SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999 Commission File Number 29640
COMMUNITY FIRST BANCORPORATION
(Name of Small Business Issuer in its Charter)
South Carolina 58-2322486
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
3685 Blue Ridge Boulevard, Walhalla, South Carolina 29691
(Address of Principal Executive Office, Zip Code)
Issuer's Telephone Number, Including Area Code: (864) 638-2105
Securities Registered Under Section 12(b) of the Act:
None
(Title of Class)
Securities Registered Under Section 12(g) of the Act:
Common Stock (no par value)
(Title of Class)
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 in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for the most recent fiscal year. $11,063,914
The aggregate market value of the voting and non-voting common equity
held by non-affiliates on March 1, 2000, was approximately $26,783,290. As of
March 1, 2000, there were 2,003,496 shares of the Registrant's Common Stock, no
par value, outstanding. For purposes of the foregoing calculation only, all
directors and executive officers of the Registrant have been deemed affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Annual Report to the Shareholders for the year ended
December 31, 1999 - Parts I and II
(2) Portions of the Registrant's Proxy Statement for the 2000 Annual
Meeting of Shareholders - Part III
Transitional Small Business Disclosure Format.
Yes __ No X
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10-KSB CROSS REFERENCE INDEX
Part I Page
Item 1 Description of Business ........................................ 1
Item 2 Description of Property ........................................ 8
Item 3 Legal Proceedings .............................................. 9
Item 4 Submission of Matters to a Vote of Security Holders ............ 9
Part II
Item 5 Market for Common Equity and Related Stockholder Matters ....... 9
Item 6 Management's Discussion and Analysis or Plan of Operation ...... 9
Item 7 Financial Statements ........................................... 9
Item 8 Changes In and Disagreements with Accountants ..................
on Accounting and Financial Disclosure ....................... 9
Part III
Item 9 Directors and Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) of the Exchange Act ..... *
Item 10 Executive Compensation ......................................... *
Item 11 Security Ownership of Certain Beneficial Owners and Management . *
Item 12 Certain Relationships and Related Transactions ................. *
Part IV
Item 13 Exhibits and Reports on Form 8-K .............................. 10
* Incorporated by reference to the Registrant's Proxy Statement for the 2000
Annual Meeting of Shareholders
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PART I
This Annual Report on Form 10-KSB contains forward-looking statements
as defined by the Private Securities Litigation Reform Act of 1995.
Forward-looking statements should be read with the cautionary statements and
important factors included in this Form 10-KSB. (See Item 6. - Management's
Discussion and Analysis of Financial Condition and Results of Operations, Safe
Harbor for Forward-Looking Statements.) Forward-looking statements include
statements concerning plans, objectives, goals, strategies, future events or
performance and underlying assumptions and other statements which are other than
statements of historical facts. Such forward- looking statements may be
identified, without limitation, by the use of the words "anticipates,"
"estimates," "expects," "intends," "plans," "predicts," "projects," and similar
expressions. The Company's expectations, beliefs and projections are expressed
in good faith and are believed by the Company to have a reasonable basis,
including without limitation, management's examination of historical operating
trends, data contained in the Company's records and other data available from
third parties, but there can be no assurance that management's expectations,
beliefs or projections will result or be achieved or accomplished.
Item 1. Description of Business
FORM OF ORGANIZATION
Community First Bancorporation (the "Company") is a South Carolina
corporation and a bank holding company incorporated on May 23, 1997. The Company
commenced operations on October 16, 1997, upon effectiveness of the acquisition
of Community First Bank (the "Bank") as a wholly owned subsidiary. The principal
business of the Company is ownership and operation of the Bank.
BUSINESS OF BANKING
General
The Bank is a South Carolina state bank which was incorporated in
December, 1988, and commenced operations as a commercial bank in March, 1990.
The Bank operates from its offices in Walhalla, Seneca and Anderson, South
Carolina. The main office is located at 3685 Blue Ridge Boulevard, in Walhalla,
South Carolina; the Seneca office is located at 1600 Sandifer Boulevard in
Seneca, South Carolina; and the Anderson office is located at 4002 Clemson
Boulevard in Anderson, South Carolina. The Bank also plans to open an office
later in 2000 at 208 East Main Street in Williamston, South Carolina.
Services and Products Offered
The Bank offers a full array of commercial bank services. Deposit
services include business and personal checking accounts, NOW accounts, savings
accounts, money market accounts, various term certificates of deposit, IRA
accounts, and other deposit services. Most of the Bank's deposits are attracted
from individuals and small businesses. The Bank does not offer trust services,
and does not accept brokered deposits.
The Bank offers secured and unsecured, short-to-intermediate term
loans, with floating and fixed interest rates for commercial and consumer
purposes. Consumer loans include generally car loans, home equity improvement
loans (secured by first and second mortgages), personal expenditure loans,
education loans, and overdraft lines of credit. Commercial loans include
generally short term unsecured loans, short and intermediate term real estate
mortgage loans, loans secured by listed stocks, loans secured by equipment
inventory, and accounts receivable. Management believes that the credit staff
possesses knowledge of the community and lending skills sufficient to enable the
Bank to maintain a sufficient volume of high quality loans.
Management of the Bank believes that the loan portfolio is adequately
diversified. There are no significant concentrations of loans in any particular
individuals, industries or groups of related individuals or industries and the
Bank has no foreign loans. The loan portfolio consists primarily of extensions
of credit to businesses and individuals in its service areas within Oconee and
Anderson Counties of South Carolina. The economy of this area is diversified and
does not depend on any one industry or group of related industries. Management
has established loan policies and practices that include set limitations on
loan-to-collateral value for different types of collateral, requirements for
appraisals, obtaining and maintaining current credit and financial information
on borrowers, and credit approvals.
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Other services offered by the Bank include residential mortgage loan
origination services, safe deposit boxes, night depository service, VISA and
MasterCard charge cards, tax deposits, sale of U.S. Treasury bonds, notes and
bills and other U.S. government securities (through a correspondent), travelers
checks, and twenty-four hour automated teller service. The ATM is part of the
Cirrus network.
As of December 31, 1999, local governmental deposits comprised
approximately 27% of the Bank's total deposits. These deposits are concentrated
among a few local governmental entities and are somewhat volatile. Management of
the Bank has, however, taken steps that it believes are sufficient to minimize
to the greatest extent possible the impact of such volatibility on the Bank's
liquidity position, including maintaining membership in the Federal Home Loan
Bank of Atlanta in order to gain access to its credit programs.
Employees
At December 31, 1999, the Company employed 42 people.
Competition
The banking laws of South Carolina allow statewide branching, and,
therefore, commercial banking in the state is highly competitive. South Carolina
law also permits bank holding companies in other states with reciprocal laws to
acquire depository institutions in South Carolina, and most of the other
financial institutions in the Oconee County area are branch offices of large,
regional banks. Further, Congress has enacted the Riegle-Neal Interstate Banking
and Branching Efficiency Act of 1994, which has increased the ability of bank
holding companies and banks to operate across state lines.
Banks generally compete with other financial institutions through the
banking services and products offered, the pricing of services, the level of
service provided, the convenience and availability of services, and the degree
of expertise and personal concern with which services are offered. The Bank
encounters strong competition from most of the financial institutions in the
Bank's market areas, which generally encompass Oconee County and the immediately
surrounding area and Anderson County and the immediately surrounding area. The
Bank's primary competitors in its Oconee County market area are thirteen other
banks and branches of banks and six savings and loan associations and branches
and one credit union branch. The Bank's primary competitors in its Anderson
County market area are twenty-six banks and branches of banks, five savings
institution branches and seven credit union branches. Additionally, in the
conduct of certain banking business, the Bank also competes with credit unions,
consumer finance companies, insurance companies, money market mutual funds, and
other financial institutions, some of which are not subject to the same degree
of regulation and restrictions imposed upon the Bank. Many of these competitors
have substantially greater resources and lending limits than the Bank and offer
certain services, such as international banking and trust services, that the
Bank does not provide. The Bank believes, however, that its relatively small
size permits it to offer more personalized services than many of its
competitors. The Bank attempts to compensate for its lower lending limits by
participating larger loans with other institutions.
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EFFECT OF GOVERNMENT REGULATION
Bank holding companies and banks are extensively regulated under
federal and state law. To the extent that the following information describes
statutory and regulatory provisions, it is qualified in its entirety by
reference to such statutes and regulations. Any change in applicable law or
regulation may have a material effect on the business of the Holding Company and
the Bank.
General
As a bank holding company registered under the Bank Holding Company Act
("BHCA"), the Company is subject to supervision, and to regular inspection by
the Federal Reserve. The Company is also subject to regulation by the State
Board. The Bank is a state bank subject to regulation by the State Board and the
FDIC. The following discussion summarizes certain aspects of those laws and
regulations that affect the Company and the Bank. Proposals to change the laws
and regulations governing the banking industry are frequently raised in
Congress, the state legislature and before the various bank regulatory agencies.
The likelihood and timing of any changes and the impact such changes might have
on the Company and the Bank are difficult to determine.
As discussed below under the caption "Recent Legislation", Congress has
recently adopted extensive changes in the laws governing the financial services
industry. Among the changes adopted are creation of the financial holding
company, a new type of bank holding company with powers that greatly exceed
those of standard holding companies, and creation of the financial subsidiary, a
subsidiary that can be used by national banks to engage in many, though not all,
of the same activities in which a financial holding company may engage. The
legislation also establishes the concept of functional regulation whereby the
various financial activities in which financial institutions engage are overseen
by the regulator with the relevant regulatory experience. Neither the Company
nor the Bank has yet made a decision as to how to adapt the new legislation to
its use. Accordingly, the following discussion relates to the supervisory and
regulatory provisions that apply to the Company and the Bank as they currently
operate.
Under the BHCA, the Company's activities and those of its subsidiaries
are limited to banking, managing or controlling banks, furnishing services to or
performing services for its subsidiaries or engaging in any other activity which
the Federal Reserve determines to be so closely related to banking or managing
or controlling banks as to be a proper incident thereto. The BHCA prohibits the
Company from acquiring direct or indirect control of more than 5% of the
outstanding voting stock or substantially all of the assets of any bank or from
merging or consolidating with another bank holding company without prior
approval of the Federal Reserve. In making such determinations, the Federal
Reserve is required to consider whether the performance of such activities by a
bank holding company or its subsidiaries can reasonably be expected to produce
benefits to the public such as greater convenience, increased competition or
gains in efficiency that outweigh possible adverse effects, such as undue
concentration of resources, decreased or unfair competition, conflicts of
interest or unsound banking practices.
Additionally, the BHCA prohibits the Company from engaging in, or from
acquiring ownership or control of more than 5% of the outstanding voting stock
of any company engaged in, a non-banking business unless such business is
determined by the Federal Reserve to be so closely related to banking as to be
properly incident thereto.
As discussed below under "Recent Legislation", a bank holding company
that meets certain requirements may now qualify as a financial holding company
and thereby significantly increase the variety of services it may provide and
the investments it may make.
In addition to regulation by the Federal Reserve under the BHCA, the
Company is also subject to supervision and regulation by the State Board. The
Company must provide the State Board with information with respect to its
financial condition, operations, management, and inter-company relationships of
the Company and its subsidiaries. The State Board may also require such other
information as is necessary to keep itself informed about whether the provisions
of South Carolina law and the regulations and orders issued thereunder by the
State Board have been complied with, and the State Board may make examinations
of the Company and its subsidiaries.
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Obligations of the Company to its Subsidiary Bank
A number of obligations and restrictions are imposed on bank holding
companies and their depository institution subsidiaries by Federal law and
regulatory policy that are designed to reduce potential loss exposure to the
depositors of such depository institutions and to the FDIC insurance funds in
the event the depository institution is in danger of becoming insolvent or is
insolvent. For example, under the policy of the Federal Reserve with respect to
bank holding company operations, a bank holding company is required to serve as
a source of financial strength to its subsidiary depository institutions and to
commit resources to support such institutions in circumstances where it might
not do so absent such policy. In addition, the "cross-guarantee" provisions of
the Federal Deposit Insurance Act, as amended ("FDIA"), require insured
depository institutions under common control to reimburse the FDIC for any loss
suffered or reasonably anticipated by either the Savings Association Insurance
Fund ("SAIF") or the Bank Insurance Fund ("BIF") of the FDIC as a result of the
default of a commonly controlled insured depository institution or for any
assistance provided by the FDIC to a commonly controlled insured depository
institution in danger of default. The FDIC may decline to enforce the
cross-guarantee provisions if it determines that a waiver is in the best
interest of the SAIF or the BIF or both. The FDIC's claim for damages is
superior to claims of stockholders of the insured depository institution or its
holding company but is subordinate to claims of depositors, secured creditors
and holders of subordinated debt (other than affiliates) of the commonly
controlled insured depository institutions.
The FDIA also provides that amounts received from the liquidation or
other resolution of any insured depository institution by any receiver must be
distributed (after payment of secured claims) to pay the deposit liabilities of
the institution prior to payment of any other general or unsecured senior
liability, subordinated liability, general creditor or stockholder. This
provision would give depositors a preference over general and subordinated
creditors and stockholders in the event a receiver is appointed to distribute
the assets of the Bank.
Any capital loans by a bank holding company to any of its subsidiary
banks are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary bank. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
Capital Adequacy Guidelines for Bank Holding Companies and State Banks
The various federal bank regulators, including the Federal Reserve and
the FDIC, have adopted risk-based capital requirements for assessing bank
holding company and bank capital adequacy. These standards define what qualifies
as capital and establish minimum capital standards in relation to assets and
off-balance sheet exposures, as adjusted for credit risks.
The Company's and the Bank's December 31, 1999 ratios are set forth in
the Annual Report to Shareholders for the year ended December 31, 1999 under the
caption "Management's Discussion and Analysis -- Capital Resources."
Failure to meet capital guidelines could subject the Bank to a variety
of enforcement remedies, including termination of deposit insurance by the FDIC.
The risk-based capital standards of both the Federal Reserve Board and
the FDIC explicitly identify concentrations of credit risk and the risk arising
from non-traditional activities, as well as an institution's ability to manage
these risks, as important factors to be taken into account by the agency in
assessing an institution's overall capital adequacy. The capital guidelines also
provide that an institution's exposure to a decline in the economic value of its
capital due to changes in interest rates be considered by the agency as a factor
in evaluating a bank's capital adequacy. The Federal Reserve Board also has
recently issued additional capital guidelines for bank holding companies that
engage in certain trading activities.
Payment of Dividends
The Company is a legal entity separate and distinct from its bank
subsidiary. Most of the revenues of the Company are expected to result from
dividends paid to the Company by the Bank. There are statutory and regulatory
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requirements applicable to the payment of dividends by subsidiary banks as well
as by the Company to its stockholders. It is not anticipated that the Company
will pay cash dividends in the near future.
Certain Transactions by the Company with its Affiliates
Federal law regulates transactions between the Company and its
affiliates, including the amount of the Bank's loans to or investments in
nonbank affiliates and the amount of advances to third parties collateralized by
securities of an affiliate. Further, a bank holding company and its subsidiaries
are prohibited from engaging in certain tie-in arrangements in connection with
any extension of credit, lease or sale of property or furnishing of services.
FDIC Insurance Assessments
Because the Bank's deposits are insured by the BIF, the Bank is subject
to insurance assessments imposed by the FDIC. Since January 1, 1997, the
assessments imposed on all FDIC deposits for deposit insurance have an effective
rate ranging from 0 to 27 basis points per $100 of insured deposits, depending
on the institution's capital position and other supervisory factors. However,
because legislation enacted in 1996 requires that both SAIF-insured and
BIF-insured deposits pay a pro rata portion of the interest due on the
obligations issued by the Financing Corporation ("FICO"), the FDIC is currently
assessing BIF-insured deposits an additional 1.26 basis points per $100 of
deposits, and SAIF-insured deposits an additional 6.30 basis points per $100 of
deposits, to cover those obligations. The FICO assessment is based on deposit
balances and will be adjusted quarterly to reflect changes in the assessment
bases of the respective funds based on quarterly Call Report and Thrift
Financial Report submissions.
Regulation of the Bank
The Bank is also subject to examination by the South Carolina state
bank examiners. In addition, the Bank is subject to various other state and
federal laws and regulations, including state usury laws, laws relating to
fiduciaries, consumer credit and laws relating to branch banking. The Bank's
loan operations are also subject to certain federal consumer credit laws and
regulations promulgated thereunder, including, but not limited to: the federal
Truth-In-Lending Act, governing disclosures of credit terms to consumer
borrowers; the Home Mortgage Disclosure Act, requiring financial institutions to
provide certain information concerning their mortgage lending; the Equal Credit
Opportunity Act and the Fair Housing Act, prohibiting discrimination on the
basis of certain prohibited factors in extending credit; the Fair Credit
Reporting Act, governing the use and provision of information to credit
reporting agencies; the Bank Secrecy Act, dealing with, among other things, the
reporting of certain currency transactions; and the Fair Debt Collection Act,
governing the manner in which consumer debts may be collected by collection
agencies. The deposit operations of the Bank are also subject to the Truth in
Savings Act, requiring certain disclosures about rates paid on savings accounts;
the Expedited Funds Availability Act, which deals with disclosure of the
availability of funds deposited in accounts and the collection and return of
checks by banks; the Right to Financial Privacy Act, which imposes a duty to
maintain certain confidentiality of consumer financial records and the
Electronic Funds Transfer Act and regulations promulgated thereunder, which
govern automatic deposits to and withdrawals from deposit accounts and
customers' rights and liabilities arising from the use of automated teller
machines and other electronic banking services.
