SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
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
Commission File No. 000-30001
Darlington County Bancshares, Inc.
- --------------------------------------------------------------------------------
(Exact name or Registrant as specified in its charter)
South Carolina 57-0805621
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
202 Cashua Street, Darlington, SC 29532
- --------------------------------------------------------------------------------
(Address of Principal Executive Office, Including Zip Code)
Registrant's Telephone Number, Including Area Code: (843) 395-1956
Securities Registered Pursuant to Section 12(b) of the Securities
Exchange Act of 1934:
None
------------------
Securities Registered Pursuant to Section 12(g) of the Securities
Exchange Act of 1934:
COMMON STOCK. $.01 PAR VALUE
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 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 pursuant 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 fiscal year were $2,001,949.
----------
The aggregate market value of the voting and non-voting common equity held by
nonaffiliates of the Registrant (158,000 shares) has not been determined. As of
such date, no organized trading market existed for the common stock of the
Registrant. For the purpose of this response, officers, directors and holders of
5% or more of the Registrant's common stock are considered affiliates of the
Registrant at that date.
The number of shares outstanding of the Registrant's common stock, as of March
15, 2000: 158,000 shares of $.01 par value common stock.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the Registrant's Proxy Statement for the 2000 Annual Meeting of
Shareholders - Part III
Transitional Small Business Disclosure Format Yes [ ] No [ X ]
<PAGE>
PART I
ITEM 1. BUSINESS
- -----------------
FORWARD LOOKING STATEMENTS
From time to time, Darlington County Bancshares, Inc. (the "Company") may
publish forward-looking statements relating to such matters as anticipated
financial performance, business prospects, technological developments, new
products and similar matters. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements. In order to comply
with terms of the safe harbor, the Company notes that a variety of factors could
cause the Company's actual results and experience to differ materially from the
anticipated results or other expectations expressed in the Company's
forward-looking statements. The risks and uncertainties that may affect the
operations, performances, development and results of the Company's business
include, but are not limited to, the following: risks from changes in economic
and industry conditions; changes in interest rates; risks inherent in making
loans including repayment risks and value of collateral; dependence on senior
management; and recently-enacted or proposed legislation. Statements contained
in this filing regarding the demand for the Company's products and services,
changing economic conditions, interest rates, consumer spending and numerous
other factors may be forward-looking statements and are subject to uncertainties
and risks. When relying on forward-looking statements to make decisions with
respect to the Company, investors and other are cautioned to consider these and
other risks and uncertainties.
THE COMPANY
Darlington County Bancshares, Inc. was organized in July 1999 for the purpose of
being the holding company for Darlington County Bank (the "Bank"). On July 1,
1999, pursuant to a Plan of Exchange approved by the stockholders, all of the
outstanding shares of common stock of the Bank were exchanged for shares of
common stock of the Company. The Company presently engages in no other business
other than that of owning the Bank, has no employees and operates as one
business segment. The Company is subject to regulation by the Federal Reserve
Board. For ease of presentation, the formation of the holding company has been
treated as if it occurred at the earliest date presented in Form 10KSB.
Prior to the organization of the Company, the Bank filed all of its registration
statements with the Federal Deposit Insurance Company. Beginning July 1, 1999,
with the formation of the bank holding company, the company is now required to
file the full informational requirements of the Securities Exchange Act of 1934.
Darlington County Bank was incorporated under the laws of South Carolina and
began operations on March 10, 1986 for the purpose of becoming a community bank.
The principal offices are located at 202 Cashua Street, Darlington, South
Carolina 29532. The Bank's telephone number is (843) 395-1956. The sole branch
is also located in this facility.
GENERAL BUSINESS
The Bank provides variety of services and products to small business and
individual customers. The Bank's services include checking accounts, NOW
accounts, certificates of deposit, money market accounts, savings accounts, real
estate loans, overdraft protection, lines of credit, and personal and business
use loans. The Bank has no material concentration of deposits from one customer
or group of customers. No significant portion of loans is concentrated within a
single industry or group of related industries. There are no material seasonal
factors that would have an adverse effect on the Bank.
-1-
<PAGE>
TERRITORY AND COMPETITION
The Bank serves its customers from one location. It primarily services
individuals and small businesses in the South Carolina midlands region.
The Bank competes with one other community bank and a credit union as well as
three other major banks. In Darlington County, such competitors have broader
geographical markets and higher lending limits than the Bank and may, therefore,
make more effective use of media advertising, support services and electronic
technology than can the Bank.
Competition between commercial banks and thrift institutions (savings and loan
associations and credit unions) has been intensified significantly by the
elimination of many previous distinctions between the various types of financial
institutions and the expanded powers and increased activity of thrift
institutions in areas of banking which previously had been the sole domain of
commercial banks. Recent legislation, together with other regulatory changes by
the primary regulators of the various financial institutions, has resulted in
the almost total elimination of practical distinction between a commercial bank
and thrift institution. Consequently, competition among financial institutions
of all types is virtually unlimited with respect to legal ability and authority
to provide most financial services.
INTEREST RATES AND INTEREST DIFFERENTIAL
<TABLE>
<CAPTION>
AVERAGE BALANCES, INCOME AND EXPENSES, AND RATES
DECEMBER 31,
1999 1998
AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
<S> <C> <C> <C> <C> <C>
Interest earning assets
Loans $ 16,366,000 $ 1,477,742 9.03% $ 16,709,000 $ 1,542,452 9.23%
-------------- -------------- ---- -------------- ------------- ----
Investment securities
Taxable 5,268,000 317,797 6.12 3,409,000 206,591 6.06
Tax exempt 996,000 45,865 4.60 755,000 40,631 5.38
------- ------ ---- ------- ------ ----
Total investment
securities 6,264,000 363,662 5.88 4,164,000 247,222 5.94
Federal funds sold and
securities purchased
under agreements
to resell 3,130,000 156,072 4.99 4,358,000 222,853 5.11
--------- ------- ---- --------- ------- ----
Total average
interest earning
assets 25,760,000 2,001,949 7.77 25,231,000 2,012,527 7.98
Non-interest earning assets
Cash and due from banks 1,221,000 1,033,000
Premises and equipment 900,000 706,000
Other, less reserve for
loan losses 179,000 175,000
------- -------
Total average non-
interest earning
assets 2,300,000 1,914,000
--------- ---------
Total average assets $ 28,060,000 $ 27,145,000
============== ==============
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, INCOME AND EXPENSES, AND RATES
DECEMBER 31,
----------------------------------------------------------------------------------
1999 1998
--------------------------------------- ----------------------------------------
AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- ------- ---- ------- ------- ----
<S> <C> <C> <C> <C> <C>
Interest-bearing liabilities
Deposits:
Savings and Christ-
mas Clubs $ 3,054,000 $ 69,503 2.28% $ 3,379,000 $ 88,795 2.63%
NOW and money
market 7,339,000 162,568 2.22 6,595,000 174,205 2.64
Time deposits 9,420,000 432,381 4.59 9,075,000 484,584 5.34
--------- ------- ---- --------- ------- ----
Total interest-
bearing deposits 19,813,000 664,452 3.35 19,049,000 747,584 3.92
Federal funds purchased
and securities sold
under agreements to
repurchase 2,000 92 4.87 - - 0.00
Non-interest bearing
liabilities
Demand deposits 4,997,000 5,003,000
Other liabilities 129,000 194,000
------- -------
Total non-interest
bearing liabilities 5,126,000 5,197,000
Stockholders' equity 3,119,000 2,899,000
--------- ---------
Total average liabilities
and stockholders'
equity $ 28,060,000 $ 27,145,000
============== ==============
Net interest income $ 1,337,497 $ 1,264,943
============== =============
Interest income/earning
assets 7.77 7.98
Interest expense/earning
assets 2.58 2.96
---- ----
Net interest income/earning
assets 5.19% 5.01%
==== ====
</TABLE>
NET INTEREST INCOME
Net interest income, the principal source of earnings, is the difference between
the income earned on earning assets (primarily loans and investment securities)
and the interest expenses incurred on interest bearing liabilities (mainly
deposits). The net interest spread represents the differential between the yield
earned on average earning assets and the rate paid on the average
interest-bearing liabilities. The interest yield represents net interest income
divided by average earning assets.
