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, 1997
Commission File Number 33-76644
COMMUNITYCORP
(Exact name of Registrant as specified in its charter)
South Carolina 57-1019001
(State or other jurisdiction of (I.R.S. Employer
incorporation 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 9, 1998 was
$4,826,575. 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 9, 1998 - 300,000 shares of Common Stock, $5 Par Value.
Documents Incorporated by Reference
No documents have been incorporated by reference.
Page 1 of 45 sequentially numbered pages.
<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 two offices located at 1100 North Jefferies Boulevard, Walterboro, South
Carolina and at 6225 Savannah Highway, Ravenel, South Carolina. The Bank's
primary market area is Northern Charleston and Colleton Counties in South
Carolina. Depository accounts are insured by the Federal Deposit Insurance
Corporation up to the maximum amount permitted by law. The Bank received its
charter on October 11, 1988, and opened for business on May 1, 1989.
The Bank offers a full range of deposit services for individuals and businesses.
Deposit products include checking accounts, savings accounts, certificate of
deposit, money market accounts and IRA's.
The Bank offers short to intermediate term commercial and consumer loans for a
variety of purposes on both a secured and unsecured basis. The primary
commercial market for these loans is small to medium sized businesses located in
the Colleton County area. Commercial loans may be made to companies to acquire
fixed assets, for general operating purposes, or to finance inventory or
accounts receivables, as well as for other purposes. Consumer loans are made to
finance the purchase of real estate, automobiles, mobile homes, boats, other
recreational items, or for home improvements, education or personal investments.
The Bank has not obtained a material portion of its deposits from any single
person or few persons nor is a material portion of the Bank's loans concentrated
within a single industry or group of related industries. Management has no
reason to believe that the loss of any depositor or a few of the larger
depositors would have a materially adverse effect upon the operations of the
Bank or erode its deposit base.
Employees. As of March 9, 1998, the Company and the Bank had 27 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 45 sequentially numbered pages.
<PAGE>
Supervision and Regulation. The Company is a bank holding company within the
meaning of the Bank Holding Company Act of 1956, as amended (the "Act"), and is
registered with the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") and the South Carolina State Board of Financial
Institutions (the "State Board"). The Company is required to file semi-annual
reports with the Federal Reserve Board and such additional information as that
Board may require pursuant to the Act, and to file annual reports with the State
Board.
The Company also is subject to examination by the Federal Reserve Board and the
State Board and is required to obtain Federal Reserve Board and State Board
approval prior to acquiring, directly or indirectly, ownership or control of any
voting shares of a bank if, after such acquisition, it would own or control,
directly or indirectly, more than 5% of the voting stock of such bank, unless it
already owns a majority of the voting stock of such bank. Furthermore, a bank
holding company is, with limited exceptions, prohibited from acquiring direct or
indirect ownership or control of any voting stock of any company which is not a
bank or a bank holding company and must engage only in the business of banking
or managing and controlling banks or furnishing services to or performing
services for its subsidiary banks. One of the exceptions to this prohibition is
the ownership of shares of a company, the activities of which the Federal
Reserve Board has determined to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto.
A bank holding company and its subsidiaries are prohibited from engaging in
certain tie-in arrangements in connection with the extension of credit or
provisions of any property or service. Thus, an affiliate of a bank holding
company may not extend credit, lease or sell property, furnish any services or
fix or vary the consideration for such on the condition that (I) the customer
must obtain or provide some additional credit, property or services from or to
its bank holding company or subsidiaries thereof, or (ii) the customer may not
obtain some other credit, property or services from a competitor, except to the
extent reasonable conditions are imposed to assure the soundness of the credit
extended.
Stockholders of the Company's common stock are entitled to receive dividends as
and when declared by the Company's Board of Directors out of funds legally
available therefore under the laws of the State of South Carolina. The Company's
ability to pay dividends is dependent on the amount of dividends paid by the
Bank and any other subsidiary of the Company.
In August 1989, the Financial Institutions Reform Recovery and Enforcement Act
of 1989 ("FIRREA") was enacted. FIRREA provides, among other things, for a
phased-in increase in the rate on annual insurance assessments paid by a bank,
including the Bank, whose deposits are insured by the new Bank Insurance Fund of
the FDIC. FIRREA also imposes liability on an institution, the deposits of which
are insured by the FDIC for certain potential obligations to the FDIC incurred
in connection with assistance to other FDIC insured institutions under common
control with such institutions.
In December 1991, a major banking bill entitled the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA") was enacted. FDICIA substantially
revised the bank regulatory and funding provisions of the Federal Deposit
Insurance Act and makes other revisions to several other federal banking
statutes. Among other things, FDICIA defined new regulatory standards in such
areas as asset quality, earnings and competition and revised existing regulatory
standards for powers of state banks, real estate lending, capital adequacy, and
other items.
On September 29, 1994, the federal government enacted the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 (the "1994 Act"). The provisions of
the 1994 Act became effective on September 29, 1995, at which time eligible bank
holding companies in any state were permitted, with Federal Reserve Board
approval, to acquire banking organizations in any other state. As such, all
existing regional compacts and substantially all existing regional limitations
on interstate acquisitions of banking organizations have been eliminated.
Page 3 of 45 sequentially numbered pages.
<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 the Bank, the Company cannot predict the
actual impact of such legislation on the competitive position of the Bank.
The Company cannot predict what other legislation might be enacted or what other
regulations might be adopted, or if enacted or adopted, the affect thereof on
the Company and/or the Bank.
Sources and Availability of Funds. The resources essential to the business of
the Company and its subsidiary, the Bank, consist primarily of funds derived
from deposits. The Company's banking subsidiary uses these funds to make loans
and to fund its investment portfolio. The availability of such funds is
primarily dependent upon the economic policies of the government, the economy in
general and the general credit market for loans.
Monetary Policy and Economic Controls. The earnings of the Company's subsidiary
bank, and therefore, to a large extent the earnings of the Company, are affected
by the policies of regulatory authorities, including the Federal Reserve System.
An important function of the Federal Reserve System is to regulate the national
supply of bank credit in order to combat recession and curb inflation. Among the
instruments used to attain these objectives are open market operations in U.S.
Government securities and changes in the reserve requirements applicable to
member bank deposits. These instruments are used in varying combinations to
influence overall growth and distribution of bank loans, investments and
deposits, and their use also may affect interest rates charged on loans or paid
for deposits.
Dependence Upon Single Customer or Group of Customers. Neither the Company nor
the Bank is dependent upon a single customer or a group of a few customers.
ITEM 2. PROPERTIES
The Company owns a 5,400 square foot facility located at 1100 North Jefferies
Boulevard, Walterboro, South Carolina, which is its corporate banking office.
Construction on this facility was completed in 1989 at a total cost, including
land, furniture and fixtures of $775,345. All corporate headquarters as well as
normal banking services and operations are housed at this location. The facility
has a second floor which would allow for expansion consisting of 2,700 square
feet. The existing building was built to adequately serve the anticipated needs
of the Bank for the foreseeable future.
The Company opened its second banking location at 6225 Savannah Highway,
Ravenel, South Carolina. This 3,622 square foot facility opened for business on
October 6, 1997 and provides traditional banking services. The total cost of
this facility, including land, and furniture and fixtures was $930,344.
Page 4 of 45 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, 1997, there were 617 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 $ 17.50 to $ 24.00 per share.
Holders of the Company's Common Stock are entitled to such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available thereof. The Company paid cash dividends of $.28 and $.25 per share
during 1997 and 1996, 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 45 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 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------
(Dollars in thousands,
except per share)
<S> <C> <C> <C> <C> <C>
Balance Sheet:
Securities available for sale $ 9,395 $ 10,188 $ 4,965 $ 5,541 $ --
Securities held to maturity 6,301 6,810 5,008 6,560 7,339
Allowance for loan losses 743 639 617 550 499
Net loans 40,614 34,515 29,598 25,224 21,642
Premises and equipment - net 1,999 1,262 818 764 779
Total assets 65,075 56,778 47,848 40,622 36,071
Non-interest bearing deposits 6,064 5,674 4,690 4,656 3,426
Interest bearing deposits 50,879 44,391 35,950 27,981 28,079
Total deposits 56,943 50,065 40,640 32,637 31,505
Short-term borrowings 480 -- 990 3,044 --
Total liabilities 57,841 50,395 42,234 35,793 31,756
Total shareholders' equity 7,234 6,383 5,614 4,829 4,315
Results of Operations:
Interest income $ 4,749 $ 4,151 $ 3,557 $ 3,035 $ 2,650
Interest expense 2,131 1,937 1,524 1,141 1,003
--------- --------- --------- --------- --------
Net interest income 2,618 2,214 2,033 1,894 1,647
Provision for loan losses 135 130 125 120 125
--------- --------- --------- --------- --------
Net interest income after provision 2,483 2,084 1,908 1,774 1,522
Other income 258 224 176 151 154
Other expenses 1,329 1,072 952 886 871
Income tax expense 468 417 397 352 284
--------- --------- --------- --------- --------
Net income $ 944 $ 819 $ 735 $ 687 $ 521
========= ========= ========= ========= ========
Cash Dividends Paid: $ 84 $ 75 $ 63 $ 54 $ 45
========= ========= ========= ========= ========
Per Share Data:
Weighted average common
shares outstanding 298,646 299,420 300,000 300,000 300,000
Net income $ 3.16 $ 2.73 $ 2.45 $ 2.29 $ 1.74
Cash dividends paid $ .28 $ .25 $ .21 $ .18 $ .15
Period end book value $ 24.11 $ 21.32 $ 18.71 $ 16.10 $ 14.38
</TABLE>
Page 6 of 45 sequentially numbered pages.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Communitycorp is a South Carolina corporation organized on March 13, 1995 to be
a bank holding company (the Company). The Company's subsidiary, Bank of
Walterboro is a state-chartered commercial bank with two banking locations. The
Bank's main office and operations center is located at 1100 North Jefferies
Boulevard, Walterboro, South Carolina. The Bank opened its first branch on
October 6, 1997 at 6225 Savannah Highway, Ravenel, South Carolina. The Company's
primary market area is Colleton County and northern Charleston County.
Depository accounts are insured by the Federal Deposit Insurance Corporation up
to the maximum amount permitted by law. The Bank, which received its charter on
October 11, 1988 and opened for business on May 1, 1989, is dedicated to
providing prompt, efficient, personal service to its customers. A full range of
deposit services for individuals and businesses are offered by the Bank. Deposit
products include checking accounts, savings accounts, certificates of deposit,
money market accounts and IRA's.
