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 September 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, South Carolina 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 16
EXHIBIT INDEX ON PAGE 2
<PAGE>
HCSB FINANCIAL CORPORATION
Index
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - September 30, 2000 and December 31, 1999..............3
Condensed Consolidated Statements of Income - Nine months ended September 30, 2000
and 1999 and three months ended September 30, 2000 and 1999.................................4
Condensed Consolidated Statements of Shareholders' Equity and Comprehensive Income -
Nine months ended September 30, 2000........................................................5
Condensed Consolidated Statements of Cash Flows - Nine months ended
September 30, 2000 and 1999.................................................................6
Notes to Condensed Consolidated Financial Statements........................................7-8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......9-13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..............................................................14
(a) Exhibits.................................................................................14
(b) Reports on Form 8-K......................................................................14
</TABLE>
2
<PAGE>
HCSB FINANCIAL CORPORATION
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Dollars in thousands) September 30, December 31,
------------- ------------
2000 1999
--------- ---------
(Unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents:
Cash and due from banks $ 5,464 $ 5,708
Federal funds sold and repurchase agreements 13,370 2,190
--------- ---------
18,834 7,898
--------- ---------
Securities available-for-sale 21,646 23,892
Loans receivable 91,284 75,839
Less unearned income (16) (46)
Less allowance for loan losses (1,014) (922)
--------- ---------
Loans, net 90,254 74,871
--------- ---------
Premises and equipment, net 5,154 4,417
Accrued interest receivable 1,824 1,204
Other assets 2,633 2,044
--------- ---------
Total assets $ 140,345 $ 114,326
========= =========
Liabilities and Shareholders' Equity
Liabilities
Deposits:
Noninterest-bearing demand deposits $ 9,432 $ 7,998
Interest-bearing demand deposits 10,620 8,238
Money market 22,111 16,752
Savings 2,388 2,080
Time deposits 70,883 59,761
--------- ---------
115,434 94,829
--------- ---------
Advances from the Federal Home Loan Bank 14,600 10,000
Accrued interest payable 349 403
Other liabilities 819 753
--------- ---------
Total liabilities 131,202 105,985
--------- ---------
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 1,730 1,037
Accumulated other comprehensive income (loss) (475) (579)
--------- ---------
Total shareholders' equity 9,143 8,341
--------- ---------
Total liabilities and shareholders' equity $ 140,345 $ 114,326
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
HCSB FINANCIAL CORPORATION
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands) Nine Months Ended Three Months Ended
September 30, September 30,
------------------------ ------------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $6,444 $4,638 $2,286 $1,679
Investment securities:
Taxable 948 892 310 330
Tax-exempt 127 119 37 48
Other interest income 171 114 126 46
------ ------ ------ ------
Total 7,690 5,763 2,759 2,103
------ ------ ------ ------
Interest expense:
Certificates of deposit $100M and over 751 350 247 113
Other deposits 3,369 2,186 1,332 822
Other interest expense 48 206 1 95
------ ------ ------ ------
Total 4,168 2,742 1,580 1,030
------ ------ ------ ------
Net interest income 3,522 3,021 1,179 1,073
Provision for loan losses 196 170 70 30
------ ------ ------ ------
Net interest income after provision
for loan losses 3,326 2,851 1,109 1,043
------ ------ ------ ------
Other operating income:
Service charges on deposit accounts 507 393 186 147
Credit life insurance commissions 97 105 38 34
Other operating income 136 97 46 32
------ ------ ------ ------
Total 740 595 270 213
------ ------ ------ ------
Other operating expenses:
Salaries and employee benefits 1,655 1,266 595 453
Net occupancy expense 200 131 67 46
Furniture and equipment expense 324 283 114 97
Loss on sale of securities 32 - - -
Loss on sale of fixed assets 21 17 - 17
Other operating expenses 765 646 250 209
------ ------ ------ ------
Total 2,997 2,343 1,026 822
------ ------ ------ ------
Income before income taxes 1,069 1,103 353 434
Income tax provision 371 382 112 146
------ ------ ------ ------
Net income $ 698 $ 721 $ 241 $ 288
====== ====== ====== ======
Basic earnings per share $ 0.70 $ 0.72 $ 0.24 $ 0.29
Diluted earnings per share $ 0.70 $ 0.72 $ 0.24 $ 0.29
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
HCSB FINANCIAL CORPORATION
Condensed Consolidated Statement of Shareholders'
Equity and Comprehensive Income
for the nine months ended September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
(Dollars in thousands) Common Stock 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 698 698