Net interest income in 1999 increased $72,554 or 5.7% from net interest income
in 1998. Interest income on earning assets in 1999 decreased $10,578 or 0.5%
from the corresponding amount earned in 1998. Interest expense to
interest-bearing liabilities in 1999 decreased $83,132 or 11.1% from the amount
paid in 1998. The net interest yield increased to 5.19% in 1999 from 5.01% in
1998. The volume and yield/rate variance analyzes the increase or decrease of
interest income due to growth or change of rate in each category of earning
assets.
-3-
<PAGE>
VOLUME AND YIELDS/RATE VARIANCE
<TABLE>
<CAPTION>
1999 COMPARED TO 1998 1998 COMPARED TO 1997
------------------------------ ---------------------------------
VOLUME RATE NET VOLUME RATE NET
------ ---- --- ------ ---- ---
<S> <C> <C> <C> <C> <C> <C>
Interest income
Loans $ (31,305) $ (33,405) $ (64,710) $ 41,363 $ (36,139) $ 5,224
Investment securities:
Taxable 113,706 1,973 115,679 (9,732) (9,799) (19,531)
Tax exempt 9,557 (4,323) 5,234 13,122 1,638 14,760
Federal funds sold and
securities purchased
under agreements to
resell (61,609) (5,172) (66,781) 100,079 (7,292) 92,787
------- ------ ------- ------- ------ ------
Total earning
assets 30,349 (40,927) (10,578) 144,832 (51,592) 93,240
------ ------- ------- ------- ------- ------
Interest expense
Savings (8,035) (11,257) (19,292) 14,105 188 14,293
NOW and money
market 27,275 (38,912) (11,637) 8,030 1,141 9,171
Time deposits 19,337 (71,632) (52,295) 39,283 4,090 43,373
Federal funds purchased
and securities sold
under agreements
to repurchase 92 - 92 - - -
-- --
Total interest-
bearing liabilities 38,669 (121,801) (83,132) 61,418 5,419 66,837
------ -------- ------- ------ ----- ------
Net interest income $ (8,320) $ 80,874 $ 72,554 $ 83,414 $ (57,011) $ 26,403
============ =========== =========== ============ =========== ==========
<FN>
Note: Volume-rate changes have been allocated to each category based on the percentage of total change.
</FN>
</TABLE>
LOAN PORTFOLIO
The Bank engages in a full complement of lending activities including
commercial, consumer, installment and real estate loans.
Commercial loans are spread across various industry groups, with no single
industry accounting for a significant amount of the portfolio. Commercial loans
are made on either a secured or unsecured basis. When taken, security consists
of liens on inventories, receivables, equipment, and furniture and fixtures.
Unsecured commercial loans are generally short-term with emphasis on repayment
strengths and low debt to net worth ratios. At December 31, 1999, approximately
$2,826,000 of loans were unsecured.
-4-
<PAGE>
Consumer loans are primarily secured installment loans to individuals for
personal, family and household purposes, including automobile loans and
pre-approved lines of credit.
Management believes that the loan portfolio is adequately diversified. There are
no foreign loans in the portfolio. The following table presents the major
categories of loans in the Bank's loan portfolio and total amount of all loans
at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Real estate - mortgage $ 7,473,000 $ 7,638,000
Real estate - construction 329,000 369,000
Commercial and industrial 3,739,000 3,604,331
Loans to individuals for household, family and
other consumer expenditures 2,978,000 2,908,000
Agriculture 992,000 586,000
All other loans, including overdrafts 961,152 1,103,156
Deferred loan origination costs 18,693 18,464
$ 16,490,845 $ 16,226,951
============== ===============
</TABLE>
Accrual of interest is discontinued on a loan when management of the Bank
determines, after consideration of economic and business factors affecting
collection efforts, that collection of interest is doubtful. At December 31,
1999, and 1998 the Bank had $27,949 and $85,912 in non-accruing loans.
With respect to the loans accounted for on a non-accrual basis, the gross
interest income that would have been recorded if the loans had been current in
accordance with their original terms and outstanding throughout the period or
since origination amounts to $11,719 for the year ended December 31, 1999 and
$15,088 for the year ended December 31, 1998.
As of December 31, 1999, there were no loans classified for regulatory purposes
as doubtful, substandard or special mention which (i) represent or result from
trends or uncertainties which management reasonably expects will materially
impact future operating results, liquidity, or capital resources, or (ii)
represent material credits about which management is aware of any information
which causes management to have serious doubts as to the ability of such
borrowers to comply with the loan repayment terms.
The Bank accounts for impaired loans in accordance with SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". This standard requires that
all creditors value loans at the loan's fair value if it is probable that the
creditor will be unable to collect all amounts due according to the terms of the
loan agreement. Fair value may be determined based upon the present value of
expected cash flows, market price of the loan, if available, or value of the
underlying collateral. Expected cash flows are required to be discounted at the
loan's effective interest rate. SFAS No. 114 was amended by SFAS No. 118 to
allow a creditor to use existing methods for recognizing interest income on an
impaired loan and by requiring additional disclosures about how a creditor
recognizes interest income on an impaired loan. When the ultimate collectibility
of an impaired loan's principal is in doubt, wholly or partially, all cash
receipts are applied to principal. When this doubt does not exist, cash receipts
are applied under the contractual terms of the loan agreement first to principal
then to interest income. Once the recorded principal balance has been reduced to
zero, future cash receipts are applied to interest income, to the extent that
any interest has been foregone. Further cash receipts are recorded as recoveries
of any amounts previously charged off.
A loan is also considered impaired if its terms are modified in a troubled debt
restructuring. For these accruing impaired loans, cash receipts are typically
applied to principal and interest receivable in accordance with the terms of the
restructured loan agreement. Interest income is recognized on these loans using
the accrual method of accounting. As of December 31, 1999 and 1998, the Bank had
no impaired loans.
-5-
<PAGE>
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is based on management's ongoing evaluation of the
loan portfolio and reflects an amount that, in management's opinion, is adequate
to absorb losses in the existing portfolio. In evaluating the portfolio,
management takes into consideration numerous factors, including current economic
conditions, prior loan loss experience, the composition of the loan portfolio,
and management's estimate of anticipated credit losses. Loans are charged
against the allowance at such time as they are determined to be losses.
Subsequent recoveries are credited to the allowance. Management considers the
year-end allowance appropriate and adequate to cover possible losses in the loan
portfolio; however, management's judgment is based upon a number of assumptions
about future events, which are believed to be reasonable, but which may or may
not prove valid. Thus, there can be no assurance that charge-offs in future
periods will not exceed the allowance for loan losses or that additional
increases in the allowance for loan losses will not be required.
The Bank is subject to regulatory examinations which include a review of
methodology used to calculate loan losses and the size of the allowance for loan
losses in comparison to a group of peer banks identified by the regulatory
agencies.
In assessing the adequacy of the allowance, management relies predominantly on
its ongoing review of the loan portfolio, which reviews specific loans for
potential charge-off as well as an assessment of the portfolio in the aggregate.
On December 31, 1999, the allowance for loan losses was $208,641. The ratio of
the allowance for loan losses to net loans outstanding was 1.27% at December 31,
1999 compared to 1.75% at December 31, 1998. During 1999, the Bank experienced
net charge-offs of $88,028 compared to net charge-offs of $76,850 in the prior
year.
The Bank made recoveries of loans previously charged off against the allowance
of $16,920 and $151,614 for the year ended December 31, 1999 and 1998,
respectively. The 1998 recoveries included recovered one previously charged off
loan of approximately $145,000.
The Bank made provisions for loan losses of $0 and $22,183 for the years ended
December 31, 1999 and 1998, respectively.
Management continues to closely monitor the levels of non-performing and
potential problem loans and will address the weaknesses in these loans to
enhance the ultimate collection or recovery on these assets. Should increases in
the overall level of non-performing and potential problem loans accelerate from
the historical trend, management will adjust the methodology for determining the
allowance for loan losses and will increase the provision and allowance for loan
losses. This would likely decrease net income.
-6-
<PAGE>
The following table summarizes changes in the allowance arising from charge-offs
and recoveries by category and additions to the allowance which have been
charged to expense.
