U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE) 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, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
--- THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition Period from _________to_________
Commission File Number 000-26995
HCSB FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
South Carolina 57-1079444
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
5201 Broad Street
Loris, SC 29569
(Address of principal executive
offices, including zip code)
(843) 756-6333
(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 period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the date of this filing.
1,002,770 shares of common stock, $0.01 par value
PAGE 1 of 18
EXHIBIT INDEX ON PAGE 2
<PAGE>
HCSB FINANCIAL CORPORATION
Index
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
----------------------------- --------
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -- June 30, 2000 and December 31, 1999.....................................3
Condensed Consolidated Statements of Income --
Six months ended June 30, 2000 and 1999 and three months ended June 30, 2000 and 1999..........................4
Condensed Consolidated Statements of Shareholders' Equity and Comprehensive Income --
Six months ended June 30, 2000.................................................................................5
Condensed Consolidated Statements of Cash Flows -- Six months ended June 30, 2000 and 1999.......................6
Notes to Condensed Consolidated Financial Statements.............................................................7-8
Review by Independent Certified Public Accountants........................................................................9
Report on Review by Independent Certified Public Accountants.............................................................10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................11-15
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders..............................................................16
Item 6. Exhibits and Reports on Form 8-K.................................................................................16
(a) Exhibits....................................................................................................16
(b) Reports on Form 8-K.........................................................................................16
</TABLE>
2
<PAGE>
HCSB FINANCIAL CORPORATION
Condensed Consolidated Balance Sheets
(Dollars in thousands) June 30, December 31,
2000 1999
----- ----
(Unaudited)
Assets Cash and cash equivalents:
Cash and due from banks $ 3,671 $ 5,708
Federal funds sold and repurchase agreements 3,580 2,190
--------- ---------
7,251 7,898
--------- ---------
Securities available-for-sale 21,725 23,892
Loans receivable 89,361 75,839
Less unearned income (23) (46)
Less allowance for loan losses (1,023) (922)
--------- ---------
Loans, net 88,315 74,871
--------- ---------
Premises and equipment, net 5,034 4,417
Accrued interest receivable 1,622 1,204
Other assets 2,377 2,044
--------- ---------
Total assets $ 126,324 $ 114,326
========= =========
Liabilities and Shareholders' Equity
Liabilities
Deposits:
Noninterest-bearing demand deposits $ 8,526 $ 7,998
Interest-bearing demand deposits 9,890 8,238
Money market 16,412 16,752
Savings 2,407 2,080
Time deposits 65,003 59,761
--------- ---------
102,238 94,829
--------- ---------
Advances from the Federal Home Loan Bank 14,600 10,000
Accrued interest payable 320 403
Other liabilities 472 753
--------- ---------
Total liabilities 117,630 105,985
--------- ---------
Shareholders' Equity
Common stock, $.01 par value, 10,000,000 shares
authorized, 1,002,770 shares issued and outstanding 10 5
Capital surplus 7,878 7,878
Retained earnings 1,489 1,037
Accumulated other comprehensive income (loss) (683) (579)
--------- ---------
Total shareholders' equity 8,694 8,341
--------- ---------
Total liabilities and shareholders' equity $ 126,324 $ 114,326
========= =========
See notes to condensed consolidated financial statements.
