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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(MARK ONE)
[X] Annual Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended December 31, 1999
or
[ ] Transition Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ________ to ________
Commission file no. 333-70589
NEW COMMERCE BANCORP
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(Name of Small Business Issuer in Its Charter)
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South Carolina 58-2403844
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1 Five Forks Plaza Court
Simpsonville, South Carolina 29681
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(Address of Principal Executive Offices) (Zip Code)
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(864) 288-3337
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Issuer's Telephone Number, Including Area Code
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: Common Stock.
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 past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B 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. [ ]
The issuer's loss for its most recent fiscal year was $668,020. As of
December 31, 1999, 1,000,000 shares of Common Stock were issued and outstanding.
The aggregate market value of the Common Stock held by non-affiliates
of the company on March 1, 2000 is $7,899,820. This calculation is based upon an
estimate of the fair market value of the Common Stock of $10.00 per share, which
was the price of the last trade of which management is aware prior to this date.
There is not an active trading market for the Common Stock and it is not
possible to identify precisely the market value of the Common Stock.
Transitional Small Business Disclosure Format. (Check one):
Yes [ ] No [X]
DOCUMENTS INCORPORATED BY REFERENCE
Company's Proxy Statement and Annual Report.
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ITEM 1. DESCRIPTION OF BUSINESS
This Report contains statements which constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
the Securities Exchange Act of 1934. These statements are based on many
assumptions and estimates and are not guarantees of future performance. Our
actual results may differ materially from those projected in any forward-looking
statements, as they will depend on many factors about which we are unsure,
including many factors which are beyond our control. The words "may," "would,"
"could," "will," "expect," "anticipate," "believe," "intend," "plan," and
"estimate," as well as similar expressions, are meant to identify such
forward-looking statements. Potential risks and uncertainties include, but are
not limited to:
- significant increases in competitive pressure in the banking
and financial services industries;
- changes in the interest rate environment which could reduce
anticipated or actual margins;
- changes in political conditions or the legislative or
regulatory environment;
- general economic conditions, either nationally or regionally
and especially in primary service area, becoming less
favorable than expected resulting in, among other things, a
deterioration in credit quality;
- changes occurring in business conditions and inflation;
- changes in technology;
- changes in monetary and tax policies;
- changes in the securities markets; and
- other risks and uncertainties detailed from time to time in
our filings with the Securities and Exchange Commission.
GENERAL
New Commerce BanCorp was incorporated to operate as a bank holding
company pursuant to the Federal Bank Holding Company Act of 1956 and the South
Carolina Banking and Branching Efficiency Act, and to purchase 100% of the
issued and outstanding stock of New Commerce Bank, an association organized
under the laws of the United States, to conduct a general banking business in
Simpsonville, South Carolina.
Since our inception as a South Carolina corporation on July 22, 1998
through May 17, 1999, we engaged in organizational and pre-opening activities
necessary to obtain regulatory approvals and to prepare our subsidiary, New
Commerce Bank, to commence business as a financial institution. The bank opened
for business on May 17, 1999 and engages in commercial banking business from our
temporary office located at 1 Five Forks Plaza Court, in the City of
Simpsonville, South Carolina (Greenville County). New Commerce Bank is primarily
engaged in the business of accepting demand deposits and savings insured by the
Federal Deposit Insurance Corporation, and providing commercial, consumer and
mortagage loans to the general public.
We completed our stock offering on June 30, 1999, and sold the maximum
of 800,000 shares of our common stock at $10 per share. We raised $7,774,550 in
the offering representing, $8,000,000 in proceeds, less sales agent commissions
of $144,195 and stock offering expenses of $81,255. This amount was in addition
to the $2,000,000 previously raised through the sale of 200,000 shares of our
common stock sold to our organizers at $10 per share. We capitalized the bank
with $8,250,000 of the net proceeds of the offering and the sale of the
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shares to the organizers. The remaining net offering proceeds are being used to
pay organization expenses of the company and to provide general working capital,
including additional future capital for investment in our bank, if needed.
The bank engages in a commercial banking business from our temporary
office located at 1 Five Fork Plaza Court, in the City of Simpsonville, South
Carolina (Greenville County). The bank is a full service commercial bank without
trust powers. We offer a full range of interest bearing and non-interest bearing
accounts, including commercial and retail checking accounts, money market
accounts, individual retirement accounts, certificates of deposit, commercial
loans, real estate loans, home equity loans and consumer/installment loans. In
addition, we provide such consumer services as U.S. Savings Bonds, travelers
checks, cashiers checks, safe deposit boxes, bank by mail services, direct
deposit, credit cards and automatic teller services.
MARKETING FOCUS
The bank draws a large percentage of its business from the cities of
Simpsonville, Mauldin, and Fountain Inn, and the unincorporated areas of Enoree
and Southside, which are located in the southern portion of Greenville County.
This area is known locally as the "Golden Strip" and is bound by Interstate 85
to the north, Highway 25 to the west, Laurens County to the south, and
Spartanburg County to the east. The Golden Strip's median household income,
household growth, and population growth trends have consistently outpaced the
rest of Greenville County and the State of South Carolina.
The bank targets its products and services to meet the needs of the
area's customer base and is a full-service bank, initially focusing on providing
small- to middle-market business loans, residential mortgages, and consumer
loans to these customers. We expect that more than 75% of our bank's customer
base will be derived from businesses and residents located in our primary
service area. The primary service area represents a diverse market with a
growing population and economy.
LOCATION AND SERVICE AREA
While the bank does not compete with large institutions for the primary
banking relationships of large corporations, it does compete for niches in this
business and for the consumer business of their employees. It also focuses on
small to medium-sized businesses and their employees. This includes retail,
service, and wholesale distribution, manufacturing, and international
businesses. The bank is active in providing residential mortgages, acquisition
and development financing for subdivisions, and construction and permanent
financing for commercial real estate, particularly owner occupied property.
DEPOSITS
Our bank offers a full range of deposit services that are typically
available in most banks and savings and loan associations, including checking
accounts, commercial accounts, savings accounts, and other time deposits of
various types, ranging from daily money market accounts to longer-term
certificates of deposit. The transaction accounts and time certificates are
tailored to our principal market area at rates competitive to those offered in
the Greenville County area. In addition, we offer certain retirement account
services, such as individual retirement accounts. We solicit these accounts from
individuals, businesses, associations, organizations, and governmental
authorities.
LENDING ACTIVITIES
General. The bank emphasizes a range of lending services, including
real estate, commercial, and consumer loans to individuals and small-to
medium-sized businesses and professional concerns that are located in or conduct
a substantial portion of their business in its market area.
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Real Estate Loans. Our loan portfolio consists of approximately 50%
loans that are secured by first or second mortgages on real estate. These loans
generally fall into three categories: commercial real estate loans, construction
and development loans, and residential real estate loans. Each of these
categories is discussed in more detail below, including their specific risks.
Home equity lines are not included because they are classified as consumer
loans, which are discussed below. Interest rates for all categories may be fixed
or adjustable, and will more likely be fixed for shorter-term loans. We may
charge an origination fee for each loan.
The principal economic risk associated with each category of
anticipated loans, including real estate loans, is the cash flow capability and
creditworthiness of our borrowers. The risks associated with real estate loans
vary with many economic factors, including employment levels and fluctuations in
the value of real estate.
Commercial Real Estate Loans. Commercial real estate loans will
generally have terms of three to seven years, although payments may be
structured on a longer amortization basis. Risks associated with commercial real
estate loans include the general risk of the failure of each commercial
borrower, which is different for each type of business and commercial entity. We
evaluate each business on an individual basis and attempt to determine its
business risks and credit profile. Our bank attempts to reduce credit risk in
the commercial real estate portfolio by emphasizing loans on owner-occupied
office and retail buildings where the loan-to-loan-value ratio, established by
independent appraisals, does not exceed 85%. We generally require that debtor
cash flow exceeds 120% of monthly debt service obligations. The bank typically
reviews the personal financial statements of the principal owners and requires
their personal guarantees. One purpose of these reviews is to reveal secondary
sources or payment and liquidity to support a loan request.
Construction and Development Real Estate Loans. We offer adjustable and
fixed rate residential and commercial construction loans to builders and
developers and to consumers who wish to build their own home. The terms of
construction and development loans are generally limited to eighteen months,
although payments may be structured on a longer amortization basis. Most loans
mature and require payment in full upon the sale of the property. Construction
and development loans generally carry a higher degree of risk than long term
financing of existing properties. Repayment depends on the ultimate completion
of the project and usually on the sale of the property. Risks include:
- cost overruns,
- mismanaged construction,
- inferior or improper construction techniques,
- economic changes or downturns during construction,
- a downturn in the real estate market,
- rising interest rates which may prevent sale of the property,
and
- failure to sell completed projects in a timely manner.
The bank attempts to reduce risk by obtaining personal guarantees where
possible, and by keeping the loan to value ratio of the completed project below
specified percentages. We also reduce the risk by selling participations in
larger loans to other institutions when possible.
Residential Real Estate Loans. Residential real estate loans generally
have longer terms up to 30 years. The bank offers fixed and adjustable rate
mortgages. We do not expect any credit risk on these loans as they are
underwritten through a third party agent without any recourse against the bank.
Commercial Loans. The bank makes loans for commercial purposes in
various lines of businesses. Equipment loans are typically for a term of five
years or less at fixed or variable rates, with the loan fully amortized over the
term and secured by the financed equipment and with a loan-to-value ratio of 80%
or less. Working capital loans typically have terms not exceeding one year and
are usually secured by accounts receivable, inventory, or personal guarantees of
the principals of the business. For loans secured by accounts receivable or
inventory, principal is typically repaid as the assets securing the loan are
converted into cash, and in other cases principal is typically due at maturity.
Asset based lending, leasing, and factoring is offered through third party
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vendors who can handle the paper work and servicing and generally assume most of
the credit risk. Trade letters of credit, standby letters of credit, and foreign
exchange are handled through a correspondent bank as agent for our bank.
Consumer Loans. The bank makes a variety of loans to individuals for
personal and household purposes, including secured and unsecured installment and
revolving lines of credit such as credit cards. Installment loans typically
carry balances of less than $50,000 and are amortized over periods up to 60
months. Consumer loans may be offered on a single maturity basis where a
specific source of repayment is available. Revolving loan products will
typically require monthly payments of interest and a portion of the principal.
The principal economic risk associated with consumer loans is the
creditworthiness and cash flow of our borrowers. The principal competition for
consumer loans is the established banks in the Greenville County area.
We also offer home equity lines. The underwriting criteria for and the
risks associated with home equity lines will generally be the same as those for
first mortgage loans. Home equity lines of credit will typically have terms of
15 years or less, will typically carry balances less than $125,000, and may
extend up to 100% of the available equity of each property.
Credit Administration. As part of its regular examination process, the
Office of the Comptroller of the Currency reviews our capital adequacy, asset
quality, management and board supervision, and other matters. See the discussion
below under "Supervision and Regulation - New Commerce Bank." In part in
response to our first examination, we have begun implementing more effective
risk management systems to minimize the amount of credit risk in our loan
portfolio. For example, our risk management systems now enable us to generate
reports of past due loans, risk rating, documentation, and policy exceptions. In
addition, we have formed a board/oversight compliance committee to supervise
administration of our loan portfolio, we have appointed our chief executive
officer to serve as our chief credit officer, and we conduct internal peer
reviews of our loan files. We also use an outside consulting firm to review our
loan portfolio for safety and soundness and compliance. This consultant reports
directly to our board/oversight compliance committee.
Loan Approval and Review. The bank's loan approval policies provide for
various levels of officer lending authority. When the amount of aggregate loans
to a single borrower exceeds that individual officer's lending authority, the
loan request will be considered and approved by an officer with a higher lending
limit or the officers' loan committee. Our bank has established individual loan
officer lending limits, and any loan in excess of this lending limit will be
approved by the directors' loan committee. In part in response to our first
regulatory examination, we have reduced the amount of our officers' lending
individual authorities. The bank will not make any loans to any director,
officer, or employee of the bank unless the loan is made on terms not more
favorable to such person than would be available to a person not affiliated with
us.
Lending Limits. Our bank's lending activities are subject to a variety
of lending limits imposed by federal law. While differing limits apply in
certain circumstances based on the type of loan or the nature of the borrower
(including the borrower's relationship to the bank), in general the bank
internally limits loan exposure to any borrower at $500,000. This limit will
increase or decrease as our bank's capital increases or decreases. Unless the
bank is able to sell participations in its loans to other financial
institutions, the bank will not be able to meet all of the lending needs of loan
customers requiring aggregate extensions of credit above these limits.
OTHER BANKING SERVICES
Other bank services include commercial cash management services,
commercial courier services, business manager receivables based lending program
and extended hours of operation. In addition, we provide services such as an 800
number, 24-hour telephone voice response system, drive up ATMs, strategically
placed cash dispenser locations, safe deposit boxes, travelers checks, direct
deposit of payroll and social security checks, and automatic drafts for various
accounts. The bank is associated with the Honor and Cirrus ATM networks that may
be used by our customers throughout Greenville County and other regions. The
bank also offers a debit card, VISA credit card services, and merchant bankcards
through a correspondent bank as an agent for us.
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COMPETITION
Competition in our bank's primary service area is intense. As of June
1999, there were more than 31 banking offices representing 13 financial
institutions operating in the Golden Strip holding $653 million in deposits.
Financial institutions primarily compete with one another for deposits.
In turn, a bank's deposit base directly affects such bank's loan activities and
general growth. Primary methods of competition include interest rates on
deposits and loans, service charges on deposit accounts and the designing of
unique financial services products. We are competing with financial institutions
which have much greater financial resources than we have, and which may be able
to offer more and unique services and possibly better terms to their customers.
However, we believe that we are attracting sufficient deposits to enable us to
compete effectively with other area financial institutions. The bank believes it
has the advantage of being locally owned and managed, enabling it to benefit
from the high visibility and excellent business contacts of its organizers.
EMPLOYEES
As of March 15, 2000, we had 12 full-time employees and no part-time
employees operating out of our temporary facility in Simpsonville.
SUPERVISION AND REGULATION
Both holding companies and national banks are extensively regulated
under both federal and state law. The following is a brief summary of banking
statutes and rules and regulations that affect New Commerce BanCorp and New
Commerce Bank. These laws and regulations are generally intended to protect
depositors, not shareholders. These regulations are very complex, and we refer
you to the particular statutes, and regulatory provisions for a thorough
understanding.
GRAMM-LEACH-BLILEY ACT
On November 4, 1999, the U.S. Senate and House of Representatives each
passed the Gramm-Leach-Bliley Act, previously known as the Financial Services
Modernization Act of 1999. The Act was signed into law by President Clinton on
November 12, 1999. Among other things, the Act repeals the restrictions on banks
affiliating with securities firms contained in sections 20 and 32 of the
Glass-Steagall Act. The Act also permits bank holding companies to engage in a
statutorily provided list of financial activities, including insurance and
securities underwriting and agency activities, merchant banking, and insurance
company portfolio investment activities. The Act also authorizes activities that
are "complementary" to financial activities.
The Act is intended to grant to community banks certain powers as a
matter of right that larger institutions have accumulated on an ad hoc basis.
Nevertheless, the Act may have the result of increasing the amount of
competition that we face from larger institutions and other types of companies.
In fact, it is not possible to predict the full effect that the Act will have on
us. From time to time other changes are proposed to laws affecting the banking
industry, and these changes could have a material effect on our business and
prospects. We cannot predict the nature or the extent of the effect on our
business and earnings of fiscal or monetary policies, economic controls, or new
federal or state legislation.
NEW COMMERCE BANCORP
Because it owns the outstanding capital stock of the bank, New Commerce
BanCorp is a bank holding company under the federal Bank Holding Company Act of
1956 and the South Carolina Banking and Branching Efficiency Act.
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The Bank Holding Company Act. Under the Bank Holding Company Act, New
Commerce BanCorp is subject to periodic examination by the Federal Reserve and
required to file periodic reports of its operations and any additional
information that the Federal Reserve may require. Our activities at the bank and
holding company level are limited to:
- banking and managing or controlling banks;
- furnishing services to or performing services for its
subsidiaries; and
- engaging in other activities that the Federal Reserve
determines to be so closely related to banking and managing or
controlling banks as to be a proper incident thereto.
Investments, Control, and Activities. With certain limited exceptions,
the Bank Holding Company Act requires every bank holding company to obtain the
prior approval of the Federal Reserve before:
- acquiring substantially all the assets of any bank;
- acquiring direct or indirect ownership or control of any
voting shares of any bank if after the acquisition it would
own or control more than 5% of the voting shares of such bank
(unless it already owns or controls the majority of such
shares); or
- merging or consolidating with another bank holding company.
In addition, and subject to certain exceptions, the Bank Holding
Company Act and the Change in Bank Control Act, together with regulations
thereunder, require Federal Reserve approval prior to any person or company
acquiring "control" of a bank holding company. Control is conclusively presumed
to exist if an individual or company acquires 25% or more of any class of voting
securities of the bank holding company. Control is rebuttably presumed to exist
if a person acquires 10% or more, but less than 25%, of any class of voting
securities and either New Commerce BanCorp has registered securities under
Section 12 of the Securities Exchange Act of 1934 or no other person owns a
greater percentage of that class of voting securities immediately after the
transaction. New Commerce BanCorp's common stock is registered under the
Securities Exchange Act of 1934. The regulations provide a procedure for
challenge of the rebuttable control presumption.
Under the Bank Holding Company Act, a bank holding company is generally
prohibited from engaging in, or acquiring direct or indirect control of more
than 5% of the voting shares of any company engaged in nonbanking activities
unless the Federal Reserve Board, by order or regulation, has found those
activities to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto. Some of the activities that the Federal
Reserve Board has determined by regulation to be proper incidents to the
business of a bank holding company include:
- making or servicing loans and certain types of leases;
- engaging in certain insurance and discount brokerage
activities;
- performing certain data processing services;
- acting in certain circumstances as a fiduciary or investment
or financial adviser;
- owning savings associations; and
- making investments in certain corporations or projects
designed primarily to promote community welfare.
The Federal Reserve Board imposes certain capital requirements on New
Commerce BanCorp under the Bank Holding Company Act, including a minimum
leverage ratio and a minimum ratio of "qualifying" capital to risk-weighted
assets. These requirements are described below under "Capital Regulations."
Subject to its capital requirements and certain other restrictions, New Commerce
BanCorp is able to borrow money to make a capital contribution to the bank, and
these loans may be repaid from dividends paid from the bank to New Commerce
BanCorp. Our ability to pay dividends will be subject to regulatory restrictions
as described below in "The Bank - Dividends." New Commerce BanCorp is also able
to raise capital for contribution to the bank by issuing
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securities without having to receive regulatory approval, subject to compliance
with federal and state securities laws.
Source of Strength; Cross-Guarantee. In accordance with Federal Reserve
Board policy, New Commerce BanCorp is expected to act as a source of financial
strength to the bank and to commit resources to support the bank in
circumstances in which New Commerce BanCorp might not otherwise do so. Under the
Bank Holding Company Act, the Federal Reserve Board may require a bank holding
company to terminate any activity or relinquish control of a nonbank subsidiary,
other than a nonbank subsidiary of a bank, upon the Federal Reserve Board's
determination that such activity or control constitutes a serious risk to the
financial soundness or stability of any subsidiary depository institution of the
bank holding company. Further, federal bank regulatory authorities have
additional discretion to require a bank holding company to divest itself of any
bank or nonbank subsidiary if the agency determines that divestiture may aid the
depository institution's financial condition.
South Carolina State Regulation. As a bank holding company registered
under the South Carolina Banking and Branching Efficiency Act, we are subject to
limitations on sale or merger and to regulation by the South Carolina Board of
Financial Institutions. Prior to acquiring the capital stock of a national bank,
we are not required to obtain the approval of the Board, but we must notify them
at least 15 days prior to doing so. We must receive the Board's approval prior
to engaging in the acquisition of banking or nonbanking institutions or assets,
and we must file periodic reports with respect to our financial condition and
operations, management, and intercompany relationships between New Commerce
BanCorp and its subsidiaries.
NEW COMMERCE BANK
The bank operates as a national banking association incorporated under
the laws of the United States and subject to examination by the Office of the
Comptroller of the Currency. Deposits in the bank are insured by the FDIC up to
a maximum amount, which is generally $100,000 per depositor subject to
aggregation rules.
