<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 3, 1999
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RHBT FINANCIAL CORPORATION
--------------------------
(Exact name of registrant
as specified in its charter)
SOUTH CAROLINA TO BE ASSIGNED 58-2482426
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
315 EAST MAIN STREET, ROCK HILL, SOUTH CAROLINA 29730
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(Address of principal executive offices)
Registrant's telephone number, including area code: (803)324-2500
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ROCK HILL BANK & TRUST (RHBT FINANCIAL CORPORATION IS A SUCCESSOR ISSUER UNDER
------------------------------------------------------------------------------
RULE 15D-5 OF THE SECURITIES EXCHANGE ACT OF 1934)
--------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE> 2
ITEM 5. OTHER EVENTS.
RHBT Financial Corporation is a one-bank holding company formed for the
purpose of acquiring all of the common stock of Rock Hill Bank & Trust, a South
Carolina state bank. RHBT Financial Corporation completed its acquisition of the
Bank pursuant to a statutory share exchange effective on June 3, 1999. Upon
completion of the share exchange, the assets and liabilities of RHBT Financial
Corporation were substantially the same as those of Rock Hill Bank & Trust.
Rock Hill Bank & Trust's common stock was registered with the Federal
Deposit Insurance Corporation pursuant to Section 12(i) of the Securities
Exchange Act of 1934 and the Bank filed periodic reports under the Exchange Act
with the Federal Deposit Insurance Corporation.
This Form 8-K is being filed for the purpose of including in the files
of the Securities and Exchange Commission the annual report on Form 10-KSB for
the year ended December 31, 1998 and the Form 10-QSB for the quarter ended March
31, 1999 previously filed by Rock Hill Bank & Trust with the Federal Deposit
Insurance Corporation so that such documents may be incorporated by reference
into filings with the Commission as filings of a predecessor registrant to RHBT
Financial Corporation. Such documents are filed as exhibits hereto, are
incorporated by reference herein, and specifically made a part hereof.
On July 19, 1999, RHBT Financial Corporation announced that on Friday,
July 16, 1999 its Board of Directors approved a 5-for-4 stock split of its
common stock in the form of a 25 percent stock dividend which is payable on
September 10, 1999 to shareholders of record on August 1, 1999. These
shareholders will receive one additional share of common stock for each four
shares of common stock they hold on the record date. In lieu of fractional
shares, each shareholder will be paid a cash equivalent based on the average
closing price of the common stock on the OTC Bulletin Board on August 1, 1999.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) The following information is filed as an exhibit to the
Current Report on Form 8-K:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
99.1 Form 10-KSB for Rock Hill Bank & Trust for the year ended
December 31, 1998
99.2 Form 10-QSB for Rock Hill Bank & Trust for the quarterly period
ended March 31, 1999
</TABLE>
<PAGE> 3
SIGNATURES
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 hereunto duly authorized.
RHBT Financial Corporation
By: /s/ J.A. Ferguson, Jr.
----------------------------------------
J.A. Ferguson, Jr.
President and Chief Executive Officer
Dated: July 21, 1999
<PAGE> 4
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
99.1 Form 10-K for Rock Hill Bank & Trust for the year ended
December 31, 1998
99.2 Form 10-QSB for Rock Hill Bank & Trust for the quarterly
period ended March 31, 1999
</TABLE>
<PAGE> 1
EXHIBIT 99.1
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C. 20429
FORM 10-KSB
(MARK ONE)
X Annual Report under Section 13 or 15(d) of the Securities Exchange Act
- --- of 1934 For the fiscal year ended December 31, 1998
OR
Transition Report under Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934 For the transition period from ________ to ________
ROCK HILL BANK & TRUST
----------------------------------------------
(Name of Small Business Issuer in Its Charter)
South Carolina 57-1031996
---------------------------- ----------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
315 East Main Street
Rock Hill, South Carolina 29730
--------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(803) 324-2500
---------------------------
Issuer's Telephone Number, Including Area Code
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days.
Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The registrant's revenues for its most recent fiscal year was $652,043. The
aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 12, 1999, was $21,531,726. This
<PAGE> 2
calculation is based upon a value of $17.75 per share, which was the average bid
and asked price of the common stock on the over-the-counter market on such date.
There were 1,376,250 shares of the Company's common stock issued and outstanding
as of the record date, March 15, 1999.
Transitional Small Business Disclosure Format. (Check one):
Yes No X
--- ---
Documents Incorporated By Reference
The registrant's Annual Report to Shareholders for the year ended
December 31, 1998 is incorporated by reference in this Form 10-KSB in Part II,
Item 5, Item 6, and Item 7. The registrant's Proxy Statement for the Annual
Meeting of Shareholders to be held on April 15, 1999 is incorporated by
The Bank's primary source of revenue is interest income and fees, which
it earns by lending and investing its capital and the funds which are held on
deposit. Because loans generally earn higher rates of interest than investments,
the Bank seeks to employ as many of its deposit funds as possible in the form of
loans to individuals and businesses. To ensure sufficient liquidity, the Bank
also maintains a portion of the Bank's deposits in cash, government securities,
deposits with other financial institutions, and overnight loans of excess
reserves (known as "federal funds sold") to correspondent banks. The revenue
which the Bank earns (prior to deducting its overhead expenses) is essentially a
function of the amount of the Bank's loans and deposits, as well as the profit
margin ("interest spread") and fee income. The Bank also is the only locally
owned community bank in the Rock Hill area that provides trust services and has
a mortgage loan division.
MARKETING FOCUS
The Bank primarily serves the city of Rock Hill and the surrounding
area of York County, South Carolina. The Bank's extended market area also
includes the south side of Charlotte in Mecklenburg County, North Carolina, and
Lancaster and Chester Counties in South Carolina. Rock Hill is the fifth largest
city in South Carolina and is located in the eastern central area of York
County, South Carolina, approximately 25 miles southwest of Charlotte, North
Carolina and on the outskirts of the Charlotte/Mecklenburg metropolitan area.
Rock Hill is approximately 70 miles north of Columbia, South Carolina, and 95
miles northeast of Greenville, South Carolina. The area has experienced steady
growth over the past ten years and the Bank expects the area, as well as the
service industries needed to support it, to continue to grow. According to the
U.S. Census Bureau, York County is one of the fastest growing counties in South
Carolina, with a population of 150,000 in 1997, reflecting a 14.5% increase
since 1990. York County also boasts one of the highest per capita incomes in
South Carolina, with a median household income in 1997 of $47,300, compared to
$29,000 for South Carolina as a whole.
BANKING SERVICES
The Bank strives to provide its customers with the breadth of products
and services comparable to those offered by large regional banks, while
maintaining the quick response and personal service of a locally owned and
managed bank. In addition to offering a full range of deposit services and
commercial and personal loans, the Bank offers trust services and products such
as mortgage loan originations and accounts receivable financing.
<PAGE> 3
- - Deposit Services. The Bank offers a full range of deposit services that
are typically available in most banks and savings and loan
associations, including checking accounts, NOW accounts, savings
accounts, and other time deposits of various types, ranging from daily
money market accounts to longer-term certificates of deposit. The
transaction accounts and time certificates are tailored to the Bank's
principal market area at rates competitive to those offered by other
banks in the area. In addition, the Bank offers certain retirement
account services, such as Individual Retirement Accounts (IRAs). All
deposit accounts are insured by the Federal Deposit Insurance
Corporation (the "FDIC") up to the maximum amount allowed by law. The
Bank solicits these accounts from individuals, businesses, associations
and organizations, and governmental authorities.
- - Loan Products. The Bank offers a full range of commercial and personal
loans. Commercial loans include both secured and unsecured loans for
working capital (including loans secured by inventory and accounts
receivable), business expansion (including acquisition of real estate
and improvements), and purchase of equipment and machinery. Consumer
loans include equity lines of credit and secured and unsecured loans
for financing automobiles, home improvements, education, and personal
investments. The Bank also makes real estate construction and
acquisition loans. The Bank's lending activities are subject to a
variety of lending limits imposed by federal law. While differing
limits apply in certain circumstances based on the type of loan or the
nature of the borrower (including the borrower's relationship to the
Bank), in general the Bank is subject to a loans-to-one-borrower limit
of an amount equal to 15% of the Bank's unimpaired capital and surplus.
The Bank may not make any loans to any director, officer, employee, or
10% shareholder of the Bank unless the loan is approved by the Board of
Directors of the Bank and is made on terms not more favorable to such a
person than would be available to a person not affiliated with the
Bank.
- - Mortgage Loan Division. The Bank recently established a mortgage loan
division through which it has broadened the range of services that it
offers to its customers, and the Bank is now the only locally-owned
bank in Rock Hill with a separate mortgage division. The mortgage loan
division originates loans to purchase existing or construct new homes
and to refinance existing mortgages. The Bank anticipates generating
additional fee income by selling most of these loans in the secondary
market and cross-selling its other products and services to its
mortgage customers.
- - Trust Services. The Bank is the only locally managed bank in the Rock
Hill area that has a trust department, through which the Bank offers a
full range of trust services, including personal trusts, testamentary
trusts, investment management, custodian services, income tax
assistance and counseling, and retirement and estate planning.
- - Accounts Receivable Financing. The Bank provides accounts receivable
financing to businesses through an agreement with an outside vendor,
using software licensed from the vendor to handle the billing and
collection of these receivables. Because accounts receivable-based
loans typically carry a higher rate of risk than many other types of
loans, the Bank also has default and fraud insurance and customarily
obtains a personal guarantee from the small business owner.
- - Other Services. Other bank services include cash management services,
safe deposit boxes, travelers checks, direct deposit of payroll and
social security checks, and automatic drafts for various accounts. The
Bank is associated with Honor and Plus networks of automated teller
machines that may be used by the Bank's customers throughout South
Carolina and other regions. The Bank also offers VISA credit card
services through a correspondent bank as an agent for the Bank.
<PAGE> 4
SUPERVISION AND REGULATION
The Bank is subject to state and federal banking laws and regulations
which impose specific requirements or restrictions on and provide for general
regulatory oversight with respect to virtually all aspects of operations. These
laws and regulations are generally intended to protect depositors, not
shareholders. To the extent that the following summary describes statutory or
regulatory provisions, it is qualified in its entirety by reference to the
particular statutory and regulatory provisions. Any change in applicable laws or
regulations may have a material effect on the business and prospects of the
Bank. Beginning with the enactment of FIRREA in 1989 and following with FDICIA
in 1991, numerous additional regulatory requirements have been placed on the
banking industry in the past several years, and additional changes have been
proposed. The operations of the Bank may be affected by legislative changes and
the policies of various regulatory authorities. The Bank is unable to predict
the nature or the extent of the effect on its business and earnings that fiscal
or monetary policies, economic control, or new federal or state legislation may
have in the future.
General. The Bank operates as a state bank incorporated under the laws
of the United States and subject to examination by the South Carolina State
Board of Financial Institutions (the "South Carolina Bank Board"). The South
Carolina Bank Board and the FDIC regulate or monitor virtually all areas of the
Bank's operations, including security devices and procedures, adequacy of
capitalization and loss reserves, loans, investments, borrowings, deposits,
mergers, issuances of securities, payment of dividends, interest rates payable
on deposits, interest rates or fees chargeable on loans, establishment of
branches, corporate reorganizations, maintenance of books and records, and
adequacy of staff training to carry on safe lending and deposit gathering
practices. The South Carolina Bank Board requires the Bank to maintain certain
capital ratios and imposes limitations on the Bank's aggregate investment in
real estate, bank premises, and furniture and fixtures. The Bank is required by
the FDIC to prepare quarterly reports on the Bank's financial condition.
Under FDICIA, all insured institutions must undergo regular on site
examinations by their appropriate banking agency. The cost of examinations of
insured depository institutions and any affiliates may be assessed by the
appropriate agency against each institution or affiliate as it deems necessary
or appropriate. Insured institutions are required to submit annual reports to
the FDIC and the appropriate agency (and state supervisor when applicable).
FDICIA also directs the FDIC to develop with other appropriate agencies a method
for insured depository institutions to provide supplemental disclosure of the
estimated fair market value of assets and liabilities, to the extent feasible
and practicable, in any balance sheet, financial statement, report of condition
or any other report of any insured depository institution. FDICIA also requires
the federal banking regulatory agencies to prescribe, by regulation, standards
for all insured depository institutions and depository institution holding
companies relating, among other things, to: (i) internal controls, information
systems, and audit systems; (ii) loan documentation; (iii) credit underwriting;
(iv) interest rate risk exposure; and (v) asset quality.
Deposit Insurance. The FDIC establishes rates for the payment of
premiums by federally insured banks and thrifts for deposit insurance. A
separate Bank Insurance Fund ("BIF") and Savings Association Insurance Fund
("SAIF") are maintained for commercial banks and thrifts, respectively, with
insurance premiums from the industry used to offset losses from insurance
payouts when banks and thrifts fail. In 1993, insured depository institutions
like the Bank have paid for deposit insurance under a risk-based premium system.
Under this system, until mid-1995 depositor institutions paid to BIF or SAIF
from $0.23 to $0.31 per $100 of insured deposits depending on its capital levels
and risk profile, as determined by its primary federal regulator on a
semi-annual basis. Once the BIF reached
<PAGE> 5
its legally mandated reserve ratio in mid-1995, the FDIC lowered premiums for
well-capitalized banks, eventually to $.00 per $100, with a minimum semiannual
assessment of $1,000. However, in 1996 Congress enacted the Deposit Insurance
Funds Act of 1996, which eliminated this minimum assessment. It also separated,
effective January 1, 1997, the Financial Corporation ("FICO") assessment to
service the interest on its bond obligations. The amount assessed on individual
institutions, including the Bank, by FICO will be in addition to the amount paid
for deposit insurance according to the risk-related assessment rate schedule.
Increases in deposit insurance premiums or changes in risk classification will
increase the Bank's cost of funds, and there can be no assurance that such cost
can be passed on the Bank's customers.
Transactions With Affiliates and Insiders. The Bank is subject to the
provisions of Section 23A of the Federal Reserve Act, which place limits on the
amount of loans or extensions of credit to, or investments in, or certain other
transactions with, affiliates and on the amount of advances to third parties
collateralized by the securities or obligations of affiliates. The aggregate of
all covered transactions is limited in amount, as to any one affiliate, to 10%
of the bank's capital and surplus and, as to all affiliates combined, to 20% of
the bank's capital and surplus. Furthermore, within the foregoing limitations as
to amount, each covered transaction must meet specified collateral requirements.
Compliance is also required with certain provisions designed to avoid the taking
of low quality assets.
The Bank is also subject to the provisions of Section 23B of the
Federal Reserve Act which, among other things, prohibit an institution from
engaging in certain transactions with certain affiliates unless the transactions
are on terms substantially the same, or at least as favorable to such
institution or its subsidiaries, as those prevailing at the time for comparable
transactions with non-affiliated companies. The Bank is subject to certain
restrictions on extensions of credit to executive officers, directors, certain
principal shareholders, and their related interests. Such extensions of credit
(i) must be made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
third parties and (ii) must not involve more than the normal risk of repayment
or present other unfavorable features.
Dividends. The Bank is subject to regulatory restrictions on the
payment of dividends, including a prohibition of payment of dividends from its
capital. All dividends must be paid out of the undivided profits then on hand,
after deducting expenses, including losses and bad debts. The Bank must also
obtain approval from the South Carolina Bank Board prior to the payment of any
dividends. In addition, under FDICIA, the Bank may not pay a dividend if, after
paying the dividend, the Bank would be undercapitalized. See "Capital
Regulations" below.
Branching. Under current South Carolina law, the Bank may open branch
offices throughout South Carolina with the prior approval of the South Carolina
Bank Board. In addition, with prior regulatory approval, the Bank may acquire
existing banking operations in South Carolina. Furthermore, federal legislation
has recently been passed which permits interstate branching. The new law permits
out-of-state acquisitions by bank holding companies (subject to veto by new
state law), interstate branching by banks if allowed by state law, interstate
merging by banks, and de novo branching by banks if allowed by state law. North
Carolina has recently passed legislation that, in effect, prohibits de novo
branching by South Carolina banks into North Carolina until mid-1999. See
"Recent Legislative Developments."
Community Reinvestment Act. The Community Reinvestment Act requires
that, in connection with examinations of financial institutions within their
respective jurisdictions, a financial institution's primary federal regulator
(this is the FDIC for the Bank) shall evaluate the record of the financial
<PAGE> 6
institutions in meeting the credit needs of their local communities, including
low and moderate income neighborhoods, consistent with the safe and sound
operation of those institutions. These factors are also considered in evaluating
mergers, acquisitions, and applications to open a branch or facility.
Other Regulations. Interest and certain other charges collected or
contracted for by the Bank are subject to state usury laws and certain federal
laws concerning interest rates. The Bank's loan operations are also subject to
certain federal laws applicable to credit transactions, such as the federal
Truth-In-Lending Act, governing disclosures of credit terms to consumer
borrowers; the Home Mortgage Disclosure Act of 1975, requiring financial
institutions to provide information to enable the public and public officials to
determine whether a financial institution will be fulfilling its obligation to
help meet the housing needs of the community it serves; the Equal Credit
Opportunity Act, prohibiting discrimination on the basis of race, creed or other
prohibited factors in extending credit; the Fair Credit Reporting Act of 1978,
governing the use and provision of information to credit reporting agencies; the
Fair Debt Collection Act, governing the manner in which consumer debts may be
collected by collection agencies; and the rules and regulations of the various
federal agencies charged with the responsibility of implementing such federal
laws. The deposit operations of the Bank also are subject to the Right to
Financial Privacy Act, which imposes a duty to maintain confidentiality of
consumer financial records and prescribes procedures for complying with
administrative subpoenas of financial records, and the Electronic Funds Transfer
Act and Regulation E issued by the Federal Reserve Board to implement that Act,
which governs automatic deposits to and withdrawals from deposit accounts and
customers' rights and liabilities arising from the use of automated teller
machines and other electronic banking services.
CAPITAL REGULATIONS
The federal bank regulatory authorities have adopted risk-based capital
guidelines for banks that are designed to make regulatory capital requirements
more sensitive to differences in risk profiles among banks and account for
off-balance sheet items. The guidelines are minimums, and the federal regulators
have noted that banks contemplating significant expansion programs should not
allow expansion to diminish their capital ratios and should maintain ratios in
excess of the minimums. The Bank has not received any notice indicating that it
will be subject to higher capital requirements. The current guidelines require
all bank holding companies and federally-regulated banks to maintain a minimum
risk-based total capital ratio equal to 8%, of which at least 4% must be Tier 1
capital. Tier 1 capital includes common shareholders' equity, qualifying
perpetual preferred stock, and minority interests in equity accounts of
consolidated subsidiaries, but excludes goodwill and most other intangibles and
excludes the allowance for loan and lease losses. Tier 2 capital includes the
excess of any preferred stock not included in Tier 1 capital, mandatory
convertible securities, hybrid capital instruments, subordinated debt and
intermediate term-preferred stock, and general reserves for loan and lease
losses up to 1.25% of risk-weighted assets.
Under these guidelines, banks' assets are given risk-weights of 0%,
20%, 50%, or 100%. In addition, certain off-balance sheet items are given credit
conversion factors to convert them to asset equivalent amounts to which an
appropriate risk-weight will apply. These computations result in the total
risk-weighted assets. Most loans are assigned to the 100% risk category, except
for first mortgage loans fully secured by residential property and, under
certain circumstances, residential construction loans, both of which carry a 50%
rating. Most investment securities are assigned to the 20% category, except for
municipal or state revenue bonds, which have a 50% rating, and direct
obligations of or obligations guaranteed by the United States Treasury or United
States Government agencies, which have a 0% rating.
<PAGE> 7
The federal bank regulatory authorities have also implemented a
leverage ratio, which is equal to Tier 1 capital as a percentage of average
total assets less intangibles, to be used as a supplement to the risk-based
guidelines. The principal objective of the leverage ratio is to place a
constraint on the maximum degree to which a bank holding company may leverage
its equity capital base. The minimum required leverage ratio for top-rated
institutions is 3%, but most institutions are required to maintain an additional
cushion of at least 100 to 200 basis points.
FDICIA established a new capital-based regulatory scheme designed to
promote early intervention for troubled banks which requires the FDIC to choose
the least expensive resolution of bank failures. The new capital-based
regulatory framework contains five categories of compliance with regulatory
capital requirements, including "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized." To qualify as a "well capitalized" institution, a bank must
have a leverage ratio of no less than 5%, a Tier 1 risk-based ratio of no less
than 6%, and a total risk-based capital ratio of no less than 10%, and the bank
must not be under any order or directive from the appropriate regulatory agency
to meet and maintain a specific capital level. Currently, the Bank qualifies as
"well-capitalized."
Under the FDICIA regulations, the applicable agency can treat an
institution as if it were in the next lower category if the agency determines
(after notice and an opportunity for hearing) that the institution is in an
unsafe or unsound condition or is engaging in an unsafe or unsound practice. The
degree of regulatory scrutiny of a financial institution will increase, and the
permissible activities of the institution will decrease, as it moves downward
through the capital categories. Institutions that fall into one of the three
undercapitalized categories may be required to (i) submit a capital restoration
plan; (ii) raise additional capital; (iii) restrict their growth, deposit
interest rates, and other activities; (iv) improve their management; (v)
eliminate management fees; or (vi) divest themselves of all or a part of their
operations. Bank holding companies controlling financial institutions can be
called upon to boost the institutions' capital and to partially guarantee the
institutions' performance under their capital restoration plans.
Effective January 1, 1997, the FDIC amended the risk-based capital
standards to incorporate a measure for market risk to cover all positions
located in a institution's trading account, and foreign exchange and commodity
positions wherever located. The effect of the rule is that it requires any bank
with significant exposure to market risk to measure the risk and hold capital
commensurate with that risk. Since the Bank does not have any plans to engage in
trading, foreign exchange or commodity position activities, the rule is not
expected to have an effect on the required Bank capital levels.
These capital guidelines can affect the Bank in several ways.
Currently, the Bank's capital levels are more than adequate. However, rapid
growth, poor loan portfolio performance, or poor earnings performance, or a
combination of these factors, could change the Bank's capital position in a
relatively short period of time, making an additional capital infusion
necessary.
Failure to meet these capital requirements would mean that the Bank
would be required to develop and file a plan with its primary federal banking
regulator describing the means and a schedule for achieving the minimum capital
requirements. In addition, the Bank would generally not receive regulatory
approval of any application that requires the consideration of capital adequacy,
such as a branch or merger application, unless the Bank could demonstrate a
reasonable plan to meet the capital requirement within a reasonable period of
time.
<PAGE> 8
ENFORCEMENT POWERS
FIRREA expanded and increased civil and criminal penalties available
for use by the federal regulatory agencies against depository institutions and
certain "institution-affiliated parties" (primarily including management,
employees, and agents of a financial institution, and independent contractors
such as attorneys and accountants and others who participate in the conduct of
the financial institution's affairs). These practices can include the failure of
an institution to timely file required reports or the filing of false or
misleading information or the submission of inaccurate reports. Civil penalties
may be as high as $1,000,000 a day for such violations. Criminal penalties for
some financial institution crimes have been increased to twenty years. In
addition, regulators are provided with greater flexibility to commence
enforcement actions against institutions and institution-affiliated parties.
Possible enforcement actions include the termination of deposit insurance.
Furthermore, FIRREA expanded the appropriate banking agencies' power to issue
cease-and-desist orders that may, among other things, require affirmative action
to correct any harm resulting from a violation or practice, including
restitution, reimbursement, indemnifications or guarantees against loss. A
financial institution may also be ordered to restrict its growth, dispose of
certain assets, rescind agreements or contracts, or take other actions as
determined by the ordering agency to be appropriate.
RECENT LEGISLATIVE DEVELOPMENTS
In the 1994 legislative session, South Carolina amended its bank
holding company act to allow nationwide interstate banking beginning in 1996.
The Interstate Banking Act, passed by Congress in 1994, which allows
unrestricted interstate bank mergers, unrestricted interstate acquisition of
banks by bank holding companies, and interstate de novo branching by banks. As a
result of this legislation, the number of competitors in the Bank's market may
increase. However, in 1997, legislation was adopted in North Carolina which
provides that until June 1, 1999, an out-of-state bank, such as the Bank, may
establish and maintain a de novo branch in North Carolina or acquire and
maintain an existing branch from another bank only if the laws of the home state
of the out-of-state bank contain reciprocal provisions permitting North Carolina
banks to establish and maintain de novo branches or acquire branches from
another bank in that state. South Carolina law does not contain such reciprocal
provisions, and therefore this North Carolina legislation has the effect of
prohibiting the Bank from establishing a de novo branch in North Carolina prior
to June 1, 1999.
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 Bank cannot predict whether any of
these proposals will be adopted or, if adopted, how these proposals would affect
the Bank.
EFFECT OF GOVERNMENTAL MONETARY POLICIES.
The earnings of the Bank will be affected by domestic economic
conditions and the monetary and fiscal policies of the United States government
and its agencies. The Federal Reserve Board's monetary policies have had, and
will likely continue to have, an important impact on the operating results of
commercial banks through its power to implement national monetary policy in
order, among other things, to curb inflation or combat a recession. The monetary
policies of the Federal Reserve Board have major effects upon the levels of bank
loans, investments and deposits through its open market operations in United
States government securities and through its regulation of the discount rate on
borrowings of member banks and the reserve requirements against member bank
deposits. It is not possible to predict the nature or impact of future changes
in monetary and fiscal policies.
<PAGE> 9
COMPETITION
Banks generally compete with other financial institutions through the
selection of banking products and services offered, the pricing of services, the
level of service provided, the convenience and availability of services, and the
degree of expertise and the personal manner in which services are offered. South
Carolina law permits statewide branching by banks and savings institutions, and
many financial institutions in the state have branch networks. Consequently,
commercial banking in South Carolina is highly competitive. As of December 31,
1998, there were approximately seven commercial banks, no savings and loan
institutions, and four credit unions in the same area as Rock Hill Bank & Trust.
Many large banking organizations currently operate in the Bank's market area,
several of which are controlled by out-of-state ownership. In addition,
competition between commercial banks and thrift institutions (savings
institutions and credit unions) has been intensified significantly by the
elimination of many previous distinctions between the various types of financial
institutions and the expanded powers and increased activity of thrift
institutions in areas of banking which previously had been the sole domain of
commercial banks. Recent legislation, together with other regulatory changes by
the primary regulators of the various financial institutions, has resulted in
almost total elimination of practical distinctions between a commercial bank and
a thrift institution. Consequently, competition among financial institutions of
all types is largely unlimited with respect to legal authority to provide most
financial services.
Competition among financial institutions in the Rock Hill area is
particularly intense because of the strong credit union base resulting from the
large number of textile and other industrial companies in the area; Rock Hill's
proximity to Charlotte, North Carolina, which is home to large regional and
national banks such as NationsBank, First Union, and Wachovia; and the
establishment of two other new community banks in Rock Hill in the last several
years.
EMPLOYEES
As of February 28, 1999, the Bank had 26 full-time employees and five
part-time employees. The Bank does not have any employees other than its
officers, none of whom receive any remuneration for their services to the Bank.
ITEM 2. DESCRIPTION OF PROPERTY
The Bank's main office is located in an 11,000 square foot facility at
315 East Main Street in the city of Rock Hill, South Carolina. On January 7,
1999, the Bank opened its second office at 1746 Ebenezer Road in Rock Hill near
the intersection of Ebenzer and Herlong roads. This office is located in a 2,700
square foot facility and is located approximately 2.9 miles north west of the
Main Office. The Bank is scheduled to open a third office in July 1999 in the
Fort Mill/ Tega Cay area on Highway 160. The address is 100 Stone Village Drive,
Fort Mill, South Carolina. The Bank will occupy approximately 4,000 square feet
on the first floor of the two-story facility, which is under construction. Rock
Hill Bank & Trust maintains drive-up automated teller machines at each office
and an automated teller machine is planned for the Fort Mill/ Tega Cay office.
ITEM 3. LEGAL PROCEEDINGS.
None.
<PAGE> 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Common Stock and Dividend Information
Since its public offering on August 3, 1998, the Company's common stock
has been quoted on the OTC Bulletin Board under the symbol RHBT. As of March 8,
1999, the Company had approximately 1,075 were shareholders of record. To date,
the Company has not paid cash dividends on its common stock. The Company
currently intends to retain earnings to support operations and finance expansion
and therefore does not anticipate paying cash dividends in the foreseeable
future.
The following table sets forth the high and low sales price information as
reported by the OTC Bulletin Board during the period indicated since the
Company's common stock began trading publicly on August 3, 1998.
<TABLE>
<CAPTION>
STOCK PRICE
-----------
HIGH LOW
<S> <C> <C>
1998
Third Quarter $15.00 $13.50
Fourth Quarter $14.75 $13.37
</TABLE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
In response to this Item, the information contained on pages 3 through
18 of the Company's Annual Report to Shareholders for the year ended December
31, 1998 is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS
In response to this Item, the information contained on pages 19 through
36 of the Company's Annual Report to Shareholders for the year ended December
31, 1998 is incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
In response to this Item, the information contained on page 21 of the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held on
April 15, 1999 is incorporated herein by reference.
<PAGE> 11
ITEM 10. EXECUTIVE COMPENSATION
In response to this Item, the information contained on pages 16 through
17 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be
held on April 15, 1999 is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
In response to this Item, the information contained on pages 19 through
20 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be
held on April 15, 1999 is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In response to this Item, the information contained on page 17 of the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held on
April 15, 1999 is incorporated herein by reference.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
3(a) Articles of Incorporation (incorporated by reference to the
Bank's Registration Statement on Form 10-SB filed July 30,
1998).
3(b) Bylaws (incorporated by reference to the Bank's Registration
Statement on Form 10-SB filed July 30, 1998).
4 Form of Certificate of Common Stock (incorporated by reference
to the Bank's Registration Statement on Form 10-SB filed July
30, 1998).
5.1 Opinion Regarding Legality (incorporated by reference to the
Bank's Registration Statement on Form 10-SB filed July 30,
1998).
10.1 Right of First Refusal Agreement dated May 16, 1998 with
Bailey Financial Corporation and the Bank. (incorporated by
reference to the Bank's Registration Statement on Form 10-SB
filed July 30, 1998).
10.2 Share Exchange Agreement dated April 6, 1998 with Bailey
Financial Corporation and the Bank. (incorporated by reference
to the Bank's Registration Statement on Form 10-SB filed July
30, 1998).
13 Annual Report of Shareholders for the year ended December 31,
1998
27 Financial Data Schedule. (for FDIC use only).
- -------------------------
- - Denotes executive compensation contract or arrangement.
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the fourth quarter of 1998.
<PAGE> 12
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ROCK HILL BANK & TRUST
Date: March 29, 1999 By: /s/ J. A. Ferguson, Jr.
------------------- -------------------------------------
J. A. Ferguson, Jr.
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints J. A. Ferguson, Jr., his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this Annual Report on Form 10-KSB, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto attorney-in-fact and agent
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Edwin L. Barnes
- ----------------------------------
Edwin L. Barnes Director March 29, 1999
/s/ William C. Beaty, Jr.
