SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT FOR
THE TRANSITION PERIOD FROM _______________ TO _________________.
Commission File Number ____________
CORNERSTONE BANCORP
(Exact name of small business issuer as specified in the charter)
South Carolina 57-1077978
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1670 East Main Street, Easley, South Carolina 29640
(Address of principal executive offices)
(864) 306-1444
(Registrant's telephone number, including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [ ] Yes [ X ] No
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
Common Stock - No Par Value
No Shares Outstanding on September 1, 1999
Transitional Small Business Issuer Disclosure Format: [ ] Yes [ X ] No
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements
CORNERSTONE BANCORP
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
JUNE 30, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash and cash equivalents .................................................................................. $ 18,531
Nonrefundable real estate purchase option .................................................................. 15,000
Nonrefundable lease deposits ............................................................................... 14,446
Equipment .................................................................................................. 10,538
Deferred stock offering costs .............................................................................. 5,000
Organization costs ......................................................................................... 33,600
Other assets ............................................................................................... 5,670
--------
Total assets ........................................................................................ $102,785
========
LIABILITIES AND ORGANIZERS' DEFICIT
LIABILITIES
Line of credit .......................................................................................... $155,000
Interest payable ........................................................................................ 800
Accrued professional expenses ........................................................................... 32,800
--------
188,600
COMMITMENTS AND CONTINGENCIES - Notes 2 and 3
ORGANIZERS' DEFICIT
Preferred stock, 10,000,000 shares authorized, no shares issued ......................................... -
Common stock, no par value, 20,000,000 shares
authorized; no shares issued .......................................................................... -
Retained deficit accumulated during the development stage ............................................... (85,815)
--------
Total liabilities and organizers' deficit ........................................................... $102,785
========
</TABLE>
The accompanying notes are an integral part of this financial statement.
2
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CORNERSTONE BANCORP
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS AND RETAINED DEFICIT
For the period from January 11, 1999 (date of inception)
to June 30, 1999
EXPENSES
Salaries ................................................... $ 44,319
Filing fees ................................................ 17,224
Rent ....................................................... 4,000
Telephone and supplies ..................................... 7,748
Advertising ................................................ 5,215
Interest ................................................... 2,660
Consulting ................................................. 4,350
Other ...................................................... 299
--------
Loss before provision for income taxes ................. (85,815)
PROVISION FOR INCOME TAXES .................................... -
Net loss ............................................... (85,815)
RETAINED DEFICIT AT JANUARY 11, 1999 (inception) .............. -
--------
RETAINED DEFICIT AT JUNE 30, 1999 ............................ $(85,815)
========
The accompanying notes are an integral part of this financial statement.
3
<PAGE>
CORNERSTONE BANCORP
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
For the period from January 11,1999 (date of inception)
to June 30, 1999
NET CASH USED FOR PRE-OPERATING ACTIVITIES
Net loss ................................................... $(85,815)
Deferred stock offering costs .............................. (5,000)
Interest payable ........................................... 800
Accrued liabilities ........................................ 32,800
Organization costs ......................................... (33,600)
Other assets ............................................... (5,670)
--------
Net cash used for pre-operating activities ........... (95,685)
INVESTING ACTIVITIES
Purchase of real estate option ............................. (15,000)
Deposit on lease agreement ................................. (14,446)
Purchase of equipment ...................................... (10,538)
--------
Net cash used for investing activities .............. (39,984)
FINANCING ACTIVITIES
Proceeds from borrowings on line of credit ................. 155,000
--------
Net cash from financing activities ................... 155,000
Net increase in cash ................................. 20,114
CASH AND CASH EQUIVALENTS, JANUARY 11, 1999
(date of inception) ........................................ -
CASH AND CASH EQUIVALENTS, END OF PERIOD ...................... $ 18,531
========
The accompanying notes are an integral part of this financial statement.
4
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CORNERSTONE BANCORP
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310 (b) of
Regulation S-B of the Securities and Exchange Commission. Accordingly they do
not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. However, in the opinion
of management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included.
5
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD LOOKING STATEMENTS
Statements included in the Plan of Operation which are not historical
in nature are intended to be, and are hereby identified as "forward looking
statements" for purposes of the safe harbor provided by Section 21E of the
Securities Exchange Act of 1934, as amended. The Company cautions readers that
forward looking statements, including without limitation, those relating to the
Company's response to the Year 2000 problem, future business prospects,
revenues, working capital, liquidity, capital needs, interest costs, and income,
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those indicated in the forward looking statements, due
to several important factors herein identified, among others, and other risks
and factors identified from time to time in the Company's reports filed with the
Securities and Exchange Commission.
