<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NUMBER 33-76644
COMMUNITYCORP
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
SOUTH CAROLINA 57-1019001
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1100 N. JEFFERIES BLVD. WALTERBORO, SOUTH CAROLINA 29488
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 803/549-2265
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT - NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $5 PER SHARE
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent fliers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy information or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ X].
The aggregate market value (computed on the basis of the most recent trades of
which the Registrant was aware) of shares of the Common Stock ($5 par value per
share) held by non-affiliates of the registrant as of March 10, 1997 was
$3,459,067. The market value calculation assumes that all shares beneficially
owned by members of the Board of Directors of the Registrant are shown owned by
"affiliates", a status which each of the directors individually disclaims.
The number of shares outstanding of the issuer's classes of common stock as of
March 10, 1997 - 300,000 shares of Common Stock, $5 Par Value.
DOCUMENTS INCORPORATED BY REFERENCE
No documents have been incorporated by reference.
Page 1 of 44 sequentially numbered pages.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL. Communitycorp (the "Company or "Registrant") is a South Carolina
corporation organized for the purpose of becoming a bank holding company for the
Bank of Walterboro (the "Bank"), under the Bank Holding Company Act. The Company
was incorporated on March 13, 1995. Effective September 11, 1995 the Registrant
acquired, in exchange for its own shares of common stock, all of the outstanding
common stock of the Bank.
SUBSIDIARY. Bank of Walterboro is a state-chartered commercial bank operating
from one office located at 1100 North Jefferies Boulevard, Walterboro, South
Carolina. The Bank's primary market area is Walterboro and Colleton County,
South Carolina. Depository accounts are insured by the Federal Deposit Insurance
Corporation up to the maximum amount permitted by law. The Bank received its
charter on October 11, 1988, and opened for business on May 1, 1989.
The Bank offers a full range of deposit services for individuals and businesses.
Deposit products include checking accounts, savings accounts, certificate of
deposit, money market accounts and IRA's.
The Bank offers short to intermediate term commercial and consumer loans for a
variety of purposes on both a secured and unsecured basis. The primary
commercial market for these loans is small to medium sized businesses located in
the Colleton County area. Commercial loans may be made to companies to acquire
fixed assets, for general operating purposes, or to finance inventory or
accounts receivables, as well as for other purposes. Consumer loans are made to
finance the purchase of real estate, automobiles, mobile homes, boats, other
recreational items, or for home improvements, education or personal investments.
The Bank has not obtained a material portion of its deposits from any single
person or few persons nor is a material portion of the Bank's loans concentrated
within a single industry or group of related industries. Management has no
reason to believe that the loss of any depositor or a few of the larger
depositors would have a materially adverse effect upon the operations of the
Bank or erode its deposit base.
EMPLOYEES. As of March 10, 1997, the Company and the Bank had 17 full-time and 2
part-time employees. Neither the Company nor the Bank is a party to a collective
bargaining agreement, and they consider their relations with employees to be
good.
COMPETITION AND MARKET AREA. The Company and the Bank conduct business in terms
substantially the same as a typical commercial bank offering a full range of
banking services, with the exception of trust services. The Company's
capitalization allows the Company to compete effectively in it's market.
Correspondent banks are used to meet customer credit needs that exceed the
Bank's lending limits.
The Bank competes in a very competitive market for deposits and loans against
four commercial banks, two savings and loans and one credit union. None of the
bank's competitors are headquartered in Colleton County except for one savings
and loan. The Bank prides itself in providing prompt, efficient, courteous
service and subscribes to the theory that funds resulting from local depositors
should be reinvested in the depositor's community.
The Bank strongly feels that decisions regarding credit and services of a bank
can best be made at a local level and that stability and continuity of
management within a bank without frequent transfers is important to the
financial well-being of its customers.
Page 2 of 44 sequentially numbered pages.
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SUPERVISION AND REGULATION. The Company is a bank holding company within the
meaning of the Bank Holding Company Act of 1956, as amended (the "Act"), and is
registered with the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") and the South Carolina State Board of Financial
Institutions (the "State Board"). The Company is required to file semi-annual
reports with the Federal Reserve Board and such additional information as that
Board may require pursuant to the Act, and to file annual reports with the State
Board.
The Company also is subject to examination by the Federal Reserve Board and the
State Board and is required to obtain Federal Reserve Board and State Board
approval prior to acquiring, directly or indirectly, ownership or control of any
voting shares of a bank if, after such acquisition, it would own or control,
directly or indirectly, more than 5% of the voting stock of such bank, unless it
already owns a majority of the voting stock of such bank. Furthermore, a bank
holding company is, with limited exceptions, prohibited from acquiring direct or
indirect ownership or control of any voting stock of any company which is not a
bank or a bank holding company and must engage only in the business of banking
or managing and controlling banks or furnishing services to or performing
services for its subsidiary banks. One of the exceptions to this prohibition is
the ownership of shares of a company, the activities of which the Federal
Reserve Board has determined to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto.
A bank holding company and its subsidiaries are prohibited from engaging in
certain tie-in arrangements in connection with the extension of credit or
provisions of any property or service. Thus, an affiliate of a bank holding
company may not extend credit, lease or sell property, furnish any services or
fix or vary the consideration for such on the condition that (I) the customer
must obtain or provide some additional credit, property or services from or to
its bank holding company or subsidiaries thereof, or (ii) the customer may not
obtain some other credit, property or services from a competitor, except to the
extent reasonable conditions are imposed to assure the soundness of the credit
extended.
Stockholders of the Company's common stock are entitled to receive dividends as
and when declared by the Company's Board of Directors out of funds legally
available therefore under the laws of the State of South Carolina. The Company's
ability to pay dividends is dependent on the amount of dividends paid by the
Bank and any other subsidiary of the Company.
In August 1989, the Financial Institutions Reform Recovery and Enforcement Act
of 1989 ("FIRREA") was enacted. FIRREA provides, among other things, for a
phased-in increase in the rate on annual insurance assessments paid by a bank,
including the Bank, whose deposits are insured by the new Bank Insurance Fund of
the FDIC. FIRREA also imposes liability on an institution, the deposits of which
are insured by the FDIC for certain potential obligations to the FDIC incurred
in connection with assistance to other FDIC insured institutions under common
control with such institutions.
In December 1991, a major banking bill entitled the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA") was enacted. FDICIA substantially
revised the bank regulatory and funding provisions of the Federal Deposit
Insurance Act and makes other revisions to several other federal banking
statutes. Among other things, FDICIA defined new regulatory standards in such
areas as asset quality, earnings and competition and revised existing regulatory
standards for powers of state banks, real estate lending, capital adequacy, and
other items.
On September 29, 1994, the federal government enacted the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 (the "1994 Act"). The provisions of
the 1994 Act became effective on September 29, 1995, at which time eligible bank
holding companies in any state were permitted, with Federal Reserve Board
approval, to acquire banking organizations in any other state. As such, all
existing regional compacts and substantially all existing regional limitations
on interstate acquisitions of banking organizations have been eliminated.
Page 3 of 44 sequentially numbered pages.
<PAGE>
The 1994 Act also removed substantially all of the existing prohibitions on
interstate branching by banks. On and after June 1, 1997, a bank operating in
any state may establish one or more branches within any other state without, as
currently required, the establishment of a separate banking structure within the
other state. Interstate branching is allowed earlier than the automatic phase-in
date of June 1, 1997, as long as the legislatures of both states involved have
adopted statutes expressly permitting such branching to take place at an earlier
date.
On May 7, 1996, South Carolina adopted the South Carolina Act which became
effective on July 1, 1996. The South Carolina Act permits the acquisition of
South Carolina banks and bank holding companies by, and mergers with,
out-of-state banks and bank holding companies with the prior approval of the
State Board. The South Carolina Act also permits South Carolina state banks,
with prior approval of the State Board, to operate branches outside the State of
South Carolina. Although the 1994 Act has the potential to increase the number
of competitors in the marketplace of each of the Banks, the Company cannot
predict the actual impact of such legislation on the competitive position of the
Banks.
The Company cannot predict what other legislation might be enacted or what other
regulations might be adopted, or if enacted or adopted, the affect thereof on
the Company and/or the Bank.
SOURCES AND AVAILABILITY OF FUNDS. The resources essential to the business of
the Company and its subsidiary, the Bank, consist primarily of funds derived
from deposits. The Company's banking subsidiary uses these funds to make loans
and to fund its investment portfolio. The availability of such funds is
primarily dependent upon the economic policies of the government, the economy in
general and the general credit market for loans.
MONETARY POLICY AND ECONOMIC CONTROLS. The earnings of the Company's subsidiary
bank, and therefore, to a large extent the earnings of the Company, are affected
by the policies of regulatory authorities, including the Federal Reserve System.
An important function of the Federal Reserve System is to regulate the national
supply of bank credit in order to combat recession and curb inflation. Among the
instruments used to attain these objectives are open market operations in U.S.
Government securities and changes in the reserve requirements applicable to
member bank deposits. These instruments are used in varying combinations to
influence overall growth and distribution of bank loans, investments and
deposits, and their use also may affect interest rates charged on loans or paid
for deposits.
DEPENDENCE UPON SINGLE CUSTOMER OR GROUP OF CUSTOMERS. Neither the Company nor
the Bank is dependent upon a single customer or a group of a few customers.
ITEM 2. PROPERTIES
The Company owns a 5,400 square foot facility located at 1100 North Jefferies
Boulevard, Walterboro, South Carolina, which is its only banking office. The
address was recently changed from 1002 North Jefferies Boulevard when a 911
emergency system was implemented. Construction on this facility was completed in
1989 at a total cost, including land, furniture and fixtures of $775,345. All
banking services and operations are housed at this location. The facility has a
second floor which would allow for expansion consisting of 2,700 square feet.
The existing building was built to adequately serve the anticipated needs of the
Bank for the foreseeable future.
The Company acquired a lot in 1996 in Ravenel, South Carolina on which it plans
to open a branch office. The estimated cost for construction of the building is
$630,000. The branch is scheduled to be completed in the summer of 1997. The
Bank neither owns nor leases any other real estate.
Page 4 of 44 sequentially numbered pages.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The nature of the Company's business and that of the Bank generates a certain
amount of litigation involving matters arising in the ordinary course of
business. In the opinion of management of the Company, none of the legal
proceedings currently pending or threatened to which the Company or its
subsidiary Bank is a party or of which any of their properties is subject, is
reasonably likely to have any material adverse effect on the business or
financial condition of the Company or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders in the fourth quarter of
1997.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
As of December 31, 1996, there were 631 holders of the Company's Common Stock.
Currently, there is no established trading market for the Company's Common
Stock. Based on information known to management, its Common Stock has traded in
the range of $ 14.50 to $ 17.50 per share.
Holders of the Company's Common Stock are entitled to such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available thereof. The Company paid cash dividends of $.25 and $.21 per share
during 1996 and 1995, respectively. Any cash dividends paid by the Bank are paid
to the Company as the sole shareholder of the Bank.
No representations can be made as to if or when the Company will pay cash
dividends in the future. Future dividend policy of the Company is subject to the
discretion of the Board of Directors and will depend upon a number of factors,
including future earnings, financial condition, cash need, and general business
conditions. The Company's ability to pay dividends will depend entirely upon the
Bank's abilities to distribute dividends to the Company. As a state bank, the
Bank is subject to legal limitations on the amount of dividends it is permitted
to pay. In particular, the Bank must receive the approval of the South Carolina
Commissioner of Banking prior to paying dividends to the Company. Furthermore,
neither the Bank nor the Company may declare or pay a cash dividend on any of
their capital stock if they are insolvent or if the payment of the dividend
would render them insolvent or unable to pay their obligations as they become
due in the ordinary course of business.