The Office of the Comptroller of the Currency and the FDIC regulate or
monitor virtually all areas of the bank's operations, including:
- security devices and procedures;
- adequacy of capitalization and loss reserves;
- loans;
- investments;
- borrowings;
- deposits;
- mergers;
- issuances of securities;
- payment of dividends;
- interest rates payable on deposits;
- interest rates or fees chargeable on loans;
- establishment of branches;
- corporate reorganizations;
- maintenance of books and records; and
- adequacy of staff training to carry on safe lending and
deposit gathering practices.
The Office of the Comptroller of the Currency requires the bank to
maintain specified capital ratios and imposes limitations on the bank's
aggregate investment in real estate, bank premises, and furniture and fixtures.
The Office of the Comptroller of the Currency also requires the bank to prepare
quarterly reports on the bank's financial condition and to conduct an annual
audit of its financial affairs in compliance with its minimum standards and
procedures.
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Under the FDIC Improvement Act, all insured institutions must undergo
regular on site examinations by their appropriate banking agency. The cost of
examinations of insured depository institutions and any affiliates may be
assessed by the appropriate agency against each institution or affiliate as it
deems necessary or appropriate. Insured institutions are required to submit
annual reports to the FDIC, their federal regulatory agency, and state
supervisor when applicable. The FDIC Improvement Act directs the FDIC to develop
a method for insured depository institutions to provide supplemental disclosure
of the estimated fair market value of assets and liabilities, to the extent
feasible and practicable, in any balance sheet, financial statement, report of
condition or any other report of any insured depository institution. The FDIC
Improvement Act also requires the federal banking regulatory agencies to
prescribe, by regulation, standards for all insured depository institutions and
depository institution holding companies relating, among other things, to the
following:
- internal controls;
- information systems and audit systems;
- loan documentation;
- credit underwriting;
- interest rate risk exposure; and
- asset quality.
National banks and their holding companies which have been chartered or
registered or have undergone a change in control within the past two years or
which have been deemed by the Office of the Comptroller of the Currency or the
Federal Reserve Board to be troubled institutions must give the Office of the
Comptroller of the Currency or the Federal Reserve Board 30 days prior notice of
the appointment of any senior executive officer or director. Within the 30 day
period, the Office of the Comptroller of the Currency or the Federal Reserve
Board, as the case may be, may approve or disapprove any such appointment.
Deposit Insurance. The FDIC establishes rates for the payment of
premiums by federally insured banks and thrifts for deposit insurance. A
separate Bank Insurance Fund and Savings Association Insurance Fund are
maintained for commercial banks and savings associations with insurance premiums
from the industry used to offset losses from insurance payouts when banks and
thrifts fail. In 1993, the FDIC adopted a rule which establishes a risk-based
deposit insurance premium system for all insured depository institutions. Under
this system, until mid-1995 depository institutions paid to Bank Insurance Fund
or Savings Association Insurance Fund from $0.23 to $0.31 per $100 of insured
deposits depending on its capital levels and risk profile, as determined by its
primary federal regulator on a semiannual basis. Once the Bank Insurance Fund
reached its legally mandated reserve ratio in mid-1995, the FDIC lowered
premiums for well-capitalized banks, eventually eliminating premiums for
well-capitalized banks, with a minimum semiannual assessment of $1,000. However,
in 1996 Congress enacted the Deposit Insurance Funds Act of 1996, which
eliminated even this minimum assessment. It also separated the Financial
Corporation assessment to service the interest on its bond obligations. The
amount assessed on individual institutions, including the bank, by Financial
Corporation assessment is in addition to the amount paid for deposit insurance
according to the risk-related assessment rate schedule. Increases in deposit
insurance premiums or changes in risk classification will increase the bank's
cost of funds, and we may not be able to pass these costs on to our customers.
Transactions With Affiliates and Insiders. The bank is subject to the
provisions of Section 23A of the Federal Reserve Act, which places limits on the
amount of loans or extensions of credit to, or investments in, or certain other
transactions with, affiliates and on the amount of advances to third parties
collateralized by the securities or obligations of affiliates. The aggregate of
all covered transactions is limited in amount, as to any one affiliate, to 10%
of the bank's capital and surplus and, as to all affiliates combined, to 20% of
the bank's capital and surplus. Furthermore, within the foregoing limitations as
to amount, each covered transaction must meet specified collateral requirements.
Compliance is also required with certain provisions designed to avoid the taking
of low quality assets.
The bank is also be subject to the provisions of Section 23B of the
Federal Reserve Act which, among other things, prohibits an institution from
engaging in certain transactions with certain affiliates unless the
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transactions are on terms substantially the same, or at least as favorable to
such institution or its subsidiaries, as those prevailing at the time for
comparable transactions with nonaffiliated companies. The bank is subject to
certain restrictions on extensions of credit to executive officers, directors,
certain principal shareholders, and their related interests. Such extensions of
credit (i) must be made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with third parties and (ii) must not involve more than the normal
risk of repayment or present other unfavorable features.
Dividends. A national bank may not pay dividends from its capital. All
dividends must be paid out of undivided profits then on hand, after deducting
expenses, including reserves for losses and bad debts. In addition, a national
bank is prohibited from declaring a dividend on its shares of common stock until
its surplus equals its stated capital, unless there has been transferred to
surplus no less than one-tenth of the bank's net profits of the preceding two
consecutive half-year periods (in the case of an annual dividend). The approval
of the Office of the Comptroller of the Currency is required if the total of all
dividends declared by a national bank in any calendar year exceeds the total of
its net profits for that year combined with its retained net profits for the
preceding two years, less any required transfers to surplus.
Branching. National banks are required by the National Bank Act to
adhere to branch office banking laws applicable to state banks in the states in
which they are located. Under current South Carolina law, the bank may open
branch offices throughout South Carolina with the prior approval of the Office
of the Comptroller of the Currency. In addition, with prior regulatory approval,
the bank will be able to acquire existing banking operations in South Carolina.
Furthermore, federal legislation has been passed which permits interstate
branching. The law permits out-of-state acquisitions by bank holding companies,
interstate branching by banks if allowed by state law, and interstate merging by
banks.
Community Reinvestment Act. The Community Reinvestment Act requires
that, in connection with examinations of financial institutions within their
respective jurisdictions, the Federal Reserve, the FDIC, or the Office of the
Comptroller of the Currency, shall evaluate the record of each financial
institution in meeting the credit needs of its local community, including low
and moderate income neighborhoods. These factors are also considered in
evaluating mergers, acquisitions, and applications to open a branch or facility.
Failure to adequately meet these criteria could impose additional requirements
and limitations on the bank.
Other Regulations. Interest and other charges collected or contracted
for by the bank are subject to state usury laws and federal laws concerning
interest rates. The bank's loan operations are also subject to federal laws
applicable to credit transactions, such as:
- the federal Truth-In-Lending Act, governing disclosures of
credit terms to consumer borrowers;
- the Home Mortgage Disclosure Act of 1975, requiring financial
institutions to provide information to enable the public and
public officials to determine whether a financial institution
is fulfilling its obligation to help meet the housing needs of
the community it serves;
- the Equal Credit Opportunity Act, prohibiting discrimination
on the basis of race, creed or other prohibited factors in
extending credit;
- the Fair Credit Reporting Act of 1978, governing the use and
provision of information to credit reporting agencies;
- the Fair Debt Collection Act, governing the manner in which
consumer debts may be collected by collection agencies; and
- the rules and regulations of the various federal agencies
charged with the responsibility of implementing such federal
laws.
The deposit operations of the bank also are subject to:
- the Right to Financial Privacy Act, which imposes a duty to
maintain confidentiality of consumer financial records and
prescribes procedures for complying with administrative
subpoenas of financial records; and
10
<PAGE> 11
- the Electronic Funds Transfer Act and Regulation E issued by
the Federal Reserve Board to implement that act, which governs
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.
Capital Regulations. The federal bank regulatory authorities have
adopted risk-based capital guidelines for banks and bank holding companies that
are designed to make regulatory capital requirements more sensitive to
differences in risk profiles among banks and bank holding companies and account
for off-balance sheet items. The guidelines are minimums, and the federal
regulators have noted that banks and bank holding companies contemplating
significant expansion programs should not allow expansion to diminish their
capital ratios and should maintain ratios in excess of the minimums. We have not
received any notice indicating that either New Commerce BanCorp or New Commerce
Bank is subject to higher capital requirements. The current guidelines require
all bank holding companies and federally-regulated banks to maintain a minimum
risk-based total capital ratio equal to 8%, of which at least 4% must be Tier 1
capital. Tier 1 capital includes common shareholders' equity, qualifying
perpetual preferred stock, and minority interests in equity accounts of
consolidated subsidiaries, but excludes goodwill and most other intangibles and
excludes the allowance for loan and lease losses. Tier 2 capital includes the
excess of any preferred stock not included in Tier 1 capital, mandatory
convertible securities, hybrid capital instruments, subordinated debt and
intermediate term-preferred stock, and general reserves for loan and lease
losses up to 1.25% of risk-weighted assets.
Under these guidelines, banks' and bank holding companies' assets are
given risk-weights of 0%, 20%, 50%, or 100%. In addition, certain off-balance
sheet items are given credit conversion factors to convert them to asset
equivalent amounts to which an appropriate risk-weight applies. These
computations result in the total risk-weighted assets. Most loans are assigned
to the 100% risk category, except for first mortgage loans fully secured by
residential property and, under certain circumstances, residential construction
loans, both of which carry a 50% rating. Most investment securities are assigned
to the 20% category, except for municipal or state revenue bonds, which have a
50% rating, and direct obligations of or obligations guaranteed by the United
States Treasury or United States Government agencies, which have a 0% rating.
The federal bank regulatory authorities have also implemented a
leverage ratio, which is equal to Tier 1 capital as a percentage of average
total assets less intangibles, to be used as a supplement to the risk-based
guidelines. The principal objective of the leverage ratio is to place a
constraint on the maximum degree to which a bank holding company may leverage
its equity capital base. The minimum required leverage ratio for top-rated
institutions is 3%, but most institutions are required to maintain an additional
cushion of at least 100 to 200 basis points.
The FDIC Improvement Act established a new capital-based regulatory
scheme designed to promote early intervention for troubled banks which requires
the FDIC to choose the least expensive resolution of bank failures. The new
capital-based regulatory framework contains five categories of compliance with
regulatory capital requirements, including "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized." To qualify as a "well capitalized" institution, a
bank must have a leverage ratio of no less than 5%, a Tier 1 risk-based ratio of
no less than 6%, and a total risk-based capital ratio of no less than 10%, and
the bank must not be under any order or directive from the appropriate
regulatory agency to meet and maintain a specific capital level. Currently, we
qualify as "well capitalized."
Under the FDIC Improvement Act regulations, the applicable agency can
treat an institution as if it were in the next lower category if the agency
determines (after notice and an opportunity for hearing) that the institution is
in an unsafe or unsound condition or is engaging in an unsafe or unsound
practice. The degree of regulatory scrutiny of a financial institution
increases, and the permissible activities of the institution decreases, as it
moves downward through the capital categories. Institutions that fall into one
of the three undercapitalized categories may be required to do some or all of
the following:
- submit a capital restoration plan;
11
<PAGE> 12
- raise additional capital;
- restrict their growth, deposit interest rates, and other
activities;
- improve their management;
- eliminate management fees; or
- divest themselves of all or a part of their operations.
Bank holding companies controlling financial institutions can be called upon to
boost the institutions' capital and to partially guarantee the institutions'
performance under their capital restoration plans.
These capital guidelines can affect us in several ways. If we grow at a
rapid pace, our capital may be depleted too quickly, and a capital infusion from
the holding company may be necessary, which could impact our ability to pay
dividends. Our capital levels currently are more than adequate; however, rapid
growth, poor loan portfolio performance, poor earnings performance, or a
combination of these factors could change our capital position in a relatively
short period of time.
Failure to meet these capital requirements would mean that a bank would
be required to develop and file a plan with its primary federal banking
regulator describing the means and a schedule for achieving the minimum capital
requirements. In addition, such a bank would generally not receive regulatory
approval of any application that requires the consideration of capital adequacy,
such as a branch or merger application, unless the bank could demonstrate a
reasonable plan to meet the capital requirement within a reasonable period of
time.
Enforcement Powers. The Financial Institution Reform Recovery and
Enforcement Act expanded and increased civil and criminal penalties available
for use by the federal regulatory agencies against depository institutions and
certain "institution-affiliated parties." Institution-affiliated parties
primarily include management, employees, and agents of a financial institution,
as well as independent contractors and consultants such as attorneys and
accountants and others who participate in the conduct of the financial
institution's affairs. These practices can include the failure of an institution
to timely file required reports or the filing of false or misleading information
or the submission of inaccurate reports. Civil penalties may be as high as
$1,000,000 a day for such violations. Criminal penalties for some financial
institution crimes have been increased to twenty years. In addition, regulators
are provided with greater flexibility to commence enforcement actions against
institutions and institution-affiliated parties. Possible enforcement actions
include the termination of deposit insurance. Furthermore, banking agencies'
power to issue cease-and-desist orders were expanded. Such orders may, among
other things, require affirmative action to correct any harm resulting from a
violation or practice, including restitution, reimbursement, indemnifications or
guarantees against loss. A financial institution may also be ordered to restrict
its growth, dispose of certain assets, rescind agreements or contracts, or take
other actions as determined by the ordering agency to be appropriate.
Effect of Governmental Monetary Policies. Our earnings are affected by
domestic economic conditions and the monetary and fiscal policies of the United
States government and its agencies. The Federal Reserve Bank's monetary policies
have had, and are likely to continue to have, an important impact on the
operating results of commercial banks through its power to implement national
monetary policy in order, among other things, to curb inflation or combat a
recession. The monetary policies of the Federal Reserve Board have major effects
upon the levels of bank loans, investments and deposits through its open market
operations in United States government securities and through its regulation of
the discount rate on borrowings of member banks and the reserve requirements
against member bank deposits. It is not possible to predict the nature or impact
of future changes in monetary and fiscal policies.
ITEM 2. DESCRIPTION OF PROPERTY
The bank is located in a temporary facility at 1 Five Forks Plaza Court
at the intersection of Batesville Road and Woodruff Road in Simpsonville, South
Carolina. Our permanent branch is under construction at this site and is
scheduled for completion by June 1, 2000. The projected cost of this 3,050
square foot facility is
12
<PAGE> 13
estimated at $485,000. Our main office is also under construction at Butler Road
and I-385 in Mauldin, South Carolina. This 12,089 square foot facility is
projected to cost approximately $1.4 million and is scheduled for completion by
April 30, 2000. In October 1999, we purchased a building for $400,000. We intend
to open this branch within the next three years.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Since our public offering on March 19, 1999, our common stock has been
quoted on the OTC Bulletin Board under the symbol "NCBS". The company's articles
of incorporation authorize us to issue up to 10,000,000 shares of common stock,
of which 1,000,000 shares, for a total of $10,000,000, were sold in the initial
public offering and are outstanding as of March 15, 2000. We have 506
shareholders of record. To date, we have not paid cash dividends on our common
stock. We currently intend to retain earnings to support operations and finance
expansion and therefore do not anticipate paying cash dividends in the
foreseeable future.
The following table sets forth the high and low sales price information
as quoted on the OTC Bulletin Board during the period indicated since the
company's common stock began trading publicly on March 19, 1999.
<TABLE>
<CAPTION>
STOCK PRICE
-----------
HIGH LOW
<S> <C> <C>
1999
Third Quarter $10.00 $10.00
Fourth Quarter $10.00 $10.00
</TABLE>
All outstanding shares of common stock of the company are entitled to
share equally in dividends from funds legally available when, and if, declared
by the Board of Directors.
(b) Pursuant to Commission Rule 463, we are obligated to report on
the use of proceeds from its initial public offering. The information provided
below is given as of December 31, 1999.
(1) The company's registration statement on Form SB-2
(File No. 333-70589) was declared effective by the
Commission on March 19, 1999.
(2) The offering commenced on March 19, 1999.
(3) The offering did not terminate before any securities
were sold.
(4) (i) The offering terminated on June 30, 1999,
upon the sale of all the securities that the
company had registered.
(ii) J.C. Bradford & Co. served as a sales agent
for the offering. In addition, the company's
officers and directors sold shares in the
offering, but did not receive any
commissions for their efforts.
13
<PAGE> 14
(iii) Common stock was the only class of
securities registered in the offering.
(iv) 1,000,000 shares ($10,000,000) of common
stock were registered, of which 1,000,000
shares ($10,000,000) were sold.
(v) The company incurred approximately $248,300
in expenses (including sales commissions) in
connection with the issuance and
distribution of the common stock in the
offering. All of these expenses were paid
directly or indirectly to persons or
entities other than directors, officers,
persons owning 10% or more of the company's
securities, or affiliates of the company.
(vi) The net proceeds to the company after
deducting the total expenses described above
were $9,751,700.
(vii) Through December 31, 1999, $986,869 of the
net proceeds of the offering were invested
in securities and cash, $7,595,221 was
invested in the company's bank subsidiary;
and $510,602 was used to pay organization
and pre-opening costs. None of the net
proceeds have been paid directly or
indirectly to directors, officers, persons
owning 10% or more of the company's
securities, and affiliates of the company,
except for approximately $257,000 paid as
salaries to our officers.
(viii) The use of proceeds described above does not
represent a material change from the use of
proceeds disclosed in the prospectus for the
offering.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION
In response to this Item, the information contained on pages 4 through
13 of the company's Annual Report to Shareholders for the year ended December
31, 1999 is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS
In response to this Item, the information contained on pages 14 through
30 of the company's Annual Report to Shareholders for the year ended December
31, 1999 is incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
In response to this Item, the information contained on page 11 of the
company's Proxy Statement for the Annual Meeting of Shareholders to be held on
April 28, 2000 is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
In response to this Item, the information contained on page 8 of the
company's Proxy Statement for the Annual Meeting of Shareholders to be held on
April 28, 2000 is incorporated herein by reference.
14
<PAGE> 15
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
In response to this Item, the information contained on page 10 of the
company's Proxy Statement for the Annual Meeting of Shareholders to be held on
April 28, 2000 is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In response to this Item, the information contained on page 11 of the
company's Proxy Statement for the Annual Meeting of Shareholders to be held on
April 28, 1999 is incorporated herein by reference.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
3.1. Articles of Incorporation, as amended (incorporated by reference to
Exhibit 3.1 of the Registration Statement on Form SB-2, File No.
333-70589).
3.2. Bylaws (incorporated by reference to Exhibit 3.2 of the Registration
Statement on Form SB-2, File No. 333-70589).
4.1. See Exhibits 3.1 and 3.2 for provisions in New Commerce BanCorp's
Articles of Incorporation and Bylaws defining the rights of holders of
the common stock (incorporated by reference to Exhibits 3.1 and 3.2 of
the Registration Statement on Form SB-2, File No. 333-70589).
4.2. Form of certificate of common stock (incorporated by reference to
Exhibit 4.2 of the Registration Statement on Form SB-2, File No.
333-70589).
5.1. Opinion Regarding Legality (incorporated by reference to Exhibit 5.1 of
the Registration Statement on Form SB-2, File No. 333-70589).
10.1 Employment Agreement dated August 1, 1998 between New Commerce BanCorp
and James D. Stewart (incorporated by reference to Exhibit 10.1 of the
Registration Statement on Form SB-2, File No.
333-70589).
10.2 Agreement to Buy and Sell dated January 4, 1999, between New Commerce
BanCorp, as buyer, and The Bess G. Kirkland Trust, as seller
(incorporated by reference to Exhibit 10.2 of the Registration
Statement on Form SB-2, File No. 333-70589).
10.3 Agreement to Buy and Sell dated September 30, 1998 between New Commerce
BanCorp, as buyer, and Stephen M. Young and Lewis P. Young, Trustees of
Wilbert Burial Vault, Inc., Profit Sharing Plan, as seller
(incorporated by reference to Exhibit 10.3 of the Registration
Statement on Form SB-2, File No.
333-70589).
10.4 Agreement to Buy and Sell dated October 26, 1998, between New Commerce
BanCorp, as buyer, and Hawkins Development Corporation, as seller
(incorporated by reference to Exhibit 10.4 of the Registration
Statement on Form SB-2, File No. 333-70589).
10.5 Sales Agency Agreement dated December 11, 1998 between New Commerce
BanCorp and J.C. Bradford & Co. (incorporated by reference to Exhibit
10.5 of the Registration Statement on Form SB-2, File No.
333-70589).
10.6 Escrow Agreement dated October 27, 1998 between New Commerce BanCorp
and The Bankers Bank (incorporated by reference to Exhibit 10.6 of the
Registration Statement on Form SB-2, File No. 333-70589).
