand delivered only).
- --------------------------------------------------------------------------------
Name(s) in which your stock is to be registered
- --------------------------------------------------------------------------------
Name(s) in which your stock is to be registered
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State Zip Code
[_] Individual [_] Joint Tenants
[_] Tenants in Common [_] Uniform Gifts to Minors
[_] Other
------------------------------------------
Are you an officer, director, general partner, employee or agent of a National
Association of Securities Dealers, Inc. ("NASD") member firm or related to such
person?
[_] Yes [_] No
Daytime Phone ( )
------------------------------------------------------------------
Were you a stockholder of FirstBancorporation as of the close of business on
________ __, 1998
[_] Yes [_] No
Number of shares held as of ______ __, 1998: _________.
I acknowledge receipt of the Prospectus dated _____ __, 1998 and the provisions
therein and understand that after delivery of this subscription form, this
subscription may not be modified or revoked. I certify that this order is for
the above account only and under penalties of perjury, I certify that the Social
Security or Taxpayer ID number given below is correct. I further certify that
this subscription does not violate purchase limitations set forth more fully in
the Prospectus.
I acknowledge that the common stock offered is not a savings or deposit account
and is not insured or guaranteed by the FDIC or any other government agency.
- --------------------------------------------------------------------------------
Signature Date
- --------------------------------------------------------------------------------
Additional Signature (if required) Date
- --------------------------------------------------------------------------------
Social Security No. or Tax ID No.
================================================================================
<PAGE>
GUIDELINES FOR REGISTERING STOCK
For reasons of clarity and standardization, the stock transfer industry has
developed uniform stockholder registrations which we will utilize in the
issuance of your Stock Certificates(s). If you have any questions, please
consult your legal advisor.
Stock ownership must be registered in one of the following manners:
- --------------------------------------------------------------------------------
INDIVIDUAL: Avoid the use of two initials. Include the first given name,
middle initial and last name of the stockholder. Omit words of
limitation that do not affect ownership rights such as "special
account", "single man", "personal property", etc.
- --------------------------------------------------------------------------------
JOINT: Joint ownership of stock by two or more persons shall be
inscribed on the stock certificate with one of the following
types of joint ownership. Names should be joined by "and"; do
not connect with "or". Omit titles such as "Mrs.", "Dr.", etc.
JOINT TENANTS--Joint Tenancy with Right of Survivorship and not
as Tenants in Common may be specified to identify two or more
owners where ownership is intended to pass automatically to the
surviving tenant(s).
TENANTS IN COMMON--Tenants in Common may be specified to identify
two or more owners. When stock is held as tenancy in common,
upon the death of one co-tenant, ownership of the stock will be
held by the surviving co-tenant(s) and by the heirs of the
deceased co-tenant. All parties must agree to the transfer or
sale of shares held in this form of ownership.
- --------------------------------------------------------------------------------
UNIFORM GIFT Stock may be held in the name of a custodian for a minor under
the Uniform Gifts to Minors laws of the individual states. There
may be only one custodian and one minor designated on a stock
certificate. The standard abbreviation of custodian is "CUST",
while the description "Uniform Gifts to Minors Act" is
abbreviated "UNIF GIFT MIN ACT." Standard U.S. Postal Service
state abbreviations should be used to describe the appropriate
state. For example, stock held by John P. Jones under the South
Carolina Uniform Gift to Minors Act will be abbreviated:
JOHN P. JONES CUST SUSAN A. JONES
UNIF GIFT MIN ACT SC
- ------------------------------------------------------------------------------
FIDUCIARIES: Stock held in a fiduciary capacity must contain the following:
1. The name(s) of the fiduciary--
. If an individual, list the first given name, middle
initial, and last name
. If a corporation, list the corporate title.
. If an individual and a corporation, list the
corporation's title before the individual.
2. The fiduciary capacity--
. Administrator . Conservator
. Committee . Executor
. Trustee . Personal Representative
. Custodian
3. The type of document governing the fiduciary relationship.
Generally, such relationships are either under a form of
living trust agreement or pursuant to a court order.
Without a document establishing a fiduciary relationship,
your stock may not be registered in a fiduciary capacity.
4. The date of the document governing the relationship. The
date of the document need not be used in the description of
a trust created by a will.
5. Either of the following:
The name of the maker, donor or testator or
The name of the beneficiary
Example of Fiduciary Ownership
JOHN D. SMITH, TRUSTEE FOR TOM A. SMITH
UNDER AGREEMENT DATED (Date)