PLAN OF OPERATION OF CORNERSTONE BANCORP AND ORGANIZATION OF CORNERSTONE
NATIONAL BANK
Organization and Plan of Operation of Cornerstone Bancorp
Cornerstone Bancorp was incorporated under the laws of South Carolina
in January, 1999. Cornerstone Bancorp was organized for the purpose of becoming
the holding company for Cornerstone National Bank. Cornerstone Bancorp had
received subscriptions for 800,000 shares of its Common Stock as of August 20,
1999. The subscriptions are being held in escrow pending final regulatory
approval to open Cornerstone National Bank. Final regulatory approval is
expected about September 15, 1999.
For the foreseeable future, Cornerstone Bancorp expects that its
primary business activity will be ownership and operation of Cornerstone
National Bank. At some point in the future, if the directors of Cornerstone
Bancorp determine that it is appropriate to do so and any necessary regulatory
approvals can be obtained, Cornerstone Bancorp may engage in other activities
permitted for bank holding companies and may organize or acquire additional
banks, though there can be no assurances that it will do so.
Organization of Cornerstone National Bank
On February 1, 1999, the Organizers of Cornerstone National Bank, who
are also the initial directors of Cornerstone Bancorp, filed an application to
obtain a national bank charter with the Comptroller of the Currency. The
Comptroller of the Currency has granted preliminary approval to the application.
Cornerstone National Bank will not be permitted to receive deposits, make loans,
or otherwise engage in banking activities unless and until it receives a
certificate from Comptroller of the Currency to the effect that it has complied
with all provisions of law required to entitle it to commence banking
operations, including securing insurance of its deposits from the FDIC. Prior to
receiving such a certificate, Cornerstone National Bank must establish capital
in the amount of $6,000,000, and must satisfy any administrative conditions
imposed by the Comptroller of the Currency. The Comptroller of the Currency has
the authority to alter, suspend, or rescind the approval of Cornerstone National
Bank's application at any time if the Comptroller of the Currency deems any
development warrants such action.
The Organizers have submitted an application to the FDIC for the
insurance of Cornerstone National Bank's deposit accounts. In evaluating
applications for insurance, the FDIC considers several factors, including the
adequacy of the applicant's capital structure, the general character of its
management, its future earnings prospects, the risk to federal insurance funds,
and the convenience and needs of the community to be served by the proposed
bank. In addition, prior to approving an application, the FDIC must be satisfied
that, among other things, the projected ratio of equity capital plus reserves to
assets is at least 8% at the end of the third year of Cornerstone National
Bank's operations and profitable operations are projected for the third year of
operations.
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Although the Organizers are taking the actions they believe are
necessary to obtain a certificate to operate a banking business from the
Comptroller of the Currency and deposit insurance from the FDIC, there can be no
assurance that the Comptroller of the Currency will grant a certificate to
commence business or that Cornerstone National Bank will obtain FDIC insurance.
Management Philosophy and Policy
Cornerstone National Bank will be the first start-up bank in the
Easley area in over 13 years. The Organizers believe that, with the increased
demand for banking services arising from steady growth in population, personal
income, and employment, the banking market will continue to grow in the Easley
area. It is their opinion that there is a need for an additional locally owned
and managed bank to serve the needs of the community, including individuals and
small and medium-sized business enterprises. The Organizers intend for
Cornerstone National Bank to concentrate on this hometown market with a
professional staff that is sensitive to local needs.
The Organizers of Cornerstone National Bank are dedicated to providing
personalized banking to the citizens of the Easley area. Based on their
knowledge of the area as long-time residents and business people, the Organizers
believe that a bank owned and managed by people living and working in the local
area can best serve the community for the following reasons:
Decisions regarding credit and services of a bank can best be made at
a local level.
Funds made available from local deposits should be re-invested in the
depositors' community.
Stability and continuity of management within a banking institution
without frequent changes are important to its customers.
The wave of bank mergers and consolidations has resulted in most banks
in the Easley market area being controlled by large out-of-state institutions. A
primary objective of the Organizers of Cornerstone National Bank is to provide
citizens of Easley with more opportunity to have their banking needs met
locally. The Organizers are involved extensively in business in the Easley
service area and intend to make meeting the credit needs of this area a first
priority. The Organizers believe that a large number of bank customers prefer a
local bank, and that this preference should result in the successful and
profitable operation of Cornerstone National Bank, though no assurances can be
given that this will be the case.