15
<PAGE> 16
10.7 Data Processing Services Agreement and Contract Modification dated
December 1, 1998 between New Commerce BanCorp and Jack Henry &
Associates, Inc. (incorporated by reference to Exhibit 10.7 of the
Registration Statement on Form SB-2, File No. 333-70589).
10.8 Form of Stock Warrant Agreement (incorporated by reference to Exhibit
10.8 of the Registration Statement on Form SB-2, File No. 333-70589).
10.9 Employment Agreement dated January 29,1999 between New Commerce BanCorp
and Paula S. King (incorporated by reference to Exhibit 10.9 of the
Registration Statement on Form SB-2, File No. 333-70589).
10.10 New Commerce BanCorp 1999 Stock Incentive Plan
13.1. The Company's 1999 Annual Report
21.1. Subsidiaries of the Company
27.1. Financial Data Schedule (for electronic filing purposes)
(b) Reports on Form 8-K
The company did not file any reports on Form 8-K during the fourth
quarter of 1999.
16
<PAGE> 17
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934 (the "Exchange Act"), the registrant caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NEW COMMERCE BANCORP
Date: March 24, 2000 By: /s/ James D. Stewart
---------------------------- -------------------------------------
James D. Stewart
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints James D. Stewart, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this Annual Report on Form 10-KSB, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto attorney-in-fact and agent
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Richard W. Bailey
- ------------------------------------
Richard W. Bailey Director 03/24/00
/s/ Timothy A. Brett
- ------------------------------------
Timothy A. Brett Director 03/24/00
/s/ Marshall J. Collins, Jr.
- ------------------------------------
Marshall J. Collins, Jr. Director 03/24/00
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Ralph S. Crawley
- ------------------------------------
Ralph S. Crawley Director 03/24/00
/s/ G. Mitchell Gault
- ------------------------------------
G. Mitchell Gault Director 03/24/00
/s/ Tommy D. Greer
- ------------------------------------
Tommy D. Greer Director 03/24/00
/s/ Bobby L. Johnson
- ------------------------------------
Bobby L. Johnson Director 03/24/00
/s/ Robert T. Kellett
- ------------------------------------
Robert T. Kellett Director 03/24/00
/s/ Dennis O. Raines
- ------------------------------------
Dennis O. Raines Director 03/24/00
/s/ Curran A. Smith
- ------------------------------------
Curran A. Smith Director 03/24/00
/s/ James D. Stewart
- ------------------------------------
James D. Stewart Director 03/24/00
/s/ Paula S. King
- ------------------------------------
Paula S. King Principal Accounting 03/24/00
Officer, and Chief
Financial Officer of the Bank
</TABLE>
18
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
3.1. Articles of Incorporation, as amended (incorporated by reference to
Exhibit 3.1 of the Registration Statement on Form SB-2, File No.
333-70589).
3.2. Bylaws (incorporated by reference to Exhibit 3.2 of the Registration
Statement on Form SB-2, File No. 333-70589).
4.1. See Exhibits 3.1 and 3.2 for provisions in New Commerce BanCorp's
Articles of Incorporation and Bylaws defining the rights of holders of
the common stock (incorporated by reference to Exhibits 3.1 and 3.2 of
the Registration Statement on Form SB-2, File No. 333-70589).
4.2. Form of certificate of common stock (incorporated by reference to
Exhibit 4.2 of the Registration Statement on Form SB-2, File No.
333-70589).
5.1. Opinion Regarding Legality (incorporated by reference to Exhibit 5.1 of
the Registration Statement on Form SB-2, File No. 333-70589).
10.1. Employment Agreement dated August 1, 1998 between New Commerce BanCorp
and James D. Stewart (incorporated by reference to Exhibit 10.1 of the
Registration Statement on Form SB-2, File No. 333-70589).
10.2. Agreement to Buy and Sell dated January 4, 1999, between New Commerce
BanCorp, as buyer, and The Bess G. Kirkland Trust, as seller
(incorporated by reference to Exhibit 10.2 of the Registration
Statement on Form SB-2, File No. 333-70589).
10.3. Agreement to Buy and Sell dated September 30, 1998 between New Commerce
BanCorp, as buyer, and Stephen M. Young and Lewis P. Young, Trustees of
Wilbert Burial Vault, Inc., Profit Sharing Plan, as seller
(incorporated by reference to Exhibit 10.3 of the Registration
Statement on Form SB-2, File No. 333-70589).
10.4. Agreement to Buy and Sell dated October 26, 1998, between New Commerce
BanCorp, as buyer, and Hawkins Development Corporation, as seller
(incorporated by reference to Exhibit 10.4 of the Registration
Statement on Form SB-2, File No. 333-70589).
10.5. Sales Agency Agreement dated December 11, 1998 between New Commerce
BanCorp and J.C. Bradford & Co. (incorporated by reference to Exhibit
10.5 of the Registration Statement on Form SB-2, File No. 333-70589).
10.6. Escrow Agreement dated October 27, 1998 between New Commerce BanCorp
and The Bankers Bank (incorporated by reference to Exhibit 10.6 of the
Registration Statement on Form SB-2, File No. 333-70589).
10.7. Data Processing Services Agreement and Contract Modification dated
December 1, 1998 between New Commerce BanCorp and Jack Henry &
Associates, Inc. (incorporated by reference to Exhibit 10.7 of the
Registration Statement on Form SB-2, File No. 333-70589).
10.8. Form of Stock Warrant Agreement (incorporated by reference to Exhibit
10.8 of the Registration Statement on Form SB-2, File No. 333-70589).
10.9. Employment Agreement dated January 29,1999 between New Commerce BanCorp
and Paula S. King (incorporated by reference to Exhibit 10.9 of the
Registration Statement on Form SB-2, File No. 333-70589).
10.10. New Commerce BanCorp 1999 Stock Incentive Plan
</TABLE>
19
<PAGE> 20
<TABLE>
<S> <C>
13.1. The Company's 1999 Annual Report
21.1. Subsidiaries of the Company
27.1. Financial Data Schedule (for electronic filing purposes)
</TABLE>
20
<PAGE> 1
EXHIBIT 10.10
NEW COMMERCE BANCORP
1999 STOCK INCENTIVE PLAN
<PAGE> 2
NEW COMMERCE BANCORP
1999 STOCK INCENTIVE PLAN
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS ................................................................................. 1
ARTICLE II THE PLAN ................................................................................... 4
2.1 NAME ........................................................................................ 4
2.2 PURPOSE ..................................................................................... 4
2.3 EFFECTIVE DATE .............................................................................. 4
ARTICLE III PARTICIPANTS .............................................................................. 5
ARTICLE IV ADMINISTRATION ............................................................................. 5
4.1 DUTIES AND POWERS OF THE COMMITTEE .......................................................... 5
4.2 INTERPRETATION; RULES ....................................................................... 5
4.3 NO LIABILITY ................................................................................ 6
4.4 MAJORITY RULE ............................................................................... 6
4.5 COMPANY ASSISTANCE .......................................................................... 6
ARTICLE V SHARES OF STOCK SUBJECT TO PLAN ............................................................. 6
5.1 LIMITATIONS ................................................................................. 6
5.2 ANTIDILUTION ................................................................................ 7
ARTICLE VI OPTIONS .................................................................................... 8
6.1 TYPES OF OPTIONS GRANTED .................................................................... 8
6.2 OPTION GRANT AND AGREEMENT .................................................................. 8
6.3 OPTIONEE LIMITATIONS ........................................................................ 8
6.4 $100,000 LIMITATION ......................................................................... 9
6.5 EXERCISE PRICE .............................................................................. 9
6.6 EXERCISE PERIOD ............................................................................. 9
6.7 OPTION EXERCISE ............................................................................. 10
6.8 RELOAD OPTIONS .............................................................................. 11
6.9 NONTRANSFERABILITY OF OPTION ................................................................ 11
6.10 TERMINATION OF EMPLOYMENT OR SERVICE ........................................................ 12
6.11 EMPLOYMENT RIGHTS ........................................................................... 12
6.12 CERTAIN SUCCESSOR OPTIONS ................................................................... 12
6.13 EFFECT OF A CORPORATE TRANSACTION ........................................................... 12
6.14 FORFEITURE BY ORDER OF REGULATORY AGENCY .................................................... 12
ARTICLE VII STOCK CERTIFICATES ........................................................................ 12
ARTICLE VIII TERMINATION AND AMENDMENT ................................................................ 13
8.1 TERMINATION AND AMENDMENT ................................................................... 13
8.2 EFFECT ON GRANTEE'S RIGHTS .................................................................. 13
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE IX RELATIONSHIP TO OTHER COMPENSATION PLANS ................................................... 14
ARTICLE X MISCELLANEOUS ............................................................................... 14
10.1 REPLACEMENT OR AMENDED GRANTS ............................................................... 14
10.2 FORFEITURE FOR COMPETITION .................................................................. 14
10.3 LEAVE OF ABSENCE ............................................................................ 14
10.4 PLAN BINDING ON SUCCESSORS .................................................................. 15
10.5 HEADINGS, ETC., NO PART OF PLAN ............................................................. 15
10.6 SECTION 16 COMPLIANCE ....................................................................... 15
EXHIBIT A TO NEW COMMERCE BANCORP 1999 STOCK INCENTIVE PLAN - FORM OF STOCK OPTION AGREEMENT ........... 1
SCHEDULE A ............................................................................................. 6
SCHEDULE B ............................................................................................. 8
</TABLE>
ii
<PAGE> 4
NEW COMMERCE BANCORP
1999 STOCK INCENTIVE PLAN
ARTICLE I
DEFINITIONS
As used herein, the following terms have the following meanings unless
the context clearly indicates to the contrary:
"Board" shall mean the Board of Directors of the Company.
"Cause" (i) with respect to the Company or any subsidiary which employs
the recipient of an Option (the "recipient") or for which such recipient
primarily performs services, the commission by the recipient of an act of fraud,
embezzlement, theft or proven dishonesty, or any other illegal act or practice
(whether or not resulting in criminal prosecution or conviction), or any act or
practice which the Committee shall, in good faith, deem to have resulted in the
recipient's becoming unbondable under the Company's or the subsidiary's fidelity
bond; (ii) the willful engaging by the recipient in misconduct which is deemed
by the Committee, in good faith, to be materially injurious to the Company or
any subsidiary, monetarily or otherwise, including, but not limited, improperly
disclosing trade secrets or other confidential or sensitive business information
and data about the Company or any subsidiaries and competing with the Company or
its subsidiaries, or soliciting employees, consultants or customers of the
Company in violation of law or any employment or other agreement to which the
recipient is a party; or (iii) the willful and continued failure or habitual
neglect by the recipient to perform his or her duties with the Company or the
subsidiary substantially in accordance with the operating and personnel policies
and procedures of the Company or the subsidiary generally applicable to all
their employees. For purposes of this Plan, no act or failure to act by the
recipient shall be deemed be "willful" unless done or omitted to be done by
recipient not in good faith and without reasonable belief that the recipient's
action or omission was in the best interest of the Company and/or the
subsidiary. Notwithstanding the foregoing, if the recipient has entered into an
employment agreement that is binding as of the date of employment termination,
and if such employment agreement defines "Cause," then the definition of "Cause"
in such agreement shall apply to the recipient in this Plan. "Cause" under
either (i), (ii) or (iii) shall be determined by the Committee.
"Code" shall mean the United States Internal Revenue Code of 1986,
including effective date and transition rules (whether or not codified). Any
reference herein to a specific section of the Code shall be deemed to include a
reference to any corresponding provision of future law.
"Committee" shall mean a committee of at least two Directors appointed
from time to time by the Board, having the duties and authority set forth herein
in addition to any other authority granted by the Board. In selecting the
Committee, the Board shall consider (i) the benefits under Section 162(m) of the
Code of having a Committee composed of "outside directors" (as that term is
defined in the Code) for certain grants of Options to highly
<PAGE> 5
compensated executives, and (ii) the benefits under Rule 16b-3 of having a
Committee composed of either the entire Board or a Committee of at least two
Directors who are Non-Employee Directors for Options granted to or held by any
Section 16 Insider. At any time that the Board shall not have appointed a
committee as described above, any reference herein to the Committee shall mean
the Board.
"Company" shall mean New Commerce Bancorp, a South Carolina
corporation.
"Corporate Transaction" shall mean the occurrence of any of the
following events:
(i) a merger or consolidation in which securities
possessing more than 50% of the total combined voting
power of the Company's outstanding securities are
transferred to a person or persons different from the
persons holding those securities immediately prior to
such transaction;
(ii) the sale, transfer or other disposition of all or
substantially all of the Company's assets in complete
liquidation or dissolution of the Company; or
(iii) the grant of any bank regulatory approval (or notice
of no disapproval) for permission to acquire control
of the Company or any of its banking subsidiaries.
"Director" shall mean a member of the Board and any person who is an
advisory or honorary director of the Company if such person is considered a
director for the purposes of Section 16 of the Exchange Act, as determined by
reference to such Section 16 and to the rules, regulations, judicial decisions,
and interpretative or "no-action" positions with respect thereto of the
Securities and Exchange Commission, as the same may be in effect or set forth
from time to time.
"Employee" shall mean a person who constitutes an employee of the
Company as such term is defined in the instructions to the Form S-8 Registration
Statement under the Securities Act of 1933, and also includes non-employees to
whom an offer of employment has been extended.
"Exchange Act" shall mean the Securities Exchange Act of 1934. Any
reference herein to a specific section of the Exchange Act shall be deemed to
include a reference to any corresponding provision of future law.
"Exercise Price" shall mean the price at which an Optionee may purchase
a share of Stock under a Stock Option Agreement.
"Fair Market Value" on any date shall mean (i) the closing sales price
of the Stock, regular way, on such date on the national securities exchange
having the greatest volume of trading in the Stock during the thirty-day period
preceding the day the value is to be determined or, if such exchange was not
open for trading on such date, the next preceding date
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on which it was open; (ii) if the Stock is not traded on any national securities
exchange, the average of the closing high bid and low asked prices of the Stock
on the over-the-counter market on the day such value is to be determined, or in
the absence of closing bids on such day, the closing bids on the next preceding
day on which there were bids; or (iii) if the Stock also is not traded on the
over-the-counter market, the fair market value as determined in good faith by
the Board or the Committee based on such relevant facts as may be available to
the Board, which may include opinions of independent experts, the price at which
recent sales have been made, the book value of the Stock, and the Company's
current and future earnings.
"Incentive Stock Option" shall mean an option to purchase any stock of
the Company, which complies with and is subject to the terms, limitations and
conditions of Section 422 of the Code and any regulations promulgated with
respect thereto.
"Non-Employee Director" shall have the meaning set forth in Rule 16b-3
under the Exchange Act, as the same may be in effect from time to time, or in
any successor rule thereto, and shall be determined for all purposes under the
Plan according to interpretative or "no-action" positions with respect thereto
issued by the Securities and Exchange Commission.
"Officer" shall mean a person who constitutes an officer of the Company
for the purposes of Section 16 of the Exchange Act, as determined by reference
to such Section 16 and to the rules, regulations, judicial decisions, and
interpretative or "no-action" positions with respect thereto of the Securities
and Exchange Commission, as the same may be in effect or set forth from time to
time.
"Option" shall mean an option, whether or not an Incentive Stock
Option, to purchase Stock granted pursuant to the provisions of Article VI
hereof.
"Optionee" shall mean a person to whom an Option has been granted
hereunder.
"Parent" shall mean any corporation (other than the Company or a
Subsidiary) in an unbroken chain of corporations ending with the Company if, at
the time of the grant (or modification) of the Option, each of the corporations
other than the Company or a Subsidiary owns stock possessing 50% or more of the
total combined voting power of the classes of stock in one of the other
corporations in such chain.
"Permanent and Total Disability" shall have the same meaning as given
to that term by Code Section 22(e)(3) and any regulations or rulings promulgated
thereunder.
"Plan" shall mean the New Commerce Bancorp 1999 Stock Incentive Plan,
the terms of which are set forth herein.
"Purchasable" shall refer to Stock which may be purchased by an
Optionee under the terms of this Plan on or after a certain date specified in
the applicable Stock Option Agreement.
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"Qualified Domestic Relations Order" shall have the meaning set forth
in the Code or in the Employee Retirement Income Security Act of 1974, or the
rules and regulations promulgated under the Code or such Act.
"Reload Option" shall have the meaning set forth in Section 6.8 hereof.
"Section 16 Insider" shall mean any person who is subject to the
provisions of Section 16 of the Exchange Act, as provided in Rule 16a-2
promulgated pursuant to the Exchange Act.
"Stock" shall mean the Common Stock, par value $0.01 per share, of the
Company or, in the event that the outstanding shares of Stock are hereafter
changed into or exchanged for shares of a different stock or securities of the
Company or some other entity, such other stock or securities.
"Stock Option Agreement" shall mean an agreement between the Company
and an Optionee under which the Optionee may purchase Stock hereunder, a sample
form of which is attached hereto as Exhibit A (which form may be varied by the
Committee in granting an Option).
"Subsidiary" shall mean any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of the
grant (or modification) of the Option, each of the corporations other than the
last corporation in the unbroken chain owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
ARTICLE II
THE PLAN
2.1 Name. This Plan shall be known as "New Commerce Bancorp 1999
Stock Incentive Plan."
2.2 Purpose. The purpose of the Plan is to advance the interests
of the Company, its Subsidiaries, and its shareholders by affording Employees
and Directors of the Company and its Subsidiaries an opportunity to acquire or
increase their proprietary interests in the Company. The objective of the
issuance of the Options is to promote the growth and profitability of the
Company and its Subsidiaries because the Optionees will be provided with an
additional incentive to achieve the Company's objectives through participation
in its success and growth and by encouraging their continued association with or
service to the Company.
2.3 Effective Date. The Plan shall become effective on August 26,
1999; provided, however, that if the shareholders of the Company have not
approved the Plan on or prior to the first anniversary of such effective date,
then all options granted under the Plan shall be non-Incentive Stock Options.
If, at the time of any amendment to the Plan, shareholder approval is
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<PAGE> 8
required by the Code for Incentive Stock Options and such shareholder approval
has not been obtained (or is not obtained within 12 months thereof), any
Incentive Stock Options issued under the Plan shall automatically become options
which do not qualify as Incentive Stock Options.
ARTICLE III
PARTICIPANTS
The class of persons eligible to participate in the Plan shall consist
of all Directors and Employees of the Company or any Subsidiary.
ARTICLE IV
ADMINISTRATION
4.1 Duties and Powers of the Committee. The Plan shall be
administered by the Committee. The Committee shall select one of its members as
its Chairman and shall hold its meetings at such times and places as it may
determine. The Committee shall keep minutes of its meetings and shall make such
rules and regulations for the conduct of its business as it may deem necessary.
The Committee shall have the power to act by unanimous written consent in lieu
of a meeting, and to meet telephonically. In administering the Plan, the
Committee's actions and determinations shall be binding on all interested
parties. The Committee shall have the power to grant Options in accordance with
the provisions of the Plan and may grant Options singly, in combination, or in
tandem. Subject to the provisions of the Plan, the Committee shall have the
discretion and authority to determine those individuals to whom Options will be
granted and whether such Options shall be accompanied by the right to receive
Reload Options, the number of shares of Stock subject to each Option, such other
matters as are specified herein, and any other terms and conditions of a Stock
Option Agreement. The Committee shall also have the discretion and authority to
delegate to any Officer its power to grant Options under the Plan to Employees,
but not to Employees who are Officers or Directors. To the extent not
inconsistent with the provisions of the Plan, the Committee may give a Optionee
an election to surrender an Option in exchange for the grant of a new Option,
and shall have the authority to amend or modify an outstanding Stock Option
Agreement, or to waive any provision thereof, provided that the Optionee
consents to such action.
4.2 Interpretation; Rules. Subject to the express provisions of
the Plan, the Committee also shall have complete authority to interpret the
Plan, to prescribe, amend, and rescind rules and regulations relating to it, to
determine the details and provisions of each Stock Option Agreement, and to make
all other determinations necessary or advisable for the administration of the
Plan, including, without limitation, the amending or altering of the Plan and
any Options granted hereunder as may be required to comply with or to conform to
any federal, state, or local laws or regulations. If an option granted under the
Plan is intended to be an Incentive Stock Option but does not qualify as an
Incentive Stock Option for any reason, then the option granted shall remain
valid but shall be a non-Incentive Stock Option.
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4.3 No Liability. Neither any member of the Board nor any member
of the Committee shall be liable to any person for any act or determination made
in good faith with respect to the Plan or any Option granted hereunder.