Other comprehensive
income, net of tax 104 104
---------
Comprehensive Income 802
Two for one stock split
effected in the form of a
100% stock dividend 501,385 5 (5)
--------- --------- --------- --------- --------- ---------
Balance,
September 30, 2000 1,002,770 $ 10 $ 7,878 $ 1,730 $ (475) $ 9,143
========= ========= ========= ========= ========= =========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
HCSB FINANCIAL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands) Nine Months Ended
September 30,
-------------------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 698 $ 721
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 232 183
Provision for possible loan losses 196 170
Amortization less accretion on investments 5 18
Amortization of deferred loan costs 90 73
Loss (gain) on sale of securities available-for-sale 32 -
Loss (gain) on sale of premises and equipment 21 -
(Increase) decrease in interest receivable (620) (812)
Increase (decrease) in interest payable (54) (173)
(Increase) decrease in other assets (420) 354
Increase (decrease) in other liabilities 66 356
-------- --------
Net cash provided by operating activities 246 890
-------- --------
Cash flows from investing activities:
Net increase in loans to customers (15,669) (15,919)
Purchases of securities available-for-sale (100) (11,631)
Maturities of securities available-for-sale 1,011 6,070
Proceeds for sales of securities available-for-sale 1,463 -
Proceeds from disposal of premises and equipment 82 -
Purchases of premises and equipment (1,072) (758)
Purchase of Federal Home Loan Bank stock (230) (250)
-------- --------
Net cash used by investing activities (14,515) (22,488)
-------- --------
Cash flows from financing activities:
Net increase in deposits accounts 20,605 14,892
Increase (decrease) in short-term borrowings - 1,260
Advances from Federal Home Loan Bank 4,600 5,000
Cash paid in lieu of fractional shares - (18)
-------- --------
Net cash provided by financing activities 25,205 21,134
-------- --------
Net increase (decrease) in cash and cash equivalents 10,936 (464)
Cash and cash equivalents, beginning of period 7,898 3,073
-------- --------
Cash and cash equivalents, end of period $ 18,834 $ 2,609
======== ========
Cash paid during the period for:
Income taxes $ 579 $ 181
Interest $ 4,222 $ 2,569
</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 September 30, 2000 and for the interim periods ended
September 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 nine months ended
September 30, 2000 and 1999 and for the three months ended September 30, 2000
and 1999:
<TABLE>
<CAPTION>
Pre-tax (Expense) Net-of-tax
(Dollars in thousands) Amount Benefit Amount
------- ------- ----------
<S> <C> <C> <C>
For the Nine Months Ended September 30, 2000:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period $ 165 $ (61) $ 104
Plus: reclassification adjustment for gains (losses)
realized in net income - - -
------- ------- ----------
Net unrealized gains (losses) on securities 165 (61) 104
------- ------- ----------
Other comprehensive income $ 165 $ (61) $ 104
======= ======= ==========
</TABLE>
<TABLE>
<CAPTION>
Pre-tax (Expense) Net-of-tax
(Dollars in thousands) Amount Benefit Amount
------- ------- ----------
<S> <C> <C> <C>
For the Nine Months Ended September 30, 1999:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period $ (994) $ 368 $ (626)
Plus: reclassification adjustment for gains (losses)
realized in net income - - -
------- ------- ----------
Net unrealized gains (losses) on securities (994) 368 (626)
------- ------- ----------
Other comprehensive income $ (994) $ 368 $ (626)
======= ====== ==========
</TABLE>
7
<PAGE>
HCSB FINANCIAL CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2 - Comprehensive Income - continued
<TABLE>
<CAPTION>
Pre-tax (Expense) Net-of-tax
(Dollars in thousands) Amount Benefit Amount
------- ------- ----------
<S> <C> <C> <C>
For the Three Months Ended September 30, 2000:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period $ 295 $ (108) $ 187
Plus: reclassification adjustment for gains (losses)
realized in net income 32 (11) 21
------- ------- ----------
Net unrealized gains (losses) on securities 327 (119) 208
------- ------- ----------
Other comprehensive income $ 327 $ (119) $ 208
======= ======= ==========
</TABLE>
<TABLE>
<CAPTION>
Pre-tax (Expense) Net-of-tax
(Dollars in thousands) Amount Benefit Amount
------- ------- ----------
<S> <C> <C> <C>
For the Three Months Ended September 30, 1999:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period $ (210) $ 78 $ (132)
Plus: reclassification adjustment for gains (losses)
realized in net income - - -
------- ------- ----------
Net unrealized gains (losses) on securities (210) 78 (132)
------- ------- ----------
Other comprehensive income $ (210) $ 78 $ (132)
======= ======= ==========
</TABLE>
Accumulated other comprehensive income consists solely of the unrealized gain on
securities available-for-sale, net of the deferred tax effects.
