SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999 File Number 000-28037
FIRST SOUTH BANCORP, INC.
(Name of Small Business Issuer in its Charter)
South Carolina 57-1086258
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
1450 Reidville Road, Spartanburg, South Carolina 29306
(Address of Principal Executive Office, Zip Code)
Issuer's Telephone Number, Including Area Code: (864) 595-0455
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
(Title of Class)
Check whether the issuer (1) has 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 the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained 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 issuer's revenues for its most recent fiscal year were $5,244,968.
The aggregate market value of the Common Stock held by non-affiliates
on February 29, 2000, was approximately $10,909,827. As of February 29, 2000,
there were 917,180 shares of the Registrant's Common Stock, no par value,
outstanding. For purposes of the foregoing calculation only, all directors and
executive officers of the Registrant have been deemed affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's Proxy Statement for the 2000 Annual Meeting of
Shareholders - Part III
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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PART I
Item 1. Description of Business.
General
First South Bancorp, Inc., (the "Company") is a bank holding company
with no operations other than those carried on by its wholly-owned subsidiary,
First South Bank (the "Bank"). The Company was organized in 1999 under the laws
of South Carolina for the purpose of becoming a holding company for the Bank.
The Bank conducts a general banking business under a state charter approved by
the South Carolina State Board of Financial Institutions (the "State Board") and
granted by the Secretary of State of South Carolina. The Bank was organized in
1996. The Bank conducts its activities from its main office and one branch
office, opened in 1997, located in Spartanburg, South Carolina. In 1999, the
Bank received approval to open a branch in Columbia, South Carolina and plans to
open that branch in March, 2000.
The Bank's business primarily consists of accepting deposits and making
loans. The Bank seeks deposit accounts from households and businesses in its
primary market areas by offering a full range of savings accounts, retirement
accounts (including Individual Retirement Accounts), checking accounts, money
market accounts, and time certificates of deposit. It also makes primarily
commercial, real estate and installment loans, primarily on a secured basis, to
borrowers in and around Spartanburg County and makes other authorized
investments. Mortgage loans are primarily made for resale in the secondary
market. As of December 31, 1999, the Bank employed 24 (FTE) persons.
Competition
Competition between commercial banks and thrift institutions (savings
and loan associations) and credit unions has intensified significantly as a
result of 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 that 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 the elimination of many distinctions between a commercial bank and
thrift institution. Consequently, competition among financial institutions of
all types is virtually unlimited with respect to legal authority to provide most
financial services.
The Bank competes in the South Carolina city of Spartanburg, for which
the most recent market share data available is as of June 1999. At that time, in
Spartanburg, 14 banks, savings and loans, and savings banks with 53 branch
locations competed for aggregate deposits of approximately $1.736 billion. The
Bank has a city-wide deposit market share of 2.8% and a market share rank of 9
out of the 14 competitors.
Banks generally compete with other financial institutions through the
savings 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 personal concern with which services are offered. In the
conduct of certain areas of its business, the Bank competes with commercial
banks, credit unions, consumer finance companies, insurance companies, money
market mutual funds and other financial institutions, some of which are not
subject to the same degree of regulation and restriction imposed upon the Bank.
Many of these competitors have substantially greater resources and lending
limits than the Bank and offer certain services, such as international banking
services and trust services, that the Bank does not provide. Moreover, most of
these competitors have more numerous branch offices located throughout their
market areas, a competitive advantage that the Bank does not have to the same
degree.
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The banking industry is significantly affected by prevailing economic
conditions as well as by government policies and regulations concerning, among
other things, monetary and fiscal affairs, the housing industry and financial
institutions. Deposits at banks are influenced by a number of economic factors,
including interest rates, competing instruments, levels of personal income and
savings, and the extent to which interest on retirement savings accounts is tax
deferred. Lending activities are also influenced by a number of economic
factors, including demand for and supply of housing, conditions in the
construction industry, and availability of funds. Primary sources of funds for
lending activities include savings deposits, income from investments, loan
principal repayments, and proceeds from sales of loans to conventional
participating lenders.
Effect of Government Regulation
Bank holding companies and banks are extensively regulated under
federal and state law. To the extent that the following information describes
statutory and regulatory provisions, it is qualified in its entirety by
reference to such statutes and regulations. Any change in applicable law or
regulation may have a material effect on the business of the Company and the
Bank.
General
As a bank holding company under the Bank Holding Company Act ("BHCA"),
the Company obtained the approval of the Board of Governors of the Federal
Reserve System (the "Federal Reserve") to acquire the Bank and is subject to the
regulations of the Federal Reserve. Under the BHCA, the Company's activities and
those of its subsidiaries are limited to banking, managing or controlling banks,
furnishing services to or performing services for its subsidiaries or engaging
in any other activity which the Federal Reserve determines to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto. The Company may engage in a broader range of activities if it becomes a
"financial holding company" pursuant to the Gramm-Leach-Bliley Act, which is
described below under the caption "Recent Legislation." The BHCA prohibits the
Company from acquiring direct or indirect control of more than 5% of the
outstanding voting stock or substantially all of the assets of any bank or from
merging or consolidating with another bank holding company without prior
approval of the Federal Reserve. Additionally, the BHCA prohibits the Company
from engaging in or from acquiring ownership or control of more than 5% of the
outstanding voting stock of any company engaged in a non-banking business unless
such business is determined by the Federal Reserve to be so closely related to
banking as to be properly incident thereto. The BHCA generally does not place
territorial restrictions on the activities of such non-banking related
activities.
The Company is subject to regulation and supervision by the South
Carolina State Board of Financial Institutions (the "State Board"). A South
Carolina bank holding company must provide the State Board with information with
respect to the financial condition, operations, management and inter-company
relationships of the holding company and its subsidiaries. The State Board also
may require such other information as is necessary to keep itself informed about
whether the provisions of South Carolina law and the regulations and orders
issued thereunder by the State Board have been complied with, and the State
Board may examine any bank holding company and its subsidiaries.
Obligations of the Company to its Subsidiary Bank
A number of obligations and restrictions are imposed on bank holding
companies and their depository institution subsidiaries by Federal law and
regulatory policy that are designed to reduce potential loss exposure to the
depositors of such depository institutions and to the FDIC insurance funds in
the event the depository institution is in danger of becoming insolvent or is
insolvent. For example, under the policy of the Federal Reserve, a bank holding
company is required to serve as a source of financial strength to its subsidiary
depository institutions and to commit resources to support such institutions in
circumstances where it might not do so absent such policy. In addition, the
"cross-guarantee" provisions of the Federal Deposit Insurance Act, as amended
("FDIA"), require insured depository institutions under common control to
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reimburse the FDIC for any loss suffered or reasonably anticipated by either the
Savings Association Insurance Fund ("SAIF") or the Bank Insurance Fund ("BIF")
of the FDIC as a result of the default of a commonly controlled insured
depository institution or for any assistance provided by the FDIC to a commonly
controlled insured depository institution in danger of default. The FDIC may
decline to enforce the cross-guarantee provisions if it determines that a waiver
is in the best interest of the SAIF or the BIF or both. The FDIC's claim for
damages is superior to claims of shareholders of the insured depository
institution or its holding company but is subordinate to claims of depositors,
secured creditors and holders of subordinated debt (other than affiliates) of
the commonly controlled insured depository institutions.
The FDIA also provides that amounts received from the liquidation or
other resolution of any insured depository institution by any receiver must be
distributed (after payment of secured claims) to pay the deposit liabilities of
the institution prior to payment of any other general or unsecured senior
liability, subordinated liability, general creditor or shareholder. This
provision would give depositors a preference over general and subordinated
creditors and shareholders in the event a receiver is appointed to distribute
the assets of the Bank.
Any capital loans by a bank holding company to any of its subsidiary
banks are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary bank. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
Capital Adequacy Guidelines for Bank Holding Companies and State Banks
The various federal bank regulators, including the Federal Reserve and
the FDIC have adopted risk-based and leverage capital adequacy guidelines for
assessing bank holding company and bank capital adequacy. These standards define
what qualifies as capital and establish minimum capital standards in relation to
assets and off-balance sheet exposures, as adjusted for credit risks.
Failure to meet capital guidelines could subject the Bank to a variety
of enforcement remedies, including the termination of deposit insurance by the
FDIC and a prohibition on the taking of brokered deposits.
The risk-based capital standards of both the Federal Reserve Board and
the FDIC explicitly identify concentrations of credit risk and the risk arising
from non-traditional activities, as well as an institution's ability to manage
these risks, as important factors to be taken into account by the agencies in
assessing an institution's overall capital adequacy. The capital guidelines also
provide that an institution's exposure to a decline in the economic value of its
capital due to changes in interest rates be considered by the agencies as a
factor in evaluating a bank's capital adequacy. The Federal Reserve Board also
has recently issued additional capital guidelines for bank holding companies
that engage in certain trading activities.
The Company and the Bank exceeded all applicable capital requirements
by a wide margin at December 31, 1999.
Payment of Dividends
The Company is a legal entity separate and distinct from its bank
subsidiary. Most of the revenues of the Company are expected to result from
dividends paid to the Company by the Bank. There are statutory and regulatory
requirements applicable to the payment of dividends by subsidiary banks as well
as by the Company to its shareholders. It is not anticipated that the Company
will pay cash dividends in the near future.
Certain Transactions by the Company with its Affiliates
Federal law regulates transactions among the Company and its
affiliates, including the amount of the Bank's loans to or investments in
nonbank affiliates and the amount of advances to third parties collateralized by
securities of an affiliate. Further, a bank holding company and its affiliates
are prohibited from engaging in certain tie-in arrangements in connection with
any extension of credit, lease or sale of property or furnishing of services.
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FDIC Insurance Assessments
Because the Bank's deposits are insured by the BIF, the Bank is subject
to insurance assessments imposed by the FDIC. Currently, the assessments imposed
on all FDIC deposits for deposit insurance have an effective rate ranging from 0
to 27 basis points per $100 of insured deposits, depending on the institution's
capital position and other supervisory factors. However, because legislation
enacted in 1996 requires that both SAIF-insured and BIF-insured deposits pay a
pro rata portion of the interest due on the obligations issued by the Financing
Corporation ("FICO"), the FDIC is currently assessing BIF-insured deposits an
additional 1.26 basis points per $100 of deposits, and SAIF-insured deposits an
additional 6.30 basis points per $100 of deposits, to cover those obligations.
The FICO assessment will continue to be adjusted quarterly to reflect changes in
the assessment bases of the respective funds based on quarterly Call Report and
Thrift Financial Report submissions.
Regulation of the Bank
The Bank is subject to examination by the State Board. In addition, the
Bank is subject to various other state and federal laws and regulations,
including state usury laws, laws relating to fiduciaries, consumer credit and
laws relating to branch banking. The Bank's loan operations are also subject to
certain federal consumer credit laws and regulations promulgated thereunder,
including, but not limited to: the federal Truth-In-Lending Act, governing
disclosures of credit terms to consumer borrowers; the Home Mortgage Disclosure
Act, requiring financial institutions to provide certain information concerning
their mortgage lending; the Equal Credit Opportunity Act and the Fair Housing
Act, prohibiting discrimination on the basis of certain prohibited factors in
extending credit; the Fair Credit Reporting Act, governing the use and provision
of information to credit reporting agencies; the Bank Secrecy Act, dealing with,
among other things, the reporting of certain currency transactions; and the Fair
Debt Collection Act, governing the manner in which consumer debts may be
collected by collection agencies. The deposit operations of the Bank are also
subject to the Truth in Savings Act, requiring certain disclosures about rates
paid on savings accounts; the Expedited Funds Availability Act, which deals with
disclosure of the availability of funds deposited in accounts and the collection
and return of checks by banks; the Right to Financial Privacy Act, which imposes
a duty to maintain certain confidentiality of consumer financial records and the
Electronic Funds Transfer Act and regulations promulgated thereunder, which
govern 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.
The Bank is also subject to the requirements of the Community
Reinvestment Act (the "CRA"). The CRA imposes on financial institutions an
affirmative and ongoing obligation to meet the credit needs of their local
communities, including low- and moderate-income neighborhoods, consistent with
the safe and sound operation of those institutions. Each financial institution's
actual performance in meeting community credit needs is evaluated as part of the
examination process, and also is considered in evaluating mergers, acquisitions
and applications to open a branch or facility.
Other Safety and Soundness Regulations
Prompt Corrective Action. The federal banking agencies have broad
powers under current federal law to take prompt corrective action to resolve
problems of insured depository institutions. The extent of these powers depends
upon whether the institutions in question are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" or
"critically undercapitalized."
A bank that is "undercapitalized" becomes subject to provisions of the
FDIA: restricting payment of capital distributions and management fees;
requiring the FDIC to monitor the condition of the bank; requiring submission by
the bank of a capital restoration plan; restricting the growth of the bank's
assets and requiring prior approval of certain expansion proposals. A bank that
is "significantly undercapitalized" is also subject to restrictions on
compensation paid to senior management of the bank, and a bank that is
"critically undercapitalized" is further subject to restrictions on the
activities of the bank and restrictions on payments of subordinated debt of the
bank. The purpose of these provisions is to require banks with less than
adequate capital to act quickly to restore their capital and to have the FDIC
move promptly to take over banks that are unwilling or unable to take such
steps.
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Brokered Deposits. Under current FDIC regulations, "well capitalized"
banks may accept brokered deposits without restriction, "adequately capitalized"
banks may accept brokered deposits with a waiver from the FDIC (subject to
certain restrictions on payment of rates), while "undercapitalized" banks may
not accept brokered deposits. The regulations provide that the definitions of
"well capitalized", "adequately capitalized" and "undercapitalized" are the same
as the definitions adopted by the agencies to implement the prompt corrective
action provisions described in the previous paragraph. Management does not
believe that these regulations will have a material adverse effect on the
operations of the Bank.
Interstate Banking
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 the Company and any other adequately capitalized bank holding company
located in South Carolina can acquire a bank located in any other state, and a
bank holding company located outside South Carolina can acquire any South
Carolina-based bank, in either case subject to certain deposit percentage and
other restrictions. Unless prohibited by state law, adequately capitalized and
managed bank holding companies are permitted to consolidate their multistate
bank operations into a single bank subsidiary and to branch interstate through
acquisitions. De novo branching by an out-of-state bank is permitted only if the
laws of the host state expressly permit it. The authority of a bank to establish
and operate branches within a state continue to be subject to applicable state
branching laws. South Carolina law was amended, effective July 1, 1996, to
permit such interstate branching but not de novo branching by an out-of-state
bank.
Recent Legislation
On November 12, 1999, the President signed the Gramm-Leach-Bliley Act,
which makes it easier for affiliations between banks, securities firms and
insurance companies to take place. The Act removes Depression-era barriers that
had separated banks and securities firms, and seeks to protect the privacy of
consumers' financial information. Most of the provisions of the Act require the
applicable regulators to adopt regulations in order to implement these
provisions.
Under provisions of the new legislation, which are effective March 11,
2000, banks, securities firms and insurance companies are able to structure new
affiliations through a holding company structure or through a financial
subsidiary. The legislation creates a new type of bank holding company called a
"financial holding company" which has powers much more extensive than those of
standard holding companies. These expanded powers include authority to engage in
"financial activities," which are activities that are (1) financial in nature;
(2) incidental to activities that are financial in nature; or (3) complimentary
to a financial activity and that do not impose a safety and soundness risk.
Significantly, the permitted financial activities for financial holding
companies include authority to engage in merchant banking and insurance
activities, including insurance portfolio investing. A bank holding company can
qualify as a financial holding company and expand the services it offers only if
all of its subsidiary depository institutions are well-managed, well-capitalized
and have received a rating of "satisfactory" on their last Community
Reinvestment Act examination.
The legislation also creates another new type of entity called a
"financial subsidiary." A financial subsidiary may be used by a national bank or
a group of national banks to engage in many of the same activities permitted for
a financial holding company, though several of these activities, including real
estate development or investment, insurance or annuity underwriting, insurance
portfolio investing and merchant banking, are reserved for financial holding
companies. A bank's investment in a financial subsidiary affects the way in
which the bank calculates its regulatory capital, and the assets and liabilities
of financial subsidiaries may not be consolidated with those of the bank. The
bank must also be certain that its risk management procedures are adequate to
protect it from financial and operational risks created both by itself and by
any financial subsidiary. Further, the bank must establish policies to maintain
the separate corporate identities of the bank and its financial subsidiary and
to prevent each from becoming liable for the obligations of the other.
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The Act also establishes the concept of "functional supervision,"
meaning that similar activities should be regulated by the same regulator.
Accordingly, the Act spells out the regulatory authority of the bank regulatory
agencies, the Securities and Exchange Commission and state insurance regulators
so that each type of activity is supervised by a regulator with corresponding
expertise. The Federal Reserve Board is intended to be an umbrella supervisor
with the authority to require a bank holding company or financial holding
company or any subsidiary of either to file reports as to its financial
condition, risk management systems, transactions with depository institution
subsidiaries and affiliates, and compliance with any federal law that it has
authority to enforce.
Although the Act reaffirms that states are the regulators for insurance
activities of all persons, including federally-chartered banks, the Act
prohibits states from preventing depository institutions and their affiliates
from conducting insurance activities.
The Act also establishes a minimum federal standard of privacy to
protect the confidentiality of a consumer's personal financial information and
gives the consumer the power to choose how personal financial information may be
used by financial institutions. The privacy provisions of the Act will not go
into effect until after adoption of implementing regulations by various federal
agencies.