The Company is primarily engaged in the business of attracting deposits from the
general public and using these deposits together with other funds to make
commercial, consumer, and real estate loans. The Company's operating results
depend to a substantial extent on the difference between interest and fees
earned on loans, investments, and services, and the Company's interest expense,
consisting principally of interest paid on deposits. Unlike most industrial
companies, virtually all of the assets and liabilities of financial institutions
are monetary. As a result, interest rates have a greater effect on the financial
institution's performance. In addition to competing with other traditional
financial institutions, the Company also competes for savings dollars with
non-traditional financial intermediaries such as mutual funds. This has resulted
in a highly competitive market area which demands the type of personal service
and attention granted by Bank of Walterboro.
The earnings and growth of the banking industry and the Company are and will be
affected by general conditions of the economy and by the fiscal and monetary
policies of the federal government and its agencies, including the Board of
Governors of the Federal Reserve System (the "Board"). The Board regulates money
and credit conditions and, as a result, has a strong influence on interest rates
and on general economic conditions. The effect of such policies in the future on
the business and earnings of the Company cannot be predicted with certainty.
As of December 31, 1997, the Company had 17 full-time and 2 part-time employees
in the Walterboro branch and six full-time employees at the Ravenel branch.
Page 7 of 45 sequentially numbered pages.
<PAGE>
RESULTS OF OPERATIONS
This discussion and analysis is intended to assist the reader in understanding
the financial condition and results of operations of Communitycorp and its
subsidiary, Bank of Walterboro. This commentary should be read in conjunction
with the consolidated financial statements and the related notes and the other
statistical information in this report.
1997 compared to 1996
Net income for the year ended December 31, 1997 was $944,374, or $3.16 per
share, compared to $818,719, or $2.73 per share, for the year ended December 31,
1996. An increase in net interest income of $403,739 over the 1996 amount of
$2,213,891 contributed to this overall increase. Other income increased $34,733
or 15.49% over 1996. Other operating expenses increased from $1,071,882 for 1996
to $1,329,266 for 1997. Expenses associated with opening a second branch in
Ravenel were a contributing factor to the increase in operating expenses. In
addition to hiring employees to service the branch, other expenses such as
supplies and stationary were purchased. Although earnings in 1997 were slightly
affected by the new branch, the growth in the loan portfolio from this branch is
expected to positively affect earnings in 1998. However, management cannot
provide positive assurance that this will happen.
1996 compared to 1995
The Company had net income of $818,719 or $2.73 per share for 1996 as compared
to $734,902, or $2.45 per share for 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.
NET INTEREST INCOME
General. To a large degree, earnings are dependent on net interest income. It
represents the difference between interest earned on assets and 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 $2,213,891 in 1996 to $2,617,630 in 1997,
resulting in an increase of 18.24%. Income from loans increased by 16.75% to
$3,552,858 for 1997 as compared to $3,043,172 for 1996. This increase was
attributable to the growth in the loan portfolio from $35,153,845 in 1996 to
$41,357,114 in 1997. There was also an increase in investment income of $96,856,
an increase of 10.88% over the 1996 amount of $890,561. The net interest spread
and net interest margin were 3.86% and 4.61% in 1997 as compared to 3.62% and
4.40% in 1996.
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.
Page 8 of 45 sequentially numbered pages.
<PAGE>
NET INTEREST INCOME -- Continued
Average Balances, Income, Expenses, and Rates. The following table sets forth,
for the periods indicated, the weighted aver age yields earned, the weighted
average yields paid, the net interest spread and the net interest margin on
earning assets. The table also indicates the average monthly balance and the
interest income or expense by specific categories.
Average Balances, Income, Expenses, and Rates
<TABLE>
<CAPTION>
1997 1996
----------------------------------- --------------------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
--------- --------- ------ --------- ----------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Time deposits in other banks $ 8 $ 1 5.50% $ 10 $ 1 5.50%
Taxable securities (1) 13,254 851 6.42% 12,437 777 6.25%
Tax-exempt securities (1) 3,063 137 4.47% 2,657 114 4.29%
Federal funds sold 3,754 208 5.54% 3,966 216 5.45%
Loans (2) 36,668 3,552 9.69% 31,315 3,043 9.72%
--------- --------- --------- -----------
Total earning assets 56,747 4,749 8.37% 50,385 4,151 8.24%
--------- -----------
Cash and due from banks 2,231 2,015
Allowance for loan losses (692) (639)
Premises and equipment 1,578 955
Other assets 923 812
--------- ---------
Total assets $ 60,787 $ 53,528
========= =========
Liabilities:
Interest bearing deposits $ 46,892 2,113 4.51% $ 41,666 1,924 4.62%
Short-term borrowings 379 18 4.75% 236 13 5.51%
--------- --------- --------- -----------
Total interest--
bearing liabilities 47,271 2,131 4.51% 41,902 1,937 4.62%
--------- -----------
Non-interest bearing deposits 6,376 5,350
Accrued interest and
other liabilities 452 444
Shareholders' equity 6,688 5,832
--------- ---------
Total liabilities and
shareholders' equity $ 60,787 $ 53,528
========= =========
Net interest income/
interest rate spread $ 2,618 3.86% $ 2,214 3.62%
========= ===== =========== =====
Net interest margin on earning assets 4.61% 4.39%
===== =====
</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 9 of 45 sequentially numbered pages.
<PAGE>
NET INTEREST INCOME -- Continued
Analysis of Changes in Net Interest Income. Net interest income can also be
analyzed in terms of the impact of changing rates and changing volume. The
following table describes the extent to which changes in interest rates and
changes in the volume of earning assets and interest bearing liabilities have
affected the Company's interest income and interest expense during the periods
indicated. Information 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>
Analysis of Changes in Net Interest Income 1997 compared to 1996
Due to increase (decrease) in
(Dollars in thousands) Volume Rate Volume/Rate Total
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
Earning Assets
Deposits in other banks $ -- $ -- $ -- $ --
Taxable securities 51 22 1 74
Tax-exempt securities 17 5 1 23
Federal funds sold (12) 4 -- (8)
Loans 520 (10) (2) 508
-------- -------- -------- --------
Total interest income 576 21 -- 597
-------- -------- -------- --------
Interest-Bearing Liabilities
Interest bearing deposits 241 (46) (6) 189
Short-term borrowings 8 (2) (1) 5
-------- -------- -------- --------
Total interest expense 249 (48) (7) 194
-------- -------- -------- --------
Net interest income $ 327 $ 69 $ 7 $ 403
======== ======== ======== ========
<CAPTION>
1996 compared to 1995
Due to increase (decrease) in
(Dollars in thousands) Volume Rate Volume/Rate Total
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
Earning Assets
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-Bearing Liabilities
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
======== ======== ======== ========
</TABLE>
Interest Sensitivity. The Company monitors and manages the pricing and maturity
of its assets and liabilities in order to diminish the potential adverse impact
that changes in interest rates could have on its net interest income. The
principal monitoring technique employed by the Company is the measurement of the
Company's interest sensitivity "gap," which is the positive or negative dollar
difference between assets and liabilities that are subject to interest rate
repricing within a given period of time. Interest rate sensitivity can be
managed by repricing assets or liabilities, selling securities
available-for-sale, replacing an asset or liability at maturity, or adjusting
the interest rate during the life of an asset or liability. Managing the amount
of assets and liabilities repricing in this same time interval helps to hedge
the risk and minimize the impact on net interest income of rising or falling
interest rates.
Page 10 of 45 sequentially numbered pages.
<PAGE>
NET INTEREST INCOME -- Continued
The following table presents the Company's rate sensitivity at each of the time
intervals indicated as of December 31, 1997. The table may not be indicative of
the Company's rate sensitivity position at other points in time.
Interest Sensitivity Analysis
<TABLE>
<CAPTION>
After six
Within After three through Within Greater than
three through six twelve one One Year or
(Dollars in thousands) months months months year Nonsensitive Total
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest earning assets:
Federal funds sold and
securities purchased under
agreements to resell $ 3,130 -- -- 3,130 -- $ 3,130
Investment securities 359 1,493 678 2,530 13,166 15,696
Loans (1) 7,126 3,671 6,464 17,261 23,535 40,796
--------- --------- --------- --------- --------- ---------
Total 10,615 5,164 7,142 $ 22,921 $ 36,701 $ 59,622
========= ========= ========= ========= ========= =========
Liabilities
Interest bearing liabilities:
Demand deposits 14,142 -- -- 14,142 -- 14,142
Savings deposits 12,150 -- -- 12,150 -- 12,150
Time deposits 7,992 7,248 7,099 22,339 2,247 24,586
Short-term borrowings 480 -- -- 480 -- 480
--------- --------- --------- --------- --------- ---------
Total 34,764 7,248 7,099 $ 49,111 $ 2,247 $ 51,358
========= ========= ========= ========= ========= =========
Period gap (24,149) (2,084) 43 (26,190) 34,454
Cumulative gap (24,149) (26,233) (26,190) (26,190) 8,264
Ratio of cumulative gap to
total earning assets (40.50)% (44.00)% (43.93)% (43.93)% 13.86%
</TABLE>
- ----------
(1) Excludes nonaccrual loans.
The above table reflects the balances of interest-earning assets and
interest-bearing liabilities at the earlier of their repricing or maturity
dates. Overnight federal funds and securities purchased under agreements to
resell are reflected at the earliest pricing interval due to the immediately
available nature of the instruments. Scheduled payment amounts of fixed rate
amortizing loans are reflected at each scheduled payment date. Scheduled payment
amounts of variable rate amortizing loans are reflected at each scheduled
payment date until the loan may be repriced contractually; the unamortized
balance is reflected at that point. Interest-bearing liabilities with no
contractual maturity, such as savings deposits and interest-bearing transaction
accounts, are reflected in the earliest repricing period due to contractual
arrangements which give the Company the opportunity to vary the rates paid on
those deposits within a thirty-day or shorter period. Fixed rate time deposits,
principally certificates of deposit, are reflected at their contractual maturity
date. Short-term borrowings are reflected in the earliest repricing period since
these borrowings mature daily.
Page 11 of 45 sequentially numbered pages.