- ----------------------------------
William C. Beaty, Jr. Director March 29, 1999
/s/ Claude W. Burns, III
- ----------------------------------
Claude W. Burns, III Director March 29, 1999
/s/ William R. Davis
- ----------------------------------
William R. Davis Director March 29, 1999
/s/ John W. Dickens
- ----------------------------------
John W. Dickens Director March 29, 1999
</TABLE>
<PAGE> 13
SIGNATURES
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ J. A. Ferguson, Jr.
- ----------------------------------
J. A. Ferguson, Jr. President; March 29, 1999
Chief Executive
Officer and
Director
/s/ Jean M. Gaillard
- ----------------------------------
Jean M. Gaillard Director March 29, 1999
/s/ Hugh L. Harrelson, Sr.
- ----------------------------------
Hugh L. Harrelson, Sr. Director March 29, 1999
/s/ Jerry H. Padgett
- ----------------------------------
Jerry H. Padgett Director March 29, 1999
/s/ Richard S. Powell
- ----------------------------------
Richard S. Powell Director March 29, 1999
/s/ Elvin F. Walker
- ----------------------------------
Elvin F. Walker Director March 29, 1999
</TABLE>
<PAGE> 14
INDEX TO EXHIBITS
(a) The following documents are filed as part of this report:
3(a) Articles of Incorporation (incorporated by reference
to the Bank's Registration Statement on Form 10-SB
filed July 30, 1998).
3(b) Bylaws (incorporated by reference to the Bank's
Registration Statement on Form 10-SB filed July 30,
1998)
4 Form of Certificate of Common Stock (incorporated by
reference to the Bank's Registration Statement on
Form 10-SB filed July 30, 1998).
5.1 Opinion Regarding Legality (incorporated by reference
to the Bank's Registration Statement on Form 10-SB
filed July 30, 1998).
10.1 Right of First Refusal Agreement dated May 16, 1998
with Bailey Financial Corporation and the Bank.
(incorporated by reference to the Bank's Registration
Statement on Form 10-SB filed July 30, 1998).
10.2 Share Exchange Agreement dated April 6, 1998 with
Bailey Financial Corporation and the Bank.
(incorporated by reference to the Bank's Registration
Statement on Form 10-SB filed July 30, 1998).
13 Annual Report of Shareholders for the year ended
December 31, 1998
27 Financial Data Schedule. (for FDIC use only).
- -----------------------
* Denotes executive compensation contract or arrangement.
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the fourth quarter of 1998.
<PAGE> 15
ROCK HILL BANK & TRUST
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Selected Financial Data 2
Management's Discussion and Analysis 3-18
Independent Auditors' Report 19
Balance Sheets 20
Statements of Income 21
Statements of Comprehensive Income 22
Statements of Changes in Stockholders' Equity 23
Statements of Cash Flows 24
Notes to Financial Statements 25-36
Corporate Data 37
</TABLE>
<PAGE> 16
ROCK HILL BANK & TRUST
SELECTED FINANCIAL DATA
The following selected financial data for the years ended December 31, 1998,
1997 and for the period May 20, 1996 to December 31, 1996 are derived from the
financial statements and other data of the Bank. The financial statements for
the years ended December 31, 1998, 1997 and for the period May 20, 1996 to
December 31, 1996, were audited by Tourville, Simpson & Henderson, L.L.P,
independent auditors. The selected financial data should be read in conjunction
with the financial statements of the Bank, including the accompanying notes,
included elsewhere herein.
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
(Dollars in thousands)
INCOME STATEMENT DATA:
Interest income $ 6,334 $ 2,998 $ 820
Interest expense 3,398 1,556 449
-------- -------- --------
Net interest income 2,936 1,442 371
Provision for loan losses 489 209 126
-------- -------- --------
Net interest income after provision for loan losses 2,447 1,233 245
Net securities gains (losses) -- (1) --
Noninterest income 330 146 26
Noninterest expense 1,742 1,291 1,091
-------- -------- --------
Income (loss) before income taxes 1,035 87 (820)
Income tax expense (benefit) 383 32 (293)
-------- -------- --------
Net income (loss) $ 652 $ 55 $ (527)
======== ======== ========
BALANCE SHEET DATA:
Assets $107,062 $ 52,324 $ 28,207
Earning assets 101,896 47,797 26,603
Securities (1) 7,414 7,009 10,025
Loans (2) 69,977 35,777 12,618
Allowance for loan losses 812 334 127
Deposits 77,740 45,281 22,599
Shareholders' equity 15,578 5,516 5,474
PER SHARE DATA:
Earnings (losses) per share $ .70 $ .09 $ (.88)
Book value (period end) 11.32 9.19 9.12
Tangible book value (period end) 11.29 9.08 8.98
PERFORMANCE RATIOS:
Return on average assets .81% .15% (4.22)%
Return on average equity 6.57 1.01 (15.52)
Net interest margin (3) 3.83 4.10 3.20
Efficiency (4) 53.34 81.29 274.76
CAPITAL AND LIQUIDITY RATIOS:
Average equity to average assets 12.35% 14.69% 27.19%
Leverage (4.00% required minimum) 15.29 11.25 20.20
Risk-based capital
Tier I 20.89 14.47 32.56
Total 21.99 15.35 33.56
Average loans to average deposits 87.01 77.64 38.46
</TABLE>
- ----------------------
1. All securities are available for sale and are stated at fair value.
2. Loans are stated at gross amounts before allowance for loan losses.
3. Net interest income divided by average earning assets.
4. Noninterest expense divided by the sum of net interest income and
noninterest income, net of gains and losses on sales of assets.
5. Nonperforming loans and nonperforming assets do not include loans past
due 90 days or more that are still accruing interest.
2
<PAGE> 17
ROCK HILL BANK & TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BASIS OF PRESENTATION
The following discussion should be read in conjunction with the preceding
"Selected Financial Data" and the Bank's Financial Statements and the Notes
thereto and the other financial data included elsewhere in this Annual Report.
The financial information provided below has been rounded in order to simplify
its presentation. However, the ratios and percentages provided below are
calculated using the detailed financial information contained in the Financial
Statements, the Notes thereto and the other financial data included elsewhere in
this Annual Report.
GENERAL
Rock Hill Bank & Trust (the "Bank") is a state-chartered bank headquartered in
Rock Hill, South Carolina. The Bank was incorporated on May 15, 1996 and opened
for business on May 20, 1996. The principal business activity of the Bank is to
provide banking services to domestic markets, principally in York County, South
Carolina. The deposits of the Bank are insured by the Federal Deposit Insurance
Corporation. In addition to providing traditional banking services, the Bank has
a trust department that offers a full range of trust services. In 1998, the Bank
established a mortgage loan division. The mortgage loan division originates
loans to purchase existing or construct new homes and to refinance existing
mortgages.
The stockholders of the Bank voted on April 16, 1998 to amend the Articles of
Incorporation to eliminate the two classes of common stock known as Class A and
Class B. A new class of common stock known simply as common stock was created
and the number of authorized shares was increased to 10,000,000. Prior to this
vote, Bailey Financial Corporation (Bailey) owned all of the Class B shares, or
51% of the total outstanding common stock. On June 19, 1998, the change in
classes of stock became effective. Bailey exchanged its Class B shares for
common shares and terminated its right of first refusal agreements and its right
to elect separate directors.
The significant growth of the Bank during its first two years of operations led
to the need for additional capital. On July 28, 1998, the Bank sold, through an
underwritten public offering, 675,000 shares of common stock at a public
offering price of $13.25 per share. On August 3, 1998, the Bank sold an
additional 101,250 common shares, also at a public offering price of $13.25 per
share, pursuant to an underwriters over-allotment provision. The additional
capital generated from this offering led the Bank to open its second branch in
January 1999, and plans are underway for a third banking location to be opened
in the summer of 1999. The additional capital has also provided the Bank with
opportunities to lend larger amounts to one individual or organization.
QUARTERLY OPERATING RESULTS
The following table summarizes selected operating results and balance sheet
averages for the quarters ended in 1998 and 1997.
<TABLE>
<CAPTION>
1998 Quarter ended 1997 Quarter ended
------------------ -------------------
(Dollars in thousands, Fourth Third Second First Fourth Third Second First
except per share data) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
-------- ------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net interest income $ 1,092 $ 744 $ 579 $ 521 $ 444 $ 399 $ 307 $ 292
Provision for loan losses 239 130 60 60 42 70 65 32
Noninterest income 100 107 66 57 68 33 28 17
Noninterest expense 592 451 370 329 321 330 320 320
Net income (loss) 228 170 135 119 94 29 (38) (30)
Net income (loss) per share 0.15 0.14 0.21 0.20 0.15 0.05 (0.06) (0.05)
SELECTED AVERAGE BALANCES:
Total assets $101,634 $87,092 $72,282 $59,780 $48,316 $40,613 $ 30,353 $ 27,595
Earning assets 93,199 83,042 69,040 57,051 45,881 37,734 29,467 25,931
Investment securities 5,265 5,738 4,649 6,701 6,569 6,353 7,309 7,239
Loans 64,887 54,240 44,373 39,220 33,858 28,262 18,723 14,448
Deposits 67,290 60,890 53,260 46,874 40,829 34,156 25,874 22,041
</TABLE>
3
<PAGE> 18
ROCK HILL BANK & TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Year ended December 31, 1998, compared with the year ended December 31, 1997
Net interest income increased $1,494,327, or 103.6%, to $2,936,150 in 1998 from
$1,441,823 in 1997. The increase in net interest income was due primarily to an
increase in average earning assets. Average earning assets increased
$43,129,915, or 115.8%, due to continued growth by the Bank and as a result of
the secondary stock offering.
The Bank's net interest spread and net interest margin were 3.04% and 3.83%,
respectively, in 1998 compared to 3.13% and 4.10% in 1997. The decreases in net
interest spread and net interest margin were primarily the result of the growth
in the volume of federal funds sold, typically lower yielding assets than loans,
as a percentage of average earning assets. Proceeds from the stock offering were
invested in federal funds and investment securities. A portion has remained in
federal funds as a source of funds for loan growth and for funding the
construction of branches.
The provision for loan losses was $489,176 in 1998 compared to $209,475 in 1997.
The increase in the provision was primarily the result of the growth in the loan
portfolio and from the Bank's efforts to maintain the allowance for loan losses
at a level sufficient to cover known and inherent losses in the loan portfolio.
The secondary stock offering allowed an increase in the Bank's legal lending
limit which resulted in the ability to make much larger loans than the Bank had
been making.
Noninterest income increased $184,489, or 126.38%, to $330,468 in 1998 from
$145,979 in 1997, primarily attributable to increased service charges on deposit
accounts and increased fees from fiduciary activities. The increase in service
charges on deposit accounts was attributable to the increase in the number of
deposit accounts from the growth of the Bank. As the Bank continued to expand
its trust department, fees of $111,604 were generated from these activities for
the year ended December 31, 1998, compared to $32,404 for the year ended
December 31, 1997.
Noninterest expense increased $451,689, or 35.0%, to $1,742,449 in 1998 from
$1,290,760 in 1997. The primary component of noninterest expense is salaries and
benefits, which increased $222,886, or 42.14%, to $751,744 in 1998 from $528,858
in 1997. The increase is attributable to the hiring of additional employees to
assist with the growth of the Bank and to staff the new Ebenezer office. The
Bank also started a mortgage loan origination department in 1998 and hired
several employees to staff this area. Net occupancy expense was $304,174 in 1998
compared to $279,069 in 1997. Advertising and marketing expense decreased to
$28,032 in 1998 compared to $65,829 in 1997. The decrease was due to less
emphasis on advertising in 1998 as the Bank became more established. The Bank's
efficiency ratio was 53.34% in 1998 compared to 81.29% in 1997.
Net income was $652,043 in 1998, compared to net income of $55,167 in 1997. The
increase in net income was due primarily to increases in net interest income and
noninterest income that resulted from the significant growth in assets and
deposits during 1998. In addition, the Bank's operational efficiency improved
drastically in 1998 as compared to the prior year. Return on average assets
during 1998 was .81% compared to .15% during 1997, and return on average equity
was 6.57% during 1998 compared to 1.01% during 1997.
4
<PAGE> 19
ROCK HILL BANK & TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - CONTINUED
Year ended December 31, 1997, compared with the period May 20, 1996 to December
31, 1996
Net interest income increased $1,070,945, or 288.8%, to $1,441,823 in 1997 from
$370,878 in the 1996 period. The increase in net interest income was due
primarily to an increase in average earning assets. Average earning assets
increased $23,621,685, or 203.8%, due to continued growth by the Bank in its
second year of operations.
The Bank's net interest spread and net interest margin were 3.13% and 4.10%,
respectively, in 1997 compared to 1.82% and 3.20% in 1996. The increases in net
interest spread and net interest margin were primarily the result of the growth
in the volume of loans, traditionally higher yielding assets than investment
securities, as a percentage of average earning assets. During the initial months
of the Bank's operations, more funds were invested in investment securities
until the loan portfolio was established.
The provision for loan losses was $209,475 in 1997 compared to $126,500 in the
1996 period. The increase in the provision was primarily the result of the
growth in the loan portfolio in the Bank's second year of operations and from
the Bank's efforts to maintain the allowance for loan losses at a level
sufficient to cover known and inherent losses in the loan portfolio.
Noninterest income increased $119,928, or 460.4%, to $145,979 in 1997 from
$26,051 in the 1996 period, primarily attributable to increased service charges
on deposit accounts and increased fees from fiduciary activities. The increase
in service charges on deposit accounts was attributable to the increase in the
number of deposit accounts from the growth of the Bank. As the Bank continued to
expand its trust department, fees of $32,404 were generated from these
activities for the year ended December 31, 1997.
Noninterest expense increased $200,148, or 18.4%, to $1,290,760 in 1997 from
$1,090,612 in the 1996 period. The primary component of noninterest expense is
salaries and benefits, which increased $180,779, or 51.9%, to $528,858 in 1997
from $348,079 in the 1996 period. The increase is attributable to twelve months
of expense in 1997 compared to only eight months of expense for most employee
salaries in 1996. Other categories of expenses also increased due to twelve
months of expense in 1997 compared to only eight months in 1996. Net occupancy
expense was $279,069 in 1997 compared to $165,501 in the 1996 period.
Advertising and marketing expense decreased to $65,829 in 1997 compared to
$230,617 in the 1996 period. The decrease was due to less emphasis on
advertising in 1997 as the Bank became more established. The Bank's efficiency
ratio was 81.29% in 1997 compared to 274.76% in 1996.
Net income was $55,167 in 1997, compared to a net loss of $527,133 in the 1996
period. The increase in net income was due primarily to increases in net
interest income due to asset growth and noninterest income. Return on average
assets during 1997 was 0.15% compared to (4.22)% during 1996, and return on
average equity was 1.01% during 1997 compared to (15.52)% during 1996.
5
<PAGE> 20
ROCK HILL BANK & TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NET INTEREST INCOME
General. The largest component of the Bank's net income is its net interest
income, which is the difference between the income earned on assets and interest
paid on deposits and borrowings used to support such assets. Net interest income
is determined by the yields earned on the Bank's interest-earning assets and the
rates paid on its interest-bearing liabilities, the relative amounts of
interest-earning assets and interest-bearing liabilities, and the degree of
mismatch and the maturity and repricing characteristics of its interest-earning
assets and interest-bearing liabilities. Net interest income divided by average
interest-earning assets represents the Bank's net interest margin.
Average Balances, Income and Expenses and Rates. The following tables set forth,
for the periods indicated, certain information related to the Bank's average
balance sheet and its average yields on assets and average costs of liabilities.
Such yields are derived by dividing income or expense by the average balance of
the corresponding assets or liabilities. Average balances have been derived from
the daily balances throughout the periods indicated.
AVERAGE BALANCES, INCOME AND EXPENSES AND RATES
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997
------------------------------------------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
ASSETS:
Earning Assets
Loans (1) $51,173 $4,976 9.72% $24,116 $2,347 9.73%
Securities, taxable (2) 6,124 371 6.06 7,037 438 6.22
Funds sold and other 19,283 987 5.12 4,059 213 5.25
------- ------ ------- ------
Total earning assets 76,580 6,334 8.27 35,212 2,998 8.51
------- ------ ------- ------
Cash and due from banks 2,740 1,154
Premises and equipment 610 419
Other assets 928 685
Allowance for loan losses (477) (219)
------- -------
Total assets $80,381 $37,251
======= =======
LIABILITIES:
Interest-Bearing Liabilities
Interest-bearing transaction accounts $16,995 $ 716 4.21% $11,595 $ 514 4.43%
Savings deposits 2,767 144 5.20 1,707 96 5.62
Time deposits 33,819 1,987 5.88 15,231 927 6.09
Other short-term borrowings 11,362 551 4.85 380 19 5.00
------- ------ ------- ------
Total interest-bearing liabilities 64,943 3,398 5.23 28,913 1,556 5.38
------- ------ ------- ------
Demand deposits 5,221 2,734
Accrued interest and other liabilities 287 180
Shareholders' equity 9,930 5,424
------- -------
Total liabilities and shareholders' equity $80,381 $37,251
======= =======
Net interest spread 3.04% 3.13%
Net interest income $2,936 $1,442
====== ======
Net interest margin 3.83% 4.10%
</TABLE>
(1) There were no loans in nonaccrual status and the effect of fees collected on
loans is not significant to the computations. All loans and deposits are
domestic.
(2) Average investment securities exclude the valuation allowance on securities
available for sale.
6
<PAGE> 21
ROCK HILL BANK & TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NET INTEREST INCOME - CONTINUED
Analysis of Changes in Net Interest Income. The following tables set forth the
effect which the varying levels of earning assets and interest-bearing
liabilities and the applicable rates have had on changes in net interest income
from 1997 to 1998 and 1996 to 1997.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
1998 Compared With 1997
Variance Due to
Volume (1) Rate (1) Total
---------- -------- -------
<S> <C> <C> <C>
(Dollars in thousands)
EARNING ASSETS
Loans $ 2,631 $ (2) $ 2,629
Securities, taxable (56) (11) (67)
Funds sold and other 779 (5) 774
------- ---- -------
Total interest income 3,354 (18) 3,336
------- ---- -------
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Interest-bearing transaction accounts 229 (27) 202
Savings and market rate investments 56 (8) 48
Certificates and other time deposits 1,093 (33) 1,060
------- ---- -------
Total interest-bearing deposits 1,378 (68) 1,310
Other short-term borrowings 533 (1) 532
------- ---- -------
Total interest expense 1,911 (69) 1,842
------- ---- -------
Net interest income $ 1,443 $ 51 $ 1,494
======= ==== =======
</TABLE>
(1) Volume-rate changes have been allocated to each category based on the
percentage of the total change.
<TABLE>
<CAPTION>
1997 Compared With 1996
Variance Due to
Volume (1) Rate (1) Total
---------- -------- -------
<S> <C> <C> <C>
(Dollars in thousands)
EARNING ASSETS
Loans $ 2,009 $ (16) $ 1,993
Securities, taxable 159 (8) 151
Funds sold and other 24 10 34
------- ----- -------
Total interest income 2,192 (14) 2,178
------- ----- -------
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Interest-bearing transaction accounts 363 (4) 359
Savings and market rate investments 73 -- 73
Certificates and other time deposits 639 17 656
------- ----- -------
Total interest-bearing deposits 1,075 13 1,088
Other short-term borrowings -- 19 19
------- ----- -------
Total interest expense 1,075 32 1,107
------- ----- -------
Net interest income $ 1,117 $ (46) $ 1,071
======= ===== =======
</TABLE>
(1) Volume-rate changes have been allocated to each category based on the
percentage of the total change.
7
<PAGE> 22
ROCK HILL BANK & TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NET INTEREST INCOME - CONTINUED
Interest Sensitivity. The Bank monitors and manages the pricing and maturity of
its assets and liabilities in order to diminish the potential adverse impact
that changes in interest rates could have on its net interest income. The
principal monitoring technique employed by the Bank is the measurement of the
Bank's interest sensitivity "gap", which is the positive or negative dollar
difference between assets and liabilities that are subject to interest rate
repricing within a given period of time. Interest rate sensitivity can be
managed by repricing assets or liabilities, selling securities available for
sale, replacing an asset or liability at maturity, or adjusting the interest
rate during the life of an asset or liability. Managing the amount of assets and
liabilities repricing in this same time interval helps to hedge the risk and
minimize the impact on net interest income of rising or falling interest rates.
The following table sets forth the Bank's interest rate sensitivity at December
31, 1998.
INTEREST SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
After One After Three Greater Than
Within Through Through One Year
One Three Twelve Within or Non-
Month Months Months One Year sensitive Total
------- ------ -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
ASSETS
Earning Assets
Loans (1) $25,593 $2,706 $ 7,976 $ 36,275 $33,702 $ 69,977
Securities -- 1,504 -- 1,504 5,910 7,414
Funds sold and other 24,505 -- -- 24,505 -- 24,505
------- ------ -------- -------- ------- --------
Total earning assets 50,098 4,210 7,976 62,284 39,612 101,896
------- ------ -------- -------- ------- --------
LIABILITIES
Interest-bearing liabilities
Interest-bearing deposits
Demand deposits 23,220 -- -- 23,220 -- 23,220
Savings deposits 3,176 -- -- 3,176 -- 3,176
Time deposits 1,385 3,407 34,150 38,942 6,244 45,186
------- ------ -------- -------- ------- --------
Total interest-bearing
deposits 27,781 3,407 34,150 65,338 6,244 71,582
Other short-term borrowings 13,250 -- -- 13,250 -- 13,250
------- ------ -------- -------- ------- --------
Total interest-bearing
liabilities 41,031 3,407 34,150 78,588 6,244 84,832
------- ------ -------- -------- ------- --------
Period gap $ 9,067 $ 803 $(26,174) $(16,304) $33,368
======= ====== ======== ======== =======
Cumulative gap $ 9,067 $9,870 $(16,304) $(16,304) $17,064
======= ====== ======== ======== =======
Ratio of cumulative gap to total earning
assets 8.90% 9.69% (16.00)% (16.00)% 16.75%
</TABLE>
(1) Excludes nonaccrual loans
The above table reflects the balances of interest-earning assets and
interest-bearing liabilities at the earlier of their repricing or maturity
dates. Overnight federal funds are reflected at the earliest pricing interval
due to the immediately available nature of the instruments. Securities purchased
under agreements to resell are reflected at the maturity date of each agreement
which ranges from seven to thirty days. Debt securities are reflected at each
instrument's ultimate maturity date. Scheduled payment amounts of fixed rate
amortizing loans are reflected at each scheduled payment date. Scheduled payment
amounts of variable rate amortizing loans are reflected at each scheduled
payment date until the loan may be repriced contractually; the unamortized
balance is reflected at that point. Interest-bearing liabilities with no
contractual maturity, such as savings deposits and interest-bearing transaction
accounts, are reflected in the earliest repricing period due to contractual
arrangements which give the Bank the opportunity to vary the rates paid on those
deposits within a thirty-day or shorter period. Fixed rate time deposits,
principally certificates of deposit, are reflected at their contractual maturity
date. Other short-term borrowings are reflected at the maturity date of each
repurchase agreement which ranges from seven to thirty days.
8
<PAGE> 23
ROCK HILL BANK & TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NET INTEREST INCOME - CONTINUED
The Bank generally would benefit from increasing market rates of interest when
it has an asset-sensitive gap position and generally would benefit from
decreasing market rates of interest when it is liability-sensitive. The Bank is
liability sensitive over the three month to twelve month time frame. However,
the Bank's gap analysis is not a precise indicator of its interest sensitivity
position. The analysis presents only a static view of the timing of maturities
and repricing opportunities, without taking into consideration that changes in
interest rates do not affect all assets and liabilities equally. For example,
rates paid on a substantial portion of core deposits may change contractually
within a relatively short time frame, but those rates are viewed by management
as significantly less interest-sensitive than market-based rates such as those
paid on non-core deposits. Accordingly, management believes a
liability-sensitive gap position is not as indicative of the Bank's true
interest sensitivity as it would be for an organization which depends to a
greater extent on purchased funds to support earning assets. Net interest income
may be impacted by other significant factors in a given interest rate
environment, including changes in the volume and mix of earning assets and
interest-bearing liabilities.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
General. The Bank has developed policies and procedures for evaluating the
overall quality of its credit portfolio and the timely identification of
potential problem credits. On a quarterly basis, the Bank's Board of Directors
reviews and approves the appropriate level for the Bank's allowance for loan
losses based upon management's recommendations, the results of the internal
monitoring and reporting system, and an analysis of economic conditions in its
market. The objective of management has been to fund the allowance for loan
losses at approximately 1% of total loans outstanding until a history is
established.
Additions to the allowance for loan losses, which are expensed as the provision
for loan losses on the Bank's income statement, are made periodically to
maintain the allowance at an appropriate level based on management's analysis of
the potential risk in the loan portfolio. Loan losses and recoveries are charged
or credited directly to the allowance. The amount of the provision is a function
of the level of loans outstanding, the level of nonperforming loans, historical
loan loss experience, the amount of loan losses actually charged against the
reserve during a given period, and current and anticipated economic conditions.
The Bank's allowance for loan losses is based upon judgments and assumptions of
risk elements in the portfolio, future economic conditions, and other factors
affecting borrowers. The process includes identification and analysis of loss
potential in various portfolio segments utilizing a credit risk grading process
and specific reviews and evaluations of significant problem credits. In
addition, management monitors the overall portfolio quality through observable
trends in delinquency, charge-offs, and general and economic conditions in the
service area. The adequacy of the allowance for loan losses and the
effectiveness of the Bank's monitoring and analysis system are also reviewed
periodically by the banking regulators and the Bank's independent auditors.
Based on present information and an ongoing evaluation, management considers the
allowance for loan losses to be adequate to meet presently known and inherent
risks in the loan portfolio. 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 or may not be accurate. Thus, there can
be no assurance that charge-offs in future periods will not exceed the allowance
for loan losses or that additional increases in the allowance for loan losses
will not be required. The Bank does not allocate the allowance for loan losses
to specific categories of loans but evaluates the adequacy on an overall
portfolio basis utilizing a risk grading system.
The following table sets forth certain information with respect to the Bank's
allowance for loan losses and the composition of charge-offs and recoveries for
the years ended December 31, 1998, 1997 and for the period May 20, 1996 to
December 31, 1996.
9
<PAGE> 24
ROCK HILL BANK & TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
(Dollars in thousands)
Total loans outstanding at end of period $69,977 $35,777 $12,618
======= ======= =======
Average loans outstanding $51,173 $24,116 $ 3,481
======= ======= =======
Balance of allowance for loan losses at beginning of period $ 334 $ 127 $ --
Loan losses:
Commercial, financial and agricultural -- -- --
Real estate - mortgage -- -- --
Consumer 11 6 --
------- ------- -------
Total loan losses 11 6 --
------- ------- -------
Recoveries of previous loan losses:
Commercial, financial and agricultural -- -- --
Real estate - mortgage -- -- --
Consumer -- 4 --
------- ------- -------
Total recoveries -- 4 --
------- ------- -------
Net loan losses 11 2 --
Provision for loan losses 489 209 127
------- ------- -------
Balance of allowance for loan losses at end of period $ 812 $ 334 $ 127
======= ======= =======
Allowance for loan losses to period end loans 1.16% .93% 1.00%
Net charge-offs to average loans .02 .01 --
</TABLE>
NONPERFORMING ASSETS
Nonperforming Assets. The following table sets forth the Bank's nonperforming
assets for the dates indicated.
<TABLE>
<CAPTION>
December 31,
(Dollars in thousands) 1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Nonaccrual loans $ -- $ -- $ --
Restructured or impaired loans -- -- --
------- ------- -------
Total nonperforming loans -- -- --
Other real estate owned -- -- --
------- ------- -------
Total nonperforming assets $ -- $ -- $ --
======= ======= =======
Loans 90 days or more past due and still accruing interest $ 2 $ -- $ --
Nonperforming assets to period end loans and foreclosed property --% --% --%
</TABLE>
Accrual of interest is discontinued on a loan when management believes, after
considering economic and business conditions and collection efforts, that the
borrower's financial condition is such that the collection of interest is
doubtful. A delinquent loan is generally placed in nonaccrual status when it
becomes 90 days or more past due. When a loan is placed in nonaccrual status,
all interest which has been accrued on the loan but remains unpaid is reversed
and deducted from current earnings as a reduction of reported interest income.
No additional interest is accrued on the loan balance until the collection of
both principal and interest becomes reasonably certain. When a problem loan is
finally resolved, there may ultimately be an actual writedown or charge-off of
the principal balance of the loan which would necessitate additional charges to
earnings. For all periods presented, the additional interest income, which would
have been recognized into earnings if the Bank's nonaccrual loans had been
current in accordance with their original terms, is immaterial.
There were no nonperforming assets at December 31, 1998, 1997, or 1996.
10
<PAGE> 25
ROCK HILL BANK & TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NONPERFORMING ASSETS - CONTINUED
Potential Problem Loans. At December 31, 1998, the Bank had not identified any
criticized or classified loans through its internal review mechanisms. The
results of this internal review process are considered in determining
management's assessment of the adequacy of the allowance for loan losses.
However, the overall objective of the Bank has been to maintain the allowance
for loan losses at approximately 1% of total loans to provide for potential
problem loans.
NONINTEREST INCOME AND EXPENSE
Noninterest Income. The largest component of noninterest income is service
charges on deposit accounts, which totaled $140,490 in 1998, a 69.7% increase
over the 1997 amount of $82,774. The increase in service charges and other
noninterest income was primarily attributable to an increase in the customer
base due as a result of the growth allowed from the secondary stock offering in
July, 1998.
The following table sets forth the principal components of noninterest income
for the years ended December 31, 1998, 1997 and for the period May 20, 1996 to
December 31, 1996.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
(Dollars in thousands)
Service charges on deposit accounts $140 $ 83 $14
Securities gains (losses) -- (1) --
Income from fiduciary activities 112 32 --
Other 78 32 12
---- ---- ---
Total noninterest income $330 $146 $26
==== ==== ===
</TABLE>
Noninterest Expense. Salaries and employee benefits increased $222,886, or
42.1%, to $751,744 in 1998 from $528,858 in 1997, primarily as a result of the
hiring of employees to staff the new branch (which opened in January 1999) and
to assist personnel at the main office with the continuing growth of the Bank.
In addition, several employees were hired in 1998 to staff the mortgage loan
department. The continued growth of the Bank also resulted in increases in net
occupancy expense and other operating expenses. One of the primary factors for
the increase in other operating expenses was due to an increase in data
processing charges of approximately $78,000 from 1997 to 1998 that resulted from
a new data processing agreement that became effective in May 1998. The Bank's
efficiency ratio, which is noninterest expense as a percentage of the total of
net interest income plus noninterest income, net of gains and losses on the sale
of assets, was 53.34% in 1998 compared to 81.29% in 1997.