The Company anticipates that the Act and the regulations which are to
be adopted pursuant to the Act will be likely to create new opportunities for it
to offer expanded services to customers in the future, though the Company has
not yet determined what the nature of the expanded services might be or when the
Company might find it feasible to offer them. The Company further expects that
the Act will increase competition from larger financial institutions that are
currently more capable than the Company of taking advantage of the opportunity
to provide a broader range of services. However, the Company continues to
believe that its commitment to providing high quality, personalized service to
customers will permit it to remain competitive in its market area.
Legislative Proposals
New proposed legislation which could significantly affect the business
of banking has been introduced or may be introduced in Congress from time to
time. Management of the Bank cannot predict the future course of such
legislative proposals or their impact on the Company and the Bank should they be
adopted.
Fiscal and Monetary Policy
Banking is a business which depends to a large extent on interest rate
differentials. In general, the difference between the interest paid by a bank on
its deposits and its other borrowings, and the interest received by a bank on
its loans and securities holdings, constitutes the major portion of a bank's
earnings. Thus, the earnings and growth of the Company and the Bank are subject
to the influence of economic conditions generally, both domestic and foreign,
and also to the monetary and fiscal policies of the United States and its
agencies, particularly the Federal Reserve. The Federal Reserve regulates the
supply of money through various means, including open market dealings in United
States government securities, the discount rate at which banks may borrow from
the Federal Reserve, and the reserve requirements on deposits. The nature and
timing of any changes in such policies and their impact on the Company and the
Bank cannot be predicted.
Item 2. Description of Property.
The Bank owns the real property at 1450 Reidville Road, Spartanburg,
South Carolina, where its main offices are located. The Bank leases the property
at 1035 Fernwood Glendale Road, Spartanburg, South Carolina, and at 1333 Main
Street, Columbia, South Carolina, where its branch offices are located, under
long term leases. All properties are believed to be well suited for the Bank's
needs.
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Item 3. Legal Proceedings.
The Bank is from time to time a party to various legal proceedings
arising in the ordinary course of business, but management of the Bank is not
aware of any pending or threatened litigation or unasserted claims or
assessments that are expected to result in losses, if any, that would be
material to the Bank's business and operations.
Item 4. Submission of Matters to Vote of Security Holders.
No matters were submitted to a vote of security holders during the
fourth quarter of 1999.
PART II
Item 5. Market for Common Equity and Related Shareholder Matters.
Although the common stock of the Company is traded from time to time on
an individual basis, no established trading market has developed and none is
expected to develop in the foreseeable future. The common stock is not traded on
the NASDAQ National Market System, nor are there any market makers known to
management. During 1999, management was aware of a few transactions in which the
Company's common stock traded in a range from $16.00 to $17.00 per share.
However, management has not ascertained that these transactions are the result
of arm's length negotiations between the parties, and because of the limited
number of shares involved, these prices may not be indicative of the market
value of the common stock.
As of February 29, 2000, there were approximately 632 holders of record
of the Company's common stock, excluding individual participants in security
position listings.
The Company has never paid any cash dividends, and to support its
continued capital growth, does not expect to pay cash dividends in the near
future. The dividend policy of the Company is subject to the discretion of the
Board of Directors and depends upon a number of factors, including earnings,
financial conditions, cash needs and general business conditions, as well as
applicable regulatory considerations. At present, the Company's only source of
funds with which it could pay dividends is dividend payments from the Bank.
South Carolina banking regulations restrict the amount of cash dividends that
can be paid to shareholders, and all of the Bank's cash dividends to
shareholders are subject to the prior approval of the South Carolina
Commissioner of Banking.
At December 31, 1999, the Company issued 1,319 shares of its common
stock to directors of the Company in lieu of paying cash director's fees of
$22,483. The issuances were exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933.
Item 6. Management's Discussion and Analysis or Plan of Operation.
This discussion is intended to assist in understanding the financial
condition and results of operations of the Company, and should be read in
conjunction with the financial statements and related notes contained elsewhere
herein. Because the Bank is responsible for all of the Company's operations, the
discussion will refer to the results of operations of the Bank.
Earnings Performance
The Bank had net income from operations for the year ended December 31,
1999, of $505,012, or $0.55 per share, compared to a net income for the year
ended December 31, 1998, of $104,030 or $0.15 per common share. The Bank had net
interest income (the difference between interest earned on interest earning
assets and interest paid on interest bearing liabilities) of $2,512,919 for 1999
as compared to $1,697,465 for 1998. The Bank also had other operating income
(principally service charges, fees and commissions) of $239,626 in 1999 and
$174,631 in 1998. The Bank provided $225,270 and $227,507 to its reserve for
loan losses in 1999 and 1998, respectively, and had other operating expenses
(principally salaries and benefits and occupancy and equipment expenses) of
$2,021,084 in 1999 and $1,512,209 in 1998.
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Net Interest Income
Net interest income is the amount of interest earned on interest
earning assets (loans, investment securities, time deposits in other banks and
federal funds sold), less the interest expenses incurred on interest bearing
liabilities (interest bearing deposits and borrowed money), and is the principal
source of the Bank's earnings. Net interest income is affected by the level of
interest rates, volume and mix of interest earning assets and interest bearing
liabilities and the relative funding of these assets.
During the year ended December 31, 1998, net interest income was
$1,697,465. For the year ended December 31, 1999, net interest income was
$2,512,919. This increase was primarily attributable to an increase in volume as
average interest earning assets increased 39.8% and average interest bearing
liabilities increased 37.2% from 1998 to 1999. The average yield on interest
earning assets decreased from 8.57% to 8.35% from 1998 to 1999, while the
average cost of interest bearing liabilities decreased from 5.46% to 5.02%. As a
result, the net yield on average interest earning assets increased from 3.96% in
1998 to 4.19% in 1999.
The table "Average Balances, Yields and Rates," provides a detailed
analysis of the effective yields and rates on the categories of interest earning
assets and interest bearing liabilities for the years ended December 31, 1999
and 1998.
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Average Balances, Yields and Rates
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998
----- ----
Interest Interest
Average Income/ Yields/ Average Income/ Yields/
Balances(1) Expense Rates Balances(1) Expense Rates
----------- ------- ----- ----------- ------- -----
Assets
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold ..................................... $ 4,000 $ 195 4.88% $ 4,721 $ 253 5.36%
Investment securities .................................. 11,103 638 5.75% 8,915 542 6.08%
Loans(2) ............................................... 44,821 4,172 9.31% 29,226 2,879 9.85%
-------- -------- -------- --------
Total interest earning assets ........................ 59,924 5,005 8.35% 42,862 3,674 8.57%
Cash and due from banks ................................ 1,335 1,217
Valuation reserve for investment securities ............ (158) 0
Allowance for loan losses .............................. (647) (462)
Premises and equipment ................................. 2,829 2,921
Other assets ........................................... 913 406
-------- --------
Total assets ......................................... $ 64,196 $ 46,944
======== ========
Liabilities and shareholders' equity
Interest bearing transaction accounts ................ $ 15,060 $ 679 4.51% $ 10,131 $ 486 4.80%
Savings .............................................. 1,120 30 2.68% 585 18 3.08%
Time deposits $100M and over ......................... 8,411 441 5.24% 6,597 385 5.84%
Other time deposits .................................. 23,060 1,253 5.43% 17,298 1,020 5.90%
-------- -------- -------- --------
Total interest bearing deposits .................... 47,651 2,403 5.04% 34,611 1,909 5.52%
Retail repurchase agreements ........................... 1,606 67 4.17% 1,584 68 4.29%
Other Borrowed Funds ................................... 415 22 5.30% - - 0.00%
-------- -------- -------- --------
Total interest bearing liabilities ................. 49,672 2,492 5.02% 36,195 1977 5.46%
Noninterest bearing demand deposits .................... 3,169 2,988
Other liabilities ...................................... 648 479
Shareholders' equity ................................... 10,707 7,282
-------- --------
Total liabilities and shareholders' equity ........... $ 64,196 $ 46,944
======== ========
Interest rate spread(3) ................................ 3.33% 3.11%
Net interest income and net yield on earning ........... $ 2,513 4.19% $ 1,697 3.96%
assets(4)
Interest free funds supporting
earning assets(5) ..................................... $ 10,252 $ 6,667
</TABLE>
(1) Average balances are computed on a daily basis.
(2) Nonaccruing loans are included in the average loan balances and income on
such loans is recognized on a cash basis and excludes impact of origination
fee income.
(3) Total interest earning assets yield less the total interest bearing
liabilities rate.
(4) Net interest income divided by total interest earning assets.
(5) Total interest earning assets less total interest bearing liabilities.
9
<PAGE>
Rate/Volume Analysis of Net Interest Income
The effect of changes in average balances (volume) and rates on
interest income, interest expense and net interest income, for the periods
indicated, is shown below. The effect of a change in average balance has been
determined by applying the average rate in the earlier period to the change in
average balance in the later period, as compared with the earlier period. The
effect of a change in the average rate has been determined by applying the
average balance in the earlier period to the change in the average rate in the
later period, as compared with the earlier period. Changes resulting from
average balance/rate variances are included in changes resulting from volume.
Year Ended December 31,
1999 compared to 1998
Increase (Decrease) Due to
--------------------------
(Dollars in Thousands)
Volume Rate Change
------ ---- ------
Interest earned on:
Investments ........................ $ 133 $ (37) $ 96
Federal Funds Sold ................. (39) (19) (58)
Net Loans .......................... 1,536 (243) 1,293
------- ------- -------
Total Interest Income ................ 1,630 (299) 1,331
------- ------- -------
Interest paid on:
Interest Checking .................. 238 (45) 193
Savings Deposits ................... 16 (3) 13
Certificates of Deposit ............ 445 (155) 290
------- ------- -------
Retail Repurchase Agreements ....... 6 (3) 3
Other Borrowed Funds ............... 17 0 17
------- ------- -------
Total Interest Expense ............... 722 (206) 516
------- ------- -------
Change in Net Interest Income ........ $ 908 $ (93) $ 815
======= ======= =======
During the year 2000, management expects that interest rates will
gradually increase. Therefore, any improvements in net interest income for 2000
are expected to be largely the result of increases in the volume and changes in
the mix of interest earning assets and liabilities. Management expects to
continue to use aggressive marketing strategies to increase the Bank's market
share for both deposits and quality loans within its service area in
Spartanburg, South Carolina and its new service area in Columbia, South
Carolina. These strategies involve offering attractive interest rates and
continuing the Bank's commitment to providing outstanding customer service.
Interest Rate Sensitivity
Interest rate sensitivity management is concerned with the timing and
magnitude of repricing assets compared to liabilities and is an important part
of asset/liability management. It is the objective of interest rate sensitivity
management to generate stable growth in net interest income, and to control the
risks associated with interest rate movement. Management constantly reviews
interest rate risk exposure and the expected interest rate environment so that
timely adjustments in interest rate sensitivity can be made.
The table, "Interest Sensitivity Analysis", indicates that, on a
cumulative basis through twelve months, rate sensitive assets exceeded rate
sensitive liabilities, resulting in an asset sensitive position at December 31,
1999 of $5.6 million for a cumulative gap ratio of 1.11%. When interest
sensitive liabilities exceed interest sensitive assets for a specific repricing
"horizon", a negative interest sensitivity gap results. The gap is positive when
interest sensitive assets exceed interest sensitive liabilities, as was the case
at December 31, 1999 with respect to the one year time horizon. For a bank with
a positive gap, such as the Bank, rising interest rates would be expected to
have a positive effect on net interest income and falling rates would be
expected to have the opposite effect.
10
<PAGE>
The table below reflects the balances of interest earning assets and
interest bearing liabilities at the earlier of their repricing or maturity
dates. Amounts of fixed rate loans are reflected at the earlier of their
contractual maturity date or the date at which the loans may be repriced
contractually. Time deposits in other banks are reflected in the deposits'
maturity dates. Repurchase agreements and other borrowed funds are reflected in
the earliest contractual repricing interval due to the immediately available
nature of these funds. Interest bearing liabilities with no contractual
maturity, such as interest bearing transaction accounts and savings deposits,
are reflected in the earliest repricing interval due to contractual arrangements
which give management the opportunity to vary the rates paid on these deposits
within a thirty day or shorter period. However, the Bank is under no obligation
to vary the rates paid on those deposits within any given period. Fixed rate
time deposits are reflected at their contractual maturity dates. Fixed rate
advances are reflected at their contractual maturity dates, and variable rate
advances are reflected in the earliest repricing interval since they were
borrowed under the daily rate credit option, and reprice daily. Loans on
nonaccrual status, totaling $702,000, are excluded from this table.
Interest Sensitivity Analysis
<TABLE>
<CAPTION>
December 31, 1999
-----------------
Within 4-12 Over 1-5 Over 5
3 Months Months Years Years Total
-------- ------ -------- ------ -----
(Dollars in thousands)
Interest earning assets
<S> <C> <C> <C> <C> <C>
Interest-bearing deposits in other banks ................... $ 12 $ 0 $ 0 $ 0 $ 12
Federal funds sold ......................................... 2,850 0 0 0 2,850
Other investments .......................................... 0 0 9,163 1,498 10,661
Loans
Fixed rate .............................................. 2,829 2,465 3,224 586 9,104
Variable rate ........................................... 47,898 0 0 0 47,898
-------- -------- -------- -------- --------
Total interest earning assets ......................... $ 53,589 $ 2,465 $ 12,387 $ 2,084 $ 70,525
======== ======== ======== ======== ========
Interest bearing liabilities
Interest bearing deposits
Interest bearing transaction accounts ................... 15,396 0 0 0 15,396
Savings & MMIA .......................................... 1,927 0 0 0 1,927
Time deposits $100M and over ............................ 662 8,571 1,698 0 10,931
Other time deposits ..................................... 654 19,033 7,385 0 27,072
Total interest bearing deposits ....................... 18,639 27,604 9,083 0 55,326
Repurchase agreements and other borrowed funds .......... 1,723 0 0 0 1,723
Other borrowed Funds .................................... 2,500 0 0 0 2,500
-------- -------- -------- -------- --------
Total interest bearing liabilities .................... $ 22,862 $ 27,604 $ 9,083 $ 0 $ 59,549
======== ======== ======== ======== ========
Interest sensitivity gap ...................................... $ 30,727 $(25,139) $ 3,304 $ 2,084
Cumulative interest sensitivity gap ........................... $ 30,727 $ 5,588 $ 8,892 $ 10,976
Gap ratio ..................................................... 2.34% .09% 1.36%
Cumulative gap ratio .......................................... 2.34% 1.11% 1.15%
</TABLE>
Provision for Loan Losses
The allowance for loan losses, established through charges to expense
in the form of a provision for loan losses, allows for possible loan losses in
the Bank's loan portfolio. Loan losses or recoveries are charged or credited
directly to the allowance. The level of the allowance for loan losses is based
on management's judgment as to the amount required to maintain an allowance
adequate enough to provide for future losses. The Bank provided $225,270 and
$227,507 to the allowance during the years ended December 31, 1999 and 1998,
respectively.
11
<PAGE>
Other Expenses
Other expenses, which consist primarily of salaries and employee
benefits, net occupancy, and data processing expenses, totaled $2,021,084 for
the year ended December 31, 1999 as compared to $1,512,209 for the year ended
December 31, 1998. As a percentage of total operating income (net interest
income after provision for loan losses plus total other operating income), other
expenses decreased from 91.9% for the year ended December 31, 1998 to 80.0% for
the year ended December 31, 1999. This improvement was primarily the result of a
substantial increase in assets and customer relationships being handled by a
staff that was only slightly larger.
Income Taxes
During the year ended December 31, 1998, the Bank accrued $28,350 for
income taxes. The Bank accrued $203,479 for income taxes during 1999. The Bank
accounts for income taxes under SFAS No. 109, "Accounting for Income Taxes."
Certain items of income and expense (principally provision for loan losses,
depreciation, and pre-opening expenses) are included in one reporting period for
financial accounting purposes and another for income tax purposes. These
accounting timing differences resulted in a deferred income tax benefit of
$202,300 being recognized in 1999.
Investment Portfolio
As of December 31, 1999, the Bank's investment portfolio comprised
approximately 14.2% of its total assets. The following table summarizes the
carrying value amounts of securities held by the Bank at December 31, 1999 and
at December 31, 1998.
Securities Portfolio Composition
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
---------------------------------- ---------------------------------
Net Net
Unrealized Unrealized
Book Holding Fair Book Holding Fair
Value Gain/(Loss) Value Value Gain/(Loss) Value
----- ----------- ----- ----- ----------- -----
(Dollars in thousands)
Available for sale:
<S> <C> <C> <C> <C> <C> <C>
U. S. Government agency obligations .......... $ 10,000 $ (301) $ 9,699 $ 10,000 $ (20) $ 9,980
Municipal obligations ........................ 123 (14) 109 123 2 125
Restricted FHLB Stock ........................ 163 - 163 105 - 105
-------- -------- -------- -------- -------- --------
$ 10,286 $ (315) $ 9,971 $ 10,228 $ (18) $ 10,210
======== ======== ======== ======== ======== ========
Held for investment:
Municipal obligations ........................ $ 375 $ (30) $ 345 $ 375 $ 8 $ 383
-------- -------- -------- -------- -------- --------
$ 375 $ (30) $ 345 $ 375 $ 8 $ 383
======== ======== ======== ======== ======== ========
</TABLE>
The following table presents maturities and weighted average yields of
debt securities at December 31, 1999. Available-for-sale securities are stated
at estimated fair value and held for investment securities are stated at
amortized cost.