4.4 Majority Rule. A majority of the members of the Committee
shall constitute a quorum, and any action taken by a majority at a meeting at
which a quorum is present, or any action taken without a meeting evidenced by a
writing executed by all the members of the Committee, shall constitute the
action of the Committee.
4.5 Company Assistance. The Company shall supply full and timely
information to the Committee on all matters relating to eligible persons, their
employment, death, retirement, disability, or other termination of employment,
and such other pertinent facts as the Committee may require. The Company shall
furnish the Committee with such clerical and other assistance as is necessary in
the performance of its duties.
ARTICLE V
SHARES OF STOCK SUBJECT TO PLAN
5.1 Limitations. Subject to any antidilution adjustment pursuant
to the provisions of Section 5.2 hereof, the maximum number of shares of Stock
that may be issued hereunder shall be 150,000. Any or all shares of Stock
subject to the Plan may be issued in any combination of Incentive Stock Options
or non-Incentive Stock Options, and the amount of Stock subject to the Plan may
be increased from time to time in accordance with Article IX, provided that the
total number of shares of Stock issuable pursuant to Incentive Stock Options may
not be increased to more than 150,000 (other than pursuant to anti-dilution
adjustments) without shareholder approval. Shares subject to an Option may be
either authorized and unissued shares or shares issued and later acquired by the
Company. The shares covered by any unexercised portion of an Option that has
terminated for any reason (except as set forth in the following paragraph) may
again be optioned under the Plan, and such shares shall not be considered as
having been optioned or issued in computing the number of shares of Stock
remaining available for option hereunder.
If Options are issued in respect of options to acquire stock of any
entity acquired, by merger or otherwise, by the Company (or any Subsidiary of
the Company), to the extent that such issuance shall not be inconsistent with
the terms, limitations and conditions of Code section 422 or Rule 16b-3 under
the Exchange Act, the aggregate number of shares of Stock for which Options may
be granted hereunder shall automatically be increased by the number of shares
subject to the Options so issued; provided, however, that the aggregate number
of shares of Stock for which Options may be granted hereunder shall
automatically be decreased by the number of shares covered by any unexercised
portion of an Option so issued that has terminated for any reason, and the
shares subject to any such unexercised portion may not be optioned to any other
person.
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<PAGE> 10
5.2 Antidilution.
(a) If (x) the outstanding shares of Stock are changed
into or exchanged for a different number or kind of shares or other securities
of the Company by reason of merger, consolidation, reorganization,
recapitalization, reclassification, combination or exchange of shares, or stock
split or stock dividend, (y) any spin-off, spin-out or other distribution of
assets materially affects the price of the Company's stock, or (z) there is any
assumption and conversion to the Plan by the Company of an acquired company's
outstanding option grants, then:
(i) the aggregate number and kind of shares of
Stock for which Options may be granted hereunder shall be
adjusted proportionately by the Committee; and
(ii) the rights of Optionees (concerning the
number of shares subject to Options and the Exercise Price)
under outstanding Options shall be adjusted proportionately by
the Committee.
(b) If the Company shall be a party to any reorganization
in which it does not survive, involving merger, consolidation, or acquisition of
the stock or substantially all the assets of the Company, the Committee, in its
sole discretion, may (but is not required to):
(i) notwithstanding other provisions hereof,
declare that all Options granted under the Plan shall become
exercisable immediately notwithstanding the provisions of the
respective Stock Option Agreements regarding exercisability,
that all such Options shall terminate 30 days after the
Committee gives written notice of the immediate right to
exercise all such Options and of the decision to terminate all
Options not exercised within such 30-day period; and/or
(ii) notify all Optionees that all Options
granted under the Plan shall be assumed by the successor
corporation or substituted on an equitable basis with options
issued by such successor corporation.
(c) If the Company is to be liquidated or dissolved in
connection with a reorganization described in Section 5.2(b), the provisions of
such Section shall apply. In all other instances, the adoption of a plan of
dissolution or liquidation of the Company shall, notwithstanding other
provisions hereof, cause every Option outstanding under the Plan to terminate to
the extent not exercised prior to the adoption of the plan of dissolution or
liquidation by the shareholders, provided that, notwithstanding other provisions
hereof, the Committee may declare all Options granted under the Plan to be
exercisable at any time on or before the fifth business day following such
adoption notwithstanding the provisions of the respective Stock Option
Agreements regarding exercisability.
(d) The adjustments described in paragraphs (a) through
(c) of this Section 5.2, and the manner of their application, shall be
determined solely by the Committee, and any
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<PAGE> 11
such adjustment may provide for the elimination of fractional share interests;
provided, however, that any adjustment made by the Board or the Committee shall
be made in a manner that will not cause an Incentive Stock Option to be other
than an Incentive Stock Option under applicable statutory and regulatory
provisions. The adjustments required under this Article V shall apply to any
successors of the Company and shall be made regardless of the number or type of
successive events requiring such adjustments.
ARTICLE VI
OPTIONS
6.1 Types of Options Granted. The Committee may, under this Plan,
grant either Incentive Stock Options or Options which do not qualify as
Incentive Stock Options. Within the limitations provided in this Plan, both
types of Options may be granted to the same person at the same time, or at
different times, under different terms and conditions, as long as the terms and
conditions of each Option are consistent with the provisions of the Plan.
Without limitation of the foregoing, Options may be granted subject to
conditions based on the financial performance of the Company or any other factor
the Committee deems relevant.
6.2 Option Grant and Agreement. Each Option granted hereunder
shall be evidenced by minutes of a meeting or the written consent of the
Committee and by a written Stock Option Agreement executed by the Company and
the Optionee. The terms of the Option, including the Option's duration, time or
times of exercise, exercise price, whether the Option is intended to be an
Incentive Stock Option, and whether the Option is to be accompanied by the right
to receive a Reload Option, shall be stated in the Stock Option Agreement. In
structuring the terms of each Option, the Committee shall follow the guidelines
set forth in the FDIC statement of policy relating to applications for deposit
insurance, including that the terms should encourage each Optionee to remain
involved in the Company and/or its Subsidiaries, such as by having a vesting
period of equal percentages each year over the initial three years following the
grant of the Option and a requirement that the Option be exercised or expire
within a reasonable time after termination as an active officer, employee, or
director. No Incentive Stock Option may be granted more than ten years after the
earlier to occur of the effective date of the Plan or the date the Plan is
approved by the Company's shareholders. Separate Stock Option Agreements may be
used for Options intended to be Incentive Stock Options and those not so
intended, but any failure to use such separate agreements shall not invalidate,
or otherwise adversely affect the Optionee's interest in, the Options evidenced
thereby.
6.3 Optionee Limitations. The Committee shall not grant an
Incentive Stock Option to any person who, at the time the Incentive Stock Option
is granted:
(a) is not an employee of the Company or any of its
Subsidiaries (as the term "employee" is defined by the Code); or
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(b) owns or is considered to own stock possessing at
least 10% of the total combined voting power of all classes of stock of the
Company or any of its Parent or Subsidiary corporations; provided, however, that
this limitation shall not apply if at the time an Incentive Stock Option is
granted the Exercise Price is at least 110% of the Fair Market Value of the
Stock subject to such Option and such Option by its terms would not be
exercisable after five years from the date on which the Option is granted. For
the purpose of this subsection (b), a person shall be considered to own: (i) the
stock owned, directly or indirectly, by or for his or her brothers and sisters
(whether by whole or half blood), spouse, ancestors and lineal descendants; (ii)
the stock owned, directly or indirectly, by or for a corporation, partnership,
estate, or trust in proportion to such person's stock interest, partnership
interest or beneficial interest therein; and (iii) the stock which such person
may purchase under any outstanding options of the Company or of any Parent or
Subsidiary.
6.4 $100,000 Limitation. Except as provided below, the Committee
shall not grant an Incentive Stock Option to, or modify the exercise provisions
of outstanding Incentive Stock Options held by, any person who, at the time the
Incentive Stock Option is granted (or modified), would thereby receive or hold
any Incentive Stock Options of the Company and any Parent or Subsidiary, such
that the aggregate Fair Market Value (determined as of the respective dates of
grant or modification of each option) of the stock with respect to which such
Incentive Stock Options are exercisable for the first time during any calendar
year is in excess of $100,000 (or such other limit as may be prescribed by the
Code from time to time); provided that the foregoing restriction on modification
of outstanding Incentive Stock Options shall not preclude the Committee from
modifying an outstanding Incentive Stock Option if, as a result of such
modification and with the consent of the Optionee, such Option no longer
constitutes an Incentive Stock Option; and provided that, if the $100,000
limitation (or such other limitation prescribed by the Code) described in this
Section 6.4 is exceeded, the Incentive Stock Option, the granting or
modification of which resulted in the exceeding of such limit, shall be treated
as an Incentive Stock Option up to the limitation and the excess shall be
treated as an Option not qualifying as an Incentive Stock Option. Furthermore,
not more than 25% of the total shares of stock approved under this Plan may be
made subject to Options to any individual in the aggregate in any one fiscal
year of the Company, such limitation to be applied in a manner consistent with
the requirements of, and only to the extent required for compliance with, the
exclusion from the limitation on deductibility of compensation under Section
162(m) of the Code.
6.5 Exercise Price. The Exercise Price of the Stock subject to
each Option shall be determined by the Committee. Subject to the provisions of
Section 6.3(b) hereof, the Exercise Price of an Option shall not be less than
the Fair Market Value of the Stock as of the date the Option is granted (or in
the case of an Incentive Stock Option that is subsequently modified, on the date
of such modification).
6.6 Exercise Period. The period for the exercise of each Option
granted hereunder shall be determined by the Committee, but the Stock Option
Agreement with respect to each Option shall provide that such Option shall not
be exercisable after ten years from the date of grant (or modification) of the
Option.
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6.7 Option Exercise.
(a) Unless otherwise provided in the Stock Option
Agreement or Section 6.6 hereof, an Option may be exercised at any time or from
time to time during the term of the Option as to any or all full shares which
have become Purchasable under the provisions of the Option, but not at any time
as to less than 100 shares unless the remaining shares that have become so
Purchasable are less than 100 shares. The Committee shall have the authority to
prescribe in any Stock Option Agreement that the Option may be exercised only in
accordance with a vesting schedule during the term of the Option.
(b) An Option shall be exercised by (i) delivery to the
Company at its principal office a written notice of exercise with respect to a
specified number of shares of Stock and (ii) payment to the Company at that
office of the full amount of the Exercise Price for such number of shares in
accordance with Section 6.7(c). If requested by an Optionee, an Option may be
exercised with the involvement of a stockbroker in accordance with the federal
margin rules set forth in Regulation T (in which case the certificates
representing the underlying shares will be delivered by the Company directly to
the stockbroker).
(c) The Exercise Price is to be paid in full in cash upon
the exercise of the Option and the Company shall not be required to deliver
certificates for the shares purchased until such payment has been made;
provided, however, that in lieu of cash, in the Company's discretion all or any
portion of the Exercise Price may be paid by tendering to the Company shares of
Stock duly endorsed for transfer and owned by the Optionee, or by authorization
to the Company to withhold shares of Stock otherwise issuable upon exercise of
the Option, in each case to be credited against the Exercise Price at the Fair
Market Value of such shares on the date of exercise (however, no fractional
shares may be so transferred, and the Company shall not be obligated to make any
cash payments in consideration of any excess of the aggregate Fair Market Value
of shares transferred over the aggregate Exercise Price); provided further, that
the Board may provide in a Stock Option Agreement (or may otherwise determine in
its sole discretion at the time of exercise) that, in lieu of cash or shares,
all or a portion of the Exercise Price may be paid by the Optionee's execution
of a recourse note equal to the Exercise Price or relevant portion thereof,
subject to compliance with applicable state and federal laws, rules and
regulations. Notwithstanding the above, the Company shall not be obligated to
accept tender of shares of Stock as payment of the Exercise Price if doing so
would result in a charge to the Company's earnings for financial reporting
purposes.
(d) In addition to and at the time of payment of the
Exercise Price, the Optionee shall pay to the Company in cash the full amount of
any federal, state, and local income, employment, or other withholding taxes
applicable to the taxable income of such Optionee resulting from such exercise;
provided, however, that in the discretion of the Committee any Stock Option
Agreement may provide that all or any portion of such tax obligations, together
with additional taxes not exceeding the actual additional taxes to be owed by
the Optionee as a result of such exercise, may, upon the irrevocable election of
the Optionee, be paid by tendering to the Company whole shares of Stock duly
endorsed for transfer and owned by the Optionee, or by authorization to the
Company to withhold shares of Stock otherwise issuable upon exercise of the
Option, in either case in that number of shares
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<PAGE> 14
having a Fair Market Value on the date of exercise equal to the amount of such
taxes thereby being paid, and subject to such restrictions as to the approval
and timing of any such election as the Committee may from time to time determine
to be necessary or appropriate to satisfy the conditions of the exemption set
forth in Rule 16b-3 under the Exchange Act, if such rule is applicable.
(e) The holder of an Option shall not have any of the
rights of a shareholder with respect to the shares of Stock subject to the
Option until such shares have been issued and transferred to the Optionee upon
the exercise of the Option.
6.8 Reload Options.
(a) The Committee may specify in a Stock Option Agreement
(or may otherwise determine in its sole discretion) that a Reload Option shall
be granted, without further action of the Committee, (i) to an Optionee who
exercises an Option (including a Reload Option) by surrendering shares of Stock
in payment of amounts specified in Sections 6.7(c) or 6.7(d) hereof, (ii) for
the same number of shares as are surrendered to pay such amounts, (iii) as of
the date of such payment and at an Exercise Price equal to the Fair Market Value
of the Stock on such date, and (iv) otherwise on the same terms and conditions
as the Option whose exercise has occasioned such payment, except as provided
below and subject to such other contingencies, conditions, or other terms as the
Committee shall specify at the time such exercised Option is granted; provided,
that the Committee may require that the shares surrendered in payment as
provided above must have been held by the Optionee for at least six months prior
to such surrender.
(b) Unless provided otherwise in the Stock Option
Agreement, a Reload Option may not be exercised by an Optionee (i) prior to the
end of a one-year period from the date that the Reload Option is granted, and
(ii) unless the Optionee retains beneficial ownership of the shares of Stock
issued to such Optionee upon exercise of the Option referred to above in Section
6.8(a)(i) for a period of one year from the date of such exercise.
6.9 Nontransferability of Option. Other than as provided below, no
Option shall be transferable by an Optionee other than by will or the laws of
descent and distribution or, in the case of non-Incentive Stock Options,
pursuant to a Qualified Domestic Relations Order, and, during the lifetime of an
Optionee, Options shall be exercisable only by such Optionee (or by such
Optionee's guardian or legal representative, should one be appointed). However,
a Non-Incentive Stock Option may, in connection with the Optionee's estate plan,
be assigned in whole or in part during Optionee's lifetime to one or more
members of the Optionee's immediate family or to a trust established for the
exclusive benefit of one or more such family members. The assigned portion shall
be exercisable only by the person or persons who acquire a proprietary interest
in the Option pursuant to such assignment. The terms applicable to the assigned
portion shall be the same as those in effect for this Option immediately prior
to such assignment and shall be set forth in such documents issued to the
assignee as the Committee may deem appropriate.
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6.10 Termination of Employment or Service. The Committee shall have
the power to specify the effect upon an Optionee's right to exercise an Option
upon termination of such Optionee's employment or service under various
circumstances, which effect may include immediate or deferred termination of
such Optionee's rights under an Option, or acceleration of the date at which an
Option may be exercised in full. Unless a Stock Option Agreement specifically
provides otherwise, in the event the recipient of an Option is terminated from
his or her employment or other service to the Company or its subsidiaries for
Cause, Options, whether vested or unvested, granted to such person shall
terminate immediately and shall not thereafter be exercisable.
6.11 Employment Rights. Nothing in the Plan or in any Stock Option
Agreement shall confer on any person any right to continue in the employ of the
Company or any of its Subsidiaries, or shall interfere in any way with the right
of the Company or any of its Subsidiaries to terminate such person's employment
at any time.
6.12 Certain Successor Options. To the extent not inconsistent with
the terms, limitations and conditions of Code section 422 and any regulations
promulgated with respect thereto, an Option issued in respect of an option held
by an employee to acquire stock of any entity acquired, by merger or otherwise,
by the Company (or any Subsidiary of the Company) may contain terms that differ
from those stated in this Article VI, but solely to the extent necessary to
preserve for any such employee the rights and benefits contained in such
predecessor option, or to satisfy the requirements of Code section 424(a).
6.13 Effect of a Corporate Transaction. All Options, to the extent
outstanding at the time of a Corporate Transaction but not otherwise fully
exercisable, shall automatically accelerate so that the Options shall,
immediately prior to the effective date of the Corporate Transaction, become
exercisable for all shares at the time subject to such Options and may be
exercised for any or all of those shares as fully vested shares of Stock.
6.14 Forfeiture by Order of Regulatory Agency. If the Company's or
any of its financial institution Subsidiaries' capital falls below the minimum
requirements contained in 12 CFR 3 or below a higher requirement as determined
by the Company's or such Subsidiary's primary bank regulatory agency, such
agency may direct the Company to require Optionees to exercise or forfeit some
or all of their Options. All options granted under this Plan are subject to the
terms of any such directive.
ARTICLE VII
STOCK CERTIFICATES
The Company shall not be required to issue or deliver any certificate
for shares of Stock purchased upon the exercise of any Option granted hereunder
or any portion thereof prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges
on which the Stock is then listed;
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(b) The completion of any registration or other qualification of
such shares which the Committee shall deem necessary or advisable under any
federal or state law or under the rulings or regulations of the Securities and
Exchange Commission or any other governmental regulatory body;
(c) The obtaining of any approval or other clearance from any
federal or state governmental agency or body which the Committee shall determine
to be necessary or advisable; and
(d) The lapse of such reasonable period of time following the
exercise of the Option as the Board from time to time may establish for reasons
of administrative convenience.
Stock certificates issued and delivered to Optionees shall bear such
restrictive legends as the Company shall deem necessary or advisable pursuant to
applicable federal and state securities laws. The inability of the Company to
obtain approval from any regulatory body having authority deemed by the Company
to be necessary to the lawful issuance and sale of any Stock pursuant to Options
shall relieve the Company of any liability with respect to the non-issuance or
sale of the Stock as to which such approval shall not have been obtained.
However, the Company shall use its best efforts to obtain all such approvals.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination and Amendment. The Board may at any time terminate
the Plan; provided, however, that the Board (unless its actions are approved or
ratified by the shareholders of the Company within twelve months of the date
that the Board amends the Plan) may not amend the Plan to:
(a) Increase the total number of shares of Stock issuable
pursuant to Incentive Stock Options under the Plan, except as contemplated in
Section 5.2 hereof; or
(b) Change the class of employees eligible to receive
Incentive Stock Options that may participate in the Plan.
8.2 Effect on Optionee's Rights. No termination, amendment, or
modification of the Plan shall affect adversely a Optionee's rights under a
Stock Option Agreement without the consent of the Optionee or his legal
representative.
13
<PAGE> 17
ARTICLE IX
RELATIONSHIP TO OTHER COMPENSATION PLANS
The adoption of the Plan shall not affect any other stock option,
incentive, or other compensation plans in effect for the Company or any of its
Subsidiaries; nor shall the adoption of the Plan preclude the Company or any of
its Subsidiaries from establishing any other form of incentive or other
compensation plan for employees or Directors of the Company or any of its
Subsidiaries.
ARTICLE X
MISCELLANEOUS
10.1 Replacement or Amended Grants. At the sole discretion of the
Committee, and subject to the terms of the Plan, the Committee may modify
outstanding Options or accept the surrender of outstanding Options and grant new
Options in substitution for them. However no modification of an Option shall
adversely affect a Optionee's rights under a Stock Option Agreement without the
consent of the Optionee or his legal representative.
10.2 Forfeiture for Competition. If a Optionee provides services to
a competitor of the Company or any of its Subsidiaries, whether as an employee,
officer, director, independent contractor, consultant, agent, or otherwise, such
services being of a nature that can reasonably be expected to involve the skills
and experience used or developed by the Optionee while an Employee, then that
Optionee's rights under any Options outstanding hereunder shall be forfeited and
terminated subject in each case to a determination to the contrary by the
Committee.
10.3 Leave of Absence. Unless provided otherwise in a particular
Stock Option Agreement, the following provisions shall apply upon an Optionee's
commencement of an authorized leave of absence:
(a) The exercise schedule in effect for such Option shall be
frozen as of the first day of the authorized leave, and the Option shall not
become exercisable for any additional installments of shares of Stock during the
period Optionee remains on such leave.