<TABLE>
<CAPTION>
SUMMARY OF LOAN LOSS EXPERIENCE
FOR THE YEARS ENDED DECEMBER 31,
1999 1998
---- ----
<S> <C> <C>
Balance at beginning of year $ 279,749 $ 182,802
Charge-offs:
Commercial and industrial (48,000) (40,000)
Consumer (40,028) (36,850)
------- -------
(88,028) (76,850)
------- -------
Recoveries:
Commercial and industrial 2,000 145,614
Real estate 4,000 -
Consumer 10,920 6,000
------ -----
16,920 151,614
------ -------
Net charge-offs (71,108) 74,764
Provision for loan losses - 22,183
------ ------
Balance at end of year $ 208,641 $ 279,749
=============== ===============
</TABLE>
The following table presents the allocation of the allowance for loan losses at
December 31, 1999 and 1998, based on the percentage of total loans in each
category for the applicable year. Management does not segregate the allowance by
category and the entire allowance is available to absorb losses from all
categories.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998
---- ----
<S> <C> <C>
Commercial and industrial $ 47,308 $ 62,131
Real estate - construction 4,163 6,361
Real estate - mortgage 94,533 131,677
Consumer installment 62,617 79,580
------ ------
Total $ 208,641 $ 279,749
============= ==============
</TABLE>
Management considers the allowance for loan losses adequate to cover inherent
losses on loans outstanding as of December 31, 1999. The determination of the
allowance for loan losses using the Bank's procedures and methods is based upon
judgements and assumptions about future economic conditions and other factors
affecting loans. No assurance can be given that the Bank will not sustain losses
which are sizeable in comparison to the amount reserved or that subsequent
evaluation of the loan portfolio will not require changes to the allowance for
loan losses. The allowance for loan losses is also subject to review by
regulatory agencies through periodic examinations. Such examination could result
in required changes to the allowance for loan losses.
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<PAGE>
INVESTMENTS
The Bank invests primarily in federal agency obligations and mortgage backed
securities. Federal agency obligations are guaranteed by the United States.
The amortized cost and approximate fair value of investment securities,
including maturities, are summarized as follows at December 31:
1999
-------------------------
AMORTIZED FAIR
COST VALUE
---- -----
AVAILABLE FOR SALE
- ------------------
Federal Agencies
One to five years $ 2,500,000 $ 2,437,977
Five to ten years 1,500,000 1,433,266
--------- ---------
4,000,000 3,871,243
--------- ---------
Mortgage backed
One to five years 1,254,879 1,227,635
After ten years 81,287 81,762
------ ------
1,336,166 1,309,397
--------- ---------
Total available for sale $ 5,336,166 $ 5,180,640
============= =============
HELD TO MATURITY
- ----------------
State, county and municipal
One to five years $ 550,644 $ 551,175
Five to ten years 472,002 438,675
------- -------
Total held to maturity $ 1,022,646 $ 989,850
============= =============
1998
--------------------------
AMORTIZED FAIR
COST VALUE
---- -----
AVAILABLE FOR SALE
- ------------------
Federal Agencies
Less than one year $ 1,305,300 $ 1,310,061
One to five years 1,499,953 1,498,902
--------- ---------
Five to ten years 2,805,253 2,808,963
--------- ---------
Mortgage backed
One to five years 1,500,403 1,512,477
After ten years 99,951 101,026
------ -------
1,600,354 1,613,503
--------- ---------
Total available for sale $ 4,405,607 $ 4,422,466
============= =============
HELD TO MATURITY
- ----------------
State, county and municipal
One to five years $ 664,916 $ 678,342
Five to ten years 90,346 93,675
------ ------
Total held to maturity $ 755,262 $ 772,017
============= =============
-8-
<PAGE>
For purposes of the maturity table, mortgage-backed securities, which are not
due at a single maturity date, have been allocated over maturity groupings based
on an average maturity life computation of the underlying collateral. The
mortgage-backed securities may mature earlier than their average maturity lives
because of principal prepayments.
Investment securities with an aggregate amortized cost of approximately
$1,200,000 ($1,184,000 fair value) at December 31, 1999 and $1,965,000
($1,983,000 fair value) at December 31, 1998, were pledged to secure public
deposits and for other purposes.
The Bank accounts for investment securities in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." Debt securities are classified upon
purchase as available for sale, held to maturity or trading. Such assets
classified as available for sale are carried at fair value. Unrealized gains or
losses are reported as a component of shareholders' equity net of deferred
income taxes. Securities classified as held to maturity are carried at cost and
adjusted for the amortization of premiums and the accretion of discounts. In
order to qualify as held to maturity, the Bank must have the ability to hold the
securities to maturity. Trading securities are carried at market value. The Bank
has no trading securities. Gains or losses on disposition of securities are
based on the difference between the net proceeds and the adjusted carrying
amount of the securities sold, using the specific identification method.
DEPOSITS
The Bank offers a full range of interest-bearing and noninterest-bearing
accounts, including commercial and retail checking accounts, negotiable orders
of withdrawal ("NOW") accounts, money market accounts, individual retirement
accounts, regular interest-bearing statement savings accounts and certificates
of deposit with fixed rates and a range of maturity date options. The sources of
deposits are residents, businesses and employees of businesses within the
midlands region. The Bank pays competitive interest rates on interest checking,
savings, money market, time and individual retirement accounts.
The Bank's average deposits in 1999 were $19,813,000, compared to $19,049,000
the prior year, an increase of $764,000 or 4.8%.
The following tables presents, for the years ended December 31, 1999 and 1998,
the amount and average rate paid on each of the following deposit categories:
<TABLE>
<CAPTION>
AMOUNT AVERAGE RATE PAID
--------------------- ------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Noninterest-bearing deposits $ 4,645,316 $ 5,531,815 0% 0%
Interest-bearing deposits
Interest checking 7,251,572 7,699,886 1.78 2.64
Savings deposits 2,236,130 4,293,681 1.78 2.63
Money market 362,446 401,676 1.78 2.64
Certificates of deposit 7,508,303 7,233,036 4.51 5.34
Individual retirement accounts 1,930,704 2,170,546 4.80 5.34
</TABLE>
The Bank's core deposits consist of consumer time deposits, savings accounts,
NOW accounts, money market accounts and checking accounts. Although such core
deposits are becoming increasingly interest sensitive for both the Bank and the
industry as a whole, such core deposits continue to provide the Bank with a
large and stable source of funds. The Bank closely monitors its reliance on
certificates of deposits greater than $100,000, which are generally considered
less stable and less reliable than core deposits.
-9-
<PAGE>
At December 31, 1999 and 1998, certificate of deposits of $100,000 or more
totaled $2,045,853 and $1,780,946, respectively.
DIVIDENDS
State banking regulations restrict the amount of dividends that can be paid and
require prior approval of the State Board of Financial Institutions. The Bank
declared a cash dividend of 80 cents per share during January of 2000 to
stockholders of record as of December 31, 1999. The Bank paid a cash dividend of
.55 cents per share in January 1999 to shareholders of record as of December 31,
1998.
CAPITAL RESOURCES
The capital base for the Bank increased by $196,152 during 1999. This is
comprised of $412,528 net income offset by a $113,676 unrealized loss on
available for sale securities and $102,700 paid in dividends to stockholders.
The Bank's equity to asset ratio was 12.07 percent on December 31, 1999, as
compared to 10.15 percent on December 31, 1998.
The Federal Deposit Insurance Corporation has issued guidelines for risk-based
capital requirements. As of December 31, 1999, the Bank exceeds the capital
requirement levels that are to be maintained.
<TABLE>
<CAPTION>
CAPITAL RATIOS
(AMOUNTS IN THOUSANDS)
WELL ADEQUATELY
CAPITALIZED CAPITALIZED
ACTUAL REQUIREMENT REQUIREMENT
----------------------- -------------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk
weighted assets) $ 3,631 21.5% $ 1,692 10.0% $ 1,354 8.00%
Tier 1 capital (to risk
weighted assets) 3,422 20.2 1,015 6.0 677 4.00
Tier 1 capital (to average
assets) 3,422 12.1 1,416 5.0 1,133 4.00
</TABLE>
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
Asset/liability management is the process by which the Bank monitors and
controls the mix and maturities of its assets and liabilities in order to
promote stable growth in net interest income. The goal of liquidity management
is to ensure the availability of adequate funds to meet the loan demand and the
deposit withdrawal needs of bank customers. Maintaining an adequate level of
liquidity is achieved through a combination of sufficient liquid assets, core
deposit growth and access to alternate sources of funds which provide a sizable
base from which to draw as liquidity needs arise.