Cornerstone National Bank intends to offer a wide range of banking
services including checking and savings accounts; commercial, installment, and
personal loans; and other associated services. While trust services will not be
offered immediately, the Organizers would expect Cornerstone National Bank to
consider offering such services when a need for offering these services is
indicated and when the appropriate staff can be developed and regulatory
approvals obtained. The goals of the new Bank will be to provide banking
services to satisfy the needs of its customers, while investing its funds in
accordance with sound banking practices and earning the maximum profit for
shareholders.
Cornerstone National Bank intends to provide personalized banking
services, with emphasis on knowledge of the individual financial needs and
objectives of its customers and an appropriate array of services to meet those
needs and objectives, coupled with timely response. Cornerstone National Bank
will seek to promote continuous long-term relationships between officers and
customers by minimizing transfers of account officers to different customers,
departments or locations. Cornerstone National Bank will also seek to limit the
number of accounts served by each of its officers to a level that will permit
personal attention to each customer and full development of each customer's
business relationship with Cornerstone National Bank. Because the management of
Cornerstone National Bank will be located in Easley, all credit and related
decisions will be made locally, which is expected to facilitate prompt response.
7
<PAGE>
The Organizers anticipate that Cornerstone National Bank's initial
capitalization will enable it to commence operations as a significant
competitor. With an initial capitalization of approximately $6,000,000,
Cornerstone National Bank will have a legal lending limit of approximately
$900,000 for loans to a single customer. The Organizers anticipate that
Cornerstone National Bank will establish correspondent relationships with The
Bankers Bank, and other banks to participate loans when loan amounts exceed
Cornerstone National Bank's legal lending limits or internal lending policies.
The Organizers believe that Cornerstone National Bank's initial capitalization
should support substantial growth in deposits and loans, and will be sufficient
to meet the capital requirements of Cornerstone National Bank for at least its
first three years of operations.
Competition
South Carolina law permits statewide branching by banks and savings
and loan associations. Consequently, many financial institutions have branches
located in several communities. Currently, 8 commercial banks and 2 savings
institutions operate branches in Pickens County. Approximately $831 million in
deposits are maintained in these branches. Six of the institutions have branches
in Easley with an aggregate of $347,060,000 in deposits at June 30, 1998.
The principal areas and methods of competition in the banking industry
are the services offered, pricing of those services, the convenience and
availability of the services, and the degree of expertise and personal manner
with which those services are offered. The Organizers believe that Cornerstone
National Bank will be able to compete effectively in those areas, but no
assurance can be given that it will be able to do so.
Cornerstone National Bank will encounter strong competition from most
of the financial institutions in its extended market area. In the conduct of
certain areas of its business, Cornerstone National Bank will also compete with
credit unions, insurance companies, money market mutual funds and other
financial institutions, some of which are not subject to the same degree of
regulation and restrictions as Cornerstone National Bank will be. Most of these
competitors have substantially greater resources and lending abilities than
Cornerstone National Bank will have and offer certain services, such as
international banking, investment banking, and trust services, that Cornerstone
National Bank will not provide initially.
PROPOSED SERVICES OF CORNERSTONE NATIONAL BANK
Deposits
Cornerstone National Bank intends to offer the full range of deposit
services typically available in most banks and savings and loan associations,
including checking accounts, NOW accounts, and savings 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 will be
tailored to the principal market area at rates competitive with those offered in
the area. In addition, retirement accounts such as IRA's (Individual Retirement
Accounts) will be made available. All deposit accounts will be insured by the
FDIC up to the maximum amount permitted by law. Cornerstone National Bank
intends to solicit these accounts from individuals, businesses, associations and
organizations, and government authorities. Although Cornerstone National Bank
intends to be competitive in its efforts to attract deposit accounts, it does
not plan to aggressively seek jumbo certificates of deposit (certificates in
amounts greater than $100,000) and does not intend to accept brokered deposit
accounts.
8
<PAGE>
Lending Activities
Cornerstone National Bank intends to emphasize a range of lending
services, including real estate, commercial and consumer loans. Consumer loans
will include both installment and term loans, and will include loans for
automobiles, household goods, education, boats and general personal expenses.