12
<PAGE>
Securities Portfolio Maturities and Yields
<TABLE>
<CAPTION>
December 31, 1999
-----------------
Available Held for
For Sale Yield Investment Yield
-------- ----- ---------- -----
(Dollars in thousands)
U. S. Government Agency obligations
<S> <C> <C> <C> <C>
Due from one to five years ............................ $8,723 5.69% $ - -
Due from five to ten years ............................ 967 6.41% - -
------ 5.76% ----
9,699 - -
------ ----
Municipal obligations(1)
Due after ten years ................................... 109 5.00% 375 5.25%
------ ----
Total
Due from one to five years ............................ 8,732 5.69% - -
Due from five to ten years ............................ 967 6.41% - -
Due after ten years ................................... 109 5.00% 375 5.25%
------ ----
Total ........................................ $9,808 5.75% 375 5.25%
___________________ ====== ====
</TABLE>
(1) Not adjusted for tax equivalency.
Loan Portfolio
Management believes the loan portfolio is adequately diversified. There
are no significant concentrations of loans in any particular individuals or
industry or group of related individuals or industries, and there are no foreign
loans.
The amount of loans outstanding at December 31, 1999, and 1998, are
shown in the following table according to type of loan:
Loan Portfolio Composition
December 31,
------------
1999 1998
---- ----
Commercial, financial and agricultural ..... $ 17,136,114 $ 9,274,030
Real estate - construction ................. 7,639,096 3,038,010
Real estate mortgage ....................... 31,625,439 22,784,159
Consumer ................................... 600,794 763,013
------------ ------------
Total loans ........................... 57,001,443 35,859,212
Less allowance for loan losses ............. (800,000) (575,000)
------------ ------------
. $ 56,201,443 $ 35,284,212
============ ============
A certain degree of risk taking is inherent in the extension of credit.
Management has established loan and credit policies designed to control both the
types and amounts of risks assumed and to ultimately minimize losses. Such
policies include limitations on loan-to-collateral values for various types of
collateral, requirements for appraisals of real estate collateral, problem loan
management practices and collection procedures, and nonaccrual and charge-off
guidelines.
13
<PAGE>
Commercial loans primarily represent loans made to businesses, and may
be made on either a secured or an unsecured basis. When taken, collateral
consists of liens on receivables, equipment, inventories, furniture and
fixtures. Unsecured business loans are generally short-term with emphasis on
repayment strengths and low debt to worth ratios. Commercial lending involves
significant risk because repayment usually depends on the cash flows generated
by a borrower's business, and the debt service capacity of a business can
deteriorate because of downturns in national and local economic conditions. To
control risk, initial and continuing financial analysis of a borrower's
financial information is required.
Real estate construction loans generally consist of financing the
construction of 1-4 family dwellings and some nonfarm, nonresidential real
estate. Usually, loan to cost ratios are limited to 75% and permanent financing
commitments are required prior to the advancement of loan proceeds.
Loans secured by real estate mortgages comprised nearly 64% of the
Bank's loan portfolio at December 31, 1999. Residential real estate loans
consist mainly of first and second mortgages on single family homes, with some
multifamily loans. Loan-to-value ratios for these instruments are generally
limited to 90%. Nonfarm, nonresidential loans are secured by business and
commercial properties with loan-to-value ratios generally limited to 80%. The
repayment of both residential and business real estate loans is dependent
primarily on the income and cash flows of the borrowers, with the real estate
serving as a secondary or liquidation source of repayment.
Maturity and Interest Sensitivity Distribution of Loans
The following table sets forth the maturity distribution of the
Company's loans, by type, at December 31, 1999, as well as the type of interest
requirement on such loans.
<TABLE>
<CAPTION>
December 31, 1999
One Year One to Five Years
Or Less Five Years Or More Total
------- ---------- ------- -----
(Dollars in thousands)
<S>
<S> <C> <C> <C> <C>
Commercial, financial and industrial $ 12,247 $ 4,705 $ 184 $17,136
Real estate - construction 6,510 1,129 0 7,639
Real estate - mortgage 9,396 15,206 7,023 31,625
Consumer installment 152 449 0 601
-------- ------- ------ -------
Total loans $ 28,305 $21,489 $7,207 $57,001
Predetermined rate, maturity greater than one year $ 3,810
Variable rate or maturity within one year $53,191
Nonperforming Loans; Other Problem Assets
</TABLE>
When a loan is 90 days past due as to interest or principal or there is
serious doubt as to collectibility, the accrual of interest income is generally
discontinued unless the estimated net realizable value of collateral is
sufficient to assure collection of the principal balance and accrued interest.
When the collectibility of a significant amount of principal is in serious
doubt, the principal balance is reduced to the estimated fair value of
collateral by charge-off to the allowance for loan losses and any subsequent
collections are credited first to the remaining principal balance and then to
the allowance for loan losses as a recovery of the amount charged off. A
nonaccrual loan is not returned to accrual status unless principal and interest
14
<PAGE>
are current and the borrower has demonstrated the ability to continue making
payments as agreed. At December 31, 1999, the Bank had two loans totaling
$702,000 past due 90 days or longer and on nonaccrual status. One of these
loans, with a balance of $681,000, carried an 80% guarantee by the U.S.
Government. Had these loans been current in accordance with their original terms
$34,399 of additional interest income would have been recorded in 1999.
Potential Problem Loans
Management has identified and maintains a list of potential problem
loans. These are loans that are not included in nonaccrual status, or loans that
are past due 90 days or more and still accruing. A loan is added to the
potential problem list when management becomes aware of information about
possible credit problems of borrowers that causes serious doubts as to the
ability of such borrowers to comply with the current loan repayment terms. The
total amount of loans determined by management to be a potential problem was one
loan with a balance of less than $1,500 at December 31, 1999.
Real Estate Owned
The Bank had no real estate owned pursuant to foreclosure or
in-substance foreclosure at December 31, 1999. Real estate owned is initially
recorded at the lower of net loan principal balance or its estimated fair market
value less estimated selling costs. The estimated fair value is determined by
appraisal at the time of acquisition.
Allowance for Loan Losses
The allowance for loan losses is increased by direct charges to
operating expense. Losses on loans are charged against the allowance in the
period in which management has determined that it is more likely than not such
loans have become uncollectible. Recoveries of previously charged off loans are
credited to the allowance. The table, "Summary of Loan Loss Experience,"
summarizes loan balances at the end of each period indicated, averages for each
period, changes in the allowance arising from charge-offs and recoveries by loan
category, and additions to the allowance which have been charged to expense.
In reviewing the adequacy of the allowance for loan losses at each year
end, management took into consideration the historical loan losses experienced
by the Bank, current economic conditions affecting the borrowers' ability to
repay, the volume of loans, and the trends in delinquent, nonaccruing, and
potential problem loans, and the quality of collateral securing nonperforming
and problem loans. After charging off all known losses, management considers the
allowance for loan losses adequate to cover its estimate of possible future loan
losses inherent in the loan portfolio as of December 31, 1999.
In calculating the amount required in the allowance for loan losses,
management applies a consistent methodology that is updated quarterly. The
methodology utilizes a loan risk grading system and detailed loan reviews to
assess credit risks and the overall quality of the loan portfolio, as well as
other off-balance-sheet credit risks such as loan commitments and standby
letters of credit. Also, the calculation provides for management's assessment of
trends in national and local economic conditions that might affect the general
quality of the loan portfolio. Regulators review the adequacy of the allowance
for loan losses as part of their examination of the Bank and may require
adjustments to the allowance based upon information available to them at the
time of the examination.
15
<PAGE>
Summary of Loan Loss Experience
<TABLE>
<CAPTION>
Year Ended
----------
December 31, 1999 December 31, 1998
----------------- -----------------
(Dollars in thousands)
<S> <C> <C>
Total loans outstanding at end of period ............................................. $57,001 $35,859
Average amount of loans outstanding .................................................. 44,821 29,226
Balance of allowance for loan losses - beginning ..................................... $ 575 $ 350
------- -------
Loans charged off
Consumer installment ............................................................ 0 3
Total charge-offs ............................................................ 0 3
Recoveries of loans previously charged-off
Consumer installment ............................................................ 0 0
Net charge-offs ...................................................................... 0 3
------- -------
Additions to allowance charged to expense ............................................ 225 228
------- -------
Balance of allowance for loan losses - ending ........................................ $ 800 $ 575
======= =======
Ratios
Net charge-offs during period to average
loans outstanding during period .............................................. 0.00% 0.01%
Net charge-offs to loans at end of period ....................................... 0.00% 0.01%
Allowance for loan losses to average loans ...................................... 1.78% 1.97%
Allowance for loan losses to loans at end of period ............................. 1.40% 1.60%
Allowance for loan losses to nonperforming loans
at end of period ............................................................. 1.14% N/A
Net charge-offs to allowance for loan losses .................................... 0.00% 0.52%
Net charge-offs to provision for loan losses .................................... 0.12% 1.32%
</TABLE>
The following table presents the allocation of the allowance for loan
losses at the end of the years ended December 31, 1999 and 1998, compared with
the percent of loans in the applicable categories to total loans.
Allocation of Allowance for Loan Losses
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
---- ----
Amount % of Loans Amount % of Loans
------ ---------- ------ ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial and industrial .............................. $219 30.1% $155 25.9%
Real Estate - construction ............................. 95 13.4% 65 8.5%
Real Estate - mortgage ................................. 474 55.5% 340 63.5%
Consumer installment ................................... 12 1.1% 15 2.1%
---- ---- ---- ----
Total ............................................. $800 100% $575 100%
==== === ==== ===
</TABLE>
16
<PAGE>
Deposits
The average amounts and percentage composition of deposits held by the
Bank for the years ended December 31, 1999 and 1998 are summarized below:
Average Deposits
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------- -----------------
Amount % Amount %
------ ------ ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Noninterest bearing demand ................................... 3,169 6.2 2,988 7.9
Interest bearing transaction accounts ........................ 15,060 29.6 10,131 26.9
Savings & MMIA ............................................... 1,120 2.2 585 1.6
Time deposits - $100M and over ............................... 8,411 16.6 6,597 17.6
Other time deposits .......................................... 23,060 45.4 17,298 46.0
------ ----- ------ -----
Total deposits ...................................... 50,820 100.0 37,599 100.0
====== ===== ====== =====
</TABLE>
As of December 31, 1999, the Bank held $10,930,851 in time deposits of
$100,000 or more, with approximately $662,000 with maturities within three
months, $2,099,000 with maturities over three through six months, $6,472,000
with maturities over six through twelve months, and $1,698,000 with maturities
over twelve months. Wholesale time deposits (certificates generated through
corporations, banks, credit unions, etc., on a national level) totaled $492,000
as of December 31, 1999. It is a common industry practice not to consider these
types of deposits as core deposits because their retention can be expected to be
heavily influenced by rates offered, and therefore they have the characteristics
of shorter-term purchased funds. Wholesale time deposits involve the maintenance
of an appropriate matching of maturity distribution and a diversification of
sources to achieve an appropriate level of liquidity. Such deposits are
generally more volatile and interest rate sensitive than other deposits.
Return on Equity Assets
The following table shows the return on assets (net income divided by
average total assets), return on equity (net income divided by average equity),
dividend payout ratio (dividends declared per share divided by net income per
share), and equity to asset ratio (average equity divided by average total
assets) for each period indicated.
Year Ended December 31,
-----------------------
1999 1998
---- ----
Return on assets 0.78% 0.22%
Return on equity 4.72% 1.43%
Dividend payout ratio 0.00% 0.00%
Equity to asset ratio 16.68% 15.51%
17
<PAGE>
Liquidity
Liquidity is the ability to meet current and future obligations through
liquidation or maturity of existing assets or the acquisition of additional
liabilities. Adequate liquidity is necessary to meet the requirements of
customers for loans and deposit withdrawals in the most timely and economical
manner. Some liquidity is ensured by maintaining assets which may be immediately
converted into cash at minimal cost (amounts due from banks and federal funds
sold). However, the most manageable sources of liquidity are composed of
liabilities, with the primary focus on liquidity management being on the ability
to obtain deposits within the Bank's service area. Core deposits (total deposits
less wholesale time deposits) provide a relatively stable funding base, and were
equal to 52.5% of total assets at December 31, 1999. Asset liquidity is provided
from several sources, including amounts due from banks and federal funds sold,
and funds from maturing loans. The Bank is a member of the FHLB of Atlanta and,
as such, has the ability to borrow against the security of its 1-4 family
residential mortgage loans. The Bank also has $5 million available through lines
of credit with other banks as an additional source of liquidity funding.
Management believes that the Bank's overall liquidity sources are adequate to
meet its operating needs.
Capital Resources
The equity capital of the Bank increased by $3,886,597 during 1998 and
increased $344,497 during 1999 as the result of net income and the sale of
$23,607 of common stock from the exercise of options and payment of directors
fees in stock in lieu of cash, and ($184,122) in comprehensive income.
The Bank is subject to regulatory capital adequacy standards. Under
these standards, financial institutions are required to maintain certain minimum
ratios of capital to risk-weighted assets and average total assets. Under the
provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991,
federal financial institution regulatory authorities are required to implement
prescribed "prompt corrective actions" upon the deterioration of the capital
position of a bank. If the capital position of an affected institution were to
fall below certain levels, increasingly stringent regulatory corrective actions
are mandated.
The Bank's December 31, 1999 capital ratios are presented in the
following table, compared with the "well capitalized" and minimum ratios under
the FDIC regulatory definitions and guidelines:
<TABLE>
<CAPTION>
To be well
capitalized
under prompt
For capital corrective
adequacy purposes action provisions
----------------- -----------------
Actual Minimum Minimum
------ ------- -------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
As of December 31, 1999
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to risk
weighted assets) .................... $11,861 19.6% $ 4,844 8.0% $ 6,055 10.0%
Tier 1 Capital (to risk
weighted assets) .................... 11,104 18.3% 2,422 4.0 3,633 6.0
Tier 1 Capital (to average
assets)(leverage) ................... 11,104 14.9% 2,977 4.0 3,721 5.0
</TABLE>
Inflation
Since the assets and liabilities of a bank are primarily monetary in
nature (payable in fixed, determinable amounts), the performance of a bank is
affected more by changes in interest rates than by inflation. Interest rates
generally increase as the rate of inflation increases, but the magnitude of the
change in rates may not be the same.
18
<PAGE>
While the effect of inflation on banks is normally not as significant
as is its influence on those businesses which have large investments in plant
and inventories, it does have an effect. During periods of high inflation, there
are normally corresponding increases in the money supply, and banks will
normally experience above-average growth in assets, loans and deposits. Also
general increases in the prices of goods and services will result in increased
operating expenses.
Item 7. Financial Statements.
FIRST SOUTH BANCORP, INC. AND SUBSIDIARY
Contents
Page
Independent Auditors' Report 20
Consolidated Balance Sheets 21
Consolidated Statements of Operations 22
Consolidated Statements of Changes in Stockholders' Equity 23
Consolidated Statements of Cash Flows 25
Notes to Financial Statements 26
19
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
First South Bancorp, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of First South
Bancorp, Inc. and Subsidiary (the Company) as of December 31, 1999 and 1998 and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the years in the three year period ended
December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements are
free of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of First South Bancorp,
Inc. and Subsidiary at December 31, 1999 and 1998 and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
/s/ Cherry, Bekaert, & Holland, L.L.P.