Page 5 of 44 sequentially numbered pages.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data concerning the
Company. The selected financial data has been derived from the consolidated
financial statements which have been audited by Tourville, Simpson & Henderson,
independent accountants. This information should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
<TABLE>
<CAPTION>
Year ended December 31 1996 1995 1994 1993 1992
--------- --------- --------- --------- ------
(Dollars in thousands,
except per share)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET:
Securities available for sale $ 10,188 $ 4,965 $ 5,541 $ -- $ --
Securities held to maturity 6,810 5,008 6,560 7,339 4,654
Allowance for loan losses 639 617 550 499 415
Net loans 34,515 29,598 25,224 21,642 19,883
Premises and equipment - net 1,262 818 764 779 836
Total assets 56,778 47,848 40,622 36,071 30,944
Non-interest bearing deposits 5,674 4,690 4,656 3,426 2,670
Interest bearing deposits 44,391 35,950 27,981 28,079 24,155
Total deposits 50,065 40,640 32,637 31,505 26,825
Short-term borrowings -- 990 3,044 -- --
Total liabilities 50,395 42,234 35,793 31,756 27,105
Total shareholders' equity 6,383 5,614 4,829 4,315 3,839
RESULTS OF OPERATIONS:
Interest income $ 4,151 $ 3,557 $ 3,035 $ 2,650 $ 2,482
Interest expense 1,937 1,524 1,141 1,003 1,034
-------- -------- -------- -------- --------
Net interest income 2,214 2,033 1,894 1,647 1,448
Provision for loan losses 130 125 120 125 200
-------- -------- -------- -------- --------
Net interest income after provision 2,084 1,908 1,774 1,522 1,248
Other income 224 176 151 154 163
Other expenses 1,072 952 886 871 782
Income tax expense 417 397 352 284 226
-------- -------- -------- -------- --------
Net income $ 819 $ 735 $ 687 $ 521 $ 403
======== ======== ======== ======== ========
CASH DIVIDENDS PAID: $ 75 $ 63 $ 54 $ 45 $ 30
======== ======== ======== ======== ========
PER SHARE DATA:
Weighted average common
shares outstanding 299,420 300,000 300,000 300,000 300,000
Net income $ 2.73 $ 2.45 $ 2.29 $ 1.74 $ 1.34
Cash dividends paid $ .25 $ .21 .18 .15 .10
Period end book value $ 21.32 $ 18.71 $ 16.10 $ 14.38 $ 12.80
</TABLE>
Page 6 of 44 sequentially numbered pages.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
This discussion and analysis is intended to assist the reader in understanding
the financial condition and results of operations of Communitycorp and its
subsidiary, Bank of Walterboro. This commentary should be read in conjunction
with the consolidated financial statements and the related notes and the other
statistical information in this report.
RESULTS OF OPERATIONS
1996 COMPARED TO 1995:
Net income for the year ended December 31, 1996 was $818,719, or $2.73 per
share, compared to $734,902, or $2.45 per share, for the year ended December 31,
1995. One of the primary factors for the increase is attributable to the
increase in net interest income of $180,805 over 1995. Other income increased
$48,476 or 27.58% over 1995. Other operating expenses increased from $952,372
for 1995 to $1,071,882 for the year ended December 31, 1996.
1995 COMPARED TO 1994:
The Company had net income of $734,902 or $2.45 per share for 1995 as compared
to $686,546 or $2.29 per share for 1994. Net interest income increased by
$139,094 or 7.34% over 1994. Other income increased $24,821 from the 1994 amount
of $150,967. The growth in deposits resulted in an increase in interest expense
of $382,723 to the 1995 amount of $1,523,600. Salaries and employee benefits
increased from $363,901 in 1994 to $416,782 in 1995. The increase was primarily
attributable to increases in employee salaries in 1995 and the implementation of
accounting for deferred loan costs in 1994. Other operating expenses increased
$8,359 or 2.41% to $355,550 in 1995.
NET INTEREST INCOME
To a large degree, earnings are dependent on net interest income. It represents
the difference between interest earned on assets and the interest paid on
liabilities. Interest rate spread and net interest margin are two significant
elements in analyzing the Company's net interest income. Interest rate spread is
the difference between the yield on average earning assets and the rate on
average interest bearing liabilities. Net interest margin is net interest income
divided by earning assets.
Net interest income increased from $2,033,086 in 1995 to $2,213,891 in 1996,
resulting in an increase of 8.89%. Income from loans increased by 10.56% to
$3,043,172 for 1996 as compared to $2,752,591 for 1995. This increase was
attributable to the growth in the loan portfolio from $30,215,361 in 1995 to
$35,153,845 in 1996. There was also an increase in investment income of
$339,323, an increase of 61.56% over the 1995 amount of $551,238. The net
interest spread and net interest margin were 3.62% and 4.40% in 1996 as compared
to 4.06% and 4.88% in 1995.
Net interest income increased $139,094 or 7.34% to $2,033,086 in 1995. Interest
income from loans increased $444,331 or 19.25% over the 1994 amount of
$2,308,260. However, interest expense on deposit accounts increased by $412,253
to $1,437,902 in 1995. The significant growth in certificates of deposit
contributed to the increase in interest expense. Other smaller fluctuations in
different areas of interest income and interest expense contributed to the
overall increase in net interest income. The net interest spread and net
interest margin were 4.06% and 4.88% in 1995 as compared to 4.25% and 4.83% in
1994.
Page 7 of 44 sequentially numbered pages.
<PAGE>
NET INTEREST INCOME - Continued
The following table sets forth, for the periods indicated, the weighted average
yields earned, the weighted average yields paid, the net interest spread and the
net interest margin on earning assets. The table also indicates the average
monthly balance and the interest income or expense by specific categories.
<TABLE>
<CAPTION>
1996 1995
---------------------------------------------------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Time deposits in other banks $ 10 $ 1 10.00% $ 28 $ 4 14.29%
Taxable securities (1) 12,437 777 6.25% 7,704 469 6.09%
Tax-exempt securities (1) 2,657 114 4.29% 1,927 82 4.26%
Federal funds sold 3,966 216 5.45% 3,982 249 6.25%
Loans (2) 31,315 3,043 9.72% 27,995 2,753 9.83%
--------- --------- --------- -----------
Total earning assets 50,385 4,151 8.24% 41,636 3,557 8.54%
--------- ----------
Cash and due from banks 2,015 2,018
Allowance for loan losses (639) (585)
Premises and equipment 955 778
Other assets 812 573
--------- ---------
Total assets $ 53,528 $ 44,420
========= =========
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Interest bearing deposits $ 41,666 1,924 4.62% $ 32,357 1,438 4.44%
Short-term borrowings 236 13 5.51% 1,673 86 5.14%
--------- --------- --------- -----------
Total interest-
bearing liabilities 41,902 1,937 4.62% 34,030 1,524 4.48%
--------- -----------
Non-interest bearing deposits 5,350 4,840
Accrued interest and
other liabilities 444 337
Shareholders' equity 5,832 5,216
--------- ---------
Total liabilities and
shareholders' equity $ 53,528 $ 44,423
=========== ===========
Net interest income/
interest rate spread $ 2,214 3.62% $ 2,033 4.06%
========= ========= =========== ==========
Net interest margin on earning assets 4.39% 4.88%
========= ===============
</TABLE>
(1) Averages for securities are stated at historical cost.
(2) The effect of loans in non-accrual status and fees collected is not
significant to the computations. All loans and deposits are domestic.
Page 8 of 44 sequentially numbered pages.
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RATE/VOLUME ANALYSIS
Net interest income can also be analyzed in terms of the impact of changing
rates and changing volume. The following table describes the extent to which
changes in interest rates and changes in the volume of earning assets and
interest bearing liabilities have affected the Company's interest income and
interest expense during the periods indicated. Information provided on changes
in each category attributable to (I) changes due to volume (change in volume
multiplied by prior period rate), (ii) changes due to rates (changes in rates
multiplied by prior period volume) and (iii) changes in rate and volume (change
in rate multiplied by the change in volume).
<TABLE>
<CAPTION>
1996 compared to 1995
Due to increase (decrease) in
(Dollars in thousands) Volume Rate Volume/Rate Total
<S> <C> <C> <C> <C>
Interest income:
Deposits in other banks $ (3) $ (1) $ 1 $ (3)
Taxable securities 288 12 8 308
Tax-exempt securities 31 1 - 32
Federal funds sold (1) (32) - (33)
Loans 326 (33) (4) 289
-------- -------- -------- --------
Total interest income 641 (53) 5 593
-------- -------- -------- --------
Interest expense:
Interest bearing deposits 414 56 16 486
Short-term borrowings (74) 6 (6) (74)
-------- -------- -------- --------
Total interest expense 340 62 10 412
-------- -------- -------- --------
Net interest income $ 301 $ (115) $ (5) $ 181
======== ======== ======== ========
1995 compared to 1994
Due to increase (decrease) in
(Dollars in thousands) Volume Rate Volume/Rate Total
Interest income:
Deposits in other banks $ (7) $ 6 $ (5) $ (6)
Taxable securities (156) 108 (31) (79)
Tax-exempt securities 8 3 0 11
Federal funds sold 47 71 33 151
Loans 399 39 7 445
-------- -------- -------- --------
Total interest income 291 227 4 522
-------- -------- -------- --------
Interest expense:
Interest bearing deposits 118 264 30 412
Obligations under capital leases (1) (1) 1 (1)
Short-term borrowings (61) 71 (38) (28)
--------- -------- --------- ---------
Total interest expense 56 334 (7) 383
-------- -------- --------- --------
Net interest income $ 235 $ (107) $ 11 $ 139
======== ========= ======== ========
</TABLE>
Page 9 of 44 sequentially numbered pages.
<PAGE>
RATE SENSITIVITY
Interest rates paid on deposits and borrowed funds and interest rates earned on
loans and investments have generally followed the fluctuations in market rates
in 1996 and 1995. A rate sensitive asset or liability is one that can be
repriced either up or down in interest rate within a certain time interval. When
a proper balance between rate sensitive assets and rate sensitive liabilities
exists, market interest rate fluctuations should not have a significant impact
on earnings. The larger the imbalance, the greater the interest rate risk
assumed by the Company and the greater the positive or negative impact of
interest rate fluctuations on earnings. The Company seeks to manage its assets
and liabilities in a manner that will limit interest rate risk and stabilize
long-term earning power. Management believes that a rise or fall in interest
rates will not materially affect earnings.
The following table presents the Company's rate sensitivity at each of the time
intervals indicated as of December 31, 1996. The table may not be indicative of
the Company's rate sensitivity position at other points in time.
INTEREST RATE SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
Less than 4-6 7-12 1-5 Over 5
(Dollars in thousands) 3 months months months years years Total
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Time deposits in other banks $ -- $ -- $ 10 $ -- $ -- $ 10
Federal funds sold 640 -- -- -- -- 640
Investment securities 100 271 102 11,087 5,438 16,998
Loans (1) 8,110 2,991 5,899 17,648 215 34,863
------- ------- ------- ------- ------- -------
Total 8,850 3,262 6,011 $28,735 $ 5,653 $52,511
------- ------- ------- ======= ======= =======
Interest bearing liabilities:
Demand deposits 12,560 -- -- -- -- 12,560
Savings deposits 15,314 -- -- -- -- 15,314
Time deposits 7,721 4,861 6,848 2,761 -- 22,191
------- ------- ------- ------- ------- -------
Total 35,595 4,861 6,848 $ 2,761 $ -- $50,065
------- ------- ------- ======= ======= =======
Period gap (26,745) (1,599) (837) 25,974 5,653
Cumulative gap (26,745) (28,344) (29,181) (3,207) 2,446
Gap ratio 0.25 0.67 0.88 10.41 -
Cumulative gap ratio 0.25 0.30 0.38 2.63 4.20
</TABLE>
- ---------------------
(1) Excludes nonaccrual loans.
Page 10 of 44 sequentially numbered pages.
<PAGE>
PROVISION FOR LOAN LOSSES
The Company maintains a reserve for loan losses which is funded by charges to
current earnings. This reserve is intended to be an adequate allowance to absorb
losses on loans outstanding and is based on management's continuing review and
evaluation of the Company's loan portfolio. During 1996, the Company transferred
$130,000 from earnings to reserve for loan losses increasing the balance to
$638,688 on December 31, 1996 after deducting current year net charge offs.
During 1996, the Company had net charge-offs totaling $108,769 compared to 1995
net charge-offs of $58,000.
Reserve for loan losses was 1.82% of total loans on December 31, 1996.
Management's goal will be to keep the reserve at 1.75% to 2.00% of total loans.
As the Company continues to mature, management will evaluate its reserve policy
and adjust the policy based on historical loss experience, changes in economic
conditions, growth in the portfolio and evaluations of specific loans.
Management believes the level of the allowance for loan losses is sufficient to
provide for potential losses in the loan portfolio.
OTHER INCOME
Other income increased from $175,788 in 1995 to $224,264 or 27.58%. An increase
in NSF and overdraft fees of $32,015, or 29.49%, was the major cause for the
increase. In addition, fees from mini-ATM's installed in 1995 increased from
$10,392 to $14,668 for the year ended December 31, 1996.
Other income increased $24,821 or 16.44% to $175,788 in 1995. This increase was
primarily attributable to an increase of $10,392 relating to income from the use
of Mini-ATM machines. Mini-ATM's were installed in several locations in 1995.
Non-bank customers are assessed fees for the use of the ATM's. NSF fees also
increased $8,093 to $108,573 in 1995.
