SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD
FROM ____ TO ____
Commission File Number 0-13759
ANCHOR FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Incorporated in the State of South Carolina
IRS Employer Identification Number 57-0778015
Address: 2002 Oak Street, Myrtle Beach, S.C. 29577
Telephone:(803)448-1411
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK - $6.00 PAR VALUE
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Corporation was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 1, 1996, the Corporation had 2,551,595 shares of common
stock outstanding. The aggregate market value of voting stock held by
non-affiliates of the Corporation was $51,669,799, based on the market price of
$20.25 per share on March 1, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1995 Annual Report to Stockholders of the Corporation
are incorporated herein by reference in response to Part I and Part II. Portions
of the Proxy Statement dated March 27, 1996 relating to the Annual Meeting of
Stockholders of the Corporation to be held April 24, 1996 are incorporated
herein by reference in response to Part III.
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PART I
ITEM 1. BUSINESS
GENERAL
Anchor Financial Corporation (the "Corporation") is a registered bank
holding company incorporated in 1984 under the laws of the State of South
Carolina. The purpose for incorporation was to acquire The Anchor Bank ("ABSC")
and to invest in other bank related businesses. The Corporation provides its
customers with banking services through its subsidiaries, ABSC and The Anchor
Bank of North Carolina ("ABNC") (collectively the "Bank Subsidiaries"), and data
processing services through its subsidiary, Anchor Automated Services, Inc. The
Corporation owns 100% of the issued and outstanding stock of the Bank
Subsidiaries and Anchor Automated Services, Inc. (collectively the
"Subsidiaries").
The principal role of the Corporation is to supervise and
coordinate the activities of its Subsidiaries and to provide them with
capital and services of various kinds. The Corporation derives substantially
all of its income from dividends from its Subsidiaries. Such dividends are
determined on an individual basis, generally in relation to each Subsidiary's
earnings, deposit growth and capital position.
BANK SUBSIDIARIES
Organized in 1974 as a state-chartered bank, The Anchor Bank of Myrtle
Beach, Inc. was acquired by the Corporation on June 15, 1984, and subsequently
changed its name to The Anchor Bank.
On December 31, 1993, ABSC merged with 1st Atlantic Bank ("1st
Atlantic"), Little River, South Carolina. ABSC survived the merger and the
former stockholders of 1st Atlantic became stockholders of the Corporation. On
December 31, 1993, the Corporation acquired Topsail State Bank ("Topsail"),
Hampstead, North Carolina. The former stockholders of Topsail became
stockholders of the Corporation, and Topsail became a wholly-owned subsidiary of
the Corporation and operates under the name "The Anchor Bank of North Carolina".
ABSC accounted for 87% of the Corporation's total consolidated assets
as of December 31, 1995, and 90% of total net income for 1995. ABSC conducts its
business through thirteen offices in and around Myrtle Beach and Hilton Head
Island, South Carolina.
The primary market area served by ABSC is centered in the City of
Myrtle Beach, South Carolina and includes the entire segment of the South
Carolina coast known as the Grand Strand which stretches from Pawleys Island to
North Myrtle Beach and west to Conway, South Carolina. As previously mentioned,
ABSC acquired two offices in Little River and Cherry Grove, South Carolina in
the merger with 1st Atlantic which are approximately 20 miles north of Myrtle
Beach. In 1994 the Bank opened a branch office in the Crescent Beach section of
North Myrtle Beach, South Carolina which is 10 miles north of Myrtle Beach. In
1995, the Bank opened a branch in Mount Pleasant, South Carolina which is
approximately 90 miles south of Myrtle Beach. Myrtle Beach and Hilton Head
Island are coastal resort areas that serve a significant amount of tourists
primarily during the summer months. Because of the seasonal nature of these
market areas, most of the businesses, including financial institutions, are
subject to wide swings in activity between the winter and summer months.
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On July 17, 1995, ABSC formed Anchor Capital Corporation ("ACC"), a
non-bank securities brokerage firm, to market non-traditional banking products
to customers in all its markets. ACC offers mutual funds, annuities, and other
securities.
For the year ended December 31, 1995, approximately 75% of the revenues
of ABSC were derived from interest and fees on loans, 16% from income on
investment securities, 1% from temporary investments, 4% from service charges on
deposit accounts and 4% from other sources.
ABNC engages in a general banking business in Pender County, New
Hanover County and Onslow County, North Carolina. ABNC accounted for 13% of the
Corporation's total consolidated assets as of December 31, 1995, and 17% of
total net income for 1995. ABNC operates from its main office in Hampstead,
North Carolina and has three branch offices in Wilmington and Jacksonville,
North Carolina. ABNC is primarily retail oriented and targets individuals and
small to medium-sized businesses located in these market areas.
For the year ended December 31, 1995, approximately 79% of the revenues
of ABNC were derived from interest and fees on loans, 11% from income on
investment securities, 1% from temporary investments, 7% from service charges on
deposit accounts and 2% from other sources.
The Subsidiary Banks offer a full range of banking services, including
trust services, to both businesses and individuals in their market area. These
services include regular and interest checking, money market, savings and time
deposit accounts as well as personal and business loans. The Subsidiary Banks
also provide automated twenty-four hour banking for the convenience of their
customers.
ANCHOR AUTOMATED SERVICES, INC.
Chartered in July 1985, Anchor Automated Services, Inc. has previously
provided data processing services to the Corporation and ABSC, as well as to the
public. This subsidiary was inactive for the year ended December 31, 1995.
EMPLOYEES
At December 31, 1995, the Corporation and its Subsidiaries employed a
total of 218 full-time equivalent persons.
COMPETITION
The Subsidiary Banks face intense competition for deposits from other
banks (including super-regional banks), savings and loan associations, federal
savings banks and credit unions. In addition, many other companies such as
brokerage firms and insurance companies compete for deposits. ABSC's deposits
totaled $294.3 million on June 30, 1995. ABSC ranked fourth in market share of
deposits with 12.5% in its primary market area. No institution had market share
exceeding 20% in this primary market area. The average market share of ABSC in
the counties it serves was approximately 12.6% on June 30, 1995.
ABNC's deposits totaled $45.5 million on June 30, 1995. ABNC ranked
third in market share of deposits with 16.6% in its primary market area. Two
institutions in that market had market share exceeding 20%. The average market
share of ABNC in the counties it serves was approximately 6.2% on June 30, 1995.
Competition for loans includes not only the in-state
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financial institutions and finance companies but also out-of-state banks and
finance subsidiaries of major auto companies.
Reference is made to the Corporation's competitive position as measured
in terms of market share of commercial bank deposits on June 30, 1995. Any such
reference is intended solely as a method of placing the competition in
perspective as of that particular date. Due to the intense competition in the
banking business, the Corporation makes no representation that its competitive
position has remained constant, nor can it predict whether its position will
change in the future.
SUPERVISION AND REGULATION
The Corporation
The Corporation is under the supervisory and regulatory authority
granted the Federal Reserve Board of Governors by the Bank Holding Company Act
of 1956, as amended (the "Act"). The Corporation is required to file with the
Board of Governors an annual report and such additional information as the Board
of Governors may require pursuant to the Act. The Board may also make
examinations of the Corporation and each of its subsidiaries. Under the Act,
bank holding companies are prohibited, with certain exceptions, from acquiring
direct or indirect ownership or control of more than five percent of the voting
shares of any company engaging in activities other than banking or managing or
controlling banks or furnishing services to or performing services for their
banking subsidiaries. However, the Act authorizes the Board of Governors to
permit bank holding companies to engage in, and to acquire or retain shares of
companies that engage in, activities which the Board of Governors determines to
be so closely related to banking or managing or controlling banks as to be a
proper incident thereto.
The Act requires every bank holding company to obtain the prior
approval of the Board of Governors before it may acquire substantially all the
assets of any bank or ownership or control, directly or indirectly, of more than
five percent of the voting shares of any such bank. The Act prohibits the Board
from approving an application by a registered bank holding company to acquire
shares of a bank located outside the state in which the operations of the
applicant's banking subsidiaries are principally conducted unless such
acquisition is specifically authorized by the laws of the state in which the
bank to be acquired is located or the acquisition involves a closed or failed
bank, which also requires special regulatory approval.
The States of South Carolina and North Carolina, where the Corporation
currently operates banking subsidiaries, each have laws relating specifically to
acquisitions of banks, bank holding companies, and other types of financial
institutions in those states by financial institutions that are based in, and
not based in, those states. South Carolina and North Carolina have enacted
regional reciprocal banking acts.
The Act generally imposes certain limitations on extensions of credit
and other transactions by and between banks which are members of the Federal
Reserve System and other affiliates (which includes any holding company of which
such bank is a subsidiary and any other non-bank subsidiary of such holding
company). Further, under Section 106 of the 1970 Amendments to the Act, a bank
holding company and its subsidiaries are prohibited from engaging in certain
tie-in arrangements in connection with any extension of credit, lease or sale of
property, or the furnishing of services.
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Subsidiary Banks
The Community Reinvestment Act of 1977 ("CRA") and the related
Regulations of the Comptroller of the Currency, the Board of Governors of the
Federal Reserve and the Federal Deposit Insurance Corporation ("FDIC") are
intended to encourage regulated financial institutions to help meet the credit
needs of their local community or communities, including low and moderate income
neighborhoods, consistent with the safe and sound operation of such financial
institutions. The CRA and such regulations provide that the appropriate
regulatory authority will assess the records of regulated financial institutions
in satisfying their continuing and affirmative obligations to help meet the
credit needs of their local communities as part of their regulatory examination
of the institution. The results of such examinations are made public and are
taken into account upon the filing of any application to establish a domestic
branch, to merge or to acquire the assets or assume the liabilities of a bank.
In the case of a bank holding company, the CRA performance record of the
subsidiary banks involved in the transaction are reviewed in connection with the
filing of an application to acquire ownership or control of shares or assets of
a bank or to merge with any other bank holding company. An unsatisfactory record
can substantially delay or block the transaction.
In December 1991, the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") was enacted. This act recapitalized the Bank Insurance
Fund ("BIF"), of which the Subsidiary Banks are members, substantially revised
bank regulations, including capital standards, restricted certain powers of
state banks, gave regulators the authority to limit officer and director
compensation and required bank holding companies in certain circumstances to
guarantee the capital compliance of their banks. Among other things, FDICIA
required the federal banking agencies to take "prompt corrective action" in
respect of banks that do not meet minimum capital requirements. FDICIA
established five capital tiers: "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized," as defined by regulations recently adopted by the Federal
Reserve, the FDIC and the other federal depository institution regulatory
agencies. A depository institution is well capitalized if it significantly
exceeds the minimum level required by regulation for each relevant capital
measure, adequately capitalized if it meets such measure, undercapitalized if it
fails to meet any such measure, significantly undercapitalized if it is
significantly below such measure and critically undercapitalized if it fails to
meet any critical capital level set forth in the regulations. The critical
capital level must be a level of tangible equity capital equal to not less than
2% of total tangible assets and not more than 65% of the minimum leverage ratio
to be prescribed by regulation (except to the extent that 2% would be higher
than such 65% level). An institution may be deemed to be in a capitalization
category that is lower than is indicated by its actual capital position if it
receives an unsatisfactory examination rating.
If a depository institution fails to meet regulatory capital
requirements, the regulatory agencies can require submission and funding of a
capital restoration plan by the institution, place limits on its activities,
require the raising of additional capital and, ultimately, require the
appointment of a conservator or receiver for the institution. The obligation of
a controlling bank holding company under FDICIA to fund a capital restoration
plan is limited to the lesser of 5% of an undercapitalized subsidiary's assets
or the amount required to meet regulatory capital requirements. If the
controlling bank holding company fails to fulfill its obligations under FDICIA
and files (or has filed against it) a petition under the Federal Bankruptcy
Code, the FDIC's claim may be entitled to a priority in such bankruptcy
proceeding over third party creditors of the bank holding company.
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An insured depository institution may not pay management fees to any
person having control of the institution nor may an institution, except under
certain circumstances and with prior regulatory approval, make any capital
distribution if, after making such payment or distribution, the institution
would be undercapitalized. FDICIA also restricts the acceptance of brokered
deposits by insured depository institutions and contains a number of consumer
banking provisions, including disclosure requirements and substantive
contractual limitations with respect to deposit accounts.
At December 31, 1995, the Subsidiary Banks were "well capitalized," and
were not subject to any of the foregoing restrictions.
FDICIA contains numerous other provisions, including reporting
requirements, termination of the "too big to fail" doctrine except in special
cases, limitations on the FDIC's payment of deposits at foreign branches and
revised regulatory standards for, among other things, real estate lending and
capital adequacy.
On September 29, 1994, President Clinton signed into law the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("1994
Act"). The 1994 Act provides for nationwide interstate banking and branching
with certain limitations. The 1994 Act permits bank holding companies to acquire
banks without regard to state boundaries after September 29, 1995. The Federal
Reserve may approve an interstate acquisition only if, as a result of the
acquisition, the bank holding company would control less than 10% of the total
amount of insured deposits in the United States or 30% of the deposits in the
home state of the bank being acquired. The home state can waive the 30% limit as
long as there is no discrimination against out-of-state institutions.
Pursuant to the 1994 Act, interstate branching will take effect on June
1, 1997, except under certain circumstances. Once a bank has established
branches in a host state (a state other than its headquarters state) through an
interstate merger transaction, the bank may establish and acquire additional
branches at any location in the host state where any bank involved in the
interstate merger transaction could have established or acquired branches under
applicable federal or state law. The 1994 Act further provides that individual
states may opt out of interstate branching. If a state does not opt out of
interstate branching prior to May 31, 1997, then a bank in that state may merge
with a bank in another state provided that neither of the states have opted out.
States may either enact laws opting out of interstate branching before June 1,
1997 or permit interstate merger transactions earlier than June 1, 1997 by
statute at their option. A state also may impose conditions on any interstate
merger transaction that occurs before June 1, 1997 if the conditions do not
discriminate against out-of-state banks, are not preempted by federal law, and
do not apply or require performance after May 31, 1997.
Other legislative and regulatory proposals regarding changes in
banking, and the regulation of banks, thrifts and other financial institutions,
are being considered by the executive branch of the Federal government, Congress
and various state governments, including South Carolina and North Carolina.
Certain of these proposals, if adopted, could significantly change the
regulation of banks and the financial services industry. It cannot be
predicted whether any of these proposals will be adopted or, if adopted,
how these proposals will affect the Corporation or the Subsidiary Banks.
As a state nonmember bank with deposits insured by the FDIC, ABSC is
subject to the supervisory and regulatory authority of the FDIC and the South
Carolina State Board of Financial Institutions. ABNC is a state nonmember bank
with deposits insured by the FDIC, and subject to the supervisory and regulatory
authority of the FDIC and the North Carolina State Banking Commission. The South
Carolina State Board of Financial Institutions and the North Carolina Banking
Commission regulate all areas of commercial banking operations of state
chartered banks
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under their supervision, including reserves, loans, mergers, payment of
dividends, interest rates, establishment of branches and other aspects of
operations.
RESEARCH
The Corporation makes no expenditures for research and development.
DEPENDENCE UPON A SINGLE CUSTOMER
Neither the Corporation nor the Subsidiary Banks are dependent upon a
single customer or very few customers. The economy of the Corporation's primary
market area is however heavily dependent on the tourism industry. Any adverse
change in the local tourism market is likely to have an adverse effect on the
local economy as well as the business and operations of the Corporation.
ITEM 2. PROPERTIES
The main office of ABSC, which also serves as the principal office of
the Corporation, is located at 2002 Oak Street, Myrtle Beach, South Carolina.
The main office is an approximately 23,000 square foot, multi-story office
building that is owned by ABSC. To the limited extent necessary, the Corporation
occupies office space owned by ABSC.
The Subsidiary Banks own the real property for eleven of the branch
offices. The Subsidiary Banks own the buildings but lease the land for four
branch offices and lease the land and buildings on which two branch offices are
located from unaffiliated third parties under long-term leases. None of the
properties owned by the Corporation or the Subsidiary Banks are encumbered.
ITEM 3. LEGAL PROCEEDINGS
At December 31, 1995, the Corporation had no material pending legal
proceedings or other actions, to which the Corporation or any of its
Subsidiaries is a party or of which any of their property is the subject, that
are expected to have any material adverse effect on the financial condition or
results of operations of the Corporation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders of the
Corporation during the fourth quarter of 1995.
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PART II
ITEM 5. MARKET FOR THE CORPORATION'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The information appearing on the inside front cover of the
Corporation's 1995 Annual Report to Stockholders of the Corporation is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information appearing on page 9 of the Corporation's 1995 Annual
Report to Stockholders of the Corporation is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The information appearing on pages 8 through 21 of the Corporation's
1995 Annual Report to Stockholders of the Corporation is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements and supplementary data,
included in the Corporation's 1995 Annual Report to Stockholders at the pages
indicated are incorporated herein by reference:
Consolidated Balance Sheet at December 31, 1995 and 1994 23
Consolidated Statement of Income for each of the three
years in the period ended December 31, 1995 24
Consolidated Statement of Changes in Stockholders' Equity
for each of the three years in the period ended
December 31, 1995 25
Consolidated Statement of Cash Flows for each of the
three years in the period ended December 31, 1995 26
Notes to Consolidated Financial Statements 27-39
Report of Independent Accountants 22
Quarterly Financial Summary for 1995 and 1994 39
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Corporation had no disagreements with its independent accountants
on any matter of accounting principles, practices or financial statement
disclosure during 1995, 1994, or 1993.
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PART III
ITEM 10. DIRECTORS* AND EXECUTIVE OFFICERS OF THE CORPORATION
EXECUTIVE OFFICERS
The following executive officers of the Corporation are principally
responsible for making policy for the Corporation and its Subsidiaries. The age
of each executive officer, his current position with the Corporation and/or
certain of its Subsidiaries and, if different, his business experience during
the past five years are as follows:
David E. Buffaloe (56)
President of ABNC since 1993. Mr. Buffaloe previously served as President and
Chief Executive Officer of Topsail State Bank from 1986 through 1993.
Stephen L. Chryst (50)
President and Chief Executive Officer of the Corporation since 1984 and ABSC
since 1982.
Robert E. Coffee, Jr. (48)
Executive Vice President and Chief Administrative Officer of ABSC since 1993.
Mr. Coffee previously served as President of 1st Atlantic Bank from 1986 through
1993.
Robert R. DuRant, III (50)
Executive Vice President and Chief Credit Officer of ABSC since February 1988.
Tommy E. Looper (48)
Executive Vice President and Chief Financial Officer of the Corporation and ABSC
since 1987.
* Incorporated by reference to the Corporation's definitive Proxy Statement
relating to the 1996 Annual Meeting of Stockholders of the Corporation.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing on pages 6 through 11 of the Corporation's
definitive Proxy Statement relating to the 1996 Annual Meeting of Stockholders
of the Corporation is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained on page 5 of the Corporation's definitive
Proxy Statement relating to the 1996 Annual Meeting of Stockholders of the
Corporation is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing on pages 12 and 13 of the Corporation's
definitive Proxy Statement relating to the 1996 Annual Meeting of Stockholders
of the Corporation is incorporated herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Item Description
(a) (1) All consolidated financial statements of the Corporation as set forth
under Item 8 of this report on Form 10-K are incorporated herein by
reference.
(2) Financial Statement Schedules
All other financial statements and schedules not listed under
Item 8 of this report on Form 10-K are omitted since they are
not applicable, not required, or the required information is
included in the consolidated financial statements.
(3) Exhibits
3.1 Articles of Incorporation, as amended
(incorporated herein by reference to the
Corporation's Form 10-K for the year ended
December 31, 1994).
3.2 By-Laws (incorporated herein by reference to the
Corporation's Form 10-K for the year ended
December 31, 1988).
10 Material Contracts:
(a) Proposed Anchor Financial Corporation, The
Anchor Bank and The Anchor Bank of North
Carolina Incentive Stock Option Plan of
1996.
(b) Anchor Financial Corporation, The Anchor
Bank and The Anchor Bank of North Carolina
Incentive Stock Option Plan of 1994
(incorporated herein by reference to the
Corporation's Form 10-K for the year ended
December 31, 1993).
(c) Non-Qualified Stock Option Plan of 1988
dated November 14, 1988 (incorporated herein
by reference to the Corporation's Form 10-K
for the year ended December 31, 1988).
13 1995 Annual Report to Stockholders for the fiscal
year ended December 31, 1995.
21 Subsidiaries of the Registrant
23.1 Consents of Price Waterhouse LLP
23.2 Consent of Deloitte & Touche LLP
99 Opinion of Deloitte & Touche LLP, Independent
Accountants, on the financial statements of The
Anchor Bank of North Carolina, a wholly-owned
subsidiary of Anchor Financial Corporation.
(b) No reports of Form 8-K were filed during the fourth
quarter of 1995.
THIS REPORT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION"), NOR HAS THE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS REPORT. EXCEPT FOR THOSE PORTIONS OF THE
1995 ANNUAL REPORT TO STOCKHOLDERS WHICH ARE EXPRESSLY INCORPORATED BY
REFERENCE IN THIS FORM 10-K, THE ANNUAL REPORT TO STOCKHOLDERS IS NOT TO BE
DEEMED "FILED" WITH THE COMMISSION.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ANCHOR FINANCIAL CORPORATION
(Registrant)
By /s/ Stephen L. Chryst
(Stephen L. Chryst,
President and Chief Executive Officer)
Date: March 27, 1996
By /s/ Tommy E. Looper
(Tommy E. Looper,
Executive Vice President and
Chief Financial Officer)
Date: March 27, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the date indicated.
Signature Title
/s/ Stephen L. Chryst President, Chief Executive Officer and
Director
/s/ Tommy E. Looper Executive Vice President, Chief
Financial Officer and Director
/s/ Howell V. Bellamy, Jr. Director
/s/ James E. Burroughs Director
/s/ C. Donald Cameron Director
/s/ John D. Flowers Director
/s/ J. Bryan Floyd Director
/s/ Admah Lanier, Jr. Director
/s/ W. Gairy Nichols, III Director
/s/ Ruppert L. Piver Director
/s/ Thomas J. Rogers Director
/s/ Albert A. Springs, III Director
/s/ Harry A. Thomas Director
/s/ Zeb M. Thomas, Sr. Director
Date: March 27, 1996
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Exhibit Index
Exhibit Exhibit Title
10 Proposed Anchor Financial Corporation, The Anchor Bank and The
Anchor Bank of North Carolina Incentive Stock Option Plan of
1996.
13 1995 Annual Report to Stockholders for the fiscal year ended
December 31, 1995.
21 Subsidiaries of the Registrant
23.1 Consents of Price Waterhouse LLP
23.2 Consent of Deloitte & Touche LLP
99 Opinion of Deloitte & Touche LLP, Independent Accountants, on
the financial statements of The Anchor Bank of North Carolina,
a wholly-owned subsidiary of Anchor Financial Corporation.
EXHIBIT 10
ANCHOR FINANCIAL CORPORATION,
THE ANCHOR BANK AND THE ANCHOR BANK OF NORTH CAROLINA
INCENTIVE STOCK OPTION PLAN OF 1996
1. Purpose of Plan
The purpose of this Stock Option Plan ("Plan") is to aid Anchor
Financial Corporation (the "Corporation") and The Anchor Bank and The Anchor
Bank of North Carolina (collectively "Banks") in securing and retaining Top
Management Key Employees of outstanding ability by making it possible to offer
them an increased incentive, in the form of a proprietary interest in the
Corporation, to join or continue in the service of the Corporation and/or one
or both of the Banks and to increase their efforts for its welfare and success.