(b) Should the Optionee resume active Employee status within 60
days after the start date of the authorized leave, Optionee shall, for purposes
of the applicable exercise schedule, receive service credit for the entire
period of such leave. If the Optionee does not resume active Employee status
within such 60-day period, then no service credit shall be given for the entire
period of such leave.
(c) If the Option is an Incentive Stock Option, then the following
additional provision shall apply:
14
<PAGE> 18
If the leave of absence continues for more than three
months, then the Option shall automatically convert to a Non-Incentive
Stock Option under the Federal tax laws upon the expiration of such
three-month period, unless the Optionee's reemployment rights are
guaranteed by statute or written agreement. Following any such
conversion of the Option, all subsequent exercises of the Option,
whether effected before or after Optionee's return to active Employee
status, shall result in an immediate taxable event, and the Company
shall be required to collect from Optionee the Federal, state and local
income and employment withholding taxes applicable to such exercise.
(d) In no event shall the Option become exercisable for any
additional shares or otherwise remain outstanding if Optionee does not resume
Employee status prior to the Expiration Date of the option term.
10.4 Plan Binding on Successors. The Plan shall be binding upon the
successors and assigns of the Company.
10.5 Headings, etc., No Part of Plan. Headings of Articles and
Sections hereof are inserted for convenience and reference; they do not
constitute part of the Plan.
10.6 Section 16 Compliance. With respect to Section 16 Insiders,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent
any provision of the Plan or action by the Committee fails to so comply, it
shall be deemed void to the extent permitted by law and deemed advisable by the
Committee. In addition, if necessary to comply with Rule 16b-3 with respect to
any grant of an Option hereunder, and in addition to any other vesting or
holding period specified hereunder or in an applicable Stock Option Agreement,
any Section 16 Insider acquiring an Option shall be required to hold either the
Option or the underlying shares of Stock obtained upon exercise of the Option
for a minimum of six months.
15
<PAGE> 19
EXHIBIT A to
New Commerce Bancorp
1999 Stock Incentive Plan -
Form of Stock Option Agreement
NEW COMMERCE BANCORP
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement"), entered into as of this
____ day of _______________, _____, by and between New Commerce Bancorp, a South
Carolina corporation (the "Company"), and _________________ (the "Optionee").
WHEREAS, on ________________________, the Board of Directors of the
Company adopted a Stock Incentive Plan known as the "New Commerce Bancorp 1999
Stock Incentive Plan" (the "Plan"), and recommended that the Plan be approved by
the Company's shareholders; and
WHEREAS, the Committee has granted the Optionee a stock option to
purchase the number of shares of the Company's common stock as set forth below,
and in consideration of the granting of that stock option the Optionee intends
to remain in the employ of the Company; and
WHEREAS, the Company and the Optionee desire to enter into a written
agreement with respect to such option in accordance with the Plan.
NOW, THEREFORE, as an employment incentive and to encourage stock
ownership, and also in consideration of the mutual covenants contained herein,
the parties hereto agree as follows.
1. Incorporation of Plan. This option is granted pursuant to the
provisions of the Plan and the terms and definitions of the Plan are
incorporated herein by reference and made a part hereof. A copy of the Plan has
been delivered to, and receipt is hereby acknowledged by, the Optionee.
2. Grant of Option. Subject to the terms, restrictions, limitations and
conditions stated herein, the Company hereby evidences its grant to the
Optionee, not in lieu of salary or other compensation, of the right and option
(the "Option") to purchase all or any part of the number of shares of the
Company's Common Stock, no par value per share (the "Stock"), set forth on
Schedule A attached hereto and incorporated herein by reference. The Option
shall be exercisable in the amounts and at the time specified on Schedule A. The
Option shall expire and shall not be exercisable on the date specified on
Schedule A or on such earlier date as determined pursuant to Section 8, 9, or 10
hereof. Schedule A states whether the Option is intended to be an Incentive
Stock Option.
A-1
<PAGE> 20
3. Purchase Price. The price per share to be paid by the Optionee for
the shares subject to this Option (the "Exercise Price") shall be as specified
on Schedule A, which price shall be an amount not less than the Fair Market
Value of a share of Stock as of the Date of Grant (as defined in Section 11
below).
4. Exercise Terms. The Optionee must exercise the Option for at least
the lesser of 100 shares or the number of shares of Purchasable Stock as to
which the Option remains unexercised. In the event this Option is not exercised
with respect to all or any part of the shares subject to this Option prior to
its expiration, the shares with respect to which this Option was not exercised
shall no longer be subject to this Option.
5. Nontransferability of Option. Other than as provided below, no
Option shall be transferable by Optionee other than by will or the laws of
descent and distribution or, in the case of non-Incentive Stock Options,
pursuant to a Qualified Domestic Relations Order, and, during the lifetime of
Optionee, Options may be exercised only by Optionee (or by Optionee's guardian
or legal representative, should one be appointed). However, a Non-Incentive
Stock Option may, in connection with Optionee's estate plan, be assigned in
whole or in part during Optionee's lifetime to one or more members of Optionee's
immediate family or to a trust established for the exclusive benefit of one or
more such family members. The assigned portion shall be exercisable only by the
person or persons who acquire a proprietary interest in the Option pursuant to
such assignment. The terms applicable to the assigned portion shall be the same
as those in effect for this Option immediately prior to such assignment and
shall be set forth in such documents issued to the assignee as the stock
incentive committee of the board of directors of the Company may deem
appropriate.
6. Notice of Exercise of Option. This Option may be exercised by the
Optionee, or by the Optionee's administrators, executors or personal
representatives, by a written notice (in substantially the form of the Notice of
Exercise attached hereto as Schedule B) signed by the Optionee, or by such
administrators, executors or personal representatives, and delivered or mailed
to the Company as specified in Section 14 hereof to the attention of the
President, the Chief Operating Officer or such other officer as the Company may
designate. Any such notice shall (a) specify the number of shares of Stock which
the Optionee or the Optionee's administrators, executors or personal
representatives, as the case may be, then elects to purchase hereunder, (b)
contain such information as may be reasonably required pursuant to Section 12
hereof, and (c) be accompanied by (i) a certified or cashier's check payable to
the Company in payment of the total Exercise Price applicable to such shares as
provided herein, (ii) shares of Stock owned by the Optionee and duly endorsed or
accompanied by stock transfer powers having a Fair Market Value equal to the
total Exercise Price applicable to such shares purchased hereunder, or (iii) a
certified or cashier's check accompanied by the number of shares of Stock whose
Fair Market Value when added to the amount of the check equals the total
Exercise Price applicable to such shares purchased hereunder. Upon receipt of
any such notice and accompanying payment, and subject to the terms hereof, the
Company agrees to issue to the Optionee or the Optionee's administrators,
executors or personal representatives, as the case may be, stock certificates
for the number of shares specified in such notice registered in the name of the
person exercising this Option.
A-2
<PAGE> 21
7. Adjustment in Option. The number of Shares subject to this Option,
the Exercise Price and other matters are subject to adjustment during the term
of this Option in accordance with Section 5.2 of the Plan.
8. Termination of Employment.
(a) Except as otherwise specified in Schedule A hereto, in the event of
the termination of the Optionee's employment with the Company or any of its
Subsidiaries, other than a termination that is either (i) for cause, (ii)
voluntary on the part of the Optionee and without written consent of the
Company, or (iii) for reasons of death or disability or retirement, the Optionee
may exercise this Option at any time within 30 days after such termination to
the extent of the number of shares which were Purchasable hereunder at the date
of such termination.
(b) Except as specified in Schedule A attached hereto, in the event of
a termination of the Optionee's employment that is either (i) for cause or (ii)
voluntary on the part of the Optionee and without the written consent of the
Company, this Option, to the extent not previously exercised, shall terminate
immediately and shall not thereafter be or become exercisable.
(c) Unless and to the extent otherwise provided in Exhibit A hereto, in
the event of the retirement of the Optionee at the normal retirement date as
prescribed from time to time by the Company or any Subsidiary, the Optionee
shall continue to have the right to exercise any Options for shares which were
Purchasable at the date of the Optionee's retirement provided that, on the date
which is three months after the date of retirement, the Options will become void
and unexercisable unless on the date of retirement the Optionee enters into a
noncompete agreement with New Commerce Bancorp and continues to comply with such
noncompete agreement. This Option does not confer upon the Optionee any right
with respect to continuance of employment by the Company or by any of its
Subsidiaries. This Option shall not be affected by any change of employment so
long as the Optionee continues to be an employee of the Company or one of its
Subsidiaries.
9. Disabled Optionee. In the event of termination of employment because
of the Optionee's Permanent and Total Disability, the Optionee (or his or her
personal representative) may exercise this Option, within a period ending on the
earlier of (a) the last day of the one year period following the Optionee's
death or (b) the expiration date of this Option, to the extent of the number of
shares which were Purchasable hereunder at the date of such termination.
10. Death of Optionee. Except as otherwise set forth in Schedule A with
respect to the rights of the Optionee upon termination of employment under
Section 8(a) above, in the event of the Optionee's death while employed by the
Company or any of its Subsidiaries or within three months after a termination of
such employment (if such termination was neither (i) for cause nor (ii)
voluntary on the part of the Optionee and without the written consent of the
Company), the appropriate persons described in Section 6 hereof or persons to
whom all or a portion of this Option is transferred in accordance with Section 5
hereof may exercise this
A-3
<PAGE> 22
Option at any time within a period ending on the earlier of (a) the last day of
the one year period following the Optionee's death or (b) the expiration date of
this Option. If the Optionee was an employee of the Company at the time of
death, this Option may be so exercised to the extent of the number of shares
that were Purchasable hereunder at the date of death. If the Optionee's
employment terminated prior to his or her death, this Option may be exercised
only to the extent of the number of shares covered by this Option which were
Purchasable hereunder at the date of such termination.
11. Date of Grant. This Option was granted by the Committee on the date
set forth in Schedule A (the "Date of Grant").
12. Compliance with Regulatory Matters. The Optionee acknowledges that
the issuance of capital stock of the Company is subject to limitations imposed
by federal and state law and the Optionee hereby agrees that the Company shall
not be obligated to issue any shares of Stock upon exercise of this Option that
would cause the Company to violate law or any rule, regulation, order or consent
decree of any regulatory authority (including without limitation the Securities
and Exchange Commission) having jurisdiction over the affairs of the Company.
The Optionee agrees that he or she will provide the Company with such
information as is reasonably requested by the Company or its counsel to
determine whether the issuance of Stock complies with the provisions described
by this Section 12.
13. Restriction on Disposition of Shares. The shares purchased pursuant
to the exercise of an Incentive Stock Option shall not be transferred by the
Optionee except pursuant to the Optionee's will, or the laws of descent and
distribution, until such date which is the later of two years after the grant of
such Incentive Stock Option or one year after the transfer of the shares to the
Optionee pursuant to the exercise of such Incentive Stock Option.
14. Forfeiture by Order of Regulatory Agency. If the Company's or any
of its financial institution Subsidiary's capital falls below the minimum
requirements contained in 12 CFR 3 or below a higher requirement as determined
by the Company's or such Subsidiary's primary regulatory agency, such agency may
direct the Company to require Optionee to exercise or forfeit some or all of his
or her Options. All options granted under this Agreement are subject to the
terms of any such directive.
15. Miscellaneous.
(a) This Agreement shall be binding upon the parties hereto and their
representatives, successors and assigns.
(b) This Agreement is executed and delivered in, and shall be governed
by the laws of, the State of South Carolina.
(c) Any requests or notices to be given hereunder shall be deemed
given, and any elections or exercises to be made or accomplished shall be deemed
made or accomplished, upon actual delivery thereof to the designated recipient,
or three days after deposit thereof in the United States mail, registered,
return receipt requested and postage prepaid, addressed, if
A-4
<PAGE> 23
to the Optionee, at the address set forth below and, if to the Company, to the
executive offices of the Company at _____________________, or at such other
addresses that the parties provide to each other in accordance with the notice
requirements hereof.
(d) This Agreement may not be modified except in writing executed by
each of the parties hereto.
IN WITNESS WHEREOF, the Committee has caused this Stock Option
Agreement to be executed on behalf of the Company, and the Optionee has executed
this Stock Option Agreement, all as of the day and year first above written.
NEW COMMERCE BANCORP OPTIONEE
By:
------------------------------- ------------------------------------
Name: Name:
-------------------------------
Title: Address:
----------------------------
A-5
<PAGE> 24
SCHEDULE A
TO
STOCK OPTION AGREEMENT
BETWEEN
NEW COMMERCE BANCORP
AND
----------------------------
Dated:
-------------
1. Number of Shares Subject to Option: _____________________ Shares.
2. This Option (Check one) [ ] is [ ] is not an Incentive Stock Option.
3. Option Exercise Price: $_______________ per Share.
4. Date of Grant: ___________________
5. Option Vesting Schedule:
Check one:
( ) Options are exercisable with respect to all shares on
or after the date hereof
( ) Options are exercisable with respect to the number of
shares indicated below on or after the date indicated
next to the number of shares:
No. of Shares Vesting Date
------------- ------------
<PAGE> 25
6. Option Exercise Period:
Check One:
( ) All options expire and are void unless exercised on
or before _______________, 19 .
( ) Options expire and are void unless exercised on or
before the date indicated next to the number of
shares:
No. of Shares Expiration Date
------------- ---------------
7. Effect of Termination of Employment of Optionee (if different from that set
forth in Sections 8 and 10 of the Stock Option Agreement):
<PAGE> 26
SCHEDULE B
NOTICE OF EXERCISE
The undersigned hereby notifies New Commerce Bancorp (the "Company") of
this election to exercise the undersigned's stock option to purchase ___________
shares of the Company's common stock pursuant to the Stock Option Agreement (the
"Agreement") between the undersigned and the Company dated
_______________________, 19____. Accompanying this Notice is (1) a certified or
a cashier's check in the amount of $_______________ payable to the Company,
and/or (2) _______________ shares of the Company's common stock presently owned
by the undersigned and duly endorsed or accompanied by stock transfer powers,
having an aggregate Fair Market Value (as defined in the New Commerce Bancorp
1999 Stock Incentive Plan) as of the date hereof of $________________, such
amounts being equal, in the aggregate, to the purchase price per share set forth
in Section 3 of the Agreement multiplied by the number of shares being purchased
hereby (in each instance subject to appropriate adjustment pursuant to Section
5.2 of the New Commerce Bancorp 1999 Stock Incentive Plan).
IN WITNESS WHEREOF, the undersigned has set his hand and seal, this
_______ day of _________________, ______.
OPTIONEE [OR OPTIONEE'S ADMINISTRATOR,
EXECUTOR OR PERSONAL REPRESENTATIVE]
---------------------------------------
Name:
Position (if other than Optionee):
<PAGE> 1
EXHIBIT 13.1
NEW COMMERCE BANCORP
[NEW COMMERCE BANCORP LOGO]
1999 ANNUAL REPORT
<PAGE> 2
TABLE OF CONTENTS
1 Letter to Shareholders
3 Selected Financial Data
4 Management's Discussion and Analysis
14 Report of Independent Accountants
15 Consolidated Financial Statements
31 Corporate Data
<PAGE> 3
Dear Shareholders, Clients, and Friends:
1999 was an exciting year for all of us at New Commerce Bank. Our start began
with the organizing Board of Directors, who firmly believed that a
locally-owned and well-managed community bank would be ideally suited to
respond to the financial needs of the Golden Strip area. Several compelling
reasons were identified:
- No Mauldin-based locally-owned bank
- Need for improved banking services and local decision-making
- Community pride in the Golden Strip - Mauldin, Simpsonville,
and Fountain Inn
- Need for stability and tenure of bank employees
- Growth dynamics of the economy in the Golden Strip
- Need for responsive, personal service with convenient
locations
Approximately 42 days after we began our public offering, New Commerce BanCorp
had raised $10,000,000 with over 1,000 shareholders. Our wholly-owned
subsidiary, New Commerce Bank opened for business on May 17, 1999.
We are pleased with the reception and support the community has given us in the
first seven months of operation. Deposits ended the year at $18,390,695; net
loans were $12,855,083; and assets reached $27,547,342. These results were
ahead of our original business plan. While deposit gathering remains very
competitive, we have confirmed that our community bank style has been accepted
by the Golden Strip community.
[PHOTO]
The Golden Strip banking market at June 1999 had $653,000,000 in total
deposits. A 4.2 percent growth rate per year would suggest the market will grow
to $738,000,000 by June 2002.
1
<PAGE> 4
Our current business plan should allow us to capture a 10 percent market share
by the end of this three-year period. We remain committed to reaching monthly
profitability in 2000.
Our growth to date has come from operating in a temporary facility. By June 1,
2000, the construction on our main office at I-385 and Butler Roads in Mauldin,
and our branch office at Woodruff and Batesville Roads in Simpsonville should
be completed. These two locations are strategically and conveniently located in
high growth areas of the Golden Strip. Our clients have access to the bank via
drive-up ATMs, through debit and ATM card services, and we offer expanded
operating hours, 8:00 A.M. - 6:00 P.M. Clients can use any ATM machine in the
domestic U.S., and as long as a minimum of $50 is withdrawn, there is no
surcharge.
Our earnings performance produced an after-tax loss of $668,020. This loss met
our original business plan goals. A large portion of the loss resulted from our
loan loss provision of $195,800 and organizing and pre-opening expenses of
approximately $511,000. The loan loss provision prudently provides us a cushion
against any possible loan losses. The organizing and pre-opening expenses are
one-time expenses.
Our stock symbol, NCBS, has been lightly traded as expected. We will be
stepping up our communications with members of the brokerage community to share
our financial results, prospects, and strategic plan for the Bank.
We want to thank our clients, shareholders, staff, and Board of Directors for
making our debut a success. We invite your comments and suggestions. Come see
us!
Regards,
/s/ Timothy A. Brett /s/ James D. Stewart
- --------------------- -------------------------------------
Timothy A. Brett James D. Stewart
Chairman of the Board President and Chief Executive Officer
2
<PAGE> 5
SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data concerning New
Commerce BanCorp and subsidiary as of and for the year ended December 31, 1999,
and for the period July 17, 1998 to December 31, 1998. The selected financial
data has been derived from the consolidated financial statements that have been
audited by Elliott, Davis & Company, LLP, independent accountants. This
information should be read in conjunction with management's discussion and
analysis of financial condition and results of operations.
<TABLE>
<CAPTION>
BALANCE SHEETS: 1999 1998
---- ----
<S> <C> <C>
Cash and due from banks $ 1,608,350 $ 1,762,031
Federal funds sold 5,838,023 --
Securities available for sale 3,295,007 --
Securities held to maturity 965,005 --
Net loans 12,855,083 --
Property and equipment, net 2,585,116 8,218
Total assets 27,547,342 1,953,476
Noninterest-bearing deposits 2,824,668 --
Interest-bearing deposits 15,566,027 --
Total deposits 18,390,695 --
Total liabilities 18,535,243 --
Total shareholders' equity 9,012,099 1,953,476
RESULTS OF OPERATIONS:
Interest income 844,181 --
Interest expense 256,940 --
Net interest income 587,241 --
Provision for loan losses 195,800 --
Net interest income after provision for loan losses 391,441 --
Noninterest income 45,140 --
Noninterest expenses 1,370,732 46,524
Loss before income tax benefit (934,151)
Income tax benefit 266,131 --
Net loss (668,020) (46,524)
PER SHARE DATA:
Weighted average common shares outstanding 1,000,000 200,000
Net loss per share of common stock $ (.67) N/A
CAPITAL AND LIQUIDITY RATIOS:
Average equity to average assets 34.8% --
Risk-based capital:
Tier 1 49.7% --
Total 50.9 --
Leverage (4% required minimum) 31.1 --
Average loans to average deposits at
December 31, 1999 77.9 --
</TABLE>
3
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This discussion and analysis is intended to assist the reader in understanding
the financial condition and results of operations of New Commerce BanCorp and
subsidiary. The commentary should be read in conjunction with the financial
statements and the related notes and other statistical information included in
this report.
OVERVIEW
New Commerce BanCorp (the Company) was incorporated in South Carolina on July
22, 1998 as a proposed bank holding company to own and control all of the
capital stock of New Commerce Bank (the Bank). Organizing activities for the
Company began in July 1998 and consisted primarily of preparation of the
Company's application to organize the Bank and filing of a Registration
Statement with the Securities and Exchange Commission pursuant to which the
Company registered the issuance of 1,000,000 shares of its Common Stock at an
offering price of $10.00 per share. Upon the Registration Statement's
effectiveness, the organizers/directors focused their efforts on the sale of
such Common Stock and by June 30, 1999, had completed all selling activities.