OTHER EXPENSES
Non-interest expenses increased by $119,510, or 12.54% over the 1995 amount of
$952,372. The largest component of this increase was in salaries and employee
benefits, which increased by $64,499 or 15.48%. This increase was due to the
addition of several employees and annual employee raises. Net occupancy expense
increased from $127,429 in 1995 to $144,048 in 1996 due in part to depreciation
on the house acquired on the adjoining lot. Other operating expenses increased
$34,547 or 9.72% over the 1995 amount of $355,550. Professional fees associated
with the filings as an SEC registrant was the source of much of the increase in
other operating expenses.
Non-interest expenses increased from $885,913 to $952,732 or 7.50% in 1995. The
most significant change in other expense was the increase in salaries and
employee benefits of $52,881 to $416,782 in 1995. This increase was attributable
to employee raises and contributions to the profit sharing plan. Net occupancy
expense and equipment expense were virtually unchanged when comparing 1994
amounts to 1995. Other operating expenses increased $8,359 or 2.40% to the 1995
amount of $355,550. The largest increase in other operating expenses was in the
ATM network fees which increased $20,288. Only minimal expenses related to the
ATM network in 1994 since the ATM's were installed in early 1995. Although most
other operating expenses increased slightly in 1995, they were offset by a
significant decrease in federal deposit insurance premium of $34,012 when
compared to 1994.
Page 11 of 44 sequentially numbered pages.
<PAGE>
INCOME TAXES
The Company's income tax expense was $417,554, an increase of $20,954 over the
1995 expense of $396,600. The increase in the expense results primarily from
increased income before taxes. The Company's effective tax rates for the years
ended December 31, 1996 and 1995 were 33.78% and 35.05% respectively.
CAPITAL RESOURCES
Earnings for 1996 of $818,719, less dividends of $75,000, resulted in an overall
increase in the capital base of the Company. The Company purchased $18,411 of
treasury stock which resulted in a reduction of capital. The dividend payout
ratio was 9.16% for 1996 compared to 8.57% for 1995. A method used by the
Company to measure capital is average common equity to average assets which was
10.90% for 1996 compared to 11.74% for 1995.
The Company's capital base was increased in 1995 by net income of $734,902 and
reduced by dividends paid of $63,000 or $.21 per share. The dividend payout
ratio was 8.57% for 1995 as compared to 7.86% for 1994. A method used by the
Company to measure capital is average common equity to average assets which was
11.74% for 1995 compared to 10.95% for 1994.
The Federal Reserve Board and bank regulatory agencies require bank holding
companies and financial institutions to maintain capital at adequate levels
based on a percentage of assets and off-balance sheet exposures, adjusted for
risk weights ranging form 0% to 100%. Under the risk-based standard, capital is
classified into two tiers. Tier I capital of the Company consists of common
stockholders' equity, excluding the unrealized gain (loss) on securities
available-for- sale, minus certain intangible assets. Tier II capital consists
of general reserve for loan losses subject to certain limitations. A bank
holding company's qualifying capital base for purposes of its risk-based capital
ratio consists of the sum of its Tier I and Tier II capital. The regulatory
minimum requirements are 4% for Tier I and 8% for total risk-based capital. The
holding company and banking subsidiary are also required to maintain capital at
a minimum level based on total assets, which is known as the leverage ratio.
Only the strongest bank holding companies and banks are allowed to maintain
capital at the minimum requirement. All others are subject to maintaining ratios
100 to 200 basis points above the minimum.
<TABLE>
<CAPTION>
RISK-BASED CAPITAL RATIOS
The Bank The Company
<S> <C> <C>
Tier I capital:
Common shareholders' equity $ 6,196,803 $ 6,358,518
Less: intangibles - (46,674)
-------------- --------------
Total Tier I capital 6,196,803 6,311,844
Tier II capital:
Allowable allowance for loan losses 496,381 495,797
-------------- --------------
Tier II capital additions 496,381 495,797
-------------- --------------
Total capital $ 6,693,184 $ 6,807,641
============== ==============
Risk adjusted assets $ 39,710,467 $ 39,663,794
============== ==============
Total assets $ 56,731,824 $ 56,778,498
============== ==============
Risk-based capital ratios:
Tier I capital 15.60% 15.91%
Total capital 16.85 17.16
Tier I leverage ratio 10.92 11.12
</TABLE>
The Company has entered into an agreement with a construction company to build a
branch office in Ravenel, South Carolina. The estimated cost for the
construction of the facility is approximately $630,000.
Page 12 of 44 sequentially numbered pages.
<PAGE>
LIQUIDITY
The Company manages its liquidity from both the asset and liability side of the
balance sheet through the coordination of the relative maturities of its assets
and liabilities. Short-term liquidity needs are generally met from cash, due
from banks, federal funds sold and deposit levels. Management has established
policies and procedures governing the length of time to maturity on loans and
investments. Investments classified as available for sale are placed in this
category specifically to fund future liquidity needs, if necessary. The Company
maintained a high level of liquidity during 1996 which was attributable to the
growth in deposits during the year. In the opinion of management, the Company's
short-term and long-term liquidity needs can be adequately supported by the
Company's deposit base.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related financial data presented herein have been
prepared in accordance with generally accepted accounting principles which
require the measurement of financial position and operating results in terms of
historical dollars, without considering changes in relative purchasing power
over time due to inflation. Unlike most industrial companies, virtually all of
the assets and the liabilities of a financial institution are monetary in
nature. As a result, interest rates generally have a more significant impact on
a financial institution's performance than does the effect of inflation.
While the effect of inflation on a bank is normally not as significant as its
influence on those businesses that have large investments in plant and
inventories, it does have an effect. Interest rates generally increase as the
rate of inflation increases, but the magnitude of the change in rates may not be
the same. While interest rates have traditionally moved with inflation, the
effect on income is diminished because both interest earned on assets and
interest paid on liabilities vary directly with each other. Also, increases in
the price of goods and services will generally result in increased operating
expenses.
INVESTMENT PORTFOLIO
The following tables summarize the carrying value of investment securities as of
the indicated dates and weighted average yields of those securities at December
31, 1996 and 1995.
<TABLE>
<CAPTION>
INVESTMENT SECURITIES PORTFOLIO COMPOSITION
December 31,
HELD TO MATURITY (1) 1996 1995
-------------- --------
<S> <C> <C>
U.S. Treasury and U.S. Government agencies $ 2,551,246 $ 2,319,925
Obligations of states and political subdivisions 2,695,696 2,295,172
Mortgage-backed securities 1,563,457 392,782
-------------- --------------
$ 6,810,399 $ 5,007,879
============== ==============
AVAILABLE FOR SALE (1)
U.S. Treasury and U.S. Government agencies $ 8,932,194 $ 4,964,894
Obligations of states and political subdivisions 302,684 -
Mortgage-backed securities 953,063 -
-------------- --------------
$ 10,187,941 $ 4,964,894
============== ==============
</TABLE>
(1) Held to maturity securities are stated at amortized cost and available for
sale securities are stated at fair value.
Page 13 of 44 sequentially numbered pages.
<PAGE>
INVESTMENT PORTFOLIO - Continued
INVESTMENT SECURITIES PORTFOLIO MATURITY SCHEDULE
<TABLE>
<CAPTION>
1996
Available for Sale Yield(1) Held to Maturity Yield(1)
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
agencies due:
Within one year $ 200,704 6.40% $ - -%
After one year but
within five years 6,952,023 6.29% 1,998,706 6.09%
After five years but
within ten years 1,779,466 7.47% 552,540 7.25%
------------ -----------
8,932,193 6.52% 2,551,246 6.34%
------------ -----------
Obligations of state and political subdivisions due:
Within one year - - 272,359 5.69%
After one year but
within five years 302,684 7.06% 1,832,879 6.72%
After five years but
within ten years - - 356,837 7.47%
After ten years - - 233,619 8.22%
------------ -----------
302,684 7.06% 2,695,694 6.84%
------------ -----------
Mortgage-backed securities due:
After one year but
within five years - - 605,454 5.38%
After five years but
within ten years - - 848,202 6.59%
After ten years 953,064 6.42% 109,803 4.77%
------------ -----------
953,064 6.42% 1,563,459 6.00%
------------ -----------
Total due:
Within one year 200,704 6.40% 272,359 5.69%
After one year but
within five years 7,254,707 6.32% 4,437,039 6.25%
After five years but
within ten years 1,779,466 7.47% 1,757,579 6.98%
After ten years 953,064 6.42% 343,422 7.12%
------------ -----------
$ 10,187,941 6.53% $ 6,810,399 6.46%
============ ===========
</TABLE>
- ---------------------
(1) Tax equivalent yield has been calculated using an incremental rate of 34%.
Page 14 of 44 sequentially numbered pages.
<PAGE>
LOAN PORTFOLIO
CREDIT RISK MANAGEMENT
Credit risk entails both general risk, which is inherent in the process of
lending, and risk that is specific to individual borrowers. The management of
credit risk involves both the process of loan underwriting and loan
administration. The Company manages credit risk through a strategy of making
loans within the Company's primary marketplace and within the Company's limits
of expertise. Although management seeks to avoid concentrations of credit by
loan type or industry through diversification, a substantial portion of the
borrowers' ability to honor the terms of their loans is dependent on the
business and economic conditions in Colleton County and the surrounding areas
comprising the Company's marketplace. Additionally, since real estate is
considered by the Company as the most desirable nonmonetary collateral, a
significant portion of the Bank's loans are collateralized by real estate. Even
though a substantial portion of the Company's loans are collateralized by real
estate, the cash flow of the borrower or the business enterprise is generally
considered as the primary source of repayment. Generally, the value of real
estate is not considered by the Company as the primary source of repayment for
performing loans. The Company also seeks to limit total exposure to individual
and affiliated borrowers. The Company manages the risk specific to individual
borrowers through the loan underwriting process and through an ongoing analysis
of the borrower's ability to service the debt as well as the value of the
pledged collateral.
The Bank's loan officers and loan administration staff are charged with
monitoring the Company's loan portfolio and identifying changes in the economy
or in a borrower's circumstances which may affect the ability to repay the debt
or the value of the pledged collateral. In order to assess and monitor the
degree of risk in the Company's loan portfolio, several credit risk
identification and monitoring processes are utilized. The Bank assesses credit
risk through the periodic preparation of a loan watch list. This list is used as
an internal review mechanism in which potential problem loans are identified and
assigned a risk grade. This watch list becomes the basis for the analysis of the
adequacy of the loan loss reserve.
LENDING ACTIVITIES
The Company extends credit primarily to consumers and small businesses in
Walterboro and, to a limited extent, customers in surrounding areas.
The Company's service area is mixed in nature. The corporate office is located
in Walterboro, South Carolina. The economy of Walterboro is a regional business
center whose economy contains elements of medium and light manufacturing, higher
education, regional health care, and distribution facilities. Outside the
incorporated city limits of Walterboro, the economy includes manufacturing,
agriculture, timber, and recreational activities. No particular category or
segment of the economies previously described are expected to grow or contract
disproportionately in 1996.
Management is of the opinion that the loan portfolio is adequately diversified.
There are no significant concentrations of loans in any particular individuals
or industry or group of related individuals or industries.
Total loans outstanding increased 16.41% or $4,938,484 during 1996. The loan
demand remains strong in the Company's market area, supported in part, by
customers moving from larger financial institutions after recent mergers.
The Company's ratio of loans to deposits was 70.26% on December 31, 1996 as
compared to 74.35% on December 31, 1995. The loan to deposit ratio is used to
monitor a financial institution's potential profitability and efficiency of
asset distribution and utilization. Generally, a higher loan to deposit ratio is
indicative of higher interest income since loans yield a higher return than
alternative investment vehicles. Management has concentrated on maintaining
quality in the loan portfolio while continuing to increase the deposit base.
Page 15 of 44 sequentially numbered pages.