2. Definitions
As used in this Plan, the following words shall have the following
meanings:
(a) "Board" means the Board of Directors of the Corporation;
(b) "Code" means the Internal Revenue Code of 1986, as amended;
(c) Intentionally Omitted;
(d) "Common Stock" means the $6.00 par value common stock of Anchor
Financial Corporation;
(e) "Banks" means The Anchor Bank, a South Carolina banking
corporation, and The Anchor Bank of North Carolina, a North Carolina banking
corporation, both of which are wholly-owned subsidiaries of Anchor Financial
Corporation;
(f) "Corporation" means Anchor Financial Corporation, a South
Carolina corporation with its principal office located at Myrtle Beach, South
Carolina;
(g) "Disability" means the Participant's inability to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or
which has lasted or can be expected to last for a continuous period of not
less than twelve (12) months;
(h) "Incentive Stock Options" means a stock option to purchase
shares of Common Stock, which is intended to qualify as an incentive stock
option defined in Code Section 422A;
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(i) "Key Employee" means any person in the regular full-time
common law employment of the Corporation or any Subsidiary, as an executive
or non-executive officer thereof, who in the opinion of the Board, is or is
expected to be primarily responsible for the management, growth or protection
of some part or all of the business of the Corporation;
(j) "Option" means an Incentive Stock Option;
(k) "Parent" means any corporation in an unbroken chain of
corporations if each of the corporations owns stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain;
(l) "Participant" means a person to whom an Option is granted that
has not expired and ceased to be exercisable under the Plan; and
(m) "Subsidiary" means any corporation other than the Corporation
in an unbroken chain of corporations beginning with the Corporation if each
of the corporations other than the last corporation in the unbroken chain
owns fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
3. Administration of Plan
The Plan shall be administered by the Board. In the event that a
director of the Board is eligible to be selected for the grant of an Option,
during such membership as a director, such director shall recuse himself and
not participate in the discussion nor vote on the award of the Option to him.
The Board shall have the power and authority to administer, construe and
interpret the Plan, to make rules for carrying it out and to make
changes in such rules.
4. Granting of Options and $100,000 Limitation
The Board may from time to time grant Options under the Plan to such
Key Employees and subject to the limitations of paragraph (a) of Section 7, for
such number of shares as the Board may determine after receiving
recommendations from the compensation committee or the executive officers of
the Bank that employs the Participant. Subject to the provisions of the Plan,
the Board may impose such terms and conditions as it deems advisable on the
grant of an Option. Any of the foregoing to the contrary notwithstanding,
the following limitations shall apply to the grant of any Incentive Stock
Option:
(a) The aggregate fair market value, determined at the time the
Incentive Stock Option is granted, of the stock exercised by a Participant
for the first time during any calendar year shall not exceed $100,000.
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<PAGE>
(b) Any Option granted to a Participant, who immediately before such
grant owns stock processing more than ten percent (10%) of the total combined
voting power of all classes of stock either of the Corporation or any
Subsidiary shall not be an Incentive Stock Option, unless (i) at the time such
Option is granted the Option price per share is not less than one hundred ten
percent (110%) of the optioned stock's then fair market value; and (ii) the
Option shall not be exercisable after the expiration of five (5) years from the
date of the grant of the Option.
5. Terms of Options
The terms of each Option granted under the Plan shall be as determined
from time to time by the Board and shall be set forth in an Incentive Stock
Option Agreement in a form attached hereto as Exhibit "A" and approved by
the Board; provided, however, the terms of such agreement shall not
exceed the following limitations:
(a) Subject to paragraph (b) of Section 4 with regard to 10% owners,
the Option price per share shall not be less than one hundred percent (100%) of
the fair market value of the optioned stock at the time the Option is granted.
(b) Subject to paragraph (e) of this Section, the Option shall be
exercisable in whole or in part from time to time during the period beginning
on date of grant of the Option, and ending no later than the expiration of ten
(10) years from the date of grant of the Option, unless an earlier expiration
date shall be stated in the Option or the Option shall cease to be exercisable
pursuant to paragraph (d) of this Section 5.
(c) Payment in full of the Option price for shares purchased
pursuant to an Option shall be made upon exercise of the Option (in whole
or in part) and shall be made in cash.
(d) If a Participant's employment with the Corporation or the Banks
terminates, the following rules shall apply:
(i) If a Participant's employment with the Corporation or the
Banks terminates other than by reason of the Participant's death, disability
or retirement after reaching age 65, the Participant's Option shall thereupon
expire and cease to be exercisable upon the expiration date of the earlier of
ten (10) years from the date of grant of the Option, or three (3) months from
the date of such termination.
(ii) If the Participant's employment with the Corporation
or the Banks terminates by reason of his death, the Participant's Option shall
terminate and cease to be exercisable upon the expiration of the earlier of ten
(10) years from the date of grant of the Option, or one (1) year from the date
of death. Such Option may be exercised by the duly appointed personal
representative of the deceased Participant's estate.
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<PAGE>
(iii) If a Participant's employment with the Corporation or
the Banks terminates by reason of Disability, the Participant's Option shall
terminate and cease to be exercisable upon the expiration of the earlier of
ten (10) years from the date of grant of the Option, or one (1) year from the
date of such termination in the case of disability.
(iv) If a Participant's employment with the Corporation
or the Banks terminates by reason of retirement after reaching age 65 (other
than for Disability), the Participant's Option shall expire and cease to be
exercisable upon the expiration of the earlier of ten (10) years from the date
of grant of the Option, or three (3) months from the date of such termination.
(v) Notwithstanding anything contained herein to the contrary,
if a Participant's employment with the Corporation or the Banks is terminated
for cause (fraud, embezzlement, failure to perform job responsibilities, etc.)
as determined by the Board, in the Board's sole discretion, or if a Participant
competes with the Corporation or the Banks, any Option granted to that
Participant shall be immediately revoked and terminated and the Participant
shall have no further rights under this Plan. For purposes of this Plan,
competition with the Corporation or the Banks shall include direct or indirect
ownership of or employment with a financial services business within a 100
mile radius of any office operated by the Corporation or any of it's
subsidiaries.
(e) Notwithstanding any other provision herein, the options
granted hereunder shall vest and be exercisable on a cumulative basis
for one-third of the shares covered thereby on each of the first three
anniversaries of the grant thereof.
In the event that the Corporation has a change of control in
which 51% or more of the stock of the Corporation is acquired or the
Corporation is merged or consolidated with another corporation in an
acquisition transaction or the Corporation sells substantially all of the
assets of the Corporation, or the Bank which employes the Participant is
merged or consolidated with another Bank not owned at least 50% by the
Corporation or its Subsidiary or such Bank has a change of control in
which 51% or more of the stock of the Bank is acquired or such Bank
sells substantially all of its assets, then immediately prior to any
such transaction, the vesting schedule set forth above shall not be
applicable and the holder of any options granted hereunder shall be 100%
vested in such options, subject to the other terms and conditions
herein.
6. Exercise of Options
The holder of an Option who decides to exercise the Option in whole or
in part shall give notice to the Secretary of the Corporation of such exercise
in writing on a form approved by the Board. Any exercise shall be effective as
of the date specified in the notice of exercise, but not earlier than the date
the notice of exercise and payment in full of the Option price is actually
received and in the hands of the Secretary of the Corporation.
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<PAGE>
7. Limitations and Conditions
(a) The total number of shares of Common Stock that may be optioned as
Incentive Stock Options under the Plan is seventy five thousand (75,000)
shares of Anchor Financial Corporation's $6.00 par value common stock. Such
total number of shares may consist, in whole or in part, of unissued shares or
reacquired shares. The foregoing numbers of shares may be increased or
decreased by the events set forth in Section 9.
(b) There shall be no limitations on the amount of shares of Common
Stock that may be optioned as Incentive Stock Options under the Plan as
set forth in Section 7(a) above, on an annual basis. The amount of shares
to be optioned, within the total limitation set forth in Section 7(a) above,
shall be determined solely at the discretion of the Board as set forth herein.
If there is a proposed acquisition, merger, change of control or other
takeover of the Corporation or the Bank that employs the Participant as defined
in Section (5)(e) of this Plan, the Board, at its sole discretion, may issue
any options authorized under this Plan but unissued prior to such time.
(c) Any shares that have been optioned that cease to be subject to an
Option (other than by reason of exercise of the Option) shall again be available
for option and shall not be considered as having been theretofore optioned.
(d) No Option shall be granted under the Plan after April 25, 2006, (10
years after the effective date), and the Plan shall terminate on such date, but
Options theretofore granted may extend beyond that date in accordance with the
Plan. At the time an Option is granted or amended or the terms or conditions of
an Option are changed, the Board may provide for limitations or conditions on
the exercisability of the Option.
(e) An Option shall not be transferable by the Participant otherwise
than by Will or by the laws of descent and distribution. During the lifetime of
the Participant, an Option shall only be exercisable by the Participant.
(f) No person shall any rights of a stockholder as to shares under
option until, after proper exercise of the Option, such shares shall have been
recorded on the Corporation's official stockholder records as having been
issued or transferred.
(g) The Corporation shall not be obligated to deliver any shares
until there has been compliance with such laws or regulations as the
Corporation may deem applicable. The Corporation shall use its best efforts
to effect such compliance.In addition to the foregoing and not by way of
limitation, the Corporation may require that the person exercising the Option
represent and warrant at the time of such exercise that any shares acquired
by exercise are being acquired only for investment and without any present
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<PAGE>
intention to sell or distribute such shares, if, in the opinion of counsel for
the Corporation, such a representation is required under the Securities Act of
1933 or any other applicable law, regulation or rule of any governmental agency.
8. Transfers and Leaves of Absence
For the purposes of the Plan: (a) a transfer of a Participant's
employment without an intervening period from the Corporation to a subsidiary or
vice versa, or from one subsidiary to another or from parent to subsidiary or
vice versa, shall not be deemed a termination of employment, and (b) a Key
Employee who is granted in writing a leave of absence of no more than ninety
(90) days, or if more than ninety (90) days, which guarantees his employment
with the Corporation or the Banks at the end of such leave, shall be deemed
to have remained in the employ of the Corporation or the Banks during such
leave of absence.
9. Stock Adjustments
In the event of any merger, consolidation, stock dividend, split-up,
combination or exchange of shares or recapitalization or change in
capitalization, the total number of shares set forth in paragraph (a) of
Section 7 shall be proportionately and appropriately adjusted. In any such
case, the number and kind of shares that are subject to any Option (including
any Option outstanding after termination of employment) and the Option price
per share shall be proportionately and appropriately adjusted without any
change in the aggregate Option price to be paid therefor upon the exercise
of the Option. The determination by the Board as to the terms of any of the
foregoing adjustments shall be conclusive and binding.
10. Amendment and Termination
(a) The Board shall have the power to amend the Plan, including the
power to change the amount of the aggregate fair market value of the shares
for which any Key Employee may be granted Incentive Stock Options under
Section 4 to the extent provided in Code Section 422A. It shall not, however,
except as otherwise provided in the Plan, increase the maximum number of
shares authorized for the Plan, nor change the class of eligible employees
to other than Key Employees, nor reduce the basis upon which the minimum
Option price is determined, nor extend the period within which Options under
the Plan may be granted, nor provide for an Option that is exercisable during
a period of more than ten (10) years from the date it is granted. It shall
have no power (without the consent of the person or persons at the time
entitled to exercise the Option) to change the terms and conditions of any
Option after the Option is granted in a manner that would adversely affect the
rights of such persons except to the extent, if any, provided in the Option.
(b) The Board may suspend or terminate the Plan at any time. No such
suspension or termination shall affect Options then in effect.
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<PAGE>
11. No Employment Right
The grant of an Option hereunder shall not constitute an agreement
or understanding, expressed or implied, on the part of the Corporation, any
Parent or any Subsidiary, to employ the Participant for any specified period
and shall not confer upon any employee the right to continue in the
employment of the Corporation, any Parent or any Subsidiary, nor affect any
right which the Corporation, a Parent or Subsidiary may have to terminate
the employment of such employee.
12. Effective Date
The Plan is adopted on and shall be effective as of April 25, 1996.
Secretary
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<PAGE>
Exhibit A
ANCHOR FINANCIAL CORPORATION, THE ANCHOR BANK AND
THE ANCHOR BANK OF NORTH CAROLINA
INCENTIVE STOCK OPTION AGREEMENT UNDER
INCENTIVE STOCK OPTION PLAN OF 1996
THIS AGREEMENT, made this day of , 199 , by and between
Anchor Financial Corporation ("Corporation") with its principal office
located at 2002 Oak Street, Myrtle Beach, South Carolina; ("Bank");
and [ ] ("Participant"), of .
WITNESSETH:
WHEREAS, the Corporation on , 1996, adopted, by action of its
Shareholders, the "Anchor Financial Corporation, The Anchor Bank and The Anchor
Bank of North Carolina Incentive Stock Option Plan of 1996" ("Plan"), effective
, 1996; and
WHEREAS, under such Plan, certain shares of the Corporation are made
available for purchase by key employees of the Corporation or the Banks which
are subsidiaries of the Corporation through the grant of options; and
WHEREAS, the Participant is an employee of the Bank and is a Key
Employee under the Plan, and therefore, eligible for the grant of stock options
thereunder; and
WHEREAS, the Board of Directors of the Corporation under the Plan has
determined the the Participant shall be granted certain options under the Plan
as an incentive to his continued superior performance as an employee of the
Corporation.
NOW, THEREFORE, in consideration of the foregoing and other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
do hereby agree as follows:
1. Grant of Option. The Corporation hereby grants to the Participant
an option ("Option") to purchase ( ) shares of the $6.00 par
value common stock of the Corporation, upon the terms and conditions set forth
below and in the Plan document. The date of such grant is the date of this
Agreement. The number of Options specified above in this paragraph shall be
adjusted as provided in Section 9 of the Plan.
2. Option Price. The Option shall be exercisable at the price of
($ ) per share, which price has been determined by the Board
to be at least one hundred percent (100%) (or one hundred ten percent (110%)
<PAGE>
for a 10% shareholder) of the fair market value of such shares as of the
date of this Agreement.
3. Terms of Purchase. The purchase of any shares pursuant to the
Participant's exercise of the Option shall be for cash, payable in full upon
such exercise.
4. Period of Option. The Option shall be exercisable over the period
described below.
(a) Earliest Date of Exercise. The Option granted hereby shall become
first exercisable as the Option is vested as provided in Section 5 hereof;
provided, however, in no event shall any shares be available for purchase
hereunder prior to the date on which the Plan is approved by the stockholders
of the Corporation; provided, futher, however; in no event shall the number
of shares available for purchase hereunder increase beyond that available on
the date of the Participant's termination of employment with the Corporation
(as defined under the Plan), irrespective of the date on which the Option
shall expire under paragraph (b) of this Section 4.
(b) Latest Date of Exercise. In no event shall any shares be
available for purchase hereunder and the Option shall expire upon the earlier
of (i) ten years from the date of grant of the Option of five years from the
date of grant of the Option in case the Participant is already a 10% shareholder
of the Corporation, and (ii)(A) in the event of the Participant's termination of
employment with the Corporation or Bank for any reason other than death or
disability (as defined under the Plan), upon the expiration of three (3) months
from the date of such termination; (B) in the event of the Participant's
termination of employment as aforesaid by reason of his disability, upon the
expiration of one (1) year from the date of such termination; or (C) in the
event of the Participant's termination of employment as aforesaid by reason of
his death, upon the expiration of one (1) year from his date of death.
Notwithstanding anything to the contrary herein, if the employment of
Participant is terminated for cause or if the Participant completes with the
Corporation or the Bank as provided in the Plan, this Option is immediately
revoked and terminated.
(c) Prior Outstanding Options. This Option is exercisable despite
the existence of any other incentive option (defined under Section 422A) which
was granted to the Participant, before the granting of this Option, and which
earlier incentive stock option is for the purchase of shares in the Corporation
or in a corporation which at the date of grant hereunder is a Parent (as
defined under the Plan) or a Subsidiary (as defined under the Plan) or a
predecessor of any such corporations.
5. Vesting. The options granted hereunder may be exercised by the
participant on a cumulative basis for one-third of the shares covered thereby
on each of the first three anniversaries of the grant thereof.
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<PAGE>
In the event that the Corporation has a change of control in which 51%
or more of the stock of the Corporation is acquired or the Corporation is
merged or consolidated with another corporation in an acquisition transaction
or the Corporation sells substantially all of the assets of the Corporation,
or the Bank which employs the Participant is merged or consolidated with
another Bank not owned at least 50% by the Corporation or its Subsidiary or
such Bank has a change of control in which 51% or more of the stock of the
Bank is acquired or such Bank sells substantially all of its assets, then
immediately prior to such transaction, the vesting schedule set forth
above shall not be applicable and the holder of any options granted hereunder
shall be 100% vested in such options, subject to the other terms and conditions
herein.
6. Nontransferability. The Option is not transferable by the Participant,
in whole or in part, to any person, except by Will or by any applicable law
or descent and distributions. The Option shall not be exercisable, in whole
or in part, during the lifetime of the Participant by any person other than
the Participant.
7. Construction. The Option is intended to qualify for treatment as
an "incentive stock option" under Section 422A of the Internal Revenue Code of
1986, as amended, and any questions arising hereunder shall be resolved,
where possible, consistent with such intention. This Agreement shall be
construed in accordance with the laws of the State of South Carolina.
8. No Contract of Employment. Neither this Agreement, nor the Plan,
shall be construed to constitute an agreement or understanding, expressed or
implied, on the part of the Corporation or the Bank, or Parent or any
Subsidiary, to employ the Participant for any specified period and shall not
confer upon any employee the right to continue in the employment of the
Corporation, the Bank, any Parent or any Subsidiary nor affect any right which
the Corporation, the Bank, a Parent or Subsidiary may have to terminate the
employment of such employee.
9. Withholding. As a condition to the issuance of shares pursuant to any
exercise of this Option, the Participant authorizes the Corporation or the
Bank to withhold in accordance with applicable law from any cash compensation
payable to him any taxes required to be withheld by the Corporation or the
Bank under federal, state or local law as a result of such exercise; provided,
however, if at the time of such exercise no such compensation remains payable,
the Participant agrees to remit the amount of any such required withholding, if
any, to the Corporation or the Bank.
10. Legal Restrictions. This Option may not be exercised if the issuance
of shares pursuant to such exercise would constitute a violation of any
applicable federal or state securities or other law or regulation. The person
exercising the Option, as a condition to such exercise, shall represent to
the Corporation that the shares acquired thereby are being acquired for
investment and not with a present view to distribution or resale, unless
counsel
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<PAGE>
for the Corporation is then of the opinion that such representation is not
required under the Securities Act of 1933 or any other applicable law,
regulation or rule of any governmental agency.
11. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the Participant and his heirs, and shall be binding upon
the Corporation and the Bank and their successors and assigns.
12. Incorporation of Plan. This Agreement is made pursuant to and is
subject to the terms and conditions of the Plan, which terms and conditions
are hereby incorporated by reference herein.
13. Amendment. This Agreement may be amended by the Corporation at
any time (i) if the Corporation determines, in its sole discretion, that
amendment is necessary or advisable light of any addition to or change in the
Internal Revenue Code of 1986 or in the regulations issued thereunder, or any
federal or state securities law or other law or regulation, which change
occurs after the date of this Agreement and by its terms applies to the
Agreement; or (ii) other than in the circumstances described in clause (i),
with the consent of the Grantee.
14. Governing Law. This Agreement shall be governed by South Carolina
law, except to the extent preempted by federal law, which shall to that
extent govern.
IN WITNESS WHEREOF, the by its authorized representative, and the
Participant do hereby affix their signatures on the date first written
above.
ATTEST: ANCHOR FINANCIAL CORPORATION
By:
Printed Name:
Title:
BANK:
By:
Printed Name:
Title:
EXECUTIVE:
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<PAGE>
ANCHOR FINANCIAL CORPORATION
1995 Annual Report
(Anchor Logo appears here)
"BANKING THE CAROLINA COAST"
<PAGE>
NATURE OF BUSINESS
Anchor Financial Corporation (the "Corporation") is a multi-bank holding
company which, through its principal subsidiaries, The Anchor Bank ("ABSC") and
The Anchor Bank of North Carolina, offers a full range of banking services to
individuals and small- and medium-sized businesses from a central office located
in Myrtle Beach, South Carolina and seventeen offices located along the coast of
South Carolina and North Carolina. In 1993, the Corporation acquired Topsail
State Bank, Hampstead, North Carolina and changed the name to The Anchor Bank of
North Carolina. Also in 1993, ABSC merged with 1st Atlantic Bank, Little River,
South Carolina. In addition to the banks, the Corporation has one other
subsidiary, Anchor Automated Services, Inc., which provides specialized data
processing services. Anchor Capital Corporation, a subsidiary of ABSC, provides
non-traditional banking products and services.
COMMON STOCK
The Corporation's $6.00 par value common stock is traded in the
over-the-counter market. The high and low market prices for each quarter of 1995
and 1994 are set forth in the following table. Market prices were obtained from
two brokerage firms that make a market in the Corporation's common stock and a
market data service. The Corporation paid cash dividends of $0.36 per share in
1995 and $0.315 per share in 1994. As of December 31, 1995, there were 1,807
stockholders of record.
1995 1994
FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
Common Stock:
High for the period $20.25 19.50 14.75 14.00 $14.25 14.00 14.00 14.00
Low for the period $18.25 14.25 13.25 13.25 $13.50 13.00 13.25 13.00
FORM 10-K
A copy of the Corporation's Annual Report to the Securities and
Exchange Commission on Form 10-K may be obtained upon written request to:
John J. Moran, Vice President & Comptroller
Anchor Financial Corporation
Post Office Box 2428
Myrtle Beach, South Carolina 29578-2428
ANNUAL MEETING
The annual meeting of Shareholders of Anchor Financial Corporation will be held
on Wednesday, April 24, 1996, at 4:00 p.m. at The Dunes Golf and Beach Club,
Myrtle Beach, South Carolina.
TABLE OF CONTENTS
Map of Locations . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
To Our Stockholders and Friends. . . . . . . . . . . . . . . . . . . . 2-3
Banking the Carolina Coast . . . . . . . . . . . . . . . . . . . . . . 4-6
Anchor Financial Corporation Outlook . . . . . . . . . . . . . . . . . 6-7
Management's Discussion and Analysis . . . . . . . . . . . . . . . . . 8-21
Report of Management and Report of
Independent Accountants. . . . . . . . . . . . . . . . . . . . 22
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . 23
Consolidated Statement of Income . . . . . . . . . . . . . . . . . . . 24
Consolidated Statement of Changes in
Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . 25
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . 26
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . 27-39
Directors, Principal Officers, and Advisory Boards . . . . . . . . . . 40
Directory of Offices and
Corporate Information. . . . . . . . . . . . . . . . . Inside Back Cover
<PAGE>
(Anchor Logo)
Anchor Financial Corporation
"BANKING THE CAROLINA COAST"
(Map of North and South Carolina coast showing locations of branches)
1
<PAGE>
TO OUR STOCKHOLDERS
& FRIENDS
Anchor Financial Corporation achieved dynamic growth in its balance
sheet and core earnings in 1995, continuing the trend of solid performance
experienced during the past five years. While surpassing earnings expectations
and maintaining an additional year of impressive growth, the Corporation also
aggressively acted on expansion opportunities in new markets and continued to
invest in operational capacities. This progress was realized without sacrificing
improved performance and underscores the balance in our overall operations,
making 1995 one of our very best years.
Core earnings in 1995 reflect the Corporation's strength. For the year
ended December 31, 1995, core earnings were $3.483 million, an increase of 35.7%
when compared to core earnings of $2.566 million reported for the year ended
December 31, 1994. Core earnings exclude the non-recurring securities gains made
by the Corporation during each period.
CORE EARNINGS
In Millions
(Core Earnings chart appears here plot points are below)
'91 '92 '93 '94 '95
1.309 1.678 2.327 2.566 3.483
Net income for the year ended December 31, 1995, was $3.539 million, a
0.98% increase over the $3.505 million reported for the same period a year ago.
Earnings per share increased to $1.39 per share for the year ended December 31,
1995, up from the $1.38 reported for the same period in 1994. Return on assets
was 0.93% and return on equity was 12.75%.
The increase in net income is impressive because it took the Corporation
just one year to exceed the significant non-recurring gain experienced in 1994.
The increase was attributed to strong growth in net interest income along with
controlled growth in noninterest expense. The outstanding performance is the
direct result of the growth achieved from expansion to new markets, good
economic growth, and the efficiencies realized by applying operating costs to a
larger base of business.
It is particularly noteworthy that net interest income was $16.7 million
in 1995, reflecting an increase of more than 16.9%. The increase was a result of
dynamic growth in earning assets, led by growth in the Corporation's loan
portfolio. Economic expansion and strong growth in all of our markets produced
excellent loan demand during 1995. Also, the Corporation was positioned
favorably for changes in interest rates during the year. These conditions
allowed aggressive pricing on deposit products, fueling deposit growth and
providing funds for growth in earning assets. The level of loan demand provided
a more favorable mix in our earning assets, producing the very nice gains
realized.