Spartanburg, South Carolina
January 20, 2000
20
<PAGE>
FIRST SOUTH BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
Assets
<S> <C> <C>
Cash and due from banks ............................................................. $ 977,503 $ 870,340
Interest-bearing deposits ........................................................... 12,308 1,535,000
Federal funds sold .................................................................. 2,850,000 2,815,000
Securities available for sale (cost basis of $10,286,375 and
$10,227,837, respectively) (Note 3) ............................................. 9,971,830 10,210,262
Securities held for investment (market value of $345,176
and $382,728, respectively) (Note 3) ............................................ 375,000 375,000
Loans (Note 4) ...................................................................... 57,001,443 35,859,212
Less: allowance for loan losses (Note 4) ............................................ (800,000) (575,000)
net deferred loan fees (Note 4) .............................................. (57,178) (12,950)
------------ ------------
Net loans ....................................................................... 56,144,265 35,271,262
Premises and equipment, net (Note 5) ................................................ 2,863,431 2,894,116
Other assets ........................................................................ 1,866,666 501,008
------------ ------------
$ 75,061,003 $ 54,471,988
============ ============
Liabilities and Stockholders' Equity
Deposits (Note 6)
Noninterest-bearing demand ...................................................... $ 3,389,227 $ 3,213,126
Interest-bearing demand and savings ............................................. 17,323,385 13,406,458
Time deposits ................................................................... 38,002,706 25,327,516
------------ ------------
Total deposits ............................................................ 58,715,318 41,947,100
Retail repurchase agreements ........................................................ 1,723,164 1,326,245
Other borrowed funds (Note 7) ....................................................... 2,500,000 -
Other accrued expenses and liabilities .............................................. 1,213,189 633,808
------------ ------------
Total liabilities ......................................................... 64,151,671 43,907,153
------------ ------------
Stockholders' equity (Notes 8,11 and 13)
Common stock no par value; authorized 20,000,000
shares; issued and outstanding 917,180 and 915,759,
respectively ................................................................. - -
Paid-in capital ................................................................. 11,090,139 11,066,532
Accumulated earnings (deficit) .................................................. 14,211 (490,801)
Accumulated other comprehensive (loss) .......................................... (195,018) (10,896)
------------ ------------
Stockholders' equity ..................................................... 10,909,332 10,564,835
Commitments (Notes 4 and 10) ........................................................ - -
------------ ------------
$ 75,061,003 $ 54,471,988
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
FIRST SOUTH BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Interest income
<S> <C> <C> <C>
Loans ............................................................ $ 4,172,306 $ 2,879,498 $ 1,448,139
Federal funds sold ............................................... 195,316 253,361 147,918
Securities
U.S. Government and agency obligations ........................ 581,440 435,381 384,072
State and local obligations ................................... 25,975 24,064 13,028
Equity securities ............................................. 11,392 5,437 -
Deposits with banks ............................................. 18,913 76,737 -
----------- ----------- -----------
Total interest income ...................................... 5,005,342 3,674,478 1,993,157
----------- ----------- -----------
Interest expense
Deposits
Time .......................................................... 1,694,408 1,405,026 653,115
Interest-bearing demand and savings ........................... 709,482 503,593 278,728
Other ............................................................ 88,533 68,394 47,814
----------- ----------- -----------
Total interest expense ................................... 2,492,423 1,977,013 979,657
----------- ----------- -----------
Net interest income ....................................... 2,512,919 1,697,465 1,013,500
Provision for loan losses (Note 4) ................................... 225,270 227,507 252,840
----------- ----------- -----------
Net interest income after provision for loan losses ....... 2,287,649 1,469,958 760,660
----------- ----------- -----------
Non-interest income
Service charges, fees, and commissions ........................... 174,909 130,743 34,478
Other ............................................................ 64,717 43,888 16,957
----------- ----------- -----------
Total other operating income .............................. 239,626 174,631 51,435
----------- ----------- -----------
Non-interest expenses
Salaries and employee benefits ................................... 1,119,603 906,719 684,774
Occupancy and equipment .......................................... 350,617 303,564 228,302
Other ............................................................ 550,864 301,926 226,773
----------- ----------- -----------
Total other operating expenses ............................ 2,021,084 1,512,209 1,139,849
----------- ----------- -----------
Income before income taxes ................................ 506,191 132,380 (327,754)
Current income tax expense (Note 9) .................................. 203,479 28,350 -
Deferred income tax benefit .......................................... (202,300) - -
----------- ----------- -----------
Net income ................................................ $ 505,012 $ 104,030 $ (327,754)
=========== =========== ===========
Earnings per common share (Notes 2, 15) .............................. $ 0.55 $ 0.15 $ (0.48)
=========== =========== ===========
Diluted earnings per common share (Notes 2, 15) ...................... $ 0.54 $ 0.15 $ (0.48)
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
FIRST SOUTH BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Common Accumulated
Stock in Accumulated Other Total
Number of Paid-In Earnings Comprehensive Stockholders'
Shares Capital (Deficit) Income (Loss) Equity
------ ------- --------- ------------- ------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 ............... 676,584 $ 7,267,045 $ (267,077) $ 3,897 $ 7,003,865
Exercised
stock options 200 2,200 - - 2,200
Comprehensive
income:
Net loss - (327,754) -
Net change in
unrealized gain
on securities
available for
sale, net of tax
of $2,344 - - - (73)
Comprehensive
Income - - - - (327,827)
------- ------------ ------------ ------------ ------------
Balance at
December 31, 1997 676,784 7,269,245 (594,831) 3,824 6,678,238
Stock proceeds 237,971 3,781,349 - - 3,781,349
Stock in lieu of
director fee 1,004 15,938 - - 15,938
Comprehensive
income:
Net income - - 104,030 -
Net change in
unrealized gain
on securities
available for
sale, net of tax
of ($6,678)................... - - - (14,720)
Comprehensive
Income - - - - 89,310
------- ------------ ------------ ------------ ------------
Balance at
December 31, 1998 915,759 11,066,532 (490,801) (10,896) 10,564,835
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
FIRST SOUTH BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 1999, 1998 and 1997-Continued
<TABLE>
<CAPTION>
Common Accumulated
Stock in Accumulated Other Total
Number of Paid-In Earnings Comprehensive Stockholders'
Shares Capital (Deficit) Income (Loss) Equity
------ ------- --------- ------------- ------
<S> <C> <C> <C> <C> <C>
Exercised stock options ............. 102 1,184 - - 1,184
Stock in lieu of
director fee ..................... 1,319 22,423 - - 22,423
Comprehensive
income:
Net income ...................... - - 505,012 -
Net change in
unrealized gain
on securities
available for sale,
net of tax
of ($119,528) .................... - - - (184,122
Comprehensive
Income ........................... - - - - 320,890
------- ----------- ----------- ----------- -----------
Balance at
December 31, 1999 ................... 917,180 $11,090,139 $ 14,211 $ (195,018) $10,909,332
======= =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
FIRST SOUTH BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) ................................................. $ 505,012 $ 104,030 $ (327,754)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation ................................................. 172,027 164,006 112,089
Provision for loan losses .................................... 225,270 227,507 252,840
Loss on sale of other real estate owned ...................... 36,603 - -
Deferred tax asset ........................................... (202,300) - -
Director fees ................................................ 22,423 15,938 -
(Accretion) amortization, net ................................ 112,810 8,840 (814)
Increase in other assets ..................................... (319,668) (235,583) (86,756)
Increase (decrease) in accrued expenses
and other liabilities ..................................... 579,381 (23,549) 551,547
------------ ------------ ------------
Net cash provided by operating activities .................... 1,131,558 261,189 501,152
------------ ------------ ------------
Cash flows from investing activities
Purchase of securities available for sale ......................... (1,000,000) (13,622,813) (2,700,000)
Purchase of securities held for investment ........................ - - (1,875,000)
Purchases of restricted FHLB stock ................................ (58,500) (105,000) -
Proceeds from call of available for sale securities ............... 1,000,000 7,699,769 500,000
Proceeds from maturities held to maturity securities .............. - 2,000,424 4,501,763
Increase in cash surrender value of life insurance ................ (846,204) - -
Origination of loans, net of principal collected .................. (21,169,141) (14,610,854) (16,040,137)
Purchase of other real estate owned ............................... (343,086) - -
Proceeds from sale of other real estate owned ..................... 379,865 - -
Purchases of premises and equipment ............................... (141,342) (24,096) (1,521,345)
------------ ------------ ------------
Net cash used in investing activities ...................... (22,178,408) (18,662,570) (17,134,719)
------------ ------------ ------------
Cash flows from financing activities
Net increase in deposits
16,768,218 15,564,936 16,479,127
Proceeds from exercise of stock options
1,184 - 2,200
Proceeds from stock sale .......................................... - 3,781,349 -
Proceeds from other borrowings .................................... 2,500,000 - -
Net increase in retail repurchase agreements ...................... 396,919 69,628 874,268
------------ ------------ ------------
Net cash provided by financing activities ................. 19,666,321 19,415,913 17,355,595
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents ................... (1,380,529) 1,014,532 722,028
Cash and cash equivalents at beginning of year ......................... 5,220,340 4,205,808 3,483,780
------------ ------------ ------------
Cash and cash equivalents at end of year ............................... $ 3,839,811 $ 5,220,340 $ 4,205,808
============ ============ ============
Supplemental disclosure of cash flow information
Cash paid during the year for interest ............................ $ 1,797,793 $ 1,811,917 $ 839,602
============ ============ ============
Cash paid (received) during the year for income taxes ............. $ (7,138) $ 28,350 $ -
============ ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
FIRST SOUTH BANCORP, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
Note 1 - Organization
First South Bancorp, Inc. (the "Corporation" or the "Company") is a South
Carolina corporation organized in 1999 for the purpose of being a holding
company for First South Bank (the Bank). On September 30, 1999, pursuant to a
plan of exchange approved by the shareholders of the Bank, all of the
outstanding shares of common stock of the Bank were exchanged for shares of
common stock of the Corporation. The Corporation presently engages in no
business other than that of owning the Bank and has no employees. The Bank was
incorporated on April 23, 1996, and began banking operations on August 19, 1996.
The Bank is a South Carolina chartered commercial bank and is engaged in lending
and deposit gathering activities from two branches in Spartanburg County, South
Carolina. It operates under the laws of South Carolina and the Rules and
Regulations of the Federal Deposit Insurance Corporation and the South Carolina
State Board of Financial Institutions. The Bank's primary business location is
in Spartanburg, South Carolina.
Note 2 - Summary of significant accounting policies
The following is a description of the significant accounting and reporting
policies the Company follows in preparing and presenting its financial
statements.
(a) Basis of Presentation and Consolidation
The consolidated financial statements include the accounts of the
Corporation and its wholly-owned subsidiary, the Bank. All significant
intercompany balances and transactions have been eliminated in
consolidation.
(b) Use of Estimates
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts of assets and liabilities
and disclosure of contingent liabilities at the date of the financial
statements, as well as the amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
(c) Securities
Investments in equity securities that have readily determinable fair values
and all investments in debt securities are classified at acquisition into
one of three categories and accounted for as follows:
securities held for investment - held-to-maturity and reported at
amortized cost,
trading securities - reported at fair value with unrealized gains and
losses included in earnings, or;
securities available-for-sale-reported at estimated fair value with
unrealized gains and losses reported as a separate component of
comprehensive income (net of tax effect).
The Bank intends to hold the available-for-sale securities for an
indefinite period of time but may sell them prior to maturity. All other
securities have been classified as held-to-maturity securities because
management has determined that the Bank has the intent and the ability to
hold all such securities until maturity.
Gains and losses on sales of securities are recognized when realized on a
specific identification basis. Premiums and discounts are amortized into
interest income using a method that approximates the level yield method.
26
<PAGE>
(d) Loans and allowance for loan losses
Loans are carried at their principal amount outstanding. Interest income is
recorded as earned on an accrual basis. The accrual of interest is
discontinued when, in management's opinion, the borrower may be unable to
meet payments as they become due, generally when the loan is 90 days
delinquent. All interest accrued but not collected for loans that are
placed on nonaccrual is reversed against interest income.
The Company uses the allowance method in providing for possible loan
losses. The provision for loan losses is based upon management's estimate
of the amount needed to maintain the allowance for loan losses at an
adequate level to cover known and inherent losses in the loan portfolio. In
determining the provision amount, management gives consideration to current
and anticipated economic conditions, the growth and composition of the loan
portfolio, the relationship of the allowance for loan losses to outstanding
loans and other factors. Management believes that the allowance for loan
losses is adequate. While management uses the best information available to
make evaluations, future adjustments may be necessary if economic and other
conditions differ substantially from the assumptions used.
Management considers loans to be impaired when, based on current
information and events, it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. Factors that influence management's judgments include, but are
not limited to, loan payment pattern, source of repayment, and value of
collateral. A loan would not be considered impaired if an insignificant
delay in loan payment occurs and management expects to collect all amounts
due. The major sources for identification of loans to be evaluated for
impairment include past due and nonaccrual reports, internally generated
lists of certain risk grades, and regulatory reports of examination.
Impaired loans are measured using either the discounted expected cash flow
method or the value of collateral method. When the ultimate collectibility
of an impaired loan's principal is in doubt, wholly or partially, all cash
receipts are applied to principal.
(e) Other real estate owned
Other real estate owned (OREO) represents properties acquired through
foreclosure or other proceedings. OREO is held for sale and is recorded at
the lower of the recorded amount of the loan or fair value of the
properties less estimated costs of disposal. Any write-down to fair value
at the time of transfer to OREO is charged to the allowance for loan
losses. Property is evaluated regularly to ensure the carrying amount is
supported by its current fair value. OREO is reported net of allowance for
losses in the Company's financial statements.
(f) Premises and equipment
Premises and equipment, including leasehold improvements, are stated at
cost less accumulated depreciation. Depreciation is provided over the
estimated useful lives of the respective assets on the straight-line-basis.
Leasehold improvements are amortized over a term which includes the
remaining lease term and probable renewal periods. Expenditures for major
renewals and betterments are capitalized and those for maintenance and
repairs are charged to operating expense as incurred.
(g) Income taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amount of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered in income. Deferred tax
assets are reduced by a valuation allowance if it is more likely than not
that the tax benefits will not be realized.
27
<PAGE>
(h) Cash and cash equivalents
Cash and cash equivalents include cash and due from banks in addition to
federal funds sold and interest-bearing deposits.
(i) Earnings (loss) per common share
Earnings (loss) per common share is computed based on the weighted average
number of common shares outstanding. Diluted earnings (loss) per common
share includes the dilutive effect of outstanding stock options. For the
year ended December 31, 1997, potentially dilutive common shares applicable
to outstanding stock options were antidilutive and were not included in the
computation.
(j) Fair value of financial instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments"("SFAS
107") requires disclosure of fair value information about financial
instruments, whether or not recognized on the face of the balance sheet,
for which it is practicable to estimate that value. The assumptions used in
the estimation of the fair value of the Company's financial instruments are
detailed below. Where quoted prices are not available, fair values are
based on estimates using discounted cash flows and other valuation
techniques. The use of discounted cash flows can be significantly affected
by the assumptions used, including the discount rate and estimates of
future cash flows. The following disclosures should not be considered an
indication of the liquidation value of the Company, but rather represent a
good-faith estimate of the increase or decrease in value of financial
instruments held by the Bank since purchase, origination or issuance.
The following methods and assumptions were used to estimate the fair value
for each class of financial instruments.
Cash and cash equivalents. For cash on hand, amounts due from banks,
federal funds sold, and interest-bearing deposits, the carrying value
approximates fair value.
Securities. The fair value of investments securities is based on quoted
market prices, if available. If a quoted market price is not available,
fair value is estimated using quoted market prices for similar securities.
Restricted FHLB stock is valued at cost.
Loans. The fair value of fixed rate loans is estimated by discounting the
future cash flows using the current rates at which similar loans would be
made to borrowers with similar credit ratings and for the same remaining
maturities. The fair value of variable rate loans with frequent repricing
and no significant changes in credit risk approximates book value.
Deposits. The fair value of noninterest-bearing demand deposits, NOW,
savings and money market deposits is the amount payable on demand at the
reporting date. The fair value of time deposits with remaining maturities
of more than one year is estimated using a discounted cash flow calculation
that applies interest rates currently offered for deposits of similar
remaining maturities.
Other interest-bearing liabilities. The carrying value of retail repurchase
agreements and other borrowed funds approximates fair value since these
obligations have variable interest rates with daily repricings.
Commitments. The fair value of commitments to extend credit is considered
to approximate carrying value since the large majority of these commitments
would result in loans that have variable rates and/or relatively short
terms to maturity. For other commitments, generally of a short-term nature,
the carrying value is considered to be a reasonable estimate of fair value.
28
<PAGE>
(k) Recent accounting pronouncements
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective for fiscal years beginning
after June 15, 1999. In June 1999, the FASB deferred the effective date of
the Statement to fiscal years beginning after June 15, 2000. This Statement
establishes accounting and reporting standards for derivative instruments
and hedging activities, including certain derivative instruments embedded
in other contracts, and requires that an entity recognize all derivatives
as assets or liabilities in the balance sheet and measure them at fair
value. Management is currently evaluating the impact of adopting this
Statement on the consolidated financial statements, but does not anticipate
it will have a material impact.
(l) Financial statement reclassification
For comparability, the 1998 figures were reclassified where appropriate to
conform with the 1999 financial statement presentation.
Note 3 - Securities
Available for sale
A summary of the amortized cost and estimated fair value of securities available
for sale follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
December 31, 1999
<S> <C> <C> <C> <C>
U.S. Government agency
obligations .............................. $10,000,000 $ - $ 300,849 $ 9,699,151
State and local obligations ................. 122,875 - 13,696 109,179
Restricted FHLB stock ....................... 163,500 - - 163,500
----------- ----------- ----------- -----------
Total securities
available for sale .................. $10,286,375 $ - $ 314,545 $ 9,971,830
=========== =========== =========== ===========
December 31, 1998
U.S. Government agency
obligations .............................. $10,000,000 $ 22,562 $ 42,717 $ 9,979,845
State and local obligations ................. 122,837 2,580 - 125,417
Restricted FHLB stock ....................... 105,000 - - 105,000
----------- ----------- ----------- -----------
Total securities
available for sale .................. $10,227,837 $ 25,142 $ 42,717 $10,210,262
=========== =========== =========== ===========
</TABLE>
There were no sales of securities available for sale during 1999, 1998 and 1997.
Held for investment
A summary of the carrying value and estimated fair market value of securities
held for investment follows:
29
<PAGE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
December 31, 1999
State and local obligations ......................... $375,000 $ - $ 29,824 $345,176
-------- -------- -------- --------
Total securities
held for
investment ................................. $375,000 $ - $ 29,824 $345,176
======== ======== ======== ========
December 31, 1998
State and local obligations ......................... $375,000 $ 7,728 $ - $382,728
-------- -------- -------- --------
Total securities
held for
investment ................................. $375,000 $ 7,728 $ - $382,728
======== ======== ======== ========
</TABLE>
There were no sales of securities held for investment in 1999, 1998 and 1997.