Interest sensitive assets and liabilities are those that are subject to
repricing in the near term, including both floating rate instruments and those
with approaching maturities. The interest sensitivity gap is the difference
between total interest sensitive assets and liabilities in a given time period.
The objective of interest rate sensitivity management is to maintain the
difference between interest sensitive assets and liabilities at a level that
will minimize the effects on the net interest margin of significant interest
rate shifts. The Bank's periodic and cumulative interest sensitivity positions
which existed at year end are as follows.
-10-
<PAGE>
<TABLE>
<CAPTION>
TOTAL OVER ONE
WITHIN YEAR OR
0-3 MONTHS 4-12 MONTHS ONE YEAR NON-SENSITIVE TOTAL
---------- ----------- -------- ------------- -----
<S> <C> <C> <C> <C> <C>
Earning assets
Loans net of unearned
income $ 9,764 $ 1,123 $ 10,887 $ 5,604 $ 16,491
Investment securities 1,960 499 2,459 5,756 8,215
----- --- ----- ----- -----
Total earning assets 11,724 1,622 13,346 11,360 24,706
Percentage of total
earning assets 47.45% 6.57% 54.02% 45.98% 100.00%
Interest-bearing liabilities
Certificates of deposits
of $100,000 or more 1,083 963 2,046 - 2,046
Other time and savings
deposits 12,733 4,304 17,037 183 17,220
------ ----- ------ --- ------
Total interest-bearing
liabilities 13,816 5,267 19,083 183 19,266
Other sources - - - 5,440 5,440
----------- ------------ ---------- ------------- -----------
Total sources $ 13,816 $ 5,267 $ 19,083 $ 5,623 $ 24,706
=========== ============ ========== ============= ===========
Percentage of total earning
assets 55.92% 21.32% 77.24% 22.76% 100.00%
Interest sensitive gap (2,092) (3,645) (5,737) 5,737 -
Cumulative interest sensitive
gap (2,092) (5,737) (5,737) - -
</TABLE>
<TABLE>
<CAPTION>
SOURCES AND USES OF FUNDS
(AVERAGE BALANCES FOR YEARS ENDED DECEMBER 31 IN THOUSANDS)
DECEMBER 31,
---------------------------------------------------------------
1999 1998
---------------------------- --------------------------
AMOUNT PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C>
Composition of sources:
Demand deposits $ 4,997 17.81% $ 5,003 18.43%
Now and money market 7,339 26.15% 6,595 24.29%
Time and savings deposits 12,474 44.45% 12,454 45.88%
Short-term borrowings 2 0.01% 0.00%
Other non interest-bearing funds 129 0.46% 194 0.71%
Stockholders' equity 3,119 11.12% 2,899 10.68%
----- ----- ----- -----
Total sources $ 28,060 100.00% $ 27,145 100.00%
============== ====== ============== ======
Composition of uses:
*Loans $ 16,368 58.33% $ 16,709 61.56%
Investment securities 6,264 22.32% 4,164 15.34%
Other earning assets 3,128 11.15% 4,358 16.05%
Other assets 2,300 8.20% 1,914 7.05%
----- ---- ----- ----
Total uses $ 28,060 100.00% 27,145 100.00%
========== ====== ====== ======
*Loan balances stated net of unearned income
</TABLE>
-11-
<PAGE>
SOURCES OF FUNDS
Average sources of funds increased $915,000 to $28,060,000 in 1999 compared to
$27,145,000 in 1998. This represents an increase of 3.4% in total average
sources of funds. Average NOW and money market deposits increased $744,000 or
11.3%, which mainly accounts for the increase of total average source of funds.
Average investment securities increased $2,100,000 or 50.4% while average other
earning assets decreased $1,230,000 or 28.2% and average loans decreased
$341,000 or 2.0% to account for the overall increase of total uses of funds in
1999.
EFFECTS OF REGULATORY ACTION
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 the
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 facts 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 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
Trust 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 are evaluated as part of the
examination process, and are also 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."
-12-
<PAGE>
A bank that is "undercapitalized" becomes subject to provisions of the FDIA:
restricting payment of capital distributions and management fees; requiring 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 payment 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.
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 of the 1991 Banking Law (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
In July 1994, South Carolina enacted legislation which effectively provides
that, after September 30, 1996, out-of-state bank holding companies (including
bank holding companies in Southern Region, as defined under the statute) may
acquire other banks or bank holding companies having offices in South Carolina
upon the approval of the South Carolina Board of Financial Institutions and
assuming compliance with certain other conditions, including that the effect of
the transaction not lessen competition and that the laws of the state in which
the out-of-state bank holding company filing the applications has its principal
place of business permit South Carolina bank holding companies to acquire bank
and bank holding companies in that state. Although such legislation may increase
takeover activity in South Carolina, the Bank does not believe that such
legislation will have a material impact on its competitive position. However, no
assurance of such fact may be given.
The Riegle-Neal Instate Banking and Branching Efficiency Act of 1994 has
increased the ability of bank holding companies and banks to operate across
state lines. Under the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994, the existing restrictions on interstate acquisitions of bank by
bank holding companies will be repealed one year following enactment, such that
the Company and any other bank holding company located in South Carolina could
acquire any South Carolina-based bank, in either case subject to certain deposit
percentage and other restrictions. The legislation also provides that, unless an
individual state elects beforehand either (i) to accelerate the effective date
or (ii) to prohibit out-of-state banks from operating interstate branches within
its territory, on or after June 1, 1999, adequately capitalized and managed bank
holding companies will be able 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 would be permitted only if it is
expressly permitted by the laws of the host state. the authority of a bank to
establish and operate branches within a state will 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. The Bank believes that this legislation may result in
additional acquisitions of South Carolina financial institutions by out-of-state
financial institutions. However, the Bank does not presently anticipate that
such legislation will have a material impact on its operations or future plans.
-13-
<PAGE>
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 a 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.
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 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.
-14-
<PAGE>
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.
IMPACT OF INFLATION
Unlike most industrial companies, the assets and liabilities of financial
institutions such as the Bank are primarily monetary in nature. Therefore,
interest rates have a more significant impact on the Bank's performance than do
the effects of changes in the general rate of inflation and changes in prices.
In addition, interest rates do not necessarily move in the same magnitude as the
prices of goods and services. As discussed previously, management seeks to
manage the relationships between interest sensitive assets and liabilities in
order to protect against wide rate fluctuations, including those resulting from
inflation.
EMPLOYEES
The Bank presently employs 14 full-time equivalent employees. Management
believes that its employee relations are good.
ITEM 2. PROPERTIES
- ------------------
The Company's corporate office is located at 202 Cashua Street, Darlington,
South Carolina. The building also houses the Bank's branch facilities and
central operations, including data processing and accounting.
ITEM 3. LEGAL PROCEEDINGS
- -------------------------
There are no material pending legal proceedings to which the Company is a party
or of which any of their properties are subject; nor are there material
proceedings known to the Company to be contemplated by any governmental
authority; nor are there material proceedings known to the Company, pending or
contemplated, in which any director, officer or affiliate or any principal
security holder of the Company, or any associate of any of the foregoing, is a
party or has an interest adverse to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
No matter was submitted during the fourth quarter ended December 31, 1999 to a
vote of security holders of the Company.
-15-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
- ---------------------------------------------------------
STOCKHOLDER MATTERS
-------------------
During the period covered by this report and to date, there has been no
established trading market for the Bank's stock, and one is not expected to
develop in the near future.
As of March 15, 2000, the number of holders of record for the Company's common
stock was 503.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- -----------------------------------------------------------------
1999 COMPARED TO 1998
Net income for the year ended December 31, 1999 was $412,528 compared with
$410,216 in 1998. Earnings per share for 1999 was $2.61 as compared to $2.60 per
share in 1998.
Net interest income, which is the difference between interest earned on
interest-earning assets and interest paid on interest bearing liabilities, is
the largest contributor to the Company's earnings. Net interest income increased
$72,554 or 5.8% from 1998. Interest income decreased in 1999 due to a lower
average loan portfolio and interest expense decreased by $83,132 because of a
lower deposit base.
Average earning assets in 1999 were $25,760,000 or 91.8% of total average assets
as compared to $25,231,000 or 92.9% of total average assets in 1998. The primary
types of earning assets are loans, investment securities and temporary
investments. Loans comprised 63.5% of the Bank's total earning assets, while
investment securities comprised 24.3% and temporary investments comprised 12.2%
in 1999.