<PAGE>
NET INTEREST INCOME -- Continued
The Company generally would benefit from increasing market rates of interest
when it has an asset-sensitive gap and generally would benefit from decreasing
market rates of interest when it is liability sensitive. The Company currently
is liability sensitive over periods with maturity dates of less than six months.
However, the Company's gap analysis is not a precise indicator of its interest
sensitive position. The analysis presents a static view of the timing of
maturities and repricing opportunities, without taking into consideration that
changes in interest rates do not affect all assets and liabilities equally. Net
interest income is also impacted by other significant factors, including changes
in the volume and mix of earning assets and interest-bearing liabilities.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
General. The Company has developed policies and procedures for evaluating the
overall quality of its credit portfolio and the timely identification of
potential problem credits. Management's judgment as to the adequacy of the
allowance is based upon a number of assumptions about future events which it
believes to be reasonable, but which may or may not be valid. Thus, there can be
no assurance that charge-offs in future periods will not exceed the allowance
for loan losses or that additional increases in the loan loss allowance will not
be required.
Additions to the allowance for loan losses, which are expended as the provision
for loan losses on the Company's income statement, are made periodically to
maintain the allowance at an appropriate level based on management's analysis of
the potential risk in the loan portfolio. Currently, the allowance for loan
losses is evaluated on an overall portfolio basis. Although an informal
allocation was used in the past, management intends to implement a more formal
allocation system in the future. This system will allocate the allowance to loan
categories, and will be implemented at the time the size and mix of the
portfolio support such a system. The amount of the provision is a function of
the level of loans outstanding, the level of nonperforming loans, historical
loan loss experience, the amount of loan losses actually charged against the
reserve during a given period, and current and anticipated economic conditions.
The Company's allowance for loan losses is based upon judgements and assumptions
of risk elements in the portfolio, future economic conditions and other factors
affecting borrowers. The process includes identification and analysis of loss
potential in various portfolio segments utilizing a credit risk grading process
and specific reviews and evaluations of significant problem credits. In
addition, management monitors the overall portfolio quality through observable
trends in delinquency, charge-offs, and general and economic conditions in the
service area. The adequacy of the allowance for loan losses and the
effectiveness of the Company's monitoring and analysis system are also reviewed
periodically by the banking regulators and the Company's independent auditors.
The reserve for loan losses was 1.79% and 1.82% of total loans on December 31,
1997 and 1996, respectively. Management's goal will be to keep the reserve at
1.75% to 2.00% of total loans. As the Company continues to mature, management
will evaluate its reserve policy and adjust the policy based on historical loss
experience, changes in economic conditions, growth in the portfolio and
evaluations of specific loans. Management believes the level of the allowance
for loan losses is sufficient to provide for potential losses in the loan
portfolio.
Accrual of interest is discontinued on a loan when management believes, after
considering economic and business conditions and collection efforts, that the
borrower's financial condition is such that the collection of interest is
doubtful. A delinquent loan is generally placed in nonaccrual status when it
becomes 90 days or more past due. No additional interest is accrued on the loan
balance until the collection of both principal and interest becomes reasonably
certain. When a problem loan is finally resolved, there may ultimately be an
actual writedown or charge-off of the principal balance of the loan which would
necessitate additional charges to earnings. For all periods presented, the
additional interest income, which would have been recognized into earnings if
the Company's nonaccrual loans had been current in accordance with their
original terms, is immaterial.
Page 12 of 45 sequentially numbered pages.
<PAGE>
PROVISION AND ALLOWANCE FOR LOAN LOSSES -- Continued
<TABLE>
<CAPTION>
Allowance for Loan Losses 1997 1996
----------- -----------
<S> <C> <C>
Loans outstanding at the end of year $41,357,114 $35,153,845
=========== ===========
Average amount of loans outstanding $36,667,794 $31,314,650
=========== ===========
Balance, beginning of year $ 638,688 $ 617,457
----------- -----------
Loans charged off:
Commercial, financial and agricultural 13,734 105,893
Real estate-mortgage -- 605
Consumer 29,577 16,005
----------- -----------
Total loans charged off 43,311 122,503
Recoveries of previous loan losses:
Commercial, financial and agricultural 6,587 9,385
Real estate-mortgage -- --
Consumer 6,296 4,349
----------- -----------
Total recoveries 12,883 13,734
----------- -----------
Net charge-offs 30,428 108,769
----------- -----------
Provision charged to operations 135,000 130,000
----------- -----------
Balance, end of year $ 743,260 $ 638,688
=========== ===========
Ratios:
Net charge-offs to average loans outstanding .08% .35%
Net charge-offs to loans at end of year .07% .31%
Allowance for loan losses to average loans 2.03% 2.04%
Allowance for loan losses to loans, end of year 1.79% 1.82%
Net charge-offs to allowance for loan losses 4.09% 17.03%
Net charge-offs to provisions for loan losses 22.54% 83.67%
</TABLE>
Nonperforming Assets. The following table sets forth the Company's nonperforming
assets for the dates indicated:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Nonaccrual loans $ 561,381 $ 290,977
Restructured or impaired loans -- --
----------- -----------
Total nonperforming loans $ 561,381 $ 290,977
=========== ===========
Loans 90 days or more past due and still accruing interest $ 5,133 $ 8,000
=========== ===========
</TABLE>
Potential Problem Loans. At December 31, 1997, through their internal review
mechanisms the Company had identified $206,708 of criticized loans and $748,727
of classified loans. The results of this internal review process are the primary
determining factor in management's assessment of the adequacy of the allowance
for loan losses.
Page 13 of 45 sequentially numbered pages.
<PAGE>
NON-INTEREST INCOME AND EXPENSE
Non-interest Income. Other income increased $34,733 or 15.49% to $258,997 for
the year ending December 31, 1997. Service charges on deposit accounts increased
from $203,929 for 1996 to $238,051 for the year ending December 31, 1997. NSF
and overdraft fees of $24,922, or 17.73%, was a significant portion of this
increase. In addition, fees from check sales increased from $8,939 in 1996 to
$16,754 for the year ended December 31, 1997.
Other income increased from $175,788 in 1995 to $224,264 or 27.58% for the year
ended December 31, 1996. 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.
Non-interest Expense. The Company had an increase in non-interest expenses of
$257,384 or 24.01% to a total of $1,329,266 for the year ended December 31,
1997. Annual pay raises and the addition of five employees for the Ravenel
branch contributed to an increase of $121,203 or 25.18% in salaries and employee
benefits. Employees for the Ravenel branch began employment in September, 1997.
Net occupancy expense increased $83,172 or 57.74% to $227,220 at December 31,
1997. This increase is partially attributable to depreciation on the new branch.
Other operating expenses increased $65,392 or 16.76% over the 1996 amount of
$390,097. The purchase of supplies for the new branch was a contributing factor
to this increase.
Non-interest expenses increased by $119,510, or 12.54% over the 1995 amount of
$952,372 for the year ended December 31, 1996. 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 the 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.
Income Taxes. The Company's income tax expense for 1997 was $467,987, an
increase of $50,433 over the 1996 expense of $417,554. The increase in the
expense results primarily from increased income before taxes. The Company's
effective tax rates for the years ended December 31, 1997 and 1996 were 33.14%
and 33.78% respectively.
EARNING ASSETS
Loans. Loans are the largest category of earning assets and typically provide
higher yields than the other types of earning assets. Associated with the higher
loan yields are the inherent credit and liquidity risks which management
attempts to control and counterbalance. Loans averaged $36,667,793 in 1997
compared to $31,314,649 in 1996, an increase of $5,353,144, or 17.09%. At
December 31, 1997, total loans were $41,357,114 compared to $35,153,845 at
December 31, 1996.
The Company's ratio of loans to deposits was 72.63% on December 31, 1997 as
compared to 70.26% on December 31, 1996. 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.
The Company extends credit primarily to consumers and small businesses in
Walterboro and Ravenel, South Carolina, and, to customers in surrounding areas.
The Company's service area is mixed in nature. 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. Loan
growth in the Ravenel area is also expected to come primarily from consumer
loans and small businesses in northern Charleston county. No particular category
or segment of the economies previously described are expected to grow or
contract disproportionately in 1998. Management is of the opinion that the loan
portfolio is adequately diversified. There are no significant concentrations of
loans in any particular individuals or industry or group of related individuals
or industries. The loan demand remains strong in the Company's market area,
supported in part, by customers moving from larger financial institutions after
recent mergers.
Page 14 of 45 sequentially numbered pages.
<PAGE>
EARNING ASSETS -- Continued
Loan Portfolio Composition
<TABLE>
<CAPTION>
1997 1996
---------------------------- ----------------------------
Percent of Percent of
Amount Total Amount Total
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $ 28,729,677 69.46% $ 24,391,088 69.38%
Real estate loans 5,080,608 12.28 4,564,843 12.98
Consumer and other loans 7,546,829 18.26 6,197,914 17.64
------------ ------ ------------ ------
Total gross loans 41,357,114 100.00% 35,153,845 100.00%
====== ======
Allowance for loan losses (743,260) (638,688)
------------ ------------
Total net loans $ 40,613,854 $ 34,515,157
============ ============
</TABLE>
Commercial, financial and agricultural loans increased $4,338,589 or 17.79% to
$28,729,677 at December 31, 1997. A portion of this increase is attributable to
new loans in this category at the Ravenel branch which totaled $1,456,814 at
December 31, 1997.
Real estate loans totaled $5,080,608 at December 31, 1997. The increase of
$515,765 or 11.30% is considered normal growth in the portfolio.
Consumer and all other loans increased $1,348,912 or 21.76% to $7,546,829 at
December 31, 1997. This increase is partially attributable to new consumer loans
at the Ravenel branch which totaled $382,200 at December 31, 1997.
Maturities and Sensitivity of Loans to Changes in Interest Rates
The following table summarizes the loan maturity distribution, by type, at
December 31, 1997 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 $ 5,404,128 $ 23,286,996 $ 38,553 $ 28,729,677
Real estate loans 3,334,622 1,620,326 125,660 5,080,608
Consumer and other loans 1,365,017 6,045,696 136,116 7,546,829
-------------- -------------- -------------- --------------
$ 10,103,767 $ 30,953,018 $ 300,329 $ 41,357,114
============== ============== ============== ==============
Loans maturing after one year with:
Fixed interest rates 29,046,871
Floating interest rates $ 2,206,476
--------------
$ 31,253,347
==============
</TABLE>
The information presented in the above table is based on the contractual
maturities of the individual loans, including loans which may be subject to
renewal at their contractual maturity. Renewal of such loans is subject to
review and credit approval as well as modification of terms upon their maturity.