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The Bank is also subject to the requirements of the Community
Reinvestment Act (the "CRA"). The CRA imposes on financial institutions an
affirmative and ongoing obligation to meet the credit needs of their local
communities, including low- and moderate-income neighborhoods, consistent with
the safe and sound operation of those institutions. Each financial institution's
actual performance in meeting community credit needs is evaluated as part of the
examination process, and also is considered in evaluating mergers, acquisitions
and applications to open a branch or facility.
Other Safety and Soundness Regulations
Prompt Corrective Action. The federal banking agencies have broad
powers under current federal law to take prompt corrective action to resolve
problems of insured depository institutions. The extent of these powers depends
upon whether the institutions in question are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" or
"critically undercapitalized."
A bank that is "undercapitalized" becomes subject to provisions of the
FDIA restricting payment of capital distributions and management fees; requiring
FDIC to monitor the condition of the bank; requiring submission by the bank of a
capital restoration plan; restricting the growth of the bank's assets and
requiring prior approval of certain expansion proposals. A bank that is
"significantly undercapitalized" is also subject to restrictions on compensation
paid to senior management of the bank, and a bank that is "critically
undercapitalized" is further subject to restrictions on the activities of the
bank and restrictions on payments of subordinated debt of the bank. The purpose
of these provisions is to require banks with less than adequate capital to act
quickly to restore their capital and to have the FDIC move promptly to take over
banks that are unwilling or unable to take such steps.
Brokered Deposits. Under current FDIC regulations, "well capitalized"
banks may accept brokered deposits without restriction, "adequately capitalized"
banks may accept brokered deposits with a waiver from the FDIC (subject to
certain restrictions on payment of rates), while "undercapitalized" banks may
not accept brokered deposits. The regulations provide that the definitions of
"well capitalized", "adequately capitalized" and "undercapitalized" are the same
as the definitions adopted by the agencies to implement the prompt corrective
action provisions described in the previous paragraph.
Interstate Banking
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 the Company and any other adequately capitalized bank holding company
located in South Carolina can acquire a bank located in any other state, and a
bank holding company located outside South Carolina can acquire any South
Carolina-based bank, in either case subject to certain deposit percentage and
other restrictions. The legislation also provides that, in any state that has
not previously elected to prohibit out-of-state banks from operating interstate
branches within its territory, adequately capitalized and managed bank holding
companies can consolidate their multistate bank operations into a single bank
subsidiary and branch interstate through acquisitions. De novo branching by an
out-of-state bank is permitted only if it is expressly permitted by the laws of
the host state. The authority of a bank to establish and operate branches within
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a state will continue to be subject to applicable state branching laws. South
Carolina law was amended, effective July 1, 1996, to permit such interstate
branching but not de novo branching by an out-of-state bank.
The Riegel-Neal Act, together with legislation adopted in South
Carolina, resulted in a number of South Carolina banks being acquired by large
out-of-state bank holding companies. Size gives the larger banks certain
advantages in competing for business from larger corporations. These advantages
include higher lending limits and the ability to offer services in other areas
of South Carolina and the region. As a result, the Company does not generally
attempt to compete for the banking relationships of large corporations, but
concentrates its efforts on small to medium-sized businesses and on individuals.
The Company believes it has competed effectively in this market segment by
offering quality, personal service.
Recent Legislation
On November 12, 1999, the President signed the Gramm-Leach-Bliley Act,
which makes it easier for affiliations between banks, securities firms and
insurance companies to take place. The Act removes Depression-era barriers that
had separated banks and securities firms, and seeks to protect the privacy of
consumers' financial information. Most of the provisions of the Act require the
applicable regulators to adopt regulations in order to implement these
provisions.
Under provisions of the new legislation, which are effective March 11,
2000, banks, securities firms and insurance companies are able to structure new
affiliations through a holding company structure or through a financial
subsidiary. The legislation creates a new type of bank holding company called a
"financial holding company" which has powers much more extensive than those of
standard holding companies. These expanded powers include authority to engage in
"financial activities," which are activities that are (1) financial in nature;
(2) identical to activities that are financial in nature; or (3) complimentary
to a financial activity and that do not impose a safety and soundness risk.
Significantly, the permitted financial activities for financial holding
companies include authority to engage in merchant banking and insurance
activities, including insurance portfolio investing. A bank holding company can
qualify as a financial holding company and expand the services it offers only if
all of its subsidiary depository institutions are well-managed, well-capitalized
and have received a rating of "satisfactory" on their last Community
Reinvestment Act examination.
The legislation also creates another new type of entity called a
"financial subsidiary." A financial subsidiary may be used by a national bank or
a group of national banks to engage in many of the same activities permitted for
a financial holding company, though several of these activities, including real
estate development or investment, insurance or annuity underwriting, insurance
portfolio investing and merchant banking, are reserved for financial holding
companies. A bank's investment in a financial subsidiary affects the way in
which the bank calculates its regulatory capital, and the assets and liabilities
of financial subsidiaries may not be consolidated with those of the bank. The
bank must also be certain that its risk management procedures are adequate to
protect it from financial and operational risks created both by itself and by
any financial subsidiary. Further, the bank must establish policies to maintain
the separate corporate identities of the bank and its financial subsidiary and
to prevent each from becoming liable for the obligations of the other.
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The Act also establishes the concept of "functional supervision,"
meaning that similar activities should be regulated by the same regulator.
Accordingly, the Act spells out the regulatory authority of the bank regulatory
agencies, the Securities and Exchange Commission and state insurance regulators
so that each type of activity is supervised by a regulator with corresponding
expertise. The Federal Reserve Board is intended to be an umbrella supervisor
with the authority to require a bank holding company or financial holding
company or any subsidiary of either to file reports as to its financial
condition, risk management systems, transactions with depository institution
subsidiaries and affiliates, and compliance with any federal law that it has
authority to enforce.
Although the Act reaffirms that states are the regulators for insurance
activities of all persons, including federally-chartered banks, the Act
prohibits states from preventing depository institutions and their affiliates
from conducting insurance activities.
The Act also establishes a minimum federal standard of privacy to
protect the confidentiality of a consumer's personal financial information and
gives the consumer the power to choose how personal financial information may be
used by financial institutions. The privacy provisions of the Act will not go
into effect until after adoption of implementing regulations by various federal
agencies.
The Company anticipates that the Act and the regulations which are to
be adopted pursuant to the Act will be likely to create new opportunities for it
to offer expanded services to customers in the future, though the Company has
not yet determined what the nature of the expanded services might be or when the
Company might find it feasible to offer them. The Company further expects that
the Act will increase competition from larger financial institutions that are
currently more capable than the Company of taking advantage of the opportunity
to provide a broader range of services. However, the Company continues to
believe that its commitment to providing high quality, personalized service to
customers will permit it to remain competitive in its market area.
Legislative Proposals
Other proposed legislation which could significantly affect the
business of banking has been introduced or may be introduced in Congress from
time to time. Management of the Bank cannot predict the future course of such
legislative proposals or their impact on the Company and the Bank should they be
adopted.
Fiscal and Monetary Policy
Banking is a business which depends to a large extent on interest rate
differentials. In general, the difference between the interest paid by a bank on
its deposits and its other borrowings, and the interest received by a bank on
its loans and securities holdings, constitutes the major portion of a bank's
earnings. Thus, the earnings and growth of the Company and the Bank are subject
to the influence of economic conditions generally, both domestic and foreign,
and also to the monetary and fiscal policies of the United States and its
agencies, particularly the Federal Reserve. The Federal Reserve regulates the
supply of money through various means, including open-market dealings in United
States government securities, the discount rate at which banks may borrow from
the Federal Reserve, and the reserve requirements on deposits. The nature and
timing of any changes in such policies and their impact on the Company and the
Bank cannot be predicted.
Item 2. Description of Property
(a) The Bank owns in fee simple with no major encumbrances, the real
property where its main and branch offices are located at 3685 Blue Ridge
Boulevard, Walhalla, South Carolina; 1600 Sandifer Boulevard in Seneca, South
Carolina; and 4002 Clemson Boulevard in Anderson, South Carolina. The Bank also
owns in fee simple real property at 208 East Main Street in Williamston, South
Carolina, where it plans to open a branch in a temporary facility later in 2000.
Management of the Bank believes the Bank's facilities are suitable and adequate
for the Company's needs.
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Item 3. Legal Proceedings
The Bank is from time to time a party to various legal proceedings
arising in the ordinary course of business, but management of the Bank is not
aware of any pending or threatened litigation or unasserted claims or
assessments that are expected to result in losses, if any, that would be
material to the Bank's business and operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted for a vote of the security holders during
the fourth quarter of 1999.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The information set forth under the caption "Market for Common Stock
and Dividends" and in Note H to the Company's Consolidated Financial Statements
under the caption "Restrictions on Subsidiary Dividends, Loans or Advances" in
the Annual Report to Shareholders for the year ended December 31, 1999 (the
"1999 Annual Report") is incorporated herein by reference. The information set
forth in Part I, Item 1 of this Form 10-KSB under the caption "Effect of
Government Regulation -- Payment of Dividends" is also incorporated herein by
reference.
Item 6. Management's Discussion and Analysis or Plan of Operation
The information set forth under the caption "Management's Discussion
and Analysis" in the 1999 Annual Report is incorporated herein by reference.
Item 7. Financial Statements
The Consolidated Financial Statements, including Notes thereto, set
forth in the 1999 Annual Report are incorporated herein by reference.
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
There were no disagreements with or changes in accountants.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The information set forth under the captions "Management of the
Company" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Proxy Statement to be used in conjunction with the 2000 Annual Meeting of
Shareholders (the "Proxy Statement"), which will be filed within 120 days of the
Corporation's fiscal year end, is incorporated herein by reference.
Item 10. Executive Compensation
The information set forth under the caption "Management Compensation"
in the Proxy Statement is incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information set forth under the caption "Security Ownership of
Certain Beneficial Owners" and "Management of the Company -- Security Ownership
of Management" in the Proxy Statement is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions
The information set forth under the caption "Certain Relationships and
Related Transactions" in the Proxy Statement is incorporated herein by
reference.
9
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibit No.(from Description
item 601 of
Regulation S-B)
3.1 Articles of Incorporation, as amended
(Incorporated by reference to the Annual
Report on Form 10-KSB for the year ended
December 31, 1998)
3.2 By-laws (Incorporated by reference to the
Annual Report on Form 10-KSB for the year
ended December 31, 1997 (the "1997 10-KSB"))
4 Specimen Stock certificate (Incorporated by
reference to the 1997 10-KSB)
10.1 Community First Bank 1989 Incentive
Stock Option Plan (Incorporated by reference
to the 1997 10-KSB)
10.2 Community First Bank Incentive Stock
Agreement with Frederick D.Shepherd, Jr.
(Incorporated by reference to the 1997 10-KSB)
10.3 Community First Bancorporation 1998 Stock
Option Plan (Incorporated by reference to
Proxy Statement filed in connection with the
1998 Annual Meeting of Shareholders)
13 Portions of the Annual Report to Shareholders
for the Year Ended December 31, 1999
21 Subsidiaries of the registrant
23 Consent of Donald G. Jones and Company, P.A.
27 Financial data schedule
(b) No Reports on Form 8-K were filed during the year ended December 31, 1999.
10
<PAGE>
SIGNATURES
In accordance with 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.
COMMUNITY FIRST BANK
s/Frederick D. Shepherd, Jr.
Date: March 16, 2000 By:-------------------------------------------
Frederick D. Shepherd, Jr.
Its President
In accordance with the Exchange Act, 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>
<CAPTION>
Signature Capacity Date
<S> <C> <C>
- ------------------------------- Vice Chairman and Director March __, 2000
(Larry S. Bowman)
s/William M. Brown
- ------------------------------- Director and Secretary March 16, 2000
(William M. Brown)
s/Robert H. Edwards
- ------------------------------- Director March 16, 2000
(Robert H. Edwards)
s/Blake L. Griffith
- ------------------------------- Director March 16, 2000
(Blake L. Griffith)
- ------------------------------- Director March __, 2000
(John R. Hamrick)
s/R. Theo Harris, Sr.
- ------------------------------- Director March 16, 2000
(R. Theo Harris, Sr.)
s/James E. McCoy
- ------------------------------- Chairman and Director March 16, 2000
(James E. McCoy)
s/Frederick D. Shepherd, Jr.
- ------------------------------- Director, President, Chief March 16, 2000
(Frederick D. Shepherd, Jr.) Executive Officer, Treasurer and
Principal Financial Officer
s/Gary V. Thrift
- ------------------------------- Director March 16, 2000
(Gary V. Thrift)
s/James E. Turner
- ------------------------------- Director March 16, 2000
(James E. Turner)
s/Charles L. Winchester
- ------------------------------- Director March 16, 2000
(Charles L. Winchester)
</TABLE>
11
<PAGE>
EXHIBIT INDEX
3.1 Articles of Incorporation, as amended
(Incorporated by reference to the Annual
Report on Form 10-KSB for the year ended
December 31, 1998)
3.2 By-laws (Incorporated by reference to the
Annual Report on Form 10-KSB for the year
ended December 31, 1997 (the "1997 10-KSB"))
4 Specimen Stock certificate (Incorporated by
reference to the 1997 10-KSB)
10.1 Community First Bank 1989 Incentive
Stock Option Plan (Incorporated by reference
to the 1997 10-KSB)
10.2 Community First Bank Incentive Stock
Agreement with Frederick D.Shepherd, Jr.
(Incorporated by reference to the 1997 10-KSB)
10.3 Community First Bancorporation 1998 Stock
Option Plan (Incorporated by reference to
Proxy Statement filed in connection with the
1998 Annual Meeting of Shareholders)
13 Portions of the Annual Report to Shareholders
for the Year Ended December 31, 1999
21 Subsidiaries of the registrant
23 Consent of Donald G. Jones and Company, P.A.
27 Financial data schedule
12
EXHIBIT 13
PORTIONS OF THE ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED DECEMBER 31, 1999
Financial Summary*
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
Financial Condition
<S> <C> <C> <C> <C> <C>
Securities .................................... $ 54,178 $ 38,284 $ 25,510 $ 26,525 $ 22,962
Allowance for loan losses ..................... 943 955 890 705 575
Net loans ..................................... 75,215 66,938 64,948 53,953 43,600
Premises and equipment - net .................. 4,264 2,871 1,675 1,782 1,562
Total assets .................................. 153,583 127,127 104,968 98,673 83,995
Noninterest bearing deposits .................. 16,909 14,798 16,501 10,352 10,534
Interest bearing deposits ..................... 121,709 97,698 75,790 77,108 63,406
Total deposits ................................ 138,618 112,496 92,291 87,460 73,940
Total liabilities ............................. 139,847 113,524 93,118 88,338 74,770
Total shareholders' equity .................... 13,736 13,603 11,850 10,335 9,225
Results of Operations
Interest income ............................... $ 10,402 $ 8,904 $ 7,578 $ 6,928 $ 5,919
Interest expense .............................. 5,687 4,518 3,664 3,695 3,171
-------- -------- -------- -------- --------
Net interest income ........................... 4,715 4,386 3,914 3,233 2,748
Provision for loan losses ..................... 300 213 315 223 153
-------- -------- -------- -------- --------
Net interest income after provision ........... 4,415 4,173 3,599 3,010 2,595
Other income .................................. 662 574 522 342 287
Other expenses ................................ 2,542 2,155 1,909 1,559 1,549
-------- -------- -------- -------- --------
Income before income taxes .................... 2,535 2,592 2,212 1,793 1,333
Income tax expense ............................ 909 928 807 641 476
-------- -------- -------- -------- --------
Net income .................................... $ 1,626 $ 1,664 $ 1,405 $ 1,152 $ 857
======== ======== ======== ======== ========
Per Share Data**
Net income .................................... $ 0.82 $ 0.85 $ 0.73 $ 0.60 $ 0.45
Net income, assuming dilution ................. 0.76 0.80 0.70 0.58 0.44
Period end book value ......................... 6.86 6.89 6.08 5.35 4.81
</TABLE>
___________________________
* Community First Bancorporation became the bank holding company of Community
First Bank effective October 16, 1997 as part of a corporate reorganization
which was accounted for as if it were a pooling-of-interests. The
consolidated financial statements and related information for the year
ended December 31, 1997 are presented as if the reorganization had occurred
on January 1, 1997. The financial statements and related information for
the years ended December 31, 1996 and 1995 are the same as the amounts
reported previously by Community First Bank, adjusted for a stock split and
stock dividends.
** Per share amounts have been retroactively adjusted to reflect a 10% stock
dividend effective December 15, 1999, a two-for-one stock split effective
July 31, 1998, a 15% stock dividend effective December 30, 1997 and 5%
stock dividends effective May 1, 1996 and May 1, 1995.
13
<PAGE>
Market for Common Stock and Dividends
Although a limited number of shares of common stock of Community First
Bancorporation (the "Company") are traded from time to time on an individual
basis, no established trading market has developed and none is expected to
develop in the near future. The common stock is not traded on the NASDAQ
National Market System, nor are there any market makers known to management.
During 1999, management was aware of a few transactions in which the Company's
common stock traded in a price range from $18.18 to $22.00 per share (per share
prices have been adjusted to reflect a 10% stock dividend effective December 15,
1999). However, management has not ascertained that these transactions are the
result of arm's length negotiations between the parties involved, and because of
the limited number of shares involved, these prices may not be indicative of the
market value of the common stock.
As of February 29, 2000, there were approximately 784 holders of record
of the Company's common stock, excluding individual participants in security
position listings.