Average loans decreased $341,000 or 2.0% during 1999. At year ended December 31,
1999, net loans totaled $16,490,845. This reflects an increase of $263,894 or
1.6% compared to December 31, 1998.
Commercial, financial and agricultural loans comprised 34.4% of the loan
portfolio as of December 31, 1999. Loans secured by real estate comprised 47.3%
of the portfolio, while consumer and other loans comprised 18.3% of the loan
portfolio as of year ended December 31, 1999.
The amount of net loans charged off in 1999 was approximately $71,000 compared
to $75,000 in 1998 and $63,000 in 1997. The ratio of net charge-offs to average
loans, net of unearned income, for 1999 was 0.43% as compared to-0.45% in 1998
and 0.39% in 1997.
There was no provision for loans losses made in 1999, leaving a reserve for loan
losses of $209,000. This allowance for loan losses as a percentage of loans, net
of unearned income, was 1.27% on December 31, 1999, as compared to 1.72% on
December 31, 1998.
Non-interest income increased $18,217 or 7.1% in 1999. Service charges on
deposit accounts increased $24,125 or 10.4% while other service charges and fees
decreased $5,908 or 22.0% in 1999.
-16-
<PAGE>
Non-interest expense increased $121,642 or 13.7% in 1999. Salaries and employee
benefits expense increased $8,219 or 1.8% in 1999. Other operating expense plus
data processing fees increased $87,682 or 32.8% in 1999. Also, occupancy expense
increase $11,419 or 22.3% and furniture and equipment expense increased $7,277
or 12.9% in 1999, which is attributed to the new addition to the Bank's
facility.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." All derivatives
are to be measured at fair value and recognized in the balance sheet as assets
and liabilities. This statement's effective date was delayed by the issuance of
SFAS 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of SFAS 133," and is effective for fiscal years
and quarters beginning after June 15, 2000. The Company does not expect that the
adoption of SFAS 133 will have a material impact on the presentation of the
Company's financial results or financial position.
ITEM 7. FINANCIAL STATEMENTS
- ------------------------------
The following financial statements are filed with this report:
- - Independent Auditor's Report
- - Consolidated Balance Sheets as of December 31, 1999 and 1998
- - Consolidated Statements of Income for the years ended December 31, 1999,
1998 and 1997
- - Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997
- - Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997
- - Notes to Consolidated Financial Statements
<PAGE>
DARLINGTON COUNTY BANCSHARES, INC. AND SUBSIDIARY
REPORT ON FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<PAGE>
DARLINGTON COUNTY BANCSHARES, INC. AND SUBSIDIARY
DARLINGTON, SOUTH CAROLINA
CONTENTS
--------
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Consolidated balance sheets 2
Consolidated statements of income 3
Consolidated statements of stockholders' equity 4
Consolidated statements of cash flows 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6 - 15
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Directors and Stockholders
Darlington County Bancshares, Inc. and Subsidiary
Darlington, South Carolina
We have audited the accompanying consolidated balance sheets of Darlington
County Bancshares, Inc. and Subsidiary as of December 31, 1999 and 1998, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Bank'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 misstatement. 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
consolidated 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 consolidated financial position of
Darlington County Bancshares, Inc. and Subsidiary as of December 31, 1999 and
1998 and the results of their operations and cash flows for each of the three
years in the period ended December 31, 1999, in conformity with generally
accepted accounting principles.
January 12, 2000
Elliott, Davis & Company, LLP
- -----------------------------
Greenville, South Carolina
<PAGE>
<TABLE>
<CAPTION>
DARLINGTON COUNTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
------------------------------------------
1999 1998
---------------- --------------------
ASSETS
<S> <C> <C>
CASH AND DUE FROM BANKS $ 1,409,349 $ 871,807
FEDERAL FUNDS SOLD 1,960,000 7,270,000
INVESTMENT SECURITIES HELD TO MATURITY
(FAIR VALUE $989,850 IN 1999 AND $772,017 IN 1998) 1,022,646 755,262
INVESTMENT SECURITIES AVAILABLE FOR SALE 5,180,640 4,422,466
OTHER INVESTMENTS, AT COST 50,405 50,405
LOANS 16,490,845 16,226,951
Less allowance for loan losses (208,641) (279,749)
-------- --------
Net loans 16,282,204 15,947,202
PREMISES AND EQUIPMENT 914,260 887,400
ACCRUED INTEREST RECEIVABLE 398,394 339,436
FORECLOSED REAL ESTATE - 67,669
OTHER ASSETS 149,079 19,965
------- ------
$ 27,366,977 $ 30,631,612
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS
Demand deposits $ 4,645,315 $ 5,531,244
Savings and NOW deposits 9,850,149 12,395,244
Other time deposits 9,439,007 9,403,584
--------- ---------
Total deposits 23,934,471 27,330,072
OTHER LIABILITIES 128,624 193,810
------- -------
Total liabilities 24,063,095 27,523,882
---------- ----------
COMMITMENTS AND CONTINGENCIES - NOTE 9
STOCKHOLDERS' EQUITY
Common stock - $.01 par value, 1,000,000 shares authorized,
158,000 shares issued and outstanding at December 31, 1999;
$5 par value; 158,000 shares authorized, issued and outstanding
at December 31, 1998 1,580 790,000
Capital in excess of par value of stock 1,617,920 829,500
Retained earnings 1,787,030 1,477,202
Accumulated other comprehensive income (loss) (102,648) 11,028
-------- ------
Total stockholders' equity 3,303,882 3,107,730
--------- ---------
$ 27,366,977 $ 30,631,612
================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-2-
<PAGE>
<TABLE>
<CAPTION>
DARLINGTON COUNTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
1999 1998 1997
<S> <C> <C> <C>
INTEREST INCOME
Loans $ 1,477,742 $ 1,542,452 $ 1,537,228
Investment securities
Taxable 317,797 204,211 224,094
Exempt from federal income taxes 45,865 40,631 25,871
------ ------ ------
Total interest on investment securities 363,662 244,842 249,965
Federal funds sold 156,072 222,853 130,066
Other 4,473 2,380 2,028
----- ----- -----
Total interest income 2,001,949 2,012,527 1,919,287
========= ========= =========
INTEREST EXPENSE
Deposits 664,452 747,584 680,749
------- ------- -------
Net interest income 1,337,497 1,264,943 1,238,538
PROVISION FOR LOAN LOSSES - 22,183 89,755
--------- --------- ---------
Net interest income after provision for loan losses 1,337,497 1,242,760 1,148,783
NONINTEREST INCOME
Service charges on deposit accounts 255,534 231,409 212,720
Other service charges and fees 20,933 26,841 26,756
------ ------ ------
Total noninterest income 276,467 258,250 239,476
------- ------- -------
NONINTEREST EXPENSES
Salaries and employee benefits 472,350 464,131 427,819
Occupancy 62,587 51,168 45,449
Furniture and equipment 63,802 56,525 57,913
Office supplies 53,628 46,583 46,903
Data processing fees 89,484 64,942 66,370
Other operating 265,585 202,445 173,491
------- ------- -------
Total noninterest expenses 1,007,436 885,794 817,945
--------- ------- -------
Income before income taxes 606,528 615,216 570,314
PROVISION FOR INCOME TAXES 194,000 205,000 198,500
------- ------- -------
Net income $ 412,528 $ 410,216 $ 371,814
============= ============= =============
NET INCOME PER SHARE OF COMMON STOCK $ 2.61 $ 2.60 $ 2.35
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
<PAGE>
<TABLE>
<CAPTION>
DARLINGTON COUNTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
CAPITAL IN ACCUMULATED
EXCESS OF OTHER COM- TOTAL
COMMON STOCK PAR VALUE RETAINED PREHENSIVE STOCKHOLDERS'
SHARES AMOUNT OF STOCK EARNINGS INCOME EQUITY
------ ------ -------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 158,000 $ 790,000 $ 829,500 $ 853,172 $ (905) $ 2,471,767
------------
Net income - - - 371,814 - 371,814
Other comprehensive income, net
of income taxes of $2,350:
Unrealized gain on securities
available for sale - - - - 3,525 3,525
-----------
Comprehensive income 375,339
Cash dividend, $.45 per share - - - (71,100) - (71,100)
---- ------- ------- ------- ------- ----- -----------
BALANCE, DECEMBER 31, 1997 158,000 790,000 829,500 1,153,886 2,620 2,776,006
-----------
Net income - - - 410,216 - 410,216
Other comprehensive income, net
of income taxes of $3,209:
Unrealized gain on securities
available for sale - - - - 8,408 8,408
----------
Comprehensive income 418,624
Cash dividend, $.55 per share - - - (86,900) - (86,900)
---- ------- ------- ------- ------- ------ ----------
BALANCE, DECEMBER 31, 1998 158,000 790,000 829,500 1,477,202 11,028 3,107,730
Net income - - - 412,528 - 412,528
Par value conversion - (788,420) 788,420 - - -
Other comprehensive income, net
of income taxes of $58,708:
Unrealized loss on securities
available for sale - - - - (113,676) (113,676)
--------
Comprehensive income 298,852
Cash dividend, $.65 per share - - (102,700) - (102,700)
---- ------- ------ --------- -------- -------- --------
