<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the fiscal year ended June 30, 2000
-------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
ACT OF 1934
For the transition period from ______ to _______.
Commission file number: 0-23521
Great Pee Dee Bancorp, Inc.
-------------------------------
(Name of Small Business Issuer in Its Charter)
<TABLE>
<S> <C>
Delaware 56-2050592
------------------------------------------- --------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
515 Market Street
Cheraw, South Carolina 29520
------------------------------------------- -------------------------------------------
(Address of Principal Executive (Zip Code)
Offices)
</TABLE>
Securities registered under Section 12(b) of the Exchange Act: None
----
Securities registered under Section 12(g) of the Exchange Act: Common Stock
------------
par value $.01 per share
------------------------
(Title of Class)
(843) 537-7656
--------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No _______
------
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
The Issuer's revenues for the fiscal year ended June 30, 2000 were
$6,184,780.
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant, computed by reference to the average of the closing bid and ask
price of such stock on the Nasdaq National Market on August 9, 2000 was
approximately $15,881,110.
The number of shares outstanding of the Issuer's Common Stock, the issuer's
only class of outstanding capital stock, as of June 30, 2000 was 1,770,111.
Documents Incorporated by Reference
The following documents, in whole or in part, are specifically incorporated
by reference in the indicated Part of this Annual Report on Form 10-KSB:
I. Portions of the Great Pee Dee Bancorp, Inc. Proxy Statement for the 2000
Annual Meeting of Shareholders are incorporated by reference into certain
items of Part III.
II. Portions of the Great Pee Dee Bancorp, Inc. Annual Report for the 2000
Annual Meeting of Shareholders
are incorporated by reference into certain items of Part II.
<PAGE>
PART I
Item 1. Business
------- --------
Great Pee Dee Bancorp, Inc. (the "Company") was organized in September,
1997 at the direction of the Board of Directors of First Federal Savings and
Loan Association of Cheraw (the "Association"), for the purpose of acquiring all
of the capital stock to be issued by the Association in the conversion of the
Association from the mutual to the stock form of organization (the
"Conversion"). The Company received approval from the Office of Thrift
Supervision ("OTS") to become a savings and loan holding company and as such is
subject to regulation by the OTS. The Conversion was completed as of December
31, 1997, the Company issued 2,182,125 shares of Common Stock, and received all
of the proceeds of the offering, or $21.8 million ($10.6 million of the proceeds
was transferred to the Association in exchange for the capital stock of the
Association). In connection with the Conversion, the Company loaned
approximately $1,745,700 to the Great Pee Dee Bancorp, Inc. Employee Stock
Ownership Plan and Trust ("ESOP") to enable the ESOP to purchase 174,570 shares
of the Company's Common Stock. The primary business activity of the Company
consists of the operations of its wholly-owned subsidiary, the Association.
The Company is a savings and loan holding company and the owner of all of
the issued and outstanding shares of capital stock of the Association. At June
30, 2000 the assets of the Company consisted of its ownership of the capital
stock of the Association, the loan to the ESOP, an interest-bearing note
receivable from the Association of $2.2 million, and investment securities with
a carrying value of $405,000. The Company also owns 100% of the outstanding
common stock of First Federal Investment Services, Inc., which offers non-
deposit investment products to retail customers. The Association is a member of
the Federal Home Loan Bank ("FHLB") of Atlanta. At June 30, 2000, the Company
had consolidated total assets of $103.8 million, total deposits of $70.3
million, and stockholders' equity of $26.3 million.
The Association was originally organized in 1920 and became a federally-
chartered savings and loan association in 1935. Since then, the Association has
conducted business from its full-service office located in Cheraw, South
Carolina, and in March 2000 acquired a branch office from Coastal Federal
Savings Bank, located in Florence, South Carolina. The Association's principal
business consists of attracting deposits from the general public and originating
fixed-rate and adjustable-rate loans secured primarily by first mortgage liens
on one- to four-family residential real estate. The Association's deposit
accounts are insured up to applicable limits by the SAIF of the FDIC.
The Association believes that it has developed a reputation among its loyal
customer base because of the commitment to personal service and because of
strong support of the local community. The Association offers a number of
financial services including: (i) residential real estate loans; (ii)
construction loans; (iii) commercial real estate loans; (iv) home improvement
loans; (v) commercial loans; (vi) automobile loans; (vi) money market demand
accounts ("MMDAs"); (vii) passbook savings accounts; (viii) checking accounts;
(ix) full banking services; and (x) certificates of deposit.
Lending Activities
The Association has historically concentrated lending activities on the
origination of loans secured by first mortgage liens for the purchase,
construction or refinancing of one- to four-family residential real property.
One- to four-family residential mortgage loans continue to be the major focus of
loan origination activities, representing $64.3 million or 75.9% of the total
loan portfolio at June 30, 2000. The Association also offers commercial real
estate loans, construction loans and consumer loans. Loans secured by commercial
real estate totaled approximately $7.7 million or 9.1% of the total loan
portfolio at June 30, 2000. Construction loans totaled approximately $6.2
million or 7.3% of total loans as of June 30,2000. Home improvement loans
totaled $4.1 million, or 4.9% of the total loan portfolio at June 30, 2000.
<PAGE>
Loan Portfolio Data. The following table sets forth the composition of loan
portfolio by loan type and security type as of the dates indicated, including a
reconciliation of gross loans receivable after consideration of the allowance
for loan losses and loans in process.
<TABLE>
<CAPTION>
At June 30,
---------------------------------------
2000 1999
----------------- ----------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Type of loan:
Real estate loans:
One- to four-family residential............... $64,346 75.9% $55,385 86.0%
Commercial.................................... 7,704 9.1 5,159 8.0
Construction.................................. 6,222 7.3 4,185 6.5
Home improvement loans........................ 4,130 4.9 1,534 2.4
------- ----- ------- ------
Total real estate loans...................... 82,401 97.2 66,263 102.9
Other loans:
Commercial.................................... 3,205 3.8 272 0.4
Consumer...................................... 2,596 3.1 279 0.4
Loans secured by deposits..................... 278 0.3 263 0.4
------- ----- ------- ------
Total other loans............................ 6,080 7.2 814 1.2
Total loans................................... 88,481 104.4 67,077 104.1
Less:
-----
Construction loans in process................. 2,947 3.5 2,018 3.1
Allowance for losses.......................... 555 0.6 444 0.7
Deferred loan origination fees, net of costs.. 221 0.3 204 0.3
------- ----- ------- ------
Total, net................................... 84,758 100.0% $64,411 100.0%%
======= ===== ======= ======
</TABLE>
The following table sets forth certain information at June 30, 2000,
regarding the dollar amount of loans maturing in the loan portfolio based on the
earlier of their contractual terms to maturity or their repricing. Demand loans
having no stated schedule of repayments and no stated maturity and overdrafts
are reported as due in one year or less. This schedule does not reflect the
effects of possible prepayments or enforcement of due-on-sale clauses. The
Association expects that prepayments will cause actual maturities to be shorter.