There have been no cash dividends declared or paid since the Company's
inception. In order to support the Company's continuing need for capital to
support anticipated asset growth and market expansion, management does not
expect to declare or pay cash dividends in 2000.
The Board of Directors declared a 10% stock dividend effective December
15, 1999, a two-for-one stock split effective July 31, 1998, and a 15% stock
dividend effective December 30, 1997.
Management's Discussion and Analysis
This discussion is intended to assist in understanding the consolidated
financial condition and results of operations of Community First Bancorporation
and its wholly-owned subsidiary, Community First Bank (the "Bank"), which are
collectively referred to as the "Company". This information should be reviewed
in conjunction with the consolidated financial statements and related notes
contained elsewhere in this report. Per share net income and net income,
assuming dilution, have been adjusted to reflect a 10% stock dividend effective
December 15, 1999, a two-for-one stock split effective July 31, 1998, and a 15%
stock dividend effective December 30, 1997.
Forward Looking Statements
Statements included in Management's Discussion and Analysis which are
not historical in nature are intended to be, and are hereby identified as
"forward looking statements" for purposes of the safe harbor provided by Section
21E of the Securities Exchange Act of 1934, as amended. The Company cautions
readers that forward looking statements, including without limitation, those
relating to the Company's recent and continuing expansion into Anderson County,
including its proposed expansion into Williamston, South Carolina, its future
business prospects, revenues, working capital, liquidity, capital needs,
interest costs, and income, are subject to certain risks and uncertainties that
could cause actual results to differ materially from those indicated in the
forward looking statements, due to several important factors herein identified,
among others, and other risks and factors identified from time to time in the
Company's reports filed with the Securities and Exchange Commission.
14
<PAGE>
Earnings Performance
1999 Compared with 1998
For the year ended December 31, 1999, the Company recorded net income
of $1,626,000, a decrease of $38,000, or 2.3%, from net income of $1,664,000 for
1998. Net income per share for 1999 was $.82 compared with $.85 for 1998. Per
share net income, assuming dilution for unexercised stock options, was $.76 for
1999 compared with $.80 for 1998. Return on average assets was 1.09% for 1999
compared with 1.38% for 1998. Return on average shareholders' equity decreased
to 11.86% for 1999 from 13.06% for 1998.
Net income declined slightly in 1999 from its year-earlier level,
primarily resulting from the Company's initial branch expansion into Anderson
County, South Carolina. The expenses related to this strategic move are
reflected throughout the consolidated statement of income and include increased
interest expenses, salaries and employee benefits, depreciation and other
occupancy and furniture and equipment expenses, and higher postage, telephone
and other ancillary expenses. These increased expenses were greater than the
income produced by the new branch. The Company expects that, as it continues to
conduct marketing activities in this new area, loan growth and the income
associated with these assets will follow and other income sources will begin to
offset some of the increased expenses. However, the Company already has received
approval from regulatory authorities to open another branch office in the Town
of Williamston, also in Anderson County, South Carolina. This continued
expansion is further expected to impact negatively the Company's near-term
earnings performance.
The ratios of return on average assets and return on average equity
were affected negatively in 1999 by the slight decline in net income coupled
with increased amounts of average assets and average equity.
The Company adopted Statement of Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income," as of January 1, 1998. Accounting principles
generally require that recognized revenue, expenses, gains and losses be
included in net income. Certain changes in assets and liabilities, such as
unrealized holding gains and losses on available-for-sale securities, are
reported as a separate component of the shareholders' equity section of the
consolidated balance sheet. Such items, along with net income, are components of
comprehensive income. Comprehensive income for 1999, 1998 and 1997 was $14,000,
$1,664,000 and $1,467,000, respectively. Comprehensive income for 1999 was
reduced significantly by the change in unrealized holding gains and losses on
available-for-sale securities, net of tax effects, of $1,612,000. The Company's
deposits grew rapidly in 1999, primarily because of its territorial expansion.
Loan growth, as expected, did not keep pace with the acquisition of deposits.
Management, therefore, invested the majority of these new funds in
available-for-sale securities to effect an adequate net interest margin. As
market rates of interest increased during 1999, the market values of these
securities declined and caused the lower comprehensive income figure for 1999.
However, the adoption of SFAS No. 130 had no effect on the Company's net income
or total shareholders' equity.
1998 Compared with 1997
For the year ended December 31, 1998, the Company recorded net income
of $1,664,000, an increase of $259,000, or 18.4%, over net income of $1,405,000
for 1997. Net income per share for 1998 was $.85 compared with $.73 for 1997.
Per share net income, assuming dilution for unexercised stock options, was $.80
for 1998 compared with $.70 for 1997. Return on average assets was 1.38% for
both 1998 and 1997. Return on average shareholders' equity increased to 13.06%
for 1998 from 12.64% for 1997
Net income increased, primarily because of the $472,000 increase in net
interest income and a $102,000 decrease in the provision for loan losses charged
to expense. The increase in net interest income resulted from the Company's
rapid deposit growth and its ability to invest those funds profitably.
Interest-bearing deposit liabilities at the end of 1998 increased $21,908,000 or
28.9% compared with the end of 1997 amount, and interest earning assets
increased $22,479,000 or 22.9% over the same period.
15
<PAGE>
Other income increased by $52,000 to $574,000 in 1998, largely as a
result of continued increases in deposit account service charges assessed to
customers. These charges increased by $62,000 in 1998 to $369,000. Partially
offsetting the increase in net interest income and other income was an increase
of $246,000 in other expenses resulting mainly from hiring new employees,
expenses relating to upgrading the Bank's computer hardware and software systems
that were placed in service for a part of 1997, and higher expenses for
repairing and maintaining the Bank's equipment and facilities.
Net Interest Income
Net interest income, comprising the difference between interest income
earned and interest expense incurred, is the principal source of the Company's
earnings. Net interest income is affected by changes in the levels of interest
rates and by changes in the volume and mix of interest earning assets and
interest bearing liabilities.
Net interest income was $4,715,000, $4,386,000 and $3,914,000 for 1999,
1998 and 1997, respectively. The $329,000 growth in net interest income for 1999
resulted primarily from the positive effects of higher levels of interest
earning assets which were partially offset by the negative effects of increased
levels of interest bearing liabilities. During 1999, average interest earning
assets increased by $26,436,000, or 22.8%, and average interest bearing
liabilities increased by $28,458,000, or 31.8%. Although market rates of
interest increased generally during 1999, the Company's yield on earning assets
decreased by 37 basis points to 7.31% and its rate on interest bearing
liabilities decreased by 22 basis points to 4.82%. Interest income increased by
$1,498,000 to $10,402,000 in 1999 and interest expense increased by $1,169,000
to $5,687,000.
The table, "Average Balances, Yields and Rates", provides a detailed
analysis of the effective yields and rates on the categories of average interest
earning assets and interest bearing liabilities for the years ended December 31,
1999, 1998 and 1997.
16
<PAGE>
Average Balances, Yields and Rates
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1999 1998 1997
---- ---- ----
Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/
Balances(1) Expense Rates Balances(1) Expense Rates Balances(1) Expense Rates
------------ ------- ----- ----------- ------- ----- ------------ ------- -----
(Dollars in thousands)
Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Taxable securities ................ $ 49,767 $ 3,045 6.12% $ 30,142 $ 1,841 6.11% $ 27,024 $ 1,646 6.09%
Tax exempt securities(2) .......... 82 4 4.88% - - 0.00% - - 0.00%
Federal funds sold ................ 20,135 995 4.94% 16,882 926 5.49% 10,001 534 5.34%
Other investments ................. 374 28 7.49% 343 21 6.12% 19 - 0.00%
Loans(2),(3) ...................... 71,944 6,330 8.80% 68,499 6,116 8.93% 60,707 5,398 8.89%
-------- ------- -------- -------- --------- -------
Total interest
earning assets ............ 142,302 10,402 7.31% 115,866 8,904 7.68% 97,751 7,578 7.75%
Cash and due from banks ........... 3,365 2,791 2,088
Allowance for loan losses ......... (955) (975) (790)
Unrealized securities
gains (losses) .................. (1,075) 6 (131)
Premises and equipment ............ 3,251 2,116 1,725
Other assets ...................... 1,904 1,176 1,113
-------- -------- ---------
Total assets ................. $148,792 $120,980 $ 101,756
======== ======== =========
Liabilities and
shareholders' equity
Interest bearing deposits
Interest bearing
transaction accounts .......... $ 17,711 $ 541 3.05% $ 13,778 $ 575 4.17% $ 10,639 $ 414 3.89%
Savings ......................... 20,063 704 3.51% 20,443 779 3.81% 16,448 596 3.62%
Time deposits $100M and over .... 37,977 2,015 5.31% 24,977 1,391 5.57% 21,889 1,201 5.49%
Other time deposits ............. 42,330 2,427 5.73% 30,428 1,773 5.83% 26,065 1,452 5.57%
-------- ------- -------- -------- --------- -------
Total interest bearing
deposits .................... 118,081 5,687 4.82% 89,626 4,518 5.04% 75,041 3,663 4.88%
Short-term borrowings ............. 3 - 0.00% - - 0.00% 7 1 14.29%
-------- ------- -------- -------- --------- -------
Total interest bearing
liabilities ................. 118,084 5,687 4.82% 89,626 4,518 5.04% 75,048 3,664 4.88%
Noninterest bearing demand deposits 15,703 17,599 14,790
Other liabilities ................. 1,297 1,018 799
Shareholders' equity .............. 13,708 12,737 11,119
-------- -------- ---------
Total liabilities and
shareholders' equity ......... $148,792 $120,980 $ 101,756
======== ======== =========
Interest rate spread(4) ........... 2.49% 2.64% 2.87%
Net interest income and net
yield on earning assets(5) ... $ 4,715 3.31% $ 4,386 3.79% $ 3,914 4.00%
Interest free funds supporting
earning assets(6) ............ $ 24,218 $ 26,240 $ 22,703
</TABLE>
- --------------------------
(1) Average balances are computed on a daily basis.
(2) No taxable equivalent adjustment has been made because the Company has no
material amounts of non-taxable interest income.
(3) Nonaccrual loans are included in the average loan balances and income on
such loans is recognized on a cash basis.
(4) Total interest bearing assets yield less the total interest bearing
liabilities rate.
(5) Net interest income divided by total interest earning assets.
(6) Total interest earning assets less total interest bearing liabilities.
17
<PAGE>
Year-over-year growth in loans was moderately strong for 1999,
totaling $8,265,000 and representing a growth rate of 12.2%. However, average
loans for the year increased by only $3,445,000, or 5.0%. The Company's average
investment in investment securities increased by $19,707,000, or 65.4%, during
1999, and the 1999 year-end amount was $15,894,000, or 41.5%, greater than the
1998 year-end amount. Average federal funds sold increased by $3,253,000, or
19.3%, during 1999, but decreased on a year-end to year-end basis by $1,740,000,
or 12.3%. Since the largest increases in average earning assets during 1999 were
in the lower-yielding categories, the decline in the average yield on earning
assets resulted.
Growth in interest-bearing deposits was the primary funding source
during 1999. Strong growth was experienced in all categories of such
liabilities, except savings deposits, during the year. Average interest bearing
deposits increased during 1999 by $28,455,000, or 31.7%, over the 1998 average
amounts. The average rate paid on interest bearing liabilities in 1999 decreased
by 22 basis points from the average rate paid in 1998.
Because growth in funding sources was greater than loan demand,
primarily due to the Anderson County branch expansion, the Company has invested
relatively larger amounts in investment securities and federal funds sold during
1999. If loan demand becomes stronger in 2000, the Company possesses sources of
funds to accommodate it. However, to the extent that the Company has to rely
upon the liquidation of available-for-sale securities as a source of funding for
such hypothetical loan growth or a reduction in deposit liabilities, significant
realized losses on securities sales could occur, given current or higher levels
of market rates of interest.
The $472,000 increase in net interest income for 1998, compared with
1997, resulted from positive effects of higher levels of interest earning assets
which were partially offset by higher rates paid on increased levels of interest
bearing liabilities. A relatively stable interest rate environment during 1998
further strengthened the Company's results in this area. During 1998, average
interest earning assets increased by $18,115,000, or 18.5%, and average interest
bearing liabilities increased by $14,578,000, or 19.4%. Interest income
increased by $1,326,000 to $8,904,000 in 1998 and interest expense increased by
$854,000 to $4,518,000.
The table, "Volume and Rate Variance Analysis", provides a summary
of changes in net interest income resulting from changes in volumes of interest
earning assets and interest bearing liabilities, and the rates earned and paid
on such assets and liabilities. As reflected in the table, increased volumes
accounted for $175,000 of the growth in net interest income for 1999, which was
enhanced by a $154,000 increase primarily due to lower rates paid on interest
bearing funding sources. For 1998, increased volumes were responsible for
$582,000 of the growth in net interest income, which was partially offset by a
$151,000 decrease due to higher rates paid.
Volume and Rate Variance Analysis
<TABLE>
<CAPTION>
1999 Compared with 1998 1998 Compared with 1997
----------------------- -----------------------
Volume (1) Rate (1) Total Volume (1) Rate (1) Total
------- ----- ----- ------- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Taxable securities ................................... $ 1,201 $ 3 $ 1,204 $ 191 $ 4 $ 195
Tax exempt securities(2) ............................. 4 - 4 - - -
Federal funds sold ................................... 167 (98) 69 377 15 392
Other investments .................................... 2 5 7 21 - 21
Loans(2) ............................................. 304 (90) 214 696 22 718
------- ------- ------- ------- ------- -------
Total interest income ................. 1,678 (180) 1,498 1,285 41 1,326
------- ------- ------- ------- ------- -------
Interest bearing deposits
Interest bearing transaction accounts .......... 141 (175) (34) 129 32 161
Savings ........................................ (14) (61) (75) 151 32 183
Time deposits $100M and over ................... 693 (69) 624 172 18 190
Other time deposits ............................ 683 (29) 654 252 69 321
Short-term borrowings ................................ - - - (1) - (1)
------- ------- ------- ------- ------- -------
Total interest expense ................ 1,503 (334) 1,169 703 151 854
------- ------- ------- ------- ------- -------
Net interest income ................... $ 175 $ 154 $ 329 $ 582 $ (110) $ 472
======= ======= ======= ======= ======= =======
</TABLE>
18
<PAGE>
- -------------------------------
(1) The rate/volume variance for each category has been allocated on a
consistent basis between rate and volume variances based on the percentage
of rate or volume variance to the sum of the two absolute variances except
in categories having balances in only one period. In such cases, the entire
variance is attributed to volume variances.
(2) No taxable equivalent adjustment has been made because the Company has no
material amounts of non-taxable interest income.
During 2000, management expects that interest rates will move within
a narrow range, but management has not identified any factors that might cause
interest rates to increase or decrease sharply in a short period of time. Any
improvements in net interest income for 2000 are expected, therefore, to be
largely the result of increases in the volume of interest earning assets and
liabilities. Management expects to continue to use aggressive marketing
strategies to increase the Company's market share for both deposits and quality
loans within its service areas in Oconee and Anderson counties of South
Carolina. These strategies involve continuing to expand the Company's
geographical territory, offering attractive interest rates for loans and
deposits and continuing the Company's commitment to providing outstanding
customer service.
Interest Rate Sensitivity
Interest rate sensitivity measures the timing and magnitude of the
repricing of assets compared with the repricing of liabilities and is an
important part of asset/liability management. The objective of interest rate
sensitivity management is to generate stable growth in net interest income, and
to control the risks associated with interest rate movements. Management
constantly monitors interest rate risk exposures and the expected interest rate
environment so that adjustments in interest rate sensitivity can be timely made.
The table, "Interest Sensitivity Analysis", indicates that, on a
cumulative basis through twelve months, rate sensitive liabilities exceeded rate
sensitive assets at the end of 1999 by $84,046,000, resulting in a cumulative
gap ratio of .28. When interest sensitive assets exceed interest sensitive
liabilities for a specific repricing "horizon," a positive interest sensitivity
gap results. The gap is negative when interest sensitive liabilities exceed
interest sensitive assets, as was the case at the end of 1999 with respect to
the one-year time horizon. For a bank with a negative gap, falling interest
rates would be expected to have a positive effect on net interest income and
rising rates would be expected to have the opposite effect.
The table, "Interest Sensitivity Analysis", reflects the balances of
interest earning assets and interest bearing liabilities at the earlier of their
repricing or maturity dates. Amounts of fixed rate loans are reflected at the
loans' final maturity dates. Variable rate loans are reflected at the earlier of
their contractual maturity date or the date at which the loans may be repriced
contractually. Taxable securities are reflected at the earlier of each
instrument's ultimate maturity or contractual repricing date. Overnight federal
funds sold are reflected in the earliest contractual repricing interval due to
the immediately available nature of these funds. Interest bearing liabilities
with no contractual maturity, such as interest bearing transaction accounts and
savings deposits are reflected in the earliest repricing interval due to
contractual arrangements which give management the opportunity to vary the rates
paid on these deposits within a thirty-day or shorter period. However, the
Company is not obligated to vary the rates paid on those deposits within any
given period. Fixed rate time deposits, principally certificates of deposit, are
reflected at their contractual maturity dates. Variable rate time deposits,
principally individual retirement accounts, are reflected at the earlier of
their next repricing or maturity dates.
During 2000, management plans, where possible, to reduce the
Company's liability sensitive position by attempting to increase the mix of
variable versus fixed rate loans and by extending the maturities of fixed rate
time deposits. This strategy, if successful, would help to provide a more stable
net interest spread and soften the negative effects of any increase in interest
rates that might occur.