3
<PAGE>
HCSB FINANCIAL CORPORATION
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands) Six Months Ended June 30, Three Months Ended June 30,
------------------------- ---------------------------
2000 1999 2000 1999
------ ------ ------ ------
Interest income:
<S> <C> <C> <C> <C>
Loans, including fees $4,158 $2,959 $2,176 $1,561
Investment securities:
Taxable 638 562 316 309
Tax-exempt 90 71 41 44
Other interest income 45 68 8 35
------ ------ ------ ------
Total 4,931 3,660 2,541 1,949
------ ------ ------ ------
Interest expense:
Certificates of deposit $100M and over 504 237 246 85
Other deposits 2,037 1,364 1,088 789
Other interest expense 47 111 32 56
------ ------ ------ ------
Total 2,588 1,712 1,366 930
------ ------ ------ ------
Net interest income 2,343 1,948 1,175 1,019
Provision for loan losses 126 140 65 80
------ ------ ------ ------
Net interest income after
provision for loan losses 2,217 1,808 1,110 939
------ ------ ------ ------
Other operating income:
Service charges on deposit accounts 321 246 176 139
Credit life insurance commissions 59 71 26 38
Other operating income 90 65 64 41
------ ------ ------ ------
Total 470 382 266 218
------ ------ ------ ------
Other operating expenses:
Salaries and employee benefits 1,060 813 544 419
Net occupancy expense 133 85 68 42
Furniture and equipment expense 210 186 126 98
Loss on sale of securities 34 - 34 -
Loss on sale of fixed assets 21 - 21 -
Other operating expenses 513 437 227 231
------ ------ ------ ------
Total 1,971 1,521 1,020 790
------ ------ ------ ------
Income before income taxes 716 669 356 367
Income tax provision 259 236 133 131
------ ------ ------ ------
Net income $ 457 $ 433 $ 223 $ 236
====== ====== ====== ======
Basic earnings per share $ 0.46 $ 0.44 $ 0.22 $ 0.24
Diluted earnings per share $ 0.46 $ 0.44 $ 0.22 $ 0.24
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
HCSB FINANCIAL CORPORATION
Condensed Consolidated Statement of Shareholders' Equity and Comprehensive
Income for the six months ended June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Common Stock Other
(Dollars in thousands) --------------------- Capital Retained Comprehensive
Shares Amount Surplus Earnings Income Total
--------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 501,385 $ 5 $ 7,878 $ 1,037 $ (579) $ 8,341
Net income for the period 457 457
Other comprehensive income, (104) (104)
net of tax
----------
Comprehensive Income 353
Two for one stock split effected in
the form of a 100% stock dividend 501,385 5 (5)
--------- ---------- ---------- ---------- ---------- ----------
Balance, June 30, 2000 1,002,770 $ 10 $ 7,878 $ 1,489 $ (683) $ 8,694
========== ========== ========== ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
HCSB FINANCIAL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
(Dollars in thousands) 2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 457 $ 433
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 147 121
Provision for possible loan losses 126 140
Amortization less accretion on investments 5 13
Amortization of deferred loan costs 60 47
Loss (gain) on sale of securities available-for-sale 34 -
Loss (gain) on sale of premises and equipment 21 -
(Increase) decrease in interest receivable (418) (451)
Increase (decrease) in interest payable (83) 120
(Increase) decrease in other assets (43) 28
Increase (decrease) in other liabilities (280) 198
-------- --------
Net cash provided by operating activities 26 649
-------- --------
Cash flows from investing activities:
Net increase in loans to customers (13,630) (12,618)
Purchases of securities available-for-sale (100) (10,864)
Maturities of securities available-for-sale 603 4,899
Proceeds for sales of securities available-for-sale 1,461 -
Proceeds from disposal of premises and equipment 48 -
Purchases of premises and equipment (833) (334)
Purchase of Federal Home Loan Bank stock (230) (3)
-------- --------
Net cash used by investing activities (12,681) (18,920)
-------- --------
Cash flows from financing activities:
Net increase in deposits accounts 7,408 21,681
Increase (decrease) in short-term borrowings - (170)
Advances from Federal Home Loan Bank 4,600 -
Cash paid in lieu of fractional shares - (18)
-------- --------
Net cash provided by financing activities 12,008 21,493
-------- --------
Net increase (decrease) in cash and cash equivalents (647) 3,222
Cash and cash equivalents, beginning of period 7,898 3,073
-------- --------
Cash and cash equivalents, end of period $ 7,251 $ 6,295
======== ========
Cash paid during the period for:
Income taxes $ 445 $ 121
Interest $ 2,671 $ 1,592
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
HCSB FINANCIAL CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with the requirements for interim financial statements and,
accordingly, they are condensed and omit disclosures, which would substantially
duplicate those contained in the most recent annual report to shareholders. The
financial statements as of June 30, 2000 and for the interim periods ended June
30, 2000 and 1999 are unaudited and, in the opinion of management, include all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation. The financial information as of December 31, 1999 has been
derived from the audited financial statements as of that date. For further
information, refer to the financial statements and the notes included in HCSB
Financial Corporation's 1999 Annual Report.