The following table sets forth the primary components of noninterest expense for
the years ended December 31, 1998, 1997 and for the period May 20, 1996 to
December 31, 1996.
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ -------
<S> <C> <C> <C>
(Dollars in thousands)
Salaries and employee benefits $ 752 $ 529 $ 348
Net occupancy expense 304 279 166
Advertising and marketing expense 28 66 231
Office supplies, forms and stationery 89 58 86
Data processing 135 58 38
Professional fees 27 39 44
Telephone 61 39 28
Amortization of organizational costs 19 19 11
Other 327 204 139
------ ------ -------
Total noninterest expense $1,742 $1,291 $ 1,091
====== ====== =======
Efficiency ratio 53.34% 81.29% 274.76%
</TABLE>
11
<PAGE> 26
ROCK HILL BANK & TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EARNING ASSETS
Loans. Loans are the largest category of earning assets and typically provide
higher yields than the other types of earning assets. Associated with the higher
loan yields are the inherent credit and liquidity risks which management
attempts to control and counterbalance. Loans averaged $51,173,369 in 1998
compared to $24,115,792 in 1997, an increase of $27,057,577, or 112.2%. At
December 31, 1998, total loans were $69,977,496 compared to $35,777,286 at
December 31, 1997.
The increase in loans during 1998 was primarily due to the growth of the Bank
during its third year of operations as well as the ability to fund more and
larger loans as a result of the capital raised from the secondary stock
offering. The following table sets forth the composition of the loan portfolio
by category at the dates indicated and highlights the Bank's general emphasis on
commercial and mortgage lending.
COMPOSITION OF LOAN PORTFOLIO
<TABLE>
<CAPTION>
December 31,
1998 1997
---------------------- ----------------------
Percent Percent
(Dollars in thousands) Amount of Total Amount of Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $ 27,055 38.66% $ 16,728 46.76%
Real estate
Construction 1,298 1.86 -- --
Mortgage-residential 13,919 19.89 6,014 16.81
Mortgage-nonresidential 23,986 34.28 10,239 28.62
Consumer 3,709 5.30 2,678 7.48
Other 10 .01 118 .33
-------- ------ -------- ------
Total loans 69,977 100.00% 35,777 100.00%
====== ======
Allowance for loan losses 812 334
-------- --------
Net loans $ 69,165 $ 35,443
======== ========
</TABLE>
The Bank's loan portfolio is comprised primarily of real estate mortgage loans.
At December 31, 1998, real estate mortgage loans totaled $37,905,476 and
represented 54.2% of the total loan portfolio, compared to $16,252,774, or
45.4%, at December 31, 1997.
In the context of this discussion, a "real estate mortgage loan" is defined as
any loan, other than loans for construction purposes, secured by real estate,
regardless of the purpose of the loan. It is common practice for financial
institutions in the Bank's market area to obtain a security interest in real
estate whenever possible, in addition to any other available collateral. This
collateral is taken to reinforce the likelihood of the ultimate repayment of the
loan and tends to increase the magnitude of the real estate loan portfolio
component.
Residential mortgage loans increased $7,905,145, or 131.4%, to $13,919,426 at
December 31, 1998, from $6,014,281 at December 31, 1997. Residential real estate
loans consist of first and second mortgages on single or multi-family
residential dwellings. Nonresidential mortgage loans, which include commercial
loans and other loans secured by multi-family properties and farmland, increased
$13,747,654, or 134.3%, to $23,986,147 at December 31, 1998, from $10,238,493 at
December 31, 1997. This increase in real estate lending was attributable to the
continued demand for residential and commercial real estate loans in the Rock
Hill market and continued loan growth at the Bank. The Bank has been able to
compete favorably for residential mortgage loans with other financial
institutions by offering fixed rate products having three and five year call
provisions.
Commercial, financial and agricultural loans increased $10,327,203, or 61.7%, to
$27,054,936 at December 31, 1998, from $16,727,733 at December 31, 1997. This
category of loans also includes discounted accounts receivable loans that
totaled $6,120,884 at December 31, 1998, an increase of $2,913,638, or 90.1%,
from December 31, 1997.
12
<PAGE> 27
ROCK HILL BANK & TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EARNING ASSETS - CONTINUED
Consumer loans increased $1,030,957, or 38.5%, to $3,708,911 at December 31,
1998, from $2,677,954 at December 31, 1998. The growth in consumer loans is
primarily attributable to overall growth in the Bank's loan portfolio.
The Bank's loan portfolio reflects the diversity of its market. The Bank's home
office is located in York County, South Carolina. The economy of Rock Hill
contains elements of medium and light manufacturing, higher education, regional
health care, and distribution facilities. Due to its proximity to a major
interstate highway and Winthrop University, a state-supported university,
management expects the area to remain stable with continued growth. The
diversity of the economy creates opportunities for all types of lending. The
Bank does not engage in foreign lending.
The repayment of loans in the loan portfolio as they mature is also a source of
liquidity for the Bank. The following table sets forth the Bank's loans maturing
within specified intervals at December 31, 1998.
LOAN MATURITY SCHEDULE AND SENSITIVITY TO CHANGES IN INTEREST RATES
<TABLE>
<CAPTION>
Over One Year
One Year Through Over Five
or Less Five Years Total
------- ------- ------ -------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Commercial, financial and agricultural $17,778 $ 7,523 $1,754 $27,055
Real estate 17,320 18,321 3,562 39,203
Consumer and other 1,177 2,542 -- 3,719
Loans maturing after one year with:
Fixed interest rates $33,702
Floating interest rates --
-------
$33,702
=======
</TABLE>
The information presented in the above table is based on the contractual
maturities of the individual loans, including loans which may be subject to
renewal at their contractual maturity. Renewal of such loans is subject to
review and credit approval as well as modification of terms upon their maturity.
Consequently, management believes this treatment presents fairly the maturity
and repricing structure of the loan portfolio shown in the above table.
Investment Securities. The investment securities portfolio is also a component
of the Bank's total earning assets. Total securities averaged $6,123,501 in
1998, compared to $7,037,750 in 1997. At December 31, 1998, the total securities
portfolio was $7,414,072. All securities were designated as available for sale
and were recorded at their estimated fair market value. A number of U.S.
Treasury securities matured in 1998 and those funds were invested in slightly
higher-yielding U.S. Government agency securities.
The following table sets forth the book value of the securities held by the Bank
at the dates indicated.
BOOK VALUE OF SECURITIES
<TABLE>
<CAPTION>
December 31,
1998 1997
------- -------
<S> <C> <C>
(Dollars in thousands)
U.S. Treasury $ 1,504 $ 4,508
U.S. government agencies 5,910 2,501
------- -------
Total securities $ 7,414 $ 7,009
======= =======
</TABLE>
13
<PAGE> 28
ROCK HILL BANK & TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EARNING ASSETS - CONTINUED
The following table sets forth the scheduled maturities and average yields of
securities held at December 31, 1998.
INVESTMENT SECURITIES MATURITY DISTRIBUTION AND YIELDS
<TABLE>
<CAPTION>
After One But After Five But
Within One Within Five Within Ten
Year Years Years Total
--------------- --------------- --------------- ---------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
U.S. Treasury $1,504 6.37% $ -- --% $ -- -- $1,504 6.37%
U.S. government agencies -- -- 4,910 5.65 1,000 6.40 5,910 5.78
------ ------ ------ ------
Total $1,504 6.37% $4,910 5.65% $1,000 6.40% $7,414 5.89%
====== ====== ====== ======
</TABLE>
Other attributes of the securities portfolio, including yields and maturities,
are discussed above in "---Net Interest Income--- Interest Sensitivity."
Short-Term Investments. Short-term investments, which consist primarily of
federal funds sold and securities purchased under agreements to resell, averaged
$19,282,856 in 1998, compared to $4,058,575 in 1997. At December 31, 1998,
short-term investments totaled $24,505,000. These funds are an important source
of the Bank's liquidity. Federal funds are generally invested in an earning
capacity on an overnight basis. Securities purchased under agreements to resell
are invested on a seven to thirty day period, depending on the terms of each
agreement. The increase in short-term investments was partially attributable to
an average federal funds sold balance of a $7,939,699 as a result of excess
funds from the secondary stock offering.
DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES
Average interest-bearing liabilities increased $36,029,275, or 124.6%, to
$64,942,616 in 1998, from $28,913,341 in 1997. Average interest-bearing deposits
increased $25,047,596, or 87.8%, to $53,581,047 in 1998, from $28,533,451 in
1997. These increases resulted from increases in most categories of
interest-bearing liabilities, primarily as a result of the continued growth of
the Bank.
Deposits. Average total deposits increased $27,535,731, or 88.1%, to $58,802,623
during 1998, from $31,266,892 during 1997. At December 31, 1998, total deposits
were $77,739,725 compared to $45,280,870 a year earlier, an increase of 71.7%.
The following table sets forth the deposits of the Bank by category at the dates
indicated.
DEPOSITS
<TABLE>
<CAPTION>
December 31,
1998 1997
-------------------- -------------------
Percent Percent
(Dollars in thousands) of of
Amount Deposits Amount Deposits
------- -------- ------- --------
<S> <C> <C> <C> <C>
Demand deposit accounts $ 6,158 7.92% $ 4,485 9.91%
NOW accounts 8,410 10.82 2,888 6.38
Money market accounts 14,810 19.05 9,995 22.07
Savings accounts 3,176 4.08 2,382 5.26
Time deposits less than $100,000 27,062 34.81 17,244 38.08
Time deposits of $100,000 or over 18,124 23.32 8,287 18.30
------- ------ ------- ------
Total deposits $77,740 100.00% $45,281 100.00%
======= ====== ======= ======
</TABLE>
14
<PAGE> 29
ROCK HILL BANK & TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES
Core deposits, which exclude certificates of deposit of $100,000 or more,
provide a relatively stable funding source for the Bank's loan portfolio and
other earning assets. The Bank's core deposits increased $22,622,041 in 1998 due
to the continued growth of the Bank.
Deposits, and particularly core deposits, have been the Bank's primary source of
funding and have enabled the Bank to meet successfully both its short-term and
long-term liquidity needs. Management anticipates that such deposits will
continue to be the Bank's primary source of funding in the future. The Bank also
purchases brokered deposits from time to time. At December 31, 1998,
certificates of deposit included brokered deposits totaling $9,905,500. Six of
these accounts had current balances of $100,000 or more and totaled $1,001,535
at December 31, 1998. All remaining accounts had balances of $99,000. The Bank's
loan-to-deposit ratio was 90.0% at December 31, 1998, and 79.0% at the end of
1997; and the ratio averaged 87.4% during 1998. The maturity distribution of the
Bank's time deposits over $100,000 at December 31, 1998, is set forth in the
following table:
MATURITIES OF CERTIFICATES OF DEPOSIT OF $100,000 OR MORE
<TABLE>
<CAPTION>
After Three After Six
Within Through Through After
Three Six Twelve Twelve
Months Months Months Months Total
-------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Certificates of deposit of $100,000 or more $ 1,507 $ 2,958 $ 12,309 $ 1,350 $ 18,124
</TABLE>
Approximately 8.31% of the Bank's time deposits over $100,000 had scheduled
maturities within three months, and 24.64% had maturities within six months.
Large certificate of deposit customers tend to be extremely sensitive to
interest rate levels, making these deposits less reliable sources of funding for
liquidity planning purposes than core deposits.
Borrowed Funds. Borrowed funds consist primarily of short-term borrowings in the
form of federal funds purchased from correspondent banks and securities sold
under agreements to repurchase.
Average short-term borrowings were $11,361,569 in 1998, compared to $379,890 in
1997. At December 31, 1998, short-term borrowings were $13,250,000. The average
balance in 1998 related solely to securities sold under agreements to repurchase
with several customers. These agreements typically range from seven to fourteen
days. Although management may from time to time use short-term borrowings as a
secondary funding source, core deposits will continue to be the Bank's primary
funding source.
CAPITAL
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a material effect on the Bank's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classifications are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum ratios of Tier 1 and total capital as a
percentage of assets and off-balance-sheet exposures, adjusted for risk weights
ranging from 0% to 100%. Tier 1 capital of the Bank consists of common
shareholders' equity, excluding the unrealized gain or loss on securities
available-for-sale, minus certain intangible assets. The Bank's Tier 2 capital
consists of the allowance for loan losses subject to certain limitations. Total
capital for purposes of computing the capital ratios consists of the sum of Tier
1 and Tier 2 capital. The regulatory minimum requirements are 4% for Tier 1 and
8% for total risk-based capital.
15
<PAGE> 30
ROCK HILL BANK & TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAPITAL - CONTINUED
The Bank is also required to maintain capital at a minimum level based on total
assets, which is known as the leverage ratio. Only the strongest banks are
allowed to maintain capital at the minimum requirement of 3%. All others are
subject to maintaining ratios 1% to 2% above the minimum.
The Bank is required to maintain certain risk-based and leverage ratios. The
Bank exceeded these regulatory capital ratios at December 31, 1998, 1997 and
1996 as set forth in the following table.
ANALYSIS OF CAPITAL AND CAPITAL RATIOS
<TABLE>
<CAPTION>
December 31,
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
(Dollars in thousands)
Tier 1 capital $15,532 $ 5,502 $ 5,183
Tier 2 capital 812 334 126
------- ------- -------
Total qualifying capital $16,344 $ 5,836 $ 5,309
======= ======= =======
Risk-adjusted total assets (including off-balance sheet exposures) $74,388 $37,651 $15,916
======= ======= =======
Tier 1 risk-based capital ratio 20.89% 14.47% 32.56%
Total risk-based capital ratio 21.99 15.35 33.56
Tier 1 leverage ratio 15.29 11.25 20.20
</TABLE>
LIQUIDITY MANAGEMENT AND CAPITAL RESOURCES
Liquidity management involves monitoring the Bank's sources and uses of funds in
order to meet its day-to-day cash flow requirements while maximizing profits.
Liquidity represents the ability of a Bank to convert assets into cash or cash
equivalents without significant loss and to raise additional funds by increasing
liabilities. Without proper liquidity management, the Bank would not be able to
perform the primary function of a financial intermediary and would, therefore,
not be able to meet the needs of the communities it serves.
Liquidity management is made more complex because different balance sheet
components are subject to varying degrees of management control. For example,
the timing of maturities of the investment portfolio is very predictable and
subject to a high degree of control at the time investment decisions are made.
However, net deposit inflows and outflows are far less predictable and are not
subject to nearly the same degree of control.
ACCOUNTING RULE CHANGES
In June 1998, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards (SFAS) 133,"Accounting for Derivative Instruments
and Hedging Activities." SFAS 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure these instruments at fair values. The accounting for
changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. The Bank generally does not purchase
derivative instruments or enter into hedging activities.
This statement is effective for fiscal years beginning after June 15, 1999.
IMPACT OF INFLATION
Unlike most industrial companies, the assets and liabilities of financial
institutions such as the Bank are primarily monetary in nature. Therefore,
interest rates have a more significant effect on the Bank's performance than do
the effects of changes in the general rate of inflation and change in prices. In
addition, interest rates do not necessarily move in the same direction or in the
same magnitude as the prices of goods and services. As discussed previously,
management seeks to manage the relationships between interest sensitive assets
and liabilities in order to protect against wide interest rate fluctuations,
including those resulting from inflation.
16
<PAGE> 31
ROCK HILL BANK & TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INDUSTRY DEVELOPMENTS
In February 1998, the Supreme Court ruled that federal credit unions must limit
their membership to employees of the companies that sponsor the credit union.
Banking leaders throughout the country have argued that credit unions have an
unfair competitive advantage because they do not pay income taxes and are not
subject to the same level of regulatory oversight. The Supreme Court ruling
applies only to federal credit unions. State-chartered credit unions were not
directly affected by the ruling. The lower courts will determine whether current
members who are not employed by the credit union sponsor will be forced to close
their accounts. Management does not expect the ruling to have an immediate
effect on the financial position or results of operations of the Bank.
The effects on future periods has not yet been determined.
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 Bank cannot predict whether any of these
proposals will be adopted or, if adopted, how these proposals would affect the
Bank.
THE MERGER OF BAILEY AND ANCHOR
In September 1998, Bailey executed a definitive agreement to merge with Anchor
Financial Corporation (Anchor). Once the merger is completed, Bailey's share of
ownership will transfer to Anchor. The stock offering reduced the ownership of
outstanding common stock of the Bank for Bailey from 51% to 22.2%. Anchor has
made a number of commitments to the Bank, which include not exercising or
attempting to exercise influence over the Bank and not to acquire additional
stock.
THE YEAR 2000
Issues. Some computers, software, and other equipment include programming codes
in which calendar year data is abbreviated to only two digits. As a result of
this design decision, some of these systems could fail to operate or fail to
produce correct results if A00" is interpreted to mean 1900, rather than 2000.
These problems are widely expected to increase in frequency and severity as the
year 2000 approaches and are commonly referred to as the "Year 2000 Problem."
Assessment. The Year 2000 Problem could affect computers, software, and other
equipment that the Bank uses. Accordingly, the Bank has completed its review of
its internal computer programs and systems to determine whether they will be
Year 2000 compliant. The Bank believes that its computer systems will be Year
2000 compliant in a timely manner. Because the primary hardware and software
systems are presently certified by their vendors as Year 2000 compliant, the
Bank has not incurred any significant costs to date relating to software
modifications or new installations for the other systems. Most systems are made
compliant through periodic software upgrades provided by the various vendors as
part of the license agreements. However, while the Bank does not expect the cost
of these efforts to be material to its financial position or any year's
operating results, there can be no assurance to this effect.
Internal Infrastructure. The Bank utilizes an outsourced data processing system,
Bailey Financial Corporation, for most of its accounting functions. The Bank's
primary systems and those of Bailey, have been tested by proxy with the software
provider, who has tested in environments with like software and hardware systems
as the Bank. Banking regulators have approved this type of testing as a valid
means of testing. The Bank has received confirmation of Bailey's testing results
and the Bank believes that it has identified substantially all of the major
computers, software applications, and related equipment used in connection with
its internal operations that must be modified, upgraded, or replaced to minimize
the possibility of a material disruption of its business. Management has
completed upgrading and is in the process of testing the systems that it has
determined are not prepared for the Year 2000. Management believes that the
testing of its systems should be completed by March 31, 1999. Management has
spent approximately $185,000 to get all of its systems Year 2000 compliant. This
includes approximately $132,000 for the installation of a new on-line system at
the main office and $53,000 as part of the cost of the installation of the
systems in the Bank's new Ebenezer office. As of December 31, 1998, the
installation of the new on-line system was complete at the main office and at
the Ebenezer office. The Bank does not believe that any additional cost related
to these efforts will be material to its business, financial condition, or
operating results.
17
<PAGE> 32
ROCK HILL BANK & TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE YEAR 2000 - CONTINUED
Systems Other Than Information Technology Systems. In addition to computers and
related systems, the operation of the Bank's office and facilities equipment,
such as fax machines, photocopiers, telephone switches, security systems, and
other devices, may be affected by the Year 2000 Problem. The Bank has completed
its assessment of the potential effect of, and the costs of remediating, the
Year 2000 Problem on this equipment. The Bank estimates that its total cost of
completing any required modifications, upgrades, or replacements of these
internal systems will not have a material effect on its business, financial
condition, or operating results.
Suppliers and Other Third Parties. The Bank has been gathering information from
and has initiated communications with its suppliers and other third parties to
identify and, to the extent possible, resolve issues involving the Year 2000
Problem. However, the Bank has limited or no control over the actions of its
suppliers and others. Therefore, while the Bank expects that it will be able to
resolve any significant Year 2000 Problem with its own system, it cannot
guarantee that its suppliers or others will resolve any or all Year 2000
Problems with their systems before the occurrence of a material disruption to
its business. Any failure of these suppliers or others to resolve the Year 2000
Problems with their systems in a timely manner could have a material adverse
effect on the Bank's business, financial condition, or operating results.
Customers. The Bank believes that the largest Year 2000 Problem exposure to most
banks is the preparedness of the customers of the banks. Management is
addressing with its customers the possible consequences of not being prepared
for Year 2000. Should large borrowers not sufficiently address this issue, the
Bank may experience an increase in loan defaults. The amount of potential loss
from this issue is not quantifiable. Management is attempting to reduce this
exposure by educating its customers. The Bank has implemented a comprehensive
Year 2000 credit review policy for all existing loans that exceed $100,000 as
well as an underwriting policy for all new loan requests. At present, the Bank's
review indicates that the Bank's exposure to credit risks associated with Year
2000 is considered to be low. The Bank's credit review procedures will continue
to include these policies throughout 1999.
Most Likely Consequences of Year 2000 Problems. The Bank expects to identify and
resolve all Year 2000 Problems that could materially adversely affect its
business, financial condition, or operating results. However, the Bank believes
that it is not possible to determine with complete certainty that all Year 2000
Problems affecting it have been identified or corrected. The number of devices
that could be affected and the interactions among these devices are simply too
numerous. In addition, the Bank cannot accurately predict how many failures
related to the Year 2000 Problem will occur with its suppliers, customers, or
other third parties or the severity, duration, or financial consequences of such
failures. As a result, the Bank expects that it could possibly suffer the
following consequences:
- A number of operational inconveniences and inefficiencies for
the Bank, its service providers, or its customers that may
divert the Bank's time and attention and financial and human
resources from its ordinary business activities;
- System malfunctions that may require significant efforts by
the Bank or its service providers or customers to prevent or
alleviate material business disruptions.
Contingency Plans. The Bank has developed contingency plans to be implemented as
part of its efforts to identify and correct Year 2000 Problems affecting its
internal systems. The Bank's Board of Directors approved the contingency plans
on July 23, 1998. Depending on the systems affected, these plans include (a)
accelerated replacement of affected equipment or software; (b) short term use of
backup equipment and software; (c) increased work hours for the Bank's personnel
or use of contract personnel to correct, on an accelerated schedule, any Year
2000 Problems which arise; and (d) other similar approaches. If the Bank is
required to implement any of these contingency plans, these plans could have a
material adverse effect on its business, financial condition, or operating
results.
18
<PAGE> 33
[TOURVILLE, SIMPSON & HENDERSON, L.L.P. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Rock Hill Bank & Trust
Rock Hill, South Carolina
We have audited the accompanying balance sheets of Rock Hill Bank & Trust as of
December 31, 1998 and 1997 and the related statements of income, comprehensive
income, changes in stockholders' equity and cash flows for the years ended
December 31, 1998, 1997 and for the period May 20, 1996 to December 31, 1996.
These financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Rock Hill Bank & Trust as of
December 31, 1998 and 1997 and the results of their operations and cash flows
for the years ended December 31, 1998, 1997 and for the period May 20, 1996 to
December 31, 1996 in conformity with generally accepted accounting principles.
/s/ Tourville, Simpson, & Henderson, L.L.P.
Tourville, Simpson, & Henderson, L.L.P.
Columbia, South Carolina
January 28, 1999
19
<PAGE> 34
ROCK HILL BANK & TRUST
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 3,491,891 $ 3,755,824
Federal funds sold and securities purchased
under agreements to resell 24,505,000 5,010,000
------------- ------------
27,996,891 8,765,824
Securities available-for-sale 7,414,072 7,009,461
Loans receivable 69,977,496 35,777,286
Less allowance for loan losses (812,174) (333,984)
------------- ------------
Loans, net 69,165,322 35,443,302
Premises and equipment, net 1,252,001 385,004
Accrued interest receivable 607,753 262,379
Other assets 625,682 458,289
------------- ------------
Total assets $ 107,061,721 $ 52,324,259
============= ============
LIABILITIES
Deposits:
Non-interest bearing transaction accounts $ 6,157,776 $ 4,485,130
Interest bearing transaction accounts 23,220,435 12,882,325
Savings 3,175,902 2,382,206
Time deposits $100,000 and over 18,123,683 8,286,869
Other time deposits 27,061,929 17,244,340
------------- ------------
77,739,725 45,280,870
Securities sold under agreements to repurchase 13,250,000 1,275,000
Accrued interest payable 316,981 217,568
Other liabilities 177,069 35,064
------------- ------------
Total liabilities 91,483,775 46,808,502
------------- ------------
STOCKHOLDERS' EQUITY
Common stock, $1.00 par value; 10,000,000 shares authorized,
1,376,250 shares issued and outstanding 1,376,250 --
Common stock, Class A, $1.00 par value; 588,000 shares
authorized, 294,000 shares issued and outstanding -- 294,000
Common stock, Class B, $1.00 par value; 612,000 shares
authorized, 306,000 shares issued and outstanding -- 306,000
Capital surplus 14,013,698 5,374,025
Retained earnings (deficit) 180,077 (471,966)
Accumulated other comprehensive income 7,921 13,698
------------- ------------
Total stockholders' equity 15,577,946 5,515,757
------------- ------------
Total liabilities and stockholders' equity $ 107,061,721 $ 52,324,259
============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE> 35
ROCK HILL BANK & TRUST
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND
FOR THE PERIOD MAY 20, 1996 TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $4,975,776 $2,347,311 $ 354,123
Investment securities, taxable 371,516 438,192 286,870
Federal funds sold and securities purchased
under agreements to resell 986,611 212,885 178,727
---------- ---------- ----------
6,333,903 2,998,388 819,720
---------- ---------- ----------
INTEREST EXPENSE
Time deposits $100,000 and over 709,218 304,180 95,334
Other deposits 2,137,947 1,233,173 353,508
Securities sold under agreements to repurchase 550,588 19,212 --
---------- ---------- ----------
3,397,753 1,556,565 448,842
---------- ---------- ----------
NET INTEREST INCOME 2,936,150 1,441,823 370,878
Provision for loan losses 489,176 209,475 126,500
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,446,974 1,232,348 244,378
---------- ---------- ----------
OTHER INCOME
Service charges on deposit accounts 140,490 82,774 14,416
Other service charges, commissions and fees 78,374 31,275 11,635
Income from fiduciary activities 111,604 32,404 --
Gain (loss) on sales of securities available-for-sale -- (474) --
---------- ---------- ----------
330,468 145,979 26,051
---------- ---------- ----------
OTHER EXPENSE
Salaries and employee benefits 751,744 528,858 348,079
Occupancy expense 304,174 279,069 165,501
Advertising and marketing expense 28,032 65,829 230,617
Other operating expense 658,499 417,004 346,415
---------- ---------- ----------
1,742,449 1,290,760 1,090,612
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 1,034,993 87,567 (820,183)
Income tax expense (benefit) 382,950 32,400 (293,050)
---------- ---------- ----------
NET INCOME (LOSS) $ 652,043 $ 55,167 $ (527,133)
========== ========== ==========
PER SHARE
Average shares outstanding
Net income (loss) 930,103 600,000 600,000
$ .70 $ .09 $ (.88)
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE> 36
ROCK HILL BANK & TRUST
STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND
FOR THE PERIOD MAY 20, 1996 TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- ---------
<S> <C> <C> <C>
NET INCOME $ 652,043 $ 55,167 $(527,133)
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities during the period (5,777) (12,760) 26,757
Less: reclassification adjustment for gains
included in net income -- (299) --
--------- -------- ---------
Other comprehensive income (5,777) (13,059) 26,757
--------- -------- ---------
COMPREHENSIVE INCOME $ 646,266 $ 42,108 $(500,376)
========= ======== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE> 37
ROCK HILL BANK & TRUST
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND
FOR THE PERIOD MAY 20, 1996 TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
Common Accumulated
Stock Amount Retained Other
Common -------------------------- Capital Earnings Comprehensive
Stock Class A Class B Surplus (Deficit) Income Total
----------- ----------- ----------- ------------ --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Common stock issued $ -- $ 294,000 $ 306,000 $ 5,400,000 $ -- $ -- $ 6,000,000
Cost of common stock
issuance (25,975) (25,975)
Net income (loss)
for the period (527,133) (527,133)
Other comprehensive
income 26,757 26,757
----------- ----------- ----------- ------------ -------- ---------- -----------
BALANCE,
DECEMBER 31, 1996 294,000 306,000 5,374,025 (527,133) 26,757 5,473,649
Net income 55,167 55,167
Other comprehensive
income (13,059) (13,059)
----------- ----------- ----------- ------------ -------- ---------- -----------
BALANCE,
DECEMBER 31, 1997 294,000 306,000 5,374,025 (471,966) 13,698 5,515,757
Net income 652,043 652,043
Conversion of stock 600,000 (294,000) (306,000)
Proceeds from issuance of
stock, net of direct costs 776,250 8,639,673 9,415,923
Other comprehensive
income (5,777) (5,777)
----------- ----------- ----------- ------------ -------- ---------- -----------
BALANCE,
DECEMBER 31, 1998 $ 1,376,250 $ -- $ -- $ 14,013,698 $180,077 $ 7,921 $15,577,946
=========== =========== =========== ============ ======== ========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE> 38
ROCK HILL BANK & TRUST
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND
FOR THE PERIOD MAY 20, 1996 TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 652,043 $ 55,167 $ (527,133)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities
Provision for loan losses 489,176 209,475 126,500
Depreciation and amortization 90,968 73,411 40,320
Accretion and premium amortization (10,623) (15,325) (5,587)
Amortization of net loan fees and costs 36,925 19,858 3,908
Amortization of organizational costs 19,033 19,033 11,103
Deferred income tax provision (benefit) (14,074) 29,385 (290,035)
Loss on securities available-for-sale -- 474 --
Gain on disposal of premises and equipment (6,983) -- --
Increase in interest receivable (345,374) (55,019) (207,360)
Increase in interest payable 99,413 119,547 98,021
(Increase) decrease in other assets 120,472 22,150 (150,015)
Increase in other liabilities 9,574 6,816 20,203
------------ ------------ ------------
Net cash provided (used) by operating activities 1,140,550 484,972 (880,075)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available-for-sale (10,403,158) (3,984,375) (12,971,484)
Maturities and calls securities available-for-sale 10,000,000 4,500,000 2,994,829
Proceeds from sales of securities available-for-sale -- 2,493,750 --
Net increase in loans made to customers (34,248,121) (23,180,894) (12,622,149)
Purchases of premises and equipment (962,482) (12,687) (486,048)
Proceeds from disposal of premises and equipment 11,500 -- --
Purchase of Community Financial Services stock -- (99,910) --
Purchase of Federal Home Loan Bank stock (157,000) -- --
------------ ------------ ------------
Net cash used by investing activities (35,759,261) (20,284,116) (23,084,852)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, interest
bearing transaction accounts and savings accounts 12,804,452 6,118,150 13,631,511
Net increase in certificates of deposit
and other time deposits 19,654,403 16,563,505 8,967,704
Net increase in securities sold under agreements
to repurchase 11,975,000 1,275,000 --
Issuance of common stock, net of direct costs 9,415,923 -- 5,974,025
------------ ------------ ------------
Net cash provided by financing activities 53,849,778 23,956,655 28,573,240
------------ ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 19,231,067 4,157,511 4,608,313
CASH AND CASH EQUIVALENTS, BEGINNING 8,765,824 4,608,313 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, ENDING $ 27,996,891 $ 8,765,824 $ 4,608,313
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<PAGE> 39
ROCK HILL BANK & TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Rock Hill Bank & Trust (the Bank) was incorporated on May 15,
1996 and commenced business on May 20, 1996. The principal business activity of
the Bank is to provide banking services to domestic markets, principally in York
County, South Carolina. The Bank is a state chartered bank, and its deposits are
insured by the Federal Deposit Insurance Corporation.