19
<PAGE>
Interest Sensitivity Analysis
<TABLE>
<CAPTION>
December 31, 1999
-----------------
Within 4-12 Over 1-5 Over 5
3 Months Months Years Years Total
-------- ------ ----- ----- -----
(Dollars in thousands)
Interest earning assets
<S> <C> <C> <C> <C> <C>
Securities available-for-sale ........................ $ - $ 16 $ 25,847 $ 28,315 $ 54,178
Other investments .................................... 382 - - - 382
Federal funds sold ................................... 12,410 - - - 12,410
Loans (1) ............................................ 11,787 8,589 49,100 6,473 75,949
-------- -------- -------- -------- --------
Total interest earning assets .............. 24,579 8,605 $ 74,947 $ 34,788 $142,919
-------- -------- ======== ======== ========
Interest bearing liabilities
Interest bearing deposits
Interest bearing transaction accounts ........... $ 17,894 $ - $ - $ - $ 17,894
Savings ......................................... 17,304 - - - 17,304
Time deposits $100M and over .................... 26,633 13,855 446 - 40,934
Other time deposits ............................. 12,143 29,401 3,993 40 45,577
-------- -------- -------- -------- --------
Total interest bearing liabilities ......... 73,974 43,256 $ 4,439 $ 40 $121,709
-------- -------- ======== ======== ========
Interest sensitivity gap ................................... $(49,395) $(34,651)
Cumulative interest sensitivity gap ........................ $(49,395) $(84,046)
Gap ratio .................................................. 0.33 0.20
Cumulative gap ratio ....................................... 0.33 0.28
</TABLE>
(1) Loans are net of nonaccruing loans totaling $209,000.
Provision for Loan Losses
The provision for loan losses is charged to earnings based on
management's continuing review and evaluation of the loan portfolio and general
economic conditions. Provisions for loan losses were $300,000, $213,000 and
$315,000 for the years ended December 31, 1999, 1998 and 1997, respectively. The
increased provision in 1999 is attributable to higher levels of net charge-offs
in 1999, particularly in the commercial and industrial loan category. Net
charge-offs in this category for 1999 totaled $222,000, an increase of $178,000
over the amount for 1998. The allowance for loan losses as a percentage of total
loans at year end was 1.24% for 1999 compared with 1.41% at the end of 1998.
Total net loan charge-offs were $312,000 in 1999 compared with $148,000 and
$130,000 for 1998 and 1997, respectively. See "Impaired Loans" and "Allowance
for Loan Losses" for a discussion of the factors management considers in its
review of the adequacy of the allowance and provision for loan losses.
Other Income
Noninterest income for 1999 increased $88,000 or 15.3% compared with an
increase of $52,000 or 10.0% for 1998. Service charges on deposit accounts
increased $60,000 in 1999 and $62,000 in 1998. These increases were primarily
due to increased chargeable account activity. Credit life insurance commission
decreased $1,000 for 1999, while such income in 1998 was unchanged from 1997.
There were no realized securities gains or losses in 1999, 1998 or 1997. Other
noninterest income increased by $29,000 in 1999 after decreasing $10,000 in 1998
compared with the previous year. In 1999, the Company recorded a $10,000 gain on
the sale of foreclosed real estate. There were no such gains in 1998.
20
<PAGE>
Other Expenses
Noninterest expenses for 1999 increased $387,000 or 18.0%, compared
with an increase of $246,000 or 12.9% for 1998. Salaries and employee benefits
increased $240,000 in 1999 and $130,000 in 1998. The 1999 increase resulted from
the first full-year employment of employees of the new Anderson Branch, and from
the hiring of additional management personnel to oversee the Company's expanding
operations. The 1998 increase resulted primarily from personnel added during the
year in anticipation of the opening of the Bank's new branch office in Anderson,
South Carolina. Hiring for this branch began in 1998 so that training in the
Company's systems and procedures could be completed well before the branch's
opening date on January 4, 1999.
Net occupancy and furniture and equipment expenses increased by
$38,000, or 12.3%, for 1999, and by $43,000, or 16.1%, for 1998. The 1999
increase primarily was caused by expenses associated with the operation of the
Anderson Branch. The 1998 increase resulted principally from a $9,000 increase
in building maintenance and repair expenses, a $7,000 increase in expenses of
equipment maintenance contracts and a $22,000 increase in depreciation expense
associated with the new computer system placed in service only during part of
1997.
Other expense increased $109,000, or 15.4%, for 1999. This increase was
primarily caused by higher expenses such as printing and postage, advertising
and promotion, telephone, and other expenses that would be expected to rise in
an organization extending its geographic territory and branch network. Costs
directly associated with the Company's Year 2000 Preparedness Program were
insignificant in 1999, and there have been no significant problems within the
Company, or among its suppliers or customers, caused by the date change to the
year 2000.
Other expense increased $73,000, or 11.5%, for 1998. Increases in many
categories of other expense were related to an increasing customer base and the
associated processing of larger transaction volumes. In addition, the Company's
product lines have been broadened in an attempt to make banking more convenient
and accessible to the Bank's customers through electronic, card-based and
telebanking transaction services. Some categories with significant increases
were stationery, printing and postage (up $14,000) and advertising and promotion
(up $13,000). Data processing expenses were up $40,000, primarily due to
increased costs associated with operating the Bank's ATM, providing for disaster
recovery contingencies and amortization of software costs. Some expenses
decreased, however, including professional service fees (down $23,000) and
expenses associated with other real estate (down $31,000). Professional service
fees were higher in 1997 because of the corporate reorganization and formation
of the bank holding company. During 1998, the Company held no significant other
real estate.
Noninterest overhead expenses for 2000 are expected to increase as
compared with 1999 because of the Company's continuing expansion into the
adjacent Anderson County market. As mentioned earlier, the Company has secured
regulatory approval to open and operate a new branch office in Williamston,
South Carolina. It is expected that this office will open in temporary quarters
during the second quarter of 2000. Plans for the construction of a permanent
office have not yet been completed.
In 2000, the Company intends to market approximately $600,000 of
surplus land adjacent to the Anderson Branch office. This property was
associated with the original property acquisition and its disposition would
reduce the overall cost of the project. However, the processes of subdividing
and marketing the land have not been completed, and no contracts for sales have
been entered into.
Until the new Anderson and proposed Williamston offices acquire
sufficiently large customer bases and attain volumes of deposits and interest
earning assets that would enable them to contribute to the Company's
profitability, management expects that these expansions will continue to affect
net income negatively. In addition, the success of these projects may also be
affected adversely if the costs of facilities or personnel are higher than
projected.
The Company's FDIC insurance rates are assessed based on the lowest
rate available under regulations and are expected to continue at relatively low
levels for the near future. Increases in noninterest expenses are closely
monitored and cost control will continue to be emphasized by management where
possible in order to achieve profitability objectives and attain the goal of
growth in the Company's market share in Oconee and Anderson counties.
21
<PAGE>
Income Taxes
For 1999, federal and state income tax expenses decreased to $909,000
from $928,000 in 1998 and $807,000 in 1997. The fluctuations in income tax
expense are due to changing amounts of earnings. The effective income tax rate
(income tax expense divided by income before income taxes) was 35.9% for 1999,
35.8% for 1998, and 36.5% for 1997. The Company has never had significant income
from nontaxable sources, such as nontaxable investment securities or loans to
local governments.
Securities
The following table summarizes the carrying value amounts of securities
held by the Company at each of the dates indicated.
Securities Portfolio Composition
December 31,
------------
1999 1998 1997
---- ---- ----
Available- Available- Available-
for-Sale for-Sale for-Sale
-------- -------- --------
(Dollars in thousands)
U. S. Treasury ............... $ 1,969 $ - $ 2,003
U. S. Government agencies .... 45,675 30,919 18,932
State, county and municipal .. 193 - -
Mortgage-backed securities ... 6,341 7,365 4,575
------- ------- -------
Total .................... $54,178 $38,284 $25,510
======= ======= =======
The following table presents maturities and weighted average yields of
securities at December 31, 1999.
Securities Portfolio Maturities and Yields
December 31, 1999
-----------------
Available-
for-Sale Yield
-------- -----
(Dollars in thousands)
U. S. Treasuries
After one through five years ......... $ 1,969 5.25%
-------
U. S. Government agencies
After one through five years ......... 19,475 6.01%
After five through ten years ......... 25,312 6.31%
After ten years ...................... 888 6.40%
-------
45,675 6.18%
-------
State, county and municipal (1)
After ten years ...................... 193 4.95%
-------
Mortgage-backed securities
Within one year ...................... 16 6.61%
After one through five years ......... 4,403 6.04%
After five through ten years ......... 1,922 5.34%
-------
6,341 5.83%
-------
Total
Within one year ...................... 16 6.61%
After one through five years ......... 25,847 5.96%
After five through ten years ......... 27,234 6.24%
After ten years ...................... 1,081 7.48%
-------
Total ........................... $54,178 6.13%
=======
- ----------------------------
(1) Not adjusted for taxable equivalency.
22
<PAGE>
On an ongoing basis, management assigns securities upon purchase into
one of three categories (trading, available-for-sale or held-to-maturity) based
on intent, taking into consideration other factors including expectations for
changes in market rates of interest, liquidity needs, asset/liability management
strategies, and capital requirements. The Company has never held securities for
trading purposes. During 1999, 1998 and 1997, there have been no sales of
securities or any transfers of available-for-sale or held-to-maturity securities
to other categories.
All mortgage-backed securities held by the Company were issued by the
Federal Home Loan Mortgage Corporation or the Federal National Mortgage
Association.
Loan Portfolio
Management believes the loan portfolio is adequately diversified. There
are no significant concentrations of loans in any particular individual,
industry or groups of related individuals or industries, and there are no
foreign loans.
The amounts of loans outstanding at December 31, 1999, 1998 and 1997
are shown in the following table according to type of loan, and the percentage
of each category to total loans:
Loan Portfolio Composition
<TABLE>
<CAPTION>
December 31,
------------
1999 1998 1997
---- ---- ----
Amount % Amount % Amount %
------ - ------ - ------ -
(Dollars in thousands)
Commercial, financial and industrial
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial ......................... $11,964 15.7% $ 9,255 13.6% $ 9,685 14.7%
Purchasing or carrying securities ................. 1,998 2.6% 282 .4% 79 .1%
Real estate - construction .............................. 28 .1% 51 .1% 78 .1%
Real estate - mortgage
1-4 family residential ............................ 31,853 41.8% 30,187 44.5% 29,835 45.3%
Multifamily (5 or more) residential ............... 182 .2% 90 .1% 104 .2%
Nonfarm, nonresidential ........................... 12,919 17.0% 11,376 16.8% 11,357 17.2%
Consumer installment
Credit card and checking credit ................... 1,046 1.4% 1,022 1.5% 838 1.3%
Other ............................................. 16,168 21.2% 15,630 23.0% 13,862 21.1%
------- ------- ------- ------- ------- -------
Total loans ................. $76,158 100.0% $67,893 100.0% $65,838 100.0%
======= ======= ======= ======= ======= =======
</TABLE>
A certain degree of risk taking is inherent in the extension of credit.
Management has established loan and credit policies designed to control both the
types and amounts of risks assumed, and to minimize losses. Such policies
include limitations on loan-to-collateral values for various types of
collateral, requirements for appraisals of real estate collateral, problem loan
management practices and collection procedures, and nonaccrual and charge-off
guidelines.
Commercial and industrial loans primarily represent loans made to
businesses, and may be made on either a secured or an unsecured basis. When
taken, collateral consists of liens on receivables, equipment, inventories,
furniture and fixtures. Unsecured business loans are generally short-term with
emphasis on repayment strengths and low debt-to-worth ratios. During 1999, total
commercial and industrial loans increased $4,425,000 or 46.4%. Loans mainly for
business and investment purposes that are secured by real estate (nonfarm,
nonresidential) increased by $1,543,000 or 13.6% during 1999. Commercial lending
involves significant risk because repayment usually depends on the cash flows
generated by a borrower's business, and the debt service capacity of a business
can deteriorate because of downturns in national and local economic conditions.
To control risk, more in-depth initial and continuing financial analysis of a
borrower's cash flows and other financial information is generally required.
During 1999, a senior commercial lending officer/administrator was added to the
lending staff to enhance expertise and supervision in this area.
23
<PAGE>
Real estate construction loans generally consist of financing the
construction of 1-4 family dwellings and some nonfarm, nonresidential real
estate. Usually, loan-to-cost ratios are limited to 75% and permanent financing
commitments are usually required prior to the advancement of loan proceeds.
Loans secured by real estate mortgages comprised approximately 59% and
61% of the Company's loan portfolio at the end of 1999 and 1998, respectively.
Real estate mortgage loans of all types grew $3,301,000 during 1999 and by
$357,000 during 1998. Residential real estate loans consist mainly of first and
second mortgages on single family homes, with some multifamily loans.
Loan-to-value ratios for these instruments are generally limited to 80%.
Nonfarm, nonresidential loans are secured by business and commercial properties
with loan-to-value ratios generally limited to 70%. The repayment of both
residential and business real estate loans is dependent primarily on the income
and cash flows of the borrowers, with the real estate serving as a secondary or
liquidation source of repayment.
Maturity and Interest Sensitivity Distribution of Loans
The following table sets forth the maturity distribution of the
Company's loans, by type, as of December 31, 1999, as well as the type of
interest requirement on such loans.
<TABLE>
<CAPTION>
December 31, 1999
-----------------
One Year One to Five Years
or Less Five Years or More Total
------- ---------- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial, financial and industrial ............................... $ 8,446 $ 5,447 $ 69 $13,962
Real estate - construction ......................................... - 28 - 28
Real estate - mortgage ............................................. 8,771 30,225 5,958 44,954
Consumer installment ............................................... 4,359 12,437 418 17,214
------- ------- ------- -------
Total loans ...................................... $21,576 $48,137 $ 6,445 $76,158
======= ======= ======= =======
Predetermined rate, maturity greater than one year ................. $30,910 $ 6,409 $37,319
======= ======= =======
Variable rate or maturity within one year .......................... $21,576 $17,227 $ 36 $38,839
======= ======= ======= =======
</TABLE>
Impaired Loans
Impaired loans are those loans on which, based on current information
and events, it is probable that the Company will be unable to collect all
amounts due according to the contractual terms of the loan agreement. Loans
which management has identified as impaired generally are nonperforming loans.
Nonperforming loans include nonaccrual loans or loans which are 90 days or more
delinquent as to principal or interest payments. Following is a summary of the
Company's impaired loans:
Nonaccrual and Past Due Loans
December 31,
------------
1999 1998 1997
---- ---- ----
(Dollars in thousands)
Nonaccrual loans .......................... $209 $366 $163
Accruing loans 90 days or more past due ... 20 10 1
---- ---- ----
Total ..................... $229 $376 $164
==== ==== ====
Percent of total loans .................... 0.3% 0.6% 0.2%
24
<PAGE>
When an impaired loan is 90 days or more past due as to interest or
principal or there is serious doubt as to ultimate collectibility, the accrual
of interest income is generally discontinued. Previously accrued interest on
loans placed in a nonaccrual status is reversed against current income, and
subsequent interest income is recognized on a cash basis when received. When the
collectibility of a significant amount of principal is in serious doubt,
collections are credited first to the remaining principal balance on a cost
recovery basis. An impaired nonaccrual loan is not returned to accrual status
unless principal and interest are current and the borrower has demonstrated the
ability to continue making payments as agreed. The effects of interest income
accrued and collected on impaired loans were immaterial to the consolidated
financial statements for 1999, 1998 and 1997.
As of December 31, 1999, there were no commitments to lend additional
funds to debtors owing amounts on nonaccrual loans.
Potential Problem Loans
Management has identified and maintains a list of potential problem
loans. These are loans that are not included in impaired loans (nonaccrual or
past due 90 days or more and still accruing). A loan is added to the potential
problem list when management becomes aware of information about possible credit
problems of borrowers that causes doubts as to the ability of such borrowers to
comply with the current loan repayment terms. The total amount of loans
outstanding at December 31, 1999 determined by management to be potential
problem loans was $210,000. This amount does not represent management's estimate
of potential losses since a large proportion of such loans is secured by various
types of collateral. The following table presents information about the
categories and types of collateral with respect to potential problem loans as of
December 31, 1999.
December 31, 1999
-----------------
Amount %
------ -
(Dollars in thousands)
Commercial and industrial
Unsecured ......................... $ 15 7.2%
Real estate - mortgage
1-4 family residential ............ 33 15.7%
Nonfarm, nonresidential ........... 74 35.2%
Consumer installment
Vehicles .......................... 22 10.5%
Other secured ..................... 4 1.9%
Unsecured ......................... 62 29.5%
----- -----
Total .................. $ 210 100.0%
===== ======
Allowance for Loan Losses
The allowance for loan losses is increased by direct charges to
operating expense. Losses on loans are charged against the allowance in the
period in which management has determined it is more likely than not that such
loans have become uncollectible. Recoveries of previously charged off loans are
credited to the allowance. The table, "Summary of Loan Loss Experience",
summarizes loan balances at the end of each period indicated, averages for each
period, changes in the allowance arising from charge-offs and recoveries by loan
category, and additions to the allowance which have been charged to expense.
In reviewing the adequacy of the allowance for loan losses at each year
end, management took into consideration the historical loan losses experienced
by the Company, current economic conditions affecting the borrowers' ability to
repay, the volume of loans, the trends in delinquent, nonaccruing, and potential
problem loans, and the quality of collateral securing nonperforming and problem
loans. After charging off all known losses, management considers the allowance
for loan losses adequate to cover its estimate of possible future loan losses
inherent in the loan portfolio as of December 31, 1999.