Note 2 - Comprehensive Income
The following table sets forth the amounts of other comprehensive income
included in equity along with the related tax effect for the six months ended
June 30, 2000 and 1999 and for the three months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Pre-tax (Expense) Net-of-tax
Amount Benefit Amount
------ ------- ------
<S> <C> <C> <C>
(Dollars in thousands)
For the Six Months Ended June 30, 2000:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period $(130) $ 47 $ (83)
Plus: reclassification adjustment for gains (losses) realized in (34) 13 (21)
net income
Net unrealized gains (losses) on securities (164) 60 (104)
----- ----- -----
Other comprehensive income $(164) $ 60 $(104)
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Pre-tax (Expense) Net-of-tax
Amount Benefit Amount
------ ------- ------
<S> <C> <C> <C>
(Dollars in thousands)
For the Six Months Ended June 30, 1999:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period $(783) $ 289 $(494)
Plus: reclassification adjustment for gains (losses) realized in - - -
net income
Net unrealized gains (losses) on securities (783) 289 (494)
----- ----- -----
Other comprehensive income $(783) $ 289 $(494)
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Pre-tax (Expense) Net-of-tax
Amount Benefit Amount
------ ------- ------
<S> <C> <C> <C>
(Dollars in thousands)
For the Three Months Ended June 30, 2000:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period $ 116 $ (44) $ 72
Plus: reclassification adjustment for gains (losses) realized in (34) 13 (21)
net income
Net unrealized gains (losses) on securities 82 (31) 51
----- ----- -----
Other comprehensive income $ 82 $ (31) $ 51
===== ===== =====
</TABLE>
7
<PAGE>
HCSB FINANCIAL CORPORATION
Note 2 - Comprehensive Income - Continued
<TABLE>
<CAPTION>
Pre-tax (Expense) Net-of-tax
Amount Benefit Amount
------ ------- ------
<S> <C> <C> <C>
(Dollars in thousands)
For the Three Months Ended June 30, 1999:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period $(610) $ 225 $(385)
Plus: reclassification adjustment for gains (losses) realized in - - -
net income
----- ----- -----
Net unrealized gains (losses) on securities (610) 225 (385)
----- ----- -----
Other comprehensive income $(610) $ 225 $(385)
===== ===== =====
</TABLE>
Accumulated other comprehensive income consists solely of the unrealized gain on
securities available-for-sale, net of the deferred tax effects.
8
<PAGE>
Review by Independent Certified Public Accountants
Tourville, Simpson and Caskey, L.L.P., the Company's independent certified
public accountants, have made a limited review of the financial data as of June
30, 2000, and for the three and six month periods ended June 30, 2000 and 1999
presented in this document, in accordance with standards established by the
American Institute of Certified Public Accountants.
Their report furnished pursuant to Article 10 of Regulation S-X is included
herein.
9
<PAGE>
HCSB FINANCIAL CORPORATION
Report on Review by Independent Certified Public Accountants
The Board of Directors
HCSB Financial Corporation
Loris, South Carolina
We have reviewed the accompanying condensed consolidated balance sheet of HCSB
Financial Corporation and subsidiary (the Company) as of June 30, 2000, the
related condensed consolidated statements of income for the three and six month
periods ended June 30, 2000 and 1999, the related condensed consolidated
statement of changes in shareholders' equity and comprehensive income for the
six month period ended June 30, 2000, and the related condensed consolidated
statements of cash flows for the six month periods ended June 30, 2000 and 1999.
These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1999, and the
related consolidated statements of income, changes in shareholders' equity and
comprehensive income, and cash flows for the year then ended (not presented
herein); and, in our report dated February 25, 2000, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 1999, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
TOURVILLE, SIMPSON AND CASKEY, L.L.P.
Columbia, South Carolina
August 8, 2000
10
<PAGE>
HCSB FINANCIAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
The following is a discussion of the Company's financial condition as of June
30, 2000 compared to December 31, 1999 and the results of operations for the
three and six months ended June 30, 2000 compared to the three and six months
ended June 30, 1999. These comments should be read in conjunction with the
Company's condensed consolidated financial statements and accompanying footnotes
appearing in this report. This report contains "forward-looking statements"
relating to, without limitation, future economic performance, plans and
objectives of management for future operations, and projections of revenues and
other financial items that are based on the beliefs of the Company's management,
as well as assumptions made by and information currently available to the
Company's management. The words "expect," "estimate," "anticipate," and
"believe," as well as similar expressions, are intended to identify
forward-looking statements.