<PAGE>
LOAN PORTFOLIO - Continued
<TABLE>
<CAPTION>
LOAN PORTFOLIO COMPOSITION
1996 1995
-------------- --------------
<S> <C> <C>
Commercial, financial and agricultural $ 24,391,088 $ 21,004,305
Real estate 4,564,843 4,150,250
Consumer and other loans 6,197,914 5,060,806
-------------- --------------
$ 35,153,845 $ 30,215,361
============== ==============
</TABLE>
MATURITIES AND SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES:
The following table summarizes the loan maturity distribution, by type, at
December 31, 1996 and related interest rate characteristics:
<TABLE>
<CAPTION>
One year One to After
or less five years five years Total
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $ 9,075,390 $ 15,217,104 $ 98,594 $ 24,391,088
Real estate loans 2,838,750 1,423,094 302,999 4,564,843
Consumer and other loans 1,192,696 4,939,418 65,800 6,197,914
-------------- -------------- -------------- --------------
$ 13,106,836 $ 21,579,616 $ 467,393 $ 35,153,845
============== ============== ============== ==============
Predetermined rate,
maturing greater than one year $ 21,579,616 $ 467,393 $ 22,047,009
=============== ============== ===============
Variable rate or maturing
within one year $ 13,106,836 $ - $ - $ 13,106,836
============== ============== ============== ==============
</TABLE>
RISK ELEMENTS
The following is a summary of nonaccrual loans and loans 90 days or more past
due at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Nonaccrual loans $290,977 $234,173
Restructured or impaired loans -- --
-------- --------
Total nonperforming loans $290,977 $234,173
======== ========
Loans 90 days or more past due and still accruing interest $ -- $ --
======== ========
</TABLE>
Page 16 of 44 sequentially numbered pages.
<PAGE>
LOAN PORTFOLIO - Continued
<TABLE>
<CAPTION>
SUMMARY OF LOAN LOSS EXPERIENCE
1996 1995
-------------- --------
<S> <C> <C>
Loans outstanding at the end of year $ 35,153,845 $ 30,215,361
=============== ==============
Average amount of loans outstanding $ 31,314,650 $ 27,409,649
=============== ==============
Balance, beginning of year $ 617,457 $ 550,457
-------------- --------------
Loans charged off:
Commercial, financial and agricultural 105,893 55,622
Real estate-mortgage 605 -
Consumer 16,005 10,595
-------------- --------------
Total loans charged off 122,503 66,217
Recoveries of previous loan losses:
Commercial, financial and agricultural 9,385 4,685
Real estate-mortgage - -
Consumer 4,349 3,532
-------------- --------------
Total recoveries 13,734 8,217
-------------- --------------
Net charge-offs 108,769 58,000
-------------- --------------
Provision charged to operations 130,000 125,000
----------- ----------
Balance, end of year $ 638,688 $ 617,457
============== ==============
Ratios:
Net charge-offs to average loans outstanding .35% .21%
Net charge-offs to loans at end of year .31% .19%
Allowance for loan losses to average loans 2.04% 2.25%
Allowance for loan losses to loans, end of year 1.82% 2.04%
Net charge-offs to allowance for loan losses 17.03% 9.39%
Net charge-offs to provisions for loan losses 83.67% 46.40%
</TABLE>
The following table presents management's allocation of the allowance for loan
losses. The allocation is based upon estimates and selective judgement and is
not necessarily indicative of the specific amounts or loan categories in which
losses may ultimately occur.
<TABLE>
<CAPTION>
1996 1995
----------------------------------------------------------
Reserve % of Reserve % of
Amount Loans Amount Loans
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $ 479,016 69.3% $ 463,093 69.52%
Real estate-mortgage 63,869 12.98 61,745 13.74
Consumer and other loans 95,803 17.64 92,619 16.74
Unallocated - N/A - N/A
-------------- -------------- -------------- --------------
$ 638,688 100.00% $ 617,457 100.00%
============== ============== ============== ==============
</TABLE>
The reserve for loan losses is maintained at a level determined by management to
be adequate to provide for probable losses inherent in the loan portfolio
including commitments to extend credit. The reserve is maintained through the
provision for loan losses which is a charge to operations. The potential for
loss in the portfolio reflects the risks and uncertainties inherent in the
extension of credit.
Page 17 of 44 sequentially numbered pages.
<PAGE>
LOAN PORTFOLIO - Continued
The Bank's provision and allowance for loan losses is subjective in nature and
relies on judgments and assumptions about future economic conditions and other
factors affecting borrowers. Management is not aware of any trends, material
risks or uncertainties affecting the loan portfolio nor is management aware of
any information about any significant borrowers which causes serious doubts as
to the ability of the borrower to comply with the loan repayment terms. However,
it should be noted that no assurances can be made that future charges to the
allowance for loan losses or provisions for loan losses may not be significant
to a particular accounting period. At December 31, 1996 and 1995, management
considers the allowance for loan losses adequate based on their judgments,
evaluations and analysis of the loan portfolio.
The Company adopted Statement of Financial Accounting Standards No., 114,
"Accounting by Creditors for the Impairment of a Loan", and Statement of
Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures" on January 1, 1995. These
statements identify how creditors should measure and account for impaired loans.
Under SFAS 114 and 118, impaired loans should be measured at the present value
of the expected future cash flows discounted at the loan's effective interest
rate or at the fair value of the collateral if the loan is collateral dependent.
Loans are defined as impaired when "based on current information and events, it
is probable that a creditor will be unable to collect all amounts due according
to the contractual terms of the loan agreement." All loans are subject to this
criteria except for: "smaller-balance homogenous loans that are collectively
evaluated for impairment" and loans "measured at fair value or at the lower of
cost or fair value." The Company considers its consumer installment portfolio
and home equity lines as meeting this criteria. Therefore the real estate and
commercial loan portfolios are primarily affected by these Statements.
The Company identifies impaired loans through its normal internal loan review
process. Loans on the Company's problem loan watch list are considered
potentially impaired loans. These loans are evaluated in determining whether all
outstanding principal and interest are expected to be collected. Loans are not
considered impaired if a minimal delay occurs and all amounts due including
accrued interest at the contractual interest rate for the period of delay are
expected to be collected. At December 31, 1996 and 1995, management reviewed its
problem loan watch list and determined that no impairment on loans existed that
would have a material effect on the Company's consolidated financial statements.
At December 31, 1996 and 1995, the Company had nonaccrual loans of approximately
$290,977 and $234,173, respectively for which impairment had not been
recognized. The additional interest income which would have been recognized into
earnings if the Company's nonaccrual loans had not been current in accordance
with their original terms is immaterial for all years presented.
AVERAGE DAILY DEPOSITS
During 1996, the Company experienced significant growth in overall deposits.
Total average deposits increased $9,819,025 or 26.40% over 1995 average deposits
of $37,197,378. These totals include certificates of deposit over $100,000 which
at December 31, 1996 totaled $7,983,620. Of this total, scheduled maturities
three months or less were $3,112,278; over three though six months were
$1,314,995; over six through twelve months were $2,700,001; and over twelve
months were $856,346. The following table summarizes the Bank's average deposits
for the year ended December 31, 1996 and 1995, and the percentage of each
category to total average deposits.
<TABLE>
<CAPTION>
1996 1995
-------------------------------------------------------------------
Average Average Average Average
Amount Rate paid Amount Rate paid
<S> <C> <C>
Non-interest bearing demand $ 5,349,987 - $ 4,840,241 -
Interest bearing transaction accounts 6,383,054 2.31% 5,632,803 2.32%
Savings 14,248,927 3.81% 11,382,805 3.67%
Certificates of deposit 21,034,435 5.87% 15,341,529 5.80%
-------------- --------------
$ 47,016,403 $ 37,197,378
============== ==============
</TABLE>
Page 18 of 44 sequentially numbered pages.
<PAGE>
SHORT-TERM BORROWINGS
At December 31, 1996 and 1995, the Company had short term borrowings which
consisted of securities sold under agreements to repurchase of $0 and $989,554.
The Company entered into a repurchase agreement with a municipal government
which generally matures on a one day basis. The maximum amount outstanding at
any month-end for the repurchase agreement was $873,000 and $2,470,000 at
December 31, 1996 and 1995, respectively. The average interest rate paid on the
repurchase agreement was 4.42% and 6.10% at December 31, 1996 and 1995,
respectively.
RETURN ON EQUITY AND ASSETS
The following table shows the return on average assets (net income divided by
average total assets), return on average equity (net income divided by average
equity), equity to assets ratio (average equity divided by average total
assets), and dividend payout ratio (dividends declared per share divided by net
income per share) for the period indicated.
1996 1995
-------------- -------
Return on average assets 1.53% 1.65%
Return on average equity 14.04% 14.09%
Equity to assets ratio 10.90% 11.74%
Dividend payout ratio 9.16% 8.57%
ACCOUNTING AND FINANCIAL REPORTING ISSUES
No accounting or financial reporting pronouncements have been issued by the
accounting industry or regulatory authorities that is expected to have a
material effect on the financial condition or results of operations of the
Company in 1997.
FORWARD LOOKING AND TREND INFORMATION
The Company plans to open a branch office in Ravenel, South Carolina during the
summer of 1997. This branch will expand the Company's market area into northern
Charleston county. Management plans to continue to obtain quality assets and at
the same time to provide dependable service to customers in 1997.
The management of the Company is not aware of any trends or events other than
those included in this discussion that are likely to have a material effect on
the Company's capital resources, liquidity, or operations. Also, no known
factors regarding regulatory matters are expected to effect the overall
operating results of the Company.
Page 19 of 44 sequentially numbered pages.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements identified in Item 14 of this Report on Form 10-K are
included herein on pages 25 through 43.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information as to the Board of Directors'
nominees for election as director and of those directors who will continue to
serve as such after the Annual Meeting.
<TABLE>
<CAPTION>
YEAR FIRST YEAR
AGE PRINCIPAL OCCUPATION DURING PAST FIVE ELECTED TERM
NAME (1) YEARS AND OTHER INFORMATION DIRECTOR EXPIRES
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BOARD NOMINEES
Calvert W. Huffines 47 President of The Huffines Company 1988 2000 (2)
Real Estate Broker
Peden B. McLeod 56 Code Commissioner and Director, South Carolina 1988 2000 (2)
Legislative Council, Counsel to McLeod, Fraser &
Cone Law Firm
Harold M. Robertson 73 Retired, Previous owner of Robertson Electric 1988 2000 (2)
Company. Member of Board of Directors South
Carolina Public Service Authority
DIRECTORS CONTINUING IN OFFICE
E. Ray Carmichael 67 President, Carmichael Oil of Walterboro, Inc., 1988 1998
Exxon oil distributor
W. Roger Crook 55 Chief Executive Officer and President of the 1988 1998
Bank since its incorporation on October 11, 1988
Harry L. Hill 69 Retired, Former Vice President and Resident 1988 1998
Manager, Asten Dryer Fabrics, Inc., manufacturer
of dryer felts
Robert E. Redfearn 73 Retired, Former owner of Sea Spirits, Inc. 1988 1998
Grocery/Real Estate
Edisto Beach, S.C.
George W. Cone 51 Partner in Law Firm of McLeod, Fraser & Cone 1988 1999
Opedalis Evans 75 Retired - Former Merchant and Farmer, Islandton, 1988 1999
S.C.
J. Barnwell Fishburne 41 Owner, Fishburne & Company 1988 1999
Real Estate Sales and Rentals
</TABLE>
(1) At December 31, 1996
(2) Assuming re-election at the Annual Meeting
Page 20 of 44 sequentially numbered pages.
<PAGE>
EXECUTIVE OFFICERS
W. ROGER CROOK, age 55, is Director, CEO and President of Communitycorp. He is
also CEO and President of the Bank since its incorporation on October 11, 1988.
Mr. Crook was actively involved in organizing the Bank. Prior to February 1988,
Mr. Crook was Vice President of Citizens & Southern National Bank, Walterboro,
South Carolina, for more than five years.
M. ELLISON YOUNG, age 59, is Vice President of Communitycorp. He has also been
Vice President since joining the Bank in October 1991. Prior to October 1990,
Mr. Young was Vice President and Branch Manager for The First Savings Bank,
Walterboro Branch, for more than five years.
GWENDOLYN P. BUNTON, age 43, Vice President and Treasurer of Communitycorp. Also
for the Bank, she has been Vice President and Cashier since December 1993,
Assistant Vice President and Cashier since April 1990, Cashier and Operations
Officer since May 1989. Mrs. Bunton joined Bank of Walterboro in February 1989.
Prior to February 1989, Mrs. Bunton was Loan Administrative Assistant III at
Citizens & Southern National Bank, Walterboro, South Carolina, for more than
five years.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors holds regular meetings monthly. The Board of
Directors has established an Audit Committee, an Executive Committee, an
Investment Committee and a Loan Committee. The Board does not have a
Compensation Committee and functions normally performed by a Compensation
Committee are performed by the Executive Committee. During the fiscal year ended
December 31, 1996, the Board held a total of 14 regular and special meetings.
Each director attended at least 75% of the aggregate of (I) the total number of
meetings of the Board of Directors and (ii) the total number of meetings held by
all Committees, of the Board of Directors on which he served.