25
<PAGE>
In calculating the amount required in the allowance for loan losses,
management applies a consistent methodology that is updated monthly. The
methodology utilizes a loan risk grading system and detailed loan reviews to
assess credit risks and the overall quality of the loan portfolio, as well as
other off-balance-sheet credit risks such as loan commitments and standby
letters of credit. In addition, the calculation provides for management's
assessment of trends in national and local economic conditions that might affect
the general quality of the loan portfolio. Management's calculation of the
allowance for loan losses does not provide an allocation by individual loan
categories.
The Company has not historically allocated its allowance for loan
losses to individual loan categories. Management believes that its stringent
loan charge-off policy, along with its limited historic net charge-off
experience, makes an aggregate evaluation that emphasizes individual loan risk
grades and specific problem loan allocations more meaningful. Management's
analysis of historical net charge-offs and the composition of the loan portfolio
at the end of 1999 did not reflect any material change from the prior years
other than the unusually high net charge-offs in the commercial loan category in
1999 caused by the bankruptcies of a few customers. In addition, management is
not aware of any significant degree of increased exposure, risk of collection or
other adverse features toward any particular category of loans. Consequently,
management has not estimated future charge-offs related to individual loan
categories or subcategories.
Summary of Loan Loss Experience
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Total loans outstanding at end of period .......................... $76,158 $67,893 $65,838 $54,658 $44,175
Average amount of loans outstanding ............................... 71,944 68,499 60,707 49,952 40,956
Balance of allowance for loan losses - beginning .................. $ 955 $ 890 $ 705 $ 575 $ 460
------- ------- ------- ------- -------
Loans charged off
Commercial and industrial .................................... 234 44 37 11 14
Real estate - mortgage ....................................... - 9 31 29 -
Consumer installment ......................................... 99 116 72 69 26
------- ------- ------- ------- -------
Total charge-offs ...................................... 333 169 140 109 40
------- ------- ------- ------- -------
Recoveries of loans previously charged off
Commercial and industrial .................................... 12 - 3 1 -
Real estate - mortgage ....................................... - 15 - 5 -
Consumer installment ......................................... 9 6 7 10 2
------- ------- ------- ------- -------
Total recoveries ....................................... 21 21 10 16 2
------- ------- ------- ------- -------
Net charge-offs ................................................... 312 148 130 93 38
------- ------- ------- ------- -------
Additions to allowance charged to expense ......................... 300 213 315 223 153
------- ------- ------- ------- -------
Balance of allowance for loan losses - ending ..................... $ 943 $ 955 $ 890 $ 705 $ 575
======= ======= ======= ======= =======
Ratios
Net charge-offs to average loans ............................. 0.43% 0.22% 0.21% 0.19% 0.09%
Net charge-offs to loans at end of period .................... 0.41% 0.22% 0.20% 0.17% 0.09%
Allowance for loan losses to average loans ................... 1.31% 1.39% 1.47% 1.41% 1.40%
Allowance for loan losses to loans at end of period .......... 1.24% 1.41% 1.35% 1.29% 1.30%
Net charge-offs to allowance for loan losses ................. 33.09% 15.50% 14.61% 13.19% 6.61%
Net charge-offs to provision for loan losses ................. 104.00% 69.48% 41.27% 41.70% 24.84%
</TABLE>
26
<PAGE>
Deposits
The average amounts and percentage composition of deposits held by the
Company for the years ended December 31, 1999, 1998 and 1997, are summarized
below:
Average Deposits
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
Amount % Amount % Amount %
------ - ------ - ------ -
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand ..................... $ 15,703 11.7% $ 17,599 16.4% $ 14,790 16.5%
Interest bearing transaction accounts .......... 17,711 13.2% 13,778 12.8% 10,639 11.8%
Savings ........................................ 20,063 15.0% 20,443 19.1% 16,448 18.3%
Time deposits $100M and over ................... 37,977 28.4% 24,977 23.3% 21,889 24.4%
Other time deposits ............................ 42,330 31.7% 30,428 28.4% 26,065 29.0%
-------- ----- -------- ----- -------- -----
Total deposits .................... $133,784 100.0% $107,225 100.0% $ 89,831 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
As of December 31, 1999, there were $40,934,000 in time deposits of
$100,000 or more. Approximately $26,268,000 mature within three months,
$7,050,000 mature over three through six months, $6,937,000 mature over six
through twelve months and $679,000 mature after one year. This level of large
time deposits, as well as the growth in other deposits, can be attributed to
growth planned by management. The vast majority of time deposits $100,000 and
over are acquired within the Company's service areas in the ordinary course of
business. The Company does not purchase brokered deposits. Most of the large
time deposits are acquired from customers with standing banking relationships.
However, it is a common industry practice to not consider these deposits as core
deposits since their retention can be influenced heavily by rates offered.
Therefore, such deposits have the characteristics of shorter-term purchased
funds. Certificates of deposit $100,000 and over require that the Company
achieve and maintain an appropriate matching of maturity distributions and a
diversification of sources to achieve an appropriate level of liquidity.
Return on Equity and Assets
The following table shows the return on assets (net income divided by
average total assets), return on equity (net income divided by average equity),
dividend payout ratio (dividends declared per share divided by net income per
share), and equity to assets ratio (average equity divided by average total
assets) for each period indicated.
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
Return on assets 1.09% 1.38% 1.38%
Return on equity 11.86% 13.06% 12.64%
Dividend payout ratio 0.00% 0.00% 0.00%
Equity to assets ratio 9.21% 10.53% 10.93%
27
<PAGE>
Liquidity
Liquidity is the ability to meet current and future obligations through
liquidation or maturity of existing assets or the acquisition of additional
liabilities. Adequate liquidity is necessary to meet the requirements of
customers for loans and deposit withdrawals in the most timely and economical
manner. Some liquidity is ensured by maintaining assets which are convertible
immediately into cash at minimal cost (amounts due from banks and federal funds
sold). However, the most manageable sources of liquidity are composed of
liabilities, with the primary focus on liquidity management being on the ability
to obtain deposits within the Company's service areas. Core deposits (total
deposits less time deposits of $100,000 and over) provide a relatively stable
funding base, and the average of these deposits represented 64.4% of average
total assets during 1999 compared with 68.0% during 1998. Deposits of several
local governmental entities comprised approximately 27% of total deposits at the
end of 1999 and 1998. Because of the potentially volatile nature of this funding
source, management maintains the Bank's membership in the Federal Home Loan Bank
of Atlanta (the "FHLB") in order to gain access to its credit programs. As of
December 31, 1999, the banking subsidiary is eligible to borrow up to
$21,707,000 from the FHLB. Such borrowings, if utilized, would be secured by a
lien on its investment in FHLB stock and all qualifying first mortgage
residential loans held. Assets potentially subject to this lien totaled
approximately $28,815,000 as of December 31, 1999. In addition, the banking
subsidiary has available unused short-term lines of credit to purchase up to
$2,500,000 of federal funds from unrelated correspondent institutions. The lines
are generally available on a one to seven day basis. Asset liquidity is provided
from several sources, including amounts due from banks and federal funds sold.
Securities available-for-sale, particularly those maturing within one year, and
funds available from maturing loans provide secondary sources of liquidity.
Community First Bancorporation's ability to meet its cash obligations
or to pay any possible future cash dividends to shareholders is dependent
primarily on the successful operation of the subsidiary bank and its ability to
pay cash dividends to the parent company. Any of the banking subsidiary's cash
dividends in excess of the amount of the subsidiary's current year-to-date
earnings are subject to the prior approval of the South Carolina Commissioner of
Banking and are generally payable only from its undivided profits. At December
31, 1999, the banking subsidiary's available undivided profits totaled
$6,474,000. Under Federal Reserve Board regulations, the amounts of loans or
advances from the banking subsidiary to the parent company are also restricted.
During 1999 and 1998, the parent company received no cash dividends from its
banking subsidiary. However, the parent company received a $250,000 cash
dividend from the bank subsidiary during 1997.
Management believes that the overall liquidity sources of both the
Company and its banking subsidiary are adequate to meet their operating needs.
Capital Resources
Shareholders' equity increased by $133,000 and $1,753,000 during 1999
and 1998, respectively. During 1999, net income increased shareholders' equity
$1,626,000, and the exercise of employee stock options provided a $125,000
increase. Other comprehensive income or loss, consisting solely of the change in
unrealized holding gains or losses on available-for-sale securities, net of
deferred tax effects, reduced shareholders' equity by $1,612,000 for the year
ended December 31, 1999. In addition, $6,000 was paid in lieu of issuing
fractional shares with respect to the 10% stock dividend declared and
distributed during 1999. Management continues to use retained earnings to
provide adequate capital for expected growth.
In 1999, the Company's Board of Directors declared a 10% stock
dividend. During 1998, the Company's Board of Directors declared a two-for-one
stock split, and in 1997, declared a 15% stock dividend. These actions resulted
in the issuance of 180,155, 889,198 and 228,902 additional shares of the
Company's common stock to its shareholders, respectively.
The Company and its banking subsidiary are each subject to regulatory
risk-based capital adequacy standards. Under these standards, bank holding
companies and banks are required to maintain certain minimum ratios of capital
to risk-weighted assets and average total assets. Under the provisions of the
Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), federal
28
<PAGE>
bank regulatory authorities are required to implement prescribed "prompt
corrective actions" upon the deterioration of the capital position of a bank or
bank holding company. If the capital position of an affected institution were to
fall below certain levels, increasingly stringent regulatory corrective actions
are mandated. Unrealized holding gains and losses on available-for-sale
securities are generally excluded for purposes of calculating regulatory capital
ratios. However, the extent of any unrealized appreciation or depreciation on
securities will continue to be a factor that regulatory examiners consider in
their overall assessment of capital adequacy.
Quantitative measures established by regulation to ensure capital
adequacy require both the Company and the Bank to maintain minimum amounts and
ratios, as set forth in the table below, of Total and Tier 1 Capital, as defined
in the regulation, to risk weighted assets, as defined, and of Tier 1 Capital,
as defined, to average assets, as defined. Management believes, as of December
31, 1999 and 1998, that the Company and the Bank exceeded all capital adequacy
minimum requirements to which they were subject.
To be categorized as well capitalized, the Company and the Bank must
maintain minimum Total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios
as set forth in the table below. The federal regulators may also categorize the
Company or the Bank as less than well capitalized based on subjective criteria.
There are no conditions or events that management believes would cause the
Company's or the Bank's category to be other than that resulting from meeting
the minimum ratio requirements.
<TABLE>
<CAPTION>
Minimum for Minimum to be
Actual Capital Adequacy Well Capitalized
------ ---------------- ----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
December 31, 1999 (Dollars in thousands)
The Company
<S> <C> <C> <C> <C> <C> <C>
Total Capital to risk weighted assets ................... $16,308 19.4% $ 6,716 8.0% $ 8,394 10.0%
Tier 1 Capital to risk weighted assets .................. $15,365 18.3% $ 3,358 4.0% $ 5,037 6.0%
Tier 1 Capital to average assets (leverage) ............. $15,365 10.0% $ 4,625 3.0% $ 7,709 5.0%
Community First Bank
Total Capital to risk weighted assets ................... $15,900 18.9% $ 6,716 8.0% $ 8,394 10.0%
Tier 1 Capital to risk weighted assets .................. $14,957 17.8% $ 3,358 4.0% $ 5,037 6.0%
Tier 1 Capital to average assets (leverage) ............. $14,957 9.7% $ 4,625 3.0% $ 7,709 5.0%
December 31, 1998
The Company
Total Capital to risk weighted assets ................... $14,497 20.7% $ 5,615 8.0% $ 7,019 10.0%
Tier 1 Capital to risk weighted assets .................. $13,620 19.4% $ 2,807 4.0% $ 4,211 6.0%
Tier 1 Capital to average assets (leverage) ............. $13,620 11.0% $ 3,703 3.0% $ 6,172 5.0%
Community First Bank
Total Capital to risk weighted assets ................... $14,197 20.2% $ 5,615 8.0% $ 7,019 10.0%
Tier 1 Capital to risk weighted assets .................. $13,320 19.0% $ 2,807 4.0% $ 4,211 6.0%
Tier 1 Capital to average assets (leverage) ............. $13,320 10.8% $ 3,703 3.0% $ 6,172 5.0%
</TABLE>
Inflation
Since the assets and liabilities of a bank are primarily monetary in
nature (payable in fixed, determinable amounts), the performance of a bank is
affected more by changes in interest rates than by inflation. Interest rates
generally increase as the rate of inflation increases, but the magnitude of the
change in rates may not be the same.
While the effect of inflation on banks is normally not as significant
as is its influence on those businesses having large investments in plant and
inventories, it does have an effect. During periods of high inflation, there are
normally corresponding increases in the money supply, and banks will normally
experience above-average growth in assets, loans and deposits. Also, general
increases in the prices of goods and services will result in increased operating
expenses.
29
<PAGE>
Independent Auditors' Report
The Shareholders and Board of Directors
of Community First Bancorporation
We have audited the accompanying consolidated balance sheet of
Community First Bancorporation and subsidiary as of December 31, 1999 and 1998,
and the related consolidated statements of income, changes in shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Community First Bancorporation and subsidiary as of December 31, 1999 and 1998,
and the consolidated results of their operations and their consolidated cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with generally accepted accounting principles.
s/Donald G. Jones and Company, P.A.
Donald G. Jones and Company, P.A.
Certified Public Accountants
Columbia, South Carolina
February 8, 2000
30
<PAGE>
Consolidated Balance Sheet
Community First Bancorporation
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
Assets
<S> <C> <C>
Cash and due from banks (Note C) .......................................... $ 4,554,811 $ 3,319,892
Federal funds sold ........................................................ 12,410,000 14,150,000
Securities available-for-sale (Note D) .................................... 54,178,048 38,284,136
Other investments ......................................................... 382,000 345,400
Loans (Note E) ............................................................ 76,157,943 67,893,169
Allowance for loan losses ............................................. (942,950) (954,788)
------------- -------------
Loans - net ........................................................ 75,214,993 66,938,381
Premises and equipment - net (Note F) ..................................... 4,263,580 2,871,156
Accrued interest receivable ............................................... 1,192,396 829,201
Other assets .............................................................. 1,387,632 388,610
------------- -------------
Total assets ....................................................... $ 153,583,460 $ 127,126,776
============= =============
Liabilities
Deposits (Note G)
Noninterest bearing ................................................... $ 16,908,526 $ 14,797,785
Interest bearing ...................................................... 121,709,720 97,698,387
------------- -------------
Total deposits ..................................................... 138,618,246 112,496,172
Accrued interest payable .................................................. 1,179,891 965,653
Other liabilities ......................................................... 49,033 61,991
------------- -------------
Total liabilities .................................................. 139,847,170 113,523,816
------------- -------------
Commitments and contingent liabilities (Note L)
Shareholders' equity (Notes B and H)
Common stock - no par value; 10,000,000
shares authorized; issued and
outstanding - 2,002,699 for 1999 and
1,793,792 for 1998 .................................................... 14,254,918 10,568,522
Retained earnings ......................................................... 1,110,371 3,051,399
Accumulated other comprehensive income (loss) ............................. (1,628,999) (16,961)
------------- -------------
Total shareholders' equity ......................................... 13,736,290 13,602,960
------------- -------------
Total liabilities and shareholders' equity ......................... $ 153,583,460 $ 127,126,776
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE>
Consolidated Statement of Income
Community First Bancorporation
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
Interest Income
<S> <C> <C> <C>
Loans, including fees .................................... $ 6,330,466 $ 6,116,208 $ 5,397,962
Securities
Taxable .............................................. 3,044,216 1,841,050 1,645,718
Tax-exempt ........................................... 4,119 - -
Federal funds sold ....................................... 994,827 926,264 534,153
Other investments ........................................ 28,267 20,797 -
----------- ----------- -----------
Total interest income ................................ 10,401,895 8,904,319 7,577,833
----------- ----------- -----------
Interest expense
Time deposits $100,000 and over .......................... 2,015,117 1,390,866 1,201,135
Other deposits ........................................... 3,671,647 3,127,035 2,462,426
Short-term borrowings .................................... 148 - 649
----------- ----------- -----------
Total interest expense ............................... 5,686,912 4,517,901 3,664,210
----------- ----------- -----------
Net interest income ........................................... 4,714,983 4,386,418 3,913,623
Provision for loan losses (Note E) ............................ 300,009 213,486 315,183
----------- ----------- -----------
Net interest income after provision ........................... 4,414,974 4,172,932 3,598,440
----------- ----------- -----------
Other income
Service charges on deposit accounts ...................... 428,733 368,777 306,435
Credit life insurance commissions ........................ 38,042 39,189 38,827
Other income ............................................. 195,244 166,766 176,753
----------- ----------- -----------
Total other income ................................... 662,019 574,732 522,015
----------- ----------- -----------
Other expenses (Notes I and K)
Salaries and employee benefits ........................... 1,378,965 1,138,752 1,008,265
Net occupancy expense .................................... 129,225 115,789 100,605
Furniture and equipment expense .......................... 218,800 194,429 166,612
Other expense ............................................ 814,664 706,289 633,020
----------- ----------- -----------
Total other expenses ................................. 2,541,654 2,155,259 1,908,502
----------- ----------- -----------
Income before income taxes .................................... 2,535,339 2,592,405 2,211,953
Income tax expense (Note J) ................................... 909,041 928,127 806,903
----------- ----------- -----------
Net income .................................................... $ 1,626,298 $ 1,664,278 $ 1,405,050
=========== =========== ===========
Per share (Note H)
Net income ............................................... $ 0.82 $ 0.85 $ 0.73
Net income, assuming dilution ............................ 0.76 0.80 0.70
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE>
Consolidated Statement of Changes in Shareholders' Equity
Community First Bancorporation
<TABLE>
<CAPTION>
Common Stock
------------ Accumulated
Number of Capital Retained Other Comprehensive
Shares* Amount Surplus Earnings Income Total
------- ------ ------- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 .......................... 1,529,108 $ 3,822,770 $ 4,658,603 $ 1,932,061 $ (78,747) $ 10,334,687
------------
Comprehensive income:
Net income ...................................... - - - 1,405,050 - 1,405,050
Change in unrealized holding gains
and losses on available-for-sale
securities, net of income tax effects ......... - - - - 62,210 62,210
------------
Total comprehensive income ................. - - - - - 1,467,260
------------
Issuance of 15% stock dividend,
including cash payment for
fractional shares ............................... 228,902 1,945,667 - (1,949,990) - (4,323)
Exercise of employee stock options ................ 14,270 50,767 1,330 - - 52,097
Exchange of no par value common stock
of Community First Bancoporation
for all of the outstanding shares
of Community First Bank (Note B) ............... - 4,659,933 (4,659,933) - - -
--------- ----------- ----------- ----------- ----------- ------------
Balance, December 31, 1997 ........................ 1,772,280 10,479,137 - 1,387,121 (16,537) 11,849,721
Comprehensive income:
Net income ...................................... - - - 1,664,278 - 1,664,278
Change in unrealized holding gains
and losses on available-for-sale
securities, net of income tax effects ........ - - - - (424) (424)
------------
Total comprehensive income ................. - - - - - 1,663,854
------------
Exercise of employee stock options ................ 21,512 89,385 - - - 89,385
--------- ----------- ----------- ----------- ----------- ------------
Balance, December 31, 1998 ........................ 1,793,792 10,568,522 - 3,051,399 (16,961) 13,602,960
Comprehensive income:
Net income ...................................... - - - 1,626,298 - 1,626,298
Change in unrealized holding gains
and losses on available-for-sale
securities, net of income tax effects ........ - - - - (1,612,038) (1,612,038)
------------
Total comprehensive income ................. - - - - - 14,260
------------
Issuance of 10% stock dividend,
including cash payment for
fractional shares ............................... 180,155 3,561,672 - (3,567,326) - (5,654)
Exercise of employee stock options ................ 28,752 124,724 - - - 124,724
--------- ----------- ----------- ----------- ----------- ------------
Balance, December 31, 1999 ........................ 2,002,699 $14,254,918 $ - $ 1,110,371 $(1,628,999) $ 13,736,290
========= =========== =========== =========== =========== ============
</TABLE>
* Adjusted for a two-for-one stock split effective July 31, 1998.