Results of Operations
Net Interest Income
For the six months ended June 30, 2000, net interest income increased $395,000,
or 20.28%, over the same period in 1999. Interest income from loans, including
fees, increased $1,199,000, or 40.52%, from the six months ended June 30, 1999
to the comparable period in 2000 as demand for loans in the Company's
marketplace continued to grow and the Company's new branches in Conway and North
Myrtle Beach continued to generate loan growth. Also contributing to the overall
increase in net interest income was an increase of $95,000 in income from
investment securities. Interest expense at June 30, 2000 was $2,588,000 compared
to $1,712,000 for the same period in 1999. The net interest margin realized on
earning assets was 4.38% for the six months ended June 30, 2000, as compared to
4.00% for the six months ended June 30, 1999. The interest rate spread was 4.09%
for the six months ended June 30, 2000, compared to 3.98% for the six months
ended June 30, 1999.
Net interest income increased from $1,019,000 for the quarter ending June 30,
1999 to $1,175,000 for the quarter ending June 30, 2000. This represents an
increase of $156,000, or 15.31%. Interest income from loans, including fees,
increased to $2,176,000 for the quarter ended June 30, 2000 from $1,561,000 for
the quarter ended June 30, 1999. Interest expense increase $436,000, or 46.88%,
for the three months ended June 30, 2000 compared to the three months ended June
30, 1999.
Provision and Allowance for Loan Losses
The provision for loan losses is the charge to operating earnings that
management feels is necessary to maintain the allowance for possible loan losses
at an adequate level. For the six months ended June 30, 2000, the provision
charged to expense was $126,000 compared to $140,000 for the six months ended
June 30, 1999. For the quarter ended June 30, 2000, the provision charged to
expense was $65,000. There was an $80,000 provision charged to expense for the
quarter ended June 30, 1999. There are risks inherent in making all loans,
including risks with respect to the period of time over which loans may be
repaid, risks resulting from changes in economic and industry conditions, risks
inherent in dealing with individual borrowers, and, in the case of a
collateralized loan, risks resulting from uncertainties about the future value
of the collateral. The Company maintains an allowance for loan losses based on,
among other things, historical experience, an evaluation of economic conditions,
and regular reviews of delinquencies and loan portfolio quality. Management's
judgment about the adequacy of the allowance is based upon a number of
assumptions about future events, which it believes to be reasonable, but which
may not prove to be accurate. Thus, there is a risk that charge-offs in future
periods could exceed the allowance for loan losses or that substantial
additional increases in the allowance for loan losses could be required.
Additions to the allowance for loan losses would result in a decrease of the
Company's net income and, possibly, its capital.
Noninterest Income
Noninterest income during the six months ended June 30, 2000 was $470,000, an
increase of $88,000, or 23.04%, from the comparable period in 1999. The increase
is primarily a result of an increase in service charges on deposit accounts from
$246,000 at June 30, 1999 to $321,000 at June 30, 2000. This change is a result
of an increase in deposit accounts over the two periods. Deposits at June 30,
1999 were $91,651,000 compared to $102,238,000 at June 30, 2000.
For the quarter ended June 30, 2000, noninterest income increased $48,000, or
22.02%, over the same period in 1999. This increase is primarily due to service
charges on deposit accounts, which increased $37,000, or 26.62%, from the
quarter ended June 30, 1999 to the quarter ended June 30, 2000.
11
<PAGE>
HCSB FINANCIAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition - continued
Noninterest Expense
Total noninterest expense for the six months ended June 30, 2000 was $1,971,000
or 29.59%, higher than the six months ended June 30, 1999. The primary reason
for the $450,000 increase in noninterest expense over the two periods was
attributable to salaries and employee benefits, which increased $247,000, or
30.38%, over the same period in 1999. This increase was largely the result of an
increase in personnel in management and support functions.
For the quarter ended June 30, 2000, noninterest expense increased $230,000, or
29.11%, over the same period in 1999. The largest increase between the quarter
ended June 30, 2000 and the quarter ended June 30, 1999 was in salaries and
benefits, which increased $125,000, or 29.83%.
Income Taxes
The income tax provision for the six months ended June 30, 2000 was $259,000 as
compared to $236,000 for the same period in 1999. The effective tax rates were
36.17% and 35.28% at June 30, 2000 and 1999, respectively. The effective tax
rates were 37.36% and 35.69% for the quarter ended June 30, 2000 and June 30,
1999, respectively.