Consequently, management believes this treatment presents fairly the maturity
and repricing structure of the loan portfolio shown on the above table.
Page 15 of 45 sequentially numbered pages.
<PAGE>
EARNING ASSETS -- Continued
Short-Term Investments. Short-term investments, which consist of federal funds
sold and securities purchased under agreements to resell, averaged $3,753,734 in
1997, as compared to $3,966,371 in 1996. At December 31, 1997, short-term
investments totaled $3,130,000. These funds are a primary source of the
Company's liquidity and are generally invested in an earning capacity on an
overnight basis.
Investment Securities. The investment securities portfolio is a significant
component of the Company's total earning assets. Total securities averaged
$16,317,411 in 1997, compared to $15,093,790 in 1996. At December 31, 1997, the
total securities portfolio was $15,696,054. Securities designated as available
for sale totaled $9,394,736 and were recorded at estimated fair market value,
and securities designated as held to maturity totaled $6,301,318 and were
recorded at amortized cost. The investment objectives of the Company include
maintaining and investing in a portfolio of high quality and highly liquid
investments with competitive returns. Based on these objectives, the Company's
investments are primarily in U.S. Treasuries and obligations of U.S. Agencies.
Investment Portfolio. The following tables summarize the carrying value of
investment securities as of the indicated dates and weighted average yields of
those securities at December 31, 1997 and 1996.
Investment Securities Portfolio Composition
December 31,
---------------------------
Held to Maturity (1) 1997 1996
----------- -----------
U.S. Treasury and U.S. Government agencies $ 2,550,676 $ 2,551,246
Obligations of states and political subdivisions 2,443,742 2,695,696
Mortgage-backed securities 1,306,900 1,563,457
----------- -----------
$ 6,301,318 $ 6,810,399
=========== ===========
Available for Sale (1)
U.S. Treasury and U.S. Government agencies $ 7,521,209 $ 8,932,194
Obligations of states and political subdivisions 984,373 302,684
Mortgage-backed securities 889,154 953,063
----------- -----------
$ 9,394,736 $10,187,941
=========== ===========
(1) Held to maturity securities are stated at amortized cost and available for
sale securities are stated at fair value.
Page 16 of 45 sequentially numbered pages.
<PAGE>
INVESTMENT PORTFOLIO -- Continued
Investment Securities Maturity Distribution and Yields
<TABLE>
<CAPTION>
1997
-----------------------------------------------------------------
Available for Sale Yield(1) Held to Maturity Yield(1)
------------------ -------- ---------------- --------
U.S. Treasury and U.S. Government
agencies due:
<S> <C> <C> <C> <C>
Within one year $ 1,641,841 5.12% $ 199,578 5.93%
After one year but
within five years 3,562,584 6.60% 1,800,000 6.07%
After five years but
within ten years 2,316,784 7.12% 551,098 7.21%
------------ -----------
7,521,209 6.43% 2,550,676 6.30%
------------ -----------
Obligations of state and political
subdivisions due:
Within one year -- 480,322 6.55%
After one year but
within five years 303,583 7.01% 1,383,390 6.86%
After five years but
within ten years 446,718 7.23% 346,990 7.73%
After ten years 234,072 7.56% 233,040 8.20%
------------ -----------
984,373 7.24% 2,443,742 7.05%
------------ -----------
Mortgage-backed securities due:
Within one year -- -- 208,020 5.13%
After one year but
within five years -- -- 669,047 6.10%
After five years but
within ten years -- -- 429,833 6.60%
After ten years 889,154 6.42% -- --
------------ -----------
889,154 6.42% 1,306,900 6.11%
------------ -----------
Total due:
Within one year 1,641,841 5.12% 887,920 6.08%
After one year but
within five years 3,866,167 6.63% 3,852,437 6.36%
After five years but
within ten years 2,763,502 7.14% 1,327,921 7.15%
After ten years 1,123,226 6.66% 233,040 8.20%
------------ -----------
$ 9,394,736 6.51% $ 6,301,318 6.55%
============ ===========
</TABLE>
- ----------
(1) Tax equivalent yield has been calculated using an incremental rate of 34%.
Page 17 of 45 sequentially numbered pages.
<PAGE>
DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES
Deposits. During 1997, the Company experienced significant growth in overall
deposits. Total average deposits increased $6,251,606 or 13.30% over 1996
average deposits of $47,016,403. The following table summarizes the Bank's
deposits for the year ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
Deposits 1997 1996
---------------------------- ----------------------------
Percent Percent
Amount of Deposits Amount of Deposits
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Non-interest bearing demand $ 6,063,801 10.65% $ 5,673,918 11.33%
Interest bearing transaction accounts 11,263,207 19.78 6,886,479 13.76
Savings 15,029,295 26.39 15,314,272 30.59
Time deposits of $100,000 and over 8,739,395 15.35 7,983,620 15.95
Other time deposits 15,847,390 27.83 14,206,909 28.37
----------- ------ ----------- ------
$56,943,088 100.00% $50,065,198 100.00%
=========== ====== =========== ======
</TABLE>
Core deposits, which exclude certificates of deposit of $100,000 or more,
provide a relatively stable funding source for the Company's loan portfolio and
other earning assets. The Company's core deposits were $48,203,693 and
$42,081,578 at December 31, 1997 and 1996, respectively. A stable base of
deposits are expected to be the Company's primary source of funding to meet both
its short-term and long-term liquidity needs in the future.
The maturity distribution of the Company's time deposits at December 31, 1997,
is shown in the following table.
Maturities of Certificates of Deposit of $100,000 or More
<TABLE>
<CAPTION>
After Three After Six
Within Through Through Twelve After Twelve
Three Months Six Months Months Months Total
------------ ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
Certificates of deposit
of $100,000 or more $ 3,026,889 $ 2,284,946 $ 2,927,560 $ 500,000 $ 8,739,395
============ ============ ============ ============== ==============
</TABLE>
Large certificate of deposit customers tend to be extremely sensitive to
interest rate levels, making these deposits less reliable sources of funding for
liquidity planning purposes than core deposits. Some financial institutions
partially fund their balance sheet using large certificates of deposit obtained
through brokers. These brokered deposits are generally expensive and are
unreliable as long-term funding sources. Accordingly, the Company does not
accept brokered deposits.
Short-term Borrowings. At December 31, 1997 and 1996, the Company had short term
borrowings which consisted of securities sold under agreements to repurchase of
$480,000 and $0. The Company entered into a repurchase agreement with a local
customer which generally matures on a one day basis. The maximum amount
outstanding at any month-end for the repurchase agreement was $760,000 and
$873,436 at December 31, 1997 and 1996, respectively. The average interest rate
paid on the repurchase agreement was 4.68% and 4.42% at December 31, 1997 and
1996, respectively.
CAPITAL
The Federal Reserve Board and bank regulatory agencies require bank holding
companies and financial institutions to maintain capital at adequate levels
based on a percentage of assets and off-balance sheet exposures, adjusted for
risk weights ranging form 0% to 100%. The Federal Reserve guidelines also
contain an exemption from the capital requirements for bank holding companies
with less than $150 million in consolidated assets. Because the Company has less
than $150 million in assets, it is not currently subject to these rules. Under
the risk-based standard, capital is classified into two tiers. Tier 1 capital of
the Company consists of common stockholders' equity, excluding the unrealized
gain (loss) on securities available-for-sale, minus certain intangible assets.
Tier 2 capital consists of general reserve for
Page 18 of 45 sequentially numbered pages.
<PAGE>
CAPITAL -- Continued
loan losses subject to certain limitations. A bank holding company's qualifying
capital base for purposes of its risk-based capital ratio consists of the sum of
its Tier 1 and Tier 2 capital. The regulatory minimum requirements are 4% for
Tier 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.
Risk-Based Capital Ratios
The Bank The Company
----------- -----------
Tier I capital:
Common shareholders' equity $ 7,098,772 $ 7,233,560
Less: intangibles -- 30,111
----------- -----------
Total Tier I capital 7,098,772 7,203,449
Tier II capital:
Allowable allowance for loan losses 580,712 581,619
----------- -----------
Tier II capital additions 580,712 581,619
----------- -----------
Total capital $ 7,679,484 $ 7,785,068
=========== ===========
Risk adjusted assets $46,456,952 $46,442,292
=========== ===========
Total assets $65,002,307 $65,074,862
=========== ===========
Risk-based capital ratios:
Tier I capital 15.28% 15.49%
Total capital 16.53 16.74
Tier I leverage ratio 11.23 11.39
LIQUIDITY MANAGEMENT
The Company manages its liquidity from both the asset and liability side of the
balance sheet through the coordination of the relative maturities of its assets
and liabilities. Short-term liquidity needs are generally met from cash, due
from banks, federal funds sold and deposit levels. Management has established
policies and procedures governing the length of time to maturity on loans and
investments. Investments classified as available for sale are placed in this
category specifically to fund future liquidity needs, if necessary. The Company
maintained a high level of liquidity during 1997 which was attributable to the
growth in deposits during the year. In the opinion of management, the Company's
short-term and long-term liquidity needs can be adequately supported by the
Company's deposit base.
IMPACT OF INFLATION
The financial statements and related financial data presented herein have been
prepared in accordance with generally accepted accounting principles which
require the measurement of financial position and operating results in terms of
historical dollars, without considering changes in relative purchasing power
over time due to inflation. Unlike most industrial companies, virtually all of
the assets and the liabilities of a financial institution are monetary in
nature. As a result, interest rates generally have a more significant impact on
a financial institution's performance than does the effect of inflation.
While the effect of inflation on a bank is normally not as significant as its
influence on those businesses that have large investments in plant and
inventories, it does have an effect. Interest rates generally increase as the
rate of inflation increases, but the magnitude of the change in rates may not be
the same. While interest rates have traditionally moved with inflation, the
effect on income is diminished because both interest earned on assets and
interest paid on liabilities vary directly with each other. Also, increases in
the price of goods and services will generally result in increased operating
expenses.
Page 19 of 45 sequentially numbered pages.
<PAGE>
ACCOUNTING AND FINANCIAL REPORTING ISSUES
In June 1997, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards (SFAS) 130, "Reporting Comprehensive Income."