Noninterest expense increased 9.64% in 1995, but growth in this area
slowed considerably in the latter part of the year, indicating that we have been
successful in controlling overhead expense. Opening new offices and developing
operational capacity has been expensive and naturally causes our overhead to
grow. We are carefully monitoring the gains achieved from these investments and
we believe they are the catalyst to fuel earnings growth in future years. This
benefit far outweighs the temporary impact on overhead. We are fortunate that
our on-going operations both afford new investment and reflect gains in
efficiency.
Total assets as of December 31, 1995, were $407.5 million, a 15.8%
increase over the $351.9 million reported a year ago. It was quite exciting to
cross the $400 million mark in total assets. Total deposits at December 31,
1995, were $353.9 million, up 14.8% from the $308.2 million reported for the
prior year. Total loans grew 20.4% in 1995, to $285.1 million from the $236.8
million reported a year ago. Growth in loans and deposits is consistent
throughout all of our markets, underscoring the value of the Corporation's
expansion decisions. Asset size has more than doubled during the five year
period from 1991 to 1995. All of our product lines are growing very nicely,
which means that we are competing effectively. This is, of course, essential to
our long-term success.
BALANCE SHEET GROWTH
In Millions
(Balance Sheet Growth chart plot points appear below)
'91 '92 '93 '94 '95 '91 '92 '93 '94 '95
152.2 187.2 203.0 236.8 285.1 191.7 232.2 271.8 308.2 353.9
Loans Deposits
'91 '92 '93 '94 '95
222.7 259.4 304.3 351.9 407.5
Total Assets
2
<PAGE>
Loan quality continues to be outstanding in all our markets. Net loan
losses for the year were only 0.13% of total loans. Non-performing assets
represented only 0.06% of loans outstanding at December 31, 1995. These ratios
continue to remain well below peer group averages and the banking industry as a
whole, and indicate that credit quality remains strong. While we do not foresee
anything that would cause a decline in loan quality, we need to recognize that
if economic conditions turn down, loan quality could be adversely affected. It
is therefore essential that we remain cautious and patient as we seek quality
loans in all our markets. Even though quality loan demand has been excellent,
the competition for these earning assets is fierce. The credit markets are
showing signs of insufficient pricing to support the inherent risk and this
activity is often accompanied by relaxed underwriting standards. Our growth in
revenues combined with the indicators of loan quality reflect that we are
competing safely and effectively in this environment. However, our position is
quite guarded and we will sacrifice growth before we relax our credit standards.
Anchor Financial Corporation's recent expansions to Hilton Head Island,
Mt. Pleasant, and Wilmington have fueled our stock's performance over the past
five years. During this five year period from 1991 to 1995, the total return on
investment averaged more than 20% per year. Investment firms that make a market
in the stock have recognized the Corporation's solid performance and have a
strong interest in our progress. Additional expansion accompanied by safe and
solid performance should continue to fuel stock performance.
The Corporation achieved its impressive performance while expanding to
new markets and developing new lines of business. The Corporation opened banking
offices in Mt. Pleasant, South Carolina and Wilmington, North Carolina in 1995,
adding a second Wilmington office in February 1996. The Mt. Pleasant office is
one of our fastest growing branch offices and we are very pleased with the early
progress shown in the Wilmington market. Both markets have tremendous potential
and we are excited to bring our style of community banking service to each area.
STOCK PRICE
Per Share
(Stock Price chart appears here plot points are below)
'91 '92 '93 '94 '95
$8.69 $8.94 $13.00 $13.75 $19.75
*Prices shown are reflective
of stock split
We also formed an investment subsidiary, Anchor Capital Corporation, to
offer non-traditional banking services such as mutual funds, annuities and other
securities. The program is marketed as THE WALL STREET CORNER LOCATED AT THE
ANCHOR BANK, and provides customers with convenient access to investment
products. Significant start-up costs were absorbed in 1995, and the program
needs further development. However, the direction and progress are quite
surprising and we believe this area holds bright promise.
Our Board of Directors has recognized the Corporation's potential and
capacity for additional growth and has learned that by utilizing that capacity,
spectacular growth is possible both now and in the future. The board, along with
members of senior management, recently completed an intensive strategic planning
process to chart the Corporation's path for the next five years. Through the
planning process, our leadership has agreed on the basic strategies to keep the
Corporation on course for future success well into the 21st century. The vast
amount of change in our industry makes it imperative to carefully position for
future success. An accelerated pace of change remains present in our business
and we believe that this process offers tremendous opportunity for properly
positioned companies.
The soundness and strength in our balance sheet, the outstanding
levels of growth and profitability, and the ability to invest wisely in new
markets and operational capacities, show a financial institution that is
faring well in a rapidly changing environment. Our financial presence along
the coast of the Carolinas is increasing. As our strength and presence
increase, so will the value of our banking franchise. With your continued
support, our Corporation is poised and ready for an exciting future. I hope
that the information included in this REPORT is helpful to you. We value your
commitment to Anchor Financial Corporation and will continue to work hard for
your investment.
(Signature Stephen L. Chryst)
Stephen L. Chryst
PRESIDENT AND CHIEF EXECUTIVE OFFICER
3
<PAGE>
BANKING THE
CAROLINA COAST
THE NEW COMMUNITY BANK
"AS THE TREND OF CONSOLIDATION
CONTINUES THROUGHOUT THE BANKING
INDUSTRY, A NEW DEFINITION OF
COMMUNITY BANKING IS EVOLVING."
This new concept brings unlimited potential for Anchor Financial
Corporation's future.
The new community bank provides a wide range of services and has a
personal commitment to the communities it serves. Decisions are generally made
at the local level and employees at every level from the bank president to
tellers to support staff are strongly committed to and involved in community
activities. These tenets are the cornerstone of traditional community banking.
Yet the new community bank also is an innovator that is capable of
pioneering technological advances -- an activity that has not always been a
strength of the traditional community bank. The new community bank uses
technology ranging from 24-hour banking at automated teller machines to check
imaging and bank at home programs to provide superior service while meeting
customer needs. Also, a larger community bank has a larger loan capacity and
more resources to analyze complex business situations. This strength makes these
"super community banks" more responsive to growing markets and modern customer
demands.
Thus, the new community bank no longer serves a single market or is a
certain asset size. The new community bank has developed from need -- the
realization that smaller banks need size to provide the service innovations and
generate the volumes needed for profitability. As mergers help create several
very large banks, they also provide opportunities for the new community bank to
offer a higher level of service quality along with the personal attention
customers appreciate.
The Corporation has broadened its product lines throughout the years,
adding innovative savings vehicles such as the Anchor Prime Money Market
Investment Account, along with mortgage, trust, and investment services, to its
product menu. These changes were made with one goal in mind -- to meet the
changing needs of customers.
Since 1991, the Corporation has moved into new markets in both South
Carolina and North Carolina, bringing its style of community banking to each new
market. With expansion, the Corporation has had a positive effect on the local
economies, not only by providing employment but by supplying needed financial
resources to a variety of businesses in each market. The Corporation also
invested in new banking technology and replaced its software with a new system
that has the capacity to handle additional growth well into the 21st century.
The Corporation also offers innovative services such as Home Banking and Check
ManagerSM check imaging to its customers.
"ANCHOR FINANCIAL CORPORATION
HAS BEEN AT THE FOREFRONT OF THE
CHANGING COMMUNITY BANK CONCEPT.
IT WAS FOUNDED 21 YEARS AGO
WITH A STRONG COMMITMENT TO
PERSONAL, LOCAL SERVICE."
Throughout the Corporation's history, all working activities have always
been guided by the goal of superior service. In 1995, the Corporation formalized
these basic tenets of service into a creed, motto, and mission statement. These
words are much more than slogans; they are a way of life for every Anchor
Financial Corporation staff member. Both veteran and new employees carry a
pocket-sized copy of the creed, motto, and mission statement and the information
is proudly displayed in every office and department as a constant reminder of
the importance of superior service.
The expansion to new markets, innovation of product line, and
utilization of state of the art banking technology were accomplished while the
Corporation performed at a high level, with growth of 35.7% in core earnings
from year end 1994 to year end 1995. The Anchor Bank and The Anchor Bank of
North Carolina continue to grow faster than larger bank competitors, indicating
that customers prefer the higher level of service we provide. This solid
performance completes the definition of the new community bank. Industry
observers and the investment community have recognized the success of the new
community bank strategy, which is reflected in the premium of their stock price.
Progress made in 1995 further reflects the Corporation's commitment to
the new community banking orientation.
EXPANSION TO NEW MARKETS
The expansion to new markets continues to play a great role in Anchor
Financial Corporation's success. The Corporation first moved beyond its Grand
Strand home base in 1991, with the acquisition of two banking offices on Hilton
Head Island. Two years later, the Corporation acquired three additional offices
in the southeast corner of North Carolina. While this exciting growth occurred,
the Corporation also added strength to existing markets, by opening offices
through acquisition and de novo branching in Little River, North Myrtle Beach,
and Georgetown.
In 1995, the Corporation continued expansion along the Carolina coast,
adding offices in Mt. Pleasant and the first of two new offices in Wilmington,
bringing the total number of offices to seventeen. An eighteenth office, at 3212
Oleander Drive in Wilmington, opened in February 1996.
4
<PAGE>
"THE SOUTH
COLLEGE ROAD
OFFICE SERVES (Photo of The Anchor Bank)
AS THE BANK'S
BASE IN
WILMINGTON."
Each new market has tremendous potential. Mt. Pleasant is a rapidly
growing community that provides the Corporation with an entrance to the
Charleston market. The Charleston metropolitan area's major market economy has
impact all along the coast of South Carolina. The economic mix of the region is
diverse, influenced strongly by the Port of Charleston, an established medical
community, a strong tourism industry, light and heavy manufacturing, six
institutions of higher education, and a still formidable military presence.
Wilmington also is a large and diverse market with a growing port, light
and heavy manufacturing, cultural and educational activities, and tourism. In
each case the Corporation successfully brought its style of community banking to
these markets and is developing a loyal customer base, which will serve as a
springboard for future expansion.
NEW PRODUCTS AND SERVICES
(Picture of The Wall Street Corner logo)
In 1995, The Anchor Bank formed an investment subsidiary, Anchor Capital
Corporation, to market non-traditional banking products and services to
customers in all its markets. Known as THE WALL STREET CORNER LOCATED AT THE
ANCHOR BANK, the program provides customers with convenient, easy access to
mutual funds, annuities, and other securities.
The offering of these services under the Anchor Financial Corporation
umbrella comes at a time when consumer interest in alternative products is
growing. According to recent research by the AMERICAN BANKER, 10% of American
consumers have purchased brokerage or non-bank services from a bank and 40% plan
to do so in the future. The formation of a subsidiary to market these products
ensures that the Corporation will protect its deposit base and gain market share
in this growing area.
In other product news, the Check ManagerSM check imaging system received
rave reviews when it premiered to customers of The Anchor Bank of North Carolina
in June 1995. The program, which provides customers with their cancelled checks
neatly printed on standard sheets of paper, streamlines the statement
reconciling process for customers. The Anchor Bank was the first bank in South
Carolina to offer Check ManagerSM when it introduced the service in November
1993.
ADDITIONAL TECHNOLOGICAL ADVANCEMENTS
In addition to the introduction of Check ManagerSM in North Carolina, a
second major technological advance was made with the installation of new banking
software to service both banks.
The EDS system in place since December 1983 had been used to its
maximum capacity and was replaced during the second quarter 1995 by the
Silverlake Banking Software package developed by Jack Henry and Associates. The
new system not only will provide a useful tool for product development and
training, but has the capacity to support the Corporation and its growth well
into the 21st century.
In addition, the Corporation completed installation of the sophisticated
computer infrastructure that will enhance communications between each of our
offices. Multiple communications lines have been integrated into a single
system, and with the installation of equipment and software, these developments
not only will cut the costs and time needed to get new offices up and running,
but will help meet the changing needs of offices quickly and efficiently as
well.
By taking advantage of these technological advances, the Corporation has
enabled employees to serve our customers even more effectively and efficiently.
The benefits to the bottom line are many as the Corporation will realize lower
per user costs while generating savings in paper supplies and time by
eliminating non-essential steps in the communications process.
In 1996, each branch office will be equipped with the technology that
will provide more flexibility, better communications, and additional marketing
opportunities through the use of several technological advances.
ESTABLISHING PRESENCE IN OUR COMMUNITIES
As part of its community bank strategy, the Corporation continues to
play an active role in a variety of activities throughout our markets. Our
employees once again demonstrated their commitment and dedication through
participation in many special events.
Along the Grand Strand, The Anchor Bank again led the way in the
American Heart Association's Heart Walk. The bank's 160 member team raised more
than $14,000 for the fight against heart disease and stroke, helping to make the
walk the most successful one in the state for the second year in a row. In
another health-related endeavor, the bank received the "Big Drop" award for its
record participation in American Red Cross blood drives during 1995.
In Hilton Head Island, The Anchor Bank provided a full scholarship for a
minority applicant to attend the Leadership Hilton Head Island program. In
addition, bank employees had 100% participation in the United Way fund drive,
took an active role in the March of Dimes walk-a-thon, and supported youth
soccer and other special activities.
Offices in new markets also exemplified the commitment to community. In
Mt. Pleasant, the bank supported the town's recreation department with a special
promotion that offered a donation to the department for every deposit account
opened during the
5
<PAGE>
office's first month of operation. A similar program is underway in Wilmington
for the Lower Cape Fear Hospice.
The Anchor Bank of North Carolina provided firm support to several
educational endeavors during the year. The bank is in the second year of a five
year commitment to the Topsail Education Foundation and also supported the
Cameron School of Business Administration at the University of North Carolina at
Wilmington. The bank also played a key role in the 32nd Annual Spot Festival,
with proceeds benefiting the Hampstead Fire Department, Hampstead Volunteer
Community Fire Department, Pender East Rescue Squad, and the Sloop Point
Volunteer Fire Department.
COMMUNITY BANKING OF THE FUTURE
The successful integration of growth to new markets, technological
improvements to the product line, superior service to the customer, and strong
community leadership have provided the Corporation with a competitive advantage
which positions it well for the future.
ALEC ELMORE
(RIGHT) PRESENTS
TOM O'ROURKE
OF THE
MT. PLEASANT
RECREATION (Photo of Alec Elmore and Tom O'Rourke holding a check)
DEPARTMENT WITH
THE PROCEEDS FROM
A SPECIAL BANK
PROMOTION TO
BENEFIT THE
DEPARTMENT.
ANCHOR FINANCIAL CORPORATION OUTLOOK
STRONG FINANCIAL PERFORMANCE SETS
STAGE FOR 1996
While Anchor Financial Corporation reported a record year in 1994, the
financial performance achieved in 1995 was far more significant. During 1995,
the Corporation was able to match the gain of the previous year due to record
increases in core earnings. This strong financial performance is the fruit borne
of a branch banking network that spans the coast of two states and multiple
markets. In turn, solid performance and strategic market penetration should
support a continuation of financial success in 1996.
GEOGRAPHIC EXPANSION
"IN 1996, THE CORPORATION
WILL CONTINUE TO BRING ITS
STYLE OF COMMUNITY BANKING TO
NEW AND EXISTING MARKETS
ALONG THE COASTLINE OF
SOUTH CAROLINA AND
NORTH CAROLINA."
Following its strategic plan, the Corporation is aggressively seeking
opportunities for growth in its quest to continue its coastal strategy. Work has
already begun on developing a presence in existing markets, particularly the
Wilmington market, where a second branch office opened in February 1996.
The Wilmington market provides the Corporation with impressive growth
opportunities. According to the Cameron School of Business Administration at the
University of North Carolina at Wilmington, the Coastal Business Index, a
measure of overall economic activity in the coastal area of southeastern North
Carolina, grew at a compounded annual rate of 6.5%, while national economic
activity grew at a compounded annual rate of 3%. Growth of approximately 7% is
predicted for 1996 with the retail and service sectors driving economic growth.
The area also reported low unemployment and strong retail sales in 1995.
With the branch office in Mt. Pleasant established, the Corporation is
well-positioned for future expansion in the Charleston market. The economy in
this market is influenced by four sectors -- the Port of Charleston, the tourism
industry, the medical community, and industry. Because the community acted
swiftly when the Charleston Naval Base and Charleston Shipyard closing was
announced in 1993, economic growth is now outpacing the impact of the closing.
This good economic news is the result of efforts by the Charleston Regional
Development Alliance, which was formed in 1994 to further develop and enhance
industrial recruiting efforts in light of the base closing. Already the work has
paid dividends, as new companies, including Nucor Steel, Ergste Westig, and
Medaphis have come to the Lowcountry. In addition, traffic at the Port of
Charleston continues to grow as new companies needing a port expand to the area.
The port also completed a $90 million expansion of the Wando Terminal in Mt.
Pleasant which will provide additional space for growth.
These two markets join the Grand Strand and Hilton Head Island markets
in experiencing strong growth. Myrtle Beach is forecast to have the
second-fastest rate of population growth among U.S. metropolitan areas during
the next decade, as it makes the
6
<PAGE>
transition from a seasonal tourist destination to a year-round tourist
destination. Hilton Head Island's worldwide recognition is credited for the
economic prosperity of the region and is the driving force behind continued
growth in Beaufort and Jasper counties.
Overall, Anchor Financial Corporation offices are located in areas where
populations are growing significantly and projections indicate that this trend
will continue throughout the remainder of the 90's. Research shows that retirees
find the two states' central location and four season climate extremely
desirable. In addition, the continued economic expansion experienced in these
regions will fuel population growth.
LINES OF BUSINESS
The Corporation will continue to invest in lines of business that will
benefit from its core competence of community banking while ensuring positive
impact on the bottom line.
In 1996, the Corporation will continue to prepare to meet the demand for
innovative, technologically advanced products.
"CUSTOMER NEEDS FOR
TECHNOLOGICALLY ADVANCED
PRODUCTS SUCH AS HOME AND
COMPUTER BANKING WILL CONTINUE
TO DRIVE PRODUCT DEVELOPMENT
AND THE PRODUCT DELIVERY
SYSTEM OF THE FUTURE."
The Corporation's product review team recently completed an in-depth
analysis of bank products and pricing. This review will continue on a yearly
basis to ensure that our products and services are state of the art and that our
pricing is fair and consistent in all the markets we serve. Activity and
research is at a high level to determine just which electronic products and
delivery systems will emerge fastest. We plan to stay on the leading edge as we
use technology to provide service 24 hours a day, seven days a week.
STOCK PERFORMANCE
In August, the Corporation's Board of Directors approved a two-for-one
stock split, payable on September 29, 1995, to shareholders of record on
September 1, 1995. This action is further evidence of the Corporation's
continued strong financial performance and expansion during the past five years.
(Picture of an Anchor Financial Corporation stock certificate)
The split increased shares outstanding to more than 2,500,000, which
should further enhance the stock's liquidity. More brokers are making a market
in the stock, providing additional outlets for stock purchase and more
reasonable price quotations. In addition, the Corporation's strong performance
has been sufficient to provide increases in the quarterly cash dividend in 1994,
1995, and 1996.
INTERSTATE BANKING UPDATE
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
allows for the establishment of interstate banking effective September 29, 1995
and interstate branching effective June 1, 1997.
Prior to June 1, 1997, states may elect to "opt-in" as of an earlier
date or to "opt-out." If a bank's home state opts out of interstate branching,
it may not participate in any interstate merger transactions. North Carolina has
already opted-in, and legislation is before the South Carolina legislature to
opt in by July 1, 1996.
Early approval of interstate branching means that the Corporation can
blend its South Carolina and North Carolina banks into one entity, which will
result in cost savings from economies of scale. Through careful management of
human resource needs, we will be able to join all management and staff without
job eliminations, and in many cases provide more opportunity. This action better
suits the Corporation's community banking strategy. Importantly, our customers
can use all our offices from Jacksonville, North Carolina to Hilton Head Island,
South Carolina for their banking needs.
REGULATORY BURDEN
The banking industry continues to labor under a heavy regulatory burden
not faced by non-bank competitors. The Corporation keeps abreast of regulatory
changes and how to comply with new regulations through memberships in various
banking organizations.
In addition, the Corporation has invested in the human resources to
ensure the safety and soundness to meet or exceed the regulatory standards by
hiring experts in the compliance and audit areas. The Corporation's strong
performance and growth have provided the size to gain this much needed
expertise.
LOOKING TOWARD THE 21ST CENTURY
Continued expansion within the Corporation's coastal market, development
of lines of business compatible with the Corporation's core business of banking,
use of the newest banking technology, and attention to safety and soundness will
continue to chart the Corporation's course into the next century.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion and tabular data presented below analyze major factors and
trends regarding the financial condition and results of operations of Anchor
Financial Corporation (the "Corporation") and its principal subsidiaries, The
Anchor Bank ("ABSC") and The Anchor Bank of North Carolina ("ABNC") for each of
the three years in the period ended December 31, 1995. On August 14, 1995, the
Board of Directors of the Corporation declared a two-for-one stock split payable
on September 29, 1995 to stockholders of record on September 1, 1995. All
financial statement information presented in this report has been restated to
reflect the two-for-one stock split. This discussion should be read in
conjunction with the consolidated financial statements and the notes thereto
presented elsewhere in this Annual Report.
RESULTS OF OPERATIONS
SUMMARY
Net income for the year ended December 31, 1995 totaled $3,538,900, an
increase of $34,298 or 1.0% over 1994. Net income for 1994 was $3,504,602, an
increase of $1,085,828 or 44.9% from the $2,418,774 earned in 1993. Net income
per share increased 0.7% to $1.39 in 1995 compared with $1.38 in 1994 and $0.96
in 1993.
The increase in earnings during 1995 was primarily due to a $2,411,983 or
16.9% increase in net interest income and a $344,117 or 36.6% decrease in the
provision for loan losses. These favorable changes were partially offset by a
$1,456,247 or 32.9% decrease in noninterest income, a $1,191,821 or 9.6%
increase in noninterest expense, and a $73,734 or 3.9% increase in the provision
for income taxes. Net income excluding net investment securities gains increased
$931,376 or 35.7% to $3,482,905 in 1995 versus $2,566,192 in 1994.
The increase in earnings from 1993 to 1994 was primarily due to an 18.2%
increase in net interest income and a 32.3% increase in noninterest income.
These favorable increases were partially offset by an 10.9% increase in
noninterest expense, an 80.3% increase in the provision for loan losses, and a
37.5% increase in the provision for income taxes. Net income excluding net
investment securities gains and cumulative effect of a change in accounting
principle increased $238,892 or 10.3% to $2,566,192 in 1994 versus $2,327,300 in
1993.
Return on average assets and return on average stockholders' equity are key
measures of earnings performance. Return on average assets for 1995 was 0.93%
compared with 1.06% in 1994 and 0.85% in 1993. Return on average stockholders'
equity for 1995 was 12.75% versus 13.94% in 1994 and 10.70% in 1993.
On December 31, 1993, ABSC merged with 1st Atlantic Bank ("1st Atlantic"),
Little River, South Carolina. ABSC survived the merger and the former
stockholders of 1st Atlantic became stockholders of the Corporation. 1st
Atlantic stockholders received for each one share of $10.00 par value 1st
Atlantic Common Stock issued and outstanding, 2.80 shares (adjusted for the
stock split) of newly issued $6.00 par value Anchor Financial Corporation Common
Stock. Prior to the merger, the Corporation owned 10,267 shares or 6.77% of the
outstanding common stock of 1st Atlantic.
On December 31, 1993, Anchor Interim Bank (a wholly-owned subsidiary of the
Corporation formed for the purpose of facilitating the acquisition of Topsail
State Bank) merged with Topsail State Bank ("Topsail"), Hampstead, North
Carolina. Topsail survived the merger transaction and the former stockholders of
Topsail became stockholders of the Corporation and Topsail became a wholly-owned
subsidiary of the Corporation and operates under the name "The Anchor Bank of
North Carolina." Topsail stockholders received for each one share of $3.50 par
value Topsail Common Stock issued and outstanding, 0.964 shares (adjusted for
the stock split) of newly issued $6.00 par value Anchor Financial Corporation
Common Stock.