BALANCE, DECEMBER 31, 1999 158,000 $ 1,580 $ 1,617,920 $ 1,787,030 $ (102,648) $ 3,303,882
======= ========== =========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-4-
<PAGE>
DARLINGTON COUNTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 412,528 $ 410,216 $ 371,814
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation 58,806 43,649 49,670
Amortization and accretion 4,690 6,180 5,064
Provision (benefit) for loan losses - 22,183 89,755
Provision (benefit) for deferred income taxes (8,000) (45,700) 15,586
Changes in assets and liabilities:
(Increase) decrease in accrued interest receivable (58,956) 4,706 (9,606)
(Increase) decrease in other assets (62,406) 80,921 (9,939)
Decrease in other liabilities (65,186) (33,708) (2,290)
------- ------- ------
Cash provided by operating activities 281,476 488,447 510,054
------- ------- -------
INVESTING ACTIVITIES
Decrease (increase) in federal funds sold 5,310,000 (3,890,000) 2,010,000
Proceeds from maturities of investment securities
held to maturity 204,000 - -
Proceeds from maturities of investment securities
available for sale 1,064,738 2,940,842 2,303,865
Purchase of investment securities held to maturity (471,370) - (257,258)
Purchase of investment securities available for sale (2,000,000) (4,112,563) (2,049,539)
Net increase in loans (335,004) (96,260) (1,580,028)
Purchases of premises and equipment (85,666) (349,233) (10,383)
Net decrease in foreclosed real estate 67,669 15,000 -
------ ------
Cash provided by (used for) investing activities 3,754,367 (5,492,214) 416,657
--------- ---------- -------
FINANCING ACTIVITIES
Dividends declared (102,700) (86,900) (71,100)
Increase (decrease) in deposits (3,395,601) 4,997,478 (1,052,903)
---------- --------- ----------
Cash provided by (used for) financing activities (3,498,301) 4,910,578 (1,124,003)
---------- --------- ----------
Increase (decrease) in cash and due from banks 537,542 (93,189) (197,292)
CASH AND DUE FROM BANKS, BEGINNING OF YEAR 871,807 964,996 1,162,288
------- ------- ---------
CASH AND DUE FROM BANKS, END OF YEAR $ 1,409,349 $ 871,807 $ 964,996
============= ============= =============
SUPPLEMENTAL DISCLOSURES
Schedule of cash paid for:
Interest $ 677,933 $ 752,614 $ 660,239
============= ============= =============
Income taxes $ 290,915 $ 237,155 $ 225,021
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-5-
<PAGE>
DARLINGTON COUNTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDTED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES
PRINCIPLES OF CONSOLIDATION AND NATURE OF OPERATIONS
Darlington County Bancshares, Inc. (the "Company") was organized in July
1999 for the purpose of being the holding company for Darlington County
Bank (the "Bank"). On July 1, 1999, pursuant to a Plan of Exchange approved
by the stockholders, all of the outstanding shares of common stock of the
Bank were exchanged for shares of common stock of the Company. The Company
presently engages in no other business other than that of owning the Bank,
has no employees and operates as one business segment. The Company is
subject to regulation by the Federal Reserve Board. The consolidated
financial statements include the accounts of the Company and the Bank with
all intercompany balances and transactions having been eliminated. For ease
of presentation, the formation of the holding company has been treated as
if it occurred at the earliest date presented in these financial
statements. This presentation has no effect on net income or stockholders'
equity.
The Bank operates under a state charter and provides full banking services
to its customers. The Bank is subject to regulation by the State Board of
Financial Institutions and the Federal Deposit Insurance Corporation. The
Bank makes commercial and personal loans to individuals and small
businesses located primarily in the South Carolina midlands region. The
Bank has a diversified loan portfolio and the borrowers' ability to repay
their loans is not dependent upon any specific economic sector.
USE OF ESTIMATES IN FINANCIAL STATEMENT PREPARATION
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the
dates of the Balance Sheets and the Statements of Income for the periods
covered. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, cash and cash equivalents are
defined as those amounts included in the balance sheet caption "Cash and
Due from Banks." Cash and cash equivalents have an original maturity of
three months or less.
INVESTMENT SECURITIES
The Bank accounts for investment securities in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." Debt securities are classified
upon purchase as available for sale, held to maturity or trading. Such
assets classified as available for sale are carried at fair value.
Unrealized gains or losses are reported as a component of stockholders'
equity net of deferred income taxes. Securities classified as held to
maturity are carried at cost, adjusted for the amortization of premiums and
the accretion of discounts. In order to qualify as held to maturity, the
Bank must have the ability to hold the securities to maturity. Trading
securities are carried at market value. The Bank has no trading securities.
Gains or losses on disposition of securities are based on the difference
between the net proceeds and the adjusted carrying amount of the securities
sold, using the specific identification method.
LOANS
Interest on loans is accrued and taken into income based upon the interest
method. Loan origination and commitment fees and direct loan origination
costs are deferred and amortized over the contractual life of the related
loans or commitments as an adjustment of the related loan yields.
(Continued)
-6-
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, CONTINUED
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is based on management's ongoing evaluation
of the loan portfolio and reflects an amount that, in management's opinion,
is adequate to absorb losses in the existing portfolio. In evaluating the
portfolio, management takes into consideration numerous factors, including
current economic conditions, prior loan loss experience, the composition of
the loan portfolio, and management's estimate of anticipated credit losses.
Loans are charged against the allowance at such time as they are determined
to be losses. Subsequent recoveries are credited to the allowance.
Management considers the year-end allowance appropriate and adequate to
cover possible losses in the loan portfolio; however, management's judgment
is based upon a number of assumptions about future events, which are
believed to be reasonable, but which may or may not prove valid. Thus,
there can be no assurance that charge-offs in future periods will not
exceed the allowance for loan losses or that additional increases in the
allowance for loan losses will not be required.
ACCOUNTING FOR IMPAIRED LOANS
The Bank accounts for impaired loans in accordance with SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". This standard requires
that all creditors value loans at the loan's fair value if it is probable
that the creditor will be unable to collect all amounts due according to
the terms of the loan agreement. Fair value may be determined based upon
the present value of expected cash flows, market price of the loan, if
available, or value of the underlying collateral. Expected cash flows are
required to be discounted at the loan's effective interest rate. SFAS No.
114 was amended by SFAS No. 118 to allow a creditor to use existing methods
for recognizing interest income on an impaired loan and by requiring
additional disclosures about how a creditor recognizes interest income on
an impaired loan. When the ultimate collectibility of an impaired loan's
principal is in doubt, wholly or partially, all cash receipts are applied
to principal. When this doubt does not exist, cash receipts are applied
under the contractual terms of the loan agreement first to principal then
to interest income. Once the recorded principal balance has been reduced to
zero, future cash receipts are applied to interest income, to the extent
that any interest has been foregone. Further cash receipts are recorded as
recoveries of any amounts previously charged off.
A loan is also considered impaired if its terms are modified in a troubled
debt restructuring. For these accruing impaired loans, cash receipts are
typically applied to principal and interest receivable in accordance with
the terms of the restructured loan agreement. Interest income is recognized
on these loans using the accrual method of accounting. As of December 31,
1999 and 1998, the Bank had no impaired loans.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed over the estimated
useful lives of the assets using the straight-line method. Additions to
premises and equipment and major replacements or improvements are
capitalized at cost. Maintenance, repairs and minor replacements are
expensed when incurred. Gains and losses on routine dispositions are
reflected in current operations.
NON-PERFORMING ASSETS
Loans are placed in a non-accrual status when, in the opinion of
management, the collection of additional interest is questionable.