Net Income
Although net interest income increased significantly during the first six months
of 2000 compared to the same period in 1999, the Company also had an increase in
noninterest expense during these time periods. The primary increase of
noninterest expense was salaries and employee benefits, which increased $247,000
from the six months ended June 1999 to the six months ended June 30, 2000. The
combination of the above factors resulted in net income for the six months ended
June 30, 2000 of $457,000 as compared to $433,000 for the same period in 1999.
This represents an increase of $24,000, or 5.54%, over the same period in 1999.
For the quarter ended June 30, 2000, net income was $223,000 as compared to
$236,000 for the quarter ended June 30, 1999. This represents a decrease of
$13,000, or 5.51%, from the quarter ending June 30, 1999.
Assets and Liabilities
During the first six months of 2000, total assets increased $11,998,000, or
10.49%, when compared to December 31, 1999. The primary reason for the increase
in assets was due to an increase in loans of $13,522,000 during the first six
months of 2000. It is typical for the Company to have an increase in loans,
especially in the area of agricultural loans, during this time of the year.
Total deposits increased $7,409,000, or 7.81%, from the December 31, 1999 amount
of $94,829,000. Within the deposit area, interest-bearing deposits increased
$6,881,000, or 7.92%, and noninterest-bearing deposits increased $528,000, or
6.60%, during the first six months of 2000. The large increase in deposits has
not allowed the Company to keep pace with the rapid growth in loans. The Company
has responded by increasing its borrowings with the Federal Home Loan Bank from
$10,000,000 at December 31, 1999 to $14,600,000 at June 30, 2000.
Investment Securities
Investment securities decreased from $23,892,000 at December 31, 1999 to
$21,725,000 at June 30, 2000. This represents a decrease of $2,167,000, or
9.07%, from December 31, 1999 to June 30, 2000. The proceeds from the sales and
maturities of securities have been invested in higher yielding loans.
12
<PAGE>
HCSB FINANCIAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition - continued
Loans
Net loans increased $13,444,000, or 17.96%, during the six month period ended
June 30, 2000. There were two primary reasons for this growth. First, loan
demand in general continued to increase in the Company's market areas in the
first half of 2000. Second, the Company has continued to establish a presence
through its new branches in Conway and North Myrtle Beach. As expected during
this time of year, agricultural loans increased $3,983,000, or 66.82%, from
December 31, 1999. Balances within the major loans receivable categories as of
June 30, 2000 and December 31, 1999 are as follows:
(Dollars in thousands) June 30, December 31,
2000 1999
------- -------
Real estate - construction and land development $ 4,352 $ 3,983
Real estate - other 29,517 26,601
Agricultural 9,944 5,961
Commercial and industrial 28,147 22,796
Consumer 16,915 16,193
Other, net 486 305
------- -------
$89,361 $75,839
======= =======
Risk Elements in the Loan Portfolio
The following is a summary of risk elements in the loan portfolio:
(Dollars in thousands) June 30, June 30,
2000 1999
-------- --------
Loans: Nonaccrual loans $ 49 $ 406
Accruing loans more than 90 days past due $ 116 $ -
Loans identified by the internal review mechanism:
Criticized $ 359 $ 1,384
Classified $ 851 $ 489
Activity in the Allowance for Loan Losses is as follows:
(Dollars in thousands) June 30, June 30,
2000 1999
-------- --------
Balance, January 1 $ 922 $ 880
Provision for loan losses for the period 126 140
Net loans charged off for the period (25) (29)
-------- --------
Balance, end of period $ 1,023 $ 991
======== ========
Gross loans outstanding, end of period $ 89,361 $ 68,560
Allowance for Loan Losses to loans outstanding 1.14% 1.44%
13
<PAGE>
HCSB FINANCIAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition - continued
Deposits
At June 30, 2000, total deposits increased by $7,409,000, or 7.81%, from
December 31, 1999. Expressed in percentages, noninterest-bearing deposits
increased 6.60% and interest-bearing deposits increased 7.92%.