8
<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
September 30, 2000 compared to December 31, 1999 and the results of operations
for the three and nine months ended September 30, 2000 compared to the three and
nine months ended September 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 nine months ended September 30, 2000, net interest income increased
$501,000, or 16.58%, over the same period in 1999. Interest income from loans,
including fees, increased $1,806,000, or 38.94%, from the nine months ended
September 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 $64,000 in income
from investment securities. Interest expense at September 30, 2000 was
$4,168,000 compared to $2,742,000 for the same period in 1999. The increase in
interest-bearing deposits between the two periods of approximately $28,489,000
resulted in increased interest expense. The net interest margin realized on
earning assets was 4.20% for the nine months ended September 30, 2000, as
compared to 4.10% for the nine months ended September 30, 1999. The interest
rate spread was 3.90% for the nine months ended September 30, 2000, compared to
3.79% for the nine months ended September 30, 1999.
Net interest income increased from $1,073,000 for the quarter ending September
30, 1999 to $1,179,000 for the quarter ending September 30, 2000. This
represents an increase of $106,000, or 9.88%. Interest income from loans,
including fees, increased to $2,286,000 for the quarter ended September 30, 2000
from $1,679,000 for the quarter ended September 30, 1999. Interest expense
increased $550,000, or 53.40%, for the three months ended September 30, 2000
compared to the three months ended September 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 nine months ended September 30, 2000, the
provision charged to expense was $196,000 compared to $170,000 for the nine
months ended September 30, 1999. For the quarter ended September 30, 2000, the
provision charged to expense was $70,000. There was a $30,000 provision charged
to expense for the quarter ended September 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.
9
<PAGE>
HCSB FINANCIAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition - continued
Noninterest Income
Noninterest income during the nine months ended September 30, 2000 was $740,000,
an increase of $145,000, or 24.37%, from the comparable period in 1999. The
increase is primarily a result of an increase in service charges on deposit
accounts from $393,000 at September 30, 1999 to $507,000 at September 30, 2000.
Deposits at September 30, 1999 were $84,862,000 compared to $115,434,000 at
September 30, 2000.
For the quarter ended September 30, 2000, noninterest income increased $57,000,
or 26.76%, over the same period in 1999. This increase is primarily due to
service charges on deposit accounts, which increased $39,000, or 26.53%, from
the quarter ended September 30, 1999 to the quarter ended September 30, 2000.
Noninterest Expense
Total noninterest expense for the nine months ended September 30, 2000 was
$2,997,000 or 27.91%, higher than the nine months ended September 30, 1999. The
primary reason was the $389,000 increase in salaries and employee benefits over
the two periods. This increase was largely the result of an increase in
personnel in management and support functions. In addition, other operating
expenses increased $119,000, or 18.42%, between the nine months ending September
30, 1999 and September 30, 2000. Noninterest expenses also included a loss on
sale of securities totaling $32,000 in the nine months ended September 30, 2000
that did not exist in 1999.
For the quarter ended September 30, 2000, noninterest expense increased
$204,000, or 24.82%, over the same period in 1999. The largest increase between
the quarter ended September 30, 2000 and the quarter ended September 30, 1999
was in salaries and benefits, which increased $142,000, or 31.35%. Other less
significant increases also occurred in net occupancy, furniture and equipment
and other operating expenses between 1999 and 2000.
Income Taxes
The income tax provision for the nine months ended September 30, 2000 was
$371,000 as compared to $382,000 for the same period in 1999. The effective tax
rates were 34.71% and 34.63% at September 30, 2000 and 1999, respectively. The
effective tax rates were 31.73% and 33.64% for the quarter ended September 30,
2000 and September 30, 1999, respectively.
Net Income
Although net interest income increased significantly during the first nine
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
$389,000 from the nine months ended September 1999 to the nine months ended
September 30, 2000. The combination of the above factors resulted in net income
for the nine months ended September 30, 2000 of $698,000 as compared to $721,000
for the same period in 1999. This represents a decrease of $23,000, or 3.19%,
over the same period in 1999. The decrease is also partially attributable to
expenses associated with the opening of the Bank's seventh full-service branch
in the Homewood community of the Conway area. For the quarter ended September
30, 2000, net income was $241,000 as compared to $288,000 for the quarter ended
September 30, 1999. This represents a decrease of $47,000, or 16.32%, from the
quarter ending September 30, 1999.
10
<PAGE>
HCSB FINANCIAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition - continued
Assets and Liabilities
During the first nine months of 2000, total assets increased $26,019,000, or
22.76%, when compared to December 31, 1999. The primary reason for the increase
in assets was due to an increase in loans of $15,445,000 during the first nine
months of 2000. Total deposits increased $20,605,000, or 21.73%, from the
December 31, 1999 amount of $94,829,000. Within the deposit area,
interest-bearing deposits increased $19,171,000, or 22.08%, and
noninterest-bearing deposits increased $1,434,000, or 17.93%, during the first
nine months of 2000. The large increase in deposits has allowed the Company to
keep pace with the rapid growth in loans. In addition, the Company has increased
its borrowings with the Federal Home Loan Bank from $10,000,000 at December 31,
1999 to $14,600,000 at September 30, 2000.