Each of the foregoing mergers was accounted for as poolings of interests.
Accordingly, all financial data throughout this Annual Report have been
restated, for all periods presented, to include the accounts of the merged
banks.
8
<PAGE>
Table 1 provides a summary of the income statement, balance sheet, and
selected ratios for the last five years. A more detailed analysis of each
component of the Corporation's net income is included under the appropriate
captions which follow.
TABLE 1: SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
INCOME STATEMENT DATA 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Interest income $ 30,269,788 $ 23,391,823 $ 19,612,321 $ 17,589,578 $ 17,744,778
Interest expense 13,598,500 9,132,518 7,552,105 7,610,506 9,202,035
Net interest income 16,671,288 14,259,305 12,060,216 9,979,072 8,542,743
Provision for loan losses 596,000 940,117 521,526 586,489 463,521
Net interest income after provision for loan losses 16,075,288 13,319,188 11,538,690 9,392,583 8,079,222
Noninterest income 2,976,520 4,432,767 3,349,749 2,724,900 1,957,981
Noninterest expense 13,559,558 12,367,737 11,152,580 9,401,731 8,062,412
Income before income taxes, extraordinary item and
cumulative effect of a change in accounting
principle 5,492,250 5,384,218 3,735,859 2,715,752 1,974,791
Provision for income taxes 1,953,350 1,879,616 1,366,585 971,229 652,478
Income before extraordinary item and cumulative
effect of a change in accounting principle 3,538,900 3,504,602 2,369,274 1,744,523 1,322,313
Extraordinary item 0 0 0 2,000 45,000
Cumulative effect on prior years (to December 31,
1992) of changing to a different method of
accounting for income taxes 0 0 49,500 0 0
Net income $ 3,538,900 $ 3,504,602 $ 2,418,774 $ 1,746,523 $ 1,367,313
Net income per share $ 1.39 $ 1.38 $ 0.96 $ 0.69 $ 0.54
Average common shares outstanding 2,548,671 2,538,956 2,513,164 2,533,456 2,546,562
SELECTED YEAR-END ASSETS AND LIABILITIES
Total assets $407,506,417 $351,866,962 $304,334,422 $259,409,152 $222,652,171
Interest-earning assets 368,649,235 316,949,552 269,163,354 232,042,276 197,828,270
Investment securities 83,446,700 79,079,276 60,066,395 39,206,762 41,191,233
Loans -- net of unearned income 285,103,535 236,771,276 202,987,210 187,200,506 152,245,420
Deposits 353,875,756 308,208,417 271,758,555 232,230,645 191,738,364
Noninterest-bearing deposits 61,748,670 52,730,429 48,516,294 34,051,506 28,145,755
Interest-bearing deposits 292,127,086 255,477,988 223,242,261 198,179,139 163,592,609
Interest-bearing liabilities 314,829,664 272,472,176 231,099,670 201,881,005 172,266,859
Stockholders' equity 28,542,018 24,774,618 23,216,579 21,250,997 20,265,250
SELECTED RATIOS
Return on average assets 0.93% 1.06% 0.85% 0.74% 0.68%
Return on average stockholders' equity 12.75 13.94 10.70 8.32 6.67
Net yield on average interest-earning assets
(tax equivalent) 4.86 4.77 4.70 4.77 4.78
Average loans to average deposits 78.33 74.99 76.73 82.12 79.70
Net loan losses to average loans 0.13 0.23 0.16 0.21 0.22
Nonperforming loans to loans 0.06 0.19 0.23 0.70 1.15
Allowance for possible loan losses to loans 1.07 1.18 1.16 1.16 1.27
Allowance for possible loan losses to
nonperforming loans 1,666.10 638.27 505.66 164.45 110.87
Average stockholders' equity to average assets 7.32 7.60 7.93 8.95 10.26
Total risk-based capital ratio (1) 12.18 13.53 14.46 11.70 12.34
Tier 1 leverage ratio (1) 6.76 6.85 7.19 7.77 8.72
Dividend payout ratio 25.84 22.83 20.95 28.98 37.23
<CAPTION>
FIVE YEAR
COMPOUND
INCOME STATEMENT DATA GROWTH RATE
<S> <C>
Interest income 11.7%
Interest expense 8.2
Net interest income 15.1
Provision for loan losses (18.4)
Net interest income after provision for loan losses 19.5
Noninterest income 13.1
Noninterest expense 15.7
Income before income taxes, extraordinary item and
cumulative effect of a change in accounting
principle 27.1
Provision for income taxes 28.9
Income before extraordinary item and cumulative
effect of a change in accounting principle 26.1
Extraordinary item NM
Cumulative effect on prior years (to December 31,
1992) of changing to a different method of
accounting for income taxes NM
Net income 25.9
Net income per share 27.8
Average common shares outstanding (1.5)
SELECTED YEAR-END ASSETS AND LIABILITIES
Total assets 17.6%
Interest-earning assets 17.7
Investment securities 19.1
Loans -- net of unearned income 18.0
Deposits 18.9
Noninterest-bearing deposits 21.7
Interest-bearing deposits 18.3
Interest-bearing liabilities 18.2
Stockholders' equity 7.9
SELECTED RATIOS
Return on average assets
Return on average stockholders' equity
Net yield on average interest-earning assets
(tax equivalent)
Average loans to average deposits
Net loan losses to average loans
Nonperforming loans to loans
Allowance for possible loan losses to loans
Allowance for possible loan losses to
nonperforming loans
Average stockholders' equity to average assets
Total risk-based capital ratio (1)
Tier 1 leverage ratio (1)
Dividend payout ratio
</TABLE>
(1) Computed in accordance with bank holding company regulatory capital
guidelines that were phased in over a two-year period that began December
31, 1990, giving full effect to the exclusion of intangible assets.
NM -- Not meaningful
9
<PAGE>
NET INTEREST INCOME
Net interest income, the major component of the Corporation's income, is the
amount by which interest and fees generated by earning assets exceed the total
interest costs of the funds used to carry them. Net interest income is affected
by changes in the level of interest rates and the change in the amount and
composition of earning assets and interest-bearing liabilities. Table 2,
Comparative Average Balance Sheets -- Yields and Costs, compares average balance
sheet items and analyzes net interest income on a tax equivalent basis for the
years ended December 31, 1995, 1994, and 1993.
TABLE 2: COMPARATIVE AVERAGE BALANCE SHEETS -- YIELDS AND COSTS
<TABLE>
<CAPTION>
(AVERAGE BALANCES ON A TAX EQUIVALENT BASIS FOR YEARS ENDED DECEMBER 31 IN THOUSANDS)
1995 1994 1993
AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/ AVERAGE
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $260,757 $25,277,156 9.69% $221,388 $19,353,495 8.74% $197,957
Investment securities:
Taxable 75,527 4,471,051 5.92 67,571 3,485,151 5.16 48,615
Non-taxable 3,368 286,533 8.51 3,160 271,724 8.60 3,579
Total investment securities 78,895 4,757,584 6.03 70,731 3,756,875 5.31 52,194
Interest-bearing balances: due from banks 99 6,613 6.68 426 20,917 4.91 310
Federal funds sold and securities purchased under
agreements to resell 6,807 402,765 5.92 8,062 352,921 4.38 8,571
Total interest-earning assets 346,558 $30,444,118 8.78% 300,607 $23,484,208 7.81% 259,032
Noninterest-earning assets:
Cash and due from banks 15,250 14,132 11,029
Premises and equipment 12,969 11,798 10,952
Other, less allowance for loan losses 4,221 4,162 4,326
Total noninterest-earning assets 32,440 30,092 26,307
TOTAL ASSETS $378,998 $330,699 $285,339
Interest-bearing liabilities:
Interest-bearing deposits:
Interest checking $ 36,407 $ 743,781 2.04% $ 36,107 $ 696,567 1.93% $ 31,214
Savings 35,542 1,091,911 3.07 47,741 1,454,369 3.05 48,597
Money market 123,368 6,319,858 5.12 95,769 3,882,964 4.05 54,361
Time deposits 77,247 4,316,352 5.59 62,837 2,540,763 4.04 80,988
Total interest-bearing deposits 272,564 12,471,902 4.58 242,454 8,574,663 3.54 215,160
Federal funds purchased and securities sold
under agreements to repurchase 2,020 111,741 5.53 1,799 61,404 3.41 73
Other short-term borrowings 2,883 157,504 5.46 1,662 56,690 3.41 2,157
Long-term debt 6,260 417,792 6.67 0 0 0.00 0
Subordinated notes 5,000 439,561 8.79 5,000 439,761 8.80 423
Total interest-bearing liabilities 288,727 13,598,500 4.71% 250,915 9,132,518 3.64% 217,813
Noninterest-bearing liabilities:
Demand deposits 60,320 52,750 42,844
Other liabilities 2,309 2,026 2,067
62,629 54,776 44,911
Stockholders' equity 27,642 25,008 22,615
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $378,998 $330,699 $285,339
Net interest income $16,845,618 $14,351,690
Interest income/earning assets 8.78% 7.81%
Interest expense/earning assets 3.92 3.04
Net interest income/earning assets 4.86% 4.77%
1993
REVENUE/ YIELD/
EXPENSE RATE
<S> <C> <C>
Interest-earning assets:
Loans $16,745,252 8.46%
Investment securities:
Taxable 2,376,896 4.89
Non-taxable 308,294 8.61
Total investment securities 2,685,190 5.14
Interest-bearing balances: due from banks 13,084 4.22
Federal funds sold and securities purchased under
agreements to resell 273,614 3.19
Total interest-earning assets $19,717,140 7.61%
Noninterest-earning assets:
Cash and due from banks
Premises and equipment
Other, less allowance for loan losses
Total noninterest-earning assets
TOTAL ASSETS
Interest-bearing liabilities:
Interest-bearing deposits:
Interest checking $ 721,742 2.31%
Savings 1,627,463 3.35
Money market 1,721,033 3.17
Time deposits 3,380,328 4.17
Total interest-bearing deposits 7,450,566 3.46
Federal funds purchased and securities sold
under agreements to repurchase 2,757 3.78
Other short-term borrowings 61,347 2.84
Long-term debt 0 0.00
Subordinated notes 37,435 8.85
Total interest-bearing liabilities 7,552,105 3.47%
Noninterest-bearing liabilities:
Demand deposits
Other liabilities
Stockholders' equity
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
Net interest income $12,165,035
Interest income/earning assets 7.61%
Interest expense/earning assets 2.91
Net interest income/earning assets 4.70%
</TABLE>
(1) Average loan balances are stated net of unearned income and include
nonaccrual loans. Interest recognized on nonaccrual loans has been included
in revenues.
(2) Non-taxable income has been adjusted to a tax equivalent basis using the
federal income tax rate of 34%.
10
<PAGE>
Net interest income on a tax equivalent basis increased $2,493,928 or 17.4%
from $14,351,690 in 1994 to $16,845,618 in 1995. This increase was primarily
attributable to the increased volume and yield of earning assets. The net
interest margin increased nine basis points from 4.77% in 1994 to 4.86% in 1995.
Interest income on a tax equivalent basis increased $6,959,910 or 29.6% in
1995 primarily due to the increased volume and yield of earning assets. Average
earning assets increased 15.3% to $346,558,000 or 91.4% of average total assets
in 1995 compared with $300,607,000 or 90.9% in 1994. The two primary types of
earning assets are loans and investment securities. The income generated from
these assets is a function of their quality, growth, and yield. The growth in
these earning assets was primarily the result of improved quality loan demand as
average loans increased $39,369,000 or 17.8%. Loans as a percentage of earning
assets increased from 73.7% in 1994 to 75.2% in 1995. Average investment
securities increased $8,164,000 or 11.5%. The yield on earning assets increased
97 basis points from 7.81% in 1994 to 8.78% in 1995. This increase was due to
repricing opportunities during the rising interest rate environment experienced
during a significant portion of 1995.
The cost of funding sources increased $4,465,982 or 48.9% in 1995 primarily
due to the increased volume of average interest-bearing liabilities of
$37,812,000 or 15.1% and the average rate paid on interest-bearing liabilities
increased 107 basis points from 3.64% in 1994 to 4.71% in 1995. The mix of
interest-bearing liabilities changed as traditionally lower yielding interest
checking, savings, and money market deposit accounts as a group decreased as a
percentage of interest-bearing liabilities from 71.6% in 1994 to 67.7% in 1995.
Average long-term debt increased $6,260,000 in 1995 at an average rate of 6.67%.
Interest-bearing liabilities decreased slightly as a percentage of average
earning assets to 83.3% in 1995 from 83.5% in 1994.
The net interest margin, computed by dividing net interest income by average
earning assets, reflects the impact of noninterest-bearing funds on net interest
income. The primary reasons for the increase in the net interest margin were a
decrease in the level of interest-bearing liabilities used to fund earning
assets and the positive changes in net interest rate spreads caused by
repricings in a rising interest rate environment through most of 1995. Table 3,
the Analysis of Net Interest Income Changes, shows the impact of balance sheet
changes which occurred during 1995 and 1994 and the changes in interest rate
levels.
TABLE 3: ANALYSIS OF NET INTEREST INCOME CHANGES
<TABLE>
<CAPTION>
1995 COMPARED TO 1994 1994 COMPARED TO 1993
CHANGE IN CHANGE IN CHANGE IN CHANGE IN
VOLUME RATE TOTAL VOLUME RATE
<S> <C> <C> <C> <C> <C>
Interest income:
Loans $3,674,020 $2,249,641 $5,923,661 $2,033,713 $ 574,530
Investment securities:
Taxable 437,240 548,660 985,900 971,420 136,835
Non-taxable 17,722 (2,913) 14,809 (36,030) (540)
Interest-bearing balances due from banks (19,994) 5,690 (14,304) 5,453 2,380
Federal funds sold and securities purchased
under agreements to resell (60,867) 110,711 49,844 (17,081) 96,388
Total interest-earning assets 4,048,121 2,911,789 6,959,910 2,957,475 809,593
Interest expense:
Interest checking 5,830 41,384 47,214 104,025 (129,200)
Savings (374,673) 12,215 (362,458) (28,244) (144,850)
Money market 1,273,021 1,163,873 2,436,894 1,579,822 582,109
Time deposits 666,144 1,109,445 1,775,589 (736,819) (102,746)
Federal funds purchased and securities sold
under agreements to repurchase 8,317 42,020 50,337 58,938 (291)
Other short-term borrowings 55,424 45,390 100,814 (15,580) 10,923
Long-term debt 417,792 0 417,792 0 0
Subordinated notes 0 (200) (200) 402,559 (233)
Total interest-bearing liabilities 2,051,855 2,414,127 4,465,982 1,364,701 215,712
Net interest income $1,996,266 $ 497,662 $2,493,928 $1,592,774 $ 593,881
TOTAL
<S> <C>
Interest income:
Loans $2,608,243
Investment securities:
Taxable 1,108,255
Non-taxable (36,570)
Interest-bearing balances due from banks 7,833
Federal funds sold and securities purchased
under agreements to resell 79,307
Total interest-earning assets 3,767,068
Interest expense:
Interest checking (25,175)
Savings (173,094)
Money market 2,161,931
Time deposits (839,565)
Federal funds purchased and securities sold
under agreements to repurchase 58,647
Other short-term borrowings (4,657)
Long-term debt 0
Subordinated notes 402,326
Total interest-bearing liabilities 1,580,413
Net interest income $2,186,655
</TABLE>
(1) Volume-rate changes have been allocated to each category based on the
percentage of the total change.
(2) Balances of nonaccrual loans and related income recognized have been
included for computational purposes.
(3) Non-taxable income has been converted to a tax equivalent basis using the
federal income tax rate of 34%.
11
<PAGE>
Net interest income on a tax equivalent basis for 1994 increased $2,186,655
or 18.0% from the amount earned in 1993. The increase was primarily attributable
to the increased volume and yield of earning assets. The net interest margin
increased seven basis points from 4.70% in 1993 to 4.77% in 1994. Average
earning assets increased 16.1% to $300,607,000 or 90.9% of average total assets
in 1994 compared with $259,032,000 or 90.8% in 1993. The cost of funding sources
increased $1,580,413 or 20.9% primarily due to the increase in the volume of
average interest-bearing liabilities of $33,102,000 or 15.2% and the average
rate paid on interest-bearing liabilities which increased seventeen basis points
from 3.47% in 1993 to 3.64% in 1994.
NONINTEREST INCOME
Noninterest income for the Corporation consists of service charges on deposit
accounts, trust revenues, mortgage banking income, gains and losses on
investment securities transactions, and other commissions and fees generated
from various banking and bank-related activities. Noninterest income has
traditionally been an important factor contributing to the Corporation's overall
profitability. Noninterest income decreased $1,456,247 or 32.9% and totaled
$2,976,520 in 1995 compared to $4,432,767 in 1994. Noninterest income excluding
net investment securities gains was $2,889,028 in 1995, a decrease of 2.6% from
the $2,966,501 reported in 1994.
Service charges on deposit accounts represent the largest single item of
noninterest income. Such charges, reflecting competitive pricing, increased
slightly to $1,526,467 in 1995 from $1,525,641 in 1994.
The trust operation produced revenues of $216,336 in 1995, an increase of
7.9% compared with $200,554 in 1994. In 1995, mortgage banking income (which
includes profits from the origination and sale of loans) decreased $135,101 or
30.4% to a total of $308,811 compared with $443,912 in 1994. The significant
decrease in mortgage banking income was the result of lower refinancing activity
due to the rising interest rate environment experienced through most of 1995. In
connection with its mortgage banking activities, the Corporation primarily
originates mortgage loans under mandatory delivery commitments which
substantially limit the Corporation's risk of loss on the loans during the
period they are held or committed to borrowers.
Gains on sales of investment securities totaled $87,492 in 1995, compared
with $1,466,266 in 1994 and $65,854 in 1993. The gains in 1995 resulted
primarily from the sales of short-term securities to provide liquidity for
anticipated loan demand. During the second quarter of 1994, the Corporation
received common stock in a publicly traded company in exchange for certain
securities of unknown value that it had previously received by order of the U.S.
Bankruptcy Court in lieu of debt charged off in 1990. An orderly sale of the
entire block of stock during 1994 resulted in the Corporation realizing a gain
before taxes on these securities of $1,719,038 which exceeded the amount of the
debt previously charged off. The Corporation also realized $252,772 in gross
losses on sales of investment securities available-for-sale in 1994. These
losses resulted primarily from the sales of low-yielding U.S. Treasury
securities with short-term remaining maturities. The Corporation reinvested the
proceeds from these sales primarily in medium term federal agency securities
with higher yields. The gains in 1993 resulted primarily from the sales of
long-term municipal securities and government sponsored mortgage-backed
securities in order to reduce prepayment risk and shorten the maturity of the
investment securities portfolio. While the mortgage-backed securities had
attractive yields, the rate of prepayment increased as mortgage holders
refinanced to take advantage of lower home mortgage rates.
Noninterest income excluding net investment securities gains decreased
$317,664 or 9.7% to $2,966,501 in 1994 compared to $3,284,165 in 1993. The
primary reasons for this decrease were a 2.9% decrease in service charges on
deposit accounts and a 41.2% decrease in mortgage banking income. The decrease
in service charges is primarily due to stable price levels while the decrease in
mortgage banking income resulted from lower refinancing activity during 1994.
NONINTEREST EXPENSE
Noninterest expense in 1995 increased $1,191,821 or 9.6% and totaled
$13,559,558 compared with $12,367,737 in 1994. Each category of noninterest
expense was affected by the significant growth experienced by the Corporation
during 1995 and 1994.
Salaries and employee benefits increased $941,930 or 15.2% during 1995. This
increase was primarily due to the increased number of employees from expansion
into new markets and investments in new personnel to further develop the
infrastructure of the Corporation. Merit increases, performance bonuses, and
increased contributions to fund the Corporation's employee benefit plans also
affected this increase.
Net occupancy expense increased $122,813 or 13.4% and equipment expense
increased $44,149 or 4.4% during 1995. These increases were primarily due to the
addition of banking locations in Mt. Pleasant, South Carolina and Wilmington,
North Carolina during 1995 and investments to maintain existing facilities.
Also, the Corporation continues to invest in new technology to provide capacity
for future growth. In 1995, the Corporation purchased a new bank software system
which will significantly improve data processing efficiency and provide a strong
base for future technology enhancements.
Other operating expense increased $82,929 or 2.0% in 1995. Note 10 of the
consolidated financial statements presents a comparison of other operating
expense by category. The primary reasons for the increase in other operating
expense were certain expansion related expenses and expenses related to the
significant growth realized by the Corporation. Premiums paid to the Federal
Deposit
12
<PAGE>
Insurance Corporation ("FDIC") for deposit insurance decreased significantly.
The FDIC reduced the insurance premium from $0.23 per $100 of deposits to $0.04
per $100 of deposits, effective June 1, 1995. The Corporation received a refund
of approximately $195,000 for premiums it had paid in 1995.
Noninterest expense in 1994 increased $1,215,157 or 10.9% from 1993. The
primary reasons for the increase were increases in all categories of noninterest
expense due to the Corporation's growth in 1994. Salaries and employee benefits
increased 17.8% due primarily to the increased number of employees from
expansion and development of infrastructure. Net occupancy expense and equipment
expense increased 5.2% and 8.9%, respectively, because of the addition of a
banking location in North Myrtle Beach, South Carolina in 1994 and new image
processing technology. Other operating expense increased 3.7% primarily due to
non-recurring merger related expenses and increased FDIC insurance premiums.
INCOME TAXES
Total income tax expense included in the Consolidated Statement of Income was
$1,953,350 in 1995 compared with $1,879,616 in 1994 and $1,366,585 in 1993. The
Corporation's effective tax rates were 35.6%, 34.9%, and 36.6% in 1995, 1994,
and 1993, respectively.
The Corporation's effective tax rate increased in 1995 primarily because of
the declining impact of non-taxable interest income and an increase in certain
non-deductible expenses in 1995. As non-taxable investments made prior to 1986
have matured, they have been replaced with taxable assets resulting in a higher
effective tax rate. The availability of certain qualifying non-taxable
obligations of governmental units in the market has not been of the same
magnitude as similar maturing investments.
Effective January 1, 1993, the Corporation adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting For Income Taxes," and
recorded income of $49,500 from the cumulative effect of the accounting change.
In general, SFAS No. 109 requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the carrying amounts and tax bases of assets and liabilities. See Note 7
to the consolidated financial statements for additional information on SFAS No.
109 and the components of income tax expense.
The Corporation's effective tax rate was higher than the statutory federal
income tax rate of 34% for 1994 and 1993 because of the declining impact of
interest income earned on non-taxable obligations and an increase in certain
non-deductible expenses.
TABLE 4: SOURCES AND USES OF FUNDS
<TABLE>
<CAPTION>
(AVERAGE BALANCES IN THOUSANDS)
1995 1994
AMOUNT PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C>
Composition of Sources:
Demand deposits $ 60,320 15.9% $ 52,750 16.0%
Interest checking 36,407 9.6 36,107 10.9
Savings 35,542 9.4 47,741 14.4
Money market 123,368 32.5 95,769 29.0
Time deposits 77,247 20.4 62,837 19.0
Short-term borrowings 4,903 1.3 3,461 1.0
Long-term borrowings 6,260 1.7 0 0.0
Subordinated notes 5,000 1.3 5,000 1.5
Other liabilities 2,309 0.6 2,026 0.6
Stockholders' equity 27,642 7.3 25,008 7.6
Total sources $378,998 100.0% $330,699 100.0%
Composition of Uses:
Loans $260,757 68.8% $221,388 66.9%
Investment securities 78,895 20.8 70,731 21.4
Other interest-earning assets 6,906 1.8 8,488 2.6
Total interest-earning assets 346,558 91.4 300,607 90.9
Noninterest-earning assets 32,440 8.6 30,092 9.1
Total uses $378,998 100.0% $330,699 100.0%
</TABLE>
(1) Loan balances are stated net of unearned income.
13
<PAGE>
FINANCIAL CONDITION
INVESTMENT SECURITIES
Average investment securities represented 22.8% of average earning assets
during 1995 compared to 23.5% in 1994. The decrease in the percentage of
investment securities was due to strong loan demand in each of the Corporation's
market areas. At December 31, 1995, investment securities totaled $83,446,700 or
22.6% of total earning assets.