The Audit Committee selects the Company's independent auditors, determines the
scope of the Annual Audit, determines whether the Company has adequate
administrative, operational and internal accounting controls and determines
whether the Company is operating according to established policies and
procedures. The members of the Audit Committee are George W. Cone, Opedalis
Evans, J. Barnwell Fishburne, Harry L. Hill and Robert E. Redfearn. The Audit
Committee met two times during 1996.
The Executive Committee established and monitors the Company's major policies,
reviews all proposed changes to policies prior to submission to the Board, and
monitors the Company's employee compensation and benefit programs. The Executive
Committee may act on behalf of the Board of Directors between meetings. Members
of the Executive Committee are E. Ray Carmichael, George W. Cone, W. Roger
Crook, Peden B. McLeod, and Harold M. Robertson. The Executive Committee met two
times during 1996.
The Investment Committee establishes and monitors the Bank's investment policy
to insure the safety and liquidity of the Bank's investments and monitors the
Bank's assets, liabilities and interest rate policies and exposure. Members of
the Investment Committee are George W. Cone, W. Roger Crook and Peden B. McLeod.
The Investment Committee met thirty-seven times during 1996.
The Loan Committee establishes and monitors the Bank's lending policies, reviews
compliance with policy, reviews loans where the borrower's liability exceeds
certain limits, monitors loans for credit quality and reviews all loans over 30
days past due. Members of the Loan Committee are E. Ray Carmichael, George W.
Cone, W. Roger Crook, Calvert W. Huffines, Peden B. McLeod and Harold M.
Robertson. The Loan Committee met fifty- one times during 1996.
The Board of Directors nominates candidates for election as directors; it has no
nominating committee. The Board of Directors will consider individuals
recommended by shareholders. Shareholders may make recommendations by writing to
Peden B. McLeod, Chairman of the Board, Communitycorp, Post Office Box 1707,
Walterboro, South Carolina 29488.
Page 21 of 44 sequentially numbered pages.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following information is furnished for the Chief Executive Officer of the
Company. No other executive officer of the Company received salary and bonuses
in excess of $100,000 during the fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
Other Annual All Other
Name and Salary Bonus Compensation Compensation
Principal Position Year ($) ($) ($) ($) (1)
<S> <C> <C> <C> <C>
W. Roger Crook 1996 $ 76,300 $10,000 $ 15,341
President and Chief 1995 72,000 7,000 --- 13,334
Executive Officer 1994 68,000 7,000 --- 12,566
</TABLE>
(1) Included deferred compensation of $10,000, $9,014, and $9,166 in 1996,
1995, and 1994, respectively, and profit sharing contribution of $5,341,
$4,320, and $3,400 in 1996, 1995, and 1994, respectively.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
SHARED VOTING TOTAL SOLE AND
AND SHARED VOTING TOTAL
NAME AND ADDRESS OF SOLE VOTING AND INVESTMENT AND INVESTMENT PERCENT
BENEFICIAL OWNER INVESTMENT POWER POWER POWER OF CLASS
OWNERS OF 5% OR MORE OF
COMMON STOCK
<S> <C> <C> <C> <C>
Sea Spirits, Inc. (1) 22,883 - 0 - 22,883 7.65%
3205 Palmetto Blvd.
Edisto, SC 29438
DIRECTORS
E. Ray Carmichael (2) 11,897 3,228 15,125 5.06%
George W. Cone (3) 2,728 1,500 4,228 1.41%
W. Roger Crook(4) 2,219 500 2,719 0.91%
Opedalis Evans 4,100 - 0 - 4,100 1.37%
Barnwell Fishburne 2,527 1,562 4,089 1.37%
Harry L. Hill 3,110 - 0 - 3,110 1.04%
Calvert W. Huffines (6) 2,085 4,600 6,685 2.24%
Peden B. McLeod (7) 7,553 19,350 26,903 9.00%
Robert E. Redfearn (8) 500 22,883 23,383 7.82%
Harold Robertson (9) 7,500 2,534 10,034 3.36%
EXECUTIVE OFFICERS AND 45,099 57,037 101,256 33.87%
DIRECTORS AS A GROUP
(13 PERSONS)
</TABLE>
(1)This corporation is controlled by Robert E. Redfearn, a director of the Bank.
(2)Includes 2,500 shares owned by a corporation which Mr. Carmichael controls
and 728 shares owned by family members.
(3)Includes 1,500 shares held by family members
(4)Includes 500 shares held by family members.
(5)Includes 1,562 shares held by family members.
(6)Includes 2,300 shares owned by a foundation controlled by Mr. Huffines and
2,300 shares owned by family members.
(7)Includes 19,350 shares held by family members.
(8)Includes 22,883 shares owned by Sea Spirits, Inc., a corporation which is
controlled by Mr. Redfearn.
(9)Includes 2,534 shares held by family members.
Page 22 of 44 sequentially numbered pages.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has had, and expects to have in the future, banking transactions in
the ordinary course of its business with principal officers, directors, and
their associates on substantially the same terms including interest rates and
collateral on loans, as those prevailing at the same time for comparable
transactions with others, and did not involve more than normal risk of
collectibility or present other unfavorable features. During 1996, the largest
aggregate amount of indebtedness of principal officers, directors and their
associates to the Company was $2,116,325 which represented 33.15% of the
Company's equity capital at the time. During 1996, the law firm of McLeod,
Fraser & Cone provided legal services to the Company in its ordinary course of
business and it is expected to continue to do so in the future. George W. Cone,
director of Communitycorp is a member of the McLeod, Fraser and Cone law firm.
Peden B. McLeod, Director and Chairman of the Board of Communitycorp, serves as
counsel to McLeod, Fraser and Cone.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1)-(2) Financial Statements and Schedules:
The consolidated financial statements and schedules of the Company identified in
the accompanying index to financial statements at page 24 herein are filed as
part of this report.
(a)(3)Listing of Exhibits
3.1* Articles of Incorporation. (Incorporated by reference to Exhibit
3.1 to Registrant's Form 10-K the fiscal year ended December 31,
1995)
3.2* Bylaws of Communitycorp. (Incorporated by reference to Exhibit
3.2 to Registrant's Form 10-K for the fiscal year ended December
31, 1995)
(a)(3) 21 Subsidiaries of Registrant
Bank of Walterboro is the only subsidiary of Communitycorp.
(b)Reports on Form 8-K
There were no reports on Form 8-K filed during the fourth quarter ended December
31, 1996.
* Incorporated by reference as indicated.
Page 23 of 44 sequentially numbered pages.
<PAGE>
COMMUNITYCORP AND SUBSIDIARY
Consolidated Financial Statements
Years Ended December 31, 1996, 1995, 1994
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page #
<S> <C>
Report of Tourville, Simpson & Henderson
Independent Auditors......................................................................................... 25
Consolidated Balance Sheets as of
December 31, 1996 and 1995........................................................................... 26
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994.................................................................... 27
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994.................................................................... 28
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994.................................................................... 29
Notes to Consolidated Financial Statements................................................................... 30
</TABLE>
Page 24 of 44 sequentially numbered pages.
<PAGE>
TOURVILLE, SIMPSON & HENDERSON
CERTIFIED PUBLIC ACCOUNTANTS
POST OFFICE BOX 8567
1615 PICKENS STREET
COLUMBIA, S.C. 29202
TELEPHONE (803) 252-3000
FAX (803) 254-0211
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Communitycorp
Walterboro, South Carolina
We have audited the accompanying consolidated balance sheets of Communitycorp as
of December 31, 1996 and 1995, and the related statements of operations, changes
in shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and the significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Communitycorp as of December
31, 1996 and 1995, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
/s/ Tourville, Simpson & Henderson
Columbia, South Carolina
February 21, 1997
Page 25 of 44 sequentially numbered pages.
<PAGE>
COMMUNITYCORP
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------------- --------
<S> <C> <C>
ASSETS Cash and cash equivalents:
Cash and due from banks (Note C) $ 2,382,087 $ 2,078,028
Federal funds sold 640,000 4,550,000
-------------- --------------
3,022,087 6,628,028
Time deposits with other banks 10,000 10,000
Investment securities: (Note D)
Securities available for sale 10,187,941 4,964,894
Securities held to maturity (market value of $6,821,855
in 1996 and $5,024,493 in 1995) 6,810,399 5,007,879
-------------- --------------
16,998,340 9,972,773
Loans (Note E) 35,153,845 30,215,361
Less allowance for loan losses (638,688) (617,457)
-------------- --------------
Loans, net 34,515,157 29,597,904
Premises and equipment, net (Note F) 1,262,024 818,375
Accrued interest receivable 690,700 498,371
Other assets 280,190 322,098
-------------- --------------
Total assets $ 56,778,498 $ 47,847,549
============== ==============
LIABILITIES
Deposits:
Non-interest bearing demand deposits $ 5,673,918 $ 4,689,668
Interest bearing demand 6,886,479 5,973,089
Money market accounts 3,341,735 3,945,284
Savings 11,972,537 7,959,019
Time deposits of $100,000 and over (Note G) 7,983,620 5,486,610
Other time deposits (Note G) 14,206,909 12,585,937
-------------- --------------
50,065,198 40,639,607
Short-term borrowings (Note I) - 989,554
Accrued interest payable 281,868 259,529
Other liabilities 48,180 345,354
-------------- --------------
Total liabilities 50,395,246 42,234,044
-------------- --------------
SHAREHOLDERS' EQUITY (Note K)
Preferred stock - $5.00 par value; 3,000,000 shares
authorized and unissued
Common stock - $5.00 par value; 3,000,000 shares
authorized; 300,000 shares issued and outstanding 1,500,000 1,500,000
Capital surplus 1,731,708 1,731,708
Unrealized gain (loss) on securities available for sale, net 38,800 (5,639)
Retained earnings 3,131,155 2,387,436
Treasury stock, at cost (1,083 shares in 1996) (18,411) -
-------------- --------------
Total shareholders' equity 6,383,252 5,613,505
-------------- --------------
Total liabilities and shareholders' equity $ 56,778,498 $ 47,847,549
============== ==============
</TABLE>
The accompanying notes are an integral part of consolidated the financial
statements.
Page 26 of 44 sequentially numbered pages.
<PAGE>
COMMUNITYCORP
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- -------------- --------
<S> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $ 3,043,172 $ 2,752,591 $ 2,308,260
Investment securities
Taxable 776,580 468,987 548,029
Tax-exempt 113,981 82,251 70,688
Federal funds sold 216,127 248,597 98,212
Time deposits with other banks 1,012 4,260 9,680
------------- -------------- --------------
4,150,872 3,556,686 3,034,869
------------- -------------- --------------
INTEREST EXPENSE:
Deposits 1,924,305 1,437,902 1,025,649
Obligations under capital leases - - 831
Short-term borrowings 12,676 85,698 114,397
------------- -------------- --------------
1,936,981 1,523,600 1,140,877
------------- -------------- --------------
NET INTEREST INCOME 2,213,891 2,033,086 1,893,992
Provision for loan losses (Note E) 130,000 125,000 120,000
------------- -------------- --------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,083,891 1,908,086 1,773,992
--------- --------- ---------
OTHER INCOME:
Service charges on deposit accounts 203,929 163,918 144,723
Other 20,335 11,870 6,244
------------- -------------- --------------
224,264 175,788 150,967
------------- -------------- --------------
OTHER EXPENSES:
Salaries and employee benefits 481,281 416,782 363,901
Net occupancy expense 144,048 127,429 125,807
Equipment expense 56,456 52,611 49,014
Other operating expense (Note L) 390,097 355,550 347,191
------------- -------------- --------------
1,071,882 952,372 885,913
------------- -------------- --------------
INCOME BEFORE INCOME TAXES 1,236,273 1,131,502 1,039,046
Income tax expense (Note M) 417,554 396,600 352,500
------------- -------------- --------------
NET INCOME $ 818,719 $ 734,902 $ 686,546
============= ============== ==============
PER SHARE
Weighted average common shares outstanding 299,420 300,000 300,000
Net income $ 2.73 $ 2.45 $ 2.29
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 27 of 44 sequentially numbered pages.
