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 SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT FOR
THE TRANSITION PERIOD FROM _______________ TO _________________.
Commission File Number 333-79543
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
800,000 Shares Outstanding on November 1, 1999
Transitional Small Business Issuer Disclosure Format: [ ] Yes [ X ] No
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements
CORNERSTONE BANCORP
BALANCE SHEET
SEPTEMBER 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CASH AND DUE FROM BANKS ................................................................................... $ 2,315,307
FEDERAL FUNDS SOLD ........................................................................................ 9,660,000
INVESTMENT SECURITIES ..................................................................................... 1,428,351
LOANS ..................................................................................................... 485,073
PROPERTY AND EQUIPMENT .................................................................................... 761,313
OTHER ASSETS .............................................................................................. 61,229
------------
Total assets ....................................................................................... $ 14,711,273
============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits
Noninterest bearing deposits ......................................................................... $ 2,529,852
Interest bearing deposits ............................................................................ 4,279,504
------------
Total deposits ..................................................................................... 6,809,356
Federal Funds purchased ................................................................................ 126,368
Other liabilities ...................................................................................... 4,359
------------
Total liabilities .................................................................................. 6,940,083
------------
SHAREHOLDERS' EQUITY
Preferred stock, 10,000,000 shares authorized, no shares issued ........................................ -
Common stock, no par value, 20,000,000 shares authorized,
800,000 shares issued ................................................................................ 7,985,000
Retained deficit ....................................................................................... (212,089)
Accumulated other comprehensive loss ................................................................... (1,721)
------------
Total shareholders' equity ......................................................................... 7,771,190
------------
Total liabilities and shareholders' equity ......................................................... $ 14,711,273
============
</TABLE>
See Notes to Unaudited Financial Statements which are an integral part of
this financial statement.
<PAGE>
CORNERSTONE BANCORP
STATEMENT OF OPERATIONS
For the period from January 11, 1999 (inception)
to September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
INTEREST INCOME
<S> <C>
Loans and fees on loans ............................................................................... $ 1,015
Investment securities ................................................................................. 1,343
Federal funds sold .................................................................................... 19,446
Escrow account ........................................................................................ 34,612
---------
Total interest income ............................................................................. 56,416
INTEREST EXPENSE
Deposits and borrowings ............................................................................... 5,057
---------
Net interest income ............................................................................... 51,359
PROVISION FOR POSSIBLE LOAN LOSSES ....................................................................... -
---------
Net interest income after provision for possible loan losses ...................................... 51,359
---------
NONINTEREST INCOME
Service fees on deposit accounts ...................................................................... 52
---------
Total noninterest income .......................................................................... 52
---------
NONINTEREST EXPENSES
Salaries and employee benefits ........................................................................ 21,119
Occupancy ............................................................................................. 6,036
Organizational and pre-opening ........................................................................ 282,326
Other operating ....................................................................................... 7,041
---------
Total noninterest expenses ........................................................................ 316,522
---------
Loss before income taxes .......................................................................... (265,111)
INCOME TAX BENEFIT ....................................................................................... 53,022
---------
Net loss .......................................................................................... $(212,089)
=========
NET LOSS PER COMMON SHARE ................................................................................ $ (.27)
=========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING ............................................................................. 800,000
=========
</TABLE>
See Notes to Unaudited Financial Statements which are an integral part of
this financial statement.
<PAGE>
CORNERSTONE BANCORP
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
other Total
Common stock Retained comprehensive shareholders'
Shares Amount deficit income equity
------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 11, 1999 (inception) ...................... - $ - $ - $ - $ -
Net loss ................................................ - - (212,089) - (212,089)
Other comprehensive income, net ......................... - - - (1,721) (1,721)
-----------
Comprehensive income .................................... (213,810)
Sale of stock (net of offering costs of $15,000) ........ 800,000 7,985,000 - - 7,985,000
------- ---------- --------- ------- -----------
BALANCE, SEPTEMBER 30, 1999 ................................ 800,000 $7,985,000 $(212,089) $(1,721) $ 7,771,190
======= ========== ========= ======= ===========
</TABLE>
See Notes to Unaudited Financial Statements which are an integral part of
this financial statement.