Investment Securities
Investment securities decreased from $23,892,000 at December 31, 1999 to
$21,646,000 at September 30, 2000. This represents a decrease of $2,246,000 or
9.40%, from December 31, 1999 to September 30, 2000. The proceeds from the sales
and maturities of securities have been invested in higher yielding loans.
Loans
Net loans increased $15,383,000, or 20.55%, during the nine month period ended
September 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. Balances within the
major loans receivable categories as of September 30, 2000 and December 31, 1999
are as follows:
(Dollars in thousands) September 30, December 31,
2000 1999
--------- --------
Real estate - construction and land development $ 5,248 $ 3,983
Real estate - other 31,057 26,601
Agricultural 7,239 5,961
Commercial and industrial 29,480 22,796
Consumer 17,798 16,193
Other, net 462 305
--------- --------
$ 91,284 $ 75,839
========= ========
Risk Elements in the Loan Portfolio
The following is a summary of risk elements in the loan portfolio:
(Dollars in thousands) September 30,
----------------
2000 1999
---- ----
Loans: Nonaccrual loans $ 145 $ 289
Accruing loans more than 90 days past due $ 120 $ 16
Loans identified by the internal review mechanism:
Criticized $ 806 $ 742
Classified $ 705 $ 799
11
<PAGE>
HCSB FINANCIAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition - continued
Risk Elements in the Loan Portfolio - continued
Activity in the Allowance for Loan Losses is as follows:
(Dollars in thousands) September 30,
------------------------
2000 1999
-------- --------
Balance, January 1 $ 922 $ 880
Provision for loan losses for the period 196 170
Net loans charged off for the period (104) (96)
-------- --------
Balance, end of period $ 1,014 $ 954
======== ========
Gross loans outstanding, end of period $ 91,284 $ 71,758
Allowance for Loan Losses to loans outstanding 1.11% 1.33%
Deposits
At September 30, 2000, total deposits increased by $20,605,000, or 21.73%, from
December 31, 1999. The largest increase was in certificates of deposits, which
increased $11,122,000 to $70,883,000 at September 30, 2000. Expressed in
percentages, noninterest-bearing deposits increased 17.93 % and interest-bearing
deposits increased 22.08%.
Balances within the major deposit categories as of September 30, 2000 and
December 31, 1999 are as follows:
(Dollars in thousands) September 30, December 31,
2000 1999
--------- --------
Noninterest-bearing demand deposits $ 9,432 $ 7,998
Interest-bearing demand deposits 10,620 8,238
Savings and money market deposits 24,499 18,832
Certificates of deposit 70,883 59,761
--------- --------
$ 115,434 $ 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 70.20% at September 30, 2000
and 72.35% at December 31, 1999.
Securities available-for-sale, which totaled $22,436,000 at September 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 September 30, 2000, unused lines of credit totaled
$5,500,000.
12
<PAGE>
HCSB FINANCIAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition - continued
Capital Resources
Total shareholders' equity increased from $8,341,000 at December 31, 1999 to
$9,143,000 at September 30, 2000. The increase of $802,000 is primarily
attributable to net income of $698,000. Net income was boosted by a positive
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%.
The following table summarizes the Company's risk-based capital at September 30,
2000:
(Dollars in thousands)
Shareholders' equity $ 9,618
Less: intangibles -
--------
Tier 1 capital 9,618
Plus: allowance for loan losses (1) 1,014
--------
Total capital $ 10,632
========
Risk-weighted assets $ 95,134
========
Risk based capital ratios
Tier 1 capital (to risk-weighted assets) 10.11%
Total capital (to risk-weighted assets) 11.18%
Tier 1 capital (to total average assets) 7.26%
(1) limited to 1.25% of risk-weighted assets
Management believes that capital should be adequate for the next twelve months.
Regulatory Matters
From time to time, various bills are introduced in the United States Congress
and various regulations are proposed by appropriate agencies 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.
13
<PAGE>
HCSB FINANCIAL CORPORATION
PART II - OTHER INFORMATION
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 September 30, 2000.
Items 1, 2, 3, 4,and 5 are not applicable.
14
<PAGE>
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: November 11, 2000 By: /s/ LORETTA B. GERALD
-----------------------------------
Loretta B. Gerald
Assistant Vice President & Cashier
(Principal Accounting Officer)
15