<PAGE>
COMMUNITYCORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Unrealized
Gain (Loss) on
Securities
Common Stock Capital Available Retained Treasury
Shares Amount Surplus for Sale, net Earnings Stock Total
------------ ------------ ------------ -------------------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1993 300,000 $ 1,500,000 $1,731,708 $ - $ 1,082,988 $ - $4,314,696
Net income 686,546 686,546
Cash dividends declared
- $.18 per share (54,000) (54,000)
Adoption of accounting
principle 39,454 39,454
Change in fair value
during the year (157,992) (157,992)
------------ ------------- ------------ --------- ------------ ------------- -----------
BALANCE,
DECEMBER 31, 1994 300,000 1,500,000 1,731,708 (118,538) 1,715,534 - 4,828,704
Net income 734,902 734,902
Cash dividends declared
- $.21 per share (63,000) (63,000)
Change in fair value
during the year 112,899 112,899
------------ ------------- ------------ --------- ------------ ------------- -----------
BALANCE,
DECEMBER 31, 1995 300,000 1,500,000 1,731,708 (5,639) 2,387,436 - 5,613,505
Net income 818,719 818,719
Cash dividends declared
- $.25 per share (75,000) (75,000)
Change in fair value
during the year 44,439 44,439
Purchase of treasury
stock (18,411) (18,411)
------------ ------------- ------------ --------- ------------ ------------- -----------
BALANCE,
DECEMBER 31, 1996 300,000 $ 1,500,000 $ 1,731,708 $38,800 $3,131,155 $ (18,411) $6,383,252
============ ============= ============ ======= ========== ============== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 28 of 44 sequentially numbered pages.
<PAGE>
COMMUNITYCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 818,719 $ 734,902 $ 686,546
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 94,344 81,551 79,683
Provision for loan losses 130,000 125,000 120,000
Premium amortization less accretion 16,578 9,522 (125,156)
Deferred income taxes 45,173 (183,018) 80,844
Amortization of loan fees and costs 52,735 48,907 65,540
Gain on disposal of equipment -- (5,220) --
Increase in accrued interest receivable (192,329) (73,137) (101,567)
Decrease (increase) in other assets 19,138 (42,342) 13,315
Increase in accrued interest payable 22,340 160,387 4,405
Increase (decrease) in other liabilities (343,070) 312,777 (123,358)
------------ ------------ ------------
Net cash provided by operating activities 663,628 1,169,329 700,252
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities available for sale 3,127,790 2,650,000 7,300,000
Proceeds from sale of securities available for sale 100,125
Purchases of securities available for sale (8,382,335) (1,899,891) (8,119,116)
Proceeds from maturities of securities held to maturity 1,490,677 2,667,700 1,174,283
Purchases of securities held to maturity (3,310,471) (1,124,832) (5,174,540)
Net increase in loans to customers (5,099,988) (4,548,128) (3,766,963)
Purchase of premises and equipment (537,993) (143,925) (64,028)
Proceeds from sales of equipment -- 12,725 --
Proceeds from maturity of time deposit with other banks -- 100,000 --
Purchase of Community Financial Services stock -- -- (50,575)
------------ ------------ ------------
Net cash used by investing activities (12,612,195) (2,286,351) (8,700,939)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits,
money market, and savings accounts 1,441,971 1,263,088 1,585,808
Net increase (decrease) in time deposits 7,983,620 6,739,944 (454,730)
Net increase (decrease) in short-term borrowings (989,554) (2,054,710) 3,044,264
Repayment of obligations under capital lease (19,615)
Cash dividends paid (75,000) (63,000) (54,000)
Purchase of treasury stock (18,411) -- --
Net cash provided by financing activities 8,342,626 5,885,322 4,101,727
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,605,941) 4,768,300 (3,898,960)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,628,028 1,859,728 5,758,688
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,022,087 $ 6,628,028 $ 1,859,728
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 29 of 44 sequentially numbered pages.
<PAGE>
COMMUNITYCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - Communitycorp, a bank holding company organized in 1995 (the
Company), and its subsidiary, Bank of Walterboro (the Bank), provide commercial
banking services to domestic markets principally in Colleton County, South
Carolina. The consolidated financial statements include the accounts of the
parent company and its wholly-owned subsidiary after elimination of all
significant intercompany balances and transactions.
MANAGEMENT'S ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans, including
valuation allowances for impaired loans and the valuation of real estate
acquired in connection with foreclosures or in satisfaction of loans. In
connection with the determination of the allowances for losses on loans and
foreclosed real estate, management obtains independent appraisals for
significant properties. Management must also make estimates in determining the
estimated useful lives and methods for depreciating premises and equipment.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory agencies,
as an integral part of their examination process, periodically review the Bank's
allowances for losses on loans and foreclosed real estate. Such agencies may
require the Bank to recognize additions to the allowances based on their
judgements about information available to them at the time of their examination.
Because of these factors, it is reasonably possible that the allowances for
losses on loans and foreclosed real estate may change materially in the near
term.
INVESTMENT SECURITIES HELD TO MATURITY - Investment securities held to maturity
are stated at cost, adjusted for amortization of premium and accretion of
discount computed by the straight-line method. The Company has the ability and
management has the intent to hold designated investment securities to maturity.
Reductions in market value considered by management to be other than temporary
are reported as a realized loss and a reduction in the cost basis of the
security.
INVESTMENT SECURITIES AVAILABLE FOR SALE - Investment securities available for
sale are carried at amortized cost and adjusted to estimated market value by
recognizing the aggregate unrealized gains or losses in a valuation account.
Aggregate market valuation adjustments are recorded in shareholders' equity net
of deferred income taxes. Reductions in market value considered by management to
be other than temporary are reported as a realized loss and a reduction in the
cost basis of the security. The adjusted cost basis of securities available for
sale is determined by specific identification and is used in computing the gain
or loss upon sale.
INTEREST AND FEES ON LOANS - Interest income on all loans is computed based upon
the unpaid principal balance. Interest income is recorded in the period earned.
The accrual of interest income is discontinued when a loan becomes 90 days past
due as to principal or interest. Management may elect to continue the accrual of
interest when the estimated net realizable value of collateral exceeds the
principal balance and accrued interest.
Loan origination and commitment fees and certain direct loan origination costs
(principally salaries and employee benefits) are being deferred and amortized to
income over the contractual life of the related loans or commitments, adjusted
for prepayments, using the level yield method.
Impaired loans are measured based on the present value of discounted expected
cash flows. When it is determined that a loan is impaired, a direct charge to
bad debt expense is made for the difference between the net present value of
expected future cash flows based on the contractual rate and the Company's
recorded investment in the related loan. The corresponding entry is to a related
valuation account. Interest is discontinued on impaired loans when management
determines that a borrower may be unable to meet payments as they become due.
Page 30 of 44 sequentially numbered pages.
<PAGE>
COMMUNITYCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
ALLOWANCE FOR LOAN LOSSES - An allowance for possible loan losses is maintained
at a level deemed appropriate by management to provide adequately for known and
inherent risks in the loan portfolio. The allowance is based upon a continuing
review of past loan loss experience, current economic conditions which may
affect the borrowers' ability to pay and the underlying collateral value of the
loans. Loans which are deemed to be uncollectible are charged off and deducted
from the allowance. The provision for possible loan losses and recoveries on
loans previously charged off are added to the allowance.
PREMISES AND EQUIPMENT - Premises and equipment are stated at cost, less
accumulated depreciation. The provision for depreciation is computed by the
straight-line method. Rates of depreciation are generally based on the following
estimated useful lives: buildings - 30 years; furniture and equipment - 5 to 15
years. Amortization of equipment under capital leases is recorded at the lesser
of the estimated useful lives of the respective assets or the term of the
leases. The cost of assets sold or otherwise disposed of, and the related
accumulated depreciation are eliminated from the accounts and the resulting
gains or losses are reflected in the income statement. Maintenance and repairs
are charged to current expense as incurred, and the costs of major renewals and
improvements are capitalized.
OTHER REAL ESTATE OWNED - Other real estate owned includes real estate acquired
through foreclosure and loans accounted for as in-substance foreclosures.
Collateral is considered foreclosed in substance when the borrower has little or
no equity in the fair value of the collateral, proceeds for repayment of the
debt can be expected to come only from the sale of the collateral and it is
doubtful that the borrower can rebuild equity or otherwise repay the loan in the
foreseeable future. Other real estate owned is initially recorded at the lower
of cost (principal balance of the former loan plus costs of improvements) or
estimated fair value.
Any write-downs at the dates of acquisition are charged to the allowance for
possible loan losses. Expenses to maintain such assets, subsequent write-downs
and gains and losses on disposal are included in other expenses.
INCOME AND EXPENSE RECOGNITION - The accrual method of accounting is used for
all significant categories of income and expense. Immaterial amounts of
insurance commissions and other miscellaneous fees are reported when received.
INCOME TAXES - Income taxes are the sum of amounts currently payable to taxing
authorities and the net changes in income taxes payable or refundable in future
years. Income taxes deferred to future years are determined utilizing a
liability approach. This method gives consideration to the future tax
consequences associated with differences between the financial accounting and
tax bases of certain assets and liabilities, principally the allowance for loan
losses, depreciable premises and equipment, and the cash basis tax accounting.
RETIREMENT AND DEFERRED COMPENSATION PLANS - The Company has a trusteed
non-contributory profit-sharing plan which provides retirement and other
benefits to all full-time employees who have worked 1,000 or more hours during
the calendar year and have put in one year of service. All eligible employees
must be at least age 21. Contributions are determined annually by the Board of
Directors. Expenses charged to earnings for the profit-sharing plan were $21,341
and $17,526 in 1996 and 1995, respectively. The Company's policy is to fund
contributions to the profit-sharing plan in the amount accrued. In addition, the
plan includes a "salary reduction" feature pursuant to Section 401(k) of the
Internal Revenue Code. Under the plan and present policies, participants are
permitted to make discretionary contributions up to 10% of annual compensation.
The Company has waived its option of matching employee contributions for this
feature of the plan.
In addition, the Company has a non-qualified voluntary salary deferral plan for
the Company's chief executive officer. Under the plan, the Chief Executive
Officer may defer up to 25% of his compensation and earn interest on the
deferred amount. Upon retirement, the total amount deferred and interest earned
are to be paid to the participant over a period not exceeding fifteen years.
Expenses charged to earnings for the deferred compensation plan were $10,000 and
$9,014 in 1996 and 1995, respectively.
The Company does not provide post employment benefits to employees beyond the
plans described above.
Page 31 of 44 sequentially numbered pages.
<PAGE>
COMMUNITYCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
EARNINGS PER SHARE - Earnings per share is calculated by dividing earnings by
the weighted average number of common shares outstanding during the year.
STATEMENT OF CASH FLOWS - For purposes of reporting cash flows, the Company
considers certain highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents. Cash equivalents include amounts
due from banks and federal funds sold.
During 1996, 1995, and 1994, the Company paid $1,914,642, $1,363,213 and
$1,136,472, respectively, for interest. Cash paid for income taxes was $697,129,
$267,300 and $377,123 in 1996, 1995, and 1994, respectively.
Changes in the valuation account of securities available for sale, including the
deferred tax effects, are considered non-cash transactions for purposes of the
statement of cash flows and are presented in detail in the notes to the
financial statements.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS - In the ordinary course of business,
the Company has entered into off-balance- sheet financial instruments consisting
of commitments to extend credit and letters of credit. These financial
instruments are recorded in the financial statements when they become payable by
the customer.
CONCENTRATIONS OF CREDIT RISK - Financial instruments which potentially subject
the Company to concentrations of credit risk consist principally of loans
receivable, investment securities, federal funds sold and amounts due from
banks. Management is not aware of any concentrations of loans to classes of
borrowers or industries that would be similarly affected by economic conditions.
Although the Company's loan portfolio is diversified, a substantial portion of
its borrowers' ability to honor the terms of their loans is dependent on
business and economic conditions in Colleton County and surrounding areas.
Management does not believe credit risk is associated with obligations of the
United States, its agencies or its corporations. The Company places its
deposits, correspondent accounts and sells its federal funds to high credit
quality institutions. By policy, time deposits are limited to amounts insured by
the FDIC. Management believes credit risk associated with correspondent accounts
is not significant.
RECLASSIFICATIONS - Certain captions and amounts in the consolidated financial
statements of 1995 and 1994 were reclassified to conform with the 1996
presentations.
NOTE B - CORPORATE REORGANIZATION
On March 13, 1995, the shareholders of Bank of Walterboro approved a plan of
corporate reorganization under which Bank of Walterboro became a wholly-owned
subsidiary of Communitycorp, a bank holding company, which was organized at the
direction of the Board of Directors of the Bank. The authorized common stock of
Communitycorp is 3,000,000 shares with a par value of $5.00 per share. The
Company is also authorized to issue 3,000,000 shares of serial preferred stock
with a par value of $5.00 per share. Pursuant to the registration, all 300,000
shares of common stock of Bank of Walterboro were converted into equal shares of
common stock of the holding company.