As shown in Table 5, the Corporation primarily invests in U.S. Treasury
securities and securities of other U.S. Government agencies and corporations
with maturities up to five years.
TABLE 5: INVESTMENT SECURITIES -- HELD-TO-MATURITY
<TABLE>
<CAPTION>
(DECEMBER 31 BALANCES IN THOUSANDS)
1995 1994 1993
ESTIMATED AVERAGE TAX ESTIMATED
PAR AMORTIZED FAIR MATURITY EQUIVALENT AMORTIZED FAIR AMORTIZED
VALUE COST VALUE (YRS/MOS) YIELD COST VALUE COST
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities:
Within one year $ 9,700 $ 9,725 $ 9,708 4.68% $ 5,018 $ 4,993 $ 7,735
One to five years 10,000 10,060 10,078 5.44 18,962 18,128 20,745
Five to ten years 0 0 0 0.00 0 0 0
Over ten years 0 0 0 0.00 0 0 0
Total 19,700 19,785 19,786 1/0 5.07 23,980 23,121 28,480
Securities of other U.S. Government
agencies and corporations:
Within one year 2,300 2,306 2,322 6.32 854 855 0
One to five years 7,000 6,917 6,983 6.24 7,639 7,485 2,197
Five to ten years 0 0 0 0.00 0 0 0
Over ten years 0 0 0 0.00 0 0 0
Total 9,300 9,223 9,305 2/4 6.26 8,493 8,340 2,197
Obligations of states and political
subdivisions:
Within one year 225 227 225 6.68 0 0 746
One to five years 1,806 1,807 1,823 8.79 1,246 1,201 872
Five to ten years 365 361 383 8.50 1,293 1,288 1,422
Over ten years 0 0 0 0.00 0 0 0
Total 2,396 2,395 2,431 3/5 8.55 2,539 2,489 3,040
Total portfolio $31,396 $31,403 $31,522 1/7 5.68% $35,012 $33,950 $33,717
ESTIMATED
FAIR
VALUE
<S> <C>
U.S. Treasury securities:
Within one year $ 7,779
One to five years 20,844
Five to ten years 0
Over ten years 0
Total 28,623
Securities of other U.S. Government
agencies and corporations:
Within one year 0
One to five years 2,241
Five to ten years 0
Over ten years 0
Total 2,241
Obligations of states and political
subdivisions:
Within one year 747
One to five years 879
Five to ten years 1,439
Over ten years 0
Total 3,065
Total portfolio $33,929
</TABLE>
(1) Tax equivalent yield has been calculated using an incremental rate of 34% in
1995, 1994, and 1993.
14
<PAGE>
TABLE 5: INVESTMENT SECURITIES -- AVAILABLE-FOR-SALE (CONTINUED)
<TABLE>
<CAPTION>
(DECEMBER 31 BALANCES IN THOUSANDS)
1995 1994 1993
ESTIMATED AVERAGE TAX ESTIMATED
PAR AMORTIZED FAIR MATURITY EQUIVALENT AMORTIZED FAIR AMORTIZED
VALUE COST VALUE (YRS/MOS) YIELD COST VALUE COST
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities:
Within one year $12,500 $12,540 $12,566 5.76% $ 1,689 $ 1,665 $ 6,713
One to five years 14,500 14,505 14,711 6.21 23,060 22,365 13,654
Five to ten years 0 0 0 0.00 0 0 0
Over ten years 0 0 0 0.00 0 0 0
Total 27,000 27,045 27,277 1/1 6.00 24,749 24,030 20,367
Securities of other U.S. Government
agencies and corporations:
Within one year 4,001 3,984 3,993 5.97 572 571 1,782
One to five years 16,203 16,032 16,197 6.15 17,104 16,875 1,792
Five to ten years 0 0 0 0.00 0 0 0
Over ten years 110 111 112 6.34 117 113 175
Total 20,314 20,127 20,302 2/0 6.12 17,793 17,559 3,749
Obligations of states and political
subdivisions:
Within one year 0 0 0 0.00 0 0 0
One to five years 535 538 560 8.48 540 531 0
Five to ten years 870 869 889 7.54 269 266 810
Over ten years 0 0 0 0.00 0 0 0
Total 1,405 1,407 1,449 5/7 7.90 809 797 810
Marketable equity securities 2,400 3,015 3,015 N/A 5.94 1,681 1,681 1,290
Total portfolio $51,119 $51,594 $52,043 1/7 6.10% $45,032 $44,067 $26,216
ESTIMATED
FAIR
VALUE
<S> <C>
U.S. Treasury securities:
Within one year $ 6,742
One to five years 13,685
Five to ten years 0
Over ten years 0
Total 20,427
Securities of other U.S. Government
agencies and corporations:
Within one year 1,784
One to five years 1,810
Five to ten years 0
Over ten years 177
Total 3,771
Obligations of states and political
subdivisions:
Within one year 0
One to five years 0
Five to ten years 862
Over ten years 0
Total 862
Marketable equity securities 1,290
Total portfolio $26,350
</TABLE>
(1) Tax equivalent yield has been calculated using an incremental rate of 34% in
1995, 1994, and 1993.
The Corporation adopted SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," on December 31, 1993. Management reviewed the
investment securities portfolio and classified securities as either
held-to-maturity or available-for-sale. In determining such classification,
securities that the Corporation had the positive intent and ability to hold to
maturity were classified as held-to-maturity and carried at amortized cost. All
other securities were classified as available-for-sale and carried at estimated
fair value with unrealized gains and losses included in stockholders' equity on
an after-tax basis. See Note 4 to the consolidated financial statements for
further details on the impact of adopting SFAS No. 115.
With the adoption of SFAS No. 115, the Corporation recorded an $88,405
increase to stockholders' equity representing the net unrealized gain ($133,947,
net of tax effect of $45,542) recorded on approximately $26.3 million of
securities classified as available-for-sale and carried at fair value in
accordance with the new accounting standard. Such securities included $20.4
million of securities previously classified as investment and recorded at
amortized cost, and $5.9 million of securities previously classified as
available-for-sale and recorded at the lower of amortized cost or estimated fair
value in accordance with the Corporation's prior accounting policy. (See Note 1
to the consolidated financial statements.)
On December 15, 1995, the Corporation transferred held-to-maturity securities
with an amortized cost of $1,458,229 and an unrealized gain of $23,802 to
available-for-sale in accordance with the Financial Accounting Standards Board
("FASB") Special Report, "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities."
Investment securities available-for-sale are held for expected liquidity
requirements, capital planning, and asset/liability management. Such securities
were $52,043,206 or 62.4% of the total investment portfolio at December 31, 1995
compared with $44,066,796 or 55.7% at December 31, 1994 and $26,349,706 or 43.9%
in 1993. Investment securities held-to-maturity and recorded at amortized cost
aggregated $31,403,494 or 37.6% of the total investment portfolio at December
31, 1995 compared with $35,012,480 or 44.3% at December 31, 1994 and $33,716,689
or 56.1% in 1993. The estimated fair value of such securities exceeded the
carrying value by
15
<PAGE>
$118,376 or 0.4% at December 31, 1995. The carrying value of such securities
exceeded the estimated fair value by $1,062,875 or 3.1% at December 31, 1994.
The estimated fair value of such securities exceeded the carrying value by
$212,482 or 0.6% at December 31, 1993.
LOANS
Loans, the largest component of earning assets, represented 75.2% of average
earning assets and 68.8% of average total assets during 1995, compared with
73.7% and 66.9%, respectively, during 1994. In 1995, average loans grew 17.8% to
$260.8 million from $221.4 million in 1994. In 1995, the Corporation focused on
growth in new markets, loan quality and expansion of existing customer
relationships.
Loan policies and procedures provide the overall direction to the
administration of the loan portfolio. The lending strategy focuses on quality
growth in each of the Corporation's market areas. The Corporation's loan
underwriting process is intended to ensure that sound and consistent credit
decisions are made.
The Corporation's commercial lenders focus primarily on small- and
medium-sized businesses in our primary market areas. Geographic and industry
diversification are difficult to attain, as the Corporation is a relatively
small commercial financial institution competing primarily along the coast of
South Carolina and North Carolina. Most of these markets are dependent on the
tourism industry and are seasonal in nature. However, the Corporation's lenders
have a high level of experience analyzing the different types of businesses
competing in this industry in our markets.
Even though loan policies and procedures may provide the basis for a quality
loan portfolio with minimal risk, at times individual borrowers do encounter
problems which result in lower credit quality and higher risk of loss.
Additionally, general deterioration of loan quality may result from weaknesses
in specific industries or the economy in general. During 1995, the Corporation
did not experience any material credit deterioration which was attributable to
adverse trends in specific markets or the economy in general.
The Corporation's primary market area is centered in Myrtle Beach, South
Carolina and consists of the entire area known as the Grand Strand. The addition
of offices in Mt. Pleasant, South Carolina and Wilmington, North Carolina as
well as offices in other coastal areas of South Carolina and North Carolina have
provided an opportunity for growth and diversification. Loans, net of unearned
income at December 31, 1995 increased 20.4% to $285,103,535 over the
$236,771,276 reported in 1994. This loan growth was due to quality loan demand
and expansion into new market areas.
The composition of the loan portfolio at December 31 for the last five years
is presented in Table 6. Commercial, financial, and agricultural loans increased
18.5% and represent 21.5% of gross loans at December 31, 1995. Real
estate-construction loans, which were 7.8% of gross loans at December 31, 1995,
increased 66.2% compared to the previous year. Real estate-mortgage or
commercial real estate loans decreased 0.3% and represent 36.0% of gross loans
at December 31, 1995. Installment loans to individuals which include residential
real estate loans, represent 30.7% of gross loans and increased 44.7% during
1995.
TABLE 6: LOAN PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
(DECEMBER 31 BALANCES)
1995 1994 1993 1992
PERCENT PERCENT PERCENT PERCENT
AMOUNT OF GROSS AMOUNT OF GROSS AMOUNT OF GROSS AMOUNT OF GROSS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial, and
agricultural $ 61,305,772 21.5% $ 51,738,108 21.8% $ 46,546,587 22.9% $ 44,156,143 23.6%
Real estate-construction 22,167,895 7.8 13,338,735 5.6 11,624,767 5.7 11,460,569 6.1
Real estate-mortgage 102,614,478 36.0 102,908,198 43.5 82,687,436 40.7 81,339,550 43.4
Installment loans to
individuals 87,419,793 30.6 60,417,815 25.5 55,600,141 27.4 44,563,839 23.8
Other 11,621,074 4.1 8,399,071 3.6 6,566,413 3.3 5,731,182 3.1
Gross loans 285,129,012 100.0% 236,801,927 100.0% 203,025,344 100.0% 187,251,283 100.0%
Unearned income (25,477) (30,651) (38,134) (50,777)
Total loans $285,103,535 $236,771,276 $202,987,210 $187,200,506
1991
PERCENT
AMOUNT OF GROSS
<S> <C> <C>
Commercial, financial, and
agricultural $ 38,199,369 25.1%
Real estate-construction 7,528,921 5.0
Real estate-mortgage 68,076,990 44.7
Installment loans to
individuals 33,883,730 22.2
Other 4,612,249 3.0
Gross loans 152,301,259 100.0%
Unearned income (55,839)
Total loans $152,245,420
</TABLE>
The changing mix of the loan portfolio reflects the Corporation's expansion
into new market areas and the changing economy. While most categories of loans
increased during 1995, residential real estate loans experienced the fastest
growth. The primary reason for this increase is the Corporation's expansion into
primarily retail banking markets.
16
<PAGE>
TABLE 7: SELECTED LOAN MATURITIES AND INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
(DECEMBER 31, 1995 BALANCES IN THOUSANDS)
ONE YEAR ONE TO OVER FIVE
OR LESS FIVE YEARS YEARS TOTAL
<S> <C> <C> <C> <C>
Types of loans:
Commercial, financial, and agricultural $24,236 $ 23,541 $13,529 $ 61,306
Real estate-construction 13,505 2,104 6,559 22,168
Real estate-mortgage 15,652 35,520 51,442 102,614
Installment loans to individuals and other loans 43,291 45,050 10,700 99,041
Total $96,684 $106,215 $82,230 $285,129
Total of loans above with:
Predetermined interest rates $43,177 $ 76,912 $10,830 $130,919
Adjustable interest rates 53,507 29,303 71,400 154,210
Total $96,684 $106,215 $82,230 $285,129
</TABLE>
(1) Loan balances include unearned income.
NONPERFORMING ASSETS
Nonperforming assets consist of nonaccrual loans on which the ultimate
collection of the full amount of principal and/or interest is uncertain,
restructured loans, loans past due ninety days or more as to principal or
interest, and other real estate owned. Management is not aware of any situation
where known information about a borrower would require disclosure as a potential
problem loan. The Corporation does not have any foreign loans or loans for
highly leveraged transactions. A summary of nonperforming assets at December 31
follows:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $182,801 $438,052 $ 293,256 $ 572,827 $ 484,840
Loans past due ninety days or more 0 0 68,103 39,388 542,467
Troubled debt restructurings 0 0 0 0 0
Other real estate owned 0 0 105,689 702,609 721,116
$182,801 $438,052 $ 467,048 $1,314,824 $1,748,423
Nonperforming assets to total loans and
other real estate owned 0.06% 0.19% 0.23% 0.70% 1.15%
</TABLE>
Nonperforming assets decreased significantly in recent years. These decreases
were primarily the result of disposal of other real estate owned and improved
loan quality. During 1991, Topsail and 1st Atlantic experienced difficulties
with nonperforming loans. These loans were primarily secured by commercial and
residential real estate. While certain portions of these loans were charged off,
a significant portion was recovered through the disposition of the real estate
collateral during 1993 and 1992. During 1995, nonperforming loans decreased
$255,251 or 58.3%. The nonperforming assets to total loans and other real estate
owned ratio declined to 0.06% and remains at a very favorable level.
17
<PAGE>
ALLOWANCE FOR LOAN LOSSES
An analysis of activity in the allowance for loan losses is presented in
Table 8. The allowance for loan losses is established and maintained through
charges to expense in the form of a provision for loan losses. Loan losses and
recoveries are charged or credited directly to the allowance.
TABLE 8: SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
(BALANCES FOR THE YEARS ENDED DECEMBER 31)
1995 1994 1993 1992
<S> <C> <C> <C> <C>
Allowance for loan losses at beginning of year $2,795,941 $2,361,656 $2,162,265 $1,938,456
Amounts charged off during year:
Commercial, financial, and agricultural 214,651 315,001 196,559 136,249
Real estate-construction 0 0 0 0
Real estate-mortgage 146,768 216,146 142,148 202,808
Installment loans to individuals and other loans 91,588 88,440 124,228 90,378
Total loans charged off 453,007 619,587 462,935 429,435
Amount of recoveries during year:
Commercial, financial, and agricultural 79,911 56,156 55,470 38,845
Real estate-construction 0 0 0 0
Real estate-mortgage 12,523 12,663 71,791 19,080
Installment loans to individuals and other loans 14,288 44,936 13,539 8,830
Total recoveries 106,722 113,755 140,800 66,755
Net loans charged off 346,285 505,832 322,135 362,680
Provision for loan losses 596,000 940,117 521,526 586,489
Reserves related to acquired loans 0 0 0 0
Allowance for loan losses at end of year $3,045,656 $2,795,941 $2,361,656 $2,162,265
Ratio of net charge-offs during the year to average loans
outstanding during the year 0.13% 0.23% 0.16% 0.21%
1991
<S> <C>
Allowance for loan losses at beginning of year $1,637,645
Amounts charged off during year:
Commercial, financial, and agricultural 65,545
Real estate-construction 0
Real estate-mortgage 239,832
Installment loans to individuals and other loans 66,705
Total loans charged off 372,082
Amount of recoveries during year:
Commercial, financial, and agricultural 43,977
Real estate-construction 0
Real estate-mortgage 8,275
Installment loans to individuals and other loans 13,120
Total recoveries 65,372
Net loans charged off 306,710
Provision for loan losses 463,521
Reserves related to acquired loans 144,000
Allowance for loan losses at end of year $1,938,456
Ratio of net charge-offs during the year to average loans
outstanding during the year 0.22%
</TABLE>
NET CHARGE-OFFS TO NONPERFORMING ASSETS TO
AVERAGE LOANS OUTSTANDING TOTAL LOANS AND OREO
(Net Charge-offs to Average Loans (Nonperforming Assets to Total
Outstanding chart plot points Loans and OREO chart plot
appear below) points appear below)
'95 '94 '93 '92 '91 '95 '94 '93 '92 '91
0.13 0.23 0.16 0.21 0.22 0.06 0.19 0.23 0.70 1.15
The ratio of net charge-offs to average loans was 0.13% in 1995, 0.23% in
1994, and 0.16% in 1993. The level of net charge-offs in 1995 decreased from
1994 primarily due to lower gross charged off loans. The provision for loan
losses totaled $596,000 in 1995 compared with $940,117 in 1994 and $521,526 in
1993.
The level of the provision for loan losses during 1995 was primarily
attributable to loan growth since net charge-offs and nonperforming loans
declined. The provision for loan losses was made to reflect potential losses
inherent in the loan portfolio and was not attributable to individual loans for
which management believed specific accruals were necessary at December 31, 1995.
The level of the provision for loan losses in 1994 and 1993 primarily reflected
significant loan growth.
18
<PAGE>
In determining the amount of the provision for loan losses, management
reviews past experience of loan charge-offs, the level of past due and
nonaccrual loans, the size and mix of the portfolio, adverse classifications of
recent regulatory examinations, general economic conditions in the market area,
and most importantly, individual loans to identify potential credit problems.
The level of the allowance for loan losses is believed to be adequate in
relation to the current size, mix, and quality of the portfolio.
Any loans classified by the Corporation or regulatory examiners as loss,
doubtful, substandard, or special mention not disclosed herein, or within the
relevant tables, do not (i) represent or result from trends or uncertainties
that management expects will materially impact future operating results,
liquidity, or capital resources, or (ii) represent material credits about which
management is aware of any information that causes management to have serious
doubt as to the abilities of such borrowers to comply with the loan repayment
terms.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," which is effective for fiscal years beginning after
December 15, 1994, with early adoption permitted. SFAS No. 114 specifies how
allowances for credit losses related to certain impaired loans should be
determined and generally requires impairment to be measured on the basis of
discounted expected cash flows. In October 1994, the FASB issued SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan -- Income Recognition and
Disclosures" which amends the income recognition requirements of SFAS No. 114.
Effective January 1, 1995, the Corporation adopted SFAS No. 114, which requires
loans to be measured for impairment when it is probable that all amounts,
including principal and interest, will not be collected in accordance with the
contractual terms of the loan agreement. The Corporation defines impaired loans
as nonaccrual commercial loans. The adoption of SFAS No. 114 did not have a
material effect on the Corporation's financial position or operating results. In
addition, adopting SFAS No. 114 had no impact on the overall reserve for loan
losses and did not affect the Corporation's charge-off or income recognition
policies.
Table 9 presents an allocation of the allowance for loan losses by different
loan categories. The breakdown is based upon a number of qualitative factors,
and the amounts presented are not necessarily indicative of actual amounts which
will be charged to any particular category.
TABLE 9: ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
(DECEMBER 31 BALANCES)
1995 1994 1993 1992
PERCENT PERCENT PERCENT PERCENT
OF OF OF OF
TOTAL TOTAL TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial, and agricultural $ 933,486 21.50 % $ 787,802 21.85 % $ 698,199 22.93 % $ 662,342 23.58%
Real estate-construction 221,678 7.77 133,387 5.63 116,248 5.72 114,606 6.12
Real estate-mortgage 513,072 35.99 514,541 43.46 413,437 40.73 406,698 43.44
Installment loans to individuals and
other loans 877,420 34.74 860,211 29.06 683,772 30.62 578,619 26.86
Unallocated 500,000 500,000 450,000 400,000
Total $3,045,656 100.00 % $2,795,941 100.00 % $2,361,656 100.00 % $2,162,265 100.00%
1991
PERCENT
OF
TOTAL
AMOUNT LOANS
<S> <C> <C>
Commercial, financial, and agricultural $ 572,991 25.08 %
Real estate-construction 75,289 4.94
Real estate-mortgage 465,385 44.70
Installment loans to individuals and
other loans 424,791 25.28
Unallocated 400,000
Total $1,938,456 100.00 %
</TABLE>
FUNDING SOURCES
Average deposits increased 12.8% to $332,884,000 in 1995 from $295,204,000 in
1994. In 1995, the mix of interest-bearing deposits changed as average
certificates of deposit increased 22.9%, while average interest checking, money
market and passbook savings accounts as a group increased 8.7%. Average
certificates of deposit represented 23.2% of average deposits in 1995 compared
with 21.3% in 1994. Average interest checking, money market and passbook savings
accounts as a group were 58.7% of average deposits in 1995 compared with 60.8%
in 1994. Average demand deposits increased 14.4% to $60,320,000 and represented
18.1% of average deposits in 1995 compared with 17.9% in 1994.
Average short-term borrowings increased $1,442,000 or 41.7% to $4,903,000 in
1995 from $3,461,000 in 1994. With the seasonality of the Corporation's market
area, the Corporation typically borrows money from correspondent banks, the
Federal Home Loan Bank ("FHLB") and the Federal Reserve Bank under its seasonal
borrowing privilege in the winter months when deposits are at their lowest
levels and loan demand is at its highest. The Corporation's liquidity position
was favorable during the winter months of 1995 and the need for short-term
borrowing decreased. At December 31, 1995, the Corporation had short-term
borrowings of $2,702,578, a decrease of $9,291,610 from the $11,994,188 reported
at December 31, 1994. The primary reason for this decrease was utilization of
other sources of funds and strong deposit growth.
Advances from the FHLB with an initial maturity of more than one year totaled
$15,000,000 at December 31, 1995. These advances are collateralized by the same
collateral agreements as short-term funds from the FHLB. Interest rates on these
advances ranged from 5.71% to 7.21%, payable monthly, with principal due at
various maturities ranging from 1998 to 2005.
19
<PAGE>
On December 1, 1993, the Corporation issued $5,000,000 of 8.60% Subordinated
Notes due December 1, 2003. The interest on this single principal payment issue
is payable semi-annually on the first day of each June and December beginning
June 1, 1994 and at maturity. Under the terms of the Subordinated Note
Agreement, the balance of the debt cannot be paid prior to its final maturity.
This long-term debt qualifies for inclusion in the determination of total
capital under the risk-based capital guidelines.
CAPITAL RESOURCES
The Corporation maintains a strong level of capital as a margin of safety for
its depositors and stockholders, as well as to provide for future growth and the
ability to pay dividends. At December 31, 1995, stockholders' equity was
$28,542,018 versus $24,774,618 at December 31, 1994. The Corporation paid cash
dividends of $0.36 per share in 1995, $0.315 per share in 1994, and $0.30 per
share in 1993.
During 1990, the Federal Reserve Board adopted a minimum leverage ratio of
3.0% for bank holding companies. This ratio (defined as stockholders' equity
less goodwill and certain other intangibles divided by average assets) was 6.76%
and 6.85% at December 31, 1995 and 1994, respectively.
The Federal Reserve Board adopted risk-based capital guidelines, which assign
risk-weightings to assets and off-balance sheet items. The guidelines define and
set minimum capital requirements (risk-based capital ratios). All banks are
required to maintain core capital (Tier 1) of at least 4.0% of risk-adjusted
assets and total capital of 8.0% of risk-adjusted assets. Tier 1 capital
consists principally of stockholders' equity less goodwill and certain other
intangibles, while total capital consists of Tier 1 capital, certain debt
instruments and a portion of the allowance for loan losses. Banks which meet or
exceed a Tier 1 ratio of 6.0%, a total capital to risk-adjusted assets ratio of
10.0% and a Tier 1 leverage ratio of 5.0% are considered well capitalized by
regulatory standards. The Corporation had a Tier 1 capital ratio of 9.37% and
10.19% at December 31, 1995 and 1994, respectively, and a total risk-based
capital ratio of 12.18% and 13.53% at December 31, 1995 and 1994, respectively,
well above the minimum regulatory requirements.