Net of selling expenses, the Company raised $9,751,658 in the offering. From
February 1999 to April 1999, management engaged in activities resulting in the
opening of the Bank. On February 11, 1999, the Office of the Comptroller of the
Currency issued preliminary approval of the Bank to become a federally
chartered bank, and on March 10, 1999, the Federal Deposit Insurance
Corporation approved the Company's application for deposit insurance for the
Bank. The Bank began operations on May 17, 1999 in its temporary facility in
Simpsonville, South Carolina. The Company's headquarters and first branch are
being constructed and are scheduled to open by June 1, 2000.
The following discussion should be read with an understanding of the Company's
short operating history.
RESULTS OF OPERATIONS
The Company's net loss for the year ended December 31, 1999 was $668,020. The
net loss includes $510,602 in organizational and pre-opening expenses incurred
to prepare the bank for opening. Staffing at the Bank was at a full-service
level beginning in April 1999 for training in preparation of the Bank's opening
on May 17, 1999, and other noninterest expenses were incurred in operating the
Bank. The Company expects to experience losses until the Bank's assets reach a
point where the assets generate revenue from operations that exceed the Bank's
fixed costs. The following is a discussion of the more significant components
of the net loss.
NET INTEREST INCOME
The largest component of the Company's net income is its net interest income,
the difference between the income earned on assets and the interest paid on
deposits and borrowings used to support such assets. Net interest margin is
determined by dividing the net interest income by average earning assets. Net
interest spread is derived from determining the rates and mix of interest paid
on deposits and borrowings and subtracting them from the yields and mix of
earning assets. Net interest income totaled $587,241 for the period ended
December 31, 1999. Net interest margin was 5.37%. Loans, the highest yielding
component of earning assets, represented 53.3% of average earning assets at
December 31, 1999. Since loans often provide a higher yield than other types of
earning assets, one of the Company's goals is to maintain its loan portfolio as
the highest percentage of total earning assets.
4
<PAGE> 7
AVERAGE BALANCES, YIELDS AND RATES
The following table presents the weighted average yields earned, weighted
average rates paid, interest rate spread and the net interest income and
margin, on an annualized basis for the year ended December 31, 1999. Yields and
rates are derived by dividing income or expense by the average annualized
balance of the corresponding asset or liability.
<TABLE>
<CAPTION>
Average Income/ Yield/
Balance Expense Rate
------- ------- ----
<S> <C> <C> <C>
ASSETS
Federal funds sold $ 2,640,425 $135,113 5.12%
Investment securities 2,315,540 143,382 6.19
Loans 5,985,200 565,686 9.45
----------- -------- ----
Total earning assets $10,941,165 $844,181 7.72%
=========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest checking $ 1,960,124 $ 74,067 3.78%
Savings deposits 72,795 1,454 2.00
Money market accounts 1,834,442 83,881 4.57
Time deposits 1,836,103 97,538 5.31
----------- -------- ----
Total interest bearing deposits $ 5,703,464 $256,940 4.50%
=========== ========
Net interest spread 3.22%
Net interest income/margin $587,241 5.37%
========
</TABLE>
Yield on loans includes origination fees and net fees earned on the Company's
Private Business Manager receivables financing program. The rate on interest
checking includes the Company's interest checking promotion which ran in the
third quarter of 1999.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Asset/liability management is the process by which the Company monitors the
mix, maturities and interest sensitivity of its assets and liabilities.
Asset/liability management seeks to insure adequate liquidity and to maintain
an appropriate balance between interest-sensitive assets and liabilities to
minimize potentially adverse impacts on earnings from changes in market
interest rates. Primary sources of liquidity for the Company are a stable base
of deposits, scheduled repayments on the Company's loans and interest and
maturities on its investments. If necessary, the Company has the ability to
sell a portion of its investment securities to manage its interest sensitivity
gap or liquidity. The Company may also utilize its cash and due from banks and
federal funds sold to meet liquidity needs.
The Company believes that its liquidity and ability to manage assets will be
sufficient to meet its cash requirements over the near future. The principal
monitoring technique employed by the Company is the measurement of the
Company's interest sensitivity "gap" which is the positive or negative dollar
difference between assets and liabilities that are subject to interest rate
repricing within a given period of time. Interest rate sensitivity can be
managed by repricing assets or liabilities, selling securities
available-for-sale, replacing an asset or liability at maturity, or adjusting
the interest rate during the life of an asset or liability. Managing the amount
of assets and liabilities repricing in the same time interval helps to minimize
interest rate risk and manage net interest income in changing interest rate
environments.
The Company's net interest income generally would benefit from rising interest
rates when it has an asset-sensitive gap position. Conversely, the Company's
net interest income generally would benefit from decreasing interest rates when
it has a liability-sensitive gap position.
5
<PAGE> 8
INTEREST RATE SENSITIVITY ANALYSIS
The asset mix of the balance sheet is continually evaluated in terms of several
variables: yields, credit quality, appropriate funding sources and liquidity.
The interest rate sensitivity position at December 31, 1999 is presented in the
following table. The difference between rate sensitive assets and rate
sensitive liabilities, or the interest rate sensitivity gap, is shown at the
bottom of the table. Since all interest rates and yields do not adjust at the
same velocity, the gap is only a general indicator of rate sensitivity. The
table may not be indicative of the Company's rate sensitivity position at other
points in time.
At December 31, 1999, the Company was liability sensitive over the three month
and twelve month timeframes and asset sensitive over one year. The analysis
below presents only a static view of the timing of maturities and repricing
opportunities, without taking into consideration that changes in interest rates
do not affect all assets and liabilities equally. Therefore, this gap analysis
is not a precise indicator of the Company's interest sensitivity position. For
example, rates paid on a substantial portion of core deposits may change
contractually within a relatively short timeframe, but management views those
rates as significantly less interest-sensitive than market-based rates such as
those paid on non-core deposits. Net interest income may be impacted by other
significant factors in a given interest rate environment, including changes in
the volume and mix of earning assets and interest-bearing liabilities.
<TABLE>
<CAPTION>
After three After one
(in $000's) Within three but within but within After five
months twelve months five years years Total
------------ ------------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold $ 5,838 $ -- $ -- $ -- $ 5,838
Investment securities -- -- 4,260 -- 4,260
Loans 5,778 1,904 4,203 1,166 13,051
-------- -------- ------ -------- -------
Total earning assets 11,616 1,904 8,463 1,166 23,149
Interest-bearing liabilities:
Interest checking 6,656 -- -- -- 6,656
Money market accounts 3,951 -- -- -- 3,951
Savings deposits 178 -- -- -- 178
Time deposits 1,186 3,378 217 -- 4,781
-------- -------- ------ -------- -------
Total interest-bearing liabilities $ 11,971 3,378 217 -- 15,566
Period interest-sensitive gap (355) (1,474) 8,246 1,166 7,583
Cumulative interest-sensitive gap (355) (1,829) 6,417 7,583
Ratio of cumulative interest-sensitive
gap to total earning assets (1.53)% (7.90)% 27.72% 32.76%
</TABLE>
In a rising interest rate environment, an asset-sensitive position (positive
gap) is generally more advantageous since assets reprice sooner than
liabilities. Conversely, in a declining interest rate environment, a
liability-sensitive position (negative gap) is generally more advantageous as
interest-bearing liabilities reprice sooner than earning assets.
RATE/VOLUME ANALYSIS
Net interest income can be analyzed in terms of the impact of changing rates
and changing volume. As this was the first period of operations for the
Company, all interest income and expense is attributable to volume. Therefore,
the Company has omitted the table analyzing the changes in net interest income
as it would not be meaningful.
6
<PAGE> 9
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The Company has developed policies and procedures for evaluating the overall
quality of its credit portfolio and the timely identification of potential
credit problems. The Company has established an allowance for loan losses
through a provision for loan losses charged to expense. The allowance represents
an amount which management believes will be adequate to absorb probable losses
on existing loans that may become uncollectible. Management's judgment about the
adequacy of the allowance is based on a number of assumptions about future
events, which it believes to be reasonable, but which may or may not be
accurate. Therefore, there can be no assurance that chargeoffs in future periods
will not exceed the allowance for loan losses as estimated at any point in time.
Additions to the allowance for loan losses which are expenses to the provision
for loan losses on the Company's Statement of Operations, are made periodically
to maintain the allowance at an appropriate level based on management's analysis
of the potential risk in the loan portfolio. The Company does not allocate the
allowance for loan losses to specific categories of loans but evaluates the
adequacy on an overall portfolio basis utilizing a risk grading system.
At December 31, 1999, the allowance for loan losses was $195,800, or 1.50% of
outstanding loans of $13,050,883. The Bank has not charged off any loans since
commencing operations. The provision for loan losses was made primarily as a
result of management's assessment of general loan loss risk as the Bank recorded
its first loans.
NONINTEREST INCOME
Noninterest income for the year ended December 31, 1999 was $45,140. Of this
total, $27,928 represented fee income on brokered mortgage loans and $17,212
represented service charges on deposit accounts.
NONINTEREST EXPENSE
Noninterest expense totaled $1,370,732 for the year ended December 31, 1999.
Major components included organizational and pre-opening expenses of $510,602,
salaries and benefits of $505,584, occupancy and equipment costs of $116,883 and
data processing costs of $89,460. Major components of organizational and
pre-opening expenses were salaries and benefits, legal fees, consulting fees,
OCC application fee and printing and supplies.
BALANCE SHEET REVIEW
At December 31, 1999, the end of the first partial year of banking operations,
the Company had total assets of $27,547,342, which consisted of cash and due
from banks of $1,608,350, federal funds sold of $5,838,023, investment
securities of $4,260,012, net loans of $12,855,083, land, property and equipment
of $2,585,116, and accrued interest receivable and other assets of $400,758.
Cash and due from banks included the Bank's December 31, 1999 outgoing cash
letter of $1.1 million. Land totaled $1,366,997, while buildings and
construction in progress totaled $403,248 and $487,279, respectively. Furniture
and equipment, net of accumulated depreciation, amounted to $327,592.
The Company's liabilities at year-end were comprised of $18,390,695 in deposits
and $144,548 in other liabilities. Shareholders' equity at December 31, 1999 was
$9,012,099.
7
<PAGE> 10
LOAN PORTFOLIO
Loans are the Company's highest yielding earning asset, and, as such, should
normally comprise the largest portion of earning assets. Outstanding loans as of
December 31, 1999 amounted to $13,050,883, or 47.4% of total assets.
The following table summarizes the composition of the loan portfolio at
December 31, 1999:
<TABLE>
<CAPTION>
Amount Percent of total
------ ----------------
<S> <C> <C>
Commercial $ 5,870,988 45.0%
Real estate - 1-4 Family 2,182,255 16.7
Real estate - commercial 4,014,790 30.8
Consumer loan 982,850 7.5
------------ -----
Total loans 13,050,883 100.0%
Allowance for loan losses (195,800) =====
------------
Total net loans $ 12,855,083
============
</TABLE>
The principal components of the Company's loan portfolio at year-end were
commercial loans and real estate loans, which represented 92.5% of the
portfolio. In the context of this discussion, we define a "real estate mortgage
loan" as any loan, other than loans for construction purposes, secured by real
estate, regardless of the purpose of the loan. We follow the common practice of
financial institutions in our market area of obtaining a security interest in
real estate whenever possible, in addition to any other available collateral. We
take this collateral to reinforce the likelihood of the ultimate repayment of
the loan; however, this tends to increase the magnitude of our real estate loan
portfolio component. Generally, we limit our loan-to-value ratio to 85%. Due to
the short time the portfolio has existed, the current mix of loans may not be
indicative of the ongoing portfolio mix. Management will attempt to maintain a
relatively diversified loan portfolio to help reduce the risk inherent in
concentration of collateral.
MATURITIES AND SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES
The information in the following table is based on the contractual maturities of
individual loans, including loans which may be subject to renewal at their
contractual maturity. Renewal of such loans is subject to review and credit
approval, as well as modification of terms upon their maturity. Actual
repayments of loans may differ from maturities reflected below because borrowers
have the right to prepay obligations with or without prepayment penalties. The
following table summarizes loan maturities, by type, at December 31, 1999.
<TABLE>
<CAPTION>
After one
One year but within After
Or less five years five years Total
------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Commercial $ 2,717,357 $ 2,950,361 $ 203,270 $ 5,870,988
Real estate, 1-4 family 796,590 751,346 634,319 2,182,255
Real estate, commercial 1,772,456 405,718 1,836,583 4,014,757
Consumer loans 274,108 436,572 272,203 982,883
----------- ----------- ---------- -----------
Total $ 5,560,511 $ 4,543,997 $2,946,375 $13,050,883
=========== =========== ========== ===========
Loans maturing after one year with:
Fixed interest rates $ 5,813,790
Floating interest rates 1,676,582
</TABLE>
8
<PAGE> 11
INVESTMENT PORTFOLIO
At December 31, 1999, the investment securities portfolio represented 18.6% of
earning assets of $22,953,118. The Company primarily invests in U.S. Government
agencies or government-sponsored agencies, mortgage-backed securities and
collateralized mortgage obligations. The Company also owns stock in the Federal
Reserve Bank and Federal Home Loan Bank.
Contractual maturities and yields on the Company's investments at December 31,
1999 are shown below. Expected maturities may differ from contractual maturities
because issuers may have the right to call or prepay obligations with or without
call or prepayment penalties.
<TABLE>
<CAPTION>
After one
No Within but within After five
Maturity Yield One year Yield five years Yield Years Yield
-------- ----- -------- ----- ---------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
agencies $ -- -- $ -- -- $3,019,557 6.90% $ 965,005 7.00%
FHLB stock 38,200 7.50% -- -- -- -- --
FRB stock 237,250 6.25 -- -- -- -- --
-------- ----- ---------- ---------
Total $275,450 $ -- $3,019,557 $ 965,005
======== ===== ========== =========
</TABLE>
At December 31, 1999, short-term investments totaled $5,838,023. These funds
were invested in federal funds sold on an overnight basis. Federal funds sold
comprised 25.4% of earning assets. The higher percentage of federal funds sold
is attributed to year 2000 planning as well as the early stages of operations of
the Company. As the Company continues to grow, management expects federal funds
sold to be a less substantial percentage of earning assets. These funds will be
shifted to higher earning investments and loans.
DEPOSITS AND BORROWINGS
As of December 31, 1999, deposits were the only component of interest-bearing
liabilities, and the only source of funds for loans and investments. Average
total deposits were $16,786,000 and average interest-bearing deposits were
$14,856,000 for the month of December 1999. The following is a table of deposits
by category at December 31, 1999:
<TABLE>
<CAPTION>
Percent
Amount of total
------ --------
<S> <C> <C>
Noninterest bearing deposit accounts $ 2,824,668 15.4%
Interest-bearing checking 6,654,818 36.2
Savings deposits 178,404 1.0
Money market accounts 3,951,492 21.5
Time deposits less than $100,000 2,415,499 13.1
Time deposits of $100,000 or more 2,365,814 12.8
------------ -----
Total deposits $ 18,390,695 100.0%
============ =====
</TABLE>
Core deposits, which exclude time deposits of $100,000 or more, provide a
relatively stable funding source for the Company's loan portfolio and other
earning assets. The Company's core deposits totaled $16,040,719, or 87% of total
deposits at December 31, 1999.
9
<PAGE> 12
The maturity distribution of the company's time deposits of $100,000 or more is
shown in the following table.
<TABLE>
<S> <C>
Three months or less $ 600,000
Over three through six months 832,220
Over six through twelve months 933,594
Over twelve months --
------------
Total $ 2,365,814
============
</TABLE>
Time deposit balances over $100,000 tend to be extremely sensitive to interest
rate levels, making these deposits less reliable sources of funding for
liquidity planning purposes than core deposits. Accordingly, the Company has
elected to concentrate on core deposits.
At December 31, 1999, the Company had no outstanding balances under short-term
borrowings. The Company has unsecured lines of credit available on a one to
seven day basis with correspondent banks. These lines total $3,500,000. No
borrowings had been made from these lines as of December 31, 1999. As a member
of the Federal Home Loan Bank, the Company also has access to borrowing through
various FHLB programs. As of December 31, 1999, the Company had not borrowed
under these programs.
CAPITAL ADEQUACY
The Federal Reserve Board and bank regulatory agencies require bank holding
companies and financial institutions to maintain capital at adequate levels
based on a percentage of assets and off-balance sheet exposures, adjusted for
risk weights ranging from 0% to 100%. The Federal Reserve guidelines also
contain an exemption from the capital requirements for bank holding companies
with less than $150 million in consolidated assets. Because the Company has less
than $150 million in assets, it is not currently subject to these guidelines.
However, the Bank falls under these rules as set by bank regulatory agencies.
Under the capital adequacy guidelines, capital is classified into two tiers.
Tier 1 capital consists of common stockholders' equity, excluding the unrealized
gain or loss on securities available for sale, minus certain intangible assets.
Tier 2 capital consists of the general reserve for loan losses subject to
certain limitations. The qualifying capital base for purposes of the risk-based
capital ratio consists of the sum of its Tier 1 and Tier 2 capital. The Bank is
also required to maintain capital at a minimum level based on total average
assets, which is known as the Tier 1 leverage ratio.
The Bank exceeded the minimum capital requirements set by the regulatory
agencies at December 31, 1999. Below is a table that reflects the leverage and
risk-based regulatory capital ratios of the Bank at December 31, 1999.
<TABLE>
<CAPTION>
Required amount Percent Actual amount Percent
--------------- ------- ------------- -------
(in $000's) (in $000's)
<S> <C> <C> <C> <C>
Tier 1 capital $ 614 4.0% $7,620 49.7%
Total capital 1,227 8.0 7,812 50.9
Tier 1 leverage ratio 981 4.0 7,620 31.1
</TABLE>
The Company sold a total of 1,000,000 shares during the offering period with net
proceeds after offering expenses of $9,751,700. Of the proceeds, $8,250,000 was
used to capitalize the Bank. The Company believes that this amount is sufficient
to fund the activities of the Bank in its initial stages of operations and that
the Bank will generate sufficient income from operations to fund its activities
on an on-going basis. The remaining offering proceeds were retained in the
Company to fund activities which may from time to time be considered appropriate
investments of capital at some point in the future.
10
<PAGE> 13
LIQUIDITY MANAGEMENT
Liquidity management involves monitoring the Company's sources and uses of funds
in order to meet its day-to-day cash flow requirements while maximizing profits.
Liquidity represents the ability of a company to convert assets into cash or
cash equivalents without significant loss and to raise additional funds by
increasing liabilities. Liquidity management is made more complicated because
different balance sheet components are subject to varying degrees of management
control. For example, the timing of maturities of the investment portfolio is
fairly predictable and subject to a high degree of control at the time
investment decisions are made. However, net deposit inflows and outflows are far
less predictable and are not subject to nearly the same degree of control.
At December 31, 1999, the Company's liquid assets, consisting of cash and due
from banks and federal funds sold, amounted to $7,446,373, representing 27.0% of
total assets. Investment securities amounted to $4,260,012, representing 15.5%
of total assets. These securities provide a secondary source of liquidity since
they can be converted into cash in a timely manner. The Company's ability to
maintain and expand its deposit base and borrowing capabilities also serves as a
source of liquidity.
The Company plans to meet its future cash needs through the liquidation of
temporary investments, maturities of loans and investment securities, and
generation of deposits. In addition, the Bank maintains lines of credit with
correspondent banks in the amount of $3,500,000 and is also a member of the
Federal Home Loan Bank from which application for borrowings can be made for
leverage purposes, if so desired.
The Company is presently constructing a main office, which is scheduled to open
in May 2000 and a branch location, anticipated to open in June 2000. Estimated
costs of construction are $1,390,000 for the main office and $484,000 for the
branch. Through December 31, 1999, the Company had incurred a total of $487,279
in construction costs for both buildings. From January 2000 through June 2000,
the Company will incur the remaining construction costs, as well as
approximately $94,000 for furniture and equipment.
Management believes that its existing stable base of core deposits along with
continued growth in this deposit base, will enable the Company to successfully
meet its long-term liquidity needs.