<TABLE>
<CAPTION>
At June 30, 2000
----------------------------------------------------------------
More Than More Than
1 Year 1 Year to 3 Years to More Than
or Less 3 Years 5 Years 5 Years Total
-------- ----------------- ---------- ----------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Real estate loans:
Adjustable.................. $28,191 $1,869 $3,076 $ 114 $33,250
Fixed....................... 1,284 1,509 2,078 36,854 41,725
------- ------ ------ ------- -------
Total real estate loans.. 29,475 3,378 5,154 36,968 74,975
Other loans................... 1,723 1,218 2,571 4,826 10,338
------- ------ ------ ------- -------
Total loans................. 31,198 4,596 7,725 41,794 85,313
Less:
Allowance for loan losses.... (222) (20) (21) (292) (555)
------- ------ ------ ------- -------
Total....................... $30,976 $4,576 $7,704 $41,502 $84,758
======= ====== ====== ======= =======
</TABLE>
As of June 30, 2000, the dollar amount of all loans due after one year that
have fixed interest rates was $40.4 million. None of the Association's loans
with floating or adjustable interest rates are shown as being due after one
year.
2
<PAGE>
One- to Four-Family Residential Loans. The Association's primary lending
activity consists of the origination of one- to four-family residential mortgage
loans secured by property located in the primary market area. The Association
generally originates one-to-four family residential mortgage loans in amounts up
to 95% of the lesser of the appraised value or purchase price, with private
mortgage insurance required on loans with a loan-to-value ratio in excess of
80%. The Association originates and retains fixed rate loans which provide for
the payment of principal and interest for up to an 18-year period.
The Association also offers adjustable-rate mortgage ("ARM") loans. Until
recently, the interest rate on ARM loans was indexed to the cost of funds index
("COFI"), which reacts to changes in market interest rates more slowly than
other indices. Now, the interest rate on the Association's ARM loans is indexed
to the one-year Treasury bill. A substantial portion of the ARM loans in the
portfolio at June 30, 2000 provide for maximum rate adjustments per year and
over the life of the loan of 1% and 5%, respectively. Residential ARMs are
amortized for terms up to 30 years.
ARM loans decrease the risk associated with changes in interest rates by
periodically repricing, but involve other risks because as interest rates
increase, the underlying payments by the borrower increase, thus increasing the
potential for default by the borrower. At the same time, the marketability of
the underlying collateral may be adversely affected by higher interest rates.
Upward adjustment of the contractual interest rate is also limited by the
maximum periodic and lifetime interest rate adjustment permitted by the loan
documents, and, therefore, is potentially limited in effectiveness during
periods of rapidly rising interest rates. At June 30, 2000, approximately 49.6%
of one- to four-family residential loans had adjustable rates of interest.
All of the one-to-four family residential mortgage loans that the
Association originate includes "due-on-sale" clauses, which give the Association
the right to declare a loan immediately due and payable in the event that, among
other things, the borrower sells or otherwise disposes of the real property
subject to the mortgage and the loan is not repaid. However, the Association
occasionally permit assumptions of existing residential mortgage loans on a
case-by-case basis.
At June 30, 2000, approximately $64.3 million, or 75.9% of the portfolio of
loans, consisted of one- to four-family residential loans. Approximately
$186,000, or .22% of total loans (which were comprised of six loans secured by
one- to four-family properties), were included in non-performing assets as of
that date.
Commercial Real Estate Loans. At June 30, 2000, $7.7 million, or 9.1% of
the total loan portfolio, consisted of commercial real estate loans. Commercial
real estate loans are secured by churches, office buildings, and other
commercial properties. The Association generally originates fixed rate
commercial real estate loans with maximum terms of 15 years. The Association
also will originate adjustable rate commercial real estate loans with terms of
up to 30 years. The interest rate on adjustable rate commercial real estate
loans is indexed to the one-year Treasury bill with maximum loan-to-value ratios
of 80%. At June 30, 2000, the largest commercial loan had a principal balance of
$541,000 and was secured by a funeral home. On June 30, 2000, there were no
commercial real estate loans included in nonperforming assets.
Loans secured by commercial real estate generally are larger than one- to
four-family residential loans and involve a greater degree of risk. Commercial
real estate loans often involve large loan balances to single borrowers or
groups of related borrowers. Payments on these loans depend to a large degree on
results of operations and management of the properties and may be affected to a
greater extent by adverse conditions in the real estate market or the economy in
general. Accordingly, the nature of the loans makes them more difficult for
management to monitor and evaluate.
Construction Loans. The Association offers construction loans with respect
to residential and commercial real estate and, in certain cases, to builders or
developers constructing such properties on a speculative basis (i.e., before the
builder/developer obtains a commitment from a buyer). Funds are disbursed to
borrowers upon the successful completion of particular stages of construction.
Typically, loans made to builders who do not have a
3
<PAGE>
commitment for the sale of the property under construction will be for a term of
no more than six months. Except for construction loans made on speculative
basis, upon the successful completion of construction the loan can be converted
into permanent financing. At June 30, 2000, $6.2 million, or 7.3% of the total
loan portfolio, consisted of construction loans. The largest construction loan
had a principal balance of $1.5 million on June 30, 2000 and was secured by an
apartment complex. None of the construction loans were included in non-
performing assets on that date.
Construction loans generally match the term of the construction contract
and are written with interest calculated on the amount disbursed under the loan.
The maximum loan-to-value ratio for a construction loan is based upon the nature
of the construction project. For example, a construction loan for a one-to four-
family residence may be written with a maximum loan-to-value ratio of 95% with
mortgage insurance. Inspections are made prior to any disbursement under a
construction loan.
While providing the Association with a comparable, and in some cases
higher, yield than a conventional mortgage loan, construction loans involve a
higher level of risk. For example, if a project is not completed and the
borrower defaults, the Association may have to hire another contractor to
complete the project at a higher cost. Also, a project may be completed, but may
not be salable, resulting in the borrower defaulting and taking the title to the
project.
Home Improvement Loans. At June 30, 2000, home improvement loans totaled
$4.1 million, or 4.9% of total loans. Home improvement loans are typically
secured by second mortgages on the secured property. At June 30, 2000, two home
improvement loans with an aggregate balance of $15,000 were included in non-
performing assets.
Origination, Purchase and Sale of Loans. The Association historically
originated mortgage loans pursuant to its own underwriting standards which did
not conform with the standard criteria of Freddie Mac or the FNMA because the
Association did not require current property surveys in most cases. Recently,
the Asociation began originating mortgage loans which conform to the standard
criteria of Freddie Mac and the FNMA, and thus can be sold in the secondary
market after origination.