SFAS 130 requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. Comprehensive income is the change in equity of a business
during a period from transactions and other events and circumstances from
nonowner sources and excludes investments by owners and distributions to owners.
Comprehensive income consists of two components, net income and other
comprehensive income. Other comprehensive income includes, among other things,
the change in the unrealized gain or loss on securities available for sale.
This statement is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required.
FORWARD LOOKING AND TREND INFORMATION
The management of the Company is not aware of any trends or events other than
those included in this discussion that are likely to have a material effect on
the Company's capital resources, liquidity, or operations. Please read the
discussion below on the Company's plan for handling Year 2000. Also, no known
factors regarding regulatory matters are expected to effect the overall
operating results of the Company.
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue and is
developing an implementation plan to resolve the issue. The Year 2000 problem is
the result of computer programs being written using two digits rather than four
to define the applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a major system failure or
miscalculations. The Company presently believes that, with modifications to
existing software and converting to new software, the Year 2000 problem will not
pose significant operational problems for the Company's computer systems as so
modified and converted. However, if such modifications and conversions are not
completed timely, the Year 2000 problem may have a material impact on the
operations of the Company.
The Company cannot predict with any certainty the costs the Company will incur
to respond to any Year 2000 issues. Further, the business of many of the
Company's customers may be negatively affected by the Year 2000 issue, and any
financial difficulties incurred by the Company's customers in solving Year 2000
issues could negatively affect such customer's ability to repay any loans which
the Bank may have extended. Therefore, even if the Company and the Bank do not
incur significant direct costs in connection with responding to the year 2000
issue, there can be no assurance that the failure or delay of the Bank's
customers or other third parties in addressing the Year 2000 issue or the costs
involved in such process will not have a material adverse effect on the
Company's business, financial condition and results of operations.
Page 20 of 45 sequentially numbered pages.
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements identified in Item 14 of this Report on Form 10-K are
included herein on pages 25 through 44.
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
- --------------------------- ----- ---------------------------------------------------- ------------ -------
BOARD NOMINEES
<S> <C> <C> <C> <C>
E. Ray Carmichael 68 President, Carmichael Oil of Walterboro, Inc., 1988 2001(2)
Exxon oil distributor
W. Roger Crook 56 Chief Executive Officer and President of the 1988 2001(2)
Bank since its incorporation on October 11, 1988
Harry L. Hill 70 Retired, Former Vice President and Resident 1988 2001(2)
Manager, Asten Dryer Fabrics, Inc.
Robert E. Redfearn 74 Retired, Former owner of Sea Spirits, Inc. 1988 2001(2)
Grocery/Real Estate
DIRECTORS CONTINUING IN OFFICE
George W. Cone 52 Partner in Law Firm of McLeod, Fraser & Cone 1988 1999
Opedalis Evans 76 Retired - Former Merchant and Farmer 1988 1999
J. Barnwell Fishburne 42 Owner, Fishburne & Company 1988 1999
Real Estate Sales and Rentals
Calvert W. Huffines 48 President of The Huffines Company 1988 2000
Real Estate Broker
Peden B. McLeod 57 Retired Code Commissioner and Director, South 1988 2000
Carolina Legislative Council, Partner in McLeod,
Fraser & Cone Law Firm
Harold M. Robertson 74 Retired, Previous owner of Robertson Electric 1988 2000
Company. Retired Member of Board of Directors
South Carolina Public Service Authority
</TABLE>
(1) At December 31, 1997
(2) Assuming re-election at the Annual Meeting
Page 21 of 45 sequentially numbered pages.
<PAGE>
EXECUTIVE OFFICERS
W. Roger Crook, age 56, 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 60, 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 44, 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, 1997, the Board held a total of 13 regular and special meetings.
Each director attended at least 75% of the aggregate of (I) the total number of
meetings of the Board of Directors and (ii) the total number of meetings held by
all Committees, of the Board of Directors on which he served.
The Audit Committee selects the Company's independent auditors, determines the
scope of the Annual Audit, determines whether the Company has adequate
administrative, operational and internal accounting controls and determines
whether the Company is operating according to established policies and
procedures. The members of the Audit Committee are George W. Cone, Opedalis
Evans, J. Barnwell Fishburne, Harry L. Hill and Robert E. Redfearn. The Audit
Committee met two times during 1997.
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 1997.
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 fourteen times during 1997.
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 sixty- five times during 1997.
The Board of Directors nominates candidates for election as directors; it has no
nominating committee. The Board of Directors will consider individuals
recommended by shareholders. Shareholders may make recommendations by writing to
Peden B. McLeod, Chairman of the Board, Communitycorp, Post Office Box 1707,
Walterboro, South Carolina 29488.
Page 22 of 45 sequentially numbered pages.
<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 $100,000 during the fiscal year ended December 31, 1997.
SUMMARY COMPENSATION TABLE
Annual Compensation
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Other Annual All Other
Name and Salary Bonus Compensation Compensation
Principal Position Year ($) ($) ($) ($) (1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
W. Roger Crook 1997 $86,000 $12,000 -- $18,020
President and Chief 1996 76,300 10,000 -- 15,341
Executive Officer 1995 72,000 7,000 -- 13,334
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Included deferred compensation of $12,000, $10,000, and $9,014 in 1997,
1996, and 1995, respectively, and profit sharing contribution of $6,020,
$5,341, and $4,320 in 1997, 1996, and 1995, respectively.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
<TABLE>
<CAPTION>
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
---------------- ---------------- ----- ----- --------
<S> <C> <C> <C> <C>
Owners of 5% or more of
Common Stock
Sea Spirits, Inc. (1) 23,708 - 0 - 23,708 7.90%
3205 Palmetto Blvd.
Edisto, SC 29438
Directors
E. Ray Carmichael (2) 11,897 3,228 15,125 5.04%
George W. Cone (3) 2,728 1,500 4,228 1.41%
W. Roger Crook(4) 2,229 500 2,729 0.91%
Opedalis Evans 4,200 - 0 - 4,200 1.40%
Barnwell Fishburne(5) 6,647 1,488 8,135 2.71%
Harry L. Hill 3,335 - 0 - 3,335 1.11%
Calvert W. Huffines (6) 2,085 4,600 6,685 2.23%
Peden B. McLeod (7) 7,478 19,350 26,828 8.94%
Robert E. Redfearn (8) 500 23,708 24,208 8.07%
Harold Robertson (9) 7,975 2,534 10,509 3.50%
Executive Officers and 50,029 56,908 106,937 35.65%
Directors as a Group
(12 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 1,488 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 23,708 shares owned by Sea Spirits, Inc., a corporation which is
controlled by Mr. Redfearn.
(9) Includes 2,534 shares held by family members.
Page 23 of 45 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 1997, the largest
aggregate amount of indebtedness of principal officers, directors and their
associates to the Company was $1,950,124 which represented 31.11% of the
Company's equity capital at the time. During 1997, the law firm of McLeod,
Fraser & Cone provided legal services to the Company in its ordinary course of
business and it is expected to continue to do so in the future. George W. Cone,
director of Communitycorp is a partner of the McLeod, Fraser and Cone law firm.
Peden B. McLeod, Director and Chairman of the Board of Communitycorp, is also a
partner in the law firm of McLeod, Fraser and Cone.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1)-(2) Financial Statements and Schedules:
The consolidated financial statements and schedules of the Company identified in
the accompanying index to financial statements at page 25 herein are filed as
part of this report.
(a)(3)Listing of Exhibits
3.1 *Articles of Incorporation. (Incorporated by reference to Exhibit 3.1
to Registrant's Form 10-K the fiscal year ended December 31, 1995)
3.2 *Bylaws of Communitycorp. (Incorporated by reference to Exhibit 3.2 to
Registrant's Form 10-K for the fiscal year ended December 31, 1995)
(a)(3) 21 Subsidiaries of Registrant
Bank of Walterboro is the only subsidiary of Communitycorp.
(b)Reports on Form 8-K
There were no reports on Form 8-K filed during the fourth quarter ended December
31, 1997.
* Incorporated by reference as indicated.
Page 24 of 45 sequentially numbered pages.
<PAGE>
COMMUNITYCORP AND SUBSIDIARY
Consolidated Financial Statements
Years Ended December 31, 1997, 1996, 1995
INDEX TO FINANCIAL STATEMENTS
Page #
------
Report of Tourville, Simpson & Henderson
Independent Auditors........................................................ 26
Consolidated Balance Sheets as of
December 31, 1997 and 1996................................................ 27
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995.......................................... 28
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995.......................................... 29
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.......................................... 30
Notes to Consolidated Financial Statements.................................. 31
Page 25 of 45 sequentially numbered pages.
<PAGE>
[TOURVILLE, SIMPSON & HENDERSON LETTERHEAD]
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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
/s/ TOURVILLE, SIMPSON & HENDERSON
Columbia, South Carolina
February 26, 1998
Page 26 of 45 sequentially numbered pages.
<PAGE>
COMMUNITYCORP
Consolidated Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Assets
Cash and cash equivalents:
Cash and due from banks (Note B) $ 2,602,260 $ 2,382,087
Federal funds sold and securities
purchased under agreements to resell 3,130,000 640,000
------------ ------------
5,732,260 3,022,087
Time deposits with other banks -- 10,000
Investment securities: (Note C)
Securities available for sale 9,394,736 10,187,941
Securities held to maturity (market value of $6,343,032
in 1997 and $6,821,855 in 1996) 6,301,318 6,810,399
------------ ------------
15,696,054 16,998,340
Loans (Note D) 41,357,114 35,153,845
Less allowance for loan losses (743,260) (638,688)
------------ ------------
Loans, net 40,613,854 34,515,157
Premises and equipment, net (Note E) 1,999,055 1,262,024
Accrued interest receivable 726,318 690,700
Other assets 307,321 280,190
------------ ------------
Total assets $ 65,074,862 $ 56,778,498
============ ============
Liabilities
Deposits:
Non-interest bearing demand deposits $ 6,063,801 $ 5,673,918
Interest bearing demand 11,263,207 6,886,479
Money market accounts 2,879,173 3,341,735
Savings 12,150,122 11,972,537
Time deposits of $100,000 and over (Note F) 8,739,395 7,983,620
Other time deposits (Note F) 15,847,390 14,206,909
------------ ------------
56,943,088 50,065,198
Short-term borrowings (Note H) 480,000 --
Accrued interest payable 342,661 281,868
Other liabilities 75,553 48,180
------------ ------------
Total liabilities 57,841,302 50,395,246
------------ ------------
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 38,431 38,800
Retained earnings 3,991,832 3,131,155
Treasury stock, at cost (1,583 shares in 1997 and 1,083 in 1996) (28,411) (18,411)
------------ ------------
Total shareholders' equity 7,233,560 6,383,252
------------ ------------
Total liabilities and shareholders' equity $ 65,074,862 $ 56,778,498
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 27 of 45 sequentially numbered pages.