IMPACT OF INFLATION
The assets and liabilities of financial institutions such as the Company and the
Bank are primarily monetary in nature. Therefore, interest rates have a more
significant effect on the Company's performance than do the effects of changes
in the general rate of inflation and changing prices. In addition, interest
rates do not necessarily move in the same direction or in the same magnitude as
the prices of goods and services. As discussed previously, management seeks to
manage the relationships between interest-sensitive assets and liabilities in
order to protect against wide interest rate fluctuations, including those, which
may result from inflation.
INDUSTRY DEVELOPMENTS
On November 4, 1999, the U.S. Senate and House of Representatives each passed
the Gramm-Leach-Bliley Act, previously known as the Financial Services
Modernization Act of 1999. The Act was signed into law by President Clinton on
November 12, 1999. Among other things, the Act repeals the restrictions on banks
affiliating with securities firms contained in sections 20 and 32 of the
Glass-Steagall Act. The Act also permits bank holding companies to engage in a
statutorily provided list of financial activities, including insurance and
securities underwriting and agency activities, merchant banking, and insurance
company portfolio investment activities. The Act also authorizes activities that
are "complementary" to financial activities.
11
<PAGE> 14
The Act is intended to grant to community banks certain powers as a matter of
right that larger institutions have accumulated on an ad hoc basis.
Nevertheless, the Act may have the result of increasing the amount of
competition that we face from larger institutions and other types of companies.
In fact, it is not possible to predict the full effect that the Act will have on
the Company.
From time to time, various bills are introduced in the United States Congress
with respect to the regulation of financial institutions. Certain of these
proposals, if adopted, could significantly change the regulation of banks and
the financial services industry. The Company cannot predict whether any of these
proposals will be adopted or, if adopted, how these proposals would affect the
Company.
YEAR 2000 ISSUES
Like many financial institutions, we rely on computers to conduct our business
and information systems processing. We did not have any Year 2000 problems on
January 1, 2000 and we do not expect to experience any significant Year 2000
problems. However, some experts remain concerned that computer malfunctions may
occur on other key dates during 2000, such as October 10, 2000.
In accordance with bank regulatory guidelines, we developed and executed a plan
to insure that our computer and other systems do not have these Year 2000
problems. We rely on third party vendors to supply our computer and
telecommunications systems and other office equipment, and to process our data
and account information. Because we commenced operations in 1999, we had the
ability to choose vendors which we believed to be ready for Year 2000. Our Year
2000 plan extended to all mission-critical vendors, including vendors for our
core data processing system. Under our plan, we reviewed the test results,
assurances and warranties of these vendors, and we believe that these systems
are Year 2000 compliant. Our technology and processing vendors work with many
other financial institutions, all of which, like us, are required by their bank
regulators to be Year 2000 compliant. Because our systems are substantially
similar to those used in many other banks, we believe that the scrutiny imposed
by our regulators and the banking industry in general has significantly reduced
the Year 2000 related risks we might otherwise have faced.
We incurred approximately $10,000 in expenses in 1999 to implement our Year 2000
plan. Under our plan, we will continue to monitor the situation throughout 2000.
Our agreements with each of our primary vendors included contractual assurances
and warranties regarding Year 2000 compliance. Some of these warranties are
limited by disclaimers of liability which specifically exclude special,
incidental, indirect, and consequential damages. These limitations could limit
our ability to obtain recourse against a vendor who is not Year 2000 compliant
by excluding damages for things such as lost profits and customer lawsuits.
We have evaluated our worst case scenario and developed contingency plans in
case Year 2000 issues arise. The Year 2000 issue may also negatively affect the
business of our clients, but to date, we are not aware of any material Year 2000
issues affecting them. Although we included Year 2000 readiness in our lending
criteria, any financial difficulties our clients experience as a result of Year
2000 issues could impair their ability to repay loans to the bank.
12
<PAGE> 15
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, such as statements relating to
financial results and plans for future business development activities, and thus
is prospective. Such forward-looking statements are subject to risks,
uncertainties, and other factors which could cause actual results to differ
materially from future results expressed or implied by such forward-looking
statements. These statements appear in a number of places in this report and
include all statements that are not statements of historical fact regarding our
intent, belief, or expectations. These forward-looking statements are not
guarantees of future performance and actual results may differ materially from
those projected in the forward-looking statements. Potential risks and
uncertainties include, but are not limited to, our brief operating history, our
ability to manage rapid growth, general economic conditions, competition,
interest rate sensitivity, and exposure to regulatory and legislative changes.
Additional risks are discussed in detail in our filings with the Securities and
Exchange Commission, including the "Risk Factors" section in our Registration
Statement of Form SB-2 (Registration Number 333-70589) as filed with and
declared effective by the Securities and Exchange Commission.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities". All derivatives
are to be measured at fair value and recognized in the balance sheet as assets
or liabilities. This statement's effective date was delayed by the issuance of
SFAS 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of SFAS 133," and is effective for fiscal years
and quarters beginning after June 15, 2000. The Company does not expect that the
adoption of SFAS 133 will have a material impact on the presentation of the
Company's financial results or financial position.
13
<PAGE> 16
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
NEW COMMERCE BANCORP AND SUBSIDIARY
Simpsonville, South Carolina
We have audited the accompanying consolidated balance sheets of NEW
COMMERCE BANCORP AND SUBSIDIARY (the "Company") as of December 31, 1999 and
1998 and the related consolidated statements of operations, shareholders'
equity and cash flows for the year ended December 31, 1999 and for the period
from July 17, 1998 (inception) to December 31, 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the NEW
COMMERCE BANCORP AND SUBSIDIARY at December 31, 1999 and 1998 and the results
of their operations and cash flows for the year ended December 31, 1999 and for
the period from July 17, 1998 (inception) to December 31, 1998, in conformity
with generally accepted accounting principles.
/S/ ELLIOT, DAVIS & COMPANY, LLP
- ---------------------------------
January 21, 2000
Elliott, Davis & Company, LLP
Greenville, South Carolina
14
<PAGE> 17
NEW COMMERCE BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
-----------------------------
1999 1998
------------ -----------
<S> <C> <C>
CASH AND DUE FROM BANKS $ 1,608,350 $ 1,762,031
FEDERAL FUNDS SOLD 5,838,023 --
INVESTMENT SECURITIES AVAILABLE FOR SALE 3,295,007 --
INVESTMENT SECURITIES HELD TO MATURITY
($945,329 fair value) 965,005 --
LOANS - less allowance for possible loan losses of $195,800 12,855,083 --
PROPERTY AND EQUIPMENT, NET 2,585,116 8,218
ACCRUED INTEREST RECEIVABLE 95,369 --
OTHER ASSETS 305,389 183,227
------------ -----------
Total assets $ 27,547,342 $ 1,953,476
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits
Noninterest bearing deposits $ 2,824,668 $ --
Interest bearing deposits 15,566,027 --
------------ -----------
Total deposits 18,390,695 --
------------ -----------
Other liabilities 144,548 --
------------ -----------
Total liabilities 18,535,243 --
------------ -----------
COMMITMENTS AND CONTINGENCIES - Notes 8 and 12
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value; 10,000,000 shares
authorized, no shares issued -- --
Common stock, $.01 par value, 10,000,000 shares authorized;
1,000,000 and 200,000 shares issued at December 31, 1999
and 1998, respectively 10,000 2,000
Additional paid-in capital 9,741,658 1,998,000
Retained deficit (714,544) (46,524)
Accumulated other comprehensive loss (25,015) --
------------
Total shareholders' equity 9,012,099 1,953,476
------------ -----------
Total liabilities and shareholders' equity $ 27,547,342 $ 1,953,476
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
15
<PAGE> 18
NEW COMMERCE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
FOR THE JULY 17, 1998
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1999 1998
----------- ---------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 565,686 $ --
Investment securities 143,382 --
Federal funds sold 135,113 --
----------- ---------
Total interest income 844,181 --
INTEREST EXPENSE
Deposits 256,940 --
----------- ---------
Net interest income 587,241 --
PROVISION FOR POSSIBLE LOAN LOSSES 195,800 --
----------- ---------
Net interest income after provision for possible loan losses 391,441 --
NONINTEREST INCOME
Service fees on deposit accounts 45,140 --
NONINTEREST EXPENSES
Salaries and benefits 505,584 --
Occupancy and equipment 116,883 --
Data processing 89,460 --
Marketing 98,112 --
Printing and supplies 29,705 --
Other operating 20,386 --
Organizational and pre-opening expenses 510,602 46,524
----------- ---------
Total non interest expenses 1,370,732 46,524
----------- ---------
Loss before income taxes (934,151) (46,524)
INCOME TAX BENEFIT 266,131 --
----------- ---------
Net loss $ (668,020) $(46,524)
=========== ========
BASIC NET LOSS PER COMMON SHARE $ (.67)
===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 1,000,000
===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
16
<PAGE> 19
NEW COMMERCE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
---------------------- PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT LOSS EQUITY
--------- ------- ---------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 17, 1998 (INCEPTION) -- $ -- $ -- $ -- $ -- $ --
Proceeds from sale of stock to organizers 200,000 2,000 1,998,000 -- -- 2,000,000
Net loss -- -- -- (46,524) -- (46,524)
--------- ------- ---------- --------- -------- -----------
Balance, December 31, 1998 200,000 2,000 1,998,000 (46,524) -- 1,953,476
Net loss -- -- -- (668,020) -- (668,020)
Other comprehensive loss, net of tax:
Unrealized holding losses on securities
available for sale -- -- -- -- (25,015) (25,015)
Comprehensive loss (693,035)
Proceeds from sale of stock (net of
offering costs of $248,341) 800,000 8,000 7,743,658 -- -- 7,751,658
--------- ------- ---------- --------- -------- -----------
BALANCE, DECEMBER 31, 1999 1,000,000 $10,000 $9,741,658 $(714,544) $(25,015) $ 9,012,099
========= ======= ========== ========= ======== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
17
<PAGE> 20
NEW COMMERCE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
FOR THE JULY 17, 1998
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1999 1998
------------ --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (668,020) $ (46,524)
Adjustments to reconcile net loss to net cash used
for operating activities
Deferred income tax benefit (266,131) --
Provision for possible loan losses 195,800 --
Depreciation and amortization 27,000 --
Increase in accrued interest receivable 95,369 --
Increase in other assets (86,569) (143,427)
Increase in other liabilities 144,548 --
------------ -----------
Net cash used for operating activities (558,003) (189,951)
------------ -----------
INVESTING ACTIVITIES
Increase in federal funds sold (5,838,023) --
Purchase of investment securities available for sale (3,475,240) --
Purchase of investment securities held to maturity (965,005) --
Proceeds from sale of investment securities available for sale 155,218 --
Increase in loans, net (13,050,883) --
Purchase of property and equipment (2,564,098) (48,018)
------------ -----------
Net cash used for investing activities (25,738,031) (48,018)
------------ -----------
FINANCING ACTIVITIES
Proceeds from sale of stock, net 7,751,658 2,000,000
Net increase in deposits 18,390,695 --
------------ -----------
Net cash provided by financing activities 26,142,353 2,000,000
------------ -----------
Net increase (decrease) in cash and cash equivalents (153,681) 1,762,031
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 1,762,031 --
------------ -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,608,350 $ 1,762,031
============ ===========
CASH PAID FOR
Interest $ 221,307 $ --
============ ===========
Income taxes $ -- $ --
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
18
<PAGE> 21
NEW COMMERCE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES
NEW COMMERCE BANCORP, (the "Company") was incorporated under the laws
of the State of South Carolina for the purpose of operating as a bank holding
company with respect to a then proposed de novo bank, New Commerce Bank (the
"Bank"). The Company offered its common stock for sale to the public under an
initial public offering price of $10 per share and raised approximately $9.8
million in capital, net of offering expenses. The Company obtained regulatory
approval to operate a national bank and opened the Bank for business on May 17,
1999, with a total capitalization of $8.3 million. The Bank provides full
commercial banking services to customers and is subject to regulation of the
Office of the Controller of the Currency (OCC) and the Federal Deposit
Insurance Corporation. The Company is subject to the regulation of the Federal
Reserve Board.
Prior to May 17, 1999, the Company devoted all of its efforts to
establishing the Bank and accordingly operated as a development stage
enterprise as defined by Statement of Financial Accounting Standard (SFAS) No.
7, "Accounting and Reporting by Development Stage Enterprises".
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, the Bank. The Company operates as one
business segment. All significant intercompany balances and transactions
have been eliminated. The accounting and reporting policies conform to
generally accepted accounting principles and to general practices in the
banking industry. The Company uses the accrual basis of accounting.
ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the
date of the financial statements and the reported amount of income and
expenses during the reporting periods. Actual results could differ from
those estimates.
CONCENTRATIONS OF CREDIT RISK
The Company makes loans to individuals and businesses in and around Upstate
South Carolina for various personal and commercial purposes. The Bank has a
diversified loan portfolio and the borrowers' ability to repay their loans
is not dependent upon any specific economic sector.
INVESTMENT SECURITIES
The Company accounts for investment securities in accordance with SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities".
The statement requires investments in equity and debt securities to be
classified into three categories:
1. Available for sale securities: These are securities which are not
classified as either held to maturity or as trading securities. These
securities are reported at fair market value. Unrealized gains and
losses are reported, net of income taxes, as separate components of
shareholders' equity (accumulated other comprehensive loss).
2. Held to maturity securities: These are investment securities which the
Company has the ability and intent to hold until maturity. These
securities are stated at cost, adjusted for amortization of premiums
and the accretion of discounts.
19
<PAGE> 22
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, CONTINUED
3. Trading securities: These are securities which are bought and held
principally for the purpose of selling in the near future. Trading
securities are reported at fair market value, and related unrealized
gains and losses are recognized in the income statement. The Company
has no trading securities.
Gains or losses on dispositions of investment securities are based on the
differences between the net proceeds and the adjusted carrying amount of
the securities sold, using the specific identification method.
LOANS, INTEREST AND FEE INCOME ON LOANS
Loans are stated at the principal balance outstanding. Unearned discount,
unamortized loan fees and the allowance for possible loan losses are
deducted from total loans in the balance sheet. Interest income is
recognized over the term of the loan based on the principal amount
outstanding. Points on real estate loans are taken into income to the
extent they represent the direct cost of initiating a loan. The amount in
excess of direct costs is deferred and amortized over the expected life of
the loan.
Loans are generally placed on non-accrual status when principal or interest
becomes ninety days past due, or when payment in full is not anticipated.
When a loan is placed on non-accrual status, interest accrued but not
received is generally reversed against interest income. If collectibility
is in doubt, cash receipts on non-accrual loans are not recorded as
interest income, but are used to reduce principal.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses charged to operating expenses
reflects the amount deemed appropriate by management to establish an
adequate reserve to meet the present and foreseeable risk characteristics
of the current loan portfolio. Management's judgement is based on periodic
and regular evaluation of individual loans, the overall risk
characteristics of the various portfolio segments, past experience with
losses and prevailing and anticipated economic conditions. Loans which are
determined to be uncollectible are charged against the allowance.
Provisions for possible loan losses and recoveries on loans previously
charged off are added to the allowance.
The Bank accounts for impaired loans in accordance with SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". This standard requires
that all lenders value loans at the loan's fair value if it is probable
that the lender will be unable to collect all amounts due according to the
terms of the loan agreement. Fair value may be determined based upon the
present value of expected cash flows, market price of the loan, if
available, or value of the underlying collateral. Expected cash flows are
required to be discounted at the loan's effective interest rate.
Under SFAS No. 114 when the ultimate collectibility of an impaired loan's
principal is in doubt, wholly or partially, all cash receipts are applied
to principal. When this doubt does not exist, cash receipts are applied
under the contractual terms of the loan agreement first to principal then
to interest income. Once the reported principal balance has been reduced to
zero, future cash receipts are applied to interest income, to the extent
that any interest has been foregone. Further cash receipts are recorded as
recoveries of any amounts previously charged off.
A loan is also considered impaired if its terms are modified in a troubled
debt restructuring. For these accruing impaired loans, cash receipts are
typically applied to principal and interest receivable in accordance with
the terms of the restructured loan agreement. Interest income is recognized
on these loans using the accrual method of accounting. As of December 31,
1999, the Bank had no impaired loans.
20
<PAGE> 23
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, CONTINUED
NON-PERFORMING ASSETS
Non-performing assets include real estate acquired through
foreclosure or deed taken in lieu of foreclosure, and loans on
non-accrual status. Loans are placed on non-accrual status
when, in the opinion of management, the collection of
additional interest is questionable. Thereafter no interest is
taken into income unless received in cash or until such time
as the borrower demonstrates the ability to pay principal and
interest. At December 31, 1999, the Bank had no non-performing
assets.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated
depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the related assets.
Maintenance and repairs are charged to operations, while major
improvements are capitalized. Upon retirement, sale or other
disposition of property and equipment, the cost and
accumulated depreciation are eliminated from the accounts, and
gain or loss is included in income from operations.
ORGANIZATIONAL COSTS
In accordance with Statement of Position 98-5, "Reporting on
the Costs of Start-up Activities," the Company expenses all
organizational and pre-opening costs as incurred.
INCOME TAXES
The financial statements have been prepared on the accrual
basis. When income and expenses are recognized in different
periods for financial reporting purposes versus for purposes
of computing income taxes currently payable, deferred taxes
are provided on such temporary differences. The Company
accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Under SFAS 109, deferred tax
assets and liabilities are recognized for the expected future
tax consequences of events that have been recognized in the
consolidated financial statements or tax return. Deferred tax
assets and liabilities are measured using the enacted tax
rates expected to apply to taxable income in the years in
which those temporary differences are expected to be realized
or settled.
ADVERTISING AND PUBLIC RELATIONS EXPENSE
Advertising, promotional and other business development costs
are generally expensed as incurred. External costs incurred in
producing media advertising are expensed the first time the
advertising takes place. External costs relating to direct
mailing costs are expensed in the period in which the direct
mailings are sent.
BASIC NET LOSS PER COMMON SHARE
Basic net loss per common share is computed on the basis of
the weighted average number of common shares outstanding in
accordance with SFAS No. 128, "Earnings per Share". For
purposes of calculating net loss per share, the calculation
assumed the stock was outstanding all of 1999. No basic net
loss per common share amount is presented for the period ended
December 31, 1998 as the Company was in a development stage.
The treasury stock method is used to compute the effect of
stock options on the weighted average number of common shares
outstanding for the diluted method. No dilution occurs under
the treasury stock method as the exercise price of stock
options equals or exceeds the market value of the stock.
STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, cash and cash
equivalents are defined as those amounts included in the
balance sheet caption "Cash and Due From Banks". Cash and cash
equivalents have an original maturity of three months or less.
21
<PAGE> 24
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, CONTINUED
FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial
Instruments," as amended by SFAS No. 119, requires disclosure of fair
value information for financial instruments, whether or not recognized
in the balance sheet, when it is practicable to estimate the fair
value. SFAS No. 107 defines a financial instrument as cash, evidence of
an ownership interest in an entity or contractual obligations which
require the exchange of cash or other financial instruments. Certain
items are specifically excluded from the disclosure requirements,
including the Company's common stock. In addition, other nonfinancial
instruments such as premises and equipment and other assets and
liabilities are not subject to the disclosure requirements.
The following methods and assumptions were used by the Company in
estimating fair values of financial instruments as disclosed herein:
CASH AND DUE FROM BANKS - The carrying amounts of cash and due
from banks (cash on hand and due from banks) approximate their
fair value.
FEDERAL FUNDS SOLD - The carrying amounts of federal funds
sold approximate their fair value.
INVESTMENT SECURITIES HELD TO MATURITY AND AVAILABLE FOR SALE
- Fair values for investment securities are based on quoted
market prices.
LOANS - For variable rate loans that reprice frequently and
for loans that mature within one year, fair values are based
on carrying values. Fair values for all other loans are
estimated using discounted cash flow analyses, with interest
rates currently being offered for loans with similar terms to
borrowers of similar credit quality. Fair values for impaired
loans are estimated using discounted cash flow analyses or
underlying collateral values, where applicable.
DEPOSITS - The fair values disclosed for demand deposits are,
by definition, equal to their carrying amounts. The carrying
amounts of variable rate, fixed-term money market accounts and
short-term certificates of deposit approximate their fair
values at the reporting date. Fair values for long-term
fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates
currently being offered on certificates to a schedule of
aggregated expected monthly maturities.
OFF BALANCE SHEET INSTRUMENTS - Fair values of off balance
sheet lending commitments are based on fees currently charged
to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties'
credit standing.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities." All derivatives are to be measured at fair value and
recognized in the balance sheet as assets or liabilities. This
statement's effective date was delayed by the issuance of SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of SFAS 133," and is effective for
fiscal years and quarters beginning after June 15, 2000. The Company
does not expect that the adoption of SFAS 133 will have a material
impact on the presentation of the Company's financial results or
financial position.