The following table shows several capital ratios for the last three years:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Average stockholders' equity to:
Average assets 7.32% 7.60% 7.93%
Average deposits 8.30 8.47 8.77
Average loans and leases 10.60 11.30 11.42
Risk-based capital ratios:
Tier 1 9.37 10.19 10.74
Total 12.18 13.53 14.46
Tier 1 Leverage ratio 6.76 6.85 7.19
</TABLE>
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
Asset/liability management is the process by which the Corporation monitors
and attempts to control the mix and maturities of its assets and liabilities in
order to maximize net interest income. The functions of asset/liability
management are to ensure adequate liquidity and to maintain an appropriate
balance between interest-sensitive assets and liabilities.
Liquidity management involves meeting the cash flow requirements of the
Corporation which arise primarily from withdrawal of deposits, extensions of
credit, and payment of operating expenses. Because the economy of the
Corporation's market area is seasonal in nature, considerable attention is
required to manage liquidity needs. This seasonality is caused by the economic
impact of a large number of tourists visiting coastal South Carolina during the
summer months. Seasonality affects the Corporation because there is an inverse
relationship between sources of funds (deposits) and demand for loans. Normally,
deposits begin building on a month-to-month basis in February or March, reach
their peak in August or September, and begin to decline thereafter. Loan demand
begins building in October and is highest during the winter months. This trend
results in the Corporation experiencing its heaviest need for funds to meet loan
demand at the time when deposits begin their annual decline.
To meet this need, the Corporation typically invests sizable amounts of its
deposit growth during the summer months in temporary investments and short-term
securities maturing during the winter months. Additionally, the Corporation has
access to other funding sources, including federal funds purchased from
correspondent banks and a line of credit with the FHLB, as well as a seasonal
borrowing privilege from the Federal Reserve Bank to meet its liquidity needs
during the winter months.
During the year ended December 31, 1995, the most significant cash flows
impacting the components of the Corporation's liquidity relate to a $49.9
million increase in net loans and a $9.3 million decrease in short-term
borrowings which were funded by an increase of $45.7 million in deposits and an
increase of $15.0 million in long-term debt.
Interest-sensitive assets and liabilities are those that are subject to
repricing in the near term, including floating rate instruments and those with
near term maturities. The interest-sensitivity gap is the difference between
total interest-sensitive assets and liabilities during a given time period.
Management's objective is to maintain the difference between interest-sensitive
assets and liabilities at a level that will minimize the effects on the net
interest margin from significant interest rate shifts.
20
<PAGE>
Table 10 shows the Corporation's interest rate sensitivity at December 31,
1995, indicating a liability-sensitive position in the three months or less
period and the four months to six months period and an asset-sensitive position
in the seven months to twelve months period. On a cumulative basis through one
year, the Corporation's rate sensitive liabilities exceed rate sensitive assets,
resulting in a liability-sensitive position of $54,880,000 or 15.0% of total
earning assets. Generally a liability-sensitive position indicates that
declining interest rates would have a positive impact on net interest income and
rising interest rates would adversely affect net interest income. Rising and
declining interest rates, respectively, would typically have the opposite effect
on net interest income in an asset-sensitive position. Other factors, including
the speed at which assets and liabilities reprice in response to changes in
market rates and competitive factors, can influence the ultimate impact on net
interest income resulting from changes in interest rates. Although management
actively monitors and reacts to a changing interest rate environment, it is not
possible to fully insulate the Corporation against interest rate risk. Given the
current mix and maturity of the Corporation's assets and liabilities, it is
possible that a rapid, significant and prolonged decrease in rates could have an
adverse impact on the Corporation's net interest margin.
TABLE 10: INTEREST RATE SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
(DECEMBER 31, 1995 BALANCES IN THOUSANDS)
TOTAL OVER ONE
7-12 WITHIN YEAR OR
0-3 MOS. 4-6 MOS. MOS. ONE YEAR NON-SENSITIVE TOTAL
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $156,084 $ 15,948 $ 23,670 $195,702 $ 89,218 $284,920
Investment securities 9,306 5,202 16,271 30,779 49,652 80,431
Interest-bearing balances due from banks 0 99 0 99 0 99
Total interest-earning assets $165,390 $ 21,249 $ 39,941 $226,580 $ 138,870 $365,450
Percent of total interest-earning assets 45.3% 5.8% 10.9% 62.0% 38.0% 100.0%
Interest-bearing liabilities:
Interest checking $ 0 $ 37,191 $ 0 $ 37,191 $ 0 $ 37,191
Savings 0 33,233 0 33,233 0 33,233
Money market 131,793 0 0 131,793 0 131,793
Certificates of deposit of $100,000 or more 14,581 7,696 6,727 29,004 6,501 35,505
Certificates of deposit less than $100,000 22,054 16,634 8,848 47,536 6,869 54,405
Short-term borrowings 2,703 0 0 2,703 0 2,703
Long-term debt 0 0 0 0 15,000 15,000
Subordinated notes 0 0 0 0 5,000 5,000
Total interest-bearing liabilities 171,131 94,754 15,575 281,460 33,370 314,830
Other sources -- net 0 0 0 0 50,620 50,620
Total sources -- net $171,131 $ 94,754 $ 15,575 $281,460 $ 83,990 $365,450
Percent of total interest-earning assets 46.8% 25.9% 4.3% 77.0% 23.0% 100.0%
Interest-sensitive gap $ (5,741) $(73,505) $ 24,366 $(54,880) $ 54,880 --
Cumulative interest-sensitive gap (5,741) (79,246) (54,880) (54,880) -- --
Percent of total interest-earning assets (1.5)% (21.6)% (15.0)% (15.0)% -- --
</TABLE>
(1) Loan balances are stated net of unearned income and do not include
nonaccrual loans.
Table 10 is a "static gap" presentation, and while widely used as a measure
of interest rate sensitivity, it does not necessarily provide a true indication
of the Corporation's interest rate sensitivity position. The problem with the
"static gap" view is that it does not take into consideration that changes in
interest rates do not affect all assets and liabilities equally. In addition,
the Corporation's net interest income is also affected by other significant
factors in given interest rate environments, including the spread between the
prime rate and incremental borrowing cost and the volume and mix of earning
assets and liabilities. In view of these factors, the Corporation uses a number
of methods, including an asset/liability simulation model, to measure and manage
interest rate risk.
ACCOUNTING AND REGULATORY MATTERS
Management is not aware of any known trends, events, uncertainties, or
current recommendations by regulatory authorities that will have or that are
reasonably likely to have a material effect on the Corporation's liquidity,
capital resources, or other operations.
21
<PAGE>
REPORT OF MANAGEMENT
The consolidated financial statements of Anchor Financial Corporation (the
"Corporation") and other financial information presented in this Annual Report
were prepared by management which is responsible for the integrity of the
information presented. The statements have been prepared in conformity with
generally accepted accounting principles appropriate in the circumstances, and
include amounts that are based on management's best estimates and judgment.
The Corporation maintains accounting and control systems which are believed
to provide reasonable assurance that assets are safeguarded from loss or
unauthorized use and produce records adequate for preparation of financial
information. Management recognizes the limits inherent in any system of internal
control, as the cost of controls should not exceed the benefits derived.
Management believes the Corporation's system provides an appropriate balance.
In order to monitor compliance with its system of controls, the Corporation
has an internal audit program. The program includes a review for compliance with
written policies and procedures and a comprehensive review of the adequacy and
effectiveness of control systems. Internal audit reports are issued to the Audit
Committee of the Board of Directors. The independent accountants receive copies
of internal audit reports, and the reports are available for review by
Regulatory Authorities.
The Audit Committee of the Board of Directors meets as necessary with
management, internal auditors and the independent accountants to review audit
scopes, audit reports, and fee arrangements of the independent accountants, in
order to evaluate management's performance of its financial reporting
responsibility. Both internal auditors and independent accountants have access
to the Audit Committee without any management present in the discussions.
Independent accountants are recommended by the Audit Committee to the Board of
Directors for selection and ratification by the stockholders.
Price Waterhouse LLP, as independent accountants, is engaged to provide an
objective, independent review as to management's discharge of its
responsibilities relating to the fairness of reported operating results and
financial condition. They have an understanding of the Corporation's accounting
and financial controls and conduct such tests and related procedures as they
deem appropriate to arrive at an opinion of the fairness of the financial
statements. Their opinion is included as a part of this Annual Report.
The management of the Corporation is committed to, and has always maintained
and enforced, a philosophy of high ethical standards in the conduct of its
business. The policies covering conflicts of interest, community affairs, and
other subjects are uniformly applicable to all officers and employees of the
Corporation.
Anchor Financial Corporation
Myrtle Beach, South Carolina
February 1, 1996
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Anchor Financial Corporation (Price Waterhouse Logo)
In our opinion, based upon our audits and the report of other auditors, the
accompanying consolidated balance sheet and the related consolidated statements
of income, of changes in stockholders' equity, and of cash flows present fairly,
in all material respects, the financial position of Anchor Financial Corporation
and its subsidiaries at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Corporation's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the 1993 financial statements
of The Anchor Bank of North Carolina, a wholly-owned subsidiary, which
statements reflect total assets of $41,893,404 at December 31, 1993 and net
interest income of $1,822,445 for the year then ended. Those statements were
audited by other auditors whose report thereon has been furnished to us, and our
opinion expressed herein, insofar as it relates to the amounts included for The
Anchor Bank of North Carolina, is based solely on the report of the other
auditors. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for the opinion expressed above.
As discussed in Note 1 to the consolidated financial statements, the
Corporation changed its methods of accounting for income taxes and investment
securities in 1993.
(Signature of Price Waterhouse LLP)
Columbia, South Carolina
February 1, 1996
22
<PAGE>
ANCHOR FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
<S> <C> <C>
ASSETS
Cash and due from banks $ 20,516,188 $ 18,838,551
Interest-bearing balances due from banks 99,000 99,000
Federal funds sold 0 1,000,000
Investment securities:
Held-to-maturity, at amortized cost (fair value of $31,521,870 in 1995 and
$33,949,605 in 1994) 31,403,494 35,012,480
Available-for-sale, at fair value (amortized cost of $51,594,192 in 1995 and
$45,031,822 in 1994) 52,043,206 44,066,796
Total investment securities 83,446,700 79,079,276
Loans 285,129,012 236,801,927
Less -- unearned income (25,477) (30,651)
-- allowance for loan losses (3,045,656) (2,795,941)
Net loans 282,057,879 233,975,335
Premises and equipment 13,866,646 11,666,522
Other assets 7,520,004 7,208,278
Total assets $407,506,417 $351,866,962
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand deposits $ 61,748,670 $ 52,730,429
NOW and money market accounts 168,984,005 155,753,241
Time deposits $100,000 and over 35,505,253 20,320,349
Other time and savings deposits 87,637,828 79,404,398
Total deposits 353,875,756 308,208,417
Federal funds purchased and securities sold under agreements to repurchase 1,748,127 4,896,099
Other short-term borrowings 954,451 7,098,089
Long-term debt 15,000,000 0
Subordinated notes 5,000,000 5,000,000
Other liabilities 2,386,065 1,889,739
Total liabilities 378,964,399 327,092,344
STOCKHOLDERS' EQUITY:
Common stock, $6.00 par value; 4,000,000 shares authorized; shares issued and
outstanding -- 2,540,985 in 1995 and 2,540,420 in 1994 15,245,910 15,242,520
Surplus 875,331 858,598
Retained earnings 12,964,631 10,317,527
Unrealized gains (losses) on investment securities available-for-sale, net of tax 292,755 (636,918)
Unearned ESOP shares (836,609) (1,007,109)
Total stockholders' equity 28,542,018 24,774,618
Commitments and contingencies (Note 14)
Total liabilities and stockholders' equity $407,506,417 $351,866,962
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.
23
<PAGE>
ANCHOR FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $25,277,156 $19,353,495 $16,745,252
Interest on investment securities:
Taxable 4,350,678 3,421,301 2,376,896
Non-taxable 189,112 179,338 203,475
Other interest income 452,842 437,689 286,698
Total interest income 30,269,788 23,391,823 19,612,321
INTEREST EXPENSE:
Interest on deposits 12,471,902 8,574,663 7,450,566
Interest on short-term borrowings 269,245 118,094 64,104
Interest on long-term borrowings 417,792 0 0
Interest on subordinated notes 439,561 439,761 37,435
Total interest expense 13,598,500 9,132,518 7,552,105
Net interest income 16,671,288 14,259,305 12,060,216
Provision for loan losses 596,000 940,117 521,526
Net interest income after provision for loan losses 16,075,288 13,319,188 11,538,690
NONINTEREST INCOME:
Service charges on deposit accounts 1,526,467 1,525,641 1,570,521
Commissions and fees 641,031 602,354 555,565
Trust income 216,336 200,554 190,045
Gains on sales of mortgage loans 308,811 443,912 754,942
Gains on sales of investment securities, net 87,492 1,466,266 65,584
Other operating income 196,383 194,040 213,092
Total noninterest income 2,976,520 4,432,767 3,349,749
NONINTEREST EXPENSE:
Salaries and employee benefits 7,159,298 6,217,368 5,279,968
Net occupancy expense 1,037,250 914,437 868,931
Equipment expense 1,057,131 1,012,982 930,197
Other operating expense 4,305,879 4,222,950 4,073,484
Total noninterest expense 13,559,558 12,367,737 11,152,580
Income before income taxes and cumulative effect of a
change in accounting principle 5,492,250 5,384,218 3,735,859
Provision for income taxes 1,953,350 1,879,616 1,366,585
Income before cumulative effect of a change in
accounting principle 3,538,900 3,504,602 2,369,274
Cumulative effect on prior years (to December 31, 1992) of changing to
a different method of accounting for income taxes 0 0 49,500
Net income $ 3,538,900 $ 3,504,602 $ 2,418,774
Earnings per share amounts:
Income before cumulative effect of a change in
accounting principle $ 1.39 $ 1.38 $ 0.94
Cumulative effect on prior years (to December 31, 1992) of changing to
a different method of accounting for income taxes 0.00 0.00 0.02
Net income $ 1.39 $ 1.38 $ 0.96
Weighted average common shares outstanding 2,548,671 2,538,956 2,513,164
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.
24
<PAGE>
ANCHOR FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED GAINS
(LOSSES) ON TOTAL
COMMON STOCK RETAINED INVESTMENT UNEARNED STOCKHOLDERS'
SHARES AMOUNT SURPLUS EARNINGS SECURITIES ESOP SHARES EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 2,519,672 $15,118,032 $789,619 $ 5,721,611 $ 0 $ (378,265) $21,250,997
Sale of common stock 5,642 33,852 24,695 58,547
Repurchase of common stock (11,600) (69,600) (17,080) (14,020) (100,700)
Payment for fractional shares issued
in mergers (6,530) (6,530)
Unrealized gain on investment
securities available-for-sale, net
of tax 88,405 88,405
Change in unearned ESOP shares 13,765 13,765
Cash dividends ($0.30 per share) (506,679) (506,679)
Net income 2,418,774 2,418,774
Balance at December 31, 1993 2,513,714 15,082,284 797,234 7,613,156 88,405 (364,500) 23,216,579
Stock options exercised 26,706 160,236 61,364 221,600
Change in unrealized gains (losses)
on investment securities
available-for-sale, net of tax (725,323) (725,323)
Change in unearned ESOP shares (642,609) (642,609)
Cash dividends ($0.315 per share) (800,231) (800,231)
Net income 3,504,602 3,504,602
Balance at December 31, 1994 2,540,420 15,242,520 858,598 10,317,527 (636,918) (1,007,109) 24,774,618
Common stock issued pursuant to
Dividend Reinvestment Plan 565 3,390 7,669 11,059
Change in unrealized gains (losses)
on investment securities
available-for-sale, net of tax 929,673 929,673
Change in unearned ESOP shares 9,064 22,730 170,500 202,294
Cash dividends ($0.36 per share) (914,526) (914,526)
Net income 3,538,900 3,538,900
Balance at December 31, 1995 2,540,985 $15,245,910 $875,331 $12,964,631 $ 292,755 $ (836,609) $28,542,018
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.
25
<PAGE>
ANCHOR FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,538,900 $ 3,504,602 $ 2,418,774
Adjustments to reconcile net income to net cash provided by operating activities:
Accretion and amortization of investment securities 73,856 404,798 483,857
Depreciation of premises and equipment 1,019,575 971,639 838,387
Amortization of intangible assets 343,620 294,658 266,683
Provision for loan losses 596,000 940,117 521,526
Gains on sales of investment securities, net (87,492) (1,466,266) (65,584)
Gains on sales of mortgage loans (308,811) (443,912) (754,942)
Gains on sales of premises and equipment (22,755) (21,388) (4,347)
Change in interest receivable (566,687) (1,158,886) (226,779)
Change in prepaid expenses 216,406 (153,810) (140,071)
Change in income taxes payable 41,713 (43,015) (380,100)
Change in deferred taxes 321,291 (598,415) (184,849)
Change in interest payable 403,758 37,011 66,583
Change in accrued expenses (577,376) 680,765 (140,351)
Origination of mortgage loans held for sale (15,281,185) (22,497,603) (46,603,383)
Proceeds from sales of mortgage loans held for sale 16,791,283 23,319,906 47,359,714
Net cash provided by operating activities 6,502,096 3,770,201 3,455,118
Cash flows from investing activities:
Purchase of investment securities held-to-maturity (4,005,000) (10,053,001) (18,879,635)
Proceeds from maturities of investment securities held-to-maturity 5,992,552 8,445,000 13,563,275
Purchase of investment securities available-for-sale (15,115,327) (39,896,934) (23,909,835)
Proceeds from sales of investment securities available-for-sale 4,759,856 15,693,225 3,582,236
Proceeds from maturities of investment securities available-for-sale 5,428,171 7,014,675 4,500,000
Net change in loans (49,879,830) (34,668,289) (16,082,977)
Capital expenditures (3,259,103) (1,355,987) (1,385,762)
Other, net (420,335) (241,715) 327,769
Net cash used for investing activities (56,499,016) (55,063,026) (38,284,929)
Cash flows from financing activities:
Net change in deposits 45,667,340 36,449,862 39,527,910
Net change in federal funds purchased and securities sold under agreements to repurchase (3,147,972) 4,371,786 (68,242)
Net change in short-term borrowings (6,143,638) 4,764,993 (776,215)
Proceeds from issuance of long-term debt 15,000,000 0 0
Proceeds from issuance of subordinated notes 0 0 5,000,000
Proceeds from issuance of stock in accordance with:
Stock Option Plan 0 221,600 0
Dividend Reinvestment Plan 11,059 0 0
Sale of common stock 0 0 58,546
Repurchase of common stock 0 0 (100,700)
Payment for fractional shares issued in mergers 0 0 (6,530)
Net change in unearned ESOP shares 202,294 (642,609) (13,765)
Cash dividends paid (914,526) (800,231) (506,679)
Net cash provided by financing activities 50,674,557 44,365,401 43,114,325
Net change in cash and cash equivalents 677,637 (6,927,424) 8,284,514
Cash and cash equivalents at January 1 19,937,551 26,864,975 18,580,461
Cash and cash equivalents at December 31 $ 20,615,188 $ 19,937,551 $ 26,864,975
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 13,194,742 $ 9,095,507 $ 7,485,523
Income taxes 2,014,245 2,521,046 1,907,034
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ANCHOR FINANCIAL CORPORATION AND SUBSIDIARIES (THE "CORPORATION")
ANCHOR FINANCIAL CORPORATION (THE "PARENT")
THE ANCHOR BANK ("ABSC")
THE ANCHOR BANK OF NORTH CAROLINA ("ABNC")
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The Corporation is a multi-bank holding company
incorporated under the laws of the State of South Carolina on January 6, 1984,
and registered under the Bank Holding Company Act of 1956, as amended. The
consolidated financial statements of the Corporation include the accounts of the
Parent and its wholly-owned subsidiaries, ABSC, ABNC and Anchor Automated
Services, Inc., after elimination of all material intercompany accounts and
transactions. ABSC and ABNC include the accounts of 1st Atlantic Bank ("1st
Atlantic") and Topsail State Bank ("Topsail") which were merged into the
Corporation effective December 31, 1993 (See Note 2). These mergers were
accounted for as poolings of interests. On August 14, 1995, the Board of
Directors of the Corporation declared a two-for-one stock split payable on
September 29, 1995 to shareholders of record on September 1, 1995. All financial
statement information presented in this report has been restated to give
retroactive effect to the stock split, including the transfer of an appropriate
amount to common stock from surplus.
INVESTMENT SECURITIES: The Corporation adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," on December 31, 1993. See Note 4 for further
details on the impact of adopting SFAS No. 115.
At the time of purchase, management determines the classification of
securities as either held-to-maturity or available-for-sale. In determining such
classification, securities that the Corporation has the positive intent and
ability to hold to maturity are classified as held-to-maturity and carried at
amortized cost. All other securities are classified as available-for-sale and
carried at estimated fair value with unrealized gains and losses included in
stockholders' equity on an after-tax basis. Realized gains and losses are
recognized on the specific identification method.
Prior to the adoption of SFAS No. 115, management determined the appropriate
classification of investment securities at the time of purchase. If management
had the intent and the Corporation had the ability at the time of purchase to
hold securities until maturity or on a long-term basis, they were classified as
investments and carried at amortized cost. Securities to be held for indefinite
periods of time and not intended to be held-to-maturity or on a long-term basis
were classified as available-for-sale and carried at the lower of amortized cost
(on an aggregate basis) or estimated fair value.
LOANS AND ALLOWANCE FOR LOAN LOSSES: Loans are reported at their face amount
less payments collected. Unearned income on discounted loans is reported as a
reduction of the loan balances and is recognized as income using the
sum-of-the-months-digits method. Interest on non-discounted loans is recognized
over the term of the loan based on the loan balance outstanding.
In many lending transactions, collateral is obtained to provide an additional
measure of security. Generally, the cash flow and earnings power of the borrower
represent the primary source of repayment and collateral is considered as an
additional safeguard to further reduce credit risk. The need for collateral is
determined on a case-by-case basis after considering the current and prospective
creditworthiness of the borrower, terms of the lending transaction, and economic
conditions. When a loan becomes 90 days past due as to interest or principal or
serious doubt exists as to collectibility, the accrual of income is discontinued
unless the loan is well secured and in process of collection. Previously accrued
interest is reversed against current earnings and any subsequent interest is
recognized on the cash basis.
Net nonrefundable fees and direct costs of loan originations are deferred and
amortized over the lives of the underlying loans as an adjustment to interest
income in accordance with SFAS No. 91, "Accounting for Nonrefundable Fees and
Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of
Leases." Loan origination fees and direct costs associated with originating
mortgage loans for sale to investors are deferred until the related loans are
sold and are recognized as a component of the gain on sale of mortgage loans.
In May 1993, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 114, "Accounting by Creditors for Impairment of a Loan," which is effective
for fiscal years beginning after December 15, 1994, with early adoption
permitted. In October 1994, FASB issued SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan -- Income Recognition and Disclosures" which amends the
income recognition requirements of SFAS No. 114. Effective January 1, 1995, the
Corporation adopted SFAS No. 114, which requires loans to be measured for
impairment when it is probable that all amounts, including principal and
interest, will not be collected in accordance with the contractual terms of the
loan agreement. It is the Corporation's policy to apply the provisions of SFAS
No. 114 to nonaccrual commercial loans. The adoption of SFAS No. 114 did not
have a material effect on the
27
<PAGE>
Corporation's financial position or operating results. In addition, adopting
SFAS No. 114 had no impact on the overall reserve for loan losses and did not
affect the Corporation's charge-off or income recognition policies.
The allowance for loan losses is maintained at a level considered adequate by
management to provide for potential losses inherent in the loan portfolio.
Management's evaluation of the adequacy of the allowance is based on a review of
individual loans, recent loss experience, current economic conditions, risk
characteristics of the various classifications of loans, underlying collateral
values, and other relevant factors. Losses on loans are charged to and
recoveries credited to the allowance at the time the loss or recovery occurs.