<PAGE>
CORNERSTONE BANCORP
STATEMENT OF CASH FLOWS
For the period from January 11, 1999 (inception)
to September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
OPERATING ACTIVITIES
<S> <C>
Net loss ............................................................................................... $ (212,089)
Adjustments to reconcile net loss to net cash used for operating activities
Deferred income taxes ................................................................................ (53,022)
Increase in other assets ............................................................................. (8,206)
Increase in other liabilities ........................................................................ 4,359
------------
Net cash used for operating activities ........................................................... (268,958)
------------
INVESTING ACTIVITIES
Purchase of investment securities ...................................................................... (1,430,073)
Increase in federal funds sold ......................................................................... (9,660,000)
Increase in loans, net ................................................................................. (485,073)
Purchase of property and equipment ..................................................................... (761,313)
------------
Net cash used for investing activities .................................................................... (12,336,459)
------------
FINANCING ACTIVITIES
Increase in federal funds purchased .................................................................... 126,368
Sale of stock, net ..................................................................................... 7,985,000
Net increase in deposits ............................................................................... 6,809,356
------------
Net cash provided by financing activities ........................................................ 14,920,724
------------
Net increase in cash and cash equivalents ........................................................ 2,315,307
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ............................................................ -
------------
CASH AND CASH EQUIVALENTS, END OF PERIOD .................................................................. $ 2,315,307
============
CASH PAID FOR
Interest ............................................................................................... $ 5,057
============
</TABLE>
See Notes to Unaudited Financial Statements which are an integral part of
this financial statement.
4
<PAGE>
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 acquired
all of the capital stock of Cornerstone National Bank on 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
application was approved as was the organizers application to FDIC for deposit
insurance. Cornerstone National Bank was opened for business in Easley, South
Carolina, on September 15, 1999.
6
<PAGE>
Management Philosophy and Policy
Cornerstone National Bank is 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 offers 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 Bank are 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
seeks 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 also seeks 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 is located in Easley, all credit and related decisions
are made locally, which facilitates prompt response.
7
<PAGE>
With an initial capitalization of approximately $6,000,000,
Cornerstone National Bank has a legal lending limit of approximately $900,000
for loans to a single customer. Cornerstone National Bank established
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 encounters 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 also competes 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. Most of these
competitors have substantially greater resources and lending abilities than
Cornerstone National Bank and offer certain services, such as international
banking, investment banking, and trust services, that Cornerstone National Bank
does not provide.
SERVICES OF CORNERSTONE NATIONAL BANK
Deposits
Cornerstone National Bank offers 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 are 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) are
made available. All deposit accounts are insured by the FDIC up to the maximum
amount permitted by law. Cornerstone National Bank solicits 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 emphasizes a range of lending services,
including real estate, commercial and consumer loans. Consumer loans include
both installment and term loans, and 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
<PAGE>
Commercial Loans
Cornerstone National Bank makes loans for commercial purposes in
various lines of business. The commercial loans 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 makes 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 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
sets 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
<PAGE>
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 provides 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 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.
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.
11
<PAGE>
Year 2000 Readiness Disclosure
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
began 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.
Cornerstone National Bank 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, management of Cornerstone
National Bank plans 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.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds.
Cornerstone Bancorp completed the offering and the sale of 800,000
shares of its common stock on September 15, 1999. The offering and sale were
registered under the Securities Act of 1933 with a Registration Statement, No.
333-79543, which was declared effective on July 19, 1999. All 800,000 shares
were sold at the offering price of $10.00 per share for an aggregate price of
$8,000,000.00. Total expenses of the issuance and distribution of the securities
were $15,000. No underwriting, selling or finders fees or commissions were paid
and all expenses were paid to unaffiliated third parties. Net proceeds of the
offering to Cornerstone Bancorp totalled $7,985,000. $6,000,000 of the net
proceeds were used to purchase all of the capital stock of Cornerstone National
Bank. Of that $6,000,000, the Bank used $471,527.50 to acquire real estate from
a director. The real estate is the site of the Bank's office.
ITEM 6. Exhibits and Reports on Form 8-K.
a) Exhibits
Exhibit No.
From Item 601 of
Regulation S-B Description
-------------- -----------
3.1* Articles of Incorporation
3.2* By-laws
27 Financial Data Schedule
b) Reports on form 8-K. None.
___________________
*Incorporated by reference to Registration Statement on Form SB-2, No.
333-79543.
13
<PAGE>
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: November 12, 1999
President and Chief Executive Officer
Nicholas S. Clark
By: -------------------------------------------- Date: November 12, 1999
Vice President and Chief
Financial Officer
(Principal financial officer)
15
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-11-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,315
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 9,660
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,428
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 761
<ALLOWANCE> 0
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0
0
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</TABLE>
