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, 1996 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 3, 1997, the Corporation had 2,559,340 shares of common
stock outstanding. The aggregate market value of voting stock held by
non-affiliates of the Corporation was $85,417,973, based on the market price of
$33.375 per share on March 3, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1996 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 28, 1997 relating to the Annual Meeting of
Stockholders of the Corporation to be held April 24, 1997 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 (the
"Bank") and to invest in other bank related businesses. The Corporation provides
its customers with banking services through its principal subsidiary, the Bank,
and data processing services through its subsidiary, Anchor Automated Services,
Inc. The Corporation owns 100% of the issued and outstanding stock of the Bank
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 the Bank. Such dividends are determined on an individual basis,
generally in relation to the Bank's earnings, deposit growth and capital
position.
THE ANCHOR BANK
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.
In accordance with the Riegle-Neal Interstate Banking and Branch
Efficiency Act of 1994, the Corporation merged its two banking subsidiaries, The
Anchor Bank and The Anchor Bank of North Carolina on October 4, 1996. The Anchor
Bank survived the merger and all information presented in this report reflects
this merger for all periods presented.
The Bank accounted for 100% of the Corporation's total consolidated
assets as of December 31, 1996, and over 100% of total net income for 1996. The
Bank conducts its business through eighteen branches along the North Carolina
and South Carolina coasts.
The primary market area served by the Bank 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 Little River to
Pawleys Island and west to Conway, South Carolina. In the merger with 1st
Atlantic Bank in 1993, the Bank acquired two offices in Little River and Cherry
Grove, South Carolina 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 branches in Mount Pleasant, South Carolina and Wilmington, North
Carolina. Mount Pleasant is located north of Charleston, South Carolina and
Wilmington is located in the southeast corner of North Carolina. In 1996, the
Bank opened an additional branch office in Wilmington, North Carolina. The Bank
maintains three other branch offices in the coastal communities of Wilmington,
Hampstead, and Jacksonville, North Carolina. 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, the Bank 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, 1996, approximately 74% of the revenues
of the Bank were derived from interest and fees on loans, 15% from income on
investment securities, 1% from temporary investments, 5% from service charges on
deposit accounts, and 5% from other sources.
The Bank offers a full range of banking services, including trust
services, to both businesses and individuals in its market area. These services
include regular and interest checking, money market, savings and time deposit
accounts as well as personal and business loans. The Bank also provides
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 the Bank, as well as to
the public. This subsidiary was inactive for the year ended December 31, 1996.
EMPLOYEES
At December 31, 1996, the Corporation and its Subsidiaries employed a
total of 223 full-time equivalent persons.
COMPETITION
The Bank faces 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 loans and deposits. The Bank's
deposits totaled $420.2 million on June 30, 1996. The Bank had market share of
13.3% in its primary market area. No institution had market share exceeding 15%
in this primary market area. The Bank had 11.1% and 2.8% market share in all its
South Carolina and North Carolina markets, respectively.
Reference is made to the Corporation's competitive position as measured
in terms of market share of commercial bank deposits on June 30, 1996. 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.
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SUPERVISION AND REGULATION
THE CORPORATION
The Corporation is under the supervisory and regulatory authority
granted the Federal Reserve Board of Governors (the "Board") by the Bank Holding
Company Act of 1956, as amended (the "Act"). The Corporation is required to file
with the Board an annual report and such additional information as the Board 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 to permit bank holding
companies to engage in, and to acquire or retain shares of companies that engage
in, activities which the Board 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 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, 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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THE ANCHOR BANK
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, of which the Bank is a member, 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, 1996, the Bank was "well capitalized," and was 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, 1996. 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 Bank.
As a state nonmember bank with deposits insured by the FDIC, the Bank
is subject to the supervisory and regulatory authority of the FDIC and the South
Carolina State Board of Financial Institutions. 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 under their
supervision, including reserves, loans, mergers, payment of dividends, interest
rates, establishment of branches and other aspects of operations.
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RESEARCH
The Corporation makes no expenditures for research and development.
DEPENDENCE UPON A SINGLE CUSTOMER
Neither the Corporation nor the Bank is 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 the Bank, 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 the Bank. To the limited extent necessary, the
Corporation occupies office space owned by the Bank.