PRE-OPERATING EXPENSES AND ORGANIZATIONAL COSTS - The pre-operating expenses of
$202,537 incurred through the date the Bank commenced operations are reflected
in the accompanying statement of income for the period May 20, 1996 to December
31, 1996. Organizational costs incurred for attorney's fees, consultants and
filing fees were capitalized and are being amortized over a five-year period.
Such amount less accumulated amortization is included in other assets.
MANAGEMENT'S ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans, including
valuation allowances for impaired loans and the valuation of real estate
acquired in connection with foreclosures or in satisfaction of loans. In
connection with the determination of the allowances for losses on loans and
foreclosed real estate, management obtains independent appraisals for
significant properties. Management must also make estimates in determining the
estimated useful lives and methods for depreciating premises and equipment.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory agencies,
as an integral part of their examination process, periodically review the Bank's
allowances for losses on loans and foreclosed real estate. Such agencies may
require the Bank to recognize additions to the allowances based on their
judgements about information available to them at the time of their examination.
Because of these factors, it is reasonably possible that the allowances for
losses on loans and foreclosed real estate may change materially in the near
term.
SECURITIES AVAILABLE-FOR-SALE - Securities available-for-sale are carried at
amortized cost and adjusted to estimated market value by recognizing the
aggregate unrealized gains or losses in a valuation account. Aggregate market
valuation adjustments are recorded in stockholders' equity net of deferred
income taxes. Reductions in market value considered by management to be other
than temporary are reported as a realized loss and a reduction in the cost basis
of the security. The adjusted cost basis of investments available-for-sale is
determined by specific identification and is used in computing the gain or loss
upon sale.
LOANS - Loans are stated at their unpaid principal balance. Interest income is
computed using the simple interest method and is recorded in the period earned.
When serious doubt exists as to the collectibility of a loan or when a loan
becomes 90 days past due as to principal or interest, interest income is
generally discontinued unless the estimated net realizable value of collateral
exceeds the principal balance and accrued interest. When interest accruals are
discontinued, income earned but not collected is reversed.
Impaired loans are measured based on the present value of discounted expected
cash flows. When it is determined that a loan is impaired, a direct charge to
bad debt expense is made for the difference between the net present value of
expected future cash flows based on the contractual rate and discount rate and
the Bank's recorded investment in the related loan. The corresponding entry is
to a related valuation account. Interest is discontinued on impaired loans when
management determines that a borrower may be unable to meet payments as they
become due.
LOAN FEES AND COSTS - Loan origination and commitment fees and certain direct
loan origination costs (principally salaries and employee benefits) are being
deferred and amortized to income over the contractual life of the related loans
or commitments, adjusted for prepayments, using the level yield method. Net
deferred fees and costs associated with the origination of home equity lines of
credit are being amortized to income over the contractual life of the lending
agreement using the straight-line method.
25
<PAGE> 40
ROCK HILL BANK & TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
ALLOWANCE FOR LOAN LOSSES - An allowance for possible loan losses is maintained
at a level deemed appropriate by management to provide adequately for known and
inherent risks in the loan portfolio. The allowance is based upon a continuing
review of past loan loss experience, current and future economic conditions
which may affect the borrowers' ability to pay and the underlying collateral
value of the loans. Loans which are deemed to be uncollectible are charged off
and deducted from the allowance. The provision for possible loan losses and
recoveries of loans previously charged off are added to the allowance.
PREMISES AND EQUIPMENT - Premises and equipment are stated at cost, less
accumulated depreciation. The provision for depreciation is computed by the
straight-line method, based on the estimated useful lives for furniture and
equipment of 5 to 10 years. Leasehold improvements are being amortized over 20
years. The cost of assets sold or otherwise disposed of, and the related
allowance for depreciation is eliminated from the accounts and the resulting
gains or losses are reflected in the income statement when incurred. Maintenance
and repairs are charged to current expense. The costs of major renewals and
improvements are capitalized.
COMMUNITY FINANCIAL SERVICES, INC. STOCK AND FEDERAL HOME LOAN BANK STOCK -
Other assets include the Bank's investment in the stock of Community Financial
Services, Inc. and Federal Home Loan Bank stock. These stocks are carried at
cost because no quoted market value and no ready market exists. At December 31,
1998 and 1997, the investment in Community Financial Services, Inc. stock was
$99,910. At December 31, 1998 and 1997, the investment in Federal Home Loan Bank
stock was $157,000 and $0 respectively.
INCOME TAXES - Income taxes are the sum of amounts currently payable to taxing
authorities and the net changes in income taxes payable or refundable in future
years. Income taxes deferred to future years are determined utilizing a
liability approach. This method gives consideration to the future tax
consequences associated with differences between financial accounting and tax
bases of certain assets and liabilities which are principally the allowance for
loan losses, and depreciable premises and equipment.
RETIREMENT PLAN - The Bank has a contributory 401(K) plan covering substantially
all employees. Under the plan, participants are permitted to make discretionary
contributions up to 15% of annual compensation. The Bank waived its option of
matching employee contributions in 1998.
PER SHARE AMOUNTS - Income or loss per share is computed by dividing earnings by
the weighted average number of shares outstanding during the year.
STATEMENTS OF CASH FLOWS - For purposes of reporting cash flows in the financial
statements, the Bank considers certain highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents. Cash equivalents
include amounts due from banks, federal funds sold, and securities sold under
agreements to repurchase. Generally, federal funds are sold for one day periods.
Securities sold under agreements to repurchase mature from seven to fourteen
days.
During 1998, 1997 and 1996, interest paid on deposits totaled $3,298,340,
$1,437,018 and $350,821, respectively.
During 1998, income taxes paid totaled $261,200. There were no income tax
payments in 1997 and 1996.
Changes in the valuation account of securities available-for-sale, including the
deferred tax effects, are considered noncash transactions for purposes of the
statement of cash flows and are presented in detail in the notes to the
financial statements.
In June 1998, the Bank converted its Class A and Class B shares of common stock
into one class of stock known as common stock. This was considered a noncash
transaction for purposes of the statement of cash flows and is discussed in Note
9.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS - In the ordinary course of business,
the Bank enters into off-balance-sheet financial instruments consisting of
commitments to extend credit and letters of credit. These financial instruments
are recorded in the financial statements when they become payable by the
customer.
26
<PAGE> 41
ROCK HILL BANK & TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
CONCENTRATIONS OF CREDIT RISK - Financial instruments which potentially subject
the Bank to concentrations of credit risk consist principally of loans
receivable, investment securities, federal funds sold and amounts due from
banks. Management is not aware of any concentrations of loans to classes of
borrowers or industries that would be similarly affected by economic conditions.
Although the Bank's loan portfolio is diversified, a substantial portion of its
borrower's ability to honor the terms of their loans is dependent on business
and economic conditions in York County and surrounding areas. Management does
not believe credit risk is associated with obligations of the United States, its
agencies or corporations. The Bank places its deposits and correspondent
accounts with and sells federal funds to high credit quality financial
institutions. By policy, time deposits are limited to amounts insured by the
FDIC. Management believes credit risk associated with these financial
instruments is not significant.
NOTE 2 - ADOPTION OF ACCOUNTING PRINCIPLE
As of January 1, 1998, the Bank adopted Statement of Financial Accounting
Standards No. 130 (SFAS 130), "Reporting Comprehensive Income." SFAS 130
establishes standards for reporting comprehensive income. Comprehensive income
includes net income and other comprehensive income which is defined as non-owner
related transactions in equity. Prior periods have been reclassified to reflect
the application of the provisions of SFAS 130. The following tables set forth
the amounts of other comprehensive income included in equity along with the
related tax effects for the years ended December 31, 1998 and 1997, and for the
period May 20, 1996 to December 31, 1996.
<TABLE>
<CAPTION>
Pre-tax (Expense) Net of tax
Amount Benefit Amount
-------------- -------------- --------------
<S> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1998:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during the period $ (9,170) $ 3,393 $ (5,777)
Less: reclassification adjustment
for gains realized in net income -- -- --
-------------- -------------- --------------
Net unrealized gains (losses) on securities (9,170) 3,393 (5,777)
-------------- -------------- --------------
Other comprehensive income $ (9,170) $ 3,393 $ (5,777)
============== ============== ==============
<CAPTION>
Pre-tax (Expense) Net of tax
Amount Benefit Amount
-------------- -------------- --------------
<S> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1997:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during the period $ (20,254) $ 7,494 $ (12,760)
Less: reclassification adjustment for
gains realized in net income (474) 175 (299)
-------------- -------------- --------------
Net unrealized gains (losses) on securities (20,728) 7,669 (13,059)
-------------- -------------- --------------
Other comprehensive income $ (20,728) $ 7,669 $ (13,059)
============== ============== ==============
<CAPTION>
Pre-tax (Expense) Net of tax
Amount Benefit Amount
-------------- -------------- --------------
<S> <C> <C> <C>
FOR THE PERIOD MAY 20, 1996 TO DECEMBER 31, 1996:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during the period $ 42,471 $ (15,714) $ 26,757
Less: reclassification adjustment for
gains realized in net income -- -- --
-------------- -------------- --------------
Net unrealized gains (losses) on securities 42,471 (15,714) 26,757
-------------- -------------- --------------
Other comprehensive income $ 42,471 $ (15,714) $ 26,757
============== ============== ==============
</TABLE>
27
<PAGE> 42
ROCK HILL BANK & TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - CASH AND DUE FROM BANKS
The Bank is required by regulation to maintain average reserve balances with the
Federal Reserve Bank computed as a percentage of deposits. At December 31, 1998,
the required cash reserve balance was approximately $50,000. These requirements
were satisfied by vault cash.
NOTE 4 - INVESTMENT SECURITIES
The amortized cost and estimated fair values of securities available-for-sale at
December 31, 1998 and 1997 were:
<TABLE>
<CAPTION>
1998
------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
U.S. Treasuries $ 1,498,568 $ 5,807 $ -- $ 1,504,375
U.S. Government agencies and corporations 5,902,931 6,766 -- 5,909,697
-------------- -------------- -------------- --------------
$ 7,401,499 $ 12,573 $ -- $ 7,414,072
============== ============== ============== ==============
<CAPTION>
1997
------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
U.S. Treasuries $ 4,487,893 $ 20,388 $ -- $ 4,508,281
U.S. Government agencies and corporations 2,499,825 1,667 312 2,501,180
-------------- -------------- -------------- --------------
$ 6,987,718 $ 22,055 $ 312 $ 7,009,461
============== ============== ============== ==============
</TABLE>
Proceeds from sales of securities available-for-sale during 1997 were
$2,493,750, resulting in gross realized gains and gross realized losses of $130
and $604, respectively. There were no sales of securities in 1998.
The following is a summary of maturities of securities available-for-sale as of
December 31, 1998. The amortized cost and estimated fair values are based on the
contractual maturity dates. Actual maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without penalty.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
-------------- --------------
<S> <C> <C>
Due within one year or less $ 1,498,568 $ 1,504,375
Due after one year but within five years 4,902,931 4,909,697
Due after five years but within ten years 1,000,000 1,000,000
-------------- --------------
$ 7,401,499 $ 7,414,072
============== ==============
</TABLE>
At December 31, 1998, securities having an amortized cost of $3,848,546 and an
estimated market value of $3,907,743 were pledged as collateral for securities
sold under agreements to repurchase and for other purposes as required and
permitted by law. There were no securities pledged as collateral to secure
public or trust deposits at December 31, 1997.
28
<PAGE> 43
ROCK HILL BANK & TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - LOANS
Major classifications of loans receivable at December 31, 1998 and 1997 are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
Commercial $ 27,054,936 $ 16,727,733
Real estate 39,203,476 16,252,774
Home equity 1,699,601 1,549,616
Consumer & other 2,019,483 1,247,163
-------------- --------------
Total gross loans $ 69,977,496 $ 35,777,286
============== ==============
</TABLE>
The Bank identifies impaired loans through its normal internal loan review
process. Loans on the Bank's problem loan watch list are considered potentially
impaired loans. These loans are evaluated in determining whether all outstanding
principal and interest are expected to be collected. Loans are not considered
impaired if a minimal delay occurs and all amounts due including accrued
interest or the contractual interest rate for the period of delay are expected
to be collected. At December 31, 1998, management has determined that no
impairment of loans existed that would have a material effect on the Bank's
financial statements.
Transactions in the allowance for loan losses for the year ended December 31,
1998, 1997, and for the period May 20, 1996 to December 31, 1996 are summarized
below:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Balance, beginning of year $ 333,984 $ 126,500 $ --
Provision charged to operations 489,176 209,475 126,500
Recoveries on loans previously charged off 66 3,722 --
Loans charged off (11,052) (5,713) --
-------------- -------------- --------------
Balance, end of year $ 812,174 $ 333,984 $ 126,500
============== ============== ==============
</TABLE>
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments consist of commitments to extend credit and standby
letters of credit. Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. A commitment involves, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the balance sheets. The Bank's exposure to credit loss in the
event of non-performance by the other party to the instrument is represented by
the contractual notional amount of the instrument. Since certain commitments are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank uses the same credit
policies in making commitments to extend credit as it does for on-balance-sheet
instruments. Letters of credit are conditional commitments issued to guarantee a
customer's performance to a third party and have essentially the same credit
risk as other lending facilities.
Collateral held for commitments to extend credit and standby letters of credit
varies but may include accounts receivable, inventory, property, plant,
equipment and income-producing commercial properties.
The following table summarizes the Bank's off-balance-sheet financial
instruments whose contract amounts represent credit risk as of December 31, 1998
and 1997:
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
Commitments to extend credit $ 15,148,465 $ 10,669,996
</TABLE>
Management is not aware of any significant concentrations of loans to classes of
borrowers or industries that would be affected similarly by economic conditions.
Although the Bank's loan portfolio is diversified, a substantial portion of its
borrowers' ability to honor the terms of their loans is dependent on the
economic conditions in York County and surrounding areas.
29
<PAGE> 44
ROCK HILL BANK & TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - PREMISES AND EQUIPMENT
Premises and equipment consisted of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
Leasehold improvements $ 11,138 $ 11,138
Furniture and equipment 725,250 487,440
Construction in progress 701,437 --
-------------- --------------
1,437,825 498,578
Less, accumulated depreciation (185,824) (113,574)
-------------- --------------
Premises and equipment, net $ 1,252,001 $ 385,004
============== ==============
</TABLE>
The Ebenezer office opened on January 7, 1999. No material commitments existed
at December 31, 1998 to construct or purchase additional premises and equipment.
NOTE 7 - DEPOSITS
At December 31, 1998, the scheduled maturities of certificates of deposit were
as follows:
<TABLE>
<S> <C>
1999 $ 38,940,824
2000 5,792,035
2001 257,592
2002 195,161
--------------
$ 45,185,612
==============
</TABLE>
At December 31, 1998 certificates of deposit included brokered deposits which
total $9,905,500. Six of these accounts have current balances of $100,000 or
more and totaled $1,001,535 at December 31, 1998. All remaining accounts have
balances of $99,000. The scheduled maturities of these deposits are as follows:
1999 - $8,219,994, and 2000 - $1,685,506.
NOTE 8 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase at December 31, 1998 mature on a
one to thirty day basis. Information concerning securities sold under agreements
to repurchase at December 31, 1998 is summarized as follows:
<TABLE>
<S> <C>
Average balance during the year $ 11,688,138
Average interest rate during the year 4.94%
Maximum month-end balance during the year $ 13,550,900
</TABLE>
Under the terms of the agreements, the Bank sells an interest in securities
issued by the United States Treasury and Government Agencies, and the Bank
agrees to repurchase the same securities the following business day. The
securities sold under these agreements are the identical securities on the
Bank's balance sheet captioned as securities purchased under agreements to
resell. As of December 31, 1998, the amortized cost and market value of the
securities held by the third-party for the underlying agreements were
$13,250,000 and $13,514,233, respectively.
NOTE 9 - STOCKHOLDERS' EQUITY
The stockholders of the Bank voted on April 16, 1998 to amend the Articles of
Incorporation to eliminate the two classes of common stock known as Class A and
Class B. A new class of common stock known simply as common stock was created
and the number of authorized shares was increased to 10,000,000. Prior to this
vote, Bailey Financial Corporation (Bailey) owned all of the Class B shares or
51% of the total outstanding common stock. On June 19, 1998, the change in
classes of stock became effective. Bailey exchanged its Class B shares for
common shares and terminated its right of first refusal agreements and its right
to elect separate directors.
30
<PAGE> 45
ROCK HILL BANK & TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - STOCKHOLDERS' EQUITY - CONTINUED
On July 28, 1998, the Bank sold, through an underwritten public offering,
675,000 shares of its common stock at a public offering price of $13.25 per
share. On August 3, 1998 an additional 101,250 common shares were sold, also at
a public offering price of $13.25 per share, pursuant to an underwriter's
over-allotment provision. The Bank temporarily invested the $9,415,923 net
proceeds from the offering in federal funds sold to other institutions and
investment securities. The Bank has also used the net proceeds to fund loan
growth and to purchase and construct additional branch locations.
As a result of the secondary stock offering, Bailey's investment in the Bank
decreased to 22.2% effective August 3, 1998. In September 1998, Bailey entered
into a definitive agreement with Anchor Financial Corporation (Anchor) to merge.
The proposed merger is expected to be voted on by the shareholders of Bailey and
Anchor during the first quarter of 1999. Anchor will continue to own 22.2% of
the Bank but has agreed not to exercise or attempt to exercise influence over
the Bank and not to acquire additional stock.
NOTE 10 - OTHER OPERATING EXPENSES
Other operating expenses for the year ended December 31, 1998, 1997 and for the
period May 20, 1996 to December 31, 1996, are summarized below:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Professional fees $ 27,481 $ 39,364 $ 43,817
Telephone 60,594 39,117 27,587
Office supplies, forms and stationery 89,476 57,613 86,116
Data processing 135,443 57,501 38,275
Credit card expenses 42,490 19,203 1,526
Postage and freight 34,107 18,395 5,393
Other 268,908 185,811 143,701
-------------- -------------- --------------
$ 658,499 $ 417,004 $ 346,415
============== ============== ==============
</TABLE>
NOTE 11 - INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1998, 1997 and for
the period May 20, 1996 to December 31, 1996 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Currently payable
Federal $ 370,405 $ -- $ --
State 29,581 -- --
-------------- -------------- --------------
399,986 -- --
-------------- -------------- --------------
Deferred income taxes
Federal (20,984) 20,594 (240,534)
State 555 4,100 (36,765)
-------------- -------------- --------------
(20,429) 24,694 (277,299)
-------------- -------------- --------------
Income tax expense (benefit) $ 379,557 $ 24,694 $ (277,299)
============== ============== ==============
Income tax expense (benefit) is allocated as follows:
To continuing operations $ 382,950 $ 32,400 $ (293,050)
To stockholders' equity (3,393) (7,706) 15,751
-------------- -------------- --------------
$ 379,557 $ 24,694 $ (277,299)
============== ============== ==============
</TABLE>
31
<PAGE> 46
ROCK HILL BANK & TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - INCOME TAXES - CONTINUED
Deferred income taxes result from timing differences in the recognition of
certain items of income and expense for tax and financial reporting purposes.
The principal sources of these differences and the related deferred tax effects
for the years ended December 31, 1998, 1997 and for the period May 20, 1996 to
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Accelerated depreciation $ 23,003 $ 20,611 $ 3,803
Provision for loan losses (194,164) (51,378) (18,344)
Amortization of organizational costs 11,788 7,057 (57,671)
Net operating loss carryforward 165,008 55,043 (220,051)
Loan fees and costs (21,783) -- --
Other, net 2,074 1,067 (787)
-------------- -------------- --------------
Deferred tax expense (benefit) attributable
to continuing operations (14,074) 32,400 (293,050)
Deferred tax expense (benefit) attributable
to stockholders' equity (3,393) (7,706) 15,751
-------------- -------------- --------------
Deferred income taxes $ (17,467) $ 24,694 $ (277,299)
============== ============== ==============
</TABLE>
The gross amounts of deferred tax assets and deferred tax liabilities as of
December 31, 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 263,886 $ 69,722 $ 18,344
Net operating loss carryforward -- 165,008 220,051
Organization costs 38,826 50,614 57,671
Loans fees and costs 19,429 -- --
Other -- 2,074 787
-------------- -------------- --------------
Total deferred tax assets 322,141 287,418 296,853
-------------- -------------- --------------
Deferred tax liabilities:
Accumulated depreciation 47,417 24,414 3,803
Available-for-sale securities 4,652 8,045 15,751
Loan fees and costs -- 2,354 --
-------------- -------------- --------------
Total deferred tax liabilities 52,069 34,813 19,554
-------------- -------------- --------------
Net deferred tax asset $ 270,072 $ 252,605 $ 277,299
============== ============== ==============
</TABLE>
Deferred tax assets represent the future tax benefit of deductible differences
and, if it is more likely than not that a tax asset will not be realized, a
valuation allowance is required to reduce the recorded deferred tax assets to
net realizable value. Management has determined that it is more likely than not
that the entire deferred tax asset at December 31, 1998 will be realized, and
accordingly, has not established a valuation allowance.
32
<PAGE> 47
ROCK HILL BANK & TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - INCOME TAXES - CONTINUED
A reconciliation between the income tax expense and the amount computed by
applying the federal statutory rate of 34% to income before income taxes for the
years ended December 31, 1998, 1997 and for the period May 20, 1996 to December
31, 1996 follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Tax expense at statutory rate $ 351,898 $ 29,773 $ (278,862)
State income tax, net of federal
income tax benefit 10,246 4,100 (36,765)
Other, net 20,806 (1,473) 22,577
-------------- -------------- --------------
$ 382,950 $ 32,400 $ (293,050)
============== ============== ==============
</TABLE>
NOTE 12 - LEASES
The Bank leases its main office building under an operating lease from the Rock
Hill Telephone Company (the lessor). (See also Note 13). Rental expense for the
years ended December 31, 1998, 1997, and for the period May 20, 1996 to December
31, 1996 was $136,200, $136,200, and $86,405, respectively. The initial lease
term expires on May 12, 2001. The Bank has three successive options to renew the
lease for a period of five years each, at the then fair rental value of the
property. There is no option to purchase the building at the end of the lease.
Currently, the monthly rental payment is approximately $11,350. Future rental
commitments for the years 2001 through 2003 are based on the assumption that at
the end of the initial lease term, the lease will be renewed under the same
terms as the initial lease.
The Bank also leases the land for the Ebenezer road branch location (which
opened in January 1999) from a director. This lease which commenced on March 1,
1998, is for a term of twenty-five years and expires on February 28, 2023. The
Bank has two successive options to renew the lease for a period of five years
each, at a rental rate to be determined by both parties at that time. There is
no option to purchase the land at the end of the lease. Currently, the monthly
rental payment is $1,628. Rental expense for the years ended December 31, 1998
and 1997 was $18,276 and $5,000, respectively.
The estimated future minimum rental commitments under these noncancelable leases
for the next five years as of December 31, 1998 are:
<TABLE>
<S> <C>
1999 $ 157,404
2000 157,404
2001 157,404
2002 157,404
2003 157,404
------------
$ 787,020
============
</TABLE>
NOTE 13 - RELATED PARTY TRANSACTIONS
Certain parties (principally certain directors and executive officers of the
Bank, their immediate families and business interests) were loan customers of
and had other transactions in the normal course of business with the Bank.
Related party loans are made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with unrelated persons and do not involve more than the normal risk
of collectibility. As of December 31, 1998 and 1997 the Bank had related party
loans totaling $95,341 and $51,222, respectively. During 1998, $161,522 of new
loans were made to related parties and repayments totaled $117,403.
As discussed in Note 12, the Bank is leasing its main office building from Rock
Hill Telephone Company (Telephone Company). In addition, the Telephone Company
sold communications equipment and provided telephone services to the Bank.
Certain directors of the Bank are also principal officers and controlling
shareholders of the Telephone Company. The amount paid to the Telephone Company
for equipment and services for the years ended December 31, 1998, 1997 and for
the period May 20, 1996 to December 31, 1996 was $184,002, $171,855 and
$120,075, respectively.
33
<PAGE> 48
ROCK HILL BANK & TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 13 - RELATED PARTY TRANSACTIONS - CONTINUED
As discussed in Note 12, the Bank is leasing the land on which the Ebenezer road
branch is located from a director. The amount paid to this director under the
operating lease was $18,276, and $5,000 for the years ended December 31, 1998
and 1997, respectively.
Data processing, trust data processing, and other various services for the Bank
are being provided by M.S. Bailey & Son, Bankers, a subsidiary of Bailey. As
discussed in Note 9, Bailey owned 22.2% of the Bank's common stock at December
31, 1998 and 51% of the common stock of the Bank at December 31, 1997 and 1996.
The amount paid to M.S. Bailey & Son, Bankers for the years ended December 31,
1998, 1997 and for the period May 20, 1996 to December 31, 1996 for all services
was $134,295, $52,016 and $22,421, respectively.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Bank may, from time to time, become a
party to legal claims and disputes. At December 31, 1998, management and legal
counsel are not aware of any pending or threatened litigation or unasserted
claims or assessments that could result in losses, if any, that would be
material to the financial statements.
NOTE 15 - RESTRICTION OF PAYMENT OF DIVIDENDS
South Carolina banking regulations restrict the amount of dividends that can be
paid to stockholders. All of the Bank's dividends to stockholders are subject to
the prior approval of the South Carolina Commissioner of Banking and are payable
only from the retained earnings of the Bank.
NOTE 16 - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgements by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum ratios of Tier 1 and total capital as a
percentage of assets and off-balance-sheet exposures, adjusted for risk weights
ranging from 0% to 100%. Tier 1 capital consists of common shareholders' equity,
excluding the unrealized gain or loss on securities available-for-sale, minus
certain intangible assets. Tier 2 capital consists of the allowance for loan
losses subject to certain limitations. Total regulatory minimum requirements are
4% for Tier 1 and 8% for total risk-based capital.
The Bank is also required to maintain capital at a minimum level based on total
assets, which is known as the leverage ratio. Only the strongest banks are
allowed to maintain capital at the minimum requirement of 3%. All others are
subject to maintaining ratios 1% to 2% above the minimum.
As of December 31, 1998, the most recent notification from the Bank's primary
regulator categorized it as well-capitalized under the regulatory framework for
prompt corrective action. There are no conditions or events that management
believes have changed the Bank's category.
34
<PAGE> 49
ROCK HILL BANK & TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 16 - REGULATORY MATTERS - CONTINUED
The following table summarizes the capital amounts and ratios of the Bank and
the regulatory minimum requirements at December 31, 1998 and 1997.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------------- -------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
----------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1998
Total capital
(to risk weighted assets) $16,344,122 21.99% $ 5,947,324 8.0% $ 7,434,155 10.0%
Tier 1 capital
(to risk weighted assets) 15,531,948 20.89 2,973,662 4.0 4,460,493 6.0
Tier 1 capital
(to average assets) 15,531,948 15.29 4,063,534 4.0 5,079,418 5.0
DECEMBER 31, 1997
Total capital
(to risk weighted assets) $ 5,836,043 14.47% $ 3,012,096 8.0% $ 3,765,120 10.0%
Tier 1 capital
(to risk weighted assets) 5,502,059 15.35 1,506,048 4.0 2,259,072 6.0
Tier 1 capital
(to average assets) 5,502,059 11.25 1,932,640 4.0 2,415,800 5.0
</TABLE>
NOTE 17 - UNUSED LINES OF CREDIT
As of December 31, 1998, the Bank had unused lines of credit to purchase federal
funds from unrelated banks totaling $2,750,000. These lines of credit are
available on a one to fourteen day basis for general corporate purposes.
NOTE 18 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the amount at which the asset or
obligation could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. Fair value estimates are made at a
specific point in time based on relevant market information and information
about the financial instruments. Because no market value exists for a
significant portion of the financial instruments, fair value estimates are based
on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors.
The following methods and assumptions were used to estimate the fair value of
significant financial instruments:
Cash and Due from Banks - The carrying amount is a reasonable estimate of fair
value.
Federal Funds Sold and Securities Purchased Under Agreements to Resell - Federal
funds sold and securities purchased under agreements to resell are for a term of
one day and the carrying amount approximates the fair value.
Securities Available-for-Sale - The fair values equal the carrying amount which
is the quoted market price. If quoted market prices are not available, fair
values are based on quoted market prices of comparable securities.
Loans - For certain categories of loans, such as variable rate loans which are
repriced frequently and have no significant change in credit risk and credit
card receivables, fair values are based on the carrying amounts. The fair value
of other types of loans is estimated by discounting the future cash flows using
the current rates at which similar loans would be made to the borrowers with
similar credit ratings and for the same remaining maturities.
35
<PAGE> 50
ROCK HILL BANK & TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 18 - FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
Deposits - The fair value of demand deposits, savings, and money market accounts
is the amount payable on demand at the reporting date. The fair values of
certificates of deposit are estimated using a discounted cash flow calculation
that applies current interest rates to a schedule of aggregated expected
maturities.
Securities Sold Under Agreements to Repurchase - The carrying amount is a
reasonable estimate of fair value because these instruments typically have terms
of one to fourteen days.
Accrued Interest Receivable and Payable - The carrying value of these
instruments is a reasonable estimate of fair value.
Off-Balance Sheet Financial Instruments - The carrying amount for loan
commitments which are off-balance sheet financial instruments, approximates the
fair value since the obligations are typically based on current market rates.
The carrying values and estimated fair values of the Bank's financial
instruments as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
1998
---------------------------------
Carrying Estimated
Amount Fair Value
-------------- --------------
<S> <C> <C>
FINANCIAL ASSETS:
Cash and due from banks $ 3,491,891 $ 3,491,891
Federal funds sold 24,505,000 24,505,000
Securities available-for-sale 7,414,072 7,414,072
Loans 69,977,496 70,081,454
Allowance for loan losses (812,174) (812,174)
Accrued interest receivable 607,753 607,753
FINANCIAL LIABILITIES:
Demand deposit, interest-bearing transaction, and savings accounts $ 32,554,113 $ 32,554,113
Certificates of deposit and other time deposits 45,185,612 45,475,428
Accrued interest payable 316,981 316,981
Securities sold under agreements to repurchase 13,250,000 13,250,000
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS:
Commitments to extend credit $ 15,148,465 $ 15,148,465
</TABLE>
NOTE 19 - THE YEAR 2000
The Bank has conducted a comprehensive review of its data processing systems to
identify those systems that could be affected by the Year 2000 issue. The Year
2000 problem is the result of computer programs being written using two digits
rather than four to represent the applicable year. Any of the software systems
that have date-sensitive routines or hardware that has imbedded chips with
date-sensitive algorithms may recognize a date as "00" as the year 1900 rather
than 2000. This could result in a major system failure or errors and
miscalculations in processing information. The Bank's general ledger, loan and
deposit applications are all provided by a third-party processor (the
"third-party"). The third party has provided the Bank with evidence of the
successful testing of its systems. Management presently believes that the Year
2000 problem will not pose significant operational problems for the Bank.