<PAGE>
COMMUNITYCORP
Consolidated Statements of Operations
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Loans, including fees $3,552,858 $3,043,172 $2,752,591
Investment securities
Taxable 850,704 776,580 468,987
Tax-exempt 136,713 113,981 82,251
Federal funds sold and securities
purchased under agreements to resell 207,830 216,127 248,597
Time deposits with other banks 861 1,012 4,260
---------- ---------- ----------
4,748,966 4,150,872 3,556,686
---------- ---------- ----------
Interest expense:
Deposits 2,113,575 1,924,305 1,437,902
Short-term borrowings 17,761 12,676 85,698
---------- ---------- ----------
2,131,336 1,936,981 1,523,600
---------- ---------- ----------
Net interest income 2,617,630 2,213,891 2,033,086
Provision for loan losses (Note D) 135,000 130,000 125,000
---------- ---------- ----------
Net interest income after provision for loan losses 2,482,630 2,083,891 1,908,086
---------- ---------- ----------
Other income:
Service charges on deposit accounts 238,051 203,929 163,918
Other 20,946 20,335 11,870
---------- ---------- ----------
258,997 224,264 175,788
---------- ---------- ----------
Other expenses:
Salaries and employee benefits 602,484 481,281 416,782
Net occupancy expense 227,220 144,048 127,429
Equipment expense 44,073 56,456 52,611
Other operating expense (Note L) 455,489 390,097 355,550
---------- ---------- ----------
1,329,266 1,071,882 952,372
---------- ---------- ----------
Income before income taxes 1,412,361 1,236,273 1,131,502
Income tax expense (Note M) 467,987 417,554 396,600
---------- ---------- ----------
Net income $ 944,374 $ 818,719 $ 734,902
========== ========== ==========
Per share
Weighted average common shares outstanding 298,646 299,420 300,000
Net income $ 3.16 $ 2.73 $ 2.45
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 28 of 45 sequentially numbered pages.
<PAGE>
COMMUNITYCORP
Consolidated Statements of Changes in Shareholders' Equity
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Unrealized
Gain (Loss) on
Common Stock Securities
-------------------- Capital Available Retained Treasury
Shares Amount Surplus for Sale, net Earnings Stock Total
------- ---------- ---------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
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
Net income 944,374 944,374
Cash dividends declared
- $.28 per share (83,697) (83,697)
Change in fair value
during the year (369) (369)
Purchase of treasury
stock (10,000) (10,000)
------- ---------- ---------- --------- ---------- -------- ----------
Balance,
December 31, 1997 300,000 $1,500,000 $1,731,708 $ 38,431 $3,991,832 $(28,411) $7,233,560
======= ========== ========== ========= ========== ======== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 29 of 45 sequentially numbered pages.
<PAGE>
COMMUNITYCORP
Consolidated Statements of Cash Flows
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 944,374 $ 818,719 $ 734,902
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 169,491 94,344 81,551
Provision for loan losses 135,000 130,000 125,000
Premium amortization less accretion 5,267 16,578 9,522
Deferred income taxes (56,384) 45,173 (183,018)
Amortization of loan fees and costs 63,677 52,735 48,907
Gain on disposal of equipment -- -- (5,220)
Increase in accrued interest receivable (35,618) (192,329) (73,137)
Decrease (increase) in other assets 29,481 19,138 (42,342)
Increase in accrued interest payable 60,793 22,340 160,387
Increase (decrease) in other liabilities 27,373 (343,070) 312,777
----------- ------------ -----------
Net cash provided by operating activities 1,343,454 663,628 1,169,329
----------- ------------ -----------
Cash flows from investing activities
Proceeds from maturities of securities available for sale 3,312,439 3,127,790 2,650,000
Proceeds from sale of securities available for sale -- 100,125 --
Purchases of securities available for sale (2,516,600) (8,382,335) (1,899,891)
Proceeds from maturities of securities held to maturity 600,292 1,490,677 2,667,700
Purchases of securities held to maturity (99,709) (3,310,471) (1,124,832)
Net increase in loans to customers (6,297,374) (5,099,988) (4,548,128)
Purchases of premises and equipment (906,522) (537,993) (143,925)
Proceeds from sales of equipment -- -- 12,725
Proceeds from maturity of time deposits with other banks 10,000 -- 100,000
----------- ------------ -----------
Net cash used by investing activities (5,897,474) (12,612,195) (2,286,351)
----------- ------------ -----------
Cash flows from financing activities
Net increase in demand deposits,
money market, and savings accounts 6,122,115 1,441,971 1,263,088
Net increase in time deposits 755,775 7,983,620 6,739,944
Net increase (decrease) in short-term borrowings 480,000 (989,554) (2,054,710)
Cash dividends paid (83,697) (75,000) (63,000)
Purchase of treasury stock (10,000) (18,411) --
----------- ------------ -----------
Net cash provided by financing activities 7,264,193 8,342,626 5,885,322
----------- ------------ -----------
Net increase (decrease) in cash and cash equivalents 2,710,173 (3,605,941) 4,768,300
Cash and cash equivalents, beginning of period 3,022,087 6,628,028 1,859,728
----------- ------------ -----------
Cash and cash equivalents, end of period $ 5,732,260 $ 3,022,087 $ 6,628,028
=========== ============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 30 of 45 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 northern Charleston County
and 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
judgments about information available to them at the time of their examination.
Because of these factors, it is possible that the allowances for losses on loans
and foreclosed real estate may change in the near term.
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 31 of 45 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. 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
$31,656, $21,341 and $17,526 in 1997, 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 $12,000,
$10,000 and $9,014 in 1997, 1996 and 1995, respectively.
The Company does not provide post employment benefits to employees beyond the
plans described above.
Page 32 of 45 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, federal funds sold, and securities purchased under agreements to
resell.
During 1997, 1996, and 1995, the Company paid $2,070,543, $1,914,642 and
$1,363,213, respectively, for interest. Cash paid for income taxes was $492,000,
$697,129 and $267,300 in 1997, 1996, and 1995, 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 and Charleston Counties and
surrounding areas. Management does not believe credit risk is associated with
obligations of the United States, its agencies or its corporations. The Company
places its deposits, 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 1996 and 1995 were reclassified to conform with the 1997
presentations.
NOTE B -- CASH AND DUE FROM BANKS
The Company is required by regulation to maintain an average cash reserve
balance based on a percentage of deposits. The average amounts of the cash
reserve balances at December 31, 1997 and 1996 were approximately $291,000 and
$268,000, respectively.
NOTE C -- INVESTMENT SECURITIES
The amortized cost and estimated market values of securities available for sale
at December 31, 1997 and 1996 were:
<TABLE>
<CAPTION>
1997
----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasuries $ 699,450 $ 5,050 $ -- $ 704,500
U.S. Government Agencies
and corporations 7,666,815 53,907 14,859 7,705,863
Obligations of state and
political subdivisions 969,813 14,560 -- 984,373
----------- ------- ---------- -----------
$ 9,336,078 $73,517 $ 14,859 $ 9,394,736
=========== ======= ========== ===========
</TABLE>
Page 33 of 45 sequentially numbered pages.
<PAGE>
COMMUNITYCORP
Notes to Consolidated Financial Statements
NOTE C -- INVESTMENT SECURITIES -- Continued
<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
=========== ======= ========== ===========
</TABLE>
The amortized cost and estimated market value of securities held to maturity at
December 31, 1997 and 1996 were:
<TABLE>
<CAPTION>
1997
----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Government Agencies
and corporations $ 3,857,576 $ 9,441 $ 6,101 $ 3,860,916
Obligations of state and
political subdivisions 2,443,742 38,838 464 2,482,116
----------- ------- ---------- -----------
$ 6,301,318 $48,279 $ 6,565 $ 6,343,032
=========== ======= ========== ===========
<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 states and
political subdivisions 2,695,696 26,109 5,808 2,715,997
----------- ------- ---------- -----------
$ 6,810,399 $34,513 $ 23,057 $ 6,821,855
=========== ======= ========== ===========
</TABLE>
The amortized cost and estimated market value of securities available for sale
at December 31, 1997 and 1996 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>
1997 1996
---------------------------- -----------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due within one year $1,649,104 $ 1,641,841 $ 200,000 $ 200,704
Due after one year but within five years 3,838,154 3,866,167 7,230,672 7,254,709
Due after five years but within ten years 2,733,466 2,763,502 1,745,265 1,779,465
Due after ten years 230,000 234,072 -- --
---------- ----------- ----------- -----------
8,450,724 8,505,582 9,175,937 9,234,878
Mortgage-backed securities 885,354 889,154 952,749 953,063
---------- ----------- ----------- -----------
$9,336,078 $ 9,394,736 $10,128,686 $10,187,941
========== =========== =========== ===========
</TABLE>
Page 34 of 45 sequentially numbered pages.
<PAGE>
COMMUNITYCORP
Notes to Consolidated Financial Statements
NOTE C -- INVESTMENT SECURITIES -- Continued
The amortized cost and estimated market values of securities held to maturity at
December 31, 1997 and 1996 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.
<TABLE>
<CAPTION>
1997 1996
--------------------------- ---------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Due within one year $ 679,900 $ 681,207 $ 272,360 $ 272,694
Due after one year but within five years 3,183,390 3,194,283 3,831,585 3,839,187
Due after five years but within ten years 898,088 913,030 909,377 916,682
Due after ten years 233,040 244,564 233,619 237,053
---------- ---------- ---------- ----------
4,994,418 5,033,084 5,246,941 5,265,616
Mortgage-backed securities 1,306,900 1,309,948 1,563,458 1,556,239
---------- ---------- ---------- ----------
$6,301,318 $6,343,032 $6,810,399 $6,821,855
========== ========== ========== ==========
</TABLE>
At December 31, 1997 and 1996, investment securities with a book value of
$8,430,922 and $6,567,826 and a market value of $8,464,430 and $6,566,147,
respectively, were pledged as collateral to secure public deposits. There were
no sales of investment securities for the years ended December 31, 1997 and
1995. One security classified as available for sale was sold in 1996 with a
realized gain of $225.