The effective date of the reorganization was September 11, 1995, and was
accounted for as a pooling of interests which requires the financial statements
to be presented as if the reorganization had occurred on the earliest date
presented. However, amounts are unchanged from those previously reported by Bank
of Walterboro.
Page 32 of 44 sequentially numbered pages.
<PAGE>
COMMUNITYCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - CORPORATE REORGANIZATION - CONTINUED
The following is a summary of Bank of Walterboro's operations and shareholders'
equity for the period January 1, 1995 through September 10, 1995.
Interest income $ 2,395,886
Other income 103,425
--------------
Total operating income $ 2,499,311
==============
Shareholders' equity, January 1, 1995 $ 4,828,704
Net income for the period 506,047
Dividends paid (63,000)
Change in fair value during the period 79,437
--------------
Shareholders' equity, September 10, 1995 $ 5,351,188
==============
NOTE C - CASH AND DUE FROM BANKS
The Company is required by regulation to maintain an average cash reserve
balance based on a percentage of deposits. The average amounts of the cash
reserve balances at December 31, 1996 and 1995 were approximately $268,000 and
$198,000, respectively.
NOTE D - INVESTMENT SECURITIES
The amortized cost and estimated market values of securities available for sale
at December 31, 1996 and 1995 were:
<TABLE>
<CAPTION>
1996
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasuries $ 698,988 $ 6,418 $ - $ 705,406
U.S. Government Agencies
and corporations 9,129,698 80,917 30,764 9,179,851
Obligations of state and
political subdivisions 300,000 2,828 144 302,684
-------------- -------------- -------------- --------------
$ 10,128,686 $ 90,163 $ 30,908 $ 10,187,941
============== ============== ============== ==============
1995
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Treasuries $ 399,743 $ - $ 243 $ 399,500
U.S. Government Agencies
and corporations 4,573,827 22,815 31,248 4,565,394
-------------- -------------- -------------- --------------
$ 4,973,570 $ 22,815 $ 31,491 $ 4,964,894
============== ============== ============== ==============
</TABLE>
Page 33 of 44 sequentially numbered pages.
<PAGE>
COMMUNITYCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D - INVESTMENT SECURITIES - CONTINUED
The amortized cost and estimated market value of securities held to maturity at
December 31, 1996 and 1995 were:
<TABLE>
<CAPTION>
1996
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Government Agencies
and corporations $ 4,114,703 $ 8,404 $ 17,249 $ 4,105,858
Obligations of state and
political subdivisions 2,695,696 26,109 5,808 2,715,997
-------------- -------------- -------------- --------------
$ 6,810,399 $ 34,513 $ 23,057 $ 6,821,855
============== ============== ============== ==============
1995
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Treasuries $ 500,214 $ 8,067 $ - $ 508,281
U.S. Government Agencies
and corporations 2,212,493 8,067 10,588 2,209,972
Obligations of states and
political subdivisions 2,295,172 17,971 6,903 2,306,240
-------------- -------------- -------------- --------------
$ 5,007,879 $ 34,105 $ 17,491 $ 5,024,493
============== ============== ============== ==============
</TABLE>
The amortized cost and estimated market value of securities available for sale
at December 31, 1996 and 1995 based on maturities are summarized below. Actual
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations without penalty.
<TABLE>
<CAPTION>
1996 1995
----------------------------------------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
Due within one year $ 200,000 $ 200,704 $ 1,624,743 $ 1,627,562
Due after one year but within five years 7,230,672 7,254,709 3,144,530 3,132,707
Due after five years but within ten years 1,745,265 1,779,465 204,297 204,625
------------- ------------ ------------- --------------
9,175,937 9,234,878 4,973,570 4,964,894
Mortgage-backed securities 952,749 953,063 - -
-------------- -------------- -------------- --------------
$ 10,128,686 $ 10,187,941 $ 4,973,570 $ 4,964,894
============== ============== ============== ==============
</TABLE>
The amortized cost and estimated market values of securities held to maturity at
December 31, 1996 and 1995 based on their contractual maturities are summarized
below. Actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations without penalty.
Page 34 of 44 sequentially numbered pages.
<PAGE>
COMMUNITYCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D - INVESTMENT SECURITIES - CONTINUED
<TABLE>
<CAPTION>
1996 1995
------------------------------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
Due within one year $ 272,360 $ 272,694 $ 695,334 $ 703,901
Due after one year but within five years 3,831,585 3,839,187 2,439,481 2,434,829
Due after five years but within ten years 909,377 916,682 1,144,890 1,156,129
Due after ten years 233,619 237,053 335,392 334,638
---------- ---------- ---------- ----------
5,246,941 5,265,616 4,615,097 4,629,497
Mortgage-backed securities 1,563,458 1,556,239 392,782 394,996
---------- ---------- ---------- ----------
$6,810,399 $6,821,855 $5,007,879 $5,024,493
========== ========== ========== ==========
</TABLE>
At December 31, 1996 and 1995, investment securities with a book value of
$6,567,826 and $4,433,250 and a market value of $6,566,147 and $4,409,427,
respectively, were pledged as collateral to secure public deposits. One security
classified as available for sale was sold in 1996 with a realized gain of $225.
There were no sales of investment securities for the years ended December 31,
1995 and 1994.
NOTE E - LOANS
Loans consisted of the following:
December 31,
1996 1995
Real estate $ 4,564,843 $ 4,150,250
Agricultural 255,994 376,221
Commercial and industrial loans 24,135,094 20,628,084
Consumer 5,791,518 4,687,119
All other loans (including overdrafts) 406,396 373,687
-------------- --------------
$ 35,153,845 $ 30,215,361
============== ==============
The Company adopted Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for the Impairment of a Loan", and Statement of
Financial Accounting Standards No. 118, "Accounting By Creditors for Impairment
of a Loan - Income Recognition and Disclosures" on January 1, 1995. These
statements identify how creditors should measure and account for impaired loans.
Under SFAS 114 and 118, impaired loans should be measured at the present value
of the expected future cash flows discounted at the loan's effective interest
rate or at the fair value of the collateral if the loan is collateral dependent.
Loans are defined as impaired when "based on current information and events, it
is probable that a creditor will be unable to collect all amounts due according
to the contractual terms of the loan agreement." All loans are subject to this
criteria except for: "smaller-balance homogeneous loans that are collectively
evaluated for impairment" and loans "measured at fair value or at the lower of
cost or fair value." The Company considers its consumer installment portfolio
and home equity lines as meeting this criteria. Therefore the real estate and
commercial loan portfolios are primarily affected by these Statements.
The Company identifies impaired loans through its normal internal loan review
process. Loans on the Company's problem loan watch list are considered
potentially impaired loans. These loans are evaluated in determining whether all
outstanding principal and interest are expected to be collected. Loans are not
considered impaired if a minimal delay occurs and all amounts due including
accrued interest at the contractual interest rate for the period of delay are
expected to be collected. At December 31, 1996 and 1995, management reviewed its
problem loan watch list and determined that no impairment on loans existed that
would have a material effect on the Company's consolidated financial statements.
Page 35 of 44 sequentially numbered pages.
<PAGE>
COMMUNITYCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E - LOANS - CONTINUED
At December 31, 1996 and 1995, the Company had nonaccrual loans of approximately
$290,977 and $234,173, respectively for which impairment had not been
recognized. The additional interest income which would have been recognized into
earnings if the Company's nonaccrual loans had been current in accordance with
their original terms is immaterial for all years presented.
Transactions in the allowance for loan losses are summarized below:
1996 1995 1994
-------------- -------------- --------------
Balance, January 1 $ 617,457 $ 550,457 $ 499,230
Provision charged to expense 130,000 125,000 120,000
Recoveries 13,734 8,217 15,705
Charge-offs (122,503) (66,217) (84,478)
-------------- -------------- --------------
Balance, December 31 $ 638,688 $ 617,457 $ 550,457
============== ============== ==============
For income tax purposes, the allowance for loan losses is $102,790, $86,512 and
$84,351 at December 31, 1996, 1995 and 1994, respectively.
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
statements of financial position. The contract or notional amounts of those
instruments reflect the extent of involvement the Company has in particular
classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit written is represented by the contractual or notional
amount of those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
Standby letters of credit written are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loans to customers.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since some of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary by the Company upon extension of credit is based on
management's credit evaluation of the counter-party.
Collateral held for commitments to extend credit and standby letters of credit
varies but may include accounts receivable, inventory, property, plant,
equipment and income-producing commercial properties.
Page 36 of 44 sequentially numbered pages.
<PAGE>
COMMUNITYCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E - LOANS - CONTINUED
The following table summarizes the Company's off-balance sheet financial
instruments whose contract amounts represent credit risk:
December 31,
1996 1995
Commitments to extend credit $ 2,081,417 $ 1,799,770
Standby letters of credit 115,000 214,475
Management is not aware of any significant concentrations of loans to classes of
borrowers or industries that would be affected similarly by economic conditions.
At December 31, 1996, the Company was not committed to lend additional funds to
borrowers having loans in nonaccrual status.
NOTE F - PREMISES AND EQUIPMENT
Premises and equipment consisted of the following:
December 31,
1996 1995
Land $ 334,385 $ 170,372
Building and improvements 626,947 610,572
Construction in process 2,792 -
Furniture and equipment 908,923 554,110
-------------- --------------
1,873,047 1,335,054
Less, accumulated depreciation (611,023) (516,679)
-------------- --------------
$ 1,262,024 $ 818,375
============== ==============
Depreciation expense for the years ending December 31, 1996 and 1995 was $94,344
and $81,551, respectively.
NOTE G - DEPOSITS
At December 31, 1996, the scheduled maturities of time deposits are as follows:
1997 $ 19,430,018
1998 874,270
1999 940,424
2000 55,000
2001 and thereafter 890,817
--------------
$ 22,190,529
==============
NOTE H - RELATED PARTY TRANSACTIONS
Certain parties (principally certain directors and shareholders of the Company,
their immediate families and business interests) were loan customers of, and had
other transactions in the normal course of business with the Bank. Related party
loans are made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
unrelated persons and do not involve more than normal risk of collectibility.
The aggregate dollar amount of loans to related parties was $2,256,821 and
$1,917,965 at December 31, 1996 and 1995, respectively. During 1996, $978,353 of
new loans were made to related parties, and repayments totaled $639,497. Legal
services were provided to the Company in the ordinary course of business and
during the formation of the holding company by a law firm in which two of the
partners are directors of the Company. The amount paid to this law firm for
services rendered was $18,223 and $40,577 for the years ended December 31, 1996
and 1995, respectively.
Page 37 of 44 sequentially numbered pages.
<PAGE>
COMMUNITYCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I - SHORT TERM BORROWINGS
Short-term borrowings payable consist of securities sold under agreements to
repurchase which generally mature on a one-day basis. There were no short-term
borrowings after May 1996.
Information concerning securities sold under agreements to repurchase is
summarized as follows:
December 31,
1996 1995
Average balance during the year $ 569,967 $ 1,648,725
Average interest rate during the year 4.42% 6.10%
Maximum month-end balance during the year $ 873,436 $ 2,469,600
NOTE J - COMMITMENTS AND CONTINGENCIES
The Company has entered into an agreement with a construction company to build a
branch in Ravenel, South Carolina. The estimated cost for the construction of
the facility is approximately $630,000.
The Company was not involved as defendant in any litigation at December 31,
1996. Management and legal counsel are not aware of any pending or threatened
litigation, or unasserted claims or assessments that could result in losses, if
any, that would be material to the financial statements.
NOTE K - SHAREHOLDERS' EQUITY
The ability of Communitycorp to pay cash dividends is dependent upon receiving
cash in the form of dividends from Bank of Walterboro. However, certain
restrictions exist regarding the ability of the Bank to transfer funds to
Communitycorp in the form of cash dividends. All of the Bank's dividends to the
Company are subject to the prior approval of the Commissioner of Banking and are
payable only from the undivided profits of the Bank. At December 31, 1996, the
Bank's undivided profits were $2,965,095.
NOTE L - OTHER EXPENSES
Other expenses for the years ended December 31, 1996, 1995 and 1994 are
summarized as follows:
1996 1995 1994
------------ -------------- --------------
Stationery, printing and postage $ 97,692 $ 90,682 $ 80,293
Advertising and promotion 31,187 26,590 31,421
Professional services 80,567 46,786 45,050
Insurance 16,848 53,195 88,014
Other 163,803 138,297 102,413
------------ -------------- --------------
$ 390,097 $ 355,550 $ 347,191
============ ============== ==============
Page 38 of 44 sequentially numbered pages.