However, management cannot guarantee with any certainty the effect that the Year
2000 will ultimately have on the Bank or its operations.
36
<PAGE> 51
ROCK HILL BANK & TRUST
CORPORATE DATA
ANNUAL MEETING:
The Annual Meeting of Shareholders of Rock Hill Bank & Trust will be held at
5:30 p.m. on Thursday, April 15, 1999 at the Rock Hill Country Club, 600 Country
Club Drive, Rock Hill, South Carolina.
<TABLE>
<S> <C>
CORPORATE OFFICE: GENERAL COUNSEL:
315 E. Main Street Nelson Mullins Riley & Scarborough, L.L.P.
Rock Hill, South Carolina 29730 First Union Plaza, Suite 1400
Phone (803) 324-2500 999 Peachtree Street, NE
Fax (803) 324-2599 Atlanta, Georgia, 30309
STOCK TRANSFER DEPARTMENT: INDEPENDENT AUDITORS:
First Citizens Bank & Trust Company of SC Tourville, Simpson & Henderson, L.L.P.
P.O. Box 29 P.O. Box 8567
Columbia, South Carolina 29202 Columbia, S.C. 29202
</TABLE>
STOCK INFORMATION:
The Common Stock of Rock Hill Bank & Trust is not listed on any exchange.
However, the stock is traded on the over-the counter bulletin board and is
quoted under the symbol "RHBT." Market makers of the Bank's stock include: Edgar
M. Norris & Co. Inc.; Trident Securities; Allen C. Ewing & Co.; William R. Hough
& Co.; Hill, Thompson, Magid & Co.; and Monroe Securities. There were
approximately 1100 shareholders of record on December 31, 1998.
FORM 10-K
The Bank will furnish upon request, free of charge, copies of the Annual Report
and the Bank's Report to the Federal Deposit Insurance Corporation (Form 10-K)
by contacting Patricia M. Stone, Chief Financial Officer, Rock Hill Bank &
Trust, P.O. Box 12037, Rock Hill, South Carolina 29731.
This Annual Report serves as the ANNUAL FINANCIAL DISCLOSURE STATEMENT furnished
pursuant to Part 350 of the Federal Deposit Insurance Corporations Rules and
Regulations. THIS STATEMENT HAS NOT BEEN REVIEWED, OR CONFIRMED FOR ACCURACY OR
RELEVANCE BY THE FEDERAL DEPOSIT INSURANCE CORPORATION.
37
<PAGE> 52
ROCK HILL BANK & TRUST
315 East Main Street
Rock Hill, South Carolina 29730
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Dear Fellow Shareholder:
We cordially invite you to attend the 1999 Annual Meeting of
Shareholders of Rock Hill Bank & Trust. At the meeting, we will report on our
performance in 1998 and answer your questions. We are excited about our
accomplishments in 1998 and look forward to discussing both our accomplishments
and our plans with you.
At the meeting, we will also ask you to approve the formation of a
holding company for our bank. The formation of a holding company will not change
the amount or percentage of stock you own or result in any change in the bank's
management. It will, however, provide us with a great deal more flexibility
through which we can grow and continue to serve your financial needs. We explain
our reasons for the holding company formation in the enclosed proxy statement.
We will also answer any questions you may have about the bank or the formation
of a holding company at the annual meeting. We hope that you can attend the
meeting and look forward to seeing you there.
This letter serves as your official notice that we will hold the
meeting on April 15, 1999 at 5:30 p.m. at Rock Hill Country Club, 600 Country
Club Drive, Rock Hill, South Carolina 29730, for the following purposes:
1. To elect three members to the Board of Directors;
2. To consider a proposal to approve the bank's 1999 Stock
Incentive Plan;
3. To consider a proposal to approve the reorganization of the
bank into a holding company structure; and
4. To transact any other business that may properly come before
the meeting or any adjournment of the meeting.
Shareholders owning our common stock at the close of business on March
15, 1999 are entitled to attend and vote at the meeting. A complete list of
these shareholders will be available at the bank's offices prior to the meeting.
Please use this opportunity to take part in the affairs of your bank by
voting on the business to come before this meeting. Even if you plan to attend
the meeting, we encourage you to complete and return the enclosed proxy to us as
promptly as possible.
By Order of the Board of Directors,
J. A. Ferguson, Jr.
President
March 19, 1999
Rock Hill, South Carolina
<PAGE> 53
ROCK HILL BANK & TRUST
315 East Main Street
Rock Hill, South Carolina 29730
PROXY STATEMENT FOR ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON APRIL 15, 1999
INTRODUCTION
Our Board of Directors is soliciting proxies for the 1999 Annual
Meeting of Shareholders (the "Annual Meeting") of Rock Hill Bank & Trust (the
"Bank"). This proxy statement contains important information for you to consider
when deciding how to vote on the matters brought before the meeting. The proxy
statement also serves as the offering circular for the proposed new holding
company, as it relates to the 1,376,250 shares of the holding company common
stock to be issued to the shareholders of the Bank in exchange for their shares
of Bank common stock. We encourage you to read this Proxy Statement/Offering
Circular carefully.
At the Annual Meeting, shareholders will be asked to approve the
reorganization of the Bank into a holding company structure (the
"Reorganization") in accordance with the Reorganization Agreement and Plan of
Exchange dated as of March 12, 1999 (the "Reorganization Plan"), a copy of which
is attached as Appendix A to this Proxy Statement/Offering Circular. The
Reorganization Plan provides for a statutory share exchange between the
shareholders of the Bank and RHBT Financial Corporation, a South Carolina
corporation recently organized to serve as the holding company for the Bank (the
"Holding Company"). At the effective date of the Reorganization, each
outstanding share of common stock of the Bank will be exchanged, in a tax-free
transaction, for one share of common stock of the Holding Company (the "Share
Exchange"). After consummation of the Reorganization, the Bank will conduct its
business as a wholly-owned subsidiary of the Holding Company in substantially
the same manner and from the same offices as the Bank did before the
Reorganization, and all current shareholders of the Bank will become
shareholders of the Holding Company. See "The Proposed Reorganization."
At the Annual Meeting, you also will vote on a proposed stock incentive
plan and the election of Class I directors of the Bank for a three-year term.
All of the existing Class I directors of the Bank have been nominated for
reelection.
VOTING INFORMATION
The Board set March 15, 1999 as the record date for the meeting.
Shareholders owning our common stock at the close of business on that date are
entitled to attend and vote at the meeting, with each share entitled to one
vote. There were 1,376,250 shares of common stock outstanding on the record
date. A majority of the outstanding shares of common stock represented at the
meeting will constitute a quorum.
When you sign the proxy card, you appoint J. A. Ferguson, Jr. and Elvin
F. Walker as your representatives at the meeting. Mr. Ferguson and Mr. Walker
will vote your proxy as you have instructed them on the proxy card. If you
submit a proxy but do not specify how you would like it to be voted, Mr.
Ferguson and Mr. Walker will vote your proxy for approval of the Reorganization,
for the election to the Board of Directors of all nominees listed below under
"Election Of Directors," and for approval of the 1999 Stock Incentive Plan. We
are not aware of any other matters to be considered at the meeting. However, if
any other matters come before the meeting, Mr. Ferguson and Mr. Walker will vote
your proxy on such matters in accordance with their judgment.
You may revoke your proxy and change your vote at any time before the
polls close at the meeting. You may do this by signing and delivering another
proxy with a later date or by voting in person at the meeting.
We are paying for the costs of preparing and mailing the proxy
materials and of reimbursing brokers and others for their expenses of forwarding
copies of the proxy materials to our shareholders. Our officers and employees
may assist in soliciting proxies but will not receive additional compensation
for doing so. We are distributing this proxy statement on or about March 19,
1999.
--------------------------------
The date of this Proxy Statement/Offering Circular is March 19, 1999.
<PAGE> 54
RHBT FINANCIAL CORPORATION
OFFERING CIRCULAR
--------------------------
PROXY STATEMENT
for
ANNUAL MEETING OF SHAREHOLDERS OF
ROCK HILL BANK & TRUST
TO BE HELD APRIL 15, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
===============================================================================================================
Page
----
<S> <C>
SUMMARY......................................................................................................1
THE PROPOSED REORGANIZATION..................................................................................2
RIGHTS OF DISSENTING SHAREHOLDERS............................................................................7
FEDERAL INCOME TAX CONSEQUENCES..............................................................................9
DIVIDENDS....................................................................................................9
PRO FORMA CONDENSED FINANCIAL INFORMATION...................................................................10
STOCK INCENTIVE PLAN........................................................................................11
MANAGEMENT; ELECTION OF DIRECTORS...........................................................................14
PRINCIPAL SHAREHOLDERS OF THE BANK..........................................................................19
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934........................................21
RESTRICTIONS ON TRANSFER OF STOCK
RECEIVED BY CERTAIN INDIVIDUALS....................................................................21
FINANCIAL STATEMENTS; REPORT ON FORM 10-KSB.................................................................22
STOCK INFORMATION ..........................................................................................22
LEGAL MATTERS...............................................................................................22
INDEPENDENT PUBLIC ACCOUNTANTS..............................................................................22
SHAREHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING OF SHAREHOLDERS...........................................23
AVAILABLE INFORMATION.......................................................................................23
OTHER MATTERS...............................................................................................23
</TABLE>
APPENDIX A: Reorganization Agreement and Plan of Exchange
APPENDIX B: South Carolina Dissenters Rights Statute
<PAGE> 55
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/ OFFERING
CIRCULAR, IN CONNECTION WITH THE OFFERS MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. THIS PROXY
STATEMENT/OFFERING CIRCULAR DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES IN ANY STATE OR OTHER
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/OFFERING CIRCULAR,
NOR ANY OFFER, SOLICITATION OR DISTRIBUTION MADE HEREUNDER, SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS AND ARE NOT INSURED BY
THE FDIC. THESE SECURITIES ARE NOT GUARANTEED BY THE BANK OR BY THE HOLDING
COMPANY AND MAY LOSE VALUE.
<PAGE> 56
SUMMARY
This summary highlights information contained elsewhere in this
Proxy Statement/Offering Circular. Because it is a summary, it may not contain
all of the information about the Annual Meeting that is important to you. We
encourage you to read the entire Proxy Statement/Offering Circular carefully.
ANNUAL MEETING
Date, Time, and Place. The Annual Meeting will be held on April 15,
1999, commencing at 5:30 p.m. Eastern standard time at Rock Hill Country Club,
600 Country Club Drive, Rock Hill, South Carolina, 29730.
Purpose. At the Annual Meeting, the shareholders will be asked to
approve the Reorganization pursuant to which the Bank will become a wholly-owned
subsidiary of the Holding Company. Shareholders will also vote on a proposed
stock incentive plan and will vote to elect Class I directors of the Bank for a
three-year term and until their successors are elected and qualified.
Vote Required, Record Date, and Voting Rights. Approval of the
Reorganization will require the affirmative vote of the holders of at least
two-thirds of the Bank's outstanding stock. The Board of Directors of the Bank
has fixed March 15, 1999 as the record date ("Record Date") for the
determination of holders of Bank stock entitled to receive notice of and vote at
the Annual Meeting. At the close of business on the Record Date, there were
issued and outstanding 1,376,250 shares of Bank common stock entitled to vote at
the Annual Meeting and there were 1,075 shareholders of record. Holders of Bank
common stock are entitled to one vote for each share held of record upon each
matter properly submitted at the Annual Meeting.
The members of the Bank's Board of Directors believe that the
Reorganization is in the Bank's shareholders' best interest because the Holding
Company will have greater business and investment flexibility than the Bank. For
example, the Holding Company can redeem its own shares, issue shares, and borrow
money without regulatory approval, engage through non-bank subsidiaries in
certain banking-related activities, and acquire other banks and thrifts. See
"The Proposed Reorganization - Reasons for the Reorganization."
The Bank's Board of Directors has unanimously approved the
Reorganization and recommends that the shareholders vote in favor of approval.
The Bank's directors and executive officers beneficially owned 11.9% of the
Bank's outstanding common shares as of the Record Date, and they have indicated
that they will vote their shares in favor of the Reorganization. If they vote in
favor of the Reorganization, only 62.2% of the remaining shareholders need to
vote in favor of the Reorganization to approve the plan.
RIGHTS OF DISSENTING SHAREHOLDERS
If the Reorganization is consummated, shareholders who dissent will be
entitled, upon compliance with the provisions of Chapter 13 of Title 33 of the
Code of Laws of South Carolina (the "South Carolina Dissenters Rights Statute")
to receive the value of their shares in cash. Any Bank shareholder intending to
assert dissenters' rights may not vote in favor of the Reorganization and must
file a written notice of intent to demand payment for his shares with the
corporate secretary of the Bank before the vote is taken at the Annual Meeting.
A vote against approval of the Reorganization will not, in and of itself,
satisfy the requirements of the South Carolina Dissenters Rights Statute. See
"Right of Dissenting Shareholders" and Appendix B.
EFFECT OF REORGANIZATION ON THE BANK'S SHAREHOLDERS
If the Reorganization is consummated, the Bank's shareholders' common
stock will be exchanged for shares of common stock of the Holding Company.
Shareholders should consider carefully the differences in their rights as
shareholders of the Bank and their rights as shareholders of the Holding
Company. For instance, unlike the Bank, the Holding Company's Board of Directors
may authorize the issuance of capital stock without the approval of the South
Carolina Bank Board, and such stock may be issued for property or services as
well as for cash. Although the Holding Company has no current plans to do so,
unlike the Bank, the Holding Company is permitted to borrow from third party
institutions and pledge all of the Bank's stock as collateral. If the Holding
1
<PAGE> 57
Company were to borrow such funds, pledge the Bank stock, and default on the
loan, the Holding Company could forfeit the Bank stock. Except as otherwise
described in this Proxy Statement/Offering Circular, Holding Company
shareholders will have rights generally comparable to their present rights as
shareholders of the Bank. See "The Proposed Reorganization - Effect of
Reorganization on the Bank's Shareholders." Also see "Restrictions On Transfer
Of Stock Received By Certain Individuals" for a description of resale
restrictions applicable to certain holders of Holding Company stock under the
Securities Act of 1933 (the "Securities Act").
REGULATORY APPROVALS
Before the proposed Reorganization is consummated, the Bank and the
Holding Company must notify the South Carolina Bank Board and the Board of
Governors of the Federal Reserve System ("Federal Reserve"). If the
Reorganization meets certain criteria established by the Federal Reserve (which
the Bank believes it will meet), the Reorganization can be consummated 30 days
after the Federal Reserve receives this notice. We intend to file notice
applications with each of these regulatory authorities in the near future.
TAX CONSEQUENCES AND ACCOUNTING TREATMENT
Under applicable provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), no gain or loss will be recognized for federal income tax
purposes by the Bank, the Holding Company, or the Bank's shareholders who
receive solely stock of the Holding Company in connection with the proposed
Share Exchange. No ruling to that effect will be requested from the Internal
Revenue Service. Cash received by shareholders who exercise their dissenters'
rights will be treated as amounts distributed in redemption of their shares and
will be taxable under the provisions of Section 302 of the Code as either
ordinary income or capital gain or loss, depending upon the circumstances of the
individual shareholder. See "Federal Income Tax Consequences." The Holding
Company intends to account for the Reorganization under the "pooling of
interests" method of accounting.
THE PROPOSED REORGANIZATION
REORGANIZATION AGREEMENT AND PLAN OF EXCHANGE
The description of the Reorganization set forth in this section does
not purport to be complete and it is qualified in its entirety by reference to
the Reorganization Agreement and Plan of Exchange which is attached hereto as
Appendix A.
DESCRIPTION OF THE REORGANIZATION
The Holding Company is a corporation organized under the laws of the
State of South Carolina. If the Bank's shareholders approve the Reorganization,
the Bank's holding company reorganization will be accomplished pursuant to a
statutory share exchange between the Bank and the Holding Company. The share
exchange will be effective and the Reorganization will be consummated as of the
date specified in the certificate of share exchange issued by the South Carolina
Secretary of State's office.
At the effective date of the Reorganization, each outstanding share of
common stock of the Bank will be exchanged, in a tax-free transaction, for one
share of common stock of the Holding Company. After consummation of the
Reorganization, the Bank will conduct its business as a wholly-owned subsidiary
of the Holding Company in substantially the same manner and from the same
offices as the Bank did before the Reorganization, and all current shareholders
of the Bank will become shareholders of the Holding Company. The articles of
incorporation, bylaws, corporate identity, charter, and officers and directors
of the Bank will not be changed as a result of the Reorganization. The
Reorganization will be accounted for as a pooling of interests.
The Holding Company was recently organized at the direction of the
management of the Bank to accomplish the Reorganization. The Bank's directors
are also the directors of the Holding Company, and the sole shareholder of the
Holding Company is J. A Ferguson, Jr.. In connection with the Reorganization,
the Holding
2
<PAGE> 58
Company will redeem Mr. Ferguson's stock in the Holding Company for the same
consideration paid by him for such stock.
REASONS FOR THE REORGANIZATION
We believe the Reorganization is in the best interest of the Bank's
shareholders because the Holding Company will have greater business and
investment flexibility than the Bank in several areas. There are three primary
benefits from the Reorganization.
First, the Bank can raise capital only by selling unissued shares of
its stock or by issuing certain debt instruments, such as subordinated notes. It
must obtain regulatory approval to sell those shares or subordinated notes, and
sales of stock would dilute shareholders' ownership. The Holding Company, on the
other hand, can borrow funds to make capital contributions to the Bank. The Bank
can repay such loans with dividends paid from the Bank to the Holding Company,
and the Holding Company can eliminate the dividends in computing its taxable
income if it and the Bank file a consolidated tax return. Of course, use of Bank
dividends to repay these loans would reduce the amount of dividends available to
be used for other purposes, such as funds for the Holding Company to distribute
as dividends to its shareholders. If the Holding Company prefers to raise money
by issuing stock, it can do so without regulatory approval, subject to federal
and state securities law requirements. The Holding Company has no current plans
to raise additional capital or to borrow funds to make capital contributions to
the Bank.
Second, except in certain unusual circumstances, the Bank is not
permitted to purchase its own stock or to lend money secured by its own stock.
The Holding Company may, within limits, redeem its own stock, and the Bank, as
the Holding Company's subsidiary, may, within limits, make loans secured by
Holding Company stock.
In addition to the benefits discussed above, the Reorganization and the
resulting corporate structure will impose certain additional costs and burdens
relating to the Holding Company, including: (i) direct costs of the
Reorganization, such as legal fees, accounting fees and printing costs, (ii)
additional administrative burdens of operating the holding company, such as
management time and expenses, (iii) regulation by the Federal Reserve at the
Holding Company level, and (iv) Securities Act registration with and Exchange
Act reporting to the Securities and Exchange Commission rather than to the FDIC.
In summary, we believe that the greater business and investment
capabilities of the Holding Company will enable the Bank to compete more
effectively with other financial institutions and will help place the Bank in a
better position for future growth. We also believe that these advantages to the
Reorganization outweigh the costs of the Reorganization and the additional
regulatory and administrative burdens associated with the Holding Company.
CONDITIONS TO THE REORGANIZATION
The Reorganization has been unanimously approved by the Boards of
Directors of the Bank and the Holding Company. Consummation of the
Reorganization is conditioned upon approval by holders of two-thirds of the
outstanding shares of the Bank, and upon the receipt of any required approvals
from regulatory agencies, including the South Carolina Bank Board and the
Federal Reserve.
TERMINATION
The Reorganization Plan may be terminated at any time before the
Effective Date if:
(1) the number of shares of common stock of the Bank
voted against the Reorganization shall make consummation of the
Reorganization unwise in the opinion of the Bank's Board of Directors;
(2) any claim relating to the Reorganization has been
instituted or threatened before any court or administrative body; or
3
<PAGE> 59
(3) the Bank's Board of Directors subsequently determines
that the Reorganization is inadvisable.
SURRENDER OF CERTIFICATES
Upon consummation of the Reorganization on the Effective Date, the
Bank's shareholders will be furnished instructions for surrendering their
present stock certificates and for replacing any lost, stolen or destroyed
certificates. As of the Effective Date, each certificate representing common
stock of the Bank will be deemed to evidence the right to receive Holding
Company stock as provided by the Reorganization Plan. However, under the terms
of the Reorganization Plan, shareholders who do not surrender their Bank stock
certificates will not be issued certificates representing the shares of Holding
Company common stock they may be entitled to receive and will not be paid
dividends or other distributions. Any such dividends or distributions which such
shareholders would otherwise receive will be held, without interest, for their
accounts until surrender of their Bank stock certificates.
SHAREHOLDER APPROVAL
The affirmative vote of the holders of at least two-thirds of the
outstanding shares of the Bank's common stock entitled to vote at the Annual
Meeting is required for approval of the Reorganization Plan. On the Record Date
for determination of shareholders entitled to notice of and to vote at the
Annual Meeting, the outstanding voting securities of the Bank consisted of
1,376,250 shares of common stock, with the registered holders thereof being
entitled to one vote per share.
EFFECT OF REORGANIZATION ON THE BANK'S SHAREHOLDERS
Generally. If the Reorganization is consummated, the Bank's
shareholders will become holders of the same number of shares of Holding Company
common stock as the number of shares of Bank common stock they held prior to the
Reorganization, and their respective percentage ownership interest in the
Holding Company will be identical to their respective percentage ownership
interest in the Bank (except to the extent that such ownership interest may be
increased by the retirement of shares from Bank shareholders who exercise their
statutory right to dissent). After the Reorganization, the rights and privileges
of former Bank shareholders will be governed by the provisions of the South
Carolina Business Corporation Act rather than the provisions of Title 34 of the
Code of Laws of South Carolina (the "South Carolina Bank Act"). Shareholders
should carefully consider the differences between their rights as shareholders
of the Holding Company and their rights as shareholders of the Bank. The
principal differences are described below.
Issuance of Additional Capital Stock. The South Carolina Bank Act
provides that the issuance of stock by the Bank is subject to approval by the
South Carolina Bank Board, and that Bank stock, except for certain limited
exceptions, may be issued only for cash consideration. On the other hand, stock
issuances by the Holding Company will not be subject to such regulatory approval
and stock may be issued by the Holding Company for cash, other property, or
services.
Limitation of Liability. The Holding Company's Bylaws provide or allow
for indemnification of directors, officers and employees. The current Bylaws of
the Bank also contain a similar provision, although it is unclear whether such
provision would be enforceable under all circumstances, especially in the
context of an enforcement action by the FDIC. As a result, the limits on
liability available to the Holding Company's directors, officers and employees
may be more favorable to the Holding Company's directors, officers and employees
than the similar provisions available to the Bank's directors, officers and
employees.
Restrictions on Resale of Holding Company Stock. Persons who are
"affiliates" of the Bank at the time that the Reorganization Plan is submitted
to the Bank's shareholders for approval and persons who are or become
"affiliates" of the Holding Company will be subject to restrictions on the
resale of their shares of Holding Company common stock under the Securities Act.
In contrast, affiliates of the Bank are not subject to those resale restrictions
under the Securities Act because stock of a bank is exempt from the registration
provisions of
4
<PAGE> 60
the Securities Act pursuant to Section 3(a)(2) thereof. See "Restrictions On
Transfer Of Stock Received By Certain Individuals."
REGULATION OF THE HOLDING COMPANY
Because it will own the outstanding capital stock of the Bank, the
Holding Company will be a bank holding company within the meaning of the Federal
Bank Holding Company Act of 1956 (the "BHCA") and The South Carolina Bank
Holding Company Act (the "South Carolina Act"). The activities of the Holding
Company will also be governed by the Glass-Steagall Act of 1933 (the
"Glass-Steagall Act").
The BHCA. Under the BHCA, the Holding Company will be subject to
periodic examination by the Federal Reserve and will be required to file
periodic reports of its operations and such additional information as the
Federal Reserve may require. The Holding Company's and the Bank's activities are
limited to banking, managing, or controlling banks; furnishing services to or
performing services for its subsidiaries; and engaging in other activities that
the Federal Reserve determines to be so closely related to banking, managing, or
controlling banks as to be a proper incident thereto.
Investments, Control, and Activities. With certain limited exceptions,
the BHCA requires every bank holding company to obtain the prior approval of the
Federal Reserve before (i) acquiring substantially all the assets of any bank,
(ii) acquiring direct or indirect ownership or control of any voting shares of
any bank if after such acquisition it would own or control more than 5% of the
voting shares of such bank (unless it already owns or controls the majority of
such shares), or (iii) merging or consolidating with another bank holding
company.
In addition, and subject to certain exceptions, the BHCA and the Change
in Bank Control Act, together with regulations thereunder, require Federal
Reserve approval (or, depending on the circumstances, no notice of disapproval)
prior to any person or company acquiring "control" of a bank holding company,
such as the Holding Company. Control is conclusively presumed to exist if an
individual or company acquires 25% or more of any class of voting securities of
the bank holding company. Control is rebuttably presumed to exist if a person
acquires 10% or more but less than 25% of any class of voting securities and
either the Holding Company has registered securities under Section 12 of the
Exchange Act (which the Holding Company will be required to do with respect to
the Common Stock) or no other person will own a greater percentage of that class
of voting securities immediately after the transaction. The regulations provide
a procedure for challenge of the rebuttable control presumption.
Under the BHCA, a bank holding company is generally prohibited from
engaging in, or acquiring direct or indirect control of more than 5% of the
voting shares of any company engaged in, nonbanking activities, unless the
Federal Reserve Board, by order or regulation, has found those activities to be
so closely related to banking or managing or controlling banks as to be a proper
incident thereto. Some of the activities that the Federal Reserve Board has
determined by regulation to be proper incidents to the business of a bank
holding company include making or servicing loans and certain types of leases,
engaging in certain insurance and discount brokerage activities, performing
certain data processing services, acting in certain circumstances as a fiduciary
or investment or financial adviser, owning savings associations, and making
investments in certain corporations or projects designed primarily to promote
community welfare.
The Federal Reserve Board will impose certain capital requirements on
the Holding Company under the BHCA, including a minimum leverage ratio and a
minimum ratio of "qualifying" capital to risk-weighted assets. Subject to its
capital requirements and certain other restrictions, the Holding Company will be
able to borrow money to make a capital contribution to the Bank, and such loans
may be repaid from dividends paid from the Bank to the Holding Company (although
the ability of the Bank to pay dividends will be subject to regulatory
restrictions). The Holding Company will also be able to raise capital for
contribution to the Bank by issuing securities without having to receive
regulatory approval, subject to compliance with federal and state securities
laws. Unlike the Bank, the Holding Company may, subject to certain limitations,
repurchase its own stock.
Source of Strength; Cross-Guarantee. In accordance with Federal Reserve
Board policy, the Holding Company is expected to act as a source of financial
strength to the Bank and to commit resources to support the Bank
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<PAGE> 61
in circumstances in which the Holding Company might not otherwise do so. Under
the BHCA, the Federal Reserve Board may require a bank holding company to
terminate any activity or relinquish control of a nonbank subsidiary (other than
a nonbank subsidiary of a bank) upon the Federal Reserve Board's determination
that such activity or control constitutes a serious risk to the financial
soundness or stability of any subsidiary depository institution of the bank
holding company. Further, federal bank regulatory authorities have additional
discretion to require a bank holding company to divest itself of any bank or
nonbank subsidiary if the agency determines that divestiture may aid the
depository institution's financial condition. The Bank may be required to
indemnify, or cross-guarantee, the FDIC against losses it incurs with respect to
any other bank controlled by the Company, which in effect makes the Company's
equity investments in healthy bank subsidiaries available to the FDIC to assist
any failing or failed bank subsidiary of the Company.
Glass-Steagall Act. The Holding Company will also be restricted in its
activities by the provisions of the Glass-Steagall Act, which will prohibit the
Holding Company from owning subsidiaries that are engaged principally in the
issue, flotation, underwriting, public sale, or distribution of securities. The
interpretation, scope, and application of the provisions of the Glass-Steagall
Act currently are being considered and reviewed by regulators and legislators,
and the interpretation and application of those provisions have been challenged
in the federal courts.
South Carolina Act. As a bank holding company registered under the
South Carolina Act, the Holding Company is subject to regulation by the South
Carolina Bank Board. Consequently, the Holding Company must receive the approval
of the South Carolina Bank Board prior to engaging in the acquisition of banking
or nonbanking institutions or assets. The Holding Company must also file with
the South Carolina Bank Board periodic reports with respect to its financial
condition and operations, management, and intercompany relationships between the
Holding Company and its subsidiaries.
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<PAGE> 62
RIGHTS OF DISSENTING SHAREHOLDERS
If the Reorganization is consummated, shareholders who dissent will be
entitled, upon compliance with the South Carolina Dissenters Rights Statute
(Chapter 13 of Title 33 of the Code of Laws of South Carolina) to receive the
value of their shares in cash. Set forth below is a summary of the procedures
relating to the exercise of dissenters' rights under the South Carolina
Dissenters Rights Statute, a copy of which is set forth in Appendix B. The
provisions for exercising dissenters' rights are complex and must be complied
with precisely. Any shareholder of the Bank intending to dissent from the
proposed Reorganization should consult carefully the text of Appendix B and is
also advised to consult legal counsel.
Any shareholder of the Bank entitled to vote on the Reorganization has
the right to dissent from the Reorganization and receive payment of the fair
value of his shares of the Bank common stock upon compliance with the South
Carolina Dissenters Rights Statute. A shareholder may not dissent as to less
than all of the shares that he beneficially owns, regardless of the number of
accounts maintained for the benefit of such shareholder. A nominee or fiduciary
may not dissent on behalf of any beneficial owner as to less than all of the
shares of such beneficial owner held of record by such nominee or fiduciary. A
beneficial owner asserting dissenters' rights to shares held on his behalf must
notify the Bank in writing of the names and addresses of the record holders of
the shares, if known to him.