The scheduled maturities of debt securities held for investment and available
for sale at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Available for Sale Held for Investment
------------------ -------------------
Estimated Estimated
Amortized Fair Amortized Fair
Costs Value Costs Value
----- ----- ----- -----
<S> <C> <C> <C> <C>
Due in one year or less .................... $ - $ - $ - $ -
Due from one to five years ................. 9,000,000 8,732,275 - -
Due from five to 10 years .................. 1,000,000 966,875 - -
Due after ten years ........................ 122,875 109,180 375,000 345,176
----------- ----------- ----------- -----------
$10,122,875 $ 9,808,330 $ 375,000 $ 345,176
=========== =========== =========== ===========
</TABLE>
At December 31, 1999, securities with a carrying value of approximately
$6,000,000 were pledged to secure other borrowed funds, public funds, retail
repurchase agreements and Treasury, tax and loan deposits.
Note 4 - Loans and allowance for loan losses
30
<PAGE>
Loans at December 31, 1999 and 1998 are summarized as follows
1999 1998
---- ----
Construction and land development ......... $ 7,639,096 $ 3,038,010
1-4 Family residential properties ......... 11,864,014 8,752,032
Multifamily residential properties ........ 733,966 763,021
Nonfarm nonresidential properties ......... 18,452,839 12,845,101
Other real estate loans ................... 574,620 424,005
Commercial and industrial ................. 16,579,460 9,274,030
Consumer .................................. 600,794 763,013
Other ..................................... 556,654 -
------------ ------------
Total loans ............................. 57,001,443 35,859,212
Less: Allowance for loan losses .......... (800,000) (575,000)
Net deferred loan fees ........... (57,178) (12,950)
------------ ------------
$ 56,144,265 $ 35,271,262
============ ============
The activity in the allowance for loan losses for 1999, 1998 and 1997 is
summarized as follows:
1999 1998 1997
---- ---- ----
Balance at beginning of year ......... $ 575,000 $ 350,000 $ 100,000
Provision charged to operations ...... 225,270 227,507 252,840
Loan charge-offs ..................... (400) (2,507) (2,840)
Loan recoveries ..................... 130 - -
--------- --------- ---------
Balance at end of year .......... $ 800,000 $ 575,000 $ 350,000
========= ========= =========
At December 31, 1999 and 1998, nonaccrual loans amounted to $702,350 and $-0-,
respectively. There were no impaired loans at December 31, 1999 and 1998.
At December 31, 1999, the Bank had loans outstanding to officers, directors, and
their related interests of $5,628,734. During 1999, directors, officers, and
their related interests borrowed $3,802,866, and repaid $1,899,512. At December
31, 1998, the Bank had loans outstanding to officers, directors, and their
related interests of $3,725,380. During 1998, directors, officers, and their
related interests borrowed $4,768,597 and repaid $3,278,830.
In the normal course of business there are outstanding commitments for the
extension of credit which are not reflected in the financial statements. At
December 31, 1999 and 1998, preapproved but unused lines of credit for loans
totaled approximately $13,585,000 and $8,341,000, respectively. In addition, the
Bank had issued standby letters of credit amounting to approximately $427,500 at
December 31, 1999. These commitments represent no more than the normal lending
risk that the Bank commits to its borrowers. If these commitments are drawn, the
Bank will obtain collateral if it is deemed necessary based on management's
credit evaluation of the counterparty. Management believes that these
commitments can be funded through normal operations.
The Bank grants primarily commercial, real estate, and installment loans to
customers throughout its market area, which consists primarily of Spartanburg
County. The real estate portfolio can be affected by the condition of the local
real estate market. The commercial and installment loan portfolio can be
affected by the local economic conditions.
31
<PAGE>
Note 5 - Premises and equipment
Premises and equipment at December 31, 1999 and 1998 are summarized as follows:
1999 1998
---- ----
Land ..................................... $ 431,412 $ 431,412
Building ................................. 2,047,979 2,047,979
Leasehold improvements ................... 93,590 93,590
Furniture and equipment .................. 670,603 617,393
Construction in progress ................. 88,132 -
----------- -----------
3,331,716 3,190,374
Less accumulated depreciation ............ (468,285) (296,258)
----------- -----------
Premises and equipment, net .............. $ 2,863,431 $ 2,894,116
=========== ===========
Depreciation expense for the years ended 1999, 1998 and 1997 amounted to
$172,027, $164,006 and $112,089, respectively.
Note 6 - Deposits
A summary of deposit accounts at December 31, 1999 and 1998 follows:
1999 1998
---- ----
Demand:
Noninterest-bearing ................ $ 3,389,227 $ 3,213,126
Interest bearing ................... 15,395,626 12,639,183
Savings ................................ 1,927,759 767,275
Time, $100,000 or more ................. 10,930,849 6,841,137
Other time ............................. 27,071,857 18,486,379
----------- -----------
$58,715,318 $41,947,100
=========== ===========
At December 31, 1999, the scheduled maturities of time deposits are as follows:
2000 $28,863,009
2001 8,011,973
2002 1,102,721
2003 25,003
2004 -
Thereafter -
-----------
$38,002,706
===========
Note 7 - Other borrowed funds
At December 31, 1999, the Bank had an advance of $2,500,000 from the Federal
Home Loan Bank (FHLB). The borrowing carries an interest rate of the FHLB of
Atlanta overnight deposit rate plus .25% (4.55%) at December 31, 1999. The
borrowing matures November 20,2000 and is secured by an U.S. government agency
security.
At December 31, 1999 and 1998, the Bank had $5,100,000 and $2,000,000,
respectively, in unused lines of credit to purchase federal funds from banks.
32
<PAGE>
Note 8 - Regulatory capital requirements
The Corporation (on a consolidated basis) and the Bank are subject to various
regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory and
possible additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Corporation and the Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Corporation and the Bank must meet specific
capital guidelines that involve quantitative measures of their assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The capital amounts and classifications are also subject
to qualitative judgments by the regulators about components, risk weighting, and
other factors. Prompt corrective action provisions are not applicable to bank
holding companies.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined) , and of Tier I capital (as
defined) to average assets (as defined). Management believes, as of December 31,
1999 and 1998, that the Corporation and the Bank met all capital adequacy
requirements to which it is subject.
As of December 31, 1999, the most recent notification from the FDIC categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as adequately capitalized the Bank must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed the Bank's category. The
Corporation and the Bank's actual capital amounts and ratios as of December 31,
1999 and 1998 are also presented in the table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Adequacy Purposes Action Provisions
----------------- -----------------
Actual Minimum Minimum
------ ------- -------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
December 31, 1999
Total Capital
<S> <C> <C> <C> <C> <C> <C>
(To Risk Weighted
Assets) ....................... $11,861,000 19.6% $ 4,844,000 8.0% $ 6,055,000 10.0%
Tier I Capital
(To Risk Weighted
Assets) ....................... $11,104,000 18.3% 2,422,000 4.0% 3,633,000 6.0%
Tier I Capital
(To Average Assets) ............. $11,104,000 14.9% 2,977,000 4.0% 3,721,000 5.0%
December 31, 1998
Total Capital
(To Risk Weighted
Assets) ....................... $11,084,000 27.3% $ 3,245,000 8.0% $ 4,056,000 10.0%
Tier I Capital
(To Risk Weighted
Assets) ....................... $10,576,000 26.1% 1,623,000 4.0% 2,434,000 6.0%
Tier I Capital
(To Average Assets) ............. $10,576,000 19.6% 2,156,000 4.0% 2,695,000 5.0%
</TABLE>
33
<PAGE>
Note 9 - Income taxes
As a result of its operating losses, the Bank did not have either federal or
state taxable income in 1997 and, therefore, there was no current income tax
expense.
The reasons for the difference between the statutory federal income tax rates
and the effective tax rates are summarized as follows for:
Years ended
December 31
1999 1998
---------- -------
Statutory rates .................................... 34.0% 34.0%
Increase (decrease) resulting from:
State taxes, net of federal benefit .............. 3.1% 2.3%
Effect of tax exempt interest and dividends ...... (1.4%) (6.1%)
(Decrease) increase in valuation allowance ....... (36.7%) 6.0%
Other, net ....................................... 1.0% (14.8%)
----- -----
- 21.4%
===== ====
The tax effects of temporary differences result in deferred tax assets and
liabilities as presented below:
1999 1998
---- ----
Deferred tax assets
Allowance for loan losses ................. $ 260,000 $ 172,000
Loan fee deferral ......................... 20,000 5,000
Premium on loan participation ............. 19,000 38,000
Unrealized loss on securities
available for sale .................... 120,000 3,000
Start-up costs amortization ............... 47,000 75,000
Other ..................................... 2,000 -
--------- ---------
Gross deferred tax assets ............. 468,000 293,000
Less valuation allowance .................. (117,700) (274,000)
--------- ---------
Net deferred tax assets ............... 350,300 19,000
Deferred tax liabilities ..................... (28,000) (19,000)
--------- ---------
Net ................................... $ 322,300 $ -
========= =========
Note 10 - Operating leases
The Bank leases the land and building for its branches under operating leases.
Future minimum lease payments at December 31, 1999, are as follows:
2000 $ 74,681
2001 84,419
2002 85,956
2003 87,494
2004 and thereafter 79,613
----------
$412,163
Total lease expense was $32,400 for 1999, 1998 and 1997.
34
<PAGE>
Note 11 - Restrictions on dividends, loans and advances
Federal and state banking regulations place certain restrictions on dividends
paid and loans or advances made by the Bank to the Corporation. The total amount
of dividends which may be paid at any date is generally limited to the retained
earnings of the Bank, and loans or advances are limited to 10 percent of the
Bank's common stock and surplus on a secured basis.
At December 31, 1999, the Bank's retained earnings available for the payment of
dividends was $20,211.
In addition, dividends paid by the Bank to the Corporation would be prohibited
if the effect would cause the Bank's capital to be reduced below applicable
minimum regulatory capital requirements.
Note 12 - Employee benefit plan
401(k) plan
All employees of the Company who meet certain eligibility criteria are permitted
to participate in a 401(k) plan. For each employee's contribution up to 6%, the
Company makes a 100% matching contribution. Expense related to this plan was
$37,188, $28,091, and $26,913 in 1999, 1998 and 1997, respectively.
Salary continuation plan
During 1999, the Company entered into a salary continuation agreement with
certain officers of the Company. The plan provides for a series of payments over
a specified number of periods to these employees upon their retirement or
termination as stated in the plan. At December 31, 1999, $4,562 in accrued
benefit expense was included in other liabilities.
Note 13 - Stock options
The Company has issued incentive stock options to certain officers and
employees. These options are accounted for under the provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." As permitted by SFAS No. 123, the Company has elected to continue
using the measurement method prescribed in Accounting Principles Board (APB)
Opinion No. 25 and, accordingly, SFAS No. 123 has no effect on the Company's
financial position or results of operations.
The following is a summary of stock option activity and related information for
the years ended December 31, 1999, 1998 and 1997:
35
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Weighted Avg. Weighted Avg. Weighted Avg.
Options Exercise Price Options Exercise Price Options Exercise Price
------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-
Beginning of period .................... 37,992 $ 12.10 28,779 $ 11.16 29,379 $ 11.20
Granted ................................ 20,208 16.89 9,213 15.04 100 13.50
Exercised .............................. (100) 11.00 - - (200) 11.00
Forfeited .............................. - - - - (500) 11.00
------- ------- -------
Outstanding-End of
Year ................................... 58,100 $ 13.76 37,992 $ 12.10 28,779 $ 11.16
======= ======= =======
Exercisable-End of Year .................. 30,720 $ 11.70 18,290 $ 11.12 9,145 $ 11.12
======= ======= =======
Weighted average fair
value of options granted
during the year ........................ $ 8.43 $ 6.54 $ 5.61
======= ======= =======
</TABLE>
Exercise prices for options outstanding as of December 31, 1999 and 1998 ranged
from $11 to $17. The weighted average remaining contractual life of those
options is approximately 8 years at December 31, 1999 and 1998.
Because the Company had adopted the disclosure only provisions of SFAS No. 123,
no compensation cost has been recognized for the stock options plan. Had
compensation cost for the Company's stock option plan been determined based on
the fair value at the grant date of the awards consistent with the provisions of
SFAS No. 123, the Company's net earnings (loss) and earnings (loss) per share
would have increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income (loss) - as reported ....................................... $ 505,012 $ 104,030 $(327,754)
Net income (loss) - pro forma ......................................... 480,678 73,278 (361,342)
Earnings (loss) per common share - as reported ........................ .55 .15 (.48)
Earnings (loss) per common share - pro forma .......................... .53 .10 (.53)
Diluted earnings (loss) per common share - as reported ................ .54 .15 (.48)
Diluted earnings (loss) per common share - pro forma .................. .51 .10 (.53)
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1999, 1998 and 1997; dividend yield of 0%,
expected volatility of 20% for 1999 and 1998, and 12% for 1997, risk-free
interest rates of 6.25% in 1999, 4.65% in 1998 and 5.70% in 1997, and expected
lives of 10 years for the options.
36
<PAGE>
Note 14 - Fair value of financial instruments
The estimated fair value of financial instruments are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents ........................... $ 3,840 3,840 5,220 5,220
Securities
Available for sale ............................... 9,972 9,972 10,210 10,210
Held for investment .............................. 375 345 375 383
Loans ............................................... 56,144 55,943 35,271 35,271
Financial liabilities
Deposits ............................................ 58,715 58,715 41,947 41,947
Retail repurchase agreements ........................ 1,723 1,723 1,326 1,326
Other borrowed funds ................................ 2,500 2,500 - -
</TABLE>
The fair value estimates are made at a specific point in time based on relevant
market and other information about the financial instruments. Because no market
exists for a significant portion of the Company's financial instruments, fair
value estimates are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments, and such other factors. These estimates are subjective in
nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates. In addition, the tax ramifications related
to the realization of the unrealized gains and losses can have a significant
effect on fair value estimates and have not been considered in the estimates.
Note 15 - Earnings per common share (EPS)
The reconciliation of the numerators and denominators of the earnings per
common share and diluted EPS computation follows:
<TABLE>
<CAPTION>
Per
Income Shares Share
December 31, 1999 (Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Earnings per common share:
Income available to common
stockholders .............................................. $505,012 915,803 $ .55
Effect of dilutive securities
Stock options ............................................. - 11,053 (.01)
-------- ------- -----
Diluted EPS:
Income available to common
stockholders + assumed
conversions ............................................... $505,012 926,856 $ .54
======== ======= =====
<CAPTION>
Per
Income Shares Share
December 31, 1998 (Numerator) (Denominator) Amount
----------- ------------- ------
Earnings per common share:
Income available to common
stockholders ............................................... $104,030 705,479 $ .15
Effect of dilutive securities
Stock options .............................................. - 9,064 -
-------- ------- ------
Diluted EPS:
Income available to common
stockholders + assumed
conversions ................................................ $104,030 714,543 $ .15
======== ======= =======
</TABLE>
37
<PAGE>
Note 16 - Condensed financial statements of parent company
Financial information pertaining to First South Bancorp, Inc. is as follows:
Balance Sheet
December 31,
1999
----
Assets
Investment in common stock of First South Bank ........... $10,909,332
-----------
Total assets .......................................... $10,909,332
===========
Equity
Stockholders' equity ..................................... $10,909,332
-----------
Total stockholders' equity ............................ $10,909,332
===========
Income Statement
Year ended
December 31,
1999
----
Income
Operating income ........................................ $ -
Expense
Other expenses - directors' fee ............................ 6,000
---------
Loss before equity in undistributed net income
of First South Bank ........................................ (6,000)
Equity in undistributed net income of First South Bank ......... 511,012
---------
$ 505,012
=========
The parent company had no cash transactions during 1999. The directors' fees
were paid with Company stock in lieu of cash.
Note 17 - Noncash transaction
The Company foreclosed on an asset during the year ended December 31, 1999 and
transferred the loan and accrued interest balance at the time of sale to other
real estate owned in the amount of $73,382.
38
<PAGE>
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not Applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act.
The information set forth under the captions "Management of the
Company" and "Section 16(a) Beneficial Ownership Reporting Compliance" in
registrant's definitive proxy statement filed with the Commission for the 2000
Annual Meeting of Shareholders is incorporated herein by reference.
Item 10. Executive Compensation.
The information set forth under the captions "Management Compensation,"
"Retirement Benefits" and "Stock Option Plan" in registrant's definitive proxy
statement filed with the Commission for the 2000 Annual Meeting of Shareholders
is incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The information set forth under the caption "Security Ownership of
Certain Beneficial Owners and Management" in registrant's definitive proxy
statement filed with the Commission for the 2000 Annual Meeting of Shareholders
is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions.
The information set forth under the caption "Certain Relationships and
Related Transactions" in registrant's definitive proxy statement filed with the
Commission for the 2000 Annual Meeting of Shareholders is incorporated herein by
reference.
39
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
(a) Description of Exhibits.
Exhibit No. Description
3.1 Articles of Incorporation of Registrant*
3.2 Bylaws of Registrant*
10.1 First South Bank Stock Option Plan
10.2 Form of Option Agreements with Barry L. Slider, dated
as of December 31, 1998, December 31, 1997 and
December 31, 1996.
10.3 Form of Salary Continuation Agreements with Barry L.
Slider and V. Lewis Shuler dated November 19, 1999.
21 Subsidiaries of Registrant
27 Financial Data Schedule
- ---------------
*Incorporated by reference to Form 8-A filed November 12, 1999
(b) Reports on Form 8.K.