The Association confines loan origination activities primarily to
Chesterfield County, Florence County, Marlboro County and the surrounding
counties. Loan originations are generated from referrals from existing
customers, real estate brokers, and advertising.
The Association's loan approval process is intended to assess the
borrower's ability to repay the loan, the viability of the loan and the adequacy
of the value of the property that will secure the loan. To assess the borrower's
ability to repay, the Association studies the employment and credit history and
information on the historical and projected income and expenses of its
mortgagors. All mortgage loans are approved by the loan committee.
The Association generally requires appraisals on all real property securing
loans and requiring an attorney's opinion and a valid lien on mortgaged real
estate. Appraisals for all real property securing mortgage loans are performed
by independent appraisers who are state-licensed. The Association requires fire
and extended coverage insurance in amounts at least equal to the principal
amount of the loan and also require flood insurance to protect the property
securing its interest if the property is in a flood plain. The Association also
generally requires private mortgage insurance for all residential mortgage loans
with loan-to-value ratios of greater than 80%. The Association requires escrow
accounts for insurance premiums and taxes for loans that require private
mortgage insurance. Mr. Watts and Mr. Long may approve loans up to $100,000.
The Association's Loan Committee may approve loans up to $250,000 and any loan
in excess of $250,000 must be approved by the Board of Directors.
Underwriting standards for home improvement loans are intended to protect
against some of the risks inherent in making home improvement loans. Borrower
paying habits and financial strengths are important considerations.
4
<PAGE>
The Association's one-to-four family residential loan originations during
the year ended June 30, 2000 totaled $13.3 million, compared to $17.4 million
during the year ended June 30, 1999.
Non Performing and Problem Assets
After a mortgage loan becomes 30 days past due, the Association delivers a
computer generated delinquency notice to the borrower. When loans become 60 days
past due, the Association sends additional delinquency notices and make personal
contact by letter or telephone with the borrower to establish acceptable
repayment schedules. When a mortgage loan is 90 days delinquent, the Association
will have either entered into a workout plan with the borrower or refer the
matter to the Association's attorney for collection. Management is authorized to
commence foreclosure proceedings for any loan upon making a determination that
it is prudent to do so.
The Association reviews mortgage loans on a regular basis and place such
loans on a non-accrual status when they are specifically determined to be
impaired or when they become 90 days delinquent. When loans are placed on a
non-accrual status, unpaid accrued interest is written off, and further income
is recognized only to the extent received.
Nonperforming Assets. At June 30, 2000, $208,000, or 0.25% of total assets,
were nonperforming (nonperforming loans and non-accruing loans). At June 30,
2000, loans secured by real estate accounted for $208,000 of non performing
assets. The Association had real estate owned ("REO") properties in the amount
of $22,000 as of June 30, 2000.
The table below sets forth the amounts and categories of nonperforming
assets (nonperforming loans and foreclosed real estate) for the last two years.
It is the Association's policy that all earned but uncollected interest on all
loans be reviewed monthly to determine if any portion thereof should be
classified as uncollectible for any loan past due in excess of 90 days.
Delinquent loans that are 90 days or more past due are considered nonperforming
assets. During the periods presented, the Association did not have any troubled
debt restructurings.
<TABLE>
<CAPTION>
At June 30,
------------
2000 1999
----- -----
(Dollars In Thousands)
<S> <C> <C>
Loans not accruing interest.............. $ 186 $ 271
Accruing loans 90 days or more past due.. -- --
Total nonperforming loans............... 186 271
Foreclosed real estate................... 22 33
----- -----
Total nonperforming assets............... $ 208 $ 304
===== =====
Nonperforming assets to total assets.... 0.20% 0.41%
===== =====
</TABLE>
Classified Assets. Federal regulations and the Association's asset
classification policy provide for the classification of loans and other assets
such as debt and equity securities considered by the OTS to be of lesser quality
as "substandard," "doubtful" or "loss" assets. An asset is considered
"substandard" if it is inadequately protected by the current net worth and
paying capacity of the obliger or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the institution will sustain "some loss" if the deficiencies are not
corrected. Assets classified as "doubtful" have all of the weaknesses inherent
in those classified "substandard," with the added characteristic that the
weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted.
An insured institution is required to establish general allowances for loan
losses in an amount deemed prudent by management for loans classified
substandard or doubtful, as well as for other problem loans. General allowances
5
<PAGE>
represent loss allowances which have been established to recognize the inherent
risk associated with lending activities, but which, unlike specific allowances,
have not been allocated to particular problem assets. When an insured
institution classifies problem assets as "loss," it is required either to
establish a specific allowance for losses equal to 100% of the amount of the
asset so classified or to charge off such amount. An institution's determination
as to the classification of its assets and the amount of its valuation
allowances is subject to review by the OTS which can order the establishment of
additional general or specific loss allowances.
At June 30, 2000, the aggregate amount of classified assets, and of general
and specific loss allowances, were as follows:
<TABLE>
<CAPTION>
Loan Loss
Amount Allowance
------ ---------
(In Thousands)
<S> <C> <C>
Classified loans receivable:
Substandard................... $399 $100
Doubtful...................... -- --
Loss.......................... -- --
General loss allowance........ -- 455
------ ----
Total......................... $399 $555
====== ====
</TABLE>
The Association regularly reviews the loan portfolio to determine whether
any loans require classification in accordance with applicable regulations. Not
all classified assets constitute non-performing assets.
Allowance for Loan Losses
The Association provides for loan losses on the allowance method.
Accordingly, all loan losses are charged to the related allowance and all
recoveries are credited to it. Additions to the allowance for loan losses are
provided by charges to operations based on various factors which, in
management's judgment, deserve current recognition in estimating possible
losses. Such factors considered by management include the market value of the
underlying collateral, growth and composition of the loan portfolio, the
relationship of the allowance for loan losses to outstanding loans, delinquency
trends, and economic conditions. The Association evaluates the carrying value
of loans periodically and the allowance is adjusted accordingly. While
management uses the best information available to make evaluations, future
adjustments to the allowance may be necessary if conditions differ substantially
from the assumptions used in making the evaluations.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Association's allowance for loan
losses. Such agencies may require the Association to recognize additions to the
allowance based on judgments of information available to them at the time of
examination.