Any Bank shareholder intending to assert dissenters' rights may not
vote in favor of the Reorganization and must file a written notice of intent to
demand payment for his shares (the "Objection Notice") with the corporate
secretary of the Bank before the vote is taken at the Annual Meeting. Objection
notices should be forwarded to the following address: Patricia M. Stone, Rock
Hill Bank & Trust, 315 East Main Street, Rock Hill, South Carolina 29730. The
Objection Notice must state that the shareholder intends to demand payment for
his shares of the Bank common stock if the Reorganization is effected. A vote
against approval of the Reorganization will not, in and of itself, constitute an
Objection Notice satisfying the requirements of Section 33-13-210 of the South
Carolina Dissenters Rights Statute. A Bank shareholder who returns a signed and
otherwise unmarked proxy card will be deemed to have voted in favor of the
Reorganization and will not be entitled to dissent, even if the shareholder has
filed an Objection Notice. If the Reorganization is approved by the Bank's
shareholders at the Annual Meeting, each shareholder who has properly filed an
Objection Notice will be notified by the Bank of such approval within 10 days
after the Annual Meeting (the "Dissenters' Notice"). The Dissenters' Notice will
(i) state where dissenting shareholders must (a) send the Payment Demand (as
defined below) and (b) deposit their Bank common stock certificates (the
"Certificates"); (ii) inform holders of uncertificated shares of the Bank common
stock of the extent of any restrictions on the transferability of such shares;
(iii) be accompanied by a form for demanding payment that includes the date of
the first announcement to the news media or to shareholders of the terms of the
proposed Reorganization; (iv) set a date by which (x) the Bank must receive the
Payment Demand, which may not be fewer than 30 or more than 60 days after the
date the Dissenters' Notice is delivered and (y) the Certificates must be
deposited as instructed in the Dissenters' Notice, which may not be earlier than
20 days after the date the Payment Demand is received by the Bank; and (v) be
accompanied by a copy of the South Carolina Dissenters Rights Statute. Within
the time prescribed in the Dissenters' Notice, a shareholder electing to dissent
must make a demand for payment (the "Payment Demand"), certify whether he (or
the beneficial shareholder on whose behalf he is asserting dissenters' rights)
acquired beneficial ownership of the shares of the Bank common stock before the
date of this Proxy Statement/Offering Circular (which is the date of the first
announcement to the Bank's shareholders of the terms of the Reorganization) and
deposit his Certificates in accordance with the terms of the Dissenter's Notice.
Upon filing the Payment Demand and depositing the Certificates, the shareholder
will retain all other rights of a shareholder until these rights are canceled or
modified by the consummation of the Reorganization. Failure to comply
substantially with these procedures will cause the shareholder to lose his
dissenters' rights to payment for the shares. Consequently, any Bank shareholder
who desires to exercise his rights to payment for his shares is urged to consult
legal counsel before attempting to exercise such rights.
As soon as the Reorganization is consummated, or upon receipt of a
Payment Demand, the Company shall, pursuant to Section 33-13-250 of the South
Carolina Dissenters Rights Statute, pay to each dissenting shareholder who has
substantially complied with the requirements of the South Carolina Dissenters
Rights Statute the amount that the Holding Company estimates to be the fair
value of the shares of the Bank common stock plus
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<PAGE> 63
accrued interest. Section 33-13-250 of the South Carolina Dissenters Rights
Statute requires that payment be accompanied by (i) certain of the Bank's
financial statements, (ii) a statement of the Holding Company's estimate of the
fair value of the shares and an explanation of how the Holding Company's
estimate of the fair value and the interest were calculated, (iii) notification
of rights to demand additional payment, and (iv) a copy of the South Carolina
Dissenters Rights Statute. As authorized by Section 33-13-270, the Holding
Company may delay any payments with respect to any shares held by a dissenting
shareholder which were not held by such shareholder on the date of this Proxy
Statement/Offering Circular of the terms of the Reorganization, unless the
beneficial ownership devolved upon him by operation of law from a person who was
the beneficial owner on such date. Where payments are so withheld, the South
Carolina Dissenters Rights Statute requires the Holding Company, after the
Reorganization, to send to the holder of such shares an offer to pay the holder
an amount equal to the Holding Company's estimate of their fair value plus
accrued interest, together with an explanation of the calculation of fair value
and interest and a statement of the holder's right to demand additional payment
under Section 33-13-280 of the South Carolina Dissenters Rights Statute.
If the Reorganization is not consummated within 60 days after the date
set for demanding payment and depositing Certificates, the Bank, within the
60-day period, will return the deposited Certificates and release any transfer
restrictions imposed on the uncertificated shares. If, after returning deposited
Certificates and releasing transfer restrictions, the Reorganization is
consummated, the Bank must send a new Dissenters' Notice and repeat the payment
demand procedure.
If the dissenting shareholder believes that the amount paid by the
Holding Company pursuant to Section 33-13-250 of the South Carolina Dissenters
Rights Statute or offered under Section 33-13-270 of the South Carolina
Dissenters Rights Statute is less than the fair value of his shares or that the
interest due is calculated incorrectly, or if the Holding Company fails to make
payment or offer payment (or, if the Reorganization has not been consummated,
the Bank does not return the deposited Certificates or release the transfer
restrictions imposed on uncertificated shares), within 60 days after the date
set in the Dissenters' Notice, then the dissenting shareholder may within 30
days after (i) the Holding Company made or offered payment for the shares or
failed to pay for the shares or (ii) the Bank failed to return deposited
Certificates or release restrictions on uncertificated shares timely, notify the
Holding Company in writing of his own estimate of the fair market value of such
shares (including interest due) and demand payment of such estimate (less any
payment previously received). Failure to notify the Holding Company in writing
of any demand for additional payment within 30 days after the Holding Company
made payment for such shares will constitute a waiver of the right to demand
additional payment.
If the Holding Company and the dissenting shareholder cannot agree on a
fair price within 60 days after the Bank receives such a demand for additional
payment, the Holding Company must institute judicial proceedings to fix (i) the
fair value of the shares and (ii) the accrued interest. The Holding Company must
make all dissenters whose demands for additional payment remain unsettled
parties to the proceeding and all such parties must be served with a copy of the
petition. The court may, in its discretion, appoint an appraiser to receive
evidence and recommend a decision on the question of fair value. The court is
required to issue a judgment for the amount, if any, by which the fair value of
the shares, as determined by the court, plus interest, exceeds the amount paid
by the Holding Company. If the Holding Company does not institute such
proceeding within such 60-day period, the Holding Company shall pay each
dissenting shareholder whose demand remains unsettled the respective amount
demanded by each shareholder.
The court will assess certain costs and expenses of such proceeding
(including reasonable compensation for, and the expenses of, the appraiser)
against the Holding Company, except that the court may assess such costs and
expenses as it deems appropriate against any or all of the dissenting
shareholders if it finds that their demand for additional payment was arbitrary,
vexatious or otherwise not in good faith. The court may award fees and expenses
of counsel and experts in amounts the court finds equitable (i) against the
Holding Company if the court finds that the Holding Company did not comply
substantially with the relevant requirements of the South Carolina Dissenters
Rights Statute or (ii) against either the Holding Company or any dissenting
shareholder, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith.
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<PAGE> 64
FEDERAL INCOME TAX CONSEQUENCES
If the Share Exchange and related transactions take place as described
in the Reorganization Plan and at least 50% of the Bank's outstanding common
stock is exchanged for Holding Company common stock in the Share Exchange:
(1) The Share Exchange between the Bank and the Holding
Company should qualify as a "reorganization" within the meaning of Sections
368(a)(1)(B) of the Code.
(2) Assuming the Share Exchange qualifies as a
"reorganization," no gain or loss will be recognized by the Holding Company or
the Bank as a result of the Share Exchange.
(3) Assuming the Share Exchange qualifies as a
"reorganization," no gain or loss will be recognized by any shareholder of the
Bank upon the exchange of his Bank common stock in the Share Exchange solely for
Holding Company common stock.
(4) Cash received by a shareholder of the Bank who
perfects his dissenters' rights will be treated as having been received by such
shareholder in redemption of his Bank common stock, and such redemption will be
taxable under the provisions of Section 302 of the Code as either ordinary
income or capital gain or loss, depending upon the circumstances of the
individual shareholder.
(5) Assuming the Share Exchange qualifies as a
"reorganization," the aggregate tax basis of the Holding Company common stock
received by a Bank shareholder will be the same as such shareholder's basis in
the Bank common stock exchanged for such Holding Company common stock in the
Share Exchange.
(6) Assuming the Share Exchange qualifies as a
"reorganization," the holding period of the Holding Company common stock
received in the Share Exchange by a Bank shareholder will include the period
during which such shareholder held the Bank common stock exchanged for such
Holding Company common stock, provided that such Bank common stock is held by
such shareholder as a capital asset on the Effective Date.
No ruling will be requested from the Internal Revenue Service ("IRS")
concerning the tax consequences of the Share Exchange. Because no IRS ruling
will be requested, there is a risk that the IRS will determine that the Share
Exchange does not qualify as a "reorganization," resulting in adverse tax
consequences to the Bank, the Holding Company and their shareholders.
The foregoing brief summary is not, and is not intended to be, a
complete analysis of all the federal income tax consequences of the Share
Exchange. SHAREHOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISERS TO MAKE A
PERSONAL APPRAISAL OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE PROPOSED
TRANSACTION AND IN ORDER TO DETERMINE ANY STATE OR LOCAL TAX CONSEQUENCES OF THE
SHARE EXCHANGE.
DIVIDENDS
The Bank has paid never paid cash dividends and in the near term
intends to retain any future earnings to finance its growth. The Holding
Company's ability to pay any cash dividends to its shareholders will depend
primarily on the Bank's ability to pay dividends to the Holding Company. The
Bank is subject to regulatory restrictions on the payment of dividends,
including a prohibition of payment of dividends from its capital. All dividends
must be paid out of the undivided profits then on hand, after deducting
expenses, including losses and bad debts. The Bank must also obtain approval
from the South Carolina Bank Board prior to the payment of any dividends to the
Holding Company. In addition, the Bank may not pay a dividend if, after paying
the dividend, the Bank would be undercapitalized.
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<PAGE> 65
PRO FORMA CONDENSED FINANCIAL INFORMATION
Because the Holding Company was recently formed to acquire the Bank and
has had no operations of its own, and because the Reorganization is expected to
be accounted for in a manner similar to a pooling of interests, the Holding
Company's consolidated balance sheet immediately after consummation of the
Reorganization will be essentially identical to the Bank's balance sheet with
the following changes: (a) Shareholders' equity will be reduced by the amount of
the expenses of the Reorganization (estimated to be about $25,000); and (b)
Shareholders' equity may be further reduced by any amounts that the Holding
Company must pay dissenters. See "Rights of Dissenting Shareholders."
Consummation of the Reorganization will not have any material effect on the
earnings of the Bank and, on a consolidated basis, the pro forma consolidated
results of operations of the Holding Company would be identical to those of the
Bank, with the exception of the estimated expenses of the Reorganization. See
pages 15-16 of the Bank's Annual Report to Shareholders for a discussion of the
Bank's regulatory capital ratios.
The following table sets forth the actual capitalization of the Holding
Company as of March 12, 1999, and the pro forma consolidated capitalization of
the Holding Company and the Bank as of that date using the Bank's actual balance
sheet amounts as of December 31, 1998. The information herein should be read in
conjunction with the financial statements of the Bank from the Bank's 1998
Annual Report to Shareholders, which is being mailed with this Proxy
Statement/Offering Circular.
PRO FORMA CONSOLIDATED CAPITALIZATION
<TABLE>
<CAPTION>
Holding Company Holding Company
--------------- Pro Forma ---------------
Prior to the Adjustments (Bank After the
------------ ----------------- ---------
Reorganization (1) Shareholder' Equity) Reorganization
-------------- -------------------- --------------
<S> <C> <C> <C>
SHAREHOLDERS' EQUITY
Common stock, $.01 par value,
10,000,000 shares authorized
10 shares issued $ 1 $ (1)(2) $ --
1,376,250 shares issued 0 13,763 (3) 13,763
(Common stock, $1.00 par value,
10,000,000 shares authorized
1,376,250 shares outstanding)
(99)(2)
Additional paid-in capital 99 15,376,185 (3) 15,376,185
(25,000)(4)
Retained earnings -- 180,077 (3) 155,077
Unrealized holding gains and
losses on available-for-sale
securities -- 7,921 (3) 7,921
Total shareholders' equity $ 100 $ 15,552,846 $ 15,552,946
======== =============== ===============
</TABLE>
- ---------------------------------
(1) On March 12, 1999, the Chief Executive Officer of the Bank purchased 10
shares of the common stock of the Holding Company for $10.00 per share
after its incorporation on 12, 1999.
(2) Redemption on the Effective Date of 10 shares of common stock of the
Holding Company purchased by the Chief Executive Officer of the Bank in
connection with the formation of the Holding Company.
(3) Issuance on the Effective Date of 1,376,250 shares of common stock of
the Holding Company in exchange for all of the 1,376,250 outstanding
shares of common stock of the Bank on a one-for-one share basis.
Exchange has been accounted for in a manner similar to a
pooling-of-interests and assumes no cash payments being made to
dissenting shareholders of the Bank. Amounts are derived from the
balance sheet of the Bank as of December 31, 1998.
(4) Assuming $25,000 expenses of the Merger.
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<PAGE> 66
PROPOSAL NO. 2: APPROVAL OF THE 1999 STOCK INCENTIVE PLAN
GENERAL
The Board of Directors has adopted the Bank's 1999 Stock Incentive Plan
effective February 18, 1999. We believe that the issuance of stock options can
promote the growth and profitability of the Bank by providing additional
incentives for participants to focus on the Bank's long-range objectives. We
also believe that stock options help us to attract and retain highly qualified
personnel and to link their interests directly to shareholder interests.
Therefore, we ask you to approve this plan at the meeting.
If the Reorganization is also approved at the Annual Meeting, the
Holding Company will assume the Stock Incentive Plan. Assuming this occurs, all
references in the following discussion would apply to the Holding Company
instead of the Bank.
The plan authorizes the grant to our employees and directors of stock
options and restricted stock for up to 250,000 shares of common stock from time
to time during the term of the plan, subject to adjustment upon changes in
capitalization. The plan also authorizes grants to advisers and consultants of
the Bank. The number of shares available for issuance under the plan will also
automatically increase each year by an amount equal to 1% of the shares
outstanding at that time, except that the total number of shares available for
issuance will not exceed 20% of the shares outstanding.
Under the plan, the Bank may grant either incentive stock options
(which qualify for certain favorable tax consequences, as described below) or
nonqualified stock options. The plan also authorizes the issuance of restricted
stock. The plan will be administered by a committee consisting of at least two
members of the Board of Directors. The committee will determine the persons who
will receive options or restricted stock and the number of shares that will be
covered by their options. The committee will also determine the periods of time
(not exceeding ten years from the date of grant in the case of an incentive
stock option) during which options will be exercisable and will determine
whether termination of an optionee's employment under various circumstances
would terminate options granted under the plan to that person. The committee may
also grant a reload option to an optionee who surrenders common stock as payment
of the exercise price of an option. The reload option will have an exercise
price equal to the fair market value of the common stock on the date of payment
for the exercised option, will be for the same number of shares as were
surrendered, and may have other terms as the committee may prescribe.
If granted an option under the plan, the optionee will receive an
option agreement specifying the terms of the option, such as the number of
shares of common stock the optionee can purchase, the price per share, when the
optionee can exercise the option, and when the option expires. Similarly, if
granted restricted stock under the plan, the grantee will receive an award
agreement specifying the terms of the grant, such as the number of shares of
restricted stock covered by the grant, the restrictions on voting or disposition
of the restricted stock, and the schedule pursuant to which the restrictions
will lapse. The plan provides that options will become exercisable and
restrictions will lapse immediately upon a change in control of the Bank.
The option price per share is an amount to be determined by the Board
of Directors, but for an incentive stock option the price will not be less than
100%, and for a non-incentive stock option the price will not be less than 85%,
of the fair market value per share on the date of grant. Generally, the option
price will be payable in full upon exercise. Payment of the option price of any
stock option may be made in cash, by delivery of shares of common stock (valued
at their fair market value at the time of exercise), or by a combination of cash
and stock. The Bank will receive no consideration upon granting of an option.
Options generally may not be transferred except by will or by the laws
of descent and distribution, and during an optionee's lifetime may be exercised
only by the optionee (or by his or her guardian or legal representative, should
one be appointed). The grant of an option does not give the optionee any rights
of a shareholder until the optionee exercises the option.
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<PAGE> 67
The Board of Directors will have the right at any time to terminate or
amend the plan but no such action may terminate options already granted or
otherwise affect the rights of any optionee under any outstanding option without
the optionee's consent.
FEDERAL INCOME TAX CONSEQUENCES
There are no federal income tax consequences to the optionee or to the
Bank on the granting of options. The federal tax consequences upon exercise will
vary depending on whether the option is an incentive stock option or a
nonqualified stock option.
INCENTIVE STOCK OPTIONS. When an optionee exercises an incentive stock
option, the optionee will not at that time realize any income, and the Bank will
not be entitled to a deduction. However, the difference between the fair market
value of the shares on the exercise date and the exercise price will be a
preference item for purposes of the alternative minimum tax. The optionee will
recognize capital gain or loss at the time of disposition of the shares acquired
through the exercise of an incentive stock option if the shares have been held
for at least two years after the option was granted and one year after it was
exercised. The Bank will not be entitled to a tax deduction if the optionee
satisfies these holding period requirements. The net federal income tax effect
to the holder of the incentive stock options is to defer, until the acquired
shares are sold, taxation on any increase in the shares' value from the time of
grant of the option to the time of its exercise, and to tax such gain, at the
time of sale, at capital gain rates rather than at ordinary income rates.
If the holding period requirements are not met, then upon sale of the
shares the optionee generally recognizes as ordinary income the excess of the
fair market value of the shares at the date of exercise over the exercise price
stated in the option agreement. Any increase in the value of the shares
subsequent to exercise is long or short-term capital gain to the optionee
depending on the optionee's holding period for the shares. However, if the sale
is for a price less than the value of the shares on the date of exercise, the
optionee might recognize ordinary income only to the extent the sales price
exceeded the option price. In either case, the Bank is entitled to a deduction
to the extent of ordinary income recognized by the optionee.
NONQUALIFIED STOCK OPTIONS. Generally, when an optionee exercises a
nonqualified stock option, the optionee recognizes income in the amount of the
aggregate market price of the shares received upon exercise less the aggregate
amount paid for those shares, and the Bank may deduct as an expense the amount
of income so recognized by the optionee. The holding period of the acquired
shares begins upon the exercise of the option, and the optionee's basis in the
shares is equal to the market price of the acquired shares on the date of
exercise.
RESTRICTED STOCK. Awards of restricted stock are shares of common stock
that are granted subject to conditions, such as continued service with the Bank,
that are established at the time of the award. Restricted stock will become
nonforfeitable as its holder meets the specified conditions. If the conditions
are not satisfied, all or a portion of the shares of restricted stock are
forfeited to the Bank. Generally, restricted stock cannot be transferred until
the restrictions have lapsed. Upon a grant of restricted stock, the market value
of the stock at the date of grant is included as a deduction from shareholders'
equity in the Company's balance sheet and is amortized as compensation expense
on a straight-line basis over the vesting period. The participant recognizes
taxable income as the restrictions lapse (subject to an election to accelerate
the income recognition), based on the fair market value of the shares on the
date of lapse (or earlier acceleration), and the Bank is entitled to a
corresponding tax deduction.
INITIAL OPTION GRANTS
The Bank granted the following stock options effective February 19,
1999:
- Non-incentive stock options covering 55,000 shares to
the Bank's Directors as a group. Included in that
amount are options covering 7,500 shares each to
Edwin L. Barnes, William C. Beaty, Jr., and Hugh L.
Harrelson, Sr., the nominees for election as
directors
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<PAGE> 68
- Incentive stock options covering 40,000 shares to J.
A. Ferguson, Jr., President and Chief Executive
Officer of the Bank
- Incentive stock options covering 92,500 shares to
executive officers of the Bank as a group (including
options granted to Mr. Ferguson)
Each of these option grants includes the following features:
- An exercise period of ten years
- A seven-year vesting term: 20% to vest upon grant,
80% to vest ratably over the remainder of the term
- Restrictions on transferability
- An exercise price of $15.50 per share, fair market
value on the date of grant
See "Stock Information" for information on the market for the Bank's
stock and recent share prices.
SHAREHOLDER APPROVAL REQUIRED
The affirmative vote of the holders of a majority of the votes entitled
to be cast at the meeting is required for approval of the plan. Abstentions and
broker non-votes will not be considered to be either affirmative or negative
votes. Because directors will receive options under the plan, the directors of
the Bank have a personal interest in seeing the plan approved.
The Board of Directors recommends a vote for approval of the 1999 Stock
Incentive Plan.
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<PAGE> 69
MANAGEMENT; ELECTION OF DIRECTORS
The following sets forth certain information regarding the
Bank's executive officers and directors. The Bank's Articles of Incorporation
provide for a classified Board of Directors, so that, as nearly as possible,
one-third of the directors are elected each year to serve three-year terms. The
terms of office of the classes of directors expire as follows: Class I at the
1999 annual meeting of shareholders; Class II at the 2000 annual meeting of
shareholders; and Class III at the 2001 annual meeting of shareholders.
Executive officers of the Bank serve at the discretion of the Bank's Board of
Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE BANK
- ---- --- ----------------------
<S> <C> <C>
Edwin L. Barnes 72 Director
William C. Beaty, Jr. 51 Director
Claude W. Burns, III 41 Director
William R. Davis 58 Director
John W. Dickens 53 Director and Vice Chairman of the Board
J. A. Ferguson, Jr. 51 Director, President and Chief Executive Officer
Jean M. Gaillard 70 Director
Hugh L. Harrelson, Sr. 54 Director
Jerry H. Padgett 66 Director
Richard S. Powell 64 Director
Patricia M. Stone 43 Chief Financial Officer and Senior Vice President
Elvin F. Walker 63 Director and Chairman of the Board
</TABLE>
EDWIN L. BARNES, Class I director, has been employed by Rock Hill
Telephone Company since 1946 and currently serves as its executive vice
president, chief financial officer, and secretary-treasurer, and as a director.
Mr. Barnes also is an officer and director of several affiliated companies
engaged in the telecommunications business with respect to which he has primary
responsibility for financial and administrative functions. Mr. Barnes received a
bachelor of science degree in mechanical engineering from The Georgia Institute
of Technology in 1945. He served as an advisory director for The Citizens &
Southern National Bank of South Carolina ("C&S") and its successor NationsBank
in Rock Hill from January 1991 until October 1995.
WILLIAM C. BEATY, JR., Class I director, has been employed by Catawba
Services, Inc., a cable television operator, since 1974, serving as the
executive vice president of the company since June 1995 and as a director. Mr.
Beaty is President of the South Carolina Cable Television Association and a
director of the South Carolina Cable Television Foundation. Mr. Beaty graduated
from Presbyterian College in 1970. He served on the board of directors of Home
Federal Savings Bank of South Carolina from 1984 to October 1995.
CLAUDE W. BURNS, III, Class III director, has been the president of
Burns Chevrolet, Inc, in Rock Hill since 1982 and the vice president of Burns
Nissan, Inc. since December 1994. Mr. Burns is a past president of the South
Carolina Automobile Dealers Association, a past chairman of the Rock Hill Area
Chamber of Commerce, and a board member of the York County Economic Development
Board. He graduated from The Citadel with a B.S. degree in 1980.
WILLIAM R. DAVIS, Class III director, has been senior vice president
and senior trust officer of M.S. Bailey & Sons, Bankers since April of 1994. He
also serves as corporate secretary of Bailey Financial Corporation. Mr. Davis
has been in banking 36 years and has served as president and chief executive
officer of Dominion Trust Co. in Roanoke, Virginia. Mr. Davis is a graduate of
Virginia Commonwealth University and of the National Graduate Trust School at
Northwestern University.
JOHN W. DICKENS, Class I director, has been president, chief executive
officer and director of M. S. Bailey & Sons, Bankers since October 1, 1988.
Since 1992, Mr. Dickens has also served as president, chief executive officer
and director of Bailey Financial Corporation. He has been chairman of the board,
chief executive officer and a director of The Saluda County Bank since November
1993. Mr. Dickens graduated from Appalachian State University in 1968.
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<PAGE> 70
J. A. FERGUSON, JR., Class III director, has served as the president
and chief executive officer of the Bank since it opened in May 1996. Prior to
joining the Bank, Mr. Ferguson was the senior vice president and city executive
of Southern National Bank of South Carolina and its successor Branch Banking and
Trust Company of South Carolina in Orangeburg, South Carolina, from January 1994
until December 1995, when he resigned to join the organizing efforts to form the
Bank. From 1973 to January 1994, Mr. Ferguson worked in a number of capacities
for C&S National Bank and its successor, NationsBank, N.A., most recently as
vice president and city executive in Orangeburg, South Carolina. Mr. Ferguson
received a B.A. degree in economics from Clemson University in 1969.
JEAN M. GAILLARD, Class II director, is in and has been in the real
estate business for more than 35 years. From 1978 until January 1996, she was a
co-owner of Southern Realty, Incorporated of York County, where she served as
the company's vice president, secretary, and broker-in-charge. Ms. Gaillard
attended Furman University. She is a Certified Residential Broker (CRB), a
Certified Residential Specialist (CRS), and a graduate of the Realtors'
Institute (GRI).
HUGH L. HARRELSON, SR., Class I director, is a practicing attorney,
beginning his practice in Rock Hill in 1971 and, since 1996, has been a partner
in the law firm of Harrelson, Hayes & Guyton, L.L.C. He is a former member of
the Rock Hill City Council, having served from 1980 to 1998, a past Mayor Pro
Tem of Rock Hill, past chairman of the Rock Hill Traffic Commission, and a
member of the board of directors of the Rock Hill Economic Development
Corporation. Mr. Harrelson received a B.A. degree from Carson-Newman College in
1966 and a J.D. degree from the Cumberland School of Law at Samford University
in Birmingham, Alabama in 1971.
JERRY H. PADGETT, Class II director, retired from Winthrop University
in July 1997. From 1972 until his retirement, he served as the Dean of the
School of Business at Winthrop University. Mr. Padgett received bachelor's and
master's degrees from Clemson University in 1954 and 1955, respectively, and a
Ph.D from Purdue University in 1960, and he also completed studies at Harvard
University in 1983. Mr. Padgett served on the boards of directors of United
Financial Corporation and its subsidiaries, Home Federal Savings Bank of South
Carolina and United Savings Bank, from 1988 until October 1995.
RICHARD S. POWELL, Class III director, has been employed by Sunbelt
Corporation, which produces and markets textile dyes, in Rock Hill as vice
president-operations and director-technical & manufacturing administration since
1987. Mr. Powell graduated from Clemson University in 1957 with a B.S. degree in
textile chemistry and received an M.S. in textile chemistry from Clemson
University in 1961.
PATRICIA M. STONE has served as a Senior Vice President and the Chief
Financial Officer of the Bank since it opened in May 1996. From 1995 until May
1996, Ms. Stone was an assistant vice president and manager of mergers and
acquisitions for First Union National Bank in Charlotte, North Carolina. From
1981 until 1995, she worked in various capacities for Home Federal Savings Bank
in Rock Hill, most recently as the vice president and treasurer. Ms. Stone
obtained a B.A. degree from Winthrop University in 1976 and an M.B.A. from
Winthrop University in 1978.
ELVIN F. WALKER, Class III director, is Chairman of the Board. Mr.
Walker retired from Bowater Incorporated in January 1996. Before his retirement,
he was president and general manager of Bowater Incorporated's Carolina
operations. He joined the organization in July 1982 as assistant general manager
and was named general manager in April 1990. Mr. Walker graduated from The
Georgia Institute of Technology in 1958 with a degree in chemical engineering
and received M.S. and Ph.D degrees from The Institute of Paper Chemistry in 1960
and 1964, respectively. He also served as a director of Rock Hill National Bank
from 1988 until November 1994.
Paul A. Walker, Class II director, resigned from the Board effective
February 2, 1999, due to his moving to Pennsylvania. John W. Dickens, Class I
director, has not been nominated for re-election. The size of the Board will be
reduced from twelve to ten members, including three Class I directors, effective
at the Meeting.
15
<PAGE> 71
Edwin L. Barnes, William C. Beaty, Jr., and Hugh L. Harrelson, Sr.,
Class I directors of the Bank, have been nominated for re-election. Set forth
above is certain information about the nominees, including each nominee's age
and position with the Bank. It is the intention of the persons named as proxies
in the accompanying proxy to vote FOR the election of the nominees identified
below to serve for a three-year term and until their successors are elected. If
any nominee is unable or fails to accept nomination or election (which is not
anticipated), the persons named in the proxy as proxies, unless specifically
instructed otherwise in the proxy, will vote for the election in his stead of
such other person as the Bank's existing Board of Directors may recommend.
The directors shall be elected by a plurality of the votes cast at the
Meeting. Abstentions and broker non-votes will not be considered to be either
affirmative or negative votes.
THE BOARD RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF THE NOMINATED
INDIVIDUALS.
<TABLE>
<CAPTION>
NAME DIRECTOR BUSINESS EXPERIENCE
SINCE DURING PAST FIVE YEARS
<S> <C> <C>
Edwin L. Barnes 1996 Executive Vice President, Secretary-Treasurer, and Director, Rock
Hill Telephone Company; officer and Director of several
telecommunications companies; advisory Director, C&S National Bank
of South Carolina and its successor NationsBank in Rock Hill (until
1995)
William C. Beaty, Jr. 1996 Executive Vice President, Catawba Services, Inc., a cable television
operator; Director, Home Federal Savings Bank of South Carolina
(until 1995)
Hugh L. Harrelson, Sr. 1996 Partner, law firm of Harrelson, Hayes & Guyton, LLC; Director, Rock
Hill Economic Development Corporation; past Mayor Pro Tem, Rock Hill
</TABLE>
COMPENSATION
The following table sets forth for the past three fiscal years the cash
compensation paid or accrued by the Bank, as well as certain other compensation
paid or accrued for those years, for services in all capacities to the chief
executive officer of the Bank. No other executive officer of the Bank earned
total compensation, including salary and bonus, for the fiscal year ended
December 31, 1998 in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION ---------------------- ALL OTHER
NAME AND -------------------------------- SECURITIES COMPENSATION
PRINCIPAL POSITION YEAR SALARY (1) BONUS UNDERLYING OPTIONS (#) (1)
- ------------------- ---- ---------- ----- ---------------------- -------------
<S> <C> <C> <C> <C> <C>
J. A. Ferguson, Jr. - Director, 1998 $ 109,045 $ 10,000 -- $3,111
President, and Chief Executive 1997 103,000 6,000 -- 2,190
Officer 1996 100,000 3,000 -- 1,490
</TABLE>
- ----------
(1) Includes club dues and an automobile allowance.
COMPENSATION OF DIRECTORS
During the year ended December 31, 1998, outside directors received
fees of $50 for attendance at each Board meeting. Salaried officers do not
receive these fees. Directors were not paid (and are not expected to be paid in
1999) any additional amounts for attending meetings of committees of the Board
of Directors.
16
<PAGE> 72
TRANSACTIONS WITH MANAGEMENT AND OTHERS
The Bank was opened as a joint effort by Rock Hill business and
community leaders and Bailey Financial Corporation, a bank holding company
headquartered in Clinton, South Carolina, which owns M.S. Bailey & Sons, Bankers
in Clinton and The Saluda County Bank in Saluda, South Carolina. In the Bank's
initial stock offering in 1996, the Bank issued 294,000 shares of Class A Common
Stock in a public offering, primarily to Rock Hill residents, and 306,000 shares
of Class B Common Stock to Bailey. Although Bailey's Class B shares represented
51% of the total outstanding shares of the Bank's Common Stock, as the Class B
shareholder Bailey was entitled to elect only two of the Bank's twelve
directors. Bailey also entered into right of first refusal agreements with the
other organizers of the Bank, with each side granting the other the first
opportunity to purchase such party's Common Stock in the event of a proposed
sale.