The provision for loan losses is the amount required to maintain the allowance
at adequate levels based on management's evaluation of relevant factors which
deserve current recognition. It is possible that a change in the relevant
factors used in management's evaluation may occur in the future.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using the straight-line
method over the asset's estimated useful life (15-40 years for buildings and
improvements; 3-15 years for furniture and equipment). Gains or losses on
routine dispositions are charged to operating expenses, and improvements and
betterments are capitalized. Interest cost incurred related to the construction
of banking premises is included in the cost of the related asset.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed of." This
Statement, which is effective for fiscal years beginning after December 15,
1995, establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used and for those assets to be disposed of. The Corporation will adopt
SFAS No. 121 effective January 1, 1996. The effect of adoption of SFAS No. 121
is not expected to be material.
INTANGIBLE ASSETS: Goodwill and deposit base premium amounts arising from a
bank acquisition in 1991 and included in other assets aggregated $1,443,655 and
$1,679,076 at December 31, 1995 and 1994, respectively, and are amortized over
the expected lives of the related assets (generally 10 to 15 years) using the
straight-line method of amortization.
INCOME TAXES: Effective January 1, 1993, the Corporation adopted SFAS No.
109, "Accounting For Income Taxes," and recorded income of $49,500 from the
cumulative effect of the accounting change. In general, SFAS No. 109 requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of temporary differences between the carrying amounts and tax
bases of assets and liabilities. The Corporation previously recorded income tax
expense in accordance with Accounting Principles Board Opinion No. 11,
"Accounting for Income Taxes." See Note 7 for additional information on SFAS No.
109 and the components of income tax expense.
NET INCOME PER SHARE: Net income per share is computed by dividing net income
by the weighted average number of common shares outstanding and dilutive common
share equivalents using the treasury stock method. Common share equivalents
include common shares issuable upon exercise of outstanding stock options.
Unallocated common shares held by the Employee Stock Ownership Plan are excluded
from the weighted average number of common shares outstanding.
STATEMENT OF CASH FLOWS: For purposes of the Consolidated Statement of Cash
Flows, the Corporation has defined cash on hand, amounts due from banks, and
federal funds sold as cash and cash equivalents. Generally, federal funds are
purchased and sold for one-day periods.
OTHER: Securities and other property held by the Trust Department of ABSC and
ABNC in a fiduciary or agency capacity are not included in the Consolidated
Balance Sheet since such items are not assets of ABSC and ABNC.
NOTE 2: MERGERS AND ACQUISITIONS
On December 31, 1993, 1st Atlantic, a South Carolina bank, was merged with
ABSC. Pursuant to the Agreement and Plan of Merger, which was approved by the
stockholders of 1st Atlantic on December 2, 1993, approximately 424,444 shares
of the Corporation's common stock were authorized for issuance. Each outstanding
share of 1st Atlantic common stock was converted into 2.80 shares of the
Corporation's common stock. Prior to the merger, the Corporation owned 10,267
shares or 6.77% of the outstanding common stock of 1st Atlantic.
On December 31, 1993, Topsail, a North Carolina bank, was merged into and
became a wholly-owned subsidiary of the Corporation, operating under the name
"The Anchor Bank of North Carolina." Pursuant to the Agreement and Plan of
Merger, which was approved by the stockholders of Topsail on December 2, 1993,
approximately 428,084 shares of the Corporation's common stock were authorized
for issuance. Each outstanding share of Topsail common stock was converted into
0.964 shares of the Corporation's common stock.
The consolidated financial statements of the Corporation give effect to these
mergers which have been accounted for as poolings of interests. Accordingly, the
accounts of 1st Atlantic and Topsail have been combined with those of the
Corporation for all periods presented. Certain reclassifications of the
historical results of these companies have been made to conform to the current
presentation. There were no material intercompany transactions and no material
differences in accounting policies and procedures.
28
<PAGE>
NOTE 3: RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS
The banking subsidiaries are required by regulation to maintain average cash
reserve balances based on a percentage of deposits. The average amount of the
cash reserve balance for the year ended December 31, 1995 was approximately
$4,244,000.
NOTE 4: INVESTMENT SECURITIES
The amortized cost and the estimated fair value of investment securities
held-to-maturity at December 31, 1995 and 1994 are presented below:
[CAPTION]
<TABLE>
<CAPTION>
1995 1994
GROSS GROSS ESTIMATED GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES VALUE COST GAINS LOSSES
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $19,785,013 $ 63,830 $ 62,759 $19,786,084 $23,980,456 $ 507 $ 859,764
Securities of other U.S. Government
agencies and corporations 9,222,856 91,942 9,455 9,305,343 8,492,826 68,539 221,372
Obligations of states and political
subdivisions 2,395,625 39,798 4,980 2,430,443 2,539,198 0 50,785
Total debt securities $31,403,494 $195,570 $ 77,194 $31,521,870 $35,012,480 $ 69,046 $1,131,921
<CAPTION>
ESTIMATED
FAIR
VALUE
<S> <C>
U.S. Treasury securities $23,121,199
Securities of other U.S. Government
agencies and corporations 8,339,993
Obligations of states and political
subdivisions 2,488,413
Total debt securities $33,949,605
</TABLE>
The amortized cost and the estimated fair value of investment securities
available-for-sale at December 31, 1995 and 1994 are presented below:
[CAPTION]
<TABLE>
<CAPTION>
1995 1994
GROSS GROSS ESTIMATED GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES VALUE COST GAINS LOSSES
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $27,044,576 $245,360 $ 13,266 $27,276,670 $24,748,969 $ 10 $ 719,228
Securities of other U.S. Government
agencies and corporations 20,126,908 217,630 42,591 20,301,947 17,792,768 51,211 285,224
Obligations of states and political
subdivisions 1,407,570 43,546 1,665 1,449,451 809,147 898 12,693
Total debt securities 48,579,054 506,536 57,522 49,028,068 43,350,884 52,119 1,017,145
Marketable equity securities 3,015,138 0 0 3,015,138 1,680,938 0 0
Total investment securities $51,594,192 $506,536 $ 57,522 $52,043,206 $45,031,822 $ 52,119 $1,017,145
<CAPTION>
ESTIMATED
FAIR
VALUE
<S> <C>
U.S. Treasury securities $24,029,751
Securities of other U.S. Government
agencies and corporations 17,558,755
Obligations of states and political
subdivisions 797,352
Total debt securities 42,385,858
Marketable equity securities 1,680,938
Total investment securities $44,066,796
</TABLE>
The amortized cost and estimated fair value of debt securities
held-to-maturity at December 31, 1995, based on their contractual maturities,
are shown below:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST VALUE
<S> <C> <C>
Due in one year or less $12,258,890 $12,254,081
Due after one year through five years 18,783,799 18,884,517
Due after five years through ten years 360,805 383,272
Due after ten years 0 0
$31,403,494 $31,521,870
</TABLE>
29
<PAGE>
The amortized cost and estimated fair value of debt securities
available-for-sale at December 31, 1995, based on maturities, are shown below.
Mortgage-backed securities are included in the table based on their expected
average lives, which take into consideration normal amortization and anticipated
prepayments. All other securities are included based on their contractual
maturities.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST VALUE
<S> <C> <C>
Due in one year or less $16,524,392 $16,558,609
Due after one year through five years 31,075,028 31,468,885
Due after five years through ten years 868,950 889,002
Due after ten years 110,684 111,572
$48,579,054 $49,028,068
</TABLE>
Investment securities with a par value of $27,250,000 and $17,700,000, at
December 31, 1995 and 1994, respectively, were pledged to secure public
deposits, as collateral for short-term borrowings, and for other lawful
purposes.
Proceeds from sales of investment securities available-for-sale were
$4,759,856, $15,693,225, and $3,582,236 in 1995, 1994, and 1993, respectively.
Gross realized gains of $87,492, $1,719,038, and $65,851 were realized on these
sales during 1995, 1994, and 1993, respectively. Gross realized losses of
$252,772 and $267 were realized on these sales during 1994 and 1993,
respectively.
There were no sales of held-to-maturity investment securities during 1995,
1994, and 1993. On December 15, 1995, the Corporation transferred
held-to-maturity investment securities with an amortized cost of $1,458,229 and
an unrealized gain of $23,802 to available-for-sale in accordance with the FASB
Special Report, "A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities."
Income tax expense attributable to securities transactions was $29,747,
$498,551, and $22,299 for 1995, 1994, and 1993, respectively.
NOTE 5: LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans at December 31 are comprised of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Commercial, financial and agricultural $ 61,305,772 $ 51,738,108
Real estate-construction 22,167,895 13,338,735
Real estate-mortgage 102,614,478 102,908,198
Installment loans to individuals 87,419,793 60,417,815
Other 11,621,074 8,399,071
285,129,012 236,801,927
Unearned income (25,477) (30,651)
$285,103,535 $236,771,276
</TABLE>
Loans made by the Corporation to directors, executive officers, and their
associates totalled $14,408,826 and $9,271,535 at December 31, 1995 and 1994,
respectively. During 1995, loans made and other additions totalled $13,264,605
and repayments and other deductions totalled $8,127,314. All such loans were
made in the normal course of business on substantially the same terms as loans
to other customers of comparable size and financial status and the loans did not
include more than a normal risk of collectibility or present other unfavorable
features.
Installment loans to individuals include mortgage loans held for sale of
$434,750 and $1,636,037 in 1995 and 1994, respectively, and are recorded at the
lower of cost or estimated market value.
The primary market area served by the Corporation is centered in the City of
Myrtle Beach, South Carolina and includes the entire segment of the South
Carolina coast known as the Grand Strand. The Corporation recently acquired
offices in Mt. Pleasant, South Carolina and Wilmington, North Carolina. The
coastal resort areas of the Grand Strand and Hilton Head Island are largely
dependent on the tourism industry and are seasonal in nature with most of the
businesses subject to wide swings in business activity between the winter and
summer months. At December 31, 1995, the Corporation had approximately 72.0% of
its loans outstanding in these geographic areas.
30
<PAGE>
Activity in the allowance for loan losses for the years ended December 31 is
summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Balance at beginning of year $2,795,941 $2,361,656 $2,162,265
Provision for loan losses 596,000 940,117 521,526
Recoveries on loans previously charged off 106,722 113,755 140,800
Loans charged off (453,007) (619,587) (462,935)
Balance at end of year $3,045,656 $2,795,941 $2,361,656
</TABLE>
Adoption of SFAS Nos. 114 and 118 resulted in the identification of certain
loans which were considered impaired under the provisions of SFAS No. 114.
Impaired loans are loans for which it is probable that all amounts, including
principal and interest, will not be collected in accordance with the contractual
terms of the loan agreement. Impaired (including cash basis) loans at December
31, all of which are held by the bank subsidiaries, are summarized below:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Nonaccrual loans $182,801 $438,052
Interest income which would have been recorded on
nonaccrual loans pursuant to original terms 27,124 43,803
Interest income recorded on nonaccrual loans 1,754 21,271
</TABLE>
At December 31, 1995, impaired loans had a related specific allowance for
loan losses totaling $18,000. There were no material commitments to lend
additional funds to customers whose loans were classified as impaired at
December 31, 1995.
At December 31, 1995 and 1994, the Corporation did not have any loans for
which terms had been modified in troubled debt restructurings.
NOTE 6: PREMISES AND EQUIPMENT
Premises and equipment at December 31 consist of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Land $ 4,401,628 $ 3,735,921
Buildings and improvements 9,562,087 8,412,876
Furniture and equipment 7,600,914 6,284,085
21,564,629 18,432,882
Less-Accumulated depreciation (7,697,983) (6,766,360)
$13,866,646 $11,666,522
</TABLE>
Provisions for depreciation included in operating expenses in 1995, 1994, and
1993 were $1,019,575, $971,639, and $838,389, respectively.
The Corporation has entered into various noncancellable operating leases for
land, buildings, and equipment used in its operations. Certain leases have
various renewal options and require increased rentals under cost of living
escalation clauses. Rental expenses charged to occupancy and equipment expenses
in 1995, 1994, and 1993 were $127,309, $110,886, and $118,338, respectively.
At December 31, 1995, future minimum rental commitments under noncancellable
operating leases that have a remaining life in excess of one year are summarized
as follows:
<TABLE>
<S> <C>
1996 $ 249,835
1997 250,666
1998 230,993
1999 230,993
2000 213,669
2001 and thereafter 1,086,215
Total minimum obligation $2,262,371
</TABLE>
31
<PAGE>
NOTE 7: INCOME TAXES
The components of consolidated income tax expense for the years ended
December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Current:
Federal $1,929,797 $1,942,741 $1,374,555
State 197,315 148,694 127,379
2,127,112 2,091,435 1,501,934
Deferred:
Federal (153,595) (210,182) (149,586)
State (20,167) (1,637) 14,237
(173,762) (211,819) (135,349)
$1,953,350 $1,879,616 $1,366,585
</TABLE>
Effective January 1, 1993, the Corporation changed from accounting for income
taxes in accordance with Accounting Principles Board ("APB") Opinion No. 11 to
SFAS No. 109, "Accounting for Income Taxes." The implementation of SFAS No. 109
resulted in a tax benefit of $49,500. The benefit is reflected as a cumulative
effect of a change in accounting principle.
The significant components of the Corporation's deferred tax (liabilities)
and assets recorded pursuant to SFAS No. 109, and included in other assets in
the Consolidated Balance Sheet at December 31, are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Deferred tax liabilities:
Tax depreciation over book $ (531,221) $ (510,644) $(533,205)
Unrealized gain -- SFAS No. 115 (156,261) 0 (45,542)
Prepaid expenses 0 (112,846) 0
Other, net (165,513) (53,877) (18,402)
Total deferred tax liabilities (852,995) (677,367) (597,149)
Deferred tax assets:
Allowance for loan losses 731,901 613,062 432,581
Unrealized loss -- SFAS No. 115 0 338,792 0
Deferred loan fees and costs 234,999 221,884 157,412
Deferred compensation 165,681 161,705 94,108
Other, net 111,584 54,387 29,376
Total deferred tax assets 1,244,165 1,389,830 713,477
Net deferred tax asset $ 391,170 $ 712,463 $ 116,328
</TABLE>
SFAS No. 109 requires that a valuation allowance be provided if it is more
likely than not that the tax benefits associated with temporary differences will
not be realized. Based on the current facts and circumstances, management
believes that it is more likely than not that the deferred tax assets will be
realized and, accordingly, does not believe that a valuation allowance is
necessary.
32
<PAGE>
Total income tax expense differs from the amount of income tax determined by
applying the U.S. statutory federal income tax rate (34% for all years
presented) to pretax income as a result of the following differences:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
Tax expense at statutory rate $1,867,365 $1,830,634 $1,267,826
Increase (decrease) in taxes resulting from:
Non-taxable interest on investments (64,298) (55,298) (66,880)
State income tax expense, net of federal income tax benefit 110,070 98,138 91,239
Other, net 40,213 6,142 74,400
$1,953,350 $1,879,616 $1,366,585
</TABLE>
NOTE 8: SHORT-TERM BORROWINGS
Short-term borrowings at December 31 include the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Federal funds purchased $ 1,100,000 $ 4,300,000
Securities sold under agreements to repurchase 648,127 596,099
Federal funds purchased and securities sold under agreements to repurchase 1,748,127 4,896,099
Federal Home Loan Bank line of credit 0 5,000,000
Other 954,451 2,098,089
Other short-term borrowings 954,451 7,098,089
Total short-term borrowings $ 2,702,578 $11,994,188
Weighted average interest rate at December 31 4.98% 5.76%
Weighted average interest rate during the year 5.49 3.41
Maximum amount outstanding at any month-end $10,724,003 $11,994,188
Average amount outstanding during the year 4,903,334 3,461,323
</TABLE>
ABSC has a line of credit with the Federal Reserve Bank of Richmond under a
Seasonal Borrowing Privilege with the amount available fluctuating during the
year. Advances on this line of credit must be secured by U.S. Treasury or
Government agency securities. At December 31, 1995, the amount available was
$1,870,000, of which none had been advanced to ABSC. Advances on the Federal
Reserve Bank line of credit generally mature within 31 days of the date of the
advance. ABSC and ABNC have lines of credit with the Federal Home Loan Bank
("FHLB") under which short-term funds may be borrowed. Pursuant to collateral
agreements with the FHLB, advances are secured by stock in the FHLB and
qualifying first mortgage loans in the amount of $65.9 million. At December 31,
1994, ABSC had borrowed $5,000,000 on its line of credit. Securities sold under
agreements to repurchase generally mature on demand while federal funds
purchased are generally for one-day periods.
NOTE 9: LONG-TERM DEBT AND SUBORDINATED NOTES
Advances from the FHLB with an initial maturity of more than one year totaled
$15,000,000 at December 31, 1995. These advances are collateralized by the same
collateral agreements as short-term funds from the FHLB. Interest rates on these
advances ranged from 5.71% to 7.21%, payable monthly, with principal due at
various maturities ranging from 1998 to 2005.
On December 1, 1993, the Corporation issued $5,000,000 of 8.60% Subordinated
Notes due December 1, 2003. The interest on this single principal payment issue
is payable semi-annually on the first day of each June and December beginning
June 1, 1994 of each year and at maturity. Under the terms of the Subordinated
Note Agreement, the balance of the debt cannot be paid prior to its final
maturity. This long-term debt qualifies for inclusion in the determination of
total capital under the Risk-Based Capital guidelines.
Principal maturities on long-term debt and subordinated notes for the next
five years subsequent to December 31, 1995 are $5,000,000 in 1998 and $5,000,000
in 2000.
33
<PAGE>
NOTE 10: COMPARISON OF OTHER OPERATING EXPENSE
Other operating expense for the years ended December 31 includes the
following:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Postage and freight $ 223,650 $ 198,200 $ 210,420
Directors fees 318,585 210,650 235,621
Advertising and promotional materials 352,767 298,791 289,546
Legal 85,834 112,749 286,867
FDIC insurance assessment 363,042 638,365 571,630
Supplies 360,712 327,527 247,697
Telephone and data communications 341,162 264,744 227,233
Amortization of intangible assets 343,938 294,658 266,683
Other 1,916,189 1,877,266 1,737,787
$4,305,879 $4,222,950 $4,073,484
</TABLE>
NOTE 11: EMPLOYEE BENEFIT PLANS
ABSC has an Employee Stock Ownership Plan ("ESOP") and a pre-tax savings plan
("401(k) Plan") which have been adopted by ABNC and cover substantially all
employees of the Corporation. Prior to the mergers, Topsail also had a pre-tax
savings plan which covered substantially all of its employees, but 1st Atlantic
did not have any such plan. At the time of the merger, the Topsail plan was
terminated and going forward substantially all employees of the Corporation and
its subsidiaries are covered by the ESOP and 401(k) Plan. Contributions to the
ESOP, which are at the discretion of and determined annually by the Board of
Directors of ABSC and ABNC, are not to exceed the maximum amount deductible
under the applicable sections of the Internal Revenue Code, and are funded
annually. The 401(k) Plan allows for discretionary employer matching
contributions. For 1995, the Board of Directors of ABSC and ABNC approved a
discretionary employer matching contribution of 50% of the amount of
compensation deferred by the employee up to 2% of the employee's total
compensation. Total expenses of the plans, including amounts contributed, which
are included in employee benefits expense for the three years ended December 31,
1995, 1994, and 1993 were $396,694, $340,000, and $226,918, respectively.
At various times, the ESOP has borrowed funds from ABSC and an unaffiliated
bank and used the proceeds to purchase stock of the Corporation. At December 31,
1995, the ESOP owned 216,180 shares of Corporation stock of which 65,871 shares
were pledged to secure loans outstanding. At December 31, 1995 and 1994, the
principal balance outstanding on the loans was $836,609 and $1,007,109,
respectively.
In accordance with the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants Statement of Position 93-6,
"Employers' Accounting for Employee Stock Ownership Plans" ("SOP 93-6"), the
Corporation records compensation expense equal to the fair value of the shares
released to compensate employees. The Corporation reports the cost of
unallocated shares as a reduction of stockholders' equity and the outstanding
principal amount of loans from outside lenders as liabilities on the
Consolidated Balance Sheet. As of December 31, 1995 and 1994, the historical
cost of unallocated shares of $836,609 and $1,007,109, respectively, were
reflected as a reduction of stockholders' equity. Compensation expense related
to the ESOP of $328,257, $281,454, and $177,650 for 1995, 1994, and 1993,
respectively, has been included in employee benefits expense as discussed above.
NOTE 12: STOCK OPTION PLANS
During 1988 and 1994, the Corporation adopted stock option plans covering
certain of its officers. Options granted under the 1988 plan vested at 25% per
year for a four-year period beginning December 31, 1988, and options granted
under the 1994 plan vest one-third each year on the anniversary date of the
grant. The exercise period for options granted under the 1988 plan is ten years
from each vesting date, and the exercise period for options granted under the
1994 plan is ten years from the date of the grant. Prior to the mergers, Topsail
and 1st Atlantic each had stock option plans, and under the terms of the merger
agreements, these options were converted into options to purchase shares of the
Corporation.
34
<PAGE>
Activity under the plans, after restatement for the two-for-one stock split
described in Note 1, is summarized below:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE TOTAL
<S> <C> <C> <C>
December 31, 1992 150,278 $ 5.85-8.88 $1,243,256
Exercised 0 0 0
December 31, 1993 150,278 5.85-8.88 1,243,256
Exercised (26,706) 8.30 (221,600)
December 31, 1994 123,572 5.85-8.88 1,021,656
Granted 150,000 14.50 2,175,000
December 31, 1995 273,572 $5.85-14.50 $3,196,656
</TABLE>
At December 31, 1995, 123,572 optioned shares were exercisable at prices
between $5.85 and $8.88 per share for a total of $1,021,656. When options are
exercised, par value of the shares issued is recorded as an addition to common
stock, and the remainder of the proceeds is credited to capital surplus. No
income or expense has been recognized in connection with the exercise of these
stock options.
In 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 provides for a fair value approach to recording
stock-based compensation. The Statement also allows an entity to continue to
apply APB Opinion No. 25 for measurement of stock-based compensation. The
Corporation will adopt SFAS No. 123 on January 1, 1996, and will continue to
apply the measurement principles of APB Opinion No. 25 to its stock option
plans. The effect of adoption is not expected to be material.
NOTE 13: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosure About Fair Value of Financial Instruments,"
requires entities to disclose the fair value of financial instruments, both
assets and liabilities recognized and not recognized (See Note 14).
Many of the Corporation's financial instruments lack an available trading
market as characterized by a willing buyer and a willing seller engaging in an
exchange transaction. Further, the Corporation's general practice is to hold its
financial instruments to maturity and not to engage in trading activities.
Therefore, significant estimations and present value calculations were used by
the Corporation for the purpose of this disclosure. Such estimations involve
judgements as to economic conditions, risk characteristics, and future expected
loss experience of various financial instruments and other factors that cannot
be determined with precision. The fair value estimates presented herein are
based on pertinent information available to management as of December 31, 1995
and 1994.
The following is a description of the methods and assumptions used to
estimate the fair value of each class of the Corporation's financial
instruments:
CASH AND SHORT-TERM INVESTMENTS: The carrying amount is a reasonable estimate
of fair value.
INVESTMENT SECURITIES: For marketable securities held-to-maturity, fair
values are based on quoted market prices or dealer quotes. For securities
available-for-sale, fair value equals the carrying amount which is the quoted
market price. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.
LOANS: For certain categories of loans, such as variable rate loans, credit
card receivables, and other lines of credit, the carrying amount, adjusted for
credit risk, is a reasonable estimate of fair value because there is no
contractual maturity and/or the Corporation has the ability to reprice the loan
as interest rate shifts occur. The fair value of other types of loans is
estimated by discounting the future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings and for the
same remaining maturities. As the discount rates are based on current loan rates
as well as management estimates, the fair values presented may not necessarily
be indicative of the value negotiated in an actual sale.
DEPOSIT LIABILITIES: The fair value of demand deposits, savings accounts, and
certain money market deposits is the amount payable on demand at the reporting
date. The fair value of fixed-maturity certificates of deposit is estimated by
discounting the future cash flows using the rates currently offered for deposits
of similar remaining maturities.
SHORT-TERM BORROWINGS: The carrying amount is a reasonable estimate of fair
value.
LONG-TERM DEBT AND SUBORDINATED NOTES: The fair value of long-term debt and
subordinated notes is estimated using discounted cash flow analyses, based on
the Corporation's estimated borrowing rates for similar types of borrowing
arrangements.