6
<PAGE>
Summary of Loan Loss Experience. The following table analyzes changes in
the allowance during the fiscal years ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
At June 30,
----------------------
2000 1999
------- -------
(Dollars In Thousands)
<S> <C> <C>
Balance at beginning of period........................................... $ 444 $ 354
----- -----
Loans charged off:
Real estate............................................................. 10 6
Other................................................................... 7 -
----- -----
Total loans charged-off................................................ 17 6
Recoveries:
Real estate............................................................. - -
Other................................................................... - -
----- -----
Total recoveries....................................................... - -
----- -----
Net loans charged-off.................................................... 17 6
----- -----
Provision for loan losses................................................ 128 96
----- -----
Balance at end of period................................................. $ 555 $ 444
===== =====
Ratio of net charge-offs to average loans outstanding during the period.. 0.02% 0.01%
===== =====
</TABLE>
Allocation of Allowance for Loan Losses. The following table presents an
analysis of the allocation of allowance for loan losses at the dates indicated.
The allocation of the allowance to each category is not necessarily indicative
of future loss in any particular category and does not restrict the use of the
allowance to absorb losses in other categories.
<TABLE>
<CAPTION>
At June 30,
-------------------------------------------------------------------
2000 1999
--------------------------------- -------------------------------
Percent of Percent Percent of Percent
Amount of Allowance of Loans Amount of Allowance of Loans
Loan Loss to Total to Gross Loan Loss to Total to Gross
Allowance Allowance Loans Allowance Allowance Loans
----------- ---------- -------- --------- ---------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family residential... $ 233 41.99% 72.72% $ 257 57.89% 82.57%
Commercial........................ 77 13.87 8.71 51 11.49 7.69
Construction...................... 15 2.70 7.03 10 2.25 6.24
Home improvement loans............ 25 4.50 4.67 9 2.03 2.29
----- ------ ------ ----- ------ ------
Total real estate loans.......... 350 63.06 93.13 327 73.66 98.79
Other loans:
Commercial........................ 39 7.03 3.62 1 0.23 0.41
Consumer.......................... 14 2.52 2.93 1 0.23 0.41
Loans secured by deposits......... 1 0.18 0.32 1 0.23 0.39
Unallocated........................ 151 27.21 - 114 25.65 -
----- ------ ------ ----- ------ ------
Total allowance for loan losses.. $ 555 100.00% 100.00% $ 444 100.00% 100.00%
===== ====== ====== ===== ====== ======
</TABLE>
7
<PAGE>
Investments
The Company's investment portfolio consists of short-term U.S. Treasury and
federal agency securities, interest earning deposits in other financial
institutions, federal funds sold, and to a lesser extent mortgage back
securities, marketable equity securities and FHLB stock. At June 30, 2000,
approximately $13.8 million, or13.2%, of total assets consisted of such
investments. The Association had $6.2 million in interest-earning deposits and
$2.4 million in federal funds sold as of that date.
The following table sets forth the carrying value of the Company's
investment portfolio at the dates indicated.
At June 30,
---------------
2000 1999
------ ------
(In Thousands)
Securities available for sale:
Marketable equity securities.............. $ 405 $ 450
Securities held to maturity:
U.S. government and agency securities..... 4,700 3,600
Mortgage-backed securities................ 12 21
------- ------
Total securities held to maturity........ 4,712 3,621
Interest-earning balances in other banks.. 6,215 726
Federal Funds sold........................ 2,427 C
Federal Home Loan Bank Stock.............. 573 524
------- ------
Total investments........................ $13,759 $5,321
======= ======
At June 30, 2000, the market value of the Association's investment
securities held to maturity totaled $4.6 million.
8
<PAGE>
Sources of Funds
General. Deposits have traditionally been the primary source of funds for
use in lending and investment activities. In addition to deposits, the
Association derives funds from scheduled loan payments, investment maturities,
loan prepayments, retained earnings, income on earning assets and borrowings.
While scheduled loan payments and income on earning assets are relatively stable
sources of funds, deposit inflows and outflows can vary widely and are
influenced by prevailing interest rates, market conditions and levels of
competition. Borrowings from the FHLB of Atlanta may be used in the short-term
to compensate for reductions in deposits or deposit inflows at less than
projected levels.
Deposits. The Association attracts deposits principally from within
Chesterfield, Marlboro and Florence Counties through the offering of a selection
of deposit instruments, including passbook accounts, checking accounts, money
market accounts, fixed term certificates of deposit, individual retirement
accounts and savings accounts. The Association does not actively solicit or
advertise for deposits outside of Chesterfield, Marlboro and Florence Counties,
and substantially all of the depositors are residents of these Counties.
Deposit account terms vary, with the principal differences being the minimum
balance required, the amount of time the funds remain on deposit and the
interest rate. The Association does not pay broker fees for any deposits
received.
The Association establishes the interest rates paid, maturity terms,
service fees and withdrawal penalties on a periodic basis. Determination of
rates and terms are predicated on funds acquisition and liquidity requirements,
rates paid by competitors, growth goals, and applicable regulations. The
Association relies, in part, on customer service and long-standing relationships
with customers to attract and retain deposits. The Association also closely
prices deposits to the rates offered by competitors.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and other prevailing interest rates and
competition. The variety of deposit accounts offered has allowed the Association
to be competitive in obtaining funds and to respond with flexibility to changes
in consumer demand. The Association has become more susceptible to short-term
fluctuations in deposit flows as customers have become more interest rate
conscious. The Association manages the pricing of deposits in keeping with
asset/liability management and profitability objectives. Based on experience,
the Association believes that passbook and MMDAs are relatively stable sources
of deposits. However, the ability to attract and maintain certificates of
deposit, and the rates paid on these deposits, have been and will continue to be
significantly affected by market conditions. At June 30, 2000, 68.0% of deposit
accounts were certificate of deposit accounts, of which $37.6 million have
maturities of one year or less.
Total deposits at June 30, 2000 were approximately $70.3 million, compared
to approximately $41.3 million at June 30, 1999. Deposit base is somewhat
dependent upon the manufacturing sector of the Association=s market area.
Although the manufacturing sector in the Association=s market area is relatively
diversified and not significantly dependent upon any industry, a loss of a
material portion of the manufacturing workforce could adversely affect the
ability to attract deposits due to the loss of personal income attributable to
the lost manufacturing jobs and the attendant loss in service industry jobs.
In the unlikely event of the liquidation, all claims of creditors
(including those of deposit account holders, to the extent of their deposit
balances) would be paid first followed by distribution of the liquidation
account to certain deposit account holders, with any assets remaining thereafter
distributed to the Company as the sole shareholder of the Association.
Borrowings. The Association focuses on generating high quality loans and
then seek the best source of funding from deposits, investments or borrowings.
At June 30, 2000, the Association had borrowings of $7.0 million from the FHLB
of Atlanta. The Association is required to maintain eligible loans in its
portfolio of at least 17.0% of outstanding advances as collateral for advances
from the FHLB of Atlanta. The Association does not anticipate any difficulty in
obtaining advances appropriate to meet these requirements in the future.
9
<PAGE>
The following table sets forth the maximum month-end balance and average
balance of FHLB advances, for the periods indicated.