To address the risks inherent in making loans, management will
maintain an allowance for loan losses based on, among other things, an
evaluation of Cornerstone National Bank's loan loss experience, management's
experience at other financial institutions in the market area, the amount of
past due and nonperforming loans, current and anticipated economic changes and
the values of certain loan collateral. Based upon such factors, management will
make various assumptions and judgments about the ultimate collectibility of the
loan portfolio and provide an allowance for potential loan losses based upon a
percentage of the outstanding balances and specific loans. However, because
there are certain risks that cannot be precisely quantified, management's
judgment of the allowance is necessarily approximate and imprecise. The adequacy
and methodology of the allowance for loan losses will be subject to regulatory
examination and compared to a peer group of financial institutions identified by
the regulatory agencies.
Real Estate Loans
The Organizers expect that one of the primary components of
Cornerstone National Bank's loan portfolio will be loans secured by first or
second mortgages on residential and commercial real estate. These loans will
generally consist of commercial real estate loans, construction and development
loans and residential real estate loans (including home equity and second
mortgage loans). Interest rates may be fixed or adjustable and Cornerstone
National Bank will generally charge an origination fee. Cornerstone National
Bank will seek to manage credit risk in the commercial real estate portfolio by
emphasizing loans on owner-occupied office and retail buildings where the
loan-to-value ratio, established by independent appraisals, does not exceed 80%.
The Organizers presently anticipate that the loan-to-value ratio for first and
second mortgage loans and for construction loans generally will not exceed 80%.
In addition, Cornerstone National Bank may require personal guarantees of the
principal owners of the property. Cornerstone National Bank may also originate
mortgage loans for sale into the secondary market, earning a fee, but avoiding
the interest rate risk of holding long-term, fixed-rate loans.
The principal economic risk associated with all loans, including real
estate loans, is the creditworthiness of Cornerstone National Bank's borrowers.
The ability of a borrower to repay a real estate loan will depend upon a number
of economic factors, including employment levels and fluctuations in the value
of real estate. In the case of a real estate construction loan, there is
generally no income from the underlying property during the construction period,
and the developer's personal obligations under the loan are typically limited.
Each of these factors increases the risk of nonpayment by the borrower. In the
case of a real estate purchase loan, the borrower may be unable to repay the
loan at the end of the loan term and may thus be forced to refinance the loan at
a higher interest rate, or, in certain cases, the borrower may default as a
result of its inability to refinance the loan. In either case, the risk of
nonpayment by the borrower is increased.
Cornerstone National Bank will also face additional credit risks to
the extent that it engages in making adjustable rate mortgage loans ("ARMs"). In
the case of an ARM, as interest rates increase, the borrower's required payments
increase, thus increasing the potential for default. The marketability of all
real estate loans, including ARMs, is also generally affected by the prevailing
level of interest rates.
9
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Commercial Loans
Cornerstone National Bank will make loans for commercial purposes in
various lines of business. The commercial loans will include both secured and
unsecured loans for working capital (including inventory and receivables), loans
for business expansion (including acquisition of real estate and improvements),
Small Business Administration ("SBA") loans for new businesses (as well as other
governmentally guaranteed business loans), and loans for purchases of equipment
and machinery. The Organizers anticipate that equipment loans will typically be
made for a term of five years or less at either fixed or variable rates, with
the loan fully amortized over the term and secured by the financed equipment.
Working capital loans will typically have terms not exceeding one year and will
usually be secured by accounts receivable, inventory or personal guarantees of
the principals of the business. Commercial loans will vary greatly depending
upon the circumstances and loan terms will be structured on a case-by-case basis
to better serve customer needs.
The risks associated with commercial loans vary with many economic
factors, including the economy in the Easley/Pickens County area. The
well-established banks in the Easley/Pickens County area will make
proportionately more loans to medium- to large-sized businesses than Cornerstone
National Bank. Many of Cornerstone National Bank's anticipated commercial loans
will likely be made to small- to medium-sized businesses, which are typically
smaller, have shorter operating histories, and less sophisticated record keeping
systems than larger entities. As a result, these smaller entities may be less
able to withstand adverse competitive, economic and financial conditions than
larger borrowers. In addition, because payments on loans secured by commercial
property generally depend to a large degree on the results of operations and
management of the properties, repayment of such loans may be subject, to a
greater extent than other loans, to adverse conditions in the real estate market
or the economy.
Consumer Loans
Cornerstone National Bank will make a variety of loans to individuals
for personal and household purposes, including secured and unsecured installment
and term loans, home equity loans and lines of credit and unsecured revolving
lines of credit such as credit cards. The secured installment and term loans to
consumers will generally consist of loans to purchase automobiles, boats,
recreational vehicles, mobile homes and household furnishings, with the
collateral for each loan being the purchased property. The underwriting criteria
for home equity loans and lines of credit will generally be the same as applied
by Cornerstone National Bank when making a first mortgage loan, as described
above, and home equity lines of credit will typically expire 15 years or less
after origination, unless renewed or extended.