22
<PAGE> 25
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, CONTINUED
RISKS AND UNCERTAINTIES
In the normal course of its business the Company encounters two
significant types of risks: economic and regulatory. There are three
main components of economic risk: interest rate risk, credit risk and
market risk. The Company is subject to interest rate risk to the degree
that its interest-bearing liabilities mature or reprice at different
speeds, or on different bases, than its interest-earning assets. Credit
risk is the risk of default on the Company's loan portfolio that
results from borrower's inability or unwillingness to make
contractually required payments. Market risk reflects changes in the
value of collateral underlying loans receivable and the valuation of
real estate held by the Company.
The Company is subject to the regulations of various governmental
agencies. These regulations can and do change significantly from period
to period. The Company also undergoes periodic examinations by the
regulatory agencies, which may subject it to further changes with
respect to asset valuations, amounts of required loss allowances and
operating restrictions from the regulators' judgments based on
information available to them at the time of their examination.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current presentation. These reclassifications have no effect on
previously reported net loss or stockholders' equity.
NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required to maintain average reserve balances, computed by
applying prescribed percentages to its various types of deposits, either at the
bank or on deposit with the Federal Reserve Bank. At December 31, 1999 these
required reserves were met by vault cash.
NOTE 3 - FEDERAL FUNDS SOLD
When the Bank's cash reserves (Note 2) are in excess of the required
amount, it may lend excess to other banks on a daily basis. As of December 31,
1999 federal funds sold amounted to $5,838,023.
NOTE 4 - INVESTMENT SECURITIES
The amortized cost and fair value of investment securities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------------------------------
GROSS UNREALIZED
AMORTIZED ----------------------- FAIR
COST GAINS LOSSES VALUE
-------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
Federal agencies $1,475,987 $ -- $20,772 $1,455,215
Mortgage-backed 492,032 -- 5,225 486,807
Collateralized mortgage obligations 1,090,177 -- 12,642 1,077,535
Federal Reserve stock 237,250 -- -- 237,250
Federal Home Loan Bank (FHLB) stock - restricted 38,200 -- -- 38,200
---------- -------- ------- ----------
Total available for sale $3,333,646 $ -- $38,639 $3,295,007
========== ======== ======= ==========
HELD TO MATURITY
Mortgage-backed $ 965,005 $ -- $19,676 $ 945,329
========== ======== ======= ==========
</TABLE>
23
<PAGE> 26
NOTE 4 - INVESTMENT SECURITIES, Continued
The amortized costs and fair values of securities available for sale and
held to maturity at December 31, 1999, by contractual maturity, are shown in the
following chart. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
------------------------- -----------------------
AMORTIZED AMORTIZED
COST FAIR VALUE COST FAIR VALUE
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Due after one through five years $3,058,196 $3,019,557 $ $ --
Due after ten years -- -- 965,005 945,329
Federal Reserve stock (no maturity) 237,250 237,250 -- --
Federal Home Loan Bank stock (no maturity) 38,200 38,200 -- --
---------- ---------- --------- ----------
Total investment securities $3,333,646 $3,295,007 $965,005 $945,329
========== ========== ======== ========
</TABLE>
At December 31, 1999, $1,000,000 of securities were pledged for other
business purposes through February of 2000.
NOTE 5 - LOANS
The composition of loans by major loan category are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
----------- ---------
<S> <C> <C>
Commercial $ 5,870,988 $ --
Real estate - construction 1,258,129 --
Real estate - mortgage 4,938,916 --
Consumer 982,850 --
----------- ---------
Loans, gross 13,050,883 --
Less allowance for possible loan losses 195,800 --
----------- ---------
Loans, net $12,855,083 $ --
=========== =========
</TABLE>
The Bank's loan portfolio consisted of approximately $7,831,000 in
fixed rate loans as of December 31, 1999. Fixed rate loans with maturities in
excess of one year were $5,813,790.
At December 31, 1999 and 1998, there were no nonaccruing or impaired
loans. During the period ended December 31, 1999 there were no loans charged off
and no recoveries.
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated
depreciation. Components of property and equipment included in the balance sheet
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
---------- ------
<S> <C> <C>
Land $1,366,997 $ --
Building and improvements 403,248 --
Furniture and equipment 354,592 8,218
Construction in progress 487,279 --
---------- ------
2,612,116 8,218
Accumulated depreciation 27,000 --
---------- ------
Total property and equipment $2,585,116 $8,218
========== ======
</TABLE>
24
<PAGE> 27
NOTE 6 - PROPERTY AND EQUIPMENT, CONTINUED
Depreciation expense for the period ended December 31, 1999 and 1998
amounted to $27,000 and $0, respectively. Depreciation is charged to operations
over the estimated useful lives of the assets. The estimated useful lives and
methods of depreciation for the principal items follow:
<TABLE>
<CAPTION>
TYPE OF ASSET LIFE IN YEARS DEPRECIATION METHOD
- -------------------------- ------------- -------------------
<S> <C> <C>
Software 3 Straight-line
Furniture and equipment 5 to 7 Straight-line
Buildings and improvements 5 to 40 Straight-line
</TABLE>
NOTE 7 - DEPOSITS
The following is a detail of the deposit accounts:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
----------- ---------
<S> <C> <C>
Noninterest bearing deposits $ 2,824,668 $ --
Interest bearing deposits:
NOW accounts 6,654,818 --
Money market accounts 3,951,492 --
Savings 178,404 --
Time, less than $100,000 2,415,499 --
Time, $100,000 and over 2,365,814 --
----------- ---------
Total deposits $18,390,695 $ --
=========== =========
</TABLE>
Interest expense on time deposits greater than $100,000 was $42,875 and
$0 in 1999 and 1998, respectively. At December 31, 1999 the scheduled maturities
of certificates of deposit are as follows:
<TABLE>
<S> <C>
2000 $4,723,381
2001 57,932
----------
$4,781,313
==========
</TABLE>
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Bank may become party to litigation and claims arising in the
normal course of business. As of December 31, 1999, there is no litigation
pending.
The Bank has entered into construction contracts and is presently
constructing a main office and a branch office. The main office is expected to
open in May of 2000 and its estimated cost is $1,390,000. The branch office is
expected to open June of 2000 and its estimated cost is $484,000. Costs incurred
through December 31, 1999 are $350,936 and $136,343 on the main office and
branch office, respectively. The Bank has also entered into an agreement to
purchase approximately $94,000 of office furniture and equipment for its new
offices.
The Bank has a three year contract for data processing services through
April of 2002. Costs under the contract are approximately $8,000 per month.
25
<PAGE> 28
NOTE 8 - COMMITMENTS AND CONTINGENCIES, CONTINUED
The Company has employment agreements with its president and chief
financial officer. Terms of the contracts include a compensation term, bonus
plan, incentive program and term life insurance.
Refer to Note 12 concerning financial instruments with off balance
sheet risk.
NOTE 9 - UNUSED LINES OF CREDIT
At December 31, 1999, the Bank had unused lines of credit to purchase
federal funds totaling $3,500,000 from correspondent banks. These lines of
credit are available on a one to seven day basis for general corporate purposes
of the Bank. These lenders have reserved the right to withdraw these lines at
their option.
NOTE 10 - INCOME TAXES
The income tax benefit of $266,131 recorded in 1999 and $0 in 1998
reflect the value of net operating losses available for offset against future
taxable income and are available through 2014.
NOTE 11 - RELATED PARTY TRANSACTIONS
Certain directors, executive officers and companies with which they are
affiliated, are customers of and have banking transactions with the Bank in the
ordinary course of business. These loans were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable arms-length transactions.
A summary of loan transactions with directors, including their
affiliates, and executive officers as of December 31, 1999 are as follows:
<TABLE>
<S> <C>
Balance, beginning of year $ -
New loans 1,614,780
Less loan payments -
----------
Balance, end of year $1,614,780
==========
</TABLE>
Deposits by directors and their related interests, at December 31, 1999
approximated $1,524,275. At December 31, 1998, there were no loan or deposit
transactions with directors or executive officers.
During 1998, the Company leased its office space from one of the
directors. Rent expense charged to operations was $1,800.
NOTE 12 - FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK
In the ordinary course of business, and to meet the financing needs of
its customers, the Bank is a party to various financial instruments with off
balance sheet risk. These financial instruments, which include commitments to
extend credit and standby letters of credit, involve, to varying degrees,
elements of credit and interest rate risk in excess of the amounts recognized in
the balance sheet. The contract amount of those instruments reflects the extent
of involvement the Bank has in particular classes of financial instruments.
26
<PAGE> 29
NOTE 12 - FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK, CONTINUED
The Bank's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amounts of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any material condition established in the
contract. Commitments generally have fixed expiration dates or other termination
clauses and may require the payment of a fee. At December 31, 1999, unfunded
commitments to extend credit were $4,133,000 and outstanding letters of credit
were $330,000. The Bank evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Bank upon extension of credit, is based on management's credit evaluation of
the borrower. Collateral varies but may include accounts receivable, inventory,
property, plant and equipment, commercial and residential real estate.
NOTE 13 - EMPLOYEE BENEFIT PLAN
On September 1, 1999, the Bank adopted the New Commerce Bancorp Profit
Sharing Section 401(k) Plan for the benefit of all eligible employees. The Bank
contributes a discretionary amount determined annually to the Plan.
Contributions made to the Plan in 1999 amounted to $9,500.
NOTE 14 - STOCK OPTION PLAN
During 1999, the Board of Directors tentatively approved a stock option
plan for the benefit of the directors, officers and employees. The Plan is
subject to the approval of shareholders. The Board may grant up to 150,000
options at an option price per share not less than the fair market value on the
date of grant. All options granted to officers and employees vest 20 percent
each year for five years and expire 10 years from the grant date. The Bank has
adopted the disclosure-only provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation". Accordingly, no
compensation cost has been recognized for the stock option plan. Had
compensation cost been determined based on the fair value at the grant date for
the above stock option awards consistent with the provisions of SFAS 123, the
Bank's net loss and net loss per common share would have been increased to the
pro forma amounts indicated below for the year ended December 31, 1999:
<TABLE>
<S> <C>
Net loss - as reported $ (668,020)
Net loss - pro forma (701,042)
Basic net loss per common share - as reported (.67)
Basic net loss per common share - pro forma (.70)
</TABLE>
The fair value of the option grant is estimated on the date of grant
using the Black-Scholes option pricing model and the minimum value method
allowed by SFAS 123. The risk free interest rate used was 5.89 percent, the
expected option life was 5 years and the assumed dividend rate was zero.
27
<PAGE> 30
NOTE 14 - STOCK OPTION PLAN, CONTINUED
A summary of the status of the plan as of December 31, 1999 and changes
during the year ending on that date is presented below:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------- ----------------
<S> <C> <C>
Outstanding at beginning of the year -- $ --
Granted 127,500 10.00
------- ---------
Outstanding at end of the year 127,500 $ 10.00
======= =========
Options exercisable at December 31, 1999 none
Shares available for grant 22,500
</TABLE>
NOTE 15 - DIVIDENDS
There are no current plans to initiate payment of cash dividends and
future dividend policy will depend on the Bank's earnings, capital requirements,
financial condition and other factors considered relevant by the Bank's Board of
Directors. The Bank is restricted by banking regulations in its ability to pay
dividends and must obtain regulatory approval prior to payment.
NOTE 16 - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possible additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier 1 capital to risk-weighted assets, and of
Tier 1 capital to average assets. Management believes, as of December 31, 1999,
that the Bank meets all capital adequacy requirements to which it is subject.
28
<PAGE> 31
NOTE 16 - REGULATORY MATTERS, CONTINUED
As of December 31, 1999, the most recent notification of the banking
regulators categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. There are no conditions or events since
that notification that management believes have changed the institution's
category. The Bank's actual capital amounts and ratios and minimum regulatory
amounts and ratios are presented as follows:
<TABLE>
<CAPTION>
To be well capitalized
For capital under prompt corrective
adequacy purposes action provision
----------------- ----------------
Actual Minimum Minimum
--------------- ---------------- ---------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(AMOUNTS IN $000)
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1999
Total Capital (to risk weighted assets) $ 7,812 50.9% $ 1,227 8.0% $ 1,534 10.0%
Tier 1 Capital (to risk weighted assets) 7,620 49.7 614 4.0 920 6.0
Tier 1 Capital (to average assets) 7,620 31.1 981 4.0 1,226 5.0
</TABLE>
NOTE 17 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments were
as follows at December 31, 1999:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
----------- -----------
<S> <C> <C>
FINANCIAL ASSETS
Cash and due from banks $ 1,608,350 $ 1,608,350
Federal funds sold 5,838,023 5,838,023
Investment securities available for sale 3,295,007 3,295,007
Investment securities held to maturity 965,005 945,329
Loans 12,855,083 12,897,381
FINANCIAL LIABILITIES
Deposits 18,390,695 18,378,604
OFF BALANCE SHEET INSTRUMENTS
Commitments to extend credit 4,133,000 4,133,000
Standby letters of credit 330,000 330,000
</TABLE>
NOTE 18 - PARENT COMPANY INFORMATION
Following is condensed financial information of New Commerce BanCorp
(parent company only):
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Cash $ 21,864 $1,762,031
Investment securities held to maturity 965,005 --
Investment in subsidiary 7,595,221 --
Property and equipment 403,249 8,218
Other assets 26,760 183,227
---------- ----------
$9,012,099 $1,953,476
========== ==========
SHAREHOLDERS' EQUITY $9,012,099 $1,953,476
========== ==========
</TABLE>
29
<PAGE> 32
NOTE 18 - PARENT COMPANY INFORMATION, CONTINUED
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIODS ENDED
DECEMBER 31,
---------------------------
1999 1998
--------- --------
<S> <C> <C>
INCOME
Investments $ 56,918 $ --
EXPENSES
Sundry 95,174 46,524
--------- --------
Loss before equity in undistributed
net loss of bank subsidiary (38,256) (46,524)
EQUITY IN UNDISTRIBUTED NET LOSS OF
SUBSIDIARY (629,764) --
--------- --------
Net loss $(668,020) $(46,524)
========= ========
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIODS ENDED
DECEMBER 31,
-------------------------------
1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (668,020) $ (46,524)
Adjustments to reconcile net loss to net cash provided
by (used for) operating activities
Increase (decrease) in other assets 164,685 (143,427)
Equity in undistributed net loss of bank subsidiary 629,764 --
----------- -----------
Net cash provided by (used for) operating activities 126,429 (189,951)
----------- -----------
INVESTING ACTIVITIES
Purchase of investment securities (965,005) --
Purchase of property and equipment (403,249) (48,018)
Investment in bank subsidiary (8,250,000) --
----------- -----------
Net cash used for investing activities (9,618,254) (48,018)
----------- -----------
FINANCING ACTIVITIES
Proceeds from sale of stock, net 7,751,658 2,000,000
----------- -----------
Net increase (decrease) in cash (1,740,167) 1,762,031
CASH, BEGINNING OF PERIOD 1,762,031 --
----------- -----------
CASH, END OF PERIOD $ 21,864 $ 1,762,031
=========== ===========
</TABLE>
30
<PAGE> 33
CORPORATE DATA
BOARD OF DIRECTORS
<TABLE>
<S> <C>
Richard W. Bailey Bobby L. Johnson
Timothy A. Brett, Chairman Robert T. Kellett
Marshall J. Collins, Jr. Dennis O. Raines
Ralph S. Crawley Curran A. Smith
G. Mitchell Gault James D. Stewart
Tommy D. Greer
</TABLE>
EXECUTIVE OFFICERS
NEW COMMERCE BANCORP
James D. Stewart, President and Chief Executive Officer
Paula S. King, Senior Vice President and Chief Financial Officer
EXECUTIVE OFFICERS
NEW COMMERCE BANK
James D. Stewart, President and Chief Executive Officer
Paula S. King, Senior Vice President and Chief Financial Officer
Bradley J. Schneider, Senior Vice President, General Banking
LOCATIONS
501 New Commerce Court
Mauldin, South Carolina
(Opening May, 2000)
1 Five Forks Plaza Court
Simpsonville, South Carolina
31
<PAGE> 34
CORPORATE DATA
ANNUAL MEETING
The Annual Meeting of Shareholders of New Commerce BanCorp will be held at 4:00
p.m., Friday, April 28, 2000, at First Baptist Church of Mauldin, 150 South
Main Street, Mauldin, South Carolina. All shareholders are invited.
SHAREHOLDER SERVICES
Shareholders seeking information regarding stock transfers, lost certificates,
dividends and address changes should contact the Company's Transfer Agent by
calling 1-800-568-3476 or by writing:
SunTrust Bank, Atlanta
Mail Code 258
Post Office Box 4625
Atlanta, Georgia 30302
<TABLE>
<S> <C>
CORPORATE OFFICE CORPORATE COUNSEL
1 Five Forks Plaza Court Leatherwood, Walker, Todd & Mann PC
Simpsonville, South Carolina 29681 Attorneys At Law
864-288-3337 100 East Coffee Street
Greenville, South Carolina 29601
SECURITIES COUNSEL INDEPENDENT AUDITORS
Nelson, Mullins, Riley & Scarborough LLP Elliott, Davis & Company LLP
First Union Plaza Post Office Box 6286
999 Peachtree Street, Suite 1400 Greenville, South Carolina 29606-6286
Atlanta, Georgia 30309
</TABLE>
STOCK INFORMATION
Since its public offering on June 30, 1999, the Company's common stock has been
quoted on the OTC Bulletin Board under the symbol NCBS. The Company's articles
of incorporation authorize it to issue up to 10,000,000 shares of common stock,
of which 1,000,000 shares for a total of $10,000,000, were sold in the initial
public offering and are outstanding as of March 15, 2000. The Company has 502
shareholders of record. The number of shareholders does not reflect the number
of individuals or entities who hold stock in nominee or "street" name through
various brokerage firms. To date, the Company has not paid cash dividends on
its common stock. The company currently intends to retain earnings to support
operations and finance expansion and therefore does not anticipate paying cash
dividends in the foreseeable future. Management is not aware of the prices at
which all shares of stock have been traded. The ranges of prices known to
management are $10.00 to $11.00.
MARKET MAKERS
J.C. Bradford & Co., Greenville, SC
864-232-5101
Edgar M. Norris & Co., Inc., Greenville, SC
864-233-3655
FINANCIAL INFORMATION
The Company will furnish upon request, free of charge, copies of the Annual
Report and the Company's Report to the Securities and Exchange Commission (Form
10-KSB). These reports may be obtained by contacting:
Paula S. King
Senior Vice President and Chief Financial Officer
New Commerce BanCorp
P.O. Drawer 129
Mauldin, South Carolina 29662
This Annual Report serves as the ANNUAL FINANCIAL DISCLOSURE STATEMENT furnished
pursuant to Part 350 of the Federal Deposit Insurance Corporation Rules and
Regulations. THIS STATEMENT HAS NOT BEEN REVIEWED OR CONFIRMED FOR ACCURACY OR
RELEVANCE BY THE FDIC.
32
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
New Commerce Bank
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF NEW COMMERCE BANCORP FOR THE YEAR ENDED DECEMBER 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,608,350
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,838,023
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,295,007
<INVESTMENTS-CARRYING> 965,005
<INVESTMENTS-MARKET> 945,329
<LOANS> 13,050,883
<ALLOWANCE> 195,800
<TOTAL-ASSETS> 27,547,342
<DEPOSITS> 18,390,695
<SHORT-TERM> 0
<LIABILITIES-OTHER> 144,548
<LONG-TERM> 0
0
0
<COMMON> 10,000
<OTHER-SE> 9,002,099
<TOTAL-LIABILITIES-AND-EQUITY> 27,547,342
<INTEREST-LOAN> 565,686
<INTEREST-INVEST> 143,382
<INTEREST-OTHER> 135,113
<INTEREST-TOTAL> 844,181
<INTEREST-DEPOSIT> 256,940
<INTEREST-EXPENSE> 256,940
<INTEREST-INCOME-NET> 587,241
<LOAN-LOSSES> 195,800
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,370,732
<INCOME-PRETAX> (934,151)
<INCOME-PRE-EXTRAORDINARY> (668,020)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (668,020)
<EPS-BASIC> (.67)
<EPS-DILUTED> (.67)
<YIELD-ACTUAL> 5.37
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 195,800
<ALLOWANCE-DOMESTIC> 195,800
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