Year Ended June 30,
-------------------------
2000 1999
----------- ----------
Maximum Balance:
----------------
FHLB advances.................................... $10,200,000 $1,200,000
Average Balance:
----------------
FHLB advances.................................... $ 6,300,000 $ 92,000
The following table presents certain information relating to the maturities
of FHLB of Atlanta borrowings at or June 30, 2000.
Maturing during the year Balance At June 30,
ended June 30 Interest Rates 2000
------------------------ -------------- -------------------
2001 6.76% - 6.89% $7,000,000
2002 - -
Thereafter - -
Total 6.76% - 6.89% $7,000,000
Weighted average interest rate 6.84%
Additional Risk Factors
In addition to factors discussed in the description of the business of the
Company and Association and elsewhere in this report, the following are factors
that could adversely affect future results of operations and the financial
condition of the Company.
The Impact of Changes in Interest Rates
The Association=s ability to make a profit, like that of most financial
institutions, substantially depends upon net interest income, which is the
difference between the interest income earned on interest earning assets (such
as mortgage loans) and the interest expense paid on interest-bearing liabilities
(such as deposits). Approximately 53.3% of our real estate loans have rates of
interest which are fixed for the term of the loan ("fixed rate"), while deposit
accounts have significantly shorter terms to maturity than real estate loans.
Because interest-earning assets generally have fixed rates of interest and have
longer effective maturities than interest-bearing liabilities, the yield on the
Association=s interest earning assets generally will adjust more slowly to
changes in interest rates than the cost of its interest-bearing liabilities. The
slower adjustment of interest earning assets as compared to interest-bearing
liabilities results in First Federal having a "negative gap." At June 30, 2000,
our one year interest rate gap was negative 27.30%. As a result, our net
interest income will be adversely affected by material and prolonged increases
in interest rates. In addition, rising interest rates may adversely affect our
earnings because there might be a lack of customer demand for loans. Changes in
interest rates also can affect the average life of loans and mortgage-backed
securities.
Reliance on Certificate of Deposit Accounts
A significant percentage of our deposit accounts are certificates of
deposit rather than passbook or money market accounts. At June 30, 2000, $47.8
million, or 68.0% of our total deposits were certificate of deposit accounts.
$37.6 million of our certificates of deposit mature within one year.
Certificates of deposit can be a more interest rate sensitive source of funds
than passbook or money market accounts. In the event that interest rates
significantly increase, or if we
10
<PAGE>
do not offer competitive rates of interest on its certificates of deposit, the
Association may experience a significant decrease in its deposit accounts.
Competition
The Association experiences strong competition in its local market area in
originating loans, primarily from mortgage brokers. There is also significant
competition in attracting deposits, primarily from commercial banks, thrifts and
money center banks. Such competition may limit our growth in the future.
Geographic Concentration of our Loans
All of the Association=s real estate mortgage loans are secured by
properties located in South Carolina, mostly in Chesterfield, Marlboro and
Florence Counties. A weakening in the local real estate market or in the local
or national economy, or a reduction in the workforce at the manufacturing
facilities in the area could result in an increase in the number of borrowers
who default on their loans and a reduction in the value of the collateral
securing the loans, which would reduce our earnings.
Financial Institution Regulation and Future of the Thrift Industry
The Association and the Company are subject to extensive regulation,
supervision, and examination by the Office of Thrift Supervision ("OTS") and the
Federal Deposit Insurance Corporation (the 'FDIC"). Such regulation and
supervision govern the activities in which an institution can engage and are
intended primarily for the protection of the insurance fund and depositors.
Regulatory authorities have been granted extensive discretion in connection with
their supervisory and enforcement activities which are intended to strengthen
the financial condition of the banking and thrift industries, including the
imposition of restrictions on the operation of an institution, the
classification of assets by an institution and the adequacy of an institution's
allowance for loan losses. Any change in such regulation and oversight, whether
by the OTS, the FDIC or Congress, could have a material impact on the Company,
the Bank and their respective operations.
REGULATION
General
As a federally chartered, SAIF-insured savings association, the Association
is subject to extensive regulation by the OTS and the FDIC. For example, the
Association must obtain OTS approval before the Association may engage in
certain activities and must file reports with the OTS regarding activities and
financial condition. The OTS periodically examines the Association=s books and
records and, in conjunction with the FDIC in certain situations, has examination
and enforcement powers. This supervision and regulation are intended primarily
for the protection of depositors and federal deposit insurance funds. The
Association's semi-annual assessment owed to the OTS, which is based upon a
specified percentage of assets, is approximately $15,000.
The Association is also subject to federal and state regulation as to such
matters as loans to officers, directors, or principal shareholders, required
reserves, limitations as to the nature and amount of loans and investments,
regulatory approval of any merger or consolidation, issuance or retirements of
securities, and limitations upon other aspects of banking operations. In
addition, the Association's activities and operations are subject to a number of
additional detailed, complex and sometimes overlapping federal and state laws
and regulations. These include state usury and consumer credit laws, state laws
relating to fiduciaries, the Federal Truth-In-Lending Act and Regulation Z, the
Federal Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting
Act, the Community Reinvestment Act, anti-redlining legislation and antitrust
laws.
11
<PAGE>
Savings and Loan Holding Company Regulation
As the holding company for the Association, the Company is a Anon-
diversified savings and loan holding company" within the meaning of the Home
Owners' Loan Act, as amended ("HOLA"), and subject to regulatory oversight of
the Director of the OTS. As such, the Company is registered with the OTS and
thereby subject to OTS regulations, examinations, supervision and reporting
requirements. As a subsidiary of a savings and loan holding company, the
Association is subject to certain restrictions in its dealings with the Company
and with other companies affiliated with the Company.
In general, the HOLA prohibits a savings and loan holding company, without
prior approval of the Director of the OTS, from acquiring control of another
savings association or savings and loan holding company or retaining more than
5% of the voting shares of a savings association or of another holding company
which is not a subsidiary. The HOLA also restricts the ability of a director or
officer the Company, or any person who owns more than 25% of the Company's
stock, from acquiring control of another savings association or savings and loan
holding company without obtaining the prior approval of the Director of the OTS.
Notwithstanding the above rules as to permissible business activities of
unitary savings and loan holding companies, if the savings association
subsidiary of such a holding company fails to meet the Qualified Thrift Lender
("QTL") test, then such unitary holding company would become subject to the
activities restrictions applicable to multiple holding companies. (Additional
restrictions on securing advances from the FHLB also apply.) At June 30, 2000,
asset composition was in excess of that required to qualify the Association as a
Qualified Thrift Lender.
If the Company were to acquire control of another savings association other
than through a merger or other business combination with the Association, the
Company would thereupon become a multiple savings and loan holding company.