Consumer loans generally involve more credit risks than other loans
because of the type and nature of the underlying collateral or because of the
absence of any collateral. Consumer loan repayments are dependent on the
borrower's continuing financial stability and are likely to be adversely
affected by job loss, divorce and illness. Furthermore, the application of
various federal and state laws, including federal and state bankruptcy and
insolvency laws, may limit the amount which can be recovered on such loans in
the case of default. In most cases, any repossessed collateral will not provide
an adequate source of repayment of the outstanding loan balance. Although the
underwriting process for consumer loans includes a comparison of the value of
the security, if any, to the proposed loan amount, Cornerstone National Bank
cannot predict the extent to which the borrower's ability to pay, and the value
of the security, will be affected by prevailing economic and other conditions.
Loan Approval and Review
Cornerstone National Bank's loan approval policies will provide for
various levels of officer lending authority. When the amount of aggregate loans
to a single borrower exceeds an individual officer's lending authority, the loan
request will be considered and approved by an officer with a higher lending
limit or by the Loan Committee of the Board of Directors. The Loan Committee
will set the lending limits for Cornerstone National Bank's loan officers, and
any loan in excess of such lending limits must be approved by the Loan
Committee. Cornerstone National Bank will not make any loans to any director,
officer of employee of Cornerstone National Bank unless the loan is approved by
Cornerstone National Bank's Board of Directors, or a committee thereof, and is
made on terms not more favorable to such person than would be available to a
person not affiliated with Cornerstone National Bank.
10
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Other Services
Cornerstone National Bank may participate in a regional network of
automated teller machines that may be used by Bank customers in major cities
throughout the Southeast. Cornerstone National Bank plans to offer both VISA and
MasterCard brands of bank cards together with related lines of credit. The lines
of credit may be used for overdraft protection as well as pre-authorized credit
for personal purchases and expenses.
Cornerstone National Bank will provide travelers checks, direct
deposit of payroll and social security checks, and automatic drafts for various
accounts, but will not provide international or trust banking services in the
near future.
Asset and Liability Management
The primary earning assets of Cornerstone National Bank will consist
of the loan portfolio and investment account. Efforts will be made generally to
match maturities and rates of loans and the investment portfolio with those of
deposits, although exact matching will not be possible. The majority of
Cornerstone National Bank's securities investments will be in marketable
obligations of the United States government, federal agencies and state and
municipal governments, generally with varied maturities.
Long-term loans will be priced primarily to be interest-rate sensitive
with only a small portion of Cornerstone National Bank's portfolio of long-term
loans at fixed rates. In the near term, such fixed-rate loans will not have
maturities longer than fifteen years, except in exceptional cases.
Deposit accounts will represent the majority of the liabilities of
Cornerstone National Bank. These will include transaction accounts, time
deposits and certificates of deposit. The maturities of the majority of
interest-sensitive accounts will be 12 months or less.
Premises
Cornerstone National Bank and Cornerstone Bancorp presently operate
out of a leased office located at 4821 Calhoun Memorial Highway, Easley, South
Carolina. Cornerstone National Bank plans to purchase a 1.82 acre parcel of land
located at 1670 East Main Street, Easley, South Carolina on which to build a
permanent banking facility.
At its opening and during construction of the building, Cornerstone
National Bank will operate out of a temporary modular bank office facility to be
located on the same lot as the permanent facility. The temporary building will
be leased from an unrelated third party. At September 1, 1999, the temporary
structure was substantially completed and was occupied by the staff of the bank.
Employees
The president and chief executive officer of Cornerstone National Bank
will be J. Rodger Anthony. Mr. Anthony, age 53, has over 28 years of experience
in the banking industry. Mr. Anthony's most recent banking experience was as
Chief Executive Officer of First National Bank of Pickens County.
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The chief financial officer of Cornerstone National Bank will be
Nicholas Clark. Mr. Clark, age 31, was employed by First National Bank of
Pickens County from 1993 to 1998 and served as that bank's commercial credit
analyst, cashier and chief financial officer.
Other employees will be hired in phases beginning prior to the opening
of Cornerstone National Bank. It is anticipated that Cornerstone National Bank
will make available to its employees competitive benefits, which should enable
Cornerstone National Bank to attract and retain quality employees.