No reports on Form 8-K were filed by the registrant in the fourth
quarter of 1999.
40
<PAGE>
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements with respect to the
financial condition, results of operations, and business of the Company and the
Bank. These forward-looking statements involve certain risks and uncertainties.
Factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements include, among others, the
following possibilities: (1) The Company and its subsidiary bank may not be able
to operate profitably; (2) Competitive pressure in the banking industry may
increase significantly; (3) Costs or difficulties related to operation of the
Bank may be greater than expected; (4) Changes in the interest rate environment
may reduce margins; (5) General economic conditions, either nationally or
regionally, may be less favorable than expected, resulting in, among other
things, a deterioration in credit demand and quality; (6) Changes may occur in
the regulatory environment; (7) Changes may occur in business conditions and/or
inflation; and (8) Changes may occur in the securities markets. Forward-looking
statements include statements concerning plans, objectives, goals, strategies,
future events or performance and underlying assumptions and other statements
which are other than statements of historical facts. Such forward-looking
statements may be identified, without limitation, by the use of the words
"anticipates," "estimates," "expects," "intends," "plans," "predicts,"
"projects," and similar expressions. The Company's expectations, beliefs and
projections are expressed in good faith and are believed by the Company to have
a reasonable basis, including without limitation, management's examination of
historical operating trends, data contained in the Company's records and other
data available from third parties, but there can be no assurance that
management's expectations, beliefs or projections will result or be achieved or
accomplished.
41
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
First South Bancorp, Inc.
s/Barry L. Slider
March 28, 2000 By:-------------------------------------------------
Barry L. Slider
President and Chief Executive Officer
s/V. Lewis Shuler
By:--------------------------------------------------
V. Lewis Shuler
Executive Vice President
(Principal Financial and
Principal Accounting Officer)
In accordance with the Exchange Act, this Report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
- -------------------------- Director March __, 2000
Richard H. Brooks
s/Harold E. Fleming, M.D.
- -------------------------- Director March 28, 2000
Harold E. Fleming, M.D.
s/Joel C. Griffin
- -------------------------- Director March 28, 2000
Joel C. Griffin
s/Roger A. F. Habisreutinger
- -------------------------- Chairman, Director March 28, 2000
Roger A. F. Habisreutinger
s/Ashley F. Houser
- -------------------------- Director March 28, 2000
Ashley F. Houser
- -------------------------- Director March __, 2000
Herman E. Ratchford
- -------------------------- Director March __, 2000
Chandrakant V. Shanbhag
s/Barry L. Slider
- -------------------------- President, Chief Executive Officer, Director March 28, 2000
Barry L. Slider
s/David G. White
- -------------------------- Director March 28, 2000
David G. White
</TABLE>
FIRST SOUTH BANK
STOCK OPTION PLAN
ARTICLE I
GENERAL PROVISIONS
1. Purpose. The Stock Option Plan (the "Plan") of First South Bank (the
"Corporation") is intended to allow certain officers and key employees of
the Corporation to have an opportunity to acquire an ownership interest in
the Corporation as an additional incentive to attract and retain such
officers and employees and to encourage them to promote the Corporation's
business.
2. Elements of the Plan. Options granted under the Plan shall be granted
pursuant to Article II of the Plan. Options granted pursuant to Article II
are intended to qualify as incentive stock options ("Incentive Stock
Options") under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
3. Administration. The Plan shall be administered by the Board of Directors of
the Corporation (the "Board") or, in the case of options granted pursuant
to Article II, a Committee (the "Committee"), which shall consist of not
less than three nonemployee directors of the Corporation. No member of the
Board or of the Committee shall be liable for any action or determination
made in good faith with respect to the Plan or to any option granted
thereunder. In addition, directors, including Committee members, shall be
eligible for indemnification from the Corporation, pursuant to the
Corporation's bylaws, for any expenses, judgments or other costs incurred
as a result of a lawsuit filed against them or any one of them claiming any
rights or remedies due to their participation in the administration of the
Plan.
4. Authority of the Board and Committee.
(a) Subject to the other provisions of the Plan, the Board or the
committee, as the case may be, shall have sole authority in its
absolute discretion: to grant options under the Plan; to determine the
number of shares subject to any option under the Plan; to fix the
option price and the duration of each option; to establish any other
terms and conditions of options; and to accelerate the time at which
any outstanding option may be exercised.
(b) Subject to the other provisions of the plan, and with a view to
effecting its purpose, the Board or the Committee, as the case may be,
shall have sole authority in their absolute discretion: to construe
and interpret the Plan; to define the terms used herein; to prescribe,
amend, and rescind rules and regulations relating to the Plan; to make
any other determinations and to do everything necessary or advisable
to administer the Plan.
(c) All decisions, determinations, and interpretations made by the Board
or the Committee, as the case may be, shall be binding and conclusive
on all participants in the Plan and on their legal representatives,
heirs and beneficiaries.
5. Shares Subject to the Plan.
(a) The maximum aggregate number of shares of the Corporation's common
stock, par value $5.00 per share ("Common Stock") available pursuant
to the Plan, subject to adjustment as provided in Section 10 of
Article I, shall be 75,000 shares. If any option granted pursuant to
the Plan expires or terminates for any reason before it has been
exercised in full, the unpurchased shares subject to that option shall
again be available for the purposes of the Plan, regardless of whether
the option was granted pursuant to Article II of the Plan. The
Corporation, during the term of the Plan, will at all times reserve
and keep available such number of shares of the Common Stock as shall
be sufficient to satisfy the requirements of the Plan.
(b) Notwithstanding any other provision contained herein, the maximum
number of options that may be granted to any officer or employee
pursuant to Article II hereof shall not exceed 40% of the number of
shares of Common Stock designated in subparagraph (a) above.
<PAGE>
6. Eligibility.
(a) Incentive Stock Options. Incentive Stock Options may be granted to
such officers and key employees of the Corporation or any of its
subsidiaries as may be determined by the Committee.
(b) Number of Options. More than one option may be granted to the same
person if the person is an eligible recipient under the Plan.
7. Terms and Conditions of Options. Stock options granted under the Plan shall
be evidenced by agreements in such form as the Board or the Committee may
from time to time approve, which agreements shall comply with and be
subject to the following terms and conditions, in addition to the
provisions of Article II as applicable:
(a) Number of Shares; Designation. Each option shall state the number of
shares to which it pertains and whether it is an Incentive Stock
Option granted under Article II of the Plan.
(b) Option Price. Each option shall state the option price, which shall
not be less than the fair market value (as hereinafter defined) per
share of the Common Stock at the time the option is granted (except
that for an Incentive Stock Option granted to any employee who owns
more than 10% of the combined voting power of all classes of stock of
the Corporation, or of its parent or subsidiary, the option price
shall not be less than 110% of fair market value). Fair market value
shall be determined by the Board or the Committee, as the case may be,
on the basis of such factors as either deems appropriate; provided,
however, that fair market value shall be determined without regard to
any restriction other than a restriction which, by its terms, will
never lapse, and further provided that if at the time the
determination of fair market value is made, the Common Stock is
admitted to trading on a national securities exchange for which sales
prices are regularly reported, fair market value shall not be less
than the mean of the high and low asked or closing sales price
reported for the common Stock on that exchange on the date of grant
(or most recent trading day preceding the date on which the option is
granted). For purposes of the Plan, the term "national securities
exchange" shall include the National Association of Securities Dealers
Automated Quotation system and the over the counter market.
(c) Exercise of Options; Vesting. Each option agreement shall set forth a
period during which the option may be exercised and, with regard to
Incentive Stock Options pursuant to Article II hereof, the vesting
schedule for such options as indicated in such Article II; provided,
however, that this period shall not exceed ten (10) years from the
date of grant of the option. Not less than 100 shares may be purchased
at any one time unless the number purchased is the total number that
may be purchased under the option at that time. No option may be
exercised for any fraction of a share of Common Stock.
(d) Written Notice and Payment Required. An option granted pursuant to the
terms of the Plan shall be exercised when written notice of that
exercise has been received by the Corporation at its principal office
from the person entitled to exercise the option and full payment for
the shares with respect to which the option is exercised has been
received by the Corporation. The purchase price of any shares
purchased shall be paid in full in cash or by certified or cashier's
check payable to the order of the Corporation.
(e) Compliance with Securities Laws. The options granted under the Plan
may at the option of the Corporation, be registered under applicable
federal and state securities laws, but the Corporation shall have no
obligation to undertake any such registrations. Shares of Common Stock
shall not be issued with respect to any option granted under the Plan
unless the exercise of that option and the issuance and delivery of
those shares pursuant to that exercise shall comply with all relevant
provisions of state and federal law, and the requirements of any stock
exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Corporation with
respect to such compliance. The Board or the Committee, as the case
<PAGE>
may be, may also require an optionee to furnish evidence satisfactory
to the Corporation, including a written and signed representation
letter and consent to be bound by any transfer restriction imposed by
law, legend, condition, or otherwise, that the shares are being
purchased only for investment and without any present intention to
sell or distribute the shares in violation of any state or federal
law, rule, or regulation. Further, each optionee shall consent to the
imposition of a legend on the shares of Common Stock subject to his or
her option restricting their transferability as required by law or by
the Plan.
(f) Options Not Transferable. Options granted pursuant to the Plan may not
be sold, pledged, assigned, or transferred in any manner otherwise
than by will or the laws of descent or distribution and may be
exercised during the lifetime of an optionee only by that optionee.
(g) Duration of Options. Each option and all rights thereunder granted
pursuant to the terms of this Plan shall expire on the date specified
in the applicable option agreement, but in no event shall any option
be exercisable after ten years from the date of grant of the option.
Moreover, any Incentive Stock Option granted to an employee who owns
more than 10% of the combined voting power of all classes of stock of
the Corporation, or of its parent or subsidiary, shall expire within
five years from the date of grant of the option. In addition, each
option shall be subject to early termination as provided in the Plan
or applicable option agreement.
(h) Option Agreements. The option agreements authorized under the Plan may
differ from one another and shall contain such other provisions not
inconsistent with the Plan and Article II as applicable as the Board
or the Committee, as the case may be, may in its discretion deem
advisable from time to time, including, without limitation, conditions
precedent to the exercise of the option covered by any agreement,
which conditions may include the satisfaction of specified performance
criteria by the Corporation or the optionee.
(i) Limited Stock Appreciation Rights. In connection with the grant of any
Option under this Plan, the Board or Committee, as the case may be,
may, in its discretion, provide an optionee with the right (herein
sometimes referred to as "Limited Stock Appreciation Rights"),
following a "change in control" (as hereinafter defined) of the
Corporation and without regard to any restrictions on exercise that
would otherwise apply, to surrender any unexercised portion of such
option as such optionee then may have for a cash payment equal to the
amount by which the fair market value (as determined by the Board or
Committee, as the case may be,) of the number of shares of Common
Stock then subject to such option exceeds the aggregate option price
therefor. Limited Stock Appreciation Rights shall be exercised by
written notice to the Corporation as provided in Section 7 (d) of this
Article I at any time prior to the earlier of (i) the date which is
thirty (30) days after the date of notice of a change in control is
given by the Board or Committee to the optionee or (ii) the last day
of the option period provided for in an option agreement, but in no
event later than ten years from the date of grant of the option.
Limited Stock Appreciation Rights may be exercised only when the
market value of the Common Stock subject to an option exceeds the
aggregate option price as determined in accordance with Section 7(b)
of this Article I.
(j) When used herein, the phrase "change-in-control" refers to (i) the
acquisition by any person, group of persons or entities of the
beneficial ownership or power to vote more than 20% of the
Corporation's outstanding stock, (ii) during any period of two
consecutive years, a change in the majority of the Board unless the
election of each new director was approved by at least two-thirds of
the directors then still in office who were directors at the beginning
of such two year period, or (iii) a reorganization, merger, exchange
of shares, combination or consolidation of the Corporation with one or
more other corporations or other legal entities in which the
Corporation is not the surviving corporation, or a transfer of all or
substantially all of the assets of the Corporation to another person
or entity.
<PAGE>
8. Tax Withholding. The exercise of any option granted under the Plan is
subject to the condition that if at any time the Corporation shall
determine, in its discretion, that the satisfaction of withholding tax or
other withholding liabilities under any state or federal law is necessary
or desirable as a condition of, or in any connection with, such exercise or
the delivery or purchase of shares pursuant thereto, then in such event,
the exercise of the option shall not be effective unless such withholding
tax or other withholding liabilities shall have been satisfied in a manner
acceptable to the Corporation.
9. Employment. Nothing in the Plan or in any option award shall confer upon
any eligible employee any right to continued employment by the Corporation,
or by its parent or subsidiary corporations, or limit in any way the right
of the Corporation or alter the terms of that employment.
10. Adjustments.
(a) If the shares of Common Stock of the Corporation are increased,
decreased, changed into, or exchanged for a different number or kind
of shares or securities through merger, consolidation, combination,
exchange of shares, other reorganization, recapitalization,
reclassification, stock dividend, stock split or reverse stock split
in which the Corporation is the surviving entity, the Board shall make
an appropriate and proportionate adjustment in the maximum number and
kind of shares as to which options may be granted under the Plan. A
corresponding adjustment changing the number or kind of shares
allocated to unexercised options that shall have been granted prior to
any such change shall likewise be made. Any such adjustment in
outstanding options shall be made without change in the aggregate
purchase price applicable to the unexercised portion of the option,
but with a corresponding adjustment in the price for each share or
other unit of any security covered by the option. In making any
adjustment pursuant to this Section 10 (a), any fractional shares
shall be disregarded.
(b) In the event of a consolidation or a merger in which the Corporation
is not the surviving corporation, or any other merger in which the
shareholders of the Corporation exchange their shares of stock in the
Corporation for stock of another corporation, or in the event of
complete liquidation of the Corporation, or in the case of tender
offer approved by the Board, all outstanding options, unless the
applicable option agreement provides otherwise, shall become
exercisable in full immediately prior to the effective date of any
such transaction, regardless of the vesting schedule for Incentive
Stock Options.
11. Effective Date of Plan. The Plan shall be effective April 17, 1996, the
date of adoption of the Plan by the Board subject to approval of the Plan
by the South Carolina Banking Commissioner and the shareholders by the vote
of the holders of two-thirds (2/3) of the Corporation's Common Stock
present or represented at a duly held meeting of shareholders.
12. Termination and Amendment of Plan. The Plan may be terminated at any time
by the Board. Unless sooner terminated the Plan shall terminate April 17,
2006. No options shall be granted under the Plan after the Plan is
terminated. Subject to the limitation contained in Section 13 of this
Article I, the Board or the Committee, as the case may be, may at any time
amend or revise the terms of the Plan, including the form and substance of
the option agreements to be used hereunder; provided that no amendment or
revision, unless approved by the shareholders, shall (a) increase the
maximum aggregate number of shares subject to this Plan, except as
permitted under Section 10 of this Article I; (b) change the minimum
purchase price for shares subject to options granted under the Plan; (c)
extend the maximum term established under the Plan for any option award; or
(d) permit the granting of an option award to anyone other than as provided
in the Plan.
<PAGE>
13. Prior Rights and Obligations. No amendment, suspension, or termination of
the Plan shall, without the consent of the person who has received an
option award, alter or impair any of that person's rights or obligations
under any option award granted under the Plan prior to such amendment,
suspension, or termination.
ARTICLE II
INCENTIVE STOCK OPTIONS
Options granted pursuant to this Article II of the Plan shall constitute
Incentive Stock Options under Section 422 of the Code and shall be designated as
such at the time of grant. Incentive Stock Options granted pursuant to this
Article II shall be subject to the terms, conditions and limitations set forth
in Article I above and to the following:
1. Maximum Amount of Incentive Stock Options. The maximum aggregate fair
market value of Common Stock, determined as of the time the Incentive Stock
Option is granted, for which any employee may be granted Incentive Stock
Options (as defined in Section 422 (b) of the Code) exercisable for the
first time during any calendar year under all incentive stock option plans
of the Corporation and any parent, subsidiary, and predecessor corporations
held by such employee shall not exceed $100,000.
2. Compliance with Section 422 of the Code. This Plan is intended to comply in
every aspect with Section 422 of the Code and the regulations promulgated
thereunder with regard to the grant of Incentive Stock Options and the
purchase and delivery of shares of Common Stock upon the exercise thereof.
In the event any future statute or regulation shall modify Section 422, the
Plan shall be deemed to incorporate by reference such modification for
purposes of granting Incentive Stock Options or the purchase and delivery
of any shares of common Stock upon the exercise thereof. Any option
agreement relating to an Incentive Stock Option granted pursuant to the
Plan that is outstanding and unexercised at the time any modifying statute
or regulation becomes effective shall also be deemed to incorporate by
reference such modification, and no notice of such modification need be
given to the optionee. If any provision of the Plan is determined to
disqualify the shares purchasable pursuant to Incentive Stock Options
granted under the Plan from the special tax treatment provided by Section
422, such provision shall be deemed to incorporate by reference for
purposes of the Incentive Stock Options the modification required to
qualify the shares of said tax treatment.
3. Termination of Employment, Disability or Death.
(a) If an optionee ceases to be employed by the Corporation, or its parent
or any of its subsidiaries (or a corporation or a parent or subsidiary
of such corporation issuing or assuming a stock option in a
transaction to which Section 424(a) of the Code applies), for any
reason other than disability or death or cause defined in the
applicable option agreement, his or her option may be exercised at any
time up to three months after the date or termination of employment.