Except where such acquisition is pursuant to the authority to approve emergency
thrift acquisitions and where each subsidiary savings association meets the QTL
test, the activities of the Company and any of its subsidiaries (other than the
Association or other subsidiary savings associations) would thereafter be
subject to further restrictions. The HOLA provides that, among other things, no
multiple savings and loan holding company or subsidiary thereof which is not a
savings association shall commence or continue for a limited period of time
after becoming a multiple savings and loan holding company or subsidiary
thereof, any business activity other than (i) furnishing or performing
management services for a subsidiary savings association, (ii) conducting an
insurance agency or escrow business, (iii) holding, managing, or liquidating
assets owned by or acquired from a subsidiary savings association, (iv) holding
or managing properties used or occupied by a subsidiary savings association, (v)
acting as trustee under deeds of trust, (vi) those activities previously
directly authorized by the Federal Savings and Loan Insurance Corporation
("FSLIC") by regulation as of March 5, 1987, to be engaged in by multiple
holding companies, or (vii) those activities authorized by the Board of
Governors of the Federal Reserve System (the "FRS") as permissible for bank
holding companies, unless the Director of the OTS by regulation prohibits or
limits such activities for savings and loan holding companies. Those activities
described in (vii) above must also be approved by the Director of the OTS before
a multiple holding company may engage in such activities.
The Director of the OTS may also approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
associations in more than one state, if the multiple savings and loan holding
company involved controls a savings association which operated a home or branch
office in the state of the association to be acquired as of March 5,1987, or if
the laws of the state in which the association to be acquired is located
specifically permit associations to be acquired by state-chartered associations
or savings and loan holding companies located in the state where the acquiring
entity is located (or by a holding company that controls such state-chartered
savings associations). Also, the Director of the OTS may approve an acquisition
resulting in a multiple savings and loan holding company controlling savings
associations in more than one state in the case of certain emergency thrift
acquisitions.
No subsidiary savings association of a savings and loan holding company may
declare or pay a dividend on its permanent or nonwithdrawable stock unless it
first gives the Director of the OTS 30 days advance notice of such declaration
and payment. Any dividend declared during such period or without giving notice
shall be invalid.
12
<PAGE>
Federal Home Loan Bank System
The Association is a member of the FHLB of Atlanta, which is one of twelve
regional FHLBs. Each FHLB serves as a reserve or central bank for its members
within its assigned region. It is funded primarily from funds deposited by
savings associations and proceeds derived from the sale of consolidated
obligations of the FHLB system. It makes loans to members (AFHLB advances@) in
accordance with policies and procedures established by the Board of Directors of
the FHLB. All FHLB advances must be fully secured by sufficient collateral as
determined by the FHLB. The Federal Housing Finance Board ("FHFB"), an
independent agency, controls the FHLB System, including the FHLB of Atlanta.
As a member, the Association is required to purchase and maintain stock in
the FHLB of Atlanta in an amount equal to at least 1% of the aggregate unpaid
residential mortgage loans, home purchase contracts, or similar obligations at
the beginning of each year. At June 30, 2000, investment in stock of the FHLB of
Atlanta was $573,100. The FHLB imposes various limitations on advances such as
limiting the amount of certain types of real estate-related collateral to 30% of
a member's capital and limiting total advances to a member. Interest rates
charged for advances vary depending upon maturity, the cost of funds to the FHLB
of Atlanta and the purpose of the borrowing.
The FHLBs are required to provide funds for the resolution of troubled
savings associations and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future. For the fiscal year ended June 30, 2000, dividends paid by the
FHLB of Atlanta to the Association totaled approximately $42,000, for an annual
rate of 7.3%.
Insurance of Deposits
Deposit Insurance. The FDIC is an independent federal agency that insures
savings institution deposits up to applicable limits, of banks and thrifts and
safeguards the safety and soundness of the banking and thrift industries. The
FDIC administers two separate insurance funds, the BIF for commercial banks and
state savings banks and the SAIF for savings associations such as the
Association and banks that have acquired deposits from savings associations. The
FDIC is required to maintain designated levels of reserves in each fund.
Assessments. The FDIC is authorized to establish separate annual assessment
rates for deposit insurance for members of the BIF and members of the SAIF. The
FDIC may increase assessment rates for either fund if necessary to restore the
fund's ratio of reserves to insured deposits to the target level within a
reasonable time, and may decrease these rates if the target level has been met.
The FDIC has established a risk-based assessment system for both SAIF and BIF
members. Under this system, assessments vary depending on the risk the
institution poses to its deposit insurance fund. An institution's risk level is
determined based on its capital levels, and the FDIC's level of supervisory
concern about the institution.
In addition to the assessment for deposit insurance, institutions are
required to make payments on bonds issued in the late 1980s by the Financing
Corporation to recapitalize the predecessor to the SAIF. During 1999, payments
for SAIF members approximated 6.1 basis points, while BIF members paid 1.2 basis
points. Since January 1, 2000, there has been equal sharing of Financing
Corporation payments between members of both insurance funds.
Savings Association Regulatory Capital
Currently, savings associations are subject to three separate minimum
capital-to-assets requirements: (i) a leverage limit, (ii) a tangible capital
requirement, and (iii) a risk-based capital requirement. The leverage limit
requires that savings associations maintain "core capital" of at least 3% of
total assets. However, to be considered "Adequately Capitalized", a savings
institution must maintain a 4.0% leverage capital ratio. Core capital is
generally defined as common shareholders' equity (including retained income),
noncummulative perpetual preferred stock and related surplus, certain minority
equity interests in subsidiaries, qualifying supervisory goodwill, purchased
mortgage servicing rights and
13
<PAGE>
purchased credit card relationships (subject to certain limits) less
nonqualifying intangibles. Under the tangible capital requirement, a savings
association must maintain tangible capital (core capital less all intangible
assets except purchased mortgage servicing rights which may be included after
making the above-noted adjustment in an amount up to 100% of tangible capital)
of at least 1.5% of total assets. Under the risk-based capital requirements, a
minimum amount of capital must be maintained by a savings association to account
for the relative risks inherent in the type and amount of assets held by the
savings association. The risk-based capital requirement requires a savings
association to maintain capital (defined generally for these purposes as core
capital plus general valuation allowances and permanent or maturing capital
instruments such as preferred stock and subordinated debt less assets required
to be deducted) equal to 8.0% of risk-weighted assets. Assets are ranked as to
risk in one of four categories (0-100%). A credit risk-free asset, such as cash,
requires no risk-based capital, while an asset with a significant credit risk,
such as a non-accrual loan, requires a risk factor of 100%. Moreover, a savings
association must deduct from capital, for purposes of meeting the core capital,
tangible capital and risk-based capital requirements, its entire investment in
and loans to a subsidiary engaged in activities not permissible for a national
bank (other than exclusively agency activities for its customers or mortgage
banking subsidiaries). At June 30, 1999, the Association was in compliance with
all capital requirements imposed by law.