In April 1998, in order to help position the Bank for future growth,
Bailey agreed to exchange its Class B shares for an equal number of Class A
shares and to terminate the right of first refusal agreements. Bailey and the
Bank entered into a Share Exchange Agreement on April 6, 1998, and the share
exchange became effective on June 19, 1998. As a result, Bailey has exchanged
all of its Class B shares for an equal number of Class A shares, and all Class A
shares have been redesignated as shares of Common Stock.
In September 1998, Bailey announced a proposed merger with Anchor
Financial Corporation, headquartered in Myrtle Beach, South Carolina. Under the
terms of the proposed merger, Bailey will merge into Anchor, and shareholders of
Bailey will become shareholders of Anchor. Upon consummation of the merger,
Anchor will own the 22.7% of the Bank's common stock currently owned by Bailey.
This merger is expected to be completed in April 1999.
The Bank leases its main office from Rock Hill Telephone Company
pursuant to a five-year lease agreement. Rental expense for the years ended
December 31, 1998 and 1997 was $136,200 and $136,200, respectively. The initial
lease term expires on May 12, 2001. The Bank has three successive options to
renew the lease for a period of five years each, at the then fair rental value
of the property. There is no option to purchase the building at the end of the
lease. Currently, the monthly rental payment is approximately $11,350. Rental
for each renewal period is adjusted upward or downward to reflect changes in the
consumer price index. However, if the Bank does not lease the building for the
entire 20 years, the Bank is obligated to pay Rock Hill Telephone Company
one-half of the unamortized cost (as of the termination of the lease) of the
improvements made by Rock Hill Telephone Company.
The Bank also purchases telephone equipment and monthly telephone
service from Rock Hill Telephone Company. The amount paid to Rock Hill Telephone
Company for equipment and services for the years ended December 31, 1998 and
1997 was $ 184,002 and $171,855, respectively. Edwin L. Barnes, a director of
the Bank, is a principal officer, director, and minority shareholder of Rock
Hill Telephone Company.
The law firm Harrelson, Hayes & Guyton, L.L.C. serves as counsel for
the Bank and is paid for legal services rendered to the Bank in that capacity.
Hugh L. Harrelson, Sr., a director of the Bank, is a partner of this firm.
M. S. Bailey & Sons, a subsidiary of Bailey, provides data processing,
and trust data processing services to the Bank.
The Bank signed a lease agreement with Mr. Hugh L. Harrelson, Sr., a
director of the Bank to lease land on which to build a branch. The initial lease
term dated March 1, 1998, is for twenty-five years with two successive options
to renew for an additional five years. Monthly payments are $1,628 and are
scheduled to change every five years on the anniversary date of the lease.
The Bank has had, currently has, and will continue to have banking and
other transactions in the ordinary course of business with directors and
officers of the Bank and their affiliates, including members of their families
or corporations, partnerships, or other organizations in which such officers or
directors have a controlling interest, on substantially the same terms
(including price, or interest rates and collateral) as those prevailing at the
17
<PAGE> 73
time for comparable transactions with unrelated parties. The Bank believes that
such transactions do not involve more than the normal risk of collectibility nor
present other unfavorable features to the Bank. The Bank is subject to a limit
on the aggregate amount it could lend to its and the Bank's directors and
officers as a group equal to its unimpaired capital and surplus (or, under a
regulatory exemption available to banks with less than $100 million in deposits,
twice that amount). Loans to individual directors and officers must also comply
with the Bank's lending policies and statutory lending limits, and directors
with a personal interest in any loan application are excluded from the
consideration of such loan application.
BOARD MEETINGS AND COMMITTEES
The Bank's Board of Directors held 12 meetings in 1998. All directors
attended at least 75% of such meetings and the meetings of each committee of
which they are members, with the exception of Paul A. Walker, who attended
two-thirds of the meetings of the Board of Directors. As Mr. Walker has moved to
Pennsylvania, he has resigned from the Board of Directors. The Board of
Directors has established an Audit Committee, an Executive Committee, a Loan
Committee, an Investment Committee, and a Trust Committee. Information about the
functions, members and meetings of those committees is set forth below.
AUDIT COMMITTEE. The Audit Committee selects the Bank's independent
auditors, determines the scope of the annual audit and of any special audit,
oversees the administrative, operations and internal controls of the Bank,
reviews compliance with accounting policies and procedures, and establishes and
oversees an internal audit program. During 1998, the Audit Committee held 4
meetings. In 1998, the members of the Audit Committee were William C. Beaty,
Jr., John W. Dickens, Jean M. Gaillard, Jerry H. Padgett, Richard S. Powell, and
Elvin F. Walker.
EXECUTIVE COMMITTEE. The Executive Committee establishes and monitors
policies of the Bank and compliance with those policies, reviews and comments on
proposed changes to policies, proposes a slate of nominee directors for approval
by the Board for submission to the shareholders, and establishes and monitors
the Bank's employee benefit plans and personnel policies. The Executive
Committee has all authority to act on behalf of and to exercise the powers of
the Board between its meetings. During 1998, the Executive Committee held 12
meetings. In 1998, the members of the Executive Committee were J.A. Ferguson,
Jr., Edwin L. Barnes, William C. Beaty, Jr., William R. Davis, John W. Dickens,
Jerry H. Padgett, Richard S. Powell, and Elvin F. Walker.
LOAN COMMITTEE. The Loan Committee establishes and monitors the Bank's
lending and loan grading policies and compliance with those policies, reviews
requests for large loans, reviews and makes recommendations regarding the
adequacy of reserves for loan and lease losses, supervises administration of the
Bank's past due loan portfolio, and supervises disposition of real estate owned
and other collateral acquired by the Bank.
INVESTMENT COMMITTEE. The Investment Committee establishes, monitors
compliance with, and makes recommendations regarding changes in the Bank's
investment policy, asset/liability mix, interest gap exposure, and interest rate
policies.
TRUST COMMITTEE. The Trust Committee oversees the operation of the
Bank's Trust Department, reviews trust procedures and policies, approves trust
fee structures and revisions to the fees, and reviews and approves new accounts
and the investment products that the Trust Department uses.
Upon consummation of the Reorganization, the individuals serving as the
directors of the Holding Company will be the same individuals serving as the
directors of the Bank, and the only executive officer of the Holding Company
will be J. A. Ferguson, Jr.
18
<PAGE> 74
PRINCIPAL SHAREHOLDERS OF THE BANK
The following table sets forth as of February 22, 1999, certain
information as to those persons who were known to the Bank to be beneficial
owners of more than 5% of the Bank's outstanding shares, and as to the Bank's
shares beneficially owned by each director and all officers and directors as a
group.
<TABLE>
<CAPTION>
Number of Shares Percent of Class
Beneficial Owner Beneficially Owned(1) Beneficially Owned
- ---------------- --------------------- ------------------
<S> <C> <C>
Bailey Financial Corporation (2) 312,000 22.7%
Directors and Executive Officers:
Edwin L. Barnes (3) 53,500 3.9%
William C. Beaty, Jr. (4) 28,400 2.1%
Claude W. Burns, III 500 *
William R. Davis 1,500 0.1%
John W. Dickens (5) 1,500 0.1%
J. A. Ferguson, Jr. (6) 6,200 0.5%
Jean M. Gaillard 12,000 0.9%
Hugh L. Harrelson, Sr. (7) 11,000 0.8%
Jerry H. Padgett (8) 19,553 1.4%
Richard S. Powell 10,000 0.7%
Elvin F. Walker (9) 11,000 0.8%
Executive officers and directors 163,195 11.9%
as a group (13 persons)
</TABLE>
* Less than 0.1%
(1) Information relating to beneficial ownership of Common Stock is based
upon "beneficial ownership" concepts set forth in rules of the SEC under
Section 13(d) of the Securities Exchange Act of 1934. Under these rules a
person is deemed to be a "beneficial owner" of a security if that person
has or shares "voting power," which includes the power to vote or direct
the voting of such security, or "investment power," which includes the
power to dispose or to direct the disposition of such security. A person
is also deemed to be a beneficial owner of any security of which that
person has the right to acquire beneficial ownership within sixty days.
Under the rules, more than one person may be deemed to be a beneficial
owner of the same securities, and a person may be deemed to be a
beneficial owner of securities as to which he has no beneficial interest.
For instance, beneficial ownership includes spouses, minor children and
other relatives residing in the same household, and trusts, partnerships,
corporations or deferred compensation plans which are affiliated with the
principal.
(2) Includes 6,000 shares of Common Stock held for the benefit of six
individuals, none of whom is an executive officer, director or principal
shareholder of the Bank, as trustee with voting and investment power.
(3) Includes 27,500 shares of Common Stock owned by Rock Hill Telephone
Company, of which Mr. Barnes is an executive officer and director. Mr.
Barnes disclaims beneficial ownership of these shares. Also
19
<PAGE> 75
includes 1,000 shares of Common Stock owned by Mr. Barnes' wife and 2,000
shares of Common Stock held with voting and investment power as trustee
for Mr. Barnes' niece and nephew.
(4) Includes 2,000 shares of Common Stock owned by Mr. Beaty's wife, 2,300
shares of Common Stock held as trustee for The Milton Cherry Beaty Trust,
and 2,300 shares held as trustee for The Kathryn Leigh Beaty Trust.
(5) Includes 1,000 shares of Common Stock owned by Mr. Dickens' wife.
(6) Includes 1,700 shares of Common Stock owned with Mr. Ferguson's sister as
power of attorney for Gladys P. Ferguson. Mr. Ferguson disclaims
beneficial ownership of these shares.
(7) Includes 500 shares of Common Stock owned by Mr. Harrelson's wife.
(8) Includes 2,600 shares of Common Stock owned by Mr. Padgett's wife.
(9) Includes 1,000 shares of Common Stock owned by Mr. Walker's wife.
20
<PAGE> 76
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
As required by Section 16(a) of the Securities Exchange Act of 1934,
the Bank's directors, its executive officers and certain individuals are
required to report periodically their ownership of the Bank's Common Stock and
any changes in ownership to the Federal Deposit Insurance Corporation. Based on
a review of Forms 7, 8, and 8A and any representations made to the Bank, it
appears that all such reports for these persons were filed in a timely fashion
during 1998, except that William C. Beaty, Jr., William S. Davis, Jerry H.
Padgett, Patricia M. Stone, and Herman E. Honeycutt failed to file a Form 8 in
connection with transactions executed during 1998; these delinquencies were
corrected on each person's Form 8A.
RESTRICTIONS ON TRANSFER OF STOCK
RECEIVED BY CERTAIN INDIVIDUALS
Upon completion of the Reorganization, the Holding Company will have
1,376,250 shares of common stock outstanding, assuming no shareholders exercise
their statutory dissenters' rights. The shares issued in the Reorganization will
be freely tradable, without restriction or registration under the Securities
Act, except for shares issued to "affiliates" of the Bank at the time the
Reorganization is submitted to shareholders of the Bank for their approval and
shares issued to persons who are or become "affiliates" of the Holding Company.
These shares will be subject to resale restrictions under the Securities Act.
An "affiliate" of a company is defined in Rule 144 under the Securities
Act as a person that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with the company. Rule
405 under the Securities Act defines the term "control" to mean the possession,
direct or indirect, of the power to direct or cause the direction of the
management and policies of the person whether through the ownership of voting
securities, by contract, or otherwise.
Securities held by affiliates may be eligible for sale in the open
market without registration in accordance with the provisions of Rule 144
promulgated under the Securities Act. In general, under Rule 144 a shareholder
(or shareholders whose shares are aggregated) who has beneficially owned for at
least one year, but less than two years, shares privately acquired directly or
indirectly from the Holding Company or from an "affiliate" (in general, a
director, officer or controlling shareholder of the Holding Company), and
persons who are affiliates of the Holding Company, are entitled to sell within
any three-month period a number of shares that does not exceed the greater of 1%
of the total number of outstanding shares of common stock or the average weekly
trading volume in the common stock during the four calendar weeks preceding the
sale and may only sell such shares through unsolicited brokers' transactions. A
shareholder who is not an affiliate of the Holding Company and has not been an
affiliate for at least 90 days and who has beneficially owned shares of common
stock for at least two years is entitled to sell such shares under Rule 144
without regard to the volume limitations and the other restrictions described
above.
Rule 144 also requires that the securities must be sold in "brokers'
transactions," as defined in the Securities Act, and the person selling the
securities may not solicit orders or make any payment in connection with the
offer or sale of the securities to any person other than the broker who executes
the order to sell the securities. This requirement may make the sale of the
common stock of the Holding Company pursuant to Rule 144 difficult if no trading
market develops in the Common Stock. The requirement does not apply to sales of
restricted securities held by non-affiliates for at least two years or to sales
by persons who were affiliates of the Bank at the time of the shareholder vote
on the Reorganization who have held nonrestricted securities for at least two
years (if they are not then affiliates of the Holding Company).
In addition, the protections afforded by Rule 144 are available
generally only if the Holding Company meets the requirement that adequate
current public information be available with respect to it. That requirement is
met generally if the Holding Company (i) has securities registered pursuant to
Section 12 of the Exchange Act or has securities registered pursuant to the
Securities Act, and (ii) has been subject to the periodic reporting requirements
of the Exchange Act for at least 90 days and has filed all reports required
under specified sections of
21
<PAGE> 77
the Exchange Act for the preceding 12 months (or such shorter period as it is
required to have filed such reports). The Holding Company will be subject to the
registration requirements of the Exchange Act .
Shares of the Bank's common stock held by affiliates of the Bank are
not subject to resale restrictions under the Securities Act because bank stock,
unlike stock of a holding company, is accorded exempt status under Section
3(a)(2) of the Securities Act.
FINANCIAL STATEMENTS; REPORT ON FORM 10-KSB
The Bank's annual report to shareholders containing financial
statements for the last three years, prepared in accordance with generally
accepted accounting principles, accompany this Proxy Statement/Offering
Circular. The financial statements are being furnished as supplemental
information only. They are not part of this Proxy Statement/Offering Circular
and are not incorporated herein by reference. Stockholders may obtain copies of
the Bank's annual report on Form 10-KSB required to be filed with the Federal
Deposit Insurance Corporation under 12 C.F.R. ss. 335.311 for the year ended
December 31, 1998, free of charge by requesting such form in writing from
Patricia M. Stone, Rock Hill Bank & Trust, 315 East Main Street, Rock Hill,
South Carolina 29730. In addition, 12 C.F.R. Part 350 requires the Bank to
designate and make available to the public upon request its Annual Disclosure
Statement. The accompanying annual report to shareholders is designated as the
Bank's Annual Disclosure Statement and will be made available upon request in
person at an office of the Bank or in writing to Patricia M. Stone at the
address above.
STOCK INFORMATION
The Bank's common stock is not listed on any exchange. However, the
stock is traded on the over-the-counter bulletin board and is quoted under the
symbol "RHBT." Market makers of the Bank's stock include: Edgar M. Norris & Co.
Inc.; Trident Securities; Allen C. Ewing & Co.; William R. Hough & Co.; Hill,
Thompson, Magid & Co.; and Monroe Securities.
The following table sets forth the high and low sales price information
as reported by the OTC Bulletin Board during the period indicated since the
Bank's common stock began trading publicly on August 3, 1998.
<TABLE>
<CAPTION>
STOCK PRICE
---------------
High Low
<S> <C> <C>
1998
Third Quarter $ 15.00 $ 13.50
Fourth Quarter $ 14.75 $ 13.37
</TABLE>
The average stock price on March 12, 1999 was $ 17.75.
LEGAL MATTERS
The legality of the shares of common stock of the Holding Company to be
issued in the Reorganization has been passed upon by Nelson Mullins Riley &
Scarborough, L.L.P., Atlanta, Georgia.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board has selected Tourville, Simpson & Henderson, L.L.P.,
Certified Public Accountants, to serve as the Bank's independent certified
public accountants for 1999. It is expected that representatives from this firm
will be present and available to answer appropriate questions at the annual
meeting, and will have the opportunity to make a statement if they desire to do
so.
22
<PAGE> 78
SHAREHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING OF SHAREHOLDERS
If shareholders wish a proposal to be included in the Bank's proxy
statement and form of proxy relating to the 2000 annual meeting, they must
deliver a written copy of their proposal to the principal executive offices of
the company no later than November 18, 1999. To ensure prompt receipt by the
Bank, the proposal should be sent certified mail, return receipt requested.
Proposals must comply with the Bank's bylaws relating to shareholder proposals
in order to be included in the Bank's proxy materials. Any proposals submitted
by a shareholder outside the processes of Rule 14a-8 under the Exchange Act for
presentation at the Bank's next annual meeting will be considered untimely for
purposes of Rule 14a-4 and 14a-5 if received by the Bank less than 30 days prior
to the date of such meeting, or, if notice of the meeting is given in a lesser
period of time, more than 10 days after the date of such notice.
AVAILABLE INFORMATION
The Bank is, and the Holding Company will be, a reporting company
subject to the full informational requirements of the Exchange Act. In
accordance therewith, the Bank is required to file reports, proxy statements and
other information with the FDIC. These reports and documents may be obtained by
writing the FDIC's Registration, Disclosure and Securities Operations Unit at
550 17th Street, N.W., Room F-6043, Washington, D.C. 20429 or calling
202-898-8913 or by FAX at 202-898-3909. Once the reorganization, if approved by
the shareholders, is completed, the Holding Company will file these reports and
documents at the Public Reference Section of the Securities and Exchange
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549.
OTHER MATTERS
The management of the Bank knows of no matters other than those stated
above which may be brought before the Annual Meeting. However, if any other
matter or matters should properly come before the Annual Meeting, the persons
named in the enclosed proxy will vote such proxy in accordance with their
judgment on such matters.
23
<PAGE> 79
APPENDIX A
REORGANIZATION AGREEMENT AND PLAN OF EXCHANGE
THIS REORGANIZATION AGREEMENT AND PLAN OF EXCHANGE (the "Reorganization Plan'),
dated as of March 12, 1999, is entered into between Rock Hill Bank & Trust (the
"Bank") and RHBT Financial Corporation (the "Holding Company").
RECITALS:
The parties acknowledge the following to be true and correct:
1. The Bank is a state bank duly organized under the laws of the State of
South Carolina and has its principal office and place of business in Rock
Hill, South Carolina. The Bank is authorized by its articles of
incorporation to issue up to 10,000,000 shares of common stock, par value
$1.00 per share, 1,376,250 shares of which are issued and outstanding.
2. The Holding Company is a corporation duly organized under the laws of the
State of South Carolina, having its principal place of business in Rock
Hill, South Carolina. As of the Effective Date of the Share Exchange (as
such terms are defined below), the Holding Company will have authorized and
unissued 10,000,000 shares of common stock of a par value of $0.01 per
share. In connection with the formation of the Holding Company, 10 shares
of Holding Company common stock will be issued at $10 per share to the
Chief Executive Officer of the Bank. All such shares will be redeemed at
$10 per share upon the Effective Date.
3. The Board of Directors of the Bank and Holding Company desire to establish
a holding company structure pursuant to which the Bank will become a
wholly-owned subsidiary of the Holding Company.
4. A majority of the entire Board of Directors of each of the Bank and the
Holding Company has deemed advisable a share exchange transaction between
the Bank and the Holding Company (the "Share Exchange") in order to
establish the holding company structure and has approved this
Reorganization Plan and authorized its execution.
In consideration of the premises, the Bank and the Holding Company
enter into this Reorganization Plan and prescribe the terms and conditions of
the Share Exchange and the mode of carrying it into effect as follows:
ARTICLE I: THE ACQUIRING CORPORATION
The name of the acquiring corporation is RHBT Financial Corporation
(the Holding Company). The entity whose shares will be acquired is Rock Hill
Bank & Trust (the Bank).
ARTICLE II: TERMS AND CONDITIONS OF THE EXCHANGE
1. When the Share Exchange becomes effective, each issued and outstanding
share of common stock of the Bank shall be exchanged for one share of
common stock of the Holding Company. As a result of the Share Exchange,
the Holding Company shall become the sole shareholder of the Bank and the
Bank will continue in existence as a wholly-owned subsidiary of the
Holding Company. The articles of incorporation, bylaws, corporate
identity, charter, and officers and directors of the Bank will not be
changed as a result of the Share Exchange. In addition, the 10 shares of
Holding Company common stock issued at $10 per share to the Chief
Executive Officer of the Bank in connection with the formation of the
Holding Company will automatically be redeemed by the Holding Company on
the Effective Date at $10 per share. Consequently, as a result of the
Share Exchange, the existing shareholders of the Bank will become the
only shareholders of the Holding Company and the Holding Company will
have 1,376,250 shares of Common Stock issued and outstanding (assuming no
exercise of dissenters rights).
A-1
<PAGE> 80
2. Consummation of the Share Exchange is conditioned upon approval by holders
of two-thirds of the outstanding shares of the Bank as required by law, and
upon the receipt of any required approvals from regulatory agencies,
including the South Carolina Board of Financial Institutions and the
Federal Reserve.
3. The Reorganization Plan shall be submitted to the shareholders of the Bank
for approval at a meeting to be called and held in accordance with the
applicable provisions of law and the Articles of Incorporation and Bylaws
of the Bank. The Bank and the Holding Company shall proceed expeditiously
and cooperate fully in the procurement of any other consents and approvals
and the taking of any other action, and the satisfaction of all other
requirements prescribed by law or otherwise, necessary for consummation of
the Share Exchange at time provided herein.
4. Upon satisfaction of the requirements of law and the conditions contained
in this Reorganization Plan, the Share Exchange shall become effective upon
the filing of Articles of Share Exchange with the South Carolina Secretary
of State (the "Effective Date").
5. If the Share Exchange becomes effective, the Bank and the Holding Company
shall each pay their own expenses, if any, incurred in the proposed
transaction. If the Share Exchange does not become effective, the Bank
shall pay all reasonable and necessary expenses associated with the
transaction proposed herein.
6. Any shareholder of the Bank who objects to the Share Exchange and who
properly dissents from the Share Exchange pursuant to Chapter 13 of Title
33 of the Code of Laws of South Carolina shall have the rights of a
"dissenting shareholder" and the right to receive cash for the value of
such dissenting shares.
ARTICLE III: MANNER AND BASIS OF EXCHANGING SHARES
On the Effective Date:
1. Each share of common stock of the Bank issued and outstanding immediately
prior to the Effective Date shall, without any action on the part of the
holder thereof, be converted into the right to receive one share of capital
stock of the Holding Company.
2. Each holder of common stock of the Bank shall cease to be a shareholder of
the Bank and the ownership of all shares of the issued and outstanding
common stock of the Bank shall thereupon automatically vest in the Holding
Company as the acquiring corporation.
3. As of the Effective Date, until surrendered for exchange in accordance with
this Reorganization Plan, each certificate theretofore representing common
stock of the Bank will be deemed to evidence the right to receive Holding
Company stock. However, shareholders who do not surrender their Bank stock
certificates will not be issued certificates representing the shares of
Holding Company common stock they may be entitled to receive and will not
be paid dividends or other distributions. Any such dividends or
distributions which such shareholders would otherwise receive will be held,
without interest, for their accounts until surrender of their Bank stock
certificates. The Holding Company shall not be obligated to deliver
certificates for shares of Holding Company common stock to any former Bank
shareholder until such shareholder surrenders his or her Bank stock
certificates.
4. After the Effective Date, the Bank's shareholders will be furnished
instructions for surrendering their present stock certificates and for
replacing any lost, stolen or destroyed certificates.
ARTICLE IV: TERMINATION
The Reorganization Plan may be terminated, in the sole discretion of
the Bank's Board of Directors, at any time before the Effective Date if:
(1) the number of shares of common stock of the Bank voted
against the Share Exchange, or in respect of which written notice is
given purporting to dissent from the Share Exchange, shall make
consummation of the Share Exchange unwise in the opinion of the Bank's
Board of Directors;
A-2
<PAGE> 81
(2) any act, suit, proceeding or claim relating to the Share
Exchange has been instituted or threatened before any court or
administrative body; or
(3) the Bank's Board of Directors subsequently determines that
the Share Exchange is inadvisable.
Upon termination by written notice as provided in this Article IV, this
Reorganization Plan shall be void and of no further effect, and there shall be
no liability by reason of this Reorganization Plan or the termination thereof on
the part of either the Bank, the Holding Company, or the directors, officers,
employees, agents or shareholders of either of them.
IN WITNESS WHEREOF, the Bank and the Holding Company have caused this
Reorganization Plan to be executed and attested in counterparts by their duly
authorized officers and directors, and their corporate seals to be hereunto
affixed as of the day and year first above written.
ROCK HILL BANK & TRUST
By:
-----------------------------------------
J. A. Ferguson, Jr., President
RHBT FINANCIAL CORPORATION
By:
-----------------------------------------
J. A. Ferguson, Jr., President
A-3
<PAGE> 82
APPENDIX B
CHAPTER 13 OF THE SOUTH CAROLINA BUSINESS CORPORATION ACT
SECTION 33-13-101. DEFINITIONS.
In this chapter:
(1) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Section 33-13-102 and who exercises that right
when and in the manner required by Sections 33-13-200 through
33-13-280.
(3) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action
to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action to which the
dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be
inequitable. The value of the shares is to be determined by techniques
that are accepted generally in the financial community.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by
the corporation on its principal bank loans or, if none, at a rate that
is fair and equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on
file with a corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
SECTION 33-13-102. RIGHT TO DISSENT.
(a) A shareholder is entitled to dissent from, and obtain payment of the
fair value of, his shares in the event of any of the following
corporate actions:
(1) consummation of a plan of merger to which the corporation is a
party (i) if shareholder approval is required for the merger
by Section 33-11-103 or the articles of incorporation and the
shareholder is entitled to vote on the merger or (ii) if the
corporation is a subsidiary that is merged with its parent
under Section 33-11-104 or 33-11-108 or if the corporation is
a parent that is merged with its subsidiary under Section
33-11-108;
(2) consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares are to
be acquired, if the shareholder is entitled to vote on the
plan;
(3) consummation of a sale or exchange of all, or substantially
all, of the property of the corporation other than in the
usual and regular course of business, if the shareholder is
entitled to vote on the sale or exchange, including a sale in
dissolution, but not including a sale pursuant to court order
or a sale for cash pursuant to a plan by which all or
substantially all of the net proceeds of the sale must be
distributed to the shareholders within one year after the date
of sale;
(4) an amendment of the articles of incorporation that materially
and adversely affects rights in respect of a dissenter's
shares because it:
(i) alters or abolishes a preferential right of the
shares;
(ii) creates, alters, or abolishes a right in respect of
redemption, including a provision respecting a
sinking fund for the redemption or repurchase, of the
shares;
(iii) alters or abolishes a preemptive right of the holder
of the shares to acquire shares or other securities;
(iv) excludes or limits the right of the shares to vote on
any matter, or to cumulate votes, other than a
limitation by dilution through issuance of shares or
other securities with similar voting rights; or
(v) reduces the number of shares owned by the shareholder
to a fraction of a share if the fractional share so
created is to be acquired for cash under Section
33-6-104; or
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<PAGE> 83
(5) in the case of corporations which are not public corporations,
the approval of a control share acquisition under Article 1 of
Chapter 2 of Title 35;
(6) any corporate action to the extent the articles of
incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are
entitled to dissent and obtain payment for their shares.
(b) Notwithstanding subsection (a), no dissenters' rights under this
section are available for shares of any class or series of shares
which, at the record date fixed to determine shareholders entitled to
receive notice of a vote at the meeting of shareholders to act upon the
agreement of merger of exchange, were either listed on a national
securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc.
SECTION 33-13-103. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(a) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his name only if he dissents with respect to
all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose
behalf he asserts dissenters' rights. The rights of a partial dissenter
under this subsection are determined as if the shares to which he
dissents and his other shares were registered in the names of different
shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if he dissents with respect to all shares of
which he is the beneficial shareholder or over which he has power to
direct the vote. A beneficial shareholder asserting dissenters' rights
to shares held on his behalf shall notify the corporation in writing of
the name and address of the record shareholder of the shares, if known
to him.
SECTION 33-13-200. NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under Section
33-13-102 is submitted to a vote at a shareholders' meeting, the
meeting notice must state that shareholders are or may be entitled to
assert dissenters' rights under this chapter and be accompanied by a
copy of this chapter.
(b) If corporate action creating dissenters' rights under Section 33-13-102
is taken without a vote of shareholders, the corporation shall notify
in writing all shareholders entitled to assert dissenters' rights that
the action was taken and send them the dissenters' notice described in
Section 33-13-220.
SECTION 33-13-210. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under Section
33-13-102 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenters' rights (1) must give to
the corporation before the vote is taken written notice of his intent
to demand payment for his shares if the proposed action is effectuated
and (2) must not vote his shares in favor of the proposed action. A
vote in favor of the proposed action cast by the holder of a proxy
solicited by the corporation shall not disqualify a shareholder from
demanding payment for his shares under this chapter.
(b) A shareholder who does not satisfy the requirements of subsection (a)
is not entitled to payment for his shares under this chapter.
SECTION 33-13-220. DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under Section
33-13-102 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenters' notice to all shareholders who
satisfied the requirements of Section 33-13-210(a).
(b) The dissenters' notice must be delivered no later than ten days after
the corporate action was taken and must:
(1) state where the payment demand must be sent and where
certificates for certificated shares must be deposited;
(2) inform holders of uncertificated shares to what extent
transfer of the shares is to be restricted after the payment
demand is received;
(3) supply a form for demanding payment that includes the date of
the first announcement to news media or to shareholders of the
terms of the proposed corporate action and requires that the
person asserting dissenters' rights certify whether or not he
or, if he is a nominee asserting dissenters' rights on behalf
of a beneficial shareholder, the beneficial shareholder
acquired beneficial ownership of the shares before that date;
B-2
<PAGE> 84
(4) set a date by which the corporation must receive the payment
demand, which may not be fewer than thirty nor more than sixty
days after the date the subsection (a) notice is delivered and
set a date by which certificates for certificated shares must
be deposited, which may not be earlier than twenty days after
the demand date; and
(5) be accompanied by a copy of this chapter.
SECTION 33-13-230. SHAREHOLDERS' PAYMENT DEMAND.
(a) A shareholder sent a dissenters' notice described in Section 33-13-220
must demand payment, certify whether he (or the beneficial shareholder
on whose behalf he is asserting dissenters' rights) acquired beneficial
ownership of the shares before the date set forth in the dissenters'
notice pursuant to Section 33-13-220(b)(3), and deposit his
certificates in accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) retains all other rights of a shareholder until
these rights are canceled or modified by the taking of the proposed
corporate action.
(c) A shareholder who does not comply substantially with the requirements
that he demand payment and deposit his share certificates where
required, each by the date set in the dissenters' notice, is not
entitled to payment for his shares under this chapter.