See accompanying notes to consolidated financial statements.
33
<PAGE>
Consolidated Statement of Cash Flows
Community First Bancorporation
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
Operating Activities
<S> <C> <C> <C>
Net income .......................................................... $ 1,626,298 $ 1,664,278 $ 1,405,050
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for loan losses ................................. 300,009 213,486 315,183
Depreciation .............................................. 170,623 149,463 129,703
Deferred income taxes ..................................... 21,651 1,957 (49,529)
Amortization of net loan fees and costs ................... 64,876 55,014 37,959
Securities accretion and premium amortization ............. (16,944) (98,401) (14,705)
Writedowns of other real estate ........................... - - 25,000
Gain on sale of other real estate ......................... (9,684) - (44,547)
Loss on disposal of fixed assets .......................... 8,342 439 -
Increase in interest receivable ........................... (363,195) (36,486) (74,475)
Increase (decrease) in interest payable ................... 214,238 193,548 (46,600)
Decrease (increase) in prepaid expenses ................... 24,230 (27,364) (94,750)
(Decrease) increase in other accrued expenses ............. (12,958) 6,250 (4,370)
------------ ------------ ------------
Net cash provided by operating activities ............ 2,027,486 2,122,184 1,583,919
------------ ------------ ------------
Investing activities
Purchases of available-for-sale securities .......................... (26,347,189) (60,961,204) (7,999,531)
Maturities of available-for-sale securities ......................... 7,955,341 48,285,332 9,125,412
Purchases of other investments ...................................... (36,600) (10,400) (335,000)
Net increase in loans made to customers ............................. (8,783,558) (2,259,098) (11,347,996)
Proceeds from sale of other real estate ............................. 9,684 - 44,547
Purchases of premises and equipment ................................. (1,571,389) (1,345,566) (22,770)
------------ ------------ ------------
Net cash used by investing activities ................ (28,773,711) (16,290,936) (10,535,338)
------------ ------------ ------------
Financing activities
Net increase in demand deposits, interest
bearing transaction accounts and savings accounts .............. 3,197,622 6,111,490 1,442,368
Net increase in certificates of deposit and other
time deposits .................................................. 22,924,452 14,094,110 3,388,290
Payment of cash in lieu of fractional shares
for stock dividend ............................................. (5,654) - (4,323)
Exercise of employee stock options, net
of issuance costs of $15,953 in 1999 ........................... 124,724 89,385 52,097
------------ ------------ ------------
Net cash provided by financing activities ............ 26,241,144 20,294,985 4,878,432
------------ ------------ ------------
(Decrease) increase in cash and cash equivalents .......................... (505,081) 6,126,233 (4,072,987)
Cash and cash equivalents, beginning ...................................... 17,469,892 11,343,659 15,416,646
------------ ------------ ------------
Cash and cash equivalents, ending ......................................... $ 16,964,811 $ 17,469,892 $ 11,343,659
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE>
Notes to Consolidated Financial Statements
Community First Bancorporation
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization. Community First Bancorporation (the "Company"), a bank holding
company, and its wholly-owned subsidiary, Community First Bank, are engaged in
providing domestic commercial banking services from their headquarters office in
Walhalla, and other offices in Seneca and Anderson, South Carolina. The Company
is a South Carolina corporation and its banking subsidiary is a state chartered
commercial bank with its deposits insured by the Federal Deposit Insurance
Corporation (the "FDIC"). Therefore, the Company and its bank subsidiary operate
under the supervision, rules and regulations of the Federal Reserve Board, FDIC
and South Carolina State Board of Financial Institutions. The holding company
was incorporated on May 23, 1997, pursuant to a plan of reorganization as
described in Note B to the consolidated financial statements. Community First
Bank was organized on December 1, 1988, and received its charter and commenced
operations on March 12, 1990.
The subsidiary, Community First Bank, is a community-oriented institution
offering a full range of traditional banking services, with the exception of
trust services. Substantially all of its loans are made to individuals and
business within markets in Oconee and Anderson counties of South Carolina. Also,
substantially all of its deposits are acquired within its local market areas and
no brokered deposits are accepted.
Principles of Consolidation and Basis of Presentation. The consolidated
financial statements include the accounts of the parent company and its banking
subsidiary after elimination of all significant intercompany balances and
transactions. The accounting and reporting policies of the Company and its
subsidiary are in conformity with generally accepted accounting principles and
general practices within the banking industry.
Securities. Equity securities that have readily determinable fair values and all
debt securities are classified generally at the time of purchase into one of
three categories: held-to-maturity, trading or available-for-sale. Debt
securities which the Company has the positive intent and ability to hold to
ultimate maturity are classified as held-to-maturity and accounted for at
amortized cost. Debt and equity securities that are bought and held primarily
for sale in the near term are classified as trading and are accounted for on an
estimated fair value basis, with unrealized gains and losses included in other
income. However, the Company has never held any securities for trading purposes.
Securities not classified as either held-to-maturity or trading are classified
as available-for-sale and are accounted for at estimated fair value. Unrealized
holding gains and losses on available-for-sale securities are excluded from net
income and recorded as other comprehensive income, net of applicable income tax
effects. Dividend and interest income, including amortization of any premium or
accretion of discount arising at acquisition, is included in earnings for all
three categories of securities. Realized gains and losses on all categories of
securities are included in other operating income, based on the amortized cost
of the specific certificate on a trade date basis.
Other Investments. Other investments consist of restricted securities which are
carried at cost. Management periodically evaluates these securities for
impairment, with any appropriate downward valuation adjustments being made when
necessary. Other investments at December 31, 1999 and 1998 consisted of Federal
Home Loan Bank of Atlanta (the "FHLB") stock with the carrying amount
approximating estimated fair value.
Loans and Interest Income. Loans are carried at principal amounts outstanding,
increased or reduced by deferred net loan costs or fees. Interest income on
loans is recognized using the interest method based upon the principal amounts
outstanding. Loan origination and commitment fees and certain direct loan
origination costs (principally salaries and employee benefits) are being
deferred and amortized as an adjustment of the related loan's yield. Generally,
these amounts are being amortized over the contractual life of the related loans
or commitments.
A loan is considered to be impaired when, in management's judgment based on
current information and events, it is probable that the obligation's principal
or interest will not be collectible in accordance with the terms of the original
loan agreement. Impaired loans, when not material, are carried in the balance
sheet at a value not to exceed their observable market price or the fair value
of the collateral if the repayment of the loan is expected to be provided solely
by the underlying collateral. The carrying value of any material impaired loan
is measured based on the present value of expected future cash flows discounted
at the loan's effective interest rate, which is the contractual interest rate
35
<PAGE>
adjusted for any deferred loan fees or costs, premium or discount existing at
the inception or acquisition of the loan. Generally, the accrual of interest is
discontinued on impaired loans and any previously accrued interest on such loans
is reversed against current income. Any subsequent interest income is recognized
on a cash basis when received unless collectibility of a significant amount of
principal is in serious doubt. In such cases, collections are credited first to
the remaining principal balance on a cost recovery basis. An impaired loan is
not returned to accrual status unless principal and interest are current and the
borrower has demonstrated the ability to continue making payments as agreed.
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. When management determines that a loan
will not perform substantially as agreed, a review of the loan is initiated to
ascertain whether it is more likely than not that a loss has occurred. If it is
determined that a loss is likely, the estimated amount of the loss is 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.
Determining the amount and adequacy of the allowance for loan losses involves
estimating uncertain future events and their effects based on judgment applied
to currently known facts and circumstances. Changes in the estimated allowance
for loan losses necessitated as new events occur or more information is obtained
are accounted for as changes in accounting estimates in the accounting period in
which the change occurs.
Management considers the Company's historical loan loss experience, current
national and local economic conditions affecting the borrowers' ability to
repay, the volume of loans, the trends in delinquent, impaired and potential
problem loans, and the amount and quality of collateral securing such loans in
reviewing the adequacy of the allowance for loan losses. In calculating its
estimate, management applies a consistent methodology that is updated monthly.
The calculation involves applying various estimated percentage factors to the
loan portfolio categorized into assessed risk grades utilizing the Company's
ongoing system of detailed loan reviews. For some loans, particularly those
identified as impaired or potential problem, specific allocations are made in
the calculation. The methodology also includes assessing the risk associated
with off-balance-sheet extensions of credit such as loan commitments and standby
letters of credit.
Premises and Equipment. Premises and equipment are stated at cost, less
accumulated depreciation. The provision for depreciation is computed using the
straight-line method. Rates of depreciation are generally based on the following
estimated useful lives: buildings - 40 years; land improvements - 15 years;
furniture and equipment - 5 to 25 years. The cost of assets sold or otherwise
disposed of, and the related allowance for depreciation is eliminated from the
accounts and the resulting gains or losses are reflected in the consolidated
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. Other real estate includes properties acquired through
foreclosure or acceptance of a deed in lieu of foreclosure. Other real estate is
initially recorded at the lower of cost or the estimated fair market value, less
estimated selling costs. Loan losses arising from the acquisition of such
property are charged to the allowance for loan losses. An allowance for losses
on other real estate is maintained for subsequent downward valuation
adjustments.
Retirement Plan. The Company has a salary reduction profit sharing plan pursuant
to Section 401(k) of the Internal Revenue Code as more fully described in Note
K. The Company does not sponsor any postretirement or postemployment benefits.
Deferred Income Taxes. The Company uses an asset and liability approach for
financial accounting and reporting of deferred income taxes. Deferred tax assets
and liabilities are determined based on the difference between the financial
statement and income tax bases of assets and liabilities as measured by the
currently enacted tax rates which are assumed will be in effect when these
differences reverse. If it is more likely than not that some portion or all of a
deferred tax asset will not be realized, a valuation allowance is recognized.
Deferred income tax expense or credit is the result of changes in deferred tax
assets and liabilities.
Stock-Based Compensation. The Company applies only the disclosure provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation", but applies Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees", for recording compensation cost
36
<PAGE>
for stock options granted. Accordingly, compensation expense is measured as the
excess, if any, of the estimated fair value of the Company's common stock at the
date of grant over the amount the grantee must pay to acquire the shares under
option. Refer to Note H for further information.
Earnings Per Share. Basic net income per share is calculated by dividing net
income by the weighted average number of shares of the Company's common stock
outstanding during the period. Net income per share, assuming dilution, is
calculated by dividing net income by the total of the weighted average number of
shares outstanding during the period and the weighted average number of any
dilutive potential common shares and stock options that would have been
outstanding if the dilutive potential shares and stock options had been issued.
In computing the number of dilutive potential common shares, it is assumed that
all dilutive stock options are exercised at the beginning of each year and that
the proceeds are used to purchase shares of the Company's common stock at the
average market price during the year. See Note H.
Comprehensive Income. In June, 1997, the Financial Accounting Standards Board
issued SFAS No. 130, "Reporting Comprehensive Income". As required, the Company
adopted the provisions of this SFAS beginning January 1, 1998, with
reclassifications included for any earlier comparative accounting periods
presented. Comprehensive income consists of net income or loss for the current
period and other comprehensive income, defined as income, expenses, gains and
losses that bypass the consolidated statement of income and are reported
directly in a separate component of shareholders' equity. SFAS No. 130 provides
that the Company classify and report items of other comprehensive income
according to their nature, report total comprehensive income in a financial
statement and display the accumulated balance of other comprehensive income
separately in the shareholders' equity section of the consolidated balance
sheet. However, the adoption of SFAS No. 130 had no effect on the Company's net
income or shareholders' equity. See Note H.
The components of other comprehensive income or loss and related tax effects are
as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Change in unrealized holding gains and
losses on available-for-sale securities ..... $(2,514,880) $ (661) $ 97,051
Income tax expense (benefit) on other
comprehensive income (loss) ................. (902,842) (237) 34,841
----------- ----------- -----------
Net-of-tax amount ....................... $(1,612,038) $ (424) $ 62,210
=========== =========== ===========
</TABLE>
Consolidated Statement of Cash Flows. The consolidated statement of cash flows
reports net cash provided or used by operating, investing and financing
activities and the net effect of those flows on cash and cash equivalents. Cash
equivalents include amounts due from banks, federal funds sold and securities
purchased under agreements to resell.
During 1999, 1998 and 1997, interest paid on deposits and other borrowings
amounted to $5,543,362, $4,348,010 and $3,710,810, respectively. Income tax
payments of $865,800, $958,200 and $864,056 were made during 1999, 1998 and
1997, respectively. In 1999, a noncash transfer of $142,061 was made from loans
to other real estate. Noncash transfers from retained earnings to common stock
in the amounts of $3,561,672 and $1,945,667 were made as the result of stock
dividends declared in 1999 and 1997, respectively. Effective October 16, 1997,
Community First Bancorporation acquired all of the then outstanding shares of
Community First Bank's $5.00 par value common stock in exchange for shares of
Community First Bancorporation's no par value common stock. As a result, a
noncash transfer of $4,659,933 was made from capital surplus to common stock.
During 1999, 1998 and 1997, noncash valuation adjustments totaling $2,514,880,
$661 and $97,051 were made which decreased, decreased and increased,
respectively, the carrying amount of available-for-sale securities. In 1999,
accumulated other comprehensive income decreased $1,612,038 and deferred tax
assets increased $902,842; in 1998, accumulated other comprehensive income
decreased $424 and deferred tax assets increased $237; and, in 1997, accumulated
other comprehensive income increased $62,210 and deferred tax assets decreased
$34,841.
37
<PAGE>
Fair Value Estimates. Fair value estimates are made at a specific point in time
based on relevant market information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Company's entire holdings of a particular financial
instrument. Because no active trading market exists for a significant portion of
the Company's financial instruments, fair value estimates are based on
management's judgments regarding future expected loss experience, current
economic conditions, risk characteristics of various financial instruments, and
other factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly affect the
estimates.
Fair value estimates are based on existing on-and-off balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not
considered financial assets or liabilities include net deferred tax assets and
premises and equipment. In addition, the income tax ramifications related to the
realization for the unrealized gains and losses can have a significant effect on
fair value estimates and have not been considered in the estimates.
For cash and due from banks, federal funds sold and accrued interest receivable
and payable, the carrying amount approximates fair value because these
instruments generally mature in 90 days or less and do not present unanticipated
credit concerns.
NOTE B - CORPORATE REORGANIZATION
On May 20, 1997, the shareholders of Community First Bank approved a plan of
corporate reorganization under which Community First Bank would become a
wholly-owned subsidiary of Community First Bancorporation. As a result,
Community First Bancorporation was organized on May 23, 1997 at the direction of
Community First Bank's management. The authorized common stock of Community
First Bancorporation at that time was 5,000,000 shares with no par value per
share. Pursuant to the reorganization, the parent company issued 764,702
(unadjusted for stock dividend and stock splits) shares of its common stock in
exchange for all of the 764,702 outstanding common shares of Community First
Bank. The reorganization was effected on October 16, 1997 and accounted for as
if it were a pooling-of-interests. As a result, the consolidated financial
statements for the year ended December 31, 1997 are presented as if the
reorganization had occurred on January 1, 1997.