(b) If an optionee becomes disabled within the meaning of Section 22(e)
(3) of the Code while employed by the Corporation, or any parent or
subsidiary corporation (or a corporation or a parent or subsidiary of
such corporation issuing or assuming a stock option in a transaction
to which Section 424(a) of the Code applies), the option may be
exercised at any time within twelve months after the date of
termination of employment due to disability.
(c) If an optionee dies while employed by the Corporation, its parent or
any of its subsidiaries, (or a corporation or a parent or subsidiary
of such corporation issuing or assuming a stock option in a
transaction to which Section 424(a) of the Code applies) or within
three months of retirement, his or her option shall expire one year
after the date of death. During this period, the option may be
exercised, except as otherwise provided in the applicable option
agreement, by the person or persons to whom the optionee's rights
under the option shall pass by will or by the laws of descent and
distribution.
<PAGE>
(d) Any option that may be exercised for a period following termination of
the optionee's employment may be exercised only to the extent it was
exercisable immediately before such termination and in no event after
the option would expire by its terms without regard to such
termination.
4. Vesting of Options.
(a) Options granted as Incentive Stock Options under this Plan shall vest
and the right of recipient to the options shall be nonforfeitable.
(b) In determining the number of options vested a recipient shall not
receive fractional options. If the product resulting from multiplying
the vested percentage times the allocated options results in a
fractional option, then a recipient's vested right shall be to the
whole number of options disregarding any fractional options.
(c) In the event any recipient to whom options are awarded under this Plan
terminates employment with the Corporation for any reason other than
as provided in subparagraph 4(d) below and such recipient does not
have a 100% vested interest in the recipient's options under this
Plan, then any options which are not vested, based upon the schedule
above, shall be forfeited and shall be available again for grant to
officers and key employees as may be determined by the Committee.
(d) In the event that the employment of a recipient with the Corporation
should terminate because of such recipient's disability or death prior
to the date when all options allocated to the recipient would be 100%
vested in accordance with the schedule above, then, notwithstanding
the schedule above, all options allocated to such recipient shall
immediately become fully vested and nonforfeitable. For purposes of
this Plan, the term disability shall be defined in the same manner as
such term is defined in section 22(e) (3) of the Internal Revenue Code
of 1986, as amended.
STATE OF SOUTH CAROLINA
COUNTY OF SPARTANBURG
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT (hereinafter referred to as this
"Agreement") is made and entered into as of this 31th day of December, 1998,
between FIRST SOUTH BANK, A SOUTH CAROLINA corporation (hereinafter referred to
as the "Corporation"), and Barry L. Slider, a resident of Spartanburg County,
South Carolina (hereinafter referred to as the "Optionee").
WHEREAS, the Board of Directors of the Corporation (hereinafter
referred to as the "Board") has adopted the First South Bank Stock Option Plan
(hereinafter referred to as the "Plan") subject to approval by the Corporation's
shareholders; and
WHEREAS, the Plan provides that a committee (hereinafter referred to as
the "Committee") of the Board will make available to certain officers and key
employees of the Corporation the right to purchase shares of the Corporation's
common stock (hereinafter referred to as "Common Stock"); and
WHEREAS, the Committee has determined that the Optionee should be
granted an option to purchase shares of Common Stock under the Plan;
NOW, THEREFORE, the Corporation and the Optionee agree as follows:
1. Date of Grant of Option. The date of grant of the option granted under this
Agreement is the 31st day of December, 1998.
2. Grant of Option. Pursuant to the Plan, the Corporation grants to the
Optionee the right (hereinafter referred to as the "Option") to purchase
from the Corporation all or any part (subject to limitations set forth in
the Plan) of an aggregate of one thousand nine hundred one (1,901) shares
of Common Stock (hereinafter referred to as the "Option Shares") which
shall be authorized but unissued shares.
3. Vesting.
(a) Periodic Vesting. Subject to subparagraph 3(b) below, the Options
shall vest and become nonforfeitable in accordance with the following
schedule:
On the Date of grant: 0% Vested
On or after the first anniversary of the date of grant: 20% Vested
On or after the second anniversary of the date of grant: 20% Vested
On or after the third anniversary of the date of grant: 20% Vested
On or after the fourth anniversary of the date of grant: 20% Vested
On or after the fifth anniversary of the date of grant: 20% Vested
(b) Accelerated Vesting. Notwithstanding paragraph (a) above, all Options
previously not vested and subject to forfeiture shall vest and shall
become nonforfeitable upon the occurrence of any of the following:
(i) Disability of Optionee. The termination of the Optionee's
employment by the Corporation by reason of disability. As set
forth in the Plan, the term "disability" is defined in the
same manner as such term is defined in Section 22(e) (3) of
the Internal Revenue Code of 1986, as amended.
(ii)Death of Optionee. The Optionee's death.
4. Option Price. The price to be paid for the Option Shares shall be sixteen
and 50/100 Dollars ($16.50) per share (hereinafter referred to as the
"Option Price") which is the fair market value of the Option Shares as
determined by the Committee as of the date of grant of this Option.
5. Method of Exercise. The Option shall be exercised by written notice to the
Committee signed by the Optionee or by such other person as may be entitled
to exercise the Option. In the exercise of the Option, the aggregate Option
Price for the shares being purchased may be paid either in cash or check
payable to the Corporation or any combination thereof and the notice of
exercise shall specify how payment will be made. The written notice shall
state the number of shares with respect to which the Option is being
exercised and, shall either be accompanied by the payment of the aggregate
Option Price for such shares or shall fix a date (not more than ten (10)
business days from the date of such notice) by which the payment of the
aggregate Option Price will be made. The Optionee shall not exercise the
Option to purchase less than one hundred (100) shares, unless the committee
otherwise approves or unless the partial exercise is for the remaining
Option Shares available under the Option. A certificate or certificates for
the Option Shares of Common Stock purchased by the exercise of the Option
shall be issued in the regular course of business subsequent to the
exercise of the Option and the payment therefor. During the Option Period,
no person entitled to exercise the Option granted under this Agreement
shall have any of the rights or privileges of a shareholder with respect to
any shares of Common Stock issuable upon exercise of the Option, until
certificates representing such shares shall have been issued and delivered
and the individual's name entered as a shareholder of record on the books
of the Corporation for such shares.
6. Termination of Option. The Option shall terminate as follows:
(a) Except as provided in subparagraphs (b), (c) and (d) below, the Option
granted under this Agreement, to the extent that it has vested and not
been exercised or expired, shall terminate on the earlier of (i) the
date that the Optionee is discharged for cause, (ii) three months
after the date the Optionee gives notice that the Optionee terminates
his or her employment with the Corporation for a reason other than
retirement or disability or (iii) the date which is ten (10) years
from the date of grant of the Option set forth in paragraph 1 hereof.
The phrase "discharged for cause" shall include termination at the
sole discretion of the Board of Directors of the Corporation because
of the Optionee's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any
law, rule or regulation (other than traffic violations or similar
offenses) or final cease and desist order, or material breach of any
provision of any employment agreement that the optionee may have with
the Corporation.
(b) In the event the Optionee retires prior to the date which is ten (10)
years after the date of grant of the Option, the Optionee shall have
the right to exercise the Option, to the extent that it has not been
exercised by the Optionee or expired, notwithstanding any limitation
placed on the exercise of the Option by the Plan or by this Agreement,
immediately in full and at any time within three (3) months after the
date of retirement, but in no event may the Option be exercised later
than ten (10) years after the date of grant of the Option set forth in
paragraph 1 hereof. For purposes of this Agreement, the term
"retirement" shall mean (i) termination of the Optionee's employment
under conditions which would constitute retirement under any tax
qualified retirement plan maintained by the Corporation or (ii)
attaining age 65.
(c) In the event the Optionee becomes disabled prior to the date which is
ten (10) years after the date of grant of the Option, the Optionee
shall have the right to exercise the Option, to the extent that it has
not been exercised by the Optionee or expired, notwithstanding any
limitation placed on the exercise of the Option by the Plan or by this
Agreement, immediately in full and at any time within twelve (12)
months after the last date on which the Optionee provided services as
an officer or an employee of the Corporation before being disabled,
but in no event may the Option be exercised later than ten (10 years
after the date of grant of the Option set forth in paragraph 1 hereof.
For purposes of this Agreement, the term "disability" shall be defined
in the same manner as such term is defined in Section 22(e) (3) of the
Internal Revenue Code of 1986, as amended.
(d) In the event the Optionee should die while employed by the Corporation
or within three (3) months after retirement but prior to the date
which is ten (10) years after the date of grant of the Option, the
Option, to the extent it has not been exercised by the Optionee or
expired, shall be exercisable, according to its terms, by the personal
representative, the executor or administrator of the Optionee's
estate, or any person or persons who acquired the Option by bequest or
inheritance from the Optionee, notwithstanding any limitation placed
on the exercise of the Option by the Plan or by this Agreement,
immediately in full and at any time within twelve (12) months after
the date of death of the Optionee, but in no event may the Option be
exercised later than ten (10) years from the date of grant of the
Option as set forth in paragraph 1 hereof.
7. Effect of Agreement on Employment Status of Optionee. The fact that the
committee has granted the Option to the Optionee under this Agreement shall
not confer on the Optionee any right to employment with the Corporation or
to a position as an officer or an employee of the Corporation, nor shall it
limit the right of the Corporation to remove the Optionee from any position
held by the Optionee or to terminate his or her employment at any time.
8. Listing and Registration of Option Shares
(a) The Corporation's obligation to issue shares of Common Stock upon
exercise of the Option is expressly conditioned upon (i) the
completion by the Corporation of any registration or other
qualification of such shares under any state or federal law or
regulations or rulings of any government regulatory body or (ii) the
making of such investment representations or other representations and
agreements by the Optionee or any person entitled to exercise the
Option in order to comply with the requirements of any exemption from
any such registration or other qualification of the Option Shares
which the committee shall, in its sole discretion, deem necessary or
advisable. Notwithstanding the foregoing, the Corporation shall be
under no obligation to register or qualify the Option Shares under any
state or federal law. The required representations and agreements
referenced above may include representations and agreements that the
Optionee, or any other person entitled to exercise the Option, (i) is
purchasing such shares on his or her own behalf as an investment and
not with a present intention of distribution or re-sale and (ii)
agrees to have placed upon any certificates representing the Option
Shares a legend setting forth any representations and agreements which
have been given to the Committee or a reference thereto and stating
that such shares may not be transferred except in accordance with all
applicable state and federal securities laws and regulations, and
further representing that, prior to making any sale or other
disposition of the Option Shares, the Optionee, or any other person
entitled to exercise the Option, will give the Corporation notice of
the intention to sell or dispose of such shares not less than five (5)
days prior to such sale or disposition.
9. Adjustment Upon Change in Capitalization; Dissolution or Liquidation
(a) In the event of a change in the number of shares of Common Stock
outstanding by reason of a stock dividend, stock split,
recapitalization, reorganization, merger, exchange of shares, or other
similar capital adjustment, prior to the termination of the Optionee's
rights under this Agreement, equitable proportionate adjustments shall
be made by the Committee in the number, kind, and the Option Price of
shares subject to the unexercised portion of the Option granted under
this Agreement. The adjustments to be made shall be determined by the
Committee and shall be consistent with such change or changes in the
Corporation's total number of outstanding shares; provided, however,
that no adjustment shall change the aggregate Option Price for the
exercise of the Option granted under this Agreement.
(b) The grant of the Option under this Agreement shall not affect in any
way the right or power of the Corporation or its shareholders to make
or authorize any adjustment, recapitalization, reorganization, or
other change in the Corporation's capital structure or its business,
or any merger or consolidation of the Corporation, or to issue bonds,
debentures, preferred or other preference stock ahead of or affecting
Common Stock or the right thereof, or the dissolution or liquidation
of the Corporation, or any sale or transfer of all or any part of the
Corporation's assets or business.
(c) Upon the effective date of the dissolution or liquidation of the
Corporation, the Option granted under this Agreement shall terminate.
10. Nontransferability. The Option granted under this Agreement shall not be
assignable or transferable except, in the event of the death of the
Optionee, by will or by the laws of descent and distribution. In the event
of the death of the Optionee, the personal representative, the executor or
the administrator of the Optionee's estate, or the person or persons who
acquired by bequest or inheritance the right to exercise the Option may
exercise the unexercised Option or a portion thereof, in accordance with
the terms hereof, prior to the date which is ten (10) years after the date
of grant of Option as set forth in paragraph 1 hereof.
11. Notices. Any notice or other communications required or permitted to be
given under this Agreement shall be in writing and shall be deemed to have
been sufficiently given when delivered personally or when deposited in the
United States mail as Certified Mail, return receipt requested, properly
addressed with postage prepaid, if to the Corporation at its principal
office at 1450 Reidville Road, Spartanburg, South Carolina 29306; and, if
to the Optionee to his or her last address appearing on the books of the
Corporation. The Corporation and the Optionee may change their address or
addresses by giving written notice of such change as provided herein. Any
notice or other communication hereunder shall be deemed to have been given
on the date actually delivered or as of the third (3rd) business day
following the date mailed, as the case may be.
12. Construction Controlled by Plan. This Agreement shall be construed so as to
be consistent with the Plan; and the provisions of the Plan shall be deemed
to be controlling in the event at any provision hereof should appear to be
inconsistent therewith. The Optionee hereby acknowledges receipt of a copy
of the Plan from the Corporation.
13. Severability. Whenever possible, each provision of this Agreement shall be
interpreted in such a manner as to be valid and enforceable under
applicable law, but if any provision of this Agreement is determined to be
unenforceable, invalid or illegal, the validity of any other provision or
part thereof, shall not be affected thereby and this Agreement shall
continue to be binding on the parties hereto as if such unenforceable,
invalid or illegal provision or part thereof had not been included herein.
14. Modification of Agreement; Waiver. This Agreement may be modified, amended,
suspended, or terminated, and any terms, representations or conditions may
be waived, but only by written instrument signed by each of the parties
hereto. No waiver hereunder shall constitute a waiver with respect to any
subsequent occurrence or other transaction hereunder or of any other
provision hereof.
15. Captions and Headings; Gender and Number. Captions and paragraph headings
used herein are for convenience only, do not modify or affect the meaning
of any provision herein, are not a part hereof, and shall not serve as a
basis for interpretation or in construction of this Agreement. As used
herein, the masculine gender shall include the feminine and neuter, the
singular number the plural, and vice versa, whenever such meanings are
appropriate.
16. Governing Law; Venue and Jurisdiction. Without regard to the principles of
conflicts of laws, the laws of the State of South Carolina shall govern and
control the validity, interpretation, performance, and enforcement of this
Agreement. The parties hereto agree that any suit or action relating to
this Agreement shall be instituted and prosecuted in the courts of the
County of Spartanburg, State of South Carolina, and each party hereby does
waive any right or defense relating to such jurisdiction and venue.
17. Binding Effect. This Agreement shall be binding upon and shall inure to the
benefit of the Corporation, its successors and assigns, and shall be
binding upon and inure to the benefit of the Optionee, his heirs, legatees,
personal representatives, executors, and administrators.
18. Entire Agreement. This Agreement constitutes and embodies the entire
understanding and agreement of the parties hereto and, except as otherwise
provided hereunder, there are no other agreements or understandings,
written or oral, in effect between the parties hereto relating to the
matters addressed herein.
19. Counterparts. This Agreement may be executed in any number of counterparts,
each of which when executed and delivered shall be deemed an original, but
all of which taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Corporation, has caused this instrument to be
executed in its corporate name by its President, or one of its Vice Presidents,
and attested by its Secretary or one of its Assistant Secretaries, and its
corporate seal to be hereto affixed, all by authority of its Board of Directors
first duly given, and the Optionee has hereunto set his or her hand and adopted
as his or her seal the typewritten work "SEAL" appearing beside his or her name,
all done this the day and year first above written.
FIRST SOUTH BANK
By:----------------------------------------
Roger A. F. Habisreutinger, Chairman
ATTEST:
- -------------------------------------------
V. Lewis Shuler, Corporate Secretary
[CORPORATE SEAL]
-------------------------------------------
Barry L. Slider, Optionee
EXHIBIT A
NOTICE OF EXERCISE OF
INCENTIVE STOCK OPTION
To: The Stock Option Committee of the Board of Directors of First South Bank
The undersigned hereby elects to purchase _____________whole
shares of Common Stock of First South Bank (the "Corporation") pursuant to the
Incentive Stock Option granted to the undersigned in that certain Incentive
Stock Option Agreement between the Corporation and the undersigned dated the
____day of ____________,________. The aggregate purchase price for such shares
is $_________, which amount is (i) being tendered herewith, (ii) will be
tendered on or before _______________________,199___ (cross out provision which
does not apply) in cash and/or check payable to the Corporation. The effective
date of this election shall be ________________,199___, or the date of receipt
of this Notice by the Corporation if later.
Executed this _________day of __________________, 199___,
at_____________________________________________________________________.
------------------------------------
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(Social Security Number)
FIRST SOUTH BANK
SALARY CONTINUATION AGREEMENT
THIS SALARY CONTINUATION AGREEMENT (the "Agreement") is made this _____
day of ____________________, 1999, by and between FIRST SOUTH BANK, a state bank
with a principal office in Spartanburg, South Carolina (the "Company") and BARRY
L. SLIDER (the "Executive").
INTRODUCTION
To encourage the Executive to remain an employee of the Company, the
Company is willing to provide salary continuation benefits to the Executive. The
Company will pay the benefits from its general assets.