Thereafter, no interest is taken into income unless received in cash or
until such time as the borrower demonstrates the ability to pay principal
and interest.
(Continued)
-7-
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, CONTINUED
FORECLOSED REAL ESTATE
Foreclosed real estate is stated at the lower of cost or estimated fair
value less estimated costs to sell. Any accrued interest on the related
loan at the date of acquisition is charged to operations. Costs relating to
the development and improvement of property are capitalized to the extent
that such costs do not exceed the estimated fair value less selling costs
of the property, whereas those relating to holding the property are charged
to expense.
INCOME TAXES
The Company accounts for income taxes under SFAS No. 109, "Accounting for
Income Taxes." Certain items of income and expense for financial reporting
(principally provision for loan losses and depreciation) are recognized
differently for income tax purposes. Provisions for deferred taxes are made
in recognition of such temporary differences.
NET INCOME PER SHARE
Net income per share is computed on the basis of the weighted average
number of common shares outstanding, 158,000 in 1999, 1998 and 1997. The
Company has no instruments which are dilutive; therefore, only basic net
income per share of common stock is presented.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
133, "Accounting for Derivative Instruments and Hedging Activities." All
derivatives are to be measured at fair value and recognized in the balance
sheet as assets and liabilities. This statement's effective date was
delayed by the issuance of SFAS 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of SFAS 133," and
is effective for fiscal years and quarters beginning after June 15, 2000.
The Company does not expect that the adoption of SFAS 133 will have a
material impact on the presentation of the Company's financial results or
financial position.
NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required to maintain average reserve balances either at the
Bank or on deposit with the Federal Reserve Bank. The average amounts of these
reserve balances for the years ended December 31, 1999 and 1998 were
approximately $197,000 and $256,000, respectively.
-8-
<PAGE>
NOTE 3 - INVESTMENT SECURITIES
The amortized cost and approximate fair value of investment securities,
including maturities, are summarized as follows at December 31:
<TABLE>
<CAPTION>
1999
--------------------------------------------------------
Gross unrealized
Amortized ----------------------- Fair
cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
Federal Agencies
One to five years $ 2,500,000 $ - $ 62,023 $ 2,437,977
Five to ten years 1,500,000 - 66,734 1,433,266
--------- ------ ---------
4,000,000 - 128,757 3,871,243
--------- ------- ---------
Mortgage backed
One to five years 1,254,879 - 27,244 1,227,635
After ten years 81,287 475 - 81,762
------ --- ------
1,336,166 475 27,244 1,309,397
--------- --- ------ ---------
Total available for sale $ 5,336,166 $ 475 $ 156,001 $ 5,180,640
=============== ========== ========== ============
HELD TO MATURITY
State, county and municipal
One to five years $ 550,644 $ 531 $ - $551,175
After ten years 472,002 - 33,327 438,675
------- ------ -------
Total held to maturity $ 1,022,646 $ 531 $ 33,327 $ 989,850
=============== ========== ========== ========
1998
--------------------------------------------------------
AVAILABLE FOR SALE
Federal Agencies
One to five years $ 1,305,300 $ 4,761 $ - $ 1,310,061
Five to ten years 1,499,953 - 1,051 1,498,902
--------- ----- ---------
2,805,253 4,761 1,051 2,808,963
--------- ----- ----- ---------
Mortgage backed
One to five years 1,500,403 12,074 - 1,512,477
After ten years 99,951 1,075 - 101,026
------ ----- -------
1,600,354 13,149 - 1,613,503
--------- ------ ---------
Total available for sale $ 4,405,607 $ 17,910 $ 1,051 $ 4,422,466
=============== ========== ========== ==========
HELD TO MATURITY
State, county and municipal
One to five years $ 664,916 $ 13,426 $ - $ 678,342
Five to ten years 90,346 3,329 - 93,675
------ ----- ------
Total held to maturity $ 755,262 $ 16,755 $ - $ 772,017
=============== ========== ========= ========
</TABLE>
(Continued)
-9-
<PAGE>
NOTE 3 - INVESTMENT SECURITIES, Continued
For purposes of the maturity table, mortgage-backed securities, which are
not due at a single maturity date, have been allocated over maturity groupings
based on an average maturity life computation of the underlying collateral. The
mortgage-backed securities may mature earlier than their average maturity lives
because of principal prepayments.
Investment securities with an aggregate amortized cost of approximately
$1,200,000 ($1,184,000 fair value) at December 31, 1999 and $1,965,000
($1,983,000 fair value) at December 31, 1998, were pledged to secure public
deposits and for other purposes. Fair value of investment securities is
determined using quoted market prices.
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES
Following is a summary of loans by major classification at December 31,:
1999 1998
---- ----
Real estate - mortgage $ 7,473,000 $ 7,638,000
Real estate - construction 329,000 369,000
Commercial and industrial 3,739,000 3,604,331
Loans to individuals for household, family and
other consumer expenditures 2,978,000 2,908,000
Agriculture 992,000 586,000
All other loans, including overdrafts 961,152 1,103,156
Deferred loan origination costs 18,693 18,464
-------------- --------------
$ 16,490,845 $ 16,226,951
============== ==============
Changes in the allowance for loan losses are summarized as follows for the
years ended December 31,:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- --------------- -------------
<S> <C> <C> <C>
Balance, beginning of year $ 279,749 $ 182,802 $ 156,079
Recoveries of loans previously charged
against the allowance 16,921 151,614 2,423
Provision for loan losses - 22,183 89,755
Loans charged against the allowance (88,028) (76,850) (65,455)
------- ------- -------
Balance, end of year $ 208,642 $ 279,749 $ 182,802
============== =============== ==============
</TABLE>
At December 31, 1999 and 1998, non-accrual loans totaled $27,949 and
$85,912, respectively. The gross interest income which would have been recorded
under the original terms of the non-accrual loans amounted to $11,719 in 1999,
$15,088 in 1998, and $13,869 in 1997. No interest was recorded on nonaccrual
loans in 1999, 1998 and 1997. There were no impaired loans at December 31, 1999
or 1998.
-10-
<PAGE>
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment at December 31 is summarized as follows:
1999 1998
--------------- --------------
Land and buildings $ 954,850 $ 936,866
Furniture, fixtures and equipment 488,659 420,977
------- -------
1,443,509 1,357,843
Less accumulated depreciation and
amortization 529,249 470,443
------- -------
$ 914,260 $ 887,400
=============== ==============
Depreciation and amortization of bank premises and equipment charged to
operating expense totaled $58,806 in 1999, $43,649 in 1998 and $49,670 in 1997.
NOTE 6 - DEPOSITS
At December 31, 1999 and 1998, certificates of deposit of $100,000 or more
totaled approximately $2,045,853 and $1,780,946, respectively. Interest expense
on these deposits was $75,263 in 1999, $63,864 in 1998 and $72,695 in 1997.
At December 31, 1999, the scheduled maturities of certificates of deposit
are as follows:
2000 $ 5,523,108
2001 3,655,684
2002 155,776
2003 104,439
---- -------
$ 9,439,007
===============
NOTE 7 - UNUSED LINES OF CREDIT
At December 31, 1999, the Bank has an unused short-term line of credit to
purchase Federal funds from an unrelated bank totaling $2,500,000. This line of
credit is available on a one to seven day basis for general corporate purposes
of the Bank. The lender has reserved the right to withdraw this line at its
option.
-11-
<PAGE>
NOTE 8 - INCOME TAXES
The following summary of the provision for income taxes includes tax
deferrals which arise from temporary differences in the recognition of certain
items of revenue and expense for tax and financial reporting purposes for the
years ended December 31,:
1999 1998 1997
---- ---- ----
Income taxes currently payable
Federal $ 183,000 $ 232,200 $ 176,764
State 19,000 18,500 6,150
------ ------ -----
202,000 250,700 182,914
------- ------- -------
Tax consequences of differences
Loan losses - (37,202) 13,376
Depreciation 1,630 (5,275) (4,829)
Other (9,630) (3,223) 7,039
------ ------ -----
(8,000) (45,700) 15,586
------ ------- ------
Provision $ 194,000 $ 205,000 $198,500
========= ========== ========
The income tax effect of cumulative temporary differences at December 31,
are as follows:
Deferred tax asset (liability)
--------------------------------
1999 1998
---- ----
Allowance for loan losses $ 70,938 $ 64,621
Accumulated depreciation (35,849) (29,100)
Unrealized gain on investment securities 52,879 (5,831)
Other, net 5,202 (3,230)
----- ------
$ 83,170 $ 26,460
============= ==============
The net deferred tax asset (liability) is reported in the appropriate
category of other assets or other liabilities in the balance sheets at December
31, 1999 and 1998.