The OTS has promulgated a rule which sets forth the methodology for
calculating an interest rate risk component to be used by savings associations
in calculating regulatory capital. The OTS has delayed the implementation of
this rule, however. The rule requires savings associations with "above normal"
interest rate risk (institutions whose portfolio equity would decline in value
by more than 2% of assets in the event of a hypothetical 200-basis-point move in
interest rates) to maintain additional capital for interest rate risk under the
risk-based capital framework. If the OTS were to implement this regulation, the
Association would be exempt from its provisions because the Association has less
than $300 million in assets and its risk-based capital ratio exceeds 12%. The
Association nevertheless measures interest rate risk in conformity with the OTS
regulation.
If an association is not in compliance with the capital requirements, the
OTS is required to prohibit asset growth and to impose a capital directive that
may restrict, among other things, the payment of dividends and officers
compensation. In addition, the OTS and the FDIC generally are authorized to take
enforcement actions against a savings association that fails to meet its capital
requirements. These actions may include restricting the operating activities of
the association, imposing a capital directive, cease and desist order, or civil
money penalties, or imposing harsher measures such as appointing a receiver or
conservator or forcing the association to merge into another institution.
Prompt Corrective Regulatory Action
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") requires, among other things, that federal bank regulatory
authorities take "prompt corrective action" with respect to institutions that do
not meet minimum capital requirements. For these purposes, FDICIA establishes
five capital tiers: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized. At June 30,
2000, the Association was categorized as "well capitalized," meaning that total
risk-based capital ratio exceeded 10%, Tier I risk-based capital ratio exceeded
6%, leverage ratio exceeded 5%, and the Association was not subject to a
regulatory order, agreement or directive to meet and maintain a specific capital
level for any capital measure.
The FDIC may order savings associations which have insufficient capital to
take corrective actions. For example, a savings association which is categorized
as "undercapitalized" would be subject to growth limitations and would be
required to submit a capital restoration plan, and a holding company that
controls such a savings association would be required to guarantee that the
savings association complies with the restoration plan. "Significantly
undercapitalized" savings associations would be subject to additional
restrictions. Savings associations deemed by the FDIC to be "critically
undercapitalized" would be subject to the appointment of a receiver or
conservator.
Dividend Limitations
An OTS regulation imposes limitations upon all "capital distributions" by
savings associations, including cash dividends, payments by an association to
repurchase or otherwise acquire its shares, payments to shareholders of another
14
<PAGE>
institution in a cash-out merger and other distributions charged against
capital. A Awell-capitalized@ institution can, after prior notice but without
prior approval from the OTS, make capital distributions during a calendar year
in an amount of up to 100 percent of its net income during the calendar year,
plus its retained net income for the proceeding two years. As of June 30, 2000,
the Association was a Awell-capitalized@ institution.
Loans to One Borrower
Under OTS regulations, the Association may not make a loan or extend credit
to a single or related group of borrowers in excess of 15% of its unimpaired
capital and surplus. Additional amounts may be loaned to, not in excess of 10%
of unimpaired capital and surplus, if such loans or extensions of credit are
fully secured by readily marketable collateral, including certain debt and
equity securities but not including real estate. In some cases, a savings
association may lend up to 30 percent of unimpaired capital and surplus to one
borrower for purposes of developing domestic residential housing, provided that
the association meets its regulatory capital requirements and the OTS authorizes
the association to use this expanded lending authority. At June 30, 2000, the
Association did not have any loans or extensions of credit to a single or
related group of borrowers in excess of its lending limits. The Association does
not believe that the loans-to-one-borrower limits will have a significant impact
on business operations or earnings.
Qualified Thrift Lender
The HOLA requires savings institutions to be qualified thrift lenders
("QTL"). To be a QTL, the Bank can either satisfy the QTL test, or the Domestic
Building and Loan Association ("DBLA") Test of the Code. Under the QTL test, a
savings bank is required to maintain at least 65% of its "portfolio assets"
(total assets less (i) specified liquid assets up to 20% of total assets, (ii)
intangibles, including goodwill, and (iii) the value of property used to conduct
business) in certain "qualified thrift investments," primarily residential
mortgages and related investments, including certain mortgage-backed and related
securities on a monthly basis in 9 out of every 12 months. Under the DBLA test,
an institution must meet a "business operations test" and a "60% of assets
test." The business operations test requires the business of a DBLA to consist
primarily of acquiring the savings of the public and investing in loans. An
institution meets the public savings requirements when it meets one of two
conditions: (i) the institution acquires its savings in conformity with OTS
rules and regulations; or (ii) the general public holds more than 75% of its
deposits, withdrawable shares, and other obligations. The general public may
not include family or related business groups or persons who are officers or
directors of the institution.
The 60% of assets test requires that at least 60% of a DBLA=s assets must
consist of assets that thrifts normally hold, except for consumer loans that are
not educational loans. The DBLA test does not include, as the QTL test does to
a limited or optional extent, mortgage loans originated and sold into the
secondary market and subsidiary investments. A savings bank that fails to be a
QTL must either convert to a bank charter or operate under certain restrictions.
As of June 30, 2000, the Association was in compliance with its QTL requirement,
with approximately 79.3% of assets invested in QTIs.
Acquisitions and Branching
The Bank Holding Company Act specifically authorizes a bank holding
company, upon receipt of appropriate regulatory approvals, to acquire control of
any savings association or holding company thereof wherever located. Similarly,
a savings and loan holding company may acquire control of a bank. Moreover,
federal savings associations may acquire or be acquired by any insured
depository institution. Regulations promulgated by the FRB restrict the
branching authority of savings associations acquired by bank holding companies.
Savings associations acquired by bank holding companies may be converted to
banks if they continue to pay SAIF premiums, but as such they become subject to
branching and activity restrictions applicable to banks.
Subject to certain exceptions, commonly-controlled banks and savings
associations must reimburse the FDIC for any losses suffered in connection with
a failed bank or savings association affiliate. Institutions are commonly
controlled
15
<PAGE>
if one is owned by another or if both are owned by the same holding company.
Such claims by the FDIC under this provision are subordinate to claims of
depositors, secured creditors, and holders of subordinated debt, other than
affiliates.
The OTS has adopted regulations which permit nationwide branching to the
extent permitted by federal statute. Federal statutes permit federal savings
associations to branch outside of their home state if the association meets the
domestic building and loan test in '7701(a)(19) of the Code or the asset
composition test of '7701(c) of the Code. Branching that would result in the
formation of a multiple savings and loan holding company controlling savings
associations in more than one state is permitted if the law of the state in
which the savings association to be acquired is located specifically authorizes
acquisitions of its state-chartered associations by state-chartered associations
or their holding companies in the state where the acquiring association or
holding company is located.