Balances within the major deposit categories as of June 30, 2000 and December
31, 1999 are as follows:
(Dollars in thousands) June 30, December 31,
2000 1999
-------- --------
Noninterest-bearing demand deposits $ 8,526 $ 7,998
Interest-bearing demand deposits 9,890 8,238
Savings and money market deposits 18,819 18,832
Certificates of deposit 65,003 59,761
-------- --------
$102,238 $ 94,829
======== ========
Liquidity
Liquidity needs are met by the Company through scheduled maturities of loans and
investments on the asset side and through pricing policies on the liability side
for interest-bearing deposit accounts. The level of liquidity is measured by the
loans-to-total borrowed funds ratio, which was at 76.48% at June 30, 2000 and
72.35% at December 31, 1999.
Securities available-for-sale, which totaled $21,725,000 at June 30, 2000,
serves as a ready source of liquidity. The Company also has lines of credit
available with correspondent banks to purchase federal funds for periods from
one to seven days. At June 30, 2000, unused lines of credit totaled $3,200,000.
Capital Resources
Total shareholders' equity increased from $8,341,000 at December 31, 1999 to
$8,694,000 at June 30, 2000. The increase of $353,000 is primarily attributable
to net income of $457,000. Net income was partially offset by the negative
charge of $104,000 to the change in fair value of available-for-sale securities
for the period. In addition, the Company declared a two-for-one stock split in
the form of a 100% stock dividend in January 2000, which was paid on March 15,
2000. There was no effect on net equity as a result of the stock split.
Bank holding companies, such as the Company, and their banking subsidiaries are
required by banking regulators to meet certain minimum levels of capital
adequacy, which are expressed in the form of certain ratios. Capital is
separated into Tier 1 capital (essentially common shareholders' equity less
intangible assets) and Tier 2 capital (essentially the allowance for loan losses
limited to 1.25% of risk-weighted assets). The first two ratios, which are based
on the degree of credit risk in the Company's assets, provide the weighting of
assets based on assigned risk factors and include off-balance sheet items such
as loan commitments and stand-by letters of credit. The ratio of Tier 1 capital
to risk-weighted assets must be at least 4.0% and the ratio of total capital
(Tier 1 capital plus Tier 2 capital) to risk-weighted assets must be at least
8.0%. The capital leverage ratio supplements the risk-based capital guidelines.
Banks and bank holding companies are required to maintain a minimum ratio of
Tier 1 capital to adjusted quarterly average total assets of 3.0%.
14
<PAGE>
HCSB FINANCIAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition - continued
Capital Resources -- continued
The following table summarizes the Company's risk-based capital at June 30,
2000:
(Dollars in thousands)
Shareholders' equity $ 9,377
Less: intangibles -
-------
Tier 1 capital 9,377
Plus: allowance for loan losses (1) 1,023
-------
Total capital $10,400
=======
Risk-weighted assets $98,686
=======
Risk based capital ratios
Tier 1 capital (to risk-weighted assets) 9.50%
Total capital (to risk-weighted assets) 10.54%
Tier 1 capital (to total average assets) 7.67%
(1) limited to 1.25% of risk-weighted assets
Regulatory Matters
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.
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HCSB FINANCIAL CORPORATION
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On April 20, 2000, the Company held its Annual Meeting of Shareholders for the
purpose of electing four directors.
The four nominees for director received the number of affirmative votes of
shareholders required for such nominee's election in accordance with the Bylaws
of the Company. Of the 778,141 outstanding shareholders, votes for the election
of each director were as follows: D. Singleton Baily, received 766,781 votes for
his election, no abstentions, no votes against, and 11,360 withheld or broker
nonvotes; Franklin C. Blanton, received 766,781 votes for his election, no
abstentions, no votes against, and 11,360 withheld or broker nonvotes; T.
Freddie Moore, received 766,751 votes for his election, no abstentions, 30 votes
against, and 11,360 withheld or broker nonvotes; and Carroll D. Padgett, Jr.,
received 766,519 votes for his election, no abstentions, 262 votes against, and
11,360 withheld or broker nonvotes.
Item 6. Exhibits And Reports on Form 8-K
(a) Exhibits
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
quarter ended June 30, 2000.
Items 1, 2, 3, and 5 are not applicable.
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HCSB FINANCIAL CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
By: /s/ JAMES R. CLARKSON
---------------------
James R. Clarkson
President
Date: August 11, 2000 By: /s/ LORETTA B. GERALD
---------------------
Loretta B. Gerald
Assistant Vice President & Cashier
(Principal Accounting Officer)
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