<PAGE>
COMMUNITYCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE M - INCOME TAXES
Income tax expense included in the statement of operations for the years ended
December 31, 1996, 1995 and 1994 is summarized as follows:
1996 1995 1994
---------- ----------- ----------
Currently payable
Federal $ 349,115 $ 521,738 $ 250,090
State 23,262 57,880 21,566
---------- ----------- ----------
372,377 579,618 271,656
---------- ----------- ----------
Deferred
Federal 52,823 (97,947) (3,525)
State 15,845 (24,279) (704)
---------- ----------- ----------
68,668 (122,226) (4,229)
---------- ----------- ----------
$ 441,045 $ 457,392 $ 267,427
========== =========== ==========
Income tax expense is allocated as follows:
To continuing operations $ 417,554 $ 396,600 $ 352,500
To shareholders' equity 23,491 60,792 (85,073)
---------- ----------- ----------
$ 441,045 $ 457,392 $ 267,427
========== =========== ==========
Deferred income taxes of $ 97,982, $166,646, and $44,420 were included in other
assets at December 31, 1996, 1995, and 1994, respectively. Deferred income taxes
result from temporary differences in the recognition of certain items of income
and expense for tax and financial reporting purposes.
The principal sources of these differences and the related deferred tax effects
are as follows:
<TABLE>
<CAPTION>
1996 1994 1993
---------- ---------- ------------
<S> <C> <C> <C>
Allowance for loan losses $ (1,907) $ (24,963) $ (18,913)
Accumulated depreciation (6,300) 69 2,291
Deferral of pre-opening expenses for tax purposes - - 5,455
Cash basis tax accounting 27,301 (128,910) 79,046
Deferred compensation (4,777) (3,893) (3,597)
Other 30,856 (25,321) 16,562
---------- ---------- -----------
Total deferred tax (benefit) expense attributable
to continuing operations 45,173 (183,018) 80,844
Deferred tax (benefit) expense attributable to
shareholders equity 23,491 60,792 (85,073)
---------- ---------- -----------
$ 68,664 $ (122,226) $ (4,229)
========== ========== ===========
</TABLE>
A reconciliation between the income tax expense and the amount computed by
applying the Federal statutory rate of 34% to income before income taxes
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- -------
<S> <C> <C> <C>
Tax expense at statutory rate $ 420,333 $ 384,711 $353,276
State income tax, net of Federal income tax effect 31,198 6,813 27,142
Tax exempt interest income (53,214) (29,618) (25,765)
Disallowed interest expense 24,770 5,322 4,052
Other, net (5,533) 29,372 (6,205)
----------- --------- --------
$ 417,554 $ 396,600 $352,500
========== ========= ========
</TABLE>
Page 39 of 44 sequentially numbered pages.
<PAGE>
COMMUNITYCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE M - INCOME TAXES - CONTINUED
The gross amounts of deferred tax assets and deferred tax liabilities as of
December 31, 1996, 1995 and 1994 are as follows:
1996 1995 1994
--------- ---------- ----------
Deferred tax assets:
Allowance for loan losses $ 206,321 $ 204,414 $ 179,451
Available for sale securities - 3,036 63,828
Capital lease - - 2,176
Deferred compensation 16,179 11,402 7,509
Other - 22,110 -
--------- ---------- ----------
Total deferred tax assets 222,500 240,962 252,964
--------- ---------- ----------
Deferred tax liabilities:
Accumulated depreciation 32,860 39,160 39,091
Cash basis tax accounting 62,093 34,792 163,702
Available for sale securities 20,455 - -
Other 9,110 364 5,751
--------- ---------- ----------
Total deferred tax liabilities 124,518 74,316 208,544
--------- ---------- ----------
Net deferred tax asset $ 97,982 $ 166,646 $ 44,420
========= ========== ==========
Deferred tax assets represent the future tax benefit of deductible differences
and, if it is more likely than not that a tax asset will not be realized, a
valuation allowance is required to reduce the recorded deferred tax assets to
net realizable value. Management has determined that it is more likely than not
that the entire deferred tax asset at December 31, 1996, 1995 and 1994 will be
realized, and accordingly, has not established a valuation allowance.
NOTE N - FAIR VALUE OF FINANCIAL INSTRUMENTS
In December 1991, the Financial Accounting Standards Board issued Statement on
Financial Accounting Standards No. 107 (SFAS 107), "Disclosures About Fair Value
of Financial Instruments." SFAS 107 extends the existing fair value disclosure
practices for some instruments by requiring all entities to disclose the fair
value of financial instruments, both assets and liabilities recognized and not
recognized in the balance sheet, for which it is practicable to estimate fair
value.
The fair value of a financial instrument is the amount at which the asset or
obligation could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. Fair value estimates are made at a
specific point in time based on relevant market information and information
about the financial instruments. Because no market value exists for a
significant portion of the financial instruments, fair value estimates are based
on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors. The following methods and assumptions were used to estimate the fair
value of significant financial instruments:
CASH AND DUE FROM BANKS - The carrying amount is a reasonable estimate of fair
value.
FEDERAL FUNDS SOLD - Federal funds sold are for a term of one day, and the
carrying amount approximates the fair value.
INVESTMENT SECURITIES - The fair values of marketable securities held to
maturity are based on quoted market prices or dealer quotes. For securities
available for sale, fair value equals the carrying amount which is the quoted
market price. If quoted market prices are not available, fair values are based
on quoted market prices of comparable securities.
LOANS - For certain categories of loans, such as variable rate loans which are
repriced frequently and have no significant change in credit risk and credit
card receivables, fair values are based on the carrying amounts. The fair value
of other types of loans is estimated by discounting the future cash flows using
the current rates at which similar loans would be made to the borrowers with
similar credit ratings and for the same remaining maturities.
Page 40 of 44 sequentially numbered pages.
<PAGE>
COMMUNITYCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE N - FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
DEPOSITS - The fair value of demand deposits, savings, and money market accounts
is the amount payable on demand at the reporting date. The fair values of
certificates of deposit are estimated using a discounted cash flow calculation
that applies current interest rates to a schedule of aggregated expected
maturities.
SHORT TERM BORROWINGS - The carrying value of securities sold under agreements
to repurchase is a reasonable estimate of fair value because these instruments
typically have terms of one day.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS - The fair value of commitments to
extend credit and standby letters of credit is estimated using the fees
currently charged to enter into similar agreements taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. The contractual amount is a reasonable estimate of fair value
for the instruments because commitments to extend credit and standby letters of
credit are issued on a short-term or floating rate basis.
The carrying values and estimated fair values of the Company's financial
instruments for the years ending December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
--------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and due from banks $ 2,382,087 $ 2,382,087 $ 2,078,028 $ 2,078,028
Federal funds sold 640,000 640,000 4,550,000 4,550,000
Securities available-for-sale 10,187,941 10,187,941 4,964,894 4,964,894
Securities held-to-maturity 6,810,399 6,821,855 5,007,879 5,024,493
Loans 35,153,845 35,069,875 30,215,361 30,138,281
Allowance for loan losses (638,688) (638,688) (617,457) (617,457)
FINANCIAL LIABILITIES:
Demand deposit, interest-bearing
transaction, and savings accounts $ 27,874,669 $ 27,874,669 $ 22,567,060 $ 22,567,060
Time deposits 22,190,529 22,258,682 18,072,547 18,096,464
Short-term borrowings -- -- 989,554 989,554
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS:
Commitments to extend credit $ 2,081,417 $ 2,081,417 $ 1,799,770 $ 1,799,770
Standby letters of credit 115,000 115,000 214,475 214,475
</TABLE>
NOTE O - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgements by the regulators about components, risk
weightings, and other factors.
Page 41 of 44 sequentially numbered pages.
<PAGE>
COMMUNITYCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE O - REGULATORY MATTERS - CONTINUED
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum ratios of Tier I and total capital as a
percentage of assets and off-balance-sheet exposures, adjusted for risk weights
ranging from 0% to 100%. Tier I capital consists of common shareholders' equity,
excluding the unrealized gain or loss on securities available for sale, minus
certain intangible assets. Tier 2 capital consists of the allowance for loan
losses subject to certain limitations. Total regulatory minimum requirements are
4% for Tier 1 and 8% for total risk-based capital.
The Bank is also required to maintain a capital at a minimum level based on
total assets, which is known as the leverage ratio. Only the strongest banks are
allowed to maintain capital at the minimum requirement of 3%. All others are
subject to maintaining ratios 1% to 2% above the minimum.
As of December 31, 1996, the most recent notification from the Bank's primary
regulator categorized the Bank as well- capitalized under the regulatory
framework fro prompt-corrective action. There are no conditions or events that
management believes has changed the Bank's category.
The following table summarizes the capital ratios of the Bank and the regulatory
minimum requirements at December 31, 1996.
Tier I Total Tier 1
Risk-Based Risk-Based Leverage
Actual ratios 15.60% 16.85% 10.92%
Regulatory minimum:
For capital adequacy purposes 4.00 8.00 4.00
To be well capitalized under prompt corrective
action provisions 6.00 10.00 5.00
The Federal Reserve Board has similar requirements for bank holding companies.
The Company is currently not subject to these requirements because the Federal
Reserve guidelines contain an exemption for bank holding companies with less
than $150,000,000 in consolidated assets.
NOTE P - COMMUNITYCORP (PARENT COMPANY ONLY)
Presented below are the condensed financial statements for Communitycorp (Parent
Company Only).
BALANCE SHEETS
December 31,
1996 1995
ASSETS
Cash $ 100,975 $ 19,411
Investment in banking subsidiary 6,235,603 5,540,648
Organizational costs 41,228 52,346
Other assets 5,446 1,100
------------- -------------
Total assets $ 6,383,252 $ 5,613,505
============= =============
SHAREHOLDERS' EQUITY $ 6,383,252 $ 5,613,505
============= =============
Page 42 of 44 sequentially numbered pages.
<PAGE>
COMMUNITYCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE P - COMMUNITYCORP (PARENT COMPANY ONLY) - CONTINUED
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
AND FOR THE PERIOD SEPTEMBER 11, 1995 THROUGH DECEMBER 31, 1995
INCOME 1996 1995
------------- ----------
Dividends from banking subsidiary $ 175,000 $ 75,000
EXPENSES
Amortization of organizational costs 11,118 3,243
Other expenses 25 -
------------- ----------
11,143 3,243
INCOME BEFORE INCOME TAXES AND EQUITY IN
UNDISTRIBUTED EARNINGS OF BANKING SUBSIDIARY 163,857 71,757
Income tax benefit 4,346 1,100
Equity in undistributed earnings
of banking subsidiary 650,516 155,997
------------- ----------
NET INCOME $ 818,719 $ 228,854
============= ==========
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
AND FOR THE PERIOD SEPTEMBER 11, 1995 THROUGH DECEMBER 31, 1995
CASH FLOWS FROM OPERATING ACTIVITIES 1996 1995
------------- ---------
Net income $ 818,719 $ 228,854
Adjustments to reconcile net income to net
cash provided by operating activities
Amortization of organizational costs 11,118 3,243
Equity in undistributed earnings of
banking subsidiary (650,516) (155,997)
Increase in other assets (4,346) (56,689)
------------- ---------
Net cash provided by operating activities 174,975 19,411
------------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid (75,000) -
Purchase of treasury stock (18,411) -
------------- ---------
Net cash used by financing activities (93,411)
-------------
INCREASE IN CASH 81,564 19,411
CASH, BEGINNING 19,411 -
------------- ---------
CASH, ENDING $ 100,975 $ 19,411
============= =========
Page 43 of 44 sequentially numbered pages.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
COMMUNITYCORP
By:______________________________ Date: March 25, 1996
W. Roger Crook
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated:
- ------------------------------
W. Roger Crook, President, Director Date: March 25, 1996
(Chief Executive Officer)
- -----------------------------
Gwendolyn P. Bunton, Vice President Date: March 25, 1996
(Chief Financial Officer)
- ----------------------------- Date: March 25, 1996
Peden B. McLeod, Director
& Chairman of the Board
- ----------------------------- Date: March 25, 1996
George W. Cone, Director
& Corporate Secretary
- ----------------------------- Date: March 25, 1996
E. Ray Carmichael, Director
- ----------------------------- Date: March 25, 1996
Opedalis Evans, Director
- ----------------------------- Date: March 25, 1996
J. Barnwell Fishburne, Director
- ----------------------------- Date: March 25, 1996
Harry L. Hill, Director
- ----------------------------- Date: March 25, 1996
Calvert W. Huffines, Director
- ----------------------------- Date: March 25, 1996
Robert E. Redfearn, Director
- ----------------------------- Date: March 25, 1996
Harold M. Robertson, Director
Page 44 of 44 sequentially numbered pages.
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