NOTE D -- LOANS
Loans consisted of the following:
December 31,
-------------------------------
1997 1996
----------- -----------
Real estate $ 5,080,608 $ 4,564,843
Agricultural 265,792 255,994
Commercial and industrial loans 28,463,885 24,135,094
Consumer 7,104,280 5,791,518
All other loans 442,549 406,396
----------- -----------
$41,357,114 $35,153,845
=========== ===========
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, 1997 and 1996, management reviewed its
problem loan watch list and determined that no impairment on loans existed that
would have a material effect on the Company's consolidated financial statements.
The accrual of interest is discontinued on impaired loans when management
anticipates that a borrower may be unable to meet the obligations of the note.
Accrued interest through the date the interest is discontinued is reversed.
Subsequent interest earned is recognized only to the point that cash payments
are received. All payments are applied to principal if the ultimate amount of
principal is not expected to be collected.
As of December 31, 1997 and 1996, management had placed loans totaling $561,381
and $290,977 in nonaccrual status because the loans were not performing as
originally contracted. Loans ninety days or more past due and still accruing
interest were $5,133 and $8,000, at December 31, 1997 and 1996, respectively. No
impairment has been recognized because management has determined that the
discounted value of expected proceeds from the sale of collateral, typically
real estate, exceeds the carrying amount of these loans.
Page 35 of 45 sequentially numbered pages.
<PAGE>
COMMUNITYCORP
Notes to Consolidated Financial Statements
NOTE D -- LOANS -- Continued
Transactions in the allowance for loan losses are summarized below:
1997 1996 1995
--------- --------- ---------
Balance, January 1 $ 638,688 $ 617,457 $ 550,457
Provision charged to expense 135,000 130,000 125,000
Recoveries 12,883 13,734 8,217
Charge-offs (43,311) (122,503) (66,217)
--------- --------- ---------
Balance, December 31 $ 743,260 $ 638,688 $ 617,457
========= ========= =========
For income tax purposes, the allowance for loan losses is $96,042, $102,790 and
$86,512 at December 31, 1997, 1996 and 1995, 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 contractual or notional amounts of those
instruments reflect the extent of involvement the Company has in particular
classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit 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.
The following table summarizes the Company's off-balance sheet financial
instruments whose contractual amounts represent credit risk:
December 31,
-------------------------------
1997 1996
---------- ----------
Commitments to extend credit $2,071,278 $2,081,417
Standby letters of credit 163,000 115,000
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, 1997, the Company was not committed to lend additional funds to
borrowers having loans in nonaccrual status.
Page 36 of 45 sequentially numbered pages.
<PAGE>
COMMUNITYCORP
Notes to Consolidated Financial Statements
NOTE E -- PREMISES AND EQUIPMENT
Premises and equipment consisted of the following:
December 31,
--------------------------------
1997 1996
----------- -----------
Land $ 334,385 $ 334,385
Buildings and improvements 1,291,102 626,947
Construction in process -- 2,792
Furniture and equipment 985,830 908,923
----------- -----------
2,611,317 1,873,047
Less, accumulated depreciation (612,262) (611,023)
----------- -----------
$ 1,999,055 $ 1,262,024
=========== ===========
Interest capitalized during the construction of the Ravenel branch is included
in buildings and improvements. The amount capitalized for the year ended
December 31, 1997 was $7,530 and is being amortized over forty years.
NOTE F -- DEPOSITS
At December 31, 1997, the scheduled maturities of time deposits are as follows:
1998 $22,339,675
1999 1,206,800
2000 1,040,310
-----------
$24,586,785
===========
NOTE G -- RELATED PARTY TRANSACTIONS
Certain parties (principally certain directors and shareholders of the Company,
their immediate families and business interests) were loan customers of, and had
other transactions in the normal course of business with the 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 $1,637,803 and
$2,256,821 at December 31, 1997 and 1996, respectively. During 1997, $308,602 of
new loans were made to related parties, and repayments totaled $927,620. Legal
services were provided to the Company in the ordinary course of business by a
law firm in which two of the partners are directors of the Company. The amount
paid to this law firm for services rendered was $19,600 and $18,223 for the
years ended December 31, 1997 and 1996, respectively.
NOTE H -- SHORT TERM BORROWINGS
Short-term borrowings payable at December 31, 1997 consist of securities sold
under agreements to repurchase which generally mature on a one-day basis.
Short-term borrowings information for 1996 below represents activity from
January through May, 1996.
Information concerning securities sold under agreements to repurchase is
summarized as follows:
1997 1996
-------- --------
Average balance during the year $378,904 $569,967
Average interest rate during the year 4.68% 4.42%
Maximum month-end balance during the year $760,000 $873,436
Page 37 of 45 sequentially numbered pages.
<PAGE>
COMMUNITYCORP
Notes to Consolidated Financial Statements
NOTE H -- SHORT TERM BORROWINGS -- Continued
Under the terms of the agreement, the Bank sells an interest in securities
issued by United States Government Agencies; and the Bank agrees to repurchase
the same securities the following business day. The securities sold under these
agreements are the identical securities on the Bank's balance sheet captioned as
securities purchased under agreements to resell. As of December 31, 1997, the
par value and market value of the securities held by the third-party for the
underlying agreements were $529,000 and $528,835, respectively.
NOTE I -- UNUSED LINES OF CREDIT
As of December 31, 1997, the Bank had unused lines of credit to purchase federal
funds from other financial institutions totaling $2,500,000. These lines of
credit are available on a one to seven day basis for general corporate purposes.
The lenders have reserved the right not to renew their respective lines.
NOTE J -- COMMITMENTS AND CONTINGENCIES
The Company was not involved as defendant in any litigation at December 31,
1997. 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, 1997, the
Bank's undivided profits were $7,137,203.
NOTE L -- OTHER EXPENSES
Other expenses for the years ended December 31, 1997, 1996 and 1995 are
summarized as follows:
1997 1996 1995
-------- -------- --------
Stationery, printing and postage $137,911 $ 97,692 $ 90,682
Advertising and promotion 34,482 31,187 26,590
Professional services 68,727 80,567 46,786
Insurance 18,453 16,848 53,195
Other 195,916 163,803 138,297
-------- -------- --------
$455,489 $390,097 $355,550
======== ======== ========
Page 38 of 45 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, 1997, 1996 and 1995 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Currently payable
Federal $ 477,247 $ 349,115 $ 521,738
State 48,418 23,262 57,880
--------- --------- ---------
525,665 372,377 579,618
--------- --------- ---------
Deferred
Federal (49,713) 52,823 (97,947)
State (8,193) 15,845 (24,279)
--------- --------- ---------
(57,906) 68,668 (122,226)
--------- --------- ---------
$ 467,759 $ 441,045 $ 457,392
========= ========= =========
Income tax expense is allocated as follows:
To continuing operations $ 467,987 $ 417,554 $ 396,600
To shareholders' equity (228) 23,491 60,792
--------- --------- ---------
$ 467,759 $ 441,045 $ 457,392
========= ========= =========
</TABLE>
Deferred income taxes of $154,594, $97,982, and $166,646 were included in other
assets at December 31, 1997, 1996, and 1995, 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>
1997 1996 1995
-------- --------- ---------
<S> <C> <C> <C>
Allowance for loan losses $(42,858) $ (1,907) $ (24,963)
Accumulated depreciation 29,260 (6,300) 69
Cash basis tax accounting (23,916) 27,301 (128,910)
Deferred compensation (11,276) (4,777) (3,893)
Other (7,594) 30,856 (25,321)
-------- --------- ---------
Total deferred tax (benefit) expense
attributable to continuing operations (56,384) 45,173 (183,018)
Deferred tax (benefit) expense attributable
to shareholders equity (228) 23,491 60,792
-------- --------- ---------
$(56,612) $ 68,664 $(122,226)
======== ========= =========
</TABLE>
Page 39 of 45 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, 1997, 1996 and 1995 are as follows:
1997 1996 1995
-------- -------- --------
Deferred tax assets:
Allowance for loan losses $249,179 $206,321 $204,414
Available for sale securities -- -- 3,036
Deferred compensation 27,455 16,179 11,402
Other 1,455 -- 22,110
-------- -------- --------
Total deferred tax assets 278,089 222,500 240,962
-------- -------- --------
Deferred tax liabilities:
Accumulated depreciation 62,120 32,860 39,160
Cash basis tax accounting 38,177 62,093 34,792
Available for sale securities 20,227 20,455 --
Other 2,971 9,110 364
-------- -------- --------
Total deferred tax liabilities 123,495 124,518 74,316
-------- -------- --------
Net deferred tax asset $154,594 $ 97,982 $166,646
======== ======== ========
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, 1997, 1996 and 1995 will be
realized, and accordingly, has not established a valuation allowance.
A reconciliation between the income tax expense and the amount computed by
applying the Federal statutory rate of 34% to income before income taxes
follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Tax expense at statutory rate $ 480,203 $ 420,333 $ 384,711
State income tax, net of Federal income tax effect 23,763 31,198 6,813
Tax exempt interest income (55,575) (53,214) (29,618)
Disallowed interest expense 13,444 24,770 5,322
Other, net 6,152 (5,533) 29,372
--------- --------- ---------
$ 467,987 $ 417,554 $ 396,600
========= ========= =========
</TABLE>
NOTE N -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the amount at which the asset or
obligation could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. Fair value estimates are made at a
specific point in time based on relevant market information and information
about the financial instruments. Because no market value exists for a
significant portion of the financial instruments, fair value estimates are based
on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors. The following methods and assumptions were used to estimate the fair
value of significant financial instruments:
Cash and Due from Banks - The carrying amount is a reasonable estimate of fair
value.
Federal Funds Sold and Securities Purchased under Agreements to Resell - Federal
funds sold and securities purchased under agreements to resell are for a term of
one day, and the carrying amount approximates the fair value.
Investment Securities - The fair values of marketable securities held to
maturity are based on quoted market prices or dealer quotes. For securities
available for sale, fair value equals the carrying amount which is the quoted
market price. If quoted market prices are not available, fair values are based
on quoted market prices of comparable securities.