38
<PAGE>
NOTE C - CASH AND DUE FROM BANKS
Banks are generally required by regulation to maintain an average cash reserve
balance based on a percentage of deposits. The average amount of the cash
reserve balances at December 31, 1999 and 1998, were approximately $638,000 and
$697,000, respectively.
NOTE D - SECURITIES
The aggregate amortized cost and estimated fair values of securities, as well as
gross unrealized gains and losses of securities were as follows:
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
Gross Gross Gross Gross
Unrealized Unrealized Estimated Unrealized Unrealized Estimated
Amortized Holding Holding Fair Amortized Holding Holding Fair
Cost Gains Losses Value Cost Gains Losses Value
---- ----- ------ ----- ---- ----- ------ -----
Available-for-sale
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury .......... $ 1,991,048 $ - $ 22,298 $ 1,968,750 $ - $ - $ - $ -
U.S. Government
agencies ........... 47,975,198 - 2,299,562 45,675,636 30,971,303 58,970 111,202 30,919,071
Mortgage-backed
securities ......... 6,555,924 - 215,073 6,340,851 - - - -
State, county and
municipal .......... 197,218 - 4,407 192,811 7,339,293 54,007 28,235 7,365,065
----------- ------- ----------- ----------- ----------- ----------- ----------- -----------
Total ............ $56,719,388 $ - $ 2,541,340 $54,178,048 $38,310,596 $ 112,977 $ 139,437 $38,284,136
=========== ======= =========== =========== =========== =========== =========== ===========
</TABLE>
The amortized cost and estimated fair value of securities by contractual
maturity are shown below:
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
---- ---------- ---- ----------
Available-for-sale
<S> <C> <C> <C> <C>
Due after one through five years ................... $22,009,558 $21,444,378 $ 7,990,095 $ 8,034,377
Due after five through ten years ................... 26,956,688 25,311,883 21,981,208 21,900,007
Due after ten years ................................ 1,197,218 1,080,936 1,000,000 984,687
----------- ----------- ----------- -----------
50,163,464 47,837,197 30,971,303 30,919,071
Mortgage-backed securities ......................... 6,555,924 6,340,851 7,339,293 7,365,065
----------- ----------- ----------- -----------
Total .......................................... $56,719,388 $54,178,048 $38,310,596 $38,284,136
=========== =========== =========== ===========
</TABLE>
The fair value of U.S. Treasury and U.S. Government agencies debt securities is
estimated based on published closing quotations. Fair value for mortgage-backed
securities is estimated primarily using dealers' quotes.
There were no sales or transfers to other categories of available-for-sale
securities in 1999, 1998 and 1997.
39
<PAGE>
At December 31, 1999, securities with an amortized cost of $39,186,397 and an
estimated fair value of $37,129,288 were pledged as collateral to secure public
deposits. The amortized cost and estimated fair value of such pledged securities
were $36,246,811 and $36,219,904, respectively, at the end of 1998.
NOTE E - LOANS
Loans consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Commercial, financial and industrial ................. $ 13,962,418 $ 13,735,734 $ 9,537,226 $ 9,430,082
Real estate- construction ............................ 27,808 27,475 50,820 50,471
Real estate - mortgage ............................... 44,954,510 44,356,723 41,653,728 41,254,837
Consumer installment ................................. 17,213,207 16,990,119 16,651,395 16,607,402
------------ ------------ ------------ ------------
Total ........................................... 76,157,943 75,110,051 67,893,169 67,342,792
Allowance for loan losses ............................ (942,950) - (954,788) -
------------ ------------ ------------ ------------
Loans - net ..................................... $ 75,214,993 $ 75,110,051 $ 66,938,381 $ 67,342,792
============ ============ ============ ============
</TABLE>
Net deferred loan costs of $53,365 and $35,576 have been allocated to the
various loan categories as of December 31, 1999 and 1998, respectively.
Fair values are estimated for loan categories with similar financial
characteristics. Within each category, the fair value of loans is calculated by
discounting estimated cash flows through the estimated maturity using estimated
market discount rates that reflect the credit and interest rate risk inherent in
the loan. For certain categories of loans, such as variable rate loans, credit
card receivables, and other lines of credit, the carrying amount, adjusted for
credit risk, is a reasonable estimate of fair value because there is no
contractual maturity or because the Company has the ability to reprice the loans
as interest rate shifts occur. Since the discount rates are based on current
loan rates offered as well as management's estimates, the fair values presented
may not necessarily be indicative of the value negotiated in an actual sale.
Loans which management has identified as impaired generally are nonperforming
loans. Nonperforming loans include nonaccrual loans or loans which are 90 days
or more delinquent as to principal or interest payments. Following is a summary
of activity regarding the Company's impaired loans:
December 31,
------------
1999 1998
---- ----
Investment in impaired loans
Nonaccrual .......................................... $208,792 $365,626
Accruing 90 days and over past due .................. 19,890 10,575
-------- --------
Total ........................................... $228,682 $376,201
======== ========
Average total investment in impaired loans
during the year ....................................... $254,000 $184,800
Allowance for loan losses on impaired loans .............. 38,224 29,347
The average total investment in impaired loans during 1997 was $303,875. There
were no outstanding commitments at December 31, 1999 to lend additional funds to
debtors owing amounts on impaired loans.
40
<PAGE>
As of December 31, 1999 and 1998, there were no significant concentrations of
credit risk in any single borrower or groups of borrowers. The Company's loan
portfolio consists primarily of extensions of credit to businesses and
individuals in its Oconee and Anderson County, South Carolina market areas. The
economy of these areas is diversified and does not depend on any one industry or
group of related industries. Management has established loan policies and
practices that include set limitations on loan-to-collateral value for different
types of collateral, requirements for appraisals, obtaining and maintaining
current credit and financial information on borrowers, and credit approvals.
Transactions in the allowance for loan losses are summarized below:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at January 1 .................................... $ 954,788 $ 890,125 $ 705,000
Provision charged to expense ............................ 300,009 213,486 315,183
Recoveries .............................................. 21,465 20,915 10,146
Charge-offs ............................................. (333,312) (169,738) (140,204)
--------- --------- ---------
Balance at December 31 .................................. $ 942,950 $ 954,788 $ 890,125
========= ========= =========
</TABLE>
Certain officers and directors of the Company and its subsidiary, their
immediate families and business interests were loan customers of, and had other
transactions with the banking subsidiary in the normal course of business.
Related party loans are made on substantially the same terms, including interest
rates and collateral, and do not involve more than normal risk of
collectibility. The aggregate dollar amount of these loans was $4,268,490 and
$3,288,367 at December 31, 1999 and 1998, respectively. During 1999, $3,453,203
of new loans were made and repayments totaled $2,473,080.
NOTE F - PREMISES AND EQUIPMENT
Premises and equipment consisted of the following:
December 31,
------------
1999 1998
---- ----
Land ............................................. $1,670,670 $ 384,773
Buildings and land improvements .................. 1,946,097 972,836
Furniture and equipment .......................... 1,101,865 894,822
Construction in progress ......................... 315,078 1,233,175
---------- ----------
Total .............................. 5,033,710 3,485,606
Accumulated depreciation ......................... 770,130 614,450
---------- ----------
Premises and equipment - net ....... $4,263,580 $2,871,156
========== ==========
Depreciation expense for the years ended December 31, 1999, 1998 and 1997 was
$170,623 $149,463 and $129,703, respectively.
Construction in progress at December 31, 1999, consists primarily of costs
incurred for the acquisition of land for the Company's proposed branch office in
Williamston, South Carolina. Management has not yet completed plans or entered
into contracts for the construction of the office.
41
<PAGE>
NOTE G - DEPOSITS
A summary of deposits follows:
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Noninterest bearing demand ......................... $ 16,908,526 $ 16,908,526 $ 14,797,785 $ 14,797,785
Interest bearing transaction accounts .............. 17,894,447 17,894,447 17,239,636 17,239,636
Savings ............................................ 17,304,086 17,304,086 16,872,016 16,872,016
Time deposits $100,000 and over .................... 40,934,288 40,936,034 29,057,397 29,061,084
Other time deposits ................................ 45,576,899 45,567,529 34,529,338 34,576,445
------------ ------------ ------------ ------------
Total deposits ................................ $138,618,246 $138,610,622 $112,496,172 $112,546,966
============ ============ ============ ============
</TABLE>
As of December 31, 1999 and 1998, local governmental deposits comprised
approximately 27% of total deposits.
The fair value of deposits with no stated maturity (noninterest bearing demand,
interest bearing transaction accounts and savings) is equal to the amount
payable on demand, or carrying amount, as of December 31, 1999 and 1998. The
fair value of time deposits is estimated based on the discounted value of
contractual cash flows. The discount rate is estimated using the rate currently
offered as of December, 31, 1999 and 1998, for deposits of similar remaining
maturities.
At December 31, 1999, the scheduled maturities of time deposits are as follows:
Year Amount
2000 $ 81,998,924
2001 4,445,543
2002 27,074
2003 34,646
2004 and thereafter 5,000
NOTE H - SHAREHOLDERS' EQUITY
Restrictions on Subsidiary Dividends, Loans or Advances. South Carolina
regulations restrict the amount of dividends that banks can pay to shareholders.
Any of the banking subsidiary's dividends to the parent company which exceed in
amount the total amount of the subsidiary's current year-to-date earnings are
subject to the prior approval of the South Carolina Commissioner of Banking and
are generally payable only from its undivided profits. At December 31, 1999, the
banking subsidiary's available undivided profits totaled $6,473,541. Under
Federal Reserve Board regulations, the amounts of loans or advances from the
banking subsidiary to the parent company are also restricted.
Stock Split and Stock Dividends. The Company's Board of Directors declared a
two-for-one stock split effective on July 31, 1998. At that time, the Company's
number of authorized shares of its common stock was increased from 5,000,000 to
10,000,000 shares. Effective December 15, 1999 and December 30, 1997, the
Company issued stock dividends of 10% and 15%, respectively. All per share
information has been retroactively adjusted to give effect to the stock split
and stock dividends.
42
<PAGE>
Accumulated Other Comprehensive Income. As of December 31, 1999 and 1998,
accumulated other comprehensive income included as a reduction of shareholders'
equity in the accompanying consolidated balance sheet consisted of the
accumulated changes in the unrealized holding gains and losses on
available-for-sale securities amounting to $1,628,999 and $16,961, respectively.
Earnings per Share. Net income per share and net income per share, assuming
dilution, were computed as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
Net income per share, basic
<S> <C> <C> <C>
Numerator - net income .................................................. $1,626,298 $1,664,278 $1,405,050
========== ========== ==========
Denominator
Weighted average common shares issued and outstanding ................. 1,979,081 1,955,245 1,934,038
========== ========== ==========
Net income per share, basic ................................ $ .82 $ .85 $ .73
========== ========== ==========
Net income per share, assuming dilution
Numerator - net income .................................................. $1,626,298 $1,664,278 $1,405,050
========== ========== ==========
Denominator
Weighted average common shares issued and outstanding ................. 1,979,081 1,955,245 1,934,038
Effect of dilutive stock options ...................................... 151,472 126,937 62,365
---------- ---------- ----------
Total shares ............................................... 2,130,553 2,082,182 1,996,403
========== ========== ==========
Net income per share, assuming dilution .................... $ .76 $ .80 $ .70
========== ========== ==========
</TABLE>
Regulatory Capital. All bank holding companies and banks are subject to various
regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary, actions by regulators that, if undertaken,
could have a direct material effect on the Company's consolidated financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, bank holding companies and banks must meet specific
capital guidelines that involve quantitative measures of their assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. Capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and its banking subsidiary to maintain minimum amounts and
ratios set forth in the table below of Total and Tier 1 Capital, as defined in
the regulations, to risk weighted assets, as defined, and of Tier 1 Capital, as
defined, to average assets, as defined. Management believes, as of December 31,
1999 and 1998, that the Company and its subsidiary bank exceeded all capital
adequacy minimum requirements.
As of December 31, 1999, the most recent notification from the FDIC categorized
Community First Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Company and
its banking subsidiary must maintain minimum Total risk-based, Tier 1
risk-based, and Tier 1 leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed Community First Bank's category. The Company's and Community First
Bank's actual capital amounts and ratios are also presented in the table.
43
<PAGE>
<TABLE>
<CAPTION>
Minimum for Minimum to be
Actual Capital Adequacy Well Capitalized
------ ---------------- ----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
December 31, 1999 (Dollars in thousands)
The Company
<S> <C> <C> <C> <C> <C> <C>
Total Capital to risk weighted assets ................... $16,308 19.4% $ 6,716 8.0% $ 8,394 10.0%
Tier 1 Capital to risk weighted assets .................. $15,365 18.3% $ 3,358 4.0% $ 5,037 6.0%
Tier 1 Capital to average assets (leverage) ............. $15,365 10.0% $ 4,625 3.0% $ 7,709 5.0%
Community First Bank
Total Capital to risk weighted assets ................... $15,900 18.9% $ 6,716 8.0% $ 8,394 10.0%
Tier 1 Capital to risk weighted assets .................. $14,957 17.8% $ 3,358 4.0% $ 5,037 6.0%
Tier 1 Capital to average assets (leverage) ............. $14,957 9.7% $ 4,625 3.0% $ 7,709 5.0%
December 31, 1998
The Company
Total Capital to risk weighted assets ................... $14,497 20.7% $ 5,615 8.0% $ 7,019 10.0%
Tier 1 Capital to risk weighted assets .................. $13,620 19.4% $ 2,807 4.0% $ 4,211 6.0%
Tier 1 Capital to average assets (leverage) ............. $13,620 11.0% $ 3,703 3.0% $ 6,172 5.0%
Community First Bank
Total Capital to risk weighted assets ................... $14,197 20.2% $ 5,615 8.0% $ 7,019 10.0%
Tier 1 Capital to risk weighted assets .................. $13,320 19.0% $ 2,807 4.0% $ 4,211 6.0%
Tier 1 Capital to average assets (leverage) ............. $13,320 10.8% $ 3,703 3.0% $ 6,172 5.0%
</TABLE>
Stock Options. In 1998, the Company's shareholders approved the 1998 Stock
Option Plan under which an aggregate of 440,000 shares (adjusted for subsequent
stock dividend and a stock split) of the Company's authorized but unissued
common stock was reserved for possible issuance pursuant to the exercise of
stock options. Generally, options may be granted to directors, officers and
employees under terms and conditions, including expiration date, exercise price,
and vesting as determined by the Board of Directors. In 1990, the shareholders
approved the 1989 Incentive Stock Option Plan. The 1989 plan provided for the
granting of options to certain eligible employees and reserved 307,512 shares
(adjusted for stock dividends and split) of authorized common stock for issuance
upon the exercise of such options. For all stock options ever granted under the
two plans through the end of 1999, the exercise price was the fair market value
of the Company's common stock on the date the option was granted as determined
by the Board of Directors. Options terminate according to the conditions of the
grant, not to exceed 10 years from the date of grant. The expiration of the
options accelerates upon the optionee's termination of employment with the
Company or death, or if there is a change in control of the Company, in
accordance with the provisions of the two plans. Options awarded during 1999,
1998 and 1997 provided for 20% vesting immediately upon award, with 20% vesting
on the anniversary date of the award for each of the four subsequent years , and
ten year expiration dates.
As of January 1, 1996, the Company adopted only the disclosure provision of SFAS
No. 123, "Accounting for Stock-Based Compensation", but applies Accounting
Principles Board Opinion No. 25 and related interpretations in accounting for
its plans. Since the exercise price of each option equals the market price of
the Company's stock on the date of grant, no compensation cost has been
recognized for the plan for any period. Had compensation cost for the plans been
determined based on the fair value of the options at the grant dates consistent
with the method of SFAS No. 123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
Net income
<S> <C> <C> <C>
As reported ........................................... $ 1,626,298 $ 1,664,278 $ 1,405,050
Pro forma ............................................. 1,479,156 1,576,137 1,376,930
Net income per share
As reported ........................................... $ 0.82 $ 0.85 $ 0.73
Pro forma ............................................. 0.75 0.81 0.71
Net income per share, assuming dilution
As reported ........................................... $ 0.76 $ 0.80 $ 0.70
Pro forma ............................................. 0.69 0.76 0.69
</TABLE>
44
<PAGE>
The fair values of options granted during 1999, 1998 and 1997 were $10.94, $5.39
and $3.68 per share. Such fair value was estimated as of the date of the grant
using the minimum value option pricing method. The following assumptions were
used for grants in 1999, 1998 and 1997: dividend yield of 0%, expected life of
10 years, and risk-free interest rates of 5.23%, 5.51% and 6.57%, respectively.