Pre-Opening Activities
As of September 1, 1999 Cornerstone National Bank had completed
substantially all of its pre-opening activities and had requested regulatory
permission to open on or about September 15, 1999.
Lack of Profitability in the Early Period of Operation
It has been the experience in the banking industry for new banks to
operate at a loss in the first several years of operation. Every reasonable
effort will be made to reach a level of profitability as quickly as possible,
but there can be no assurances that Cornerstone National Bank will be profitable
during its first 3 years of operation or at any time thereafter.
The Organizers of Cornerstone National Bank, who are mostly local
residents of Cornerstone National Bank's market area, believe that the existing
and future bank market in Easley and Pickens County presents an excellent
opportunity for a new locally owned bank. Their belief is based upon their
review of the economic outlook for the area and the size, nature, and growth
potential of the existing market for banking services and the experience of
Messrs. Anthony and Clark with First National Bank of Pickens County.
Economy
Cornerstone National Bank's primary market area will be the Town of Easley,
South Carolina and the immediately surrounding areas of Pickens County. Pickens
County and four neighboring counties make up the
Greenville-Spartanburg-Anderson, South Carolina Metropolitan Statistical Area
(the "Greenville MSA"). The population of the Greenville MSA is over 900,000
with approximately 470,000 employed in 1997. Over 90% of those employed were in
non-agricultural employment with over 50% of those employed in manufacturing and
trades, in roughly equal numbers.
The banking industry plays an important role in the economy of an
area. There is a close correlation between personal income and deposits, loans,
and other banking services. Median family income for Pickens County grew by more
than 25% from 1989 to 1997. The anticipated increase in personal income, because
of increasing income levels and population growth in Easley and Pickens County
over the next decade, points to a greater demand for banking services in the
future.
12
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Year 2000 Considerations
The computers used by financial institutions, their customers and
suppliers have historically been programmed in a way that causes them to operate
as though all dates are in the 1900's. Such computers may fail to operate
properly when the year changes to 2000. Any failures that do occur may also
trigger other problems or failures. To the extent that such problems are not
corrected before or immediately after they occur, they could cause disruptions
to the business of Cornerstone National Bank. There has also been widespread
publicity about the computer problem and there is a likelihood that many people,
including bank customers, will alter their normal routines of behavior to reduce
the risk of being inconvenienced by computer failures. There is a risk that
banks will experience abnormally high withdrawals of cash by customers as 1999
draws to an end.
Cornerstone National Bank has acquired new computer systems and data
processing services prior to the bank's opening for business. Cornerstone
National Bank has received assurances from the suppliers of its computers,
software and computer services that their hardware and software is year 2000
compliant. In addition, Cornerstone National Bank is obtaining data processing
services from a service provider that is subject to the regulatory oversight of
the federal banking regulators and has had its compliance program rated
satisfactory. As the bank acquires its systems and services it tests them to
verify that they are operating properly and are year 2000 compliant.
The year 2000 problem was well known in the banking industry before
the Organizers began organization of Cornerstone National Bank. Because the bank
will begin with new equipment and service arrangements which the bank believes
to be year 2000 compliant, the bank does not expect to incur any substantial
expense in dealing with the hardware and software aspects of the problem.
Lending to customers who experience a year 2000 problem may pose risks
of delayed payment or default which are greater than normal for the type loan
involved. Cornerstone National Bank expects to manage this risk as part of its
normal credit analysis process by making appropriate inquiries of customers as
to their exposure to the problem and their steps to avoid it.
If Cornerstone National Bank opens for business when planned, it will
only have been operating for about three months on January 1, 2000. The
Organizers believe that it is unlikely that the bank's business will have grown
in size or complexity to a point at which the year 2000 problem will pose a
threat much greater than that of a substantial inconvenience by January 1, 2000.
Nevertheless, the Organizers and management of Cornerstone National Bank plan to
monitor the situation closely, to develop contingency plans and to follow the
guidance of the federal banking regulators to avoid as much of the problem as
possible.
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PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
a) Exhibits
Exhibit No.
From Item 601 of
Regulation S-B Description
-------------- -----------
27 Financial Data Schedule
b) Reports on form 8-K. None.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Cornerstone Bancorp
(Registrant)
J. Rodger Anthony
By: -------------------------------------------- Date: September 7, 1999
President and Chief Executive Officer
Nicholas S. Clark
By: -------------------------------------------- Date: September 7, 1999
Vice President and Chief
Financial Officer
(Principal financial officer)
15
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