Page 40 of 45 sequentially numbered pages.
<PAGE>
COMMUNITYCORP
Notes to Consolidated Financial Statements
NOTE N -- FAIR VALUE OF FINANCIAL INSTRUMENTS -- Continued
Loans -- For certain categories of loans, such as variable rate loans which are
repriced frequently and have no significant change in credit risk and credit
card receivables, fair values are based on the carrying amounts. The fair value
of other types of loans is estimated by discounting the future cash flows using
the current rates at which similar loans would be made to the borrowers with
similar credit ratings and for the same remaining maturities.
Deposits -- The fair value of demand deposits, savings, and money market
accounts is the amount payable on demand at the reporting date. The fair values
of certificates of deposit are estimated using a discounted cash flow
calculation that applies current interest rates to a schedule of aggregated
expected maturities.
Short Term Borrowings -- The carrying value of securities sold under agreements
to repurchase is a reasonable estimate of fair value because these instruments
typically have terms of one day.
Accrued Interest Receivable and Payable -- The carrying value of these
instruments is a reasonable estimate of fair value.
Off-Balance Sheet Financial Instruments -- The carrying amount for loan
commitments and letters of credit, which are off-balance sheet financial
instruments, approximates the fair value since the obligations are typically
based on current market rates.
The carrying values and estimated fair values of the Company's financial
instruments for the years ending December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
-------------------------------- --------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and due from banks $ 2,602,260 $ 2,602,260 $ 2,382,087 $ 2,382,087
Federal funds sold and securities
purchased under agreements to resell 3,130,000 3,130,000 640,000 640,000
Securities available-for-sale 9,394,736 9,394,736 10,187,941 10,187,941
Securities held-to-maturity 6,301,318 6,343,032 6,810,399 6,821,855
Loans 41,357,114 41,282,127 35,153,845 35,069,875
Allowance for loan losses (743,260) (743,260) (638,688) (638,688)
Accrued interest receivable 726,318 726,318 690,700 690,700
Financial Liabilities:
Demand deposit, interest-bearing
transaction, and savings accounts $ 32,356,303 $ 32,356,303 $ 27,874,669 $ 27,874,669
Time deposits 24,586,785 24,680,193 22,190,529 22,258,682
Short-term borrowings 480,000 480,000 -- --
Accrued interest payable 342,661 342,661 281,868 281,868
Off-Balance Sheet Financial Instruments:
Commitments to extend credit $ 2,071,278 $ 2,071,278 $ 2,081,417 $ 2,081,417
Standby letters of credit 163,000 163,000 115,000 115,000
</TABLE>
Page 41 of 45 sequentially numbered pages.
<PAGE>
COMMUNITYCORP
Notes to Consolidated Financial Statements
NOTE O -- REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum ratios of Tier 1 and total capital as a
percentage of assets and off-balance-sheet exposures, adjusted for risk weights
ranging from 0% to 100%. Tier 1 capital consists of common shareholders' equity,
excluding the unrealized gain or loss on securities available for sale, minus
certain intangible assets. Tier 2 capital consists of the allowance for loan
losses subject to certain limitations. Total regulatory minimum requirements are
4% for Tier 1 and 8% for total risk-based capital.
The Bank is also required to maintain capital at a minimum level based on 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, 1997, the most recent notification from the Bank's primary
regulator categorized the Bank as well-capitalized under the regulatory
framework for prompt-corrective action. There are no conditions or events that
management believes have changed the Bank's category.
The following table summarizes the capital amounts and ratios of the Bank and
the regulatory minimum requirements at December 31, 1997 and 1996.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------- -------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997
Total capital (to risk weighted assets) $7,679,484 16.53% $3,716,556 8.00% $4,645,695 10.00%
Tier 1 capital (to risk weighted assets) 7,098,772 15.28 1,858,278 4.00 2,787,417 6.00
Tier 1 capital (to average assets) 7,098,772 11.23 2,528,920 4.00 3,161,150 5.00
December 31, 1996
Total capital (to risk weighted assets) 6,693,184 16.85 3,176,837 8.00 3,971,047 10.00
Tier 1 capital (to risk weighted assets) 6,196,803 15.60 1,588,419 4.00 2,382,628 6.00
Tier 1 capital (to average assets) 6,196,803 10.92 2,262,080 4.00 2,827,600 5.00
</TABLE>
The Federal Reserve Board has similar requirements for bank holding companies.
The Company is currently not subject to these requirements because the Federal
Reserve guidelines contain an exemption for bank holding companies with less
than $150,000,000 in consolidated assets.
Page 42 of 45 sequentially numbered pages.
<PAGE>
COMMUNITYCORP
Notes to Consolidated Financial Statements
NOTE P -- COMMUNITYCORP (PARENT COMPANY ONLY)
Presented below are the condensed financial statements for Communitycorp (Parent
Company Only).
Balance Sheets
December 31,
-----------------------------
1997 1996
---------- ----------
Assets
Cash $ 60,677 $ 100,975
Investment in banking subsidiary 7,137,203 6,235,603
Organizational costs 30,110 41,228
Other assets 5,570 5,446
---------- ----------
Total assets $7,233,560 $6,383,252
========== ==========
Shareholders' equity $7,233,560 $6,383,252
========== ==========
Statements of Operations
For the years ended December 31, 1997 and 1996
and for the period September 11, 1995 through December 31, 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Income
Dividends from banking subsidiary $ 50,000 $175,000 $ 75,000
Expenses
Amortization of organizational costs 11,118 11,118 3,243
Other expenses 390 25 --
-------- -------- --------
11,508 11,143 3,243
Income before income taxes and equity in
undistributed earnings of banking subsidiary 38,492 163,857 71,757
Income tax benefit 3,914 4,346 1,100
Equity in undistributed earnings
of banking subsidiary 901,968 650,516 155,997
-------- -------- --------
Net income $944,374 $818,719 $228,854
======== ======== ========
</TABLE>
Page 43 of 45 sequentially numbered pages.
<PAGE>
COMMUNITYCORP
Notes to Consolidated Financial Statements
NOTE P -- COMMUNITYCORP (PARENT COMPANY ONLY) -- Continued
Statements of Cash Flows
For the years ended December 31, 1997 and 1996
and for the period September 11, 1995 through December 31, 1995
<TABLE>
<CAPTION>
Cash flows from operating activities 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net income $ 944,374 $ 818,719 $ 228,854
Adjustments to reconcile net income to net
cash provided by operating activities
Amortization of organizational costs 11,118 11,118 3,243
Equity in undistributed earnings of
banking subsidiary (901,968) (650,516) (155,997)
Increase in other assets (125) (4,346) (56,689)
--------- --------- ---------
Net cash provided by operating activities 53,399 174,975 19,411
--------- --------- ---------
Cash flows from financing activities
Cash dividends paid (83,697) (75,000) --
Purchase of treasury stock (10,000) (18,411) --
--------- --------- ---------
Net cash used by financing activities (93,697) (93,411)
--------- --------- ---------
Increase in cash (40,298) 81,564 19,411
Cash, beginning 100,975 19,411 --
--------- --------- ---------
Cash, ending $ 60,677 $ 100,975 $ 19,411
========= ========= =========
</TABLE>
NOTE Q -- RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards (SFAS) 130, "Reporting Comprehensive Income."
SFAS 130 requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. Comprehensive income is the change in equity of a business
during a period from transactions and other events and circumstances from
nonowner sources and excludes investments by owners and distributions to owners.
Comprehensive income consists of two components, net income and other
comprehensive income. Other comprehensive income includes, among other things,
the change in the unrealized gain or loss on securities available for sale.
This statement is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required.
Page 44 of 45 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, 1998
- --------------------------------------
W. Roger Crook
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated:
Date: March 25, 1998
- --------------------------------------
W. Roger Crook, President, Director
(Chief Executive Officer)
Date: March 25, 1998
- --------------------------------------
Gwendolyn P. Bunton, Vice President
(Chief Financial Officer)
Date: March 25, 1998
- --------------------------------------
Peden B. McLeod, Director
& Chairman of the Board
Date: March 25, 1998
- --------------------------------------
George W. Cone, Director
& Corporate Secretary
Date: March 25, 1998
- --------------------------------------
E. Ray Carmichael, Director
Date: March 25, 1998
- --------------------------------------
Opedalis Evans, Director
Date: March 25, 1998
- --------------------------------------
J. Barnwell Fishburne, Director
Date: March 25, 1998
- --------------------------------------
Harry L. Hill, Director
Date: March 25, 1998
- --------------------------------------
Calvert W. Huffines, Director
Date: March 25, 1998
- --------------------------------------
Robert E. Redfearn, Director
Date: March 25, 1998
- --------------------------------------
Harold M. Robertson, Director
Page 45 of 45 sequentially numbered pages.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,602,260
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,130,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,394,736
<INVESTMENTS-CARRYING> 6,301,318
<INVESTMENTS-MARKET> 6,343,032
<LOANS> 41,357,114
<ALLOWANCE> 743,260
<TOTAL-ASSETS> 65,074,862
<DEPOSITS> 56,943,088
<SHORT-TERM> 480,000
<LIABILITIES-OTHER> 418,214
<LONG-TERM> 0
0
0
<COMMON> 1,500,000
<OTHER-SE> 5,733,560
<TOTAL-LIABILITIES-AND-EQUITY> 65,074,862
<INTEREST-LOAN> 3,552,858
<INTEREST-INVEST> 987,417
<INTEREST-OTHER> 208,691
<INTEREST-TOTAL> 4,748,966
<INTEREST-DEPOSIT> 2,113,575
<INTEREST-EXPENSE> 2,131,336
<INTEREST-INCOME-NET> 2,617,630
<LOAN-LOSSES> 135,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,329,266
<INCOME-PRETAX> 1,412,361
<INCOME-PRE-EXTRAORDINARY> 1,412,361
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 944,374
<EPS-PRIMARY> 3.16
<EPS-DILUTED> 3.16
<YIELD-ACTUAL> 4.61
<LOANS-NON> 561,381
<LOANS-PAST> 5,133
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 955,435
<ALLOWANCE-OPEN> 638,688
<CHARGE-OFFS> 43,311
<RECOVERIES> 12,883
<ALLOWANCE-CLOSE> 743,260
<ALLOWANCE-DOMESTIC> 743,260
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