The provision for income taxes is reconciled to the amount of income tax
computed at the federal statutory rate on income before income taxes for the
years ended December 31, as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------- ------------- -------------
Amount % Amount % Amount %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
Tax expense at statutory rate $ 206,220 34.0% $ 209,200 34.0% $ 193,910 34.0%
Increase (decrease) in taxes
resulting from:
Tax exempt interest (21,975) (3.6) (20,245) (3.3) (10,830) (1.9)
State bank tax (net of
federal benefit) 11,400 1.9 11,230 1.8 10,900 1.9
Other - net (1,645) (.3) 4,815 .8 4,520 .8
------ --- ----- -- ----- --
Tax provision $ 194,000 32.0% $ 205,000 33.3% $ 198,500 34.8%
=========== ==== =========== ==== ========= ====
</TABLE>
-12-
<PAGE>
NOTE 9 - FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK
The Bank is a party to financial instruments with off balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include available credit on credit lines and
commitments to extend credit. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the statements of financial position. The contract amounts of these instruments
reflect the extent of involvement the Bank has in particular classes of
financial instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on balance sheet
instruments.
Financial instruments whose contract amounts Contract
represent credit risk at December 31, 1999: amount
------------------------------------------- ------
Commitments to extend credit $ 3,610,361
===============
Of these commitments to extend credit, $2,990,111 are at variable rates and
$620,250 are at fixed rates.
Commitments to extend credit are agreements to lend as long as there is no
violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may require payment
of a fee. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained if deemed necessary by the
Bank upon extension of credit is based on management's credit evaluation.
NOTE 10 - RESTRICTIONS ON DIVIDENDS
The ability of the Company to pay cash dividends is dependent upon
receiving cash in the form of dividends from the Bank. Banking regulations
restrict the amount of dividends that can be paid by the Bank and require
approval of the State Board of Financial Institutions.
NOTE 11 - TRANSACTIONS WITH DIRECTORS, OFFICERS AND ASSOCIATES
Directors and officers of the Company and associates of such persons are
customers of and had transactions with the Bank in the ordinary course of
business. Additional transactions may be expected to take place in the future.
Also, included in the loan transactions are outstanding loans and commitments,
all of which were made on comparable terms, including interest rates and
collateral, as those prevailing at the time for other customers of the Bank, and
did not involve more than normal risk of collectibility or present other
unfavorable features. Total loans to all officers and directors, including
immediate family and business interests, at December 31, 1999 and 1998, were
$290,579 and $106,902, respectively. During 1999, $210,000 in new loans were
made to this group and repayments of $26,323 were received. Deposits by
directors, officers and their related interests, as of December 31, 1999 and
1998, approximated $750,637 and $725,908, respectively.
NOTE 12 - RETIREMENT PLAN
The Bank sponsors Simplified Employee Pension (SEP) individual retirement
accounts for all officers and employees meeting certain age and service
requirements. Contributions are at the discretion of and determined annually by
the Board of Directors and are not to exceed the maximum amount deductible under
the applicable section of the Internal Revenue Code. Included in expenses are
contributions to the retirement plan of $25,035, $17,100 and $24,449 for the
years ended December 31, 1999, 1998 and 1997, respectively.
-13-
<PAGE>
NOTE 13 - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory, and possibly additional discretionary, actions
by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classifications are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital to risk-weighted assets, and of Tier I
capital to average assets. Management believes, as of December 31, 1999, that
the Bank meets 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. There are no conditions or events since that
notification that management believes have changed the institution's category.
The Bank's actual capital amounts and ratios and minimum regulatory amounts and
ratios are presented as follows:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ADEQUACY PURPOSES ACTION PROVISIONS
ACTUAL MINIMUM MINIMUM
------ ------- -------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1999
Total Capital (to risk weighted assets) $ 3,631 21.5% $ 1,354 8.0% $ 1,692 10.0%
Tier I Capital (to risk weighted assets) 3,422 20.2 677 4.0 1,015 6.0
Tier I Capital (to average assets) 3,422 12.1 1,133 4.0 1,416 5.0
AS OF DECEMBER 31, 1998
Total Capital (to risk weighted assets) $ 3,377 18.6% $ 1,450 8.0% $ 1,812 10.0%
Tier I Capital (to risk weighted assets) 3,097 17.1 725 4.0 1,087 6.0
Tier I Capital (to average assets) 3,097 10.5 1,175 4.0 1,469 5.0
</TABLE>
-14-
<PAGE>
NOTE 14 - PARENT COMPANY FINANCIAL INFORMATION
Following is condensed financial information of Darlington County
Bancshares, Inc. (parent company only):
CONDENSED BALANCE SHEET
December 31, 1999
-----------------
ASSETS
Investment in Bank subsidiary $ 3,319,127
================
LIABILITIES AND STOCKHOLDERS' EQUITY
Due to Bank subsidiary $ 15,245
Stockholders' equity 3,303,882
---------
$ 3,319,127
================
CONDENSED STATEMENT OF INCOME
-----------------------------
For the year ended
December 31, 1999
INCOME $ -
EXPENSES
Legal fees 15,245
------
LOSS BEFORE EQUITY IN UNDISTRIBUTED
NET INCOME OF BANK SUBSIDIARY
(15,245)
EQUITY IN UNDISTRIBUTED NET INCOME OF
BANK SUBSIDIARY 427,773
-------
Net income $ 412,528
================
CONDENSED STATEMENT OF CASH FLOWS
---------------------------------
For the year ended
December 31, 1999
-----------------
OPERATING ACTIVITIES
Net income $ 412,528
Adjustments to reconcile net income to net cash
provided by operating activities
Equity in undistributed net income of Bank subsidiary (427,773)
Increase in due to Bank subsidiary 15,245
---------------
Net cash provided by operating activities -
---------------
CASH AND DUE FROM BANKS, BEGINNING OF YEAR -
---------------
CASH AND DUE FROM BANKS, END OF YEAR $ -
===============
-15-
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- --------------------------------------------------------
ACCOUNTS AND FINANCIAL DISCLOSURE
---------------------------------
There has been no occurrence requiring a response to this item.
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 "ELECTION OF DIRECTORS" and
"SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" in the Proxy Statement
to be used in conjunction with the 1999 Annual Meeting of Shareholders (the
"Proxy Statement"), which was filed within 120 days of the Bank's fiscal year
end, is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
- -------------------------------
The information set forth under the caption "EXECUTIVE COMPENSATION" in the
Proxy Statement is incorporated herein by reference.
-17-
<PAGE>
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 the Proxy Statement is incorporated herein
by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
The information set forth under the caption "CERTAIN TRANSACTIONS" in the Proxy
Statement is incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits
None
(b) Reports
None
SIGNATURES
Under the requirements of the Securities Exchange Act of 1934, the Bank has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Darlington County Bank
----------------------
Name of Bank
By: /s/ W. B. McCown, III Date: March 29, 2000
-------------------------------- ----------------------
W. B. McCown, III, President and
Chief Executive Officer
By: /s/ Ellen T. Berry Date: March 29, 2000
-------------------------------- ----------------------
Ellen T. Berry, Vice President and Cashier
-18-
SIGNATURES
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant in the capacities and on the dates
indicated.
Signature Title Date
s/ R. E. Goodson, Sr. Chairman of the Board March 29, 2000
- ---------------------------
R. E. Goodson, Sr.
s/ Hubert C. Baker Director March 29, 2000
- ---------------------------
Hubert C. Baker
Director
W. Edwin Dargan
Director
Raymond Galloway
Director
Charles G. Howard
s/ Albert L. James, III Director March 29, 2000
- ----------------------------
Albert L. James, III
s/ G. Clyde Scott Director March 29, 2000
- ----------------------------
G. Clyde Scott
s/ Eugene A. Vaughn Director March 29, 2000
- ----------------------------
Eugene A. Vaughn
s/ W. B. McCown, III President and Chief March 29, 2000
- ---------------------------- Executive Officer
W. B. McCown, III
-19-