Finally, The Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Riegle-Neal Act") permits bank holding companies to acquire banks in
other states and, with state consent and subject to certain limitations, allows
banks to acquire out-of-state branches either through merger or de novo
expansion.
Transactions with Affiliates
The Association is subject to Sections 22(h), 23A and 23B of the Federal
Reserve Act, which restrict financial transactions between banks and affiliated
companies. The statute limits credit transactions between a bank or savings
association and its executive officers and its affiliates, prescribes terms and
conditions for bank affiliate transactions deemed to be consistent with safe and
sound banking practices, and restricts the types of collateral security
permitted in connection with a bank's extension of credit to an affiliate.
Federal Securities Law
The shares of common stock of the Company is registered with the Securities
and Exchange Commission (ASEC@) under the Securities Exchange Act of 1934, as
amended (the "1934 Act"). The Company is subject to the information, proxy
solicitation, insider trading restrictions and other requirements the 1934 Act
and the rules of the SEC thereunder. After three years following the conversion
to stock form, if the Company has fewer than 300 shareholders, it may deregister
its shares under the 1934 Act and cease to be subject to the foregoing
requirements.
Community Reinvestment Act Matters
Federal law requires that ratings of depository institutions under the
Community Reinvestment Act of 1977 ("CRA") be disclosed. The disclosure includes
both a four-unit descriptive ratingCoutstanding, satisfactory, needs to improve,
and substantial noncomplianceCand a written evaluation of an institution's
performance. Each FHLB is required to establish standards of community
investment or service that its members must maintain for continued access to
long-term advances from the FHLBs. The standards take into account a member's
performance under the CRA and its record of lending to first time home buyers.
The OTS has designated the Association=s record of meeting community credit
needs as "satisfactory."
16
<PAGE>
Item 2. Properties
-------------------
(a) The Company currently conducts its business through 2 full service
banking offices. The following table sets forth the Company's offices as of June
30, 2000:
Original
Leased Year
or Leased or Date of Lease
Location Owned Acquired Expiration
-------- ----- --------- -------------
515 Market Street Owned 1981 -
Cheraw, South Carolina 29520
1385 Alice Drive Leased 2000 October 2010
Florence, South Carolina
Item 3. Legal Proceedings
------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
------------------------------------------------------------------------------
Information included in Great Pee Dee Bancorp, Inc.=s 2000 Annual Report to
Shareholders is herein incorporated by reference.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
--------------------------------------------------------------------------------
of Operations
-------------
Information included in Great Pee Dee Bancorp, Inc.'s 2000 Annual Report to
Shareholders is herein
incorporated by reference.
Item 7. Financial Statements
-----------------------------
Information included in Great Pee Dee Bancorp, Inc.'s 2000 Annual Report to
Shareholders is herein incorporated by reference.
Item 8. Changes in and Disagreements with Accountants on Accounting and
------------------------------------------------------------------------
Financial Disclosure
--------------------
Not applicable.
17
<PAGE>
PART III
Item 9. Directors and Officers of the Registrant
-------------------------------------------------
Information included in Great Pee Dee Bancorp, Inc.'s Proxy Statement for
its 2000 Annual Meeting of Shareholders is incorporated herein by reference.
Item 10. Executive Compensation
--------------------------------
Information included in Great Pee Dee Bancorp, Inc.'s Proxy Statement for
its 2000 Annual Meeting of Shareholders is incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------
Information included in Great Pee Dee Bancorp, Inc.'s Proxy Statement for
its 2000 Annual Meeting of Shareholders is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions
--------------------------------------------------------
Information included in Great Pee Dee Bancorp, Inc.'s Proxy Statement for
its 2000 Annual Meeting of Shareholders is incorporated herein by reference.
PART IV
Item 13. Exhibits and Reports on Form 8-K
------------------------------------------
(a) The following documents appear in sections of the Registrants 2000
Annual Report to Shareholders under the same caption, and are
incorporated herein by reference. No other sections of the 2000 Annual
Report to Shareholders are incorporated herein by this reference.
(1) Report to Shareholders
(2) Selected Financial and Other Data
(3) Managements Discussion and Analysis of Financial Condition and Results
of Operations
(4) Independent Auditors' Report
(5) Consolidated Financial Statements
(i) Consolidated Statements of Financial Condition
(ii) Consolidated Statements of Operations
(iii) Consolidated Statements of Stockholders= Equity
(iv) Consolidated Statements of Cash Flows
(v) Notes to Consolidated Financial Statements
(6) Corporate Information
(b) The following exhibits are filed as part of this report.
3.1 Certificate of Incorporation of Great Pee Dee Bancorp, Inc.*
3.2 Bylaws of Great Pee Dee Bancorp, Inc.*
4.0 Stock Certificate of Great Pee Dee Bancorp, Inc.*
10.1 Employee Agreement for Herbert W. Watts*
10.2 Great Pee Dee Bancorp, Inc. Employee Stock Ownership Plan and Trust**
13.1 Great Pee Dee Bancorp, Inc. 2000 Annual Report to Shareholders
23.2 Consent of Dixon, Odom PLLC
27.1 EDGAR Financial Data Schedule
18
<PAGE>
(c) Reports on Form 8-K
None
* Incorporated herein by reference into this document from the Exhibits to
Form SB-2 Registration Statement, initially filed on September 26, 1997,
Registration No. 333-36489.
19
<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.
GREAT PEE DEE BANCORP, INC.
Date: September 22, 2000 By: \s\ Herbert W. Watts
--------------------
Herbert W. Watts
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
By: \s\ Herbert W. Watts By: \s\ Johnnie L. Craft
-------------------- --------------------
Herbert W. Watts, President, Chief Johnnie L. Craft, Secretary and
Executive Officer and Director Treasurer
(Principal Executive Officer) (Principal Financial and Accounting Officer)
Date: September 22, 2000 Date: September 22, 2000
By: \s\ Robert M. Bennett By: \s\ William R. Butler
--------------------- ---------------------
Robert M. Bennett, Chairman of the Board William R. Butler, Director
Date: September 22, 2000 Date: September 22, 2000
By: \s\ James C. Crawford, III By: \s\ Henry P. Duvall, IV
-------------------------- -----------------------
James C. Crawford, III, Director Henry P. Duvall, IV, Director
Date: September 22, 2000 Date: September 22, 2000
By: \s\ John S. Long By: \s\ Cornelius B. Young
---------------- ----------------------
John S. Long, Director, Vice President and Cornelius B. Young, Director
Chief Operating Officer
Date: September 22, 2000 Date: September 22, 2000
</TABLE>
20