Transactions under the plans for the years ended December 31, 1999, 1998 and
1997 are summarized as follows:
Weighted
Average
Number of Exercise
Shares Price
------ -----
Options oustanding January 1, 1997 ................ 142,904 $ 5.22
Granted ...................................... 14,500 8.00
Exercised .................................... (14,270) 3.65
Canceled ..................................... (1,022) 7.61
Stock dividend ............................... 23,540
-------
Options oustanding December 31, 1997 .............. 165,652 4.84
Granted ...................................... 78,600 9.19
Exercised .................................... (21,512) 4.16
Canceled ..................................... (2,742) 7.30
-------
Options oustanding December 31, 1998 .............. 219,998 6.43
Granted ...................................... 37,500 20.00
Exercised .................................... (28,752) 4.89
Canceled ..................................... (6,240) 8.60
Stock dividend ............................... 24,048 -
-------
Options oustanding December 31, 1999 .............. 246,554 7.99
=======
Options exercisable at year end
1999 158,025 $ 5.88
1998 155,980 4.74
1997 147,176 4.08
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
------------------- -------------------
Number Exercise Number Exercise
of Shares Price of Shares Price
--------- ----- --------- -----
Options at December 31, 1999 expire
<S> <C> <C> <C> <C>
May 9, 2000 ............................................ 11,061 $ 3.25 11,061 $ 3.25
December 31, 2000 ...................................... 15,381 3.25 15,381 3.25
January 22, 2001 ....................................... 2,775 3.53 2,775 3.53
March 1, 2001 .......................................... 7,689 3.53 7,689 3.53
April 27, 2002 ......................................... 13,700 4.20 13,700 4.20
October 1, 2002 ........................................ 9,227 4.39 9,227 4.39
January 25, 2003 ....................................... 5,055 4.55 5,055 4.55
January 18, 2004 ....................................... 26,360 4.61 26,360 4.61
June 1, 2004 ........................................... 1,398 4.83 1,398 4.83
December 21, 2005 ...................................... 11,026 5.64 11,026 5.64
July 25, 2006 .......................................... 12,650 5.93 10,120 5.93
January 16, 2007 ....................................... 11,784 6.32 6,921 6.32
February 19, 2008 ...................................... 25,608 8.30 10,032 8.30
June 1, 2008 ........................................... 3,960 8.41 - 8.41
June 18, 2008 .......................................... 48,400 8.41 19,360 8.41
January 21, 2009 ....................................... 5,280 18.18 880 18.18
February 26, 2009 ...................................... 29,700 18.18 5,940 18.18
April 30, 2009 ......................................... 5,500 18.18 1,100 18.18
</TABLE>
45
<PAGE>
Included in the 246,554 outstanding options as of December 31, 1999, were
options to purchase 88,529 shares at an average price of $11.80 per share that
had not become exercisable. The number of shares, average exercise price and
years in which these options become exercisable are as follows: 29,291 shares at
$10.72 in 2000, 26,766 shares at $11.17 in 2001, 24,332 shares at $11.65 in 2002
and 8,140 shares at $18.18 in 2003. Of the 747,523 authorized shares of the
Company's common stock originally reserved for issuance upon the exercise of
options under the two plans, 350,355 had not been awarded as of December 31,
1999.
NOTE I - OTHER EXPENSES
Other expenses are summarized below:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Salaries and employee benefits ...................................... $1,378,965 $1,138,752 $1,008,265
Net occupancy expense ............................................... 129,225 115,789 100,605
Furniture and equipment expense ..................................... 218,800 194,429 166,612
Other expense
Stationery, printing and postage ............................... 164,970 153,901 139,888
Telephone ...................................................... 44,321 22,828 20,578
Advertising and promotion ...................................... 63,759 41,134 27,654
Professional services .......................................... 43,578 54,456 77,038
Insurance ...................................................... 14,021 19,052 26,651
FDIC insurance assessment ...................................... 13,977 11,565 7,760
Directors' fees ................................................ 57,500 34,200 31,200
Other real estate costs and expenses, net ...................... 4,998 864 32,334
Data processing expenses ....................................... 77,807 92,841 52,748
Other .......................................................... 329,733 275,448 217,169
---------- ---------- ----------
Total ...................................................... $2,541,654 $2,155,259 $1,908,502
========== ========== ==========
</TABLE>
NOTE J - INCOME TAXES
Income tax expense consisted of:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
Current
<S> <C> <C> <C>
Federal .................................................... $ 815,151 $ 849,500 $ 786,786
State ...................................................... 72,239 76,670 69,646
--------- --------- ---------
Total current .................................... 887,390 926,170 856,432
--------- --------- ---------
Deferred
Federal .................................................... 19,914 1,800 (45,555)
State ...................................................... 1,737 157 (3,974)
--------- --------- ---------
Total deferred ................................... 21,651 1,957 (49,529)
--------- --------- ---------
Total income tax expense ......................... $ 909,041 $ 928,127 $ 806,903
========= ========= =========
</TABLE>
46
<PAGE>
The principal components of the deferred portion of income tax expense or
(credit) were:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Provision for loan losses ................................... $ 4,250 $(23,213) $(66,460)
Accelerated depreciation .................................... 2,040 17,365 10,870
Deferred net loan costs and fees ............................ 6,386 7,805 6,276
Other real estate ........................................... 8,975 - (215)
-------- -------- --------
Total ........................................ $ 21,651 $ 1,957 $(49,529)
======== ======== ========
</TABLE>
Income before income taxes presented in the consolidated statement of income for
the years ended December 31, 1999, 1998 and 1997, included no foreign component.
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>
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Tax expense at statutory rate ................................. $ 862,015 $ 881,418 $ 752,064
State income tax, net of federal
income tax benefit ....................................... 48,824 50,706 43,344
Tax-exempt interest income .................................... (4,904) (6,538) (5,854)
Non-deductible interest expense to
carry tax-exempt instruments ............................. 487 491 480
Non-deductible corporate
reorganization expenses .................................. - - 15,069
Other, net .................................................... 2,619 2,050 1,800
--------- --------- ---------
Total .......................................... $ 909,041 $ 928,127 $ 806,903
========= ========= =========
</TABLE>
Deferred tax assets and liabilities included in the consolidated balance sheet
consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
Deferred tax assets
<S> <C> <C>
Allowance for loan losses ................................................. $ 276,699 $ 280,949
Other real estate ......................................................... - 8,975
Unrealized holding gains and losses on
available-for-sale securities ........................................... 912,341 9,499
---------- ----------
Gross deferred tax assets ....................................... 1,189,040 299,423
Valuation allowance ....................................................... - -
---------- ----------
Total ........................................................... 1,189,040 299,423
---------- ----------
Deferred tax liabilities
Accelerated depreciation .................................................. 92,294 90,254
Deferred net loan costs ................................................... 19,158 12,772
---------- ----------
Gross deferred tax liabilities .................................. 111,452 103,026
---------- ----------
Net deferred income tax assets ................................................. $1,077,588 $ 196,397
========== ==========
</TABLE>
47
<PAGE>
The portion of the change in net deferred tax assets or liabilities which is
related to unrealized holding gains and losses on available-for-sale securities
is charged or credited directly to other comprehensive income. The balance of
the change in net deferred tax assets is charged or credited to income tax
expense. In 1999, 1998 and 1997, $902,842 was credited, $237 was credited, and
$34,841 was charged to other comprehensive income, respectively. In 1999,
$21,651 was charged to income tax expense; in 1998, $1,957 was charged to income
tax expense; and, in 1997, $49,529 was credited to income tax expense.
Management believes that the Company will fully realize the deferred tax assets
as of December 31, 1999 and 1998 based on refundable income taxes available from
carryback years, as well as estimates of future taxable income.
NOTE K - RETIREMENT PLAN
In 1996, the Company established the Community First Bank 401(k) Plan (the
"401(k) Plan") for the exclusive benefit of all eligible employees and their
beneficiaries. Employees are eligible to participate in the 401(k) Plan with no
minimum age requirement after completing twelve months of service in which they
are credited with at least 501 hours of service. Employees are allowed to defer
and contribute up to 15% of their salary each year. The Company matches $.50 for
each dollar deferred up to 10% of total salary. The Board of Directors can also
elect to make discretionary contributions. Employees are fully vested in both
the matching and any discretionary contributions after five years of service.
The employer contributions to the plan for 1999, 1998 and 1997 totaled $26,952,
$30,044 and $29,550, respectively.
NOTE L - COMMITMENTS AND CONTINGENCIES
Commitments to Extend Credit. In the normal course of business, the banking
subsidiary is party to financial instruments with off-balance-sheet risk.
These financial instruments include commitments to extend credit and
standby letters of credit, and have elements of credit risk in excess of
the amount recognized in the balance sheet. The exposure to credit loss in
the event of nonperformance by the other parties to the financial
instruments for commitments to extend credit and standby letters of credit
is represented by the contractual notional amount of those instruments.
Generally, the same credit policies used for on-balance-sheet instruments,
such as loans, are used in extending loan commitments and standby letters
of credit.
Following are the off-balance-sheet financial instruments whose contract amounts
represent credit risk:
December 31,
------------
1999 1998
---- ----
Loan commitments ......................... $9,547,608 $4,880,316
Standby letters of credit ................ 538,759 333,100
Loan commitments involve 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 some involve
payment of a fee. Many of the commitments are expected to expire without being
fully drawn; therefore, the total amount of loan commitments does not
necessarily represent future cash requirements. Each customer's creditworthiness
is evaluated on a case-by-case basis. The amount of collateral obtained, if any,
upon extension of credit is based on management's credit evaluation of the
borrower. Collateral held varies but may include commercial and residential real
properties, accounts receivable, inventory and equipment.
48
<PAGE>
Standby letters of credit are conditional commitments to guarantee the
performance of a customer to a third party. The credit risk involved in issuing
standby letters of credit is the same as that involved in making loan
commitments to customers.
The estimated fair values of off-balance-sheet financial instruments such as
loan commitments and standby letters of credit are generally based upon fees
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the counterparties' creditworthiness. The vast
majority of the banking subsidiary's loan commitments do not involve the
charging of a fee, and fees associated with outstanding standby letters of
credit are not material. Therefore, as of December 31 1999 and 1998, the
estimated fair values of these off-balance-sheet financial instruments is
nominal. For loan commitments and standby letters of credit, the committed
interest rates are either variable or approximate current interest rates offered
for similar commitments. Management is not aware of any significant change in
the credit risk associated with these commitments.
Borrowing Commitments. At December 31, 1999, the banking subsidiary had unused
short-term lines of credit to purchase up to $2,500,000 of federal funds from
unrelated correspondent financial institutions. The correspondent lines are
generally available on a one to seven day basis for general corporate purposes
of the Bank. The lenders have reserved the right to withdraw the lines at their
option. The Bank also has an unused line of credit agreement with the FHLB.
Under the terms of the FHLB agreement, the Bank may borrow approximately
$21,706,750 for its general corporate purposes. Borrowings under the line may
bear interest at either a variable or fixed rate established by the FHLB. The
line, if utilized, would be secured by FHLB capital stock with a carrying value
of $382,000, and a blanket lien on all qualifying 1-4 family residential first
lien mortgage loans held by the Bank. The carrying value of such loans at
December 31, 1999 was approximately $28,432,517.
Litigation. The Company and its subsidiary were not involved as defendants in
any litigation at December 31, 1999. Management is not aware of any pending or
threatened litigation, or unasserted claims or assessments that are expected to
result in losses, if any, that would be material to the consolidated financial
statements.
Accounting Estimates. In preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ significantly
from those estimates. Material estimates that are particularly susceptible to
significant change in the near-term relate to the determination of the allowance
for loan losses. In connection with the determination of the allowance for loan
losses, management has identified specific loans as well as adopting a policy of
providing amounts for loan valuation purposes which are not identified with any
specific loans and are derived from actual loss experience ratios, loan types,
loan volume, economic conditions and industry standards.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, regulatory agencies, as an integral part of their
examination process, periodically review the banking subsidiary's allowance for
loan losses. Such agencies may require the recognition of additions to the
allowance based on their judgments about information available to them at the
time of their examination.
49
<PAGE>
NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS
Following is summary information on the estimated fair value of financial
instruments, cross referenced to the location in the consolidated financial
statements and notes where more detailed information can be obtained:
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
of Assets of Assets of Assets of Assets
(Liabilities) (Liabilities) (Liabilities) (Liabilities)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash and due from banks (Note A) ............... $ 4,554,811 $ 4,554,811 $ 3,319,892 $ 3,319,892
Federal funds sold (Note A) .................... 12,410,000 12,410,000 14,150,000 14,150,000
Securities (Note D) ............................ 54,178,048 54,178,048 38,284,136 38,284,136
Other investments (Note A) ..................... 382,000 382,000 345,400 345,400
Loans (Note E) ................................. 75,214,993 75,110,051 66,938,381 67,342,792
Accrued interest receivable (Note A) ........... 1,192,396 1,192,396 829,201 829,201
Deposits (Note G) .............................. (138,618,246) (138,610,622) (112,496,172) (112,546,966)
Accrued interest payable (Note A) .............. (1,179,891) (1,179,891) (965,653) (965,653)
Loan commitments (Note L) ...................... (9,547,608) (4,880,316)
Standby letters of credit (Note L) ............. (538,759) (333,100)
</TABLE>
NOTE N - COMMUNITY FIRST BANCORPORATION (PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
Condensed Balance Sheet
Assets
<S> <C> <C>
Cash ....................................................................... $ 405,642 $ 282,464
Investment in banking subsidiary ........................................... 13,327,985 13,303,767
Other assets ............................................................... 5,130 19,047
----------- -----------
Total assets ............................................................ $13,738,757 $13,605,278
=========== ===========
Liabilities
Other liabilities .......................................................... $ 2,467 $ 2,318
Shareholders' equity ........................................................... 13,736,290 13,602,960
----------- -----------
Total liabilities and shareholders' equity .............................. $13,738,757 $13,605,278
=========== ===========
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
Condensed Statement of Income
Income
<S> <C> <C> <C>
Dividends received from banking subsidiary ...................... $ - $ - $ 250,000
Interest income ................................................. 11,760 793 -
----------- ----------- -----------
Total income ................................................. 11,760 793 250,000
----------- ----------- -----------
Expenses
Interest expense ................................................ - - 649
Other expenses .................................................. 26,848 56,815 50,642
----------- ----------- -----------
Total expenses ............................................... 26,848 56,815 51,291
----------- ----------- -----------
Income (loss) before income taxes and equity in
undistributed earnings of banking subsidiary .................... (15,088) (56,022) 198,709
Income tax expense (credit) ....................................... (5,130) (19,047) (2,370)
Equity in undistributed earnings
of banking subsidiary ........................................... 1,636,256 1,701,253 1,203,971
----------- ----------- -----------
Net income ........................................................ $ 1,626,298 $ 1,664,278 $ 1,405,050
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
Condensed Statement of Cash Flows
Operating activities
<S> <C> <C> <C>
Net income ....................................................... $ 1,626,298 $ 1,664,278 $ 1,405,050
Adjustments to reconcile net income to net
cash provided by operating activities
Equity in undistributed earnings
of banking subsidiary ............................... (1,636,256) (1,701,253) (1,203,971)
(Increase) decrease in other assets ................... 13,917 (16,677) (2,370)
Increase in other liabilities ......................... 149 1,026 1,292
----------- ----------- -----------
Net cash provided (used) by
operating activities ............................. 4,108 (52,626) 200,001
----------- ----------- -----------
Financing activities
Exercise of employee stock options, net of issuance
costs of $15,953 in 1999 ...................................... 124,724 89,385 50,027
Payment of cash in lieu of fractional
shares for stock dividend ..................................... (5,654) - (4,323)
----------- ----------- -----------
Net cash provided by financing activities ........... 119,070 89,385 45,704
----------- ----------- -----------
Increase in cash and cash equivalents ................................ 123,178 36,759 245,705
Cash and cash equivalents, beginning ................................. 282,464 245,705 -
----------- ----------- -----------
Cash and cash equivalents, ending .................................... $ 405,642 $ 282,464 $ 245,705
=========== =========== ===========
</TABLE>
51
Exhibit 21
Subsidiaries of the Registrant
Community First Bank
INDEPENDENT AUDITORS' CONSENT
Board of Directors
Community First Bancorporation
We consent to the incorporation by reference into the Registration
Statement on Form S-8 (No. 333-71401) filed by Community First Bancorporation in
connection with the Community First Bancorporation 1998 Stock Option Plan and
into the Registration Statement on Form S-8 (No. 333-66097) filed by Community
First Bancorporation in connection with the Community First Bancorporation 1989
Stock Option Plan, of our Report dated February 8, 2000, included in Community
First Bancorporation's Annual Report on Form 10-KSB for the year ended December
31, 1999.
s/Donald G. Jones and Company, P.A.
Columbia, South Carolina
March 20, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at December 31, 1999 and the Consolidated Statement
of Income for the year ended December 31, 1999 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,555
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 12,410
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 54,178
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 76,158
<ALLOWANCE> 943
<TOTAL-ASSETS> 153,583
<DEPOSITS> 138,618
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,229
<LONG-TERM> 0
0
0
<COMMON> 14,255
<OTHER-SE> (519)
<TOTAL-LIABILITIES-AND-EQUITY> 153,583
<INTEREST-LOAN> 6,331
<INTEREST-INVEST> 3,048
<INTEREST-OTHER> 1,023
<INTEREST-TOTAL> 10,402
<INTEREST-DEPOSIT> 5,687
<INTEREST-EXPENSE> 5,687
<INTEREST-INCOME-NET> 4,715
<LOAN-LOSSES> 300
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,542
<INCOME-PRETAX> 2,535
<INCOME-PRE-EXTRAORDINARY> 1,626
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,626
<EPS-BASIC> .82
<EPS-DILUTED> .76
<YIELD-ACTUAL> 3.31
<LOANS-NON> 209
<LOANS-PAST> 20
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 210
<ALLOWANCE-OPEN> 955
<CHARGE-OFFS> 333
<RECOVERIES> 21
<ALLOWANCE-CLOSE> 943
<ALLOWANCE-DOMESTIC> 943
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