AGREEMENT
Now, therefore, in consideration of the mutual covenants and agreements
herein, the Executive and the Company agree as follows:
Article 1
Definitions
1.1 Definitions. Whenever used in this Agreement, the following words and
phrases shall have the meanings specified:
1.1.1 "Accrual Balance" means the amount of death benefits payable to
the Executive pursuant to Section 3.1 of this Agreement and set forth in
the attached Schedule A.
1.1.2 "Board" or "Board of Directors" means the Board of Directors of
the Company.
1.1.3 "Change of Control" means
(i) the acquisition by any person, group of persons or entities of
the beneficial ownership or power to vote more than twenty (20%)
percent of the Company's outstanding stock, or
(ii) during any period of two (2) consecutive years, a change in the
majority of the Board unless the election of each new director
was approved by at least two-thirds of the directors then still
in office who were directors at the beginning of such two (2)
year period, or
(iii)a reorganization, merger, exchange of shares, combination or
consolidation of the Company with one or more other corporations
or other legal entities in which the Company is not surviving the
corporation, or a transfer of all or substantially all of the
assets of the Company to another person or entity.
(iv) Notwithstanding any other provision in this Agreement, "Change of
Control" shall not be construed to mean the formation of a bank
holding company or other entity approved in advance by the Board
or any changes in ownership of the Company's assets or stock as
the result of the formation of such an entity.
1.1.4 "Code" means the Internal Revenue Code of 1986, as amended.
References to a Code section shall be deemed to be that section as it now
exists and to any successor provision.
1.1.5 "Disability" means, if the Executive is covered by a Company
sponsored disability policy, total disability as defined in such policy
without regard to any waiting period. If the Executive is not covered by
such a policy, Disability means the Executive suffering a sickness,
accident or injury that, in the judgment of a physician appointed and paid
by the Company, prevents the Executive from performing substantially all of
the Executive's normal duties for the Company. As a condition to any
benefits, the Company may require the Executive to submit to such physical
or mental evaluations and tests as the Company's Board of Directors deems
appropriate.
<PAGE>
1.1.6 "Early Termination" means the Termination of Employment before
Normal Retirement Age for reasons other than death, Disability, Termination
for Cause or following a Change of Control.
1.1.7 "Early Termination Date" means the month, day and year in which
Early Termination occurs.
1.1.8 "Effective Date" means January 1, 1999.
1.1.9 "Normal Retirement Age" means the Executive's sixty-fifth (65th)
birthday.
1.1.10 "Normal Retirement Date" means the later of the Normal
Retirement Age or Termination of Employment.
1.1.11 "Plan Year" means a twelve-month period commencing on January
1st and ending on December 31st of each year. The first Plan Year shall
commence on the Effective Date of this Agreement.
1.1.12 "Termination for Cause" shall have the meaning set forth in
Section 5.2.
1.1.13 "Termination of Employment" means that the Executive ceases to
be employed by the Company for any reason whatsoever other than by reason
of a leave of absence that is approved by the Company. For purposes of this
Agreement, if there is a dispute over the employment status of the
Executive or the date of the Executive's Termination of Employment, the
Board shall have the sole and absolute right to decide the dispute.
Article 2
Lifetime Benefits
2.1. Normal Retirement Benefit. Upon termination of Employment on or after
the Normal Retirement Age for reasons other than the Executive's death, the
Company shall pay to the Executive the benefit described in this Section 2.1 in
lieu of any other benefit under this Agreement.
2.1.1 Amount of Benefit. The annual benefit under this Section 2.1 for
the first Plan Year is forty-five thousand two hundred thirty ($45,230)
dollars as stated on the attached Schedule A. The annual benefit will be
increased two (2.0%) percent each Plan Year thereafter, until Termination
of Employment. The Board, in its sole discretion, may increase the annual
benefit under this Section 2.1.1 beyond the annual two (2.0%) percent
increase; however, any such increase shall require the restatement of
Schedule A.
2.1.2 Payment of Benefit. The Company shall pay the annual benefit to
the Executive in equal and consecutive monthly installments payable on the
first day of each month commencing with the month following the Executive's
Normal Retirement Date and continuing for two hundred fifteen (215)
additional months, for a total of two hundred sixteen (216) monthly
payments.
2.2 Early Termination Benefit. Upon Early Termination, the Company shall
pay to the Executive the benefit described in this Section 2.2 in lieu of any
other benefit under this Agreement.
2.2.1 Amount of Benefit. The benefit under this Section 2.2 is the
Early Termination Annual Benefit amount set forth in Schedule A for the
Plan Year ending immediately prior to the Early Termination Date.
2.2.2 Payment of Benefit. The Company shall pay the annual benefit to
the Executive in equal and consecutive monthly installments payable on the
first day of each month commencing with the month following the Executive's
Normal Retirement Age and continuing for two hundred fifteen (215)
additional months, for a total of two hundred sixteen (216) monthly
payments.
<PAGE>
2.3 Disability Benefit. If the Executive terminates employment due to
Disability prior to Normal Retirement Age, the Company shall pay to the
Executive the benefit described in this Section 2.3 in lieu of any other benefit
under this Agreement.
2.3.1 Amount of Benefit. The benefit under this Section 2.3 is the
Disability Annual Benefit amount set forth in Schedule A for the Plan Year
ending immediately prior to the date in which the Termination of Employment
occurs. However, any increase in the annual benefit under Section 2.1.1
would require the recalculation of the Disability benefit on Schedule A.
The Disability Annual Benefit amount is determined by calculating a fixed
annuity which is payable in one hundred seventy-nine (179) equal monthly
installments, crediting interest on the unpaid balance of the Accrual
Balance at an annual rate of seven and one-half (7.5%) percent, compounded
monthly.
2.3.2 Payment of Benefit. The Company shall pay the annual benefit
amount to the Executive in equal and consecutive monthly installments
payable on the first day of each month commencing with the month following
the Termination of Employment and continuing for two hundred fifteen (215)
additional months, for a total of two hundred sixteen (216) monthly
payments. Upon petition by the Executive, the Company, in its sole
discretion, may instead pay the benefit in an amount equal to the Accrual
Balance in a lump sum within sixty (60) days of Termination of Employment
in lieu of any other benefit under this Agreement.
2.4 Change of Control Benefit. Upon Termination of Employment following a
Change of Control, the Company shall pay to the Executive the benefit described
in this Section 2.4 in lieu of any other benefit under this Agreement.
2.4.1 Amount of Benefit. The annual benefit under this Section 2.4 is
the Change of Control Annual Benefit amount set forth on Schedule A for the
Plan Year in which Termination of Employment occurs.
2.4.2 Payment of Benefit. The Company shall pay the annual benefit
amount to the Executive in equal and consecutive monthly installments
payable on the first day of each month commencing with the month following
the Normal Retirement Date and continuing for two hundred fifteen (215)
additional months, for a total of two hundred sixteen (216) monthly
payments.
Article 3
Death Benefits
3.1 Death Benefits. If the Executive dies while employed by the Company and
prior to commencement of any benefits due under Article 2, the Company shall pay
to the Executive's beneficiary the benefit described in this Section 3.1. This
benefit shall be paid in lieu of any other benefit under this Agreement.
3.1.1 Amount of Benefit. The benefit under this Section 3.1 is the
Accrual Balance set forth in Schedule A for the Plan Year ending
immediately prior to the Executive's death.
3.1.2 Payment of Benefit. The Company shall pay the benefit to the
Executive's beneficiary in a lump sum within sixty (60) days following the
Executive's death.
Article 4
Beneficiaries
4.1 Beneficiary Designations. The Executive shall designate a primary and
contingent beneficiary by filing a written designation with the Company. The
Executive may revoke or modify the designation at any time by filing a new
designation. However, designations will only be effective if signed by the
Executive and accepted by the Company during the Executive's lifetime. The
Executive's beneficiary designation shall be deemed automatically revoked if the
beneficiary predeceases the Executive, or if the Executive names a spouse as
<PAGE>
beneficiary and the marriage is subsequently dissolved. If the Executive dies
without a valid beneficiary designation, all payments shall be made to the
Executive's surviving spouse, if any, and if none, to the Executive's surviving
descendants, per stirpes, and if no surviving spouse and descendants, to the
Executive's estate. If Executive dies and subsequently the beneficiary receiving
payments dies, then any remaining payments shall be paid pursuant to a written
beneficiary designation filed with the Company made by such beneficiary, or if
none to such beneficiary's estate.
4.2 Facility of Payment. If a benefit is payable to a minor, to a person
declared incapacitated, or to a person incapable of handling the disposition of
his or her property, the Company may pay such benefit to the guardian,
conservator, legal representative or person having the care or custody of such
minor, incapacitated person or incapable person. The Company may require proof
of incapacity, minority or guardianship as it may deem appropriate prior to
distribution of the benefit. Such distribution shall completely discharge the
Company from all liability with respect to such benefit.
Article 5
General Limitations
Notwithstanding any provision of this Agreement to the contrary,
Executive shall irrevocably forfeit and the Company shall not pay any benefit
under this Agreement if any of the events described in Section 5.1 - 5.3 below
occur:
5.1 Excess Parachute Payment. In the event that the benefit payable to the
Executive pursuant to this Agreement should cause a "parachute payment," as
defined in Code Section 280G(b)(2) of the Code, then such benefit shall be
reduced One Dollar ($1.00) at a time until the payment will not constitute a
parachute payment. In the event the benefit the Executive receives under this
Agreement should be incorrectly calculated so that such amount constitutes a
parachute payment, then the Executive will promptly refund to Company the excess
amount. Excess amount shall mean the amount in excess of the Executive's base
amount, as defined in Code Section 280G(b)(3), multiplied by 2.999.
5.2 Termination for Cause. If the Company terminates the Executive's
employment for:
5.2.1 any willful act of misconduct or gross negligence, prior to a
Change of Control, which is materially injurious to the Company monetarily
or otherwise;
5.2.2 a criminal conviction of the Executive for any act involving the
business and affairs of the Company; or
5.2.3 a criminal conviction of the Executive for commission of a
felony, the circumstances of which substantially relate to the Executive's
position with the Company.
5.3 Suicide or Misstatement. If the Executive commits suicide within two
(2) years after the date of this Agreement, or if the Executive has made any
material misstatement of fact on any application for life insurance purchased by
the Company.
5.4 No Duplication of Benefits. Each of the benefits described in Articles
2 and 3 are intended to be separate benefits and mutually exclusive of the other
so that once benefit payments commence under one Section the Executive (or his
beneficiary, as the case may be) shall not thereafter receive payments or become
entitled to benefits under another Section.
<PAGE>
Article 6
Claims and Review Procedure
6.1 Claims Procedure. The Company shall notify any person or entity that
makes a claim pursuant to this Agreement (the "Claimant") in writing, within
ninety (90) days of the Claimant's written application for benefits, of his or
her eligibility or noneligibility for benefits under the Agreement. If the
Company determines that the Claimant is not eligible for benefits or full
benefits, the notice shall set forth (1) the specific reasons for such denial,
(2) a specific reference to the provisions of the Agreement on which the denial
is based, (3) a description of any additional information or material necessary
for the Claimant to perfect his or her claim, and a description of why it is
needed, and (4) an explanation of the Agreement's claims review procedure and
other appropriate information as to the steps to be taken if the Claimant wishes
to have the claim reviewed. If the Company determines that there are special
circumstances requiring additional time to make a decision, the Company shall
notify the Claimant of the special circumstances and the date by which a
decision is expected to be made, and may extend the time for up to an additional
ninety (90) day period.
6.2 Review Procedure. If the Claimant is determined by the Company not to
be eligible for benefits, or if the Claimant believes that he or she is entitled
to greater or different benefits, the Claimant shall have the opportunity to
have such claim reviewed by the Company by filing a petition for review with the
Company within sixty (60) days after receipt of the notice issued by the
Company. Said petition shall state the specific reasons which the Claimant
believes entitle him or her to benefits or to greater or different benefits.
Within sixty (60) days after receipt by the Company of the petition, the Company
shall afford the Claimant (and counsel, if any) an opportunity to present his or
her position to the Company orally or in writing, and the Claimant (or counsel)
shall have the right to review the pertinent documents. The Company shall notify
the Claimant of its decision in writing within the sixty (60) day period,
stating specifically the basis of its decision, written in a manner calculated
to be understood by the Claimant and the specific provisions of the Agreement on
which the decision is based. If, because of the need for a hearing, the sixty
(60) day period is not sufficient, the decision may be deferred for up to
another sixty (60) day period at the election of the Company, but notice of this
deferral shall be given to the Claimant.
Article 7
Amendments and Termination
This Agreement may be amended or terminated only by a written agreement
signed by the Company and the Executive.
Article 8
Miscellaneous
8.1 Binding Effect. This Agreement shall bind the Executive and the
Company, and their heirs, beneficiaries, survivors, legal representatives,
personal representatives, assigns, successors, administrators and transferees.
8.2 No Guarantee of Employment. This Agreement is not an employment policy
or contract. This Agreement does not give the Executive the right to remain an
employee of the Company, nor does it interfere with the Company's right to
discharge the Executive. This Agreement also does not require the Executive to
remain an employee nor interfere with the Executive's right to terminate
employment at any time. Nothing in this Agreement shall be construed as an
employment agreement, either express or implied.
8.3 Non-Transferability. No amounts payable under this Agreement shall be
transferable by the Executive. Further, the Executive may not sell, assign,
alienate, pledge or otherwise encumber any benefits under this Agreement.
<PAGE>
8.4 Reorganization. The Company shall not merge or consolidate into or with
another company, or reorganize, or sell substantially all of its assets to
another company, firm, or person unless such succeeding or continuing company,
firm, or person agrees to assume and discharge the obligations of the Company
under this Agreement. Upon the occurrence of such event, the term "Company" as
used in this Agreement shall be deemed to refer to the successor or survivor
company.
8.5 Tax Withholding. The Company shall withhold any taxes that are required
to be withheld from the benefits provided under this Agreement.
8.6 Applicable Law. The Agreement and all rights hereunder shall be
governed by the laws of the State of South Carolina, except to the extend
preempted by the laws of the United States of America.
8.7 Unfunded Arrangement. The Executive and any beneficiary of the
Executive are general unsecured creditors of the Company for the payment of
benefits under this Agreement. This Agreement shall always be an unfunded
arrangement. The benefits represent the mere promise by the Company to pay such
benefits. The rights to benefits are not subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors. Any insurance on the Executive's life, if any, is a
general asset of the Company to which the Executive and the Executive's
beneficiary have no preferred or secured claim. Title to and beneficial
ownership of any cash or assets Company may earmark to pay the Executive or his
beneficiary shall at all times remain with the Company.
8.8 Entire Agreement. This Agreement constitutes the entire agreement
between the Company and the Executive as to the subject matter hereof. No rights
are granted to the Executive by virtue of this Agreement other than those
specifically set forth herein.
8.9 Administration. The Company shall have powers which are necessary to
administer this Agreement, including but not limited to:
8.9.1 Interpreting the provisions of the Agreement;
8.9.2 Establishing and revising the method of accounting for the
Agreement;
8.9.3 Maintaining a record of benefit payments; and
8.9.4 Establishing rules and prescribing any forms necessary or
desirable to administer the Agreement.
8.10 Named Fiduciary. For purposes of the Employee Retirement Income
Security Act of 1974, if applicable, the Company shall be the named fiduciary
and plan administrator under the Agreement. The named fiduciary may delegate to
others certain aspects of the management and operation responsibilities under
this Agreement including the employment of advisors and the delegation of
ministerial duties to qualified individuals.
8.11 No Trust Created. Nothing contained in this Agreement, and no action
taken pursuant to its provisions by either party hereto, shall create, nor be
construed to create, a trust of any kind or a fiduciary relationship between the
Company and the Executive, his designated beneficiary, any other beneficiary of
the Executive or any other person.
<PAGE>
8.12 Date of Birth. The Executive hereby represents to the Company that his
date of birth is November 17, 1952.
IN WITNESS WHEREOF, the Executive and a duly authorized Company officer
have executed and sealed this Agreement as of the date first above written.
Witnesses: COMPANY:
By:------------------------------------------
Its:---------------------------------------
EXECUTIVE:
<PAGE>
BENEFICIARY DESIGNATION
FIRST SOUTH BANK
SALARY CONTINUATION AGREEMENT
BARRY L. SLIDER
I designate the following as beneficiary of any death benefits under this Salary
Continuation Agreement:
Primary:
Contingent:
Note: To name a trust as beneficiary, please provide the name of the trustee(s)
and the exact name and date of the trust agreement.
I understand that I may change these beneficiary designations by filing a new
written designation with the Company. I further understand that the designations
will be automatically revoked if the beneficiary predeceases me, or, if I have
named my spouse as beneficiary and our marriage is subsequently dissolved.
Signature:
Date:
Accepted by the Company this day of , 1999.
------- ------------------
By:
Title:
Exhibit 21
SUBSIDIARIES OF REGISTRANT
Name Jurisdiction of Incorporation
- ---- -----------------------------
First South Bank South Carolina
First South Financial Services, Inc.* South Carolina
________
*Wholly owned by First South Bank
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at December 31, 1999 and the Consolidated Statement
of Operations for the year ended December 31, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
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<ALLOWANCE> 800
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0
0
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