SECTION 33-13-240. SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for payment for them is received until the proposed
corporate action is taken or the restrictions are released under
Section 33-13-260.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until
these rights are canceled or modified by the taking of the proposed
corporate action.
SECTION 33-13-250. PAYMENT.
(a) Except as provided in Section 33-13-270, as soon as the proposed
corporate action is taken, or upon receipt of a payment demand, the
corporation shall pay each dissenter who substantially complied with
Section 33-13-230 the amount the corporation estimates to be the fair
value of his shares, plus accrued interest.
(b) The payment must be accompanied by:
(1) the corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the date of
payment, an income statement for that year, a statement of
changes in shareholders' equity for that year, and the latest
available interim financial statements, if any;
(2) a statement of the corporation's estimate of the fair value of
the shares and an explanation of how the fair value was
calculated;
(3) an explanation of how the interest was calculated;
(4) a statement of the dissenter's right to demand additional
payment under Section 13-33-280; and (5) a copy of this
chapter.
SECTION 33-13-260. FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within sixty days
after the date set for demanding payment and depositing share
certificates, the corporation, within the same sixty-day period, shall
return the deposited certificates and release the transfer restrictions
imposed on uncertificated shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a
new dissenters' notice under Section 33-13-220 and repeat the payment
demand procedure.
SECTION 33-13-270. AFTER-ACQUIRED SHARES.
(a) A corporation may elect to withhold payment required by Section
33-13-250 from a dissenter as to any shares of which he (or the
beneficial owner on whose behalf he is asserting dissenters' rights)
was not the beneficial owner on the date set forth in the dissenters'
notice as the date of the first announcement to news media or to
shareholders of the terms of the proposed corporate action, unless the
beneficial ownership of the shares devolved upon him by operation of
law from a person who was the beneficial owner on the date of the first
announcement.
B-3
<PAGE> 85
(b) To the extent the corporation elects to withhold payment under
subsection (a), after taking the proposed corporate action, it shall
estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full
satisfaction of his demand. The corporation shall send with its offer a
statement of its estimate of the fair value of the shares, an
explanation of how the fair value and interest were calculated, and a
statement of the dissenter's right to demand additional payment under
Section 33-13-280.
SECTION 33-13-280. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER
(a) A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and amount of interest due and demand
payment of his estimate (less any payment under Section 33-13-250) or
reject the corporation's offer under Section 33-13-270 and demand
payment of the fair value of his shares and interest due, if the:
(1) dissenter believes that the amount paid under Section
33-13-250 or offered under Section 33-13-270 is less than the
fair value of his shares or that the interest due is
calculated incorrectly;
(2) corporation fails to make payment under Section 33-13-250 or
to offer payment under Section 33-13-270 within sixty days
after the date set for demanding payment; or
(3) corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within sixty
days after the date set for demanding payment.
(b) A dissenter waives his right to demand additional payment under this
section unless he notifies the corporation of his demand in writing
under subsection (a) within thirty days after the corporation made or
offered payment for his shares.
SECTION 33-13-300. COURT ACTION.
(a) If a demand for additional payment under Section 33-13-280 remains
unsettled, the corporation shall commence a proceeding within sixty
days after receiving the demand for additional payment and petition the
court to determine the fair value of the shares and accrued interest.
If the corporation does not commence the proceeding within the
sixty-day period, it shall pay each dissenter whose demand remains
unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the circuit court of
the county where corporation's principal office (or, if none in this
State, its registered office) is located. If the corporation is a
foreign corporation without a registered office in this State, it shall
commence the proceeding in the county in this State where the principal
office (or, if none in this State, the registered office) of the
domestic corporation merged with or whose shares were acquired by the
foreign corporation was located.
(c) The corporation shall make all dissenters (whether or not residents of
this State) whose demands remain unsettled parties to the proceeding as
in an action against their shares and all parties must be served with a
copy of the petition. Nonresidents may be served by registered or
certified mail or by publication, as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint
persons as appraisers to receive evidence and recommend decisions on
the question of fair value. The appraisers have the powers described in
the order appointing them or in any amendment to it. The dissenters are
entitled to the same discovery rights as parties in other civil
proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds the fair value of his
shares, plus interest, exceeds the amount paid by the corporation.
SECTION 33-13-310. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under Section 33-13-300
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The
court shall assess the costs against the corporation, except that the
court may assess costs against all or some of the dissenters, in
amounts the court finds equitable, to the extent the court finds the
dissenters acted arbitrarily, vexatiously, or not in good faith in
demanding payment under Section 33-13-280.
(b) The court also may assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
B-4
<PAGE> 86
(1) against the corporation and in favor of any or all dissenters
if the court finds the corporation did not comply
substantially with the requirements of Sections 33-13-200
through 33-13-280; or
(2) against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom
the fees and expenses are assessed acted arbitrarily,
vexatiously or not in good faith with respect to the rights
provided by this chapter.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that
the fees for those services should not be assessed against the
corporation, the court may award to these counsel reasonable fees to be
paid out of the amounts awarded the dissenters who were benefited.
(d) In a proceeding commenced by dissenters to enforce the liability under
Section 33-13-300(a) of a corporation that has failed to commence an
appraisal proceeding within the sixty-day period, the court shall
assess the costs of the proceeding and the fees and expenses of
dissenters' counsel against the corporation and in favor of the
dissenters.
B-5
<PAGE> 87
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. ________________)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Rock Hill Bank & Trust
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------
<PAGE> 88
PROXY SOLICITED FOR ANNUAL MEETING
OF SHAREHOLDERS OF
ROCK HILL BANK & TRUST
TO BE HELD ON APRIL 15, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby constitutes and appoints J. A. Ferguson, Jr. and
Elvin F. Walker, and each of them, his or her true and lawful agents and proxies
with full power of substitution in each, to represent and vote, as indicated
below, all of the shares of Common Stock of Rock Hill Bank & Trust that the
undersigned would be entitled to vote at the Annual Meeting of Shareholders of
the company to be held at Rock Hill Country Club, 600 Country Club Drive, Rock
Hill, South Carolina, 29730, on April 15, 1999 at 5:30 p.m. local time, and at
any adjournment, upon the matters described in the accompanying Notice of Annual
Meeting of Shareholders and Proxy Statement, receipt of which is acknowledged.
These proxies are directed to vote on the matters described in the Notice of
Annual Meeting of Shareholders and Proxy Statement as follows:
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED: (I) "FOR" PROPOSAL NO. 1 TO APPROVE THE REORGANIZATION
AGREEMENT AND PLAN OF EXCHANGE WITH RHBT FINANCIAL CORPORATION; (II) "FOR"
PROPOSAL NO. 2 TO APPROVE THE 1999 STOCK INCENTIVE PLAN; AND (III) "FOR"
PROPOSAL NO. 3 TO ELECT THE THREE IDENTIFIED CLASS I DIRECTORS TO SERVE ON THE
BOARD OF DIRECTORS EACH FOR THREE-YEAR TERMS.
1. PROPOSAL to approve the Reorganization Agreement and Plan of Exchange with
RHBT Financial Corporation
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. PROPOSAL to approve the 1999 Stock Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL to elect the three identified Class I directors to serve for three
year terms.
Edwin L. Barnes
William C. Beaty, Jr.
Hugh L. Harrelson, Sr.
[ ] FOR all nominees [ ] WITHHOLD AUTHORITY
listed (except as marked to to vote for all nominees
the contrary)
(INSTRUCTION: To withhold authority to vote for any individual
nominee(s), write that nominees name(s) in the space
provided below).
<PAGE> 89
Dated: , 1999
----------------------
----------------------------------
Signature of Shareholder(s)
----------------------------------
Signature of Shareholder(s)
Please sign exactly as name or names appear
on your stock certificate. Where more than
one owner is shown on your stock
certificate, each owner should sign. Persons
signing in a fiduciary or representative
capacity shall give full title. If a
corporation, please sign in full corporate
name by authorized officer. If a
partnership, please sign in partnership name
by authorized person.
<PAGE> 1
EXHIBIT 99.2
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C.
(MARK ONE) FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[ ] FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
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
-------- --------
FDIC Certificate Number 34177
ROCK HILL BANK & TRUST
(Exact name of registrant as specified in its charter)
South Carolina 57-1031996
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
315 EAST MAIN STREET
ROCK HILL, SC 29731
(Address of principal executive
offices, including zip code)
(803) 324-2500
(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 tile 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.
1,376,250 SHARES OF COMMON STOCK, $1.00 PAR VALUE
PAGE I OF 15
EXHIBIT INDEX ON PAGE 2
<PAGE> 2
ROCK HILL BANK & TRUST
INDEX
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION Page No.
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets - March 31, 1999 and December 31, 1998 .....................................................3
Condensed Statements of Income - Three months ended March 31, 1999 and 1998 .........................................4
Condensed Statement of Shareholders' Equity - Three months ended March 31, 1999 .....................................5
Condensed Statements of Cash Flows - Three months ended March 31, 1999 and 1998 .....................................6
Notes to Condensed Financial Statements .............................................................................7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ..............................8-13
PART 11. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders ..................................................................14
Item 6. Exhibits and Reports on Form 8-K .....................................................................................14
(a) Exhibits .......................................................................................................14
(b) Reports on Form 8-K ............................................................................................14
</TABLE>
2
<PAGE> 3
ROCK HILL BANK & TRUST
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 5,193,315 $ 3,491,891
Federal funds sold and securities
purchased under agreements to resell 29,699,000 24,505,000
------------ -------------
34,892,315 27,996,891
Securities available-for-sale 7,287,309 7,414,072
Loans receivable 80,319,571 69,977,496
Less allowance for loan losses (892,168) (812,174)
------------ -------------
Loans, net 79,427,403 69,165,322
Accrued interest receivable 572,944 607,753
Premises and equipment, net 1,363,691 1,252,001
Other assets 767,275 625,682
------------ -------------
Total assets $124,310,937 $ 107,061,721
============ =============
LIABILITIES
Deposits:
Non-interest bearing $ 12,044,664 $ 6,157,776
Interest bearing 27,394,939 23,220,435
Savings 4,044,483 3,175,902
Time deposits $100,000 and over 15,129,281 18,123,683
Other time deposits 36,091,715 27,061,929
------------ -------------
94,705,082 77,739,725
Securities sold under agreement to repurchase 13,275,000 13,250,000
Accrued interest payable 327,967 316,981
Other liabilities 195,875 177,069
------------ -------------
Total liabilities 108,503,924 91,483,775
------------ -------------
SHAREHOLDERS' EQUITY
Common stock, $1.00 par value; 10,000,000 shares
authorized, 1,376,250 shares issued and outstanding 1,376,250 1,376,250
Capital surplus 14,013,698 14,013,698
Retained earnings 432,450 180,177
Accumulated other comprehensive income (15,385) 7,921
------------ -------------
Total shareholders' equity 15,807,013 15,577,946
------------ -------------
Total liabilities and shareholders' equity $124,310,937 $ 107,061,721
============ =============
</TABLE>
See notes to condensed financial statements.
3
<PAGE> 4
ROCK HILL BANK & TRUST
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
1999 1998
----------- ----------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $ 1,708,647 $ 943,874
Investment securities, taxable 104,236 102,874
Federal funds sold and securities
purchased under agreements to resell 256,840 143,837
----------- ----------
Total 2,069,723 1,190,585
----------- ----------
INTEREST EXPENSE
Deposit accounts 934,845 579,476
Securities sold under agreements to repurchase 125,479 90,055
----------- ----------
Total 1,060,324 669,531
----------- ----------
NET INTEREST INCOME 1,009,399 521,054
Provision for loan losses 81,000 60,016
----------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 928,399 461,038
----------- ----------
OTHER INCOME
Service charges on deposit accounts 41,395 32,937
Other charges, commissions and fees 26,743 14,303
Income from fiduciary activities 30,139 9,999
----------- ----------
Total 98,277 57,239
----------- ----------
OTHER EXPENSE
Salaries and benefits 261,227 137,949
Occupancy expense 94,792 71,495
Advertising and marketing expense 27,831 4,072
Other operating expenses 242,453 115,623
----------- ----------
Total 626,303 329,139
----------- ----------
INCOME BEFORE INCOME TAXES 400,373 189,138
Income tax expense 148,000 70,000
----------- ----------
Net income 252,373 119,138
----------- ----------
OTHER COMPREHENSIVE INCOME, NET OF TAX
Unrealized holding gains (losses) arising
on securities during the period (23,306) (2,786)
Plus: reclassification adjustment for
gains (losses) included in net income -- --
----------- ----------
COMPREHENSIVE INCOME $ 229,067 116,352
=========== ==========
EARNINGS PER SHARE
Average shares outstanding 1,376,250 600,000
Net income $ .18 $ .20
</TABLE>
See notes to condensed financial statements.
4
<PAGE> 5
ROCK HILL BANK & TRUST
CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Accumulated
Common Stock Other
----------------------------- Capital Retained Comprehensive
Shares Amount Surplus Earnings Income Total
--------- ----------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1998 1,376,250 $ 1,376,250 $14,013,698 $180,077 $ 7,921 $15,577,946
Net income
for the period 252,373 252,373
Other comprehensive
income (23,306) (23,306)
--------- ----------- ----------- -------- -------- -----------
BALANCE,
MARCH 31, 1999 1,376,250 $ 1,376,250 $14,013,698 $432,450 $(15,385) $15,807,013
========= =========== =========== ======== ======== ===========
</TABLE>
5
<PAGE> 6
ROCK HILL BANK & TRUST
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 252,373 $ 119,138
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 39,412 60,016
Provision for loan losses 81,000 18,482
Accretion and premium amortization 8,174 (3,811)
Amortization of net loan fees and costs 13,138 7,873
Amortization of organizational costs 4,758 4,758
(Increase) decrease in interest receivable 34,809 (41,487)
Increase (decrease) in interest payable 10,986 (5,888)
Decrease in other assets 17,449 67,848
Increase in other liabilities 32,493 8,685
------------ ------------
Net cash provided by operating activities 494,592 235,614
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available-for-sale (3,818,404) --
Maturities of securities available-for-sale 3,900,000 2,000,000
Net increase in loans made to customers (10,356,219) (6,317,429)
Purchases of premises and equipment (151,102) (6,223)
Purchase of Federal Home Loan Bank Stock (163,800) (157,000)
------------ ------------
Net cash used by investing activities (10,589,525) (4,480,652)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, interest
bearing transaction accounts and savings accounts 10,929,973 4,372,406
Net increase in certificates of deposit and other time deposits 6,035,384 2,244,580
Net increase in securities sold under agreements to repurchase 25,000 10,615,900
------------ ------------
Net cash provided by financing activities 16,990,357 17,232,886
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 6,895,424 12,987,848
CASH AND CASH EQUIVALENTS, BEGINNING 27,996,891 8,765,824
------------ ------------
CASH AND CASH EQUIVALENTS, ENDING $ 34,892,315 $ 21,753,672
============ ============
Cash paid during the period for:
Income taxes $ 116,033 $ --
Interest $ 1,049,338 $ 675,419
</TABLE>
See notes to condensed financial statements.
6
<PAGE> 7
ROCK HILL BANK & TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying 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 March 31, 1999 and for the interim periods ended March 31,
1999 and 1998 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 3l, 1998 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 Rock
Hill Bank & Trust's 1998 Annual Report.
NOTE 2 - ADOPTION OF ACCOUNTING PRINCIPLE
On January 1, 1998, the Bank adopted Statement of Financial Accounting Standards
No. 130 (SFAS 130), "Reporting Comprehensive Income." SFAS 130 establishes
standards for reporting comprehensive income. Comprehensive income includes net
income and other comprehensive income which is defined as non-owner related
transactions in equity. Prior periods have been reclassified to reflect the
application of the provisions of SFAS 130. The following tables set forth the
amounts of other comprehensive income included in equity along with the related
tax effect for the three-month periods ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
Pre-tax (Expense) Net of tax
FOR THE THREE MONTHS ENDED MARCH 31, 1999: Amount Benefit Amount
-------- ------- --------
<S> <C> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during the period $(36,993) $13,687 $(23,306)
Plus: reclassification adjustment for gains (losses)
realized in net income -- -- --
-------- ------- --------
Net unrealized gains (losses) on securities $(36,993) 13,687 (23,306)
-------- ------- --------
Other comprehensive income $(36,993) $13,687 $(23,306)
======== ======= ========
<CAPTION> Pre-tax (Expense) Net of tax
FOR THE THREE MONTHS ENDED MARCH 1998: Amount Benefit Amount
-------- ------- --------
<S> <C> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during the period $ (4,422) $1,636 $ (2,786)
Plus: reclassification adjustment for gains (losses)
realized in net income -- -- --
-------- ------- --------
Net unrealized gains (losses) on securities (4,422) 1,636 (2,786)
-------- ------- --------
Other comprehensive income $ (4,422) $1,636 $(27,786)
======== ======= ========
</TABLE>
Accumulated other comprehensive income consists solely of the unrealized gain on
securities available for sale, net of the deferred tax effects.
7
<PAGE> 8
ROCK HILL BANK & TRUST
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
The following is a discussion of the Bank's financial condition as of March 31,
1999 compared to December 31, 1998, and the results of operations for the three
months ended March 31, 1999 compared to the three months ended March 31, 1998.
These comments should be read in conjunction with the Bank's condensed 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 Bank's management, as well as assumptions made by and information
currently available to the Bank's management. The words "expect," "estimate,"
"anticipate," and "believe," as well as similar expressions, are intended to
identify forward-looking statements. The Bank's actual results may differ
materially from the results discussed in the forward-looking statements, and the
Bank's operating performance each quarter is subject to various risks and
uncertainties that are discussed in detail in the Bank's filings with the
Securities and Exchange Commission, including tile "Risk Factors" section in the
Bank's Registration Statement on Form 1O-SB as filed with and declared
effective by the Federal Deposit Insurance Commission.
RESULTS OF OPERATIONS
NET INTEREST INCOME
For the three months ended March 31, 1999, net interest income increased
$488,345, or 93.7%, to $1,009,399 as compared to $521,054 for the same period in
1998. The net interest margin realized on earning assets increased from 3.65%
for the three months ended March 31, 1998 to 3.77% for the same period in 1999.
The interest rate spread decreased by 2 basis points from 3.03% at March 31,
1998 to 3.01% at March 31, 1999.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses is the charge to operating earnings that
management believes is necessary to maintain the allowance for possible loan
losses at an adequate level. For the three months ended March 31, 1999, the
provision charged to expense was $81,000. This increase of $20,984 from the
comparable period in 1998 is a result of management's efforts to increase the
allowance for loan losses to match the growth in the loan portfolio. 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 Bank 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 tile 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 Bank's net income and, possibly, its capital.
NONINTEREST INCOME
Noninterest income during the three months ended March 31, 1999 was $98,277, an
increase of $41,038 from $57,239 during the comparable period in 1998. The
increase is a result of an increase in service charges from $32,937 during the
three months ending March 31, 1998 to $41,395 for the three months ending March
31, 1999. In addition, the Bank's trust department continued to grow, resulting
in income of $30,139 during the three months ended March 31, 1999, compared to
$9,999 during the comparable period in 1998.
8
<PAGE> 9
ROCK HILL BANK & TRUST
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS -- continued
NONINTEREST EXPENSE
Total noninterest expense for the three months ended March 31, 1999 was
$626,303, or 90.3% higher than the $329,139 amount for the three months ended
March 31, 1998. The largest increase was in salaries and employee benefits,
which increased from $137,949 at March 31, 1998 to $261,227 for the three
months ended March 31, 1999. This increase can be attributed to additional
personnel hired to staff the Ebenezer Office which opened in January 1999. Other
operating expenses also increased $126,830 to $242,453 at March 31, 1999. This
increase was also attributable to expenses associated with opening the Ebenezer
Office as well as with the continuing growth of the Bank.
INCOME TAXES
Tile income tax provision for three months ended March 31, 1999 was $148,000 as
compared to $70,000 for the same period in 1998. The effective tax rate was 37%
at March 31, 1999 and 1998.
NET INCOME
The combination of the above factors resulted in net income for the three months
ended March 31, 1999 of $252,373 as compared to $119,138 for the same period in
1998. This represents an increase of $133,235 over the same period in 1998.
ASSETS AND LIABILITIES
During the first three months of 1999, total assets increased $17,249,216, or
16.1%, when compared to December 31, 1998. The primary source of growth in
assets was loans which increased $10,342,075 during the first three months of
1999. Federal funds sold and repurchase agreements increased $5,194,000 from
December 31, 1998 to $29,699,000 at March 31, 1999. Total deposits also
increased $16,965,357, or 21.8%, from the December 31, 1998 amount of
$77,739,725. Within the deposit area, certificates of deposit increased
$6,035,384, or 13.4%, during the first three months of 1999. Securities sold
under agreements to repurchase increased $25,000 to $13,275,000 at March 31,
1999.
INVESTMENT SECURITIES
Investment securities decreased slightly from $7,414,072 at December 31, 1998 to
$7,287,309 at March 31, 1999. All of the Bank's investment securities were
designated as available-for-sale at March 31, 1999.
LOANS
The Bank continued its trend of significant growth during the first three months
of 1999, especially in the loan area. Net loans increased $10,262,081, or 14.8%,
during the period. As shown below, the main component of growth in the loan
portfolio was consumer and other loans which increased 76.7%, or $1,548,745,
from December 31, 1998. Also, real estate loans increased $7,795,437, or 19.9%.
Balances within the major loans receivable categories as of March 31, 1999 and
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Commercial $27,899,734 $27,054,936
Real estate 46,998,913 39,203,476
Home equity 1,852,696 1,699,601
Consumer and other 3,568,228 2,019,483
----------- -----------
$80,319,571 $69,977,496
=========== ===========
</TABLE>
9
<PAGE> 10
ROCK HILL BANK & TRUST
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS -- continued
RISK ELEMENTS IN THE LOAN PORTFOLIO
The following is a summary of risk elements in the loan portfolio:
<TABLE>
<CAPTION>
March 31,
---------------------
1999 1998
------ -------
<S> <C> <C>
Loans: Nonaccrual loans $ -- $ 6,461
Accruing loans more than 90
days past due $ -- $ --
Loans identified by the internal
review mechanism:
Criticized $ -- $ --
Classified $3,251 $ --
</TABLE>
Activity in the Allowance for Loan Losses
is as follows:
<TABLE>
<CAPTION>
March 31,
---------------------------------
1999 1998
------------ -----------
<S> <C> <C>
Balance, January 1, $ 812,174 $ 333,984
Provision for loan losses for the period 81,000 60,016
Net loans (charged off) recovered for
the period (1,006) --
------------ -----------
Balance, end of period $ 892,168 $394,000
============ ===========
Gross loans outstanding, end of period $ 80,319,571 $42,086,842
Allowance for loan losses to
loans outstanding 1.11% .94%
</TABLE>
10
<PAGE> 11
ROCK HILL BANK & TRUST
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS -- continued
DEPOSITS
At March 31, 1999, total deposits increased by $16,965,357, or 21.8%, from
December 31, 1998. The largest increase was in certificates of deposit which
increased $6,035,384, or 13.4%, from December 31, 1998 to March 31, 1999.
Expressed in percentages, non-interest bearing deposits increased 95.6% and
interest bearing deposits increased 18.0%.
Balances within tile major deposit categories as of March 31, 1999 and December
31, 1998 are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Noninterest bearing demand deposits $12,044,664 $ 6,157,776
Interest bearing demand deposits 27,394,939 23,220,435
Savings deposits 4,044,483 3,175,902
Time deposits $100,000 and over 15,129,281 18,123,683
Other time deposits 36,091,715 27,061,929
----------- -----------
$94,705,082 $77,739,725
=========== ===========
</TABLE>
LIQUIDITY
Liquidity needs are met by the Bank 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 loan-to-total borrowed funds ratio which was at 74.3% at March 31, 1999
and 76.9% at December 31, 1998
Securities available-for-sale, which totaled $7,287,309 at March 31, 1999, serve
as a ready source of liquidity. The Bank also has lines of credit available
with correspondent banks to purchase federal funds for periods from one to seven
days. At March 31, 1999, unused lines of credit totaled $2,500,000.
CAPITAL RESOURCES
Total shareholders' equity increased from $15,577,946 at December 31, 1998 to
$15,807,013 at March 31, 1999. The increase is due to net income for the period
of $252,373, partially offset by a negative change of $23,306 in the fair value
of securities available-for-sale.
11
<PAGE> 12
ROCK HILL BANK & TRUST
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS -- continued
CAPITAL RESOURCES -- continued
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Quantitative measures established by regulation to
ensure capital adequacy require the Bank to maintain minimum ratios of Tier 1
and total capital as a percentage of assets and off-balance-sheet exposures,
adjusted for risk weights ranging from 0% to 100%. Tier 1 capital of the Bank
consists of common stockholders' equity, excluding the unrealized gain or loss
on securities available for sale, minus certain intangible assets. The Bank's
Tier 2 capital consists of the allowance for loan losses subject to certain
limitations. Total capital for purposes of computing the capital ratios consists
of the sum of Tier 1 and Tier 2 capital. The regulatory minimum requirements are
4% for Tier 1 and 8% for total risk-based capital.
The Bank is also required to maintain capital at a minimum level based on total
assets, which is known as the leverage ratio. Only the strongest banks are
allowed to maintain capital at the minimum requirement of 3%. All others are
subject to maintaining ratios 1% to 2% above the minimum.
The following table summarizes the Bank's risk-based capital at March 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
Shareholders' equity $ 15,822,398
Less: intangibles (41,239)
------------
Tier 1 capital 15,781,159
Plus: allowance for loan losses (1) 892,168
------------
Total capital $ 16,673,327
============
Risk-weighted assets $ 86,228,943
============
Risk based capital ratios
Tier 1 18.30%
Total capital 19.34%
Leverage ratio 14.07%
</TABLE>
(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 Bank cannot predict whether any of these
proposals will be adopted or, if adopted, how these proposals would affect the
Bank.
12
<PAGE> 13
ROCK HILL BANK & TRUST
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS -- CONTINUED
YEAR 2000
Like many financial institutions, the Bank relies upon computers for the daily
conduct of its business and for information systems processing. There is concern
among industry experts that on January 1, 2000 computers will be unable to
"read" the new year, which may result in widespread computer malfunctions. While
the Bank believes that it has available resources and has adopted a plan to
address Year 2000 compliance, it is largely dependent on its outside core data
processing provider, Anchor Financial Corporation, and other third party
vendors. (The Bank's outside data processing provider was Bailey Financial
Corporation, which was acquired by Anchor Financial Corporation in April 1999.)
Bailey acquired a new data processing system in early 1998 which the Bank
believes is Year 2000 compliant. Testing for this new system was completed as of
March 31, 1999 and no significant problems were noted. The Bank has incurred
approximately $190,000 in expenses to upgrade its computer systems to become
Year 2000 compliant. This includes approximately $132,000 for the installation
of a new on-line system for the Bank's existing office and $53,000 as part of
tile cost of the installation of the systems in the Bank's new Ebenezer Office.
As of March 31, 1999, the installation of the new on-line system was complete at
the Main Office and the Ebenezer Office.
The Bank anticipates that any other costs to upgrade other ancillary systems
will not materially differ from normal costs incurred during prior years to
upgrade and maintain its computer systems. The Bank has completed an evaluation
of all its internal systems and software and the network connections it
maintains, and it may incur minimal additional costs. The Bank is seeking
assurances about the Year 2000 compliance with respect to the other third party
hardware and software systems it uses, and the Bank believes that its internal
systems and software and the network connections it maintains will be adequately
programmed to address the Year 2000 issue. The Bank has completed testing all
ancillary systems, such as telephone systems and security devices, as of March
31, 1999. There can be no assurances that all hardware and software that the
Bank uses will be Year 2000 compliant, and the Bank cannot predict with any
certainty the costs it will incur to respond to any Year 2000 issues. Factors
which may affect the amount of these costs include the Bank's inability to
control third party modification plans, the Bank's ability to identify and
correct all relevant computer codes, the availability and cost of engaging
personnel trained in solving Year 2000 issues, and other similar uncertainties.
Further, the business of many of the Bank's customers may be negatively affected
by the Year 2000 issue, and any financial difficulties incurred by the Bank's
customers in solving Year 2000 issues could negatively affect those customers'
ability to repay any loans which the Bank may have extended. Therefore, even if
tile Bank does not incur significant direct costs in connection with responding
to the Year 2000 issue, there can be no assurance that tile failure or delay of
the Bank's customers or other third parties in addressing the Year 2000 issue or
the costs involved in such process will not have a material adverse effect on
the Bank's business, financial condition, or results of operations.
The Bank adopted a Contingency Plan on July 23, 1998 for Year 2000. The
Contingency Plan covers several critical areas that would require an alternative
method of operation such as: the primary software and hardware used in
processing loans, deposits and the general ledger, use of the Federal Reserve's
wire system, ATM machines, and the loan processing system. The Contingency Plan
was presented to the FDIC during its most recent examination.
13
<PAGE> 14
ROCK HILL BANK & TRUST
PART 11 - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 15, 1999, the Bank held its Annual Meeting of Shareholders for the
purpose of (a) approving the formation of a holding company through a
reorganization agreement and plan of exchange with RHBT Financial Corporation,
(b) approving the 1999 stock incentive plan, and (c) electing three class 1
directors to serve for three year terms.
The proposal for the reorganization agreement received the number of affirmative
votes of shareholders required for approval pursuant to the Bylaws of the Bank.
Of the 1,376,250 outstanding shareholders of the Bank, 965,237 shareholders
voted for, 1,600 shareholders voted against, and 4,715 abstained from voting for
the reorganization agreement. There were no withheld and no broker non-votes.
The proposal for the 1999 stock incentive plan also received the number of
affirmative votes of shareholders required for approval pursuant to the Bylaws
of the Bank. Of the 1,376,250 outstanding shareholders of the Bank, 952,197
shareholders voted for, 14,625 shareholders voted against, and 4,730 abstained
from voting for the stock incentive plan. There were no withheld and no broker
non-votes. The three nominees for director received the number of affirmative
votes of shareholders required for such nominee's election in accordance with
the Bylaws of the Bank. Of the 1,376,250 outstanding shareholders of the Bank
shareholders voted for the elected of each director as follows: Edwin L. Barnes
received 1,278,823 votes for his election, 1,175 abstentions, and no votes
against, withheld, or broker non-votes; William C. Beaty, Jr. received 1,278,023
votes for his election, 1,175 abstentions, 800 no votes, and no votes withheld
or broker non-votes; Hugh L. Harrelson, Sr. received 1,278,823 votes for his
election, 1,175 abstentions, and no votes against, withheld or broker
non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter ended March 31, 1999.
Items 1, 2, 3 and 5 are not applicable.
14
<PAGE> 15
ROCK HILL BANK & TRUST
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.
ROCK HILL BANK & TRUST
By: /s/ J.A. Ferguson Jr.
------------------------------------
J.A. Ferguson Jr.
President & Chief Executive Officer
Date: 5/13/99 By: /s/ Patracia M. Stone
------------------------------------
Patricia M. Stone
Chief Financial Officer
15