COMMITMENTS TO EXTEND CREDIT: For certain categories of commitments, such as
credit card lines and variable rate lines of credit, a reasonable estimate of
fair value would be nominal because the Corporation has the ability to reprice
the commitment as interest rate shifts occur. The fair value of other types of
commitments to extend credit is estimated by discounting the potential future
cash flows
35
<PAGE>
using the current rate at which similar commitments would be made to borrowers
with similar credit ratings. As the discount rates are based on current loan
rates as well as management estimates, the fair values presented may not
necessarily be indicative of the value negotiated in an actual sale.
STANDBY LETTERS OF CREDIT: The fair value of standby letters of credit are
generally based upon fees charged to enter into similar agreements taking into
account the remaining terms of the agreements and the counterparties' credit
standing. A reasonable estimate of fair value would be nominal.
The estimated fair values (in thousands) of the Corporation's financial
instruments at December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
<S> <C> <C> <C> <C>
Financial Assets:
Cash and short-term investments $ 20,615 $ 20,615 $ 19,938 $ 19,938
Investment securities 83,446 83,565 79,079 78,017
Loans 282,058 282,193 233,975 233,493
Financial Liabilities:
Deposits 353,876 354,132 308,208 308,132
Short-term borrowings 2,702 2,702 11,994 11,994
Long-term debt and subordinated notes 20,000 20,443 5,000 4,517
1995 1994
NOTIONAL ESTIMATED NOTIONAL ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
<S> <C> <C> <C> <C>
Off-Balance Sheet Financial Instruments:
Commitments to extend credit $ 53,535 $ 1 $ 43,140 $ 28
Standby letters of credit 453 0 302 0
</TABLE>
NOTE 14: COMMITMENTS, CONTINGENCIES AND FINANCIAL INSTRUMENTS
WITH OFF-BALANCE SHEET RISK
The Corporation has various claims, commitments, and contingent liabilities
arising from the normal conduct of its business which are not reflected in the
accompanying consolidated financial statements and are not expected to have any
material adverse effect on the financial position or results of operations of
the Corporation.
The Corporation is party to financial instruments with off-balance sheet risk
(See Note 13) in the normal course of business to meet the financing needs of
its customers. These financial instruments include commitments to extend credit
and standby letters of credit. These instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the financial statements. The contract amounts of those instruments reflect the
extent of involvement the Corporation has in each class of financial
instruments.
The Corporation's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contract amount of those
instruments. The Corporation uses the same credit policies in making commitments
and conditional obligations as it does for on-balance sheet instruments. The
Corporation requires collateral or other security to support certain financial
instruments with credit risk. Financial instruments at December 31, 1995 whose
contract amounts represent credit risk were as follows:
<TABLE>
<CAPTION>
CONTRACT AMOUNT
<S> <C>
Commitments to extend credit $53,535,000
Standby letters of credit 453,000
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Generally, the Corporation does not charge a fee to
customers to extend a commitment. Because many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Commitments on mortgage loans to
be held for sale are generally 45 to 60 days in duration. Commitments to sell
are made at prices
36
<PAGE>
comparable to the prices charged to customers to originate loans and are
generally contingent on the closing of the loan(s). Standby letters of credit
are conditional commitments issued by the Corporation to guarantee the
performance of a customer to a third party. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending credit
to customers. The amount of collateral obtained if deemed necessary by the
Corporation upon extension of credit is based on management's credit evaluation
of the counterparty.
NOTE 15: ANCHOR FINANCIAL CORPORATION (PARENT COMPANY ONLY)
The Parent's principal assets are its investments in ABSC and ABNC (the
"Banks"), and the principal source of income for the Parent is dividends from
the Banks. Certain regulatory and legal requirements restrict payment of
dividends and lending of funds between the Banks and the Parent.
The Parent's condensed balance sheet at December 31, 1995 and 1994 and
condensed statements of income and of cash flows for each of the three years in
the period ended December 31, 1995 are presented below.
<TABLE>
<CAPTION>
DECEMBER 31,
BALANCE SHEET DATA 1995 1994
<S> <C> <C>
Assets:
Cash and cash equivalents $ 189,250 $ 36,452
Repurchase agreements 301,911 2,880,000
Investment in bank subsidiaries 30,856,494 26,079,307
Investment in other subsidiaries 60,000 60,000
Loans 836,609 0
Premises and equipment 684,870 157,145
Other assets 665,813 572,424
Total assets $33,594,947 $29,785,328
Liabilities and Stockholders' Equity:
Subordinated notes $ 5,000,000 $ 5,000,000
Other liabilities 52,929 10,710
Total liabilities 5,052,929 5,010,710
Stockholders' equity 28,542,018 24,774,618
Total liabilities and stockholders' equity $33,594,947 $29,785,328
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
INCOME STATEMENT DATA 1995 1994 1993
<S> <C> <C> <C>
Income:
Dividend income from bank subsidiaries $1,650,000 $ 0 $ 392,000
Dividend income from other subsidiaries 0 51,351 60,000
Interest income from subsidiaries 98,658 43,127 116
Interest and fees on loans 11,015 5,339 48,330
Other income 44,997 40,327 25,579
Total income 1,804,670 140,144 526,025
Expense:
Interest on short-term borrowings 2,282 0 14,404
Interest on subordinated notes 439,561 439,761 37,435
Depreciation 7,418 2,558 1,836
Other expense 151,318 97,279 158,348
Total expense 600,579 539,598 212,023
Income before equity in undistributed earnings of subsidiaries and taxes 1,204,091 (399,454) 314,002
Equity in undistributed earnings of subsidiaries 2,145,220 3,722,634 2,073,668
Income before taxes 3,349,311 3,323,180 2,387,670
Benefit of income taxes (189,589) (181,422) (31,104)
Net income $3,538,900 $3,504,602 $2,418,774
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
CASH FLOWS DATA 1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,538,900 $ 3,504,602 $ 2,418,774
Adjustments to reconcile net income to net cash (used for)
provided by operating activities:
Equity in undistributed earnings of subsidiaries (2,145,220) (3,722,634) (2,073,668)
Depreciation of premises and equipment 7,418 2,558 1,836
Change in interest receivable 0 10,619 10,920
Change in interest payable (200) 0 31,885
Change in income taxes payable (22,118) (14,860) (41,291)
Net cash provided by (used for) operating activities 1,378,780 (219,715) 348,456
Cash flows from investing activities:
Investment in bank subsidiaries (1,500,000) (500,000) (1,000,000)
Investment in bank repurchase agreement 2,578,089 (2,880,000) 0
Net change in loans (836,609) 442,873 464,292
Capital expenditures (535,143) (159,703) 0
Proceeds from sale of premises and equipment 0 0 591,285
Other, net (28,852) 5,290 (496,491)
Net cash used for investing activities (322,515) (3,091,540) (440,914)
Cash flows from financing activities:
Net change in short-term borrowings 0 0 (500,000)
Proceeds from issuance of subordinated notes 0 0 5,000,000
Proceeds from issuance of common stock in accordance with:
Stock Option Plan 0 221,600 0
Dividend Reinvestment Plan 11,059 0 0
Sale of common stock 0 0 58,546
Repurchase of common stock 0 0 (100,700)
Payment for fractional shares issued in mergers 0 0 (6,530)
Cash dividends paid (914,526) (800,231) (506,679)
Net cash (used for) provided by financing activities (903,467) (578,631) 3,944,637
Net change in cash and cash equivalents 152,798 (3,889,886) 3,852,179
Cash and cash equivalents at January 1 36,452 3,926,338 74,159
Cash and cash equivalents at December 31 $ 189,250 $ 36,452 $ 3,926,338
</TABLE>
The Parent (received refunds) paid income taxes of ($167,471), ($166,562),
and $10,187 for the years ended December 31, 1995, 1994, and 1993, respectively.
The Parent paid interest of $442,043, $439,761, and $19,954 in 1995, 1994, and
1993, respectively.
38
<PAGE>
NOTE 16: QUARTERLY OPERATING RESULTS (UNAUDITED)
The following is a summary of the unaudited condensed consolidated quarterly
operating results of the Corporation for the years ended December 31, 1995 and
1994:
<TABLE>
<CAPTION>
1995 1994
QUARTER ENDED QUARTER ENDED
DEC. 31 SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $7,969,032 $7,944,756 $7,458,462 $6,897,538 $6,638,106 $6,245,365 $5,536,179
Interest expense 3,660,281 3,604,222 3,352,898 2,981,099 2,637,047 2,496,472 2,101,727
Net interest income 4,308,751 4,340,534 4,105,564 3,916,439 4,001,059 3,748,893 3,434,452
Provision for loan losses 140,500 206,000 115,000 134,500 250,117 460,000 180,000
Net interest income after provision for
loan losses 4,168,251 4,134,534 3,990,564 3,781,939 3,750,942 3,288,893 3,254,452
Gains (losses) on sale of investment
securities, net 50,608 0 36,884 0 (210,578) 1,404,460 272,384
Noninterest income 750,476 755,214 711,594 671,744 686,493 784,575 726,826
Noninterest expense 3,542,503 3,424,729 3,443,861 3,148,465 3,359,085 3,099,944 3,048,320
Income before income taxes 1,426,832 1,465,019 1,295,181 1,305,218 867,772 2,377,984 1,205,342
Provision for income taxes 521,689 518,666 451,527 461,468 309,690 851,782 421,075
Net income $ 905,143 $ 946,353 $ 843,654 $ 843,750 $ 558,082 $1,526,202 $ 784,267
Net income per share $ 0.35 $ 0.37 $ 0.33 $ 0.34 $ 0.22 $ 0.60 $ 0.31
Weighted average shares outstanding 2,588,308 2,549,308 2,529,224 2,527,166 2,540,420 2,540,420 2,540,420
<CAPTION>
MARCH 31
<S> <C>
Interest income $4,972,173
Interest expense 1,897,272
Net interest income 3,074,901
Provision for loan losses 50,000
Net interest income after provision for
loan losses 3,024,901
Gains (losses) on sale of investment
securities, net 0
Noninterest income 768,607
Noninterest expense 2,860,388
Income before income taxes 933,120
Provision for income taxes 297,069
Net income $ 636,051
Net income per share $ 0.25
Weighted average shares outstanding 2,534,486
</TABLE>
39
<PAGE>
DIRECTORS
C. JASON AMMONS, JR. (1,2)
OWNER
SEA MIST RESORT
HOWELL V. BELLAMY, JR. (1,2)
CHAIRMAN OF THE BOARD
BELLAMY, RUTENBERG, COPELAND,
EPPS, GRAVELY, AND BOWERS, P.A.
GEORGE J. BISHOP, III (4)
CHAIRMAN OF THE BOARD
WACCAMAW CLAY PRODUCTS CO., INC.
DURWOOD T. BRADSHAW (3)
OWNER
HAMPSTEAD HARDWARE CO.
W. CECIL BRANDON, JR. (1,2)
PRESIDENT
BRANDON ADVERTISING &SALES CO., INC.
W. JAMES BRANDON (3)
ATTORNEY AT LAW
DAVID E. BUFFALOE (3)
PRESIDENT
THE ANCHOR BANK OF NORTH CAROLINA
JAMES E. BURROUGHS (1,2)
CHAIRMAN OF THE BOARD
BURROUGHS AND CHAPIN COMPANY
C. DONALD CAMERON (1,2)
PRESIDENT
INLET DEVELOPMENT CORPORATION
STEPHEN L. CHRYST (1,2,3)
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ANCHOR FINANCIAL CORPORATION AND
THE ANCHOR BANK
ROBERT E. COFFEE, JR. (2)
EXECUTIVE VICE PRESIDENT AND
CHIEF ADMINISTRATIVE OFFICER
THE ANCHOR BANK
JOHN D. FLOWERS (1,2)
OWNER
FLOWERS, MCGEE & ASSOC.
J. BRYAN FLOYD (1)
VICE PRESIDENT AND SECRETARY
CARO-STRAND CORPORATION
PAUL M. HOWE (3)
RETIRED, IBM CORPORATION
MARTIN E. KEGEL (3)
RETIRED ELECTRONICS CONSULTANT
ADMAH LANIER, JR. (1,3)
CO-OWNER AND PRESIDENT
LANWILLO DEVELOPMENT CO.
A. IVERSON LEWIS (2)
OWNER-OPERATOR
OCEAN DRIVE TILE AND PAINT COMPANY
FORREST R. LEWIS (3)
PRESIDENT
SLASH INDUSTRIES
TOMMY E. LOOPER (1,2,3)
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
ANCHOR FINANCIAL CORPORATION AND
THE ANCHOR BANK
ISADORE E. LOURIE (4)
THE LOURIE LAW FIRM
W. GAIRY NICHOLS, III (1,2)
OWNER
DUNES REALTY, INC.
RUPPERT L. PIVER (1,3)
U.S. POSTAL SERVICE
THOMAS J. ROGERS (1,2)
PRESIDENT
GRAND STRAND BROADCASTING CORP.
B. TERRY SHEPARD (3)
VICE PRESIDENT AND COMPTROLLER
THE ANCHOR BANK OF
NORTH CAROLINA
ALBERT A. SPRINGS, III (1,2)
OWNER
H. B. SPRINGS COMPANY
J. RODDY SWAIM (1,2)
OWNER
DUNES REALTY, INC.
HARRY A. THOMAS (1)
PRESIDENT
CENTURY 21 THOMAS REALTY
ZEB M. THOMAS, SR. (1,2,3)
PRESIDENT
THE DAYTON HOUSE, INC.
(1) ANCHOR FINANCIAL CORPORATION
(2) THE ANCHOR BANK
(3) THE ANCHOR BANK OF NORTH CAROLINA
(4) DIRECTOR EMERITUS
PRINCIPAL OFFICERS
ANCHOR FINANCIAL CORPORATION
STEPHEN L. CHRYST
PRESIDENT AND CHIEF EXECUTIVE OFFICER
TOMMY E. LOOPER
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER, AND SECRETARY
THE ANCHOR BANK
STEPHEN L. CHRYST
PRESIDENT AND CHIEF EXECUTIVE OFFICER
TOMMY E. LOOPER
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
ROBERT E. COFFEE, JR.
EXECUTIVE VICE PRESIDENT AND
CHIEF ADMINISTRATIVE OFFICER
ROBERT R. DURANT, III
EXECUTIVE VICE PRESIDENT AND
CHIEF CREDIT OFFICER
THE ANCHOR BANK OF
NORTH CAROLINA
DAVID E. BUFFALOE
PRESIDENT
B. TERRY SHEPARD
VICE PRESIDENT AND COMPTROLLER
KENNETH E. SMITH
VICE PRESIDENT
ADVISORY BOARDS
GRAND STRAND
Dorothy K. Anderson
James Carson Benton, Jr.
David Brittain
Dr. Calhoun D. Cunningham
Elbert N. Herring, Jr.
Richard E. Mancill, III
Leroy "Boe" Rainbow
Albert A. Springs, IV
SOUTH STRAND
Carlton J. "Red" Gaskins
W. Winston Hoy, Jr.
William O. Martin
W. Gairy Nichols
L. Richard Nixon
E. J. Servant, III
Willie C. "Booty" Shelley
J. Roddy Swaim
William G. Thomas, Jr.
CONWAY
Larry L. Biddle
Dr. Jonathan L. Dieter, Jr.
Walden B. Graham
W. T. Johnson
Freeman C. Todd, Jr.
Kenneth O. Ward
Ralph J. Wilson
William D. Witherspoon
GEORGETOWN
Douglas L. Hinds
Louis P. Parsons
T. C. Sawyer
Dr. Wright S. Skinner, III
40
<PAGE>
DIRECTORY OF OFFICES
NORTH CAROLINA
SOUTH COLLEGE ROAD OFFICE
802 SOUTH COLLEGE ROAD
WILMINGTON, NC 28403
(910) 792-0080
OLEANDER DRIVE OFFICE
3212 OLEANDER DRIVE
WILMINGTON, NC 28403
(910) 343-0940
JACKSONVILLE OFFICE
202 WILMINGTON HIGHWAY
JACKSONVILLE, NC 28540
(910) 938-1990
HAMPSTEAD OFFICE
15280 HIGHWAY 17
HAMPSTEAD, NC 28443
(910) 270-4108
OGDEN OFFICE
7320 NORTH MARKET STREET
WILMINGTON, NC 28405
(910) 686-1070
SOUTH CAROLINA
LITTLE RIVER OFFICE
HIGHWAY 17 AT BALDWIN AVENUE
LITTLE RIVER, SC 29566
(803) 249-7993
CHERRY GROVE OFFICE
1201 SEA MOUNTAIN HIGHWAY N
ORTH MYRTLE BEACH, SC 29582
(803) 249-8484
CRESCENT BEACH OFFICE
1801 HIGHWAY 17 SOUTH
NORTH MYRTLE BEACH, SC 29582
(803) 272-7344
DUNES OFFICE
7901 North Kings Highway
Myrtle Beach, SC 29572
(803) 449-6314
MAIN OFFICE
2002 OAK STREET
MYRTLE BEACH, SC 29577
(803) 448-1411
CONWAY OFFICE
1500 3RD AVENUE
CONWAY, SC 29526
(803) 248-6293
THIRTEENTH AVENUE OFFICE
1205 SOUTH KINGS HIGHWAY
MYRTLE BEACH, SC 29577
(803) 448-3518
SURFSIDE BEACH OFFICE
300 HIGHWAY 17 NORTH
SURFSIDE BEACH, SC 29575
(803) 238-5691
MURRELLS INLET OFFICE
3205 SOUTH HIGHWAY 17
MURRELLS INLET, SC 29576
(803) 651-6669
GEORGETOWN OFFICE
1187 NORTH FRASER STREET
GEORGETOWN, SC 29440
(803) 546-8989
MT. PLEASANT OFFICE
1021 ANNA KNAPP BOULEVARD
MT. PLEASANT, SC 29464
(803) 881-0402
NORTHRIDGE OFFICE
2 NORTHRIDGE DRIVE
HILTON HEAD ISLAND, SC 29926
(803) 681-6737
POPE AVENUE OFFICE
62 NEW ORLEANS ROAD
HILTON HEAD ISLAND, SC 29928
(803) 785-4848
CORPORATE INFORMATION
EXECUTIVE OFFICES
2002 OAK STREET
POST OFFICE BOX 2428
MYRTLE BEACH, SOUTH CAROLINA 29578
STOCK TRANSFER AGENT
THE ANCHOR BANK
POST OFFICE BOX 2428
MYRTLE BEACH, SOUTH CAROLINA 29578
INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
COLUMBIA, SOUTH CAROLINA
COUNSEL
JAMES H. DUSENBURY
DUSENBURY, HENDRIX, AND LITTLE
FOR ADDITIONAL INFORMATION:
TOMMY E. LOOPER
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER,
AND SECRETARY
(803) 946-3164
JOHN J. MORAN
VICE PRESIDENT AND COMPTROLLER
(803) 946-3161
DIVIDEND REINVESTMENT SERVICES
THE DIVIDEND REINVESTMENT PLAN ENABLES SHAREHOLDERS TO REINVEST IN FULL AND
FRACTIONAL SHARES OF ANCHOR FINANCIAL CORPORATION.
FOR MORE INFORMATION, WRITE INVESTOR RELATIONS, ANCHOR FINANCIAL CORPORATION,
POST OFFICE BOX 2428, MYRTLE BEACH, SOUTH CAROLINA 29578, OR CALL (803) 946-3105
OR 1-800-ANCHOR-8.
(Equal Housing Lender logo)
The Anchor Bank and The Anchor Bank of North Carolina are
Member Banks of the FDIC.
EQUAL OPPORTUNITY EMPLOYER STATEMENT
It is the policy of Anchor Financial Corporation and its subsidiaries to extend
equal employment opportunity to all qualified employees and applicants for
employment without regard to race, color, sex, age, disability, national origin,
status as a disabled veteran or Vietnam veteran, in all phases of employment.
This includes, but is not limited to recruitment, hiring, placement, upgrading
and promotion, transfer, layoff, recall, termination, selection for
bank-sponsored training, rates of pay and other forms of compensation, use of
all facilities, and participation in bank-sponsored activities. All of these
will be administered so as to further the principles of equal opportunity.
(Recycle logo)
Printed on Recycled Paper
EXHIBIT 21
<PAGE>
Subsidiaries of the Registrant
State or Other Jurisdiction
Subsidiaries of Incorporation
The Anchor Bank South Carolina
The Anchor Bank of North Carolina North Carolina
<PAGE>
EXHIBIT 23.1
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-73186) of
Anchor Financial Corporation of our report dated February 1, 1996 appearing
on page 23 of the 1995 Annual Report to Shareholders which is incorporated
in this Annual Report on Form 10-K.
(Signature of Price Waterhouse LLP)
PRICE WATERHOUSE LLP
Columbia, South Carolina
March 21, 1996
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-84008) of Anchor Financial Corporation of
our report dated February 1, 1996 appearing on page 23 of the 1995 Annual
Report to Shareholders which is incorporated in this Annual Report on Form
10-K.
(Signature of Price Waterhouse LLP)
PRICE WATERHOUSE LLP
Columbia, South Carolina
March 21, 1996
<PAGE>
EXHIBIT 23.2
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 33-73186 on Form S-3 and Registration Statement No. 33-84008 on Form S-8
of Anchor Financial Corporation of our report dated February 4, 1994 (relating
to the financial statements of The Anchor Bank of North Carolina not presented
separately herein) appearing in this Annual Report on Form 10-K of Anchor
Financial Corporation for the year ended December 31, 1995.
(Signature of Deloitte & Touche LLP)
Raleigh, North Carolina
March 22, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 20,516,188
<INT-BEARING-DEPOSITS> 99,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 52,043,206
<INVESTMENTS-CARRYING> 31,403,494
<INVESTMENTS-MARKET> 31,521,870
<LOANS> 285,103,535
<ALLOWANCE> 3,045,656
<TOTAL-ASSETS> 407,506,417
<DEPOSITS> 353,875,756
<SHORT-TERM> 2,702,578
<LIABILITIES-OTHER> 2,386,065
<LONG-TERM> 20,000,000
0
0
<COMMON> 15,245,910
<OTHER-SE> 13,296,108
<TOTAL-LIABILITIES-AND-EQUITY> 407,506,417
<INTEREST-LOAN> 25,277,156
<INTEREST-INVEST> 4,539,790
<INTEREST-OTHER> 452,842
<INTEREST-TOTAL> 30,269,788
<INTEREST-DEPOSIT> 12,471,902
<INTEREST-EXPENSE> 13,598,500
<INTEREST-INCOME-NET> 16,671,288
<LOAN-LOSSES> 596,000
<SECURITIES-GAINS> 87,492
<EXPENSE-OTHER> 13,559,558
<INCOME-PRETAX> 5,492,250
<INCOME-PRE-EXTRAORDINARY> 3,538,900
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,538,900
<EPS-PRIMARY> 1.39
<EPS-DILUTED> 1.39
<YIELD-ACTUAL> 4.86
<LOANS-NON> 182,801
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,795,941
<CHARGE-OFFS> 453,007
<RECOVERIES> 106,722
<ALLOWANCE-CLOSE> 3,045,656
<ALLOWANCE-DOMESTIC> 2,545,656
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 500,000
</TABLE>
EXHIBIT 99
<PAGE>
(Deloitte & Suite 1800 Telephone: (919) 546-8000
Touche LLP Logo) First Union Capitol Center Telex: 4995716
150 Fayetteville Street Mall Facsimile: (919) 833-3276
P.O. Box 2778
Raleigh, North Carolina 27602-2778
INDEPENDENT AUDITORS' REPORT
The Shareholder and the Board of Directors of
The Anchor Bank of North Carolina
We have audited the balance sheet of The Anchor Bank of North Carolina (formerly
Topsail State Bank) as of December 31, 1993 and the related statements of
income, shareholder's equity and cash flows for the year then ended (not
presented separately herein). These financial statements are the responsibility
of the Bank's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstate-
ment. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Bank at December 31, 1993 and the
results of its operations and its cash flows for the year ended December 31,
1993 in conformity with generally accepted accounting principles.
(Signature of Deloitte & Touche LLP)
February 4, 1994
Deloitte Touche
Tohmatsu
International
<PAGE>