The Bank owns the real property for thirteen of the branch offices. The
Bank owns the buildings but leases the land for five branch offices and leases
the land and buildings on which one branch office is located from unaffiliated
third parties under long-term leases. None of the properties owned by the
Corporation or the Bank are encumbered.
ITEM 3. LEGAL PROCEEDINGS
At December 31, 1996, 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 1996.
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PART II
ITEM 5. MARKET FOR THE CORPORATION'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The information appearing on page 60 of the Corporation's 1996
Annual Report to Stockholders of the Corporation is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
The information appearing on page 17 of the Corporation's 1996
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 16 through 33 of the
Corporation's 1996 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 1996 Annual Report to Stockholders at the
pages indicated are incorporated herein by reference:
Consolidated Balance Sheet at December 31, 1996 and 1995 35
Consolidated Statement of Income for each of the three
years in the period ended December 31, 1996 36
Consolidated Statement of Changes in Stockholders' Equity
for each of the three years in the period ended
December 31, 1996 37
Consolidated Statement of Cash Flows for each of the
three years in the period ended December 31, 1996 38
Notes to Consolidated Financial Statements 39-57
Report of Independent Accountants 34
Quarterly Financial Summary for 1996 and 1995 57
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 1996, 1995, or 1994.
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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:
Stephen L. Chryst (51)
President and Chief Executive Officer of the Corporation since 1984 and the Bank
since 1982.
Robert E. Coffee, Jr. (49)
Executive Vice President and Chief Administrative Officer of the Bank since
1993. Mr. Coffee previously served as President of 1st Atlantic Bank from
1986 through 1993.
Robert R. DuRant, III (51)
Executive Vice President and Chief Credit Officer of the Bank since February
1988.
Tommy E. Looper (49)
Executive Vice President and Chief Financial Officer of the Corporation and the
Bank 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 1997 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 1997 Annual Meeting of Stockholders of the
Corporation is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing on page 12 of the Corporation's definitive
Proxy Statement relating to the 1997 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
3.2 By-Laws
10 Material Contracts:
(a) Anchor Financial Corporation, The Anchor
Bank and The Anchor Bank of North Carolina
Incentive Stock Option Plan of 1996
(incorporated herein by reference to the
Corporation's Form 10-K for the year ended
December 31, 1995).
(b) Anchor Financial Corporation, The Anchor
Bank and The Anchor Bank of North Carolina
Incentive Stock Option Plan of 1995
(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 1996 Annual Report to Stockholders for the fiscal
year ended December 31, 1996.
21 Subsidiary of the Registrant
23.1 Consent of Price Waterhouse LLP
(b) No reports of Form 8-K were filed during the fourth
quarter of 1996.
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
1996 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 28, 1997
By /s/ Tommy E. Looper
(Tommy E. Looper,
Executive Vice President and
Chief Financial Officer)
Date: March 28, 1997
By /s/ John J. Moran
(John J. Moran,
Senior Vice President and
Comptroller)
Date: March 28, 1997
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/ C. Jason Ammons, Jr. Director
/s/ Howell V. Bellamy, Jr. Director
/s/ James E. Burroughs Director
/s/ J. Bryan Floyd Director
/s/ W. Gairy Nichols, III 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 28, 1997
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EXHIBIT EXHIBIT TITLE
3.1 Articles of Incorporation, as amended
3.2 By-Laws
13 1996 Annual Report to Stockholders for the fiscal year ended
December 31, 1996.
21 Subsidiary of the Registrant
23.1 Consent of Price Waterhouse LLP
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EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
ANCHOR FINANCIAL CORPORATION
I, the undersigned natural person of legal age, acting as incorporator of a
corporation under the South Carolina Business Corporation Act, adopt the
following Articles of Incorporation for such corporation:
First: The name of the corporation is Anchor Financial
Corporation.
Second: The period of its duration is perpetual.
Third: The specific purpose or purposes for which the
corporation is organized stated in general terms are:
To exercise all powers of a bank holding company
registered with the Board of Governors of the Federal
Reserve System under the Bank Holding Company Act of
1956, as amended (the "Act") and to engage in all
banking and non-banking activities allowed for a bank
holding company under state and federal law, and to
engage in any lawful act or activity for which
corporations may be organized under the Business
Corporation Act of South Carolina.
Fourth: The aggregate number of shares which the corporation
is authorized to issue is One Million Two Hundred
Fifty Thousand (1,250,000) of one class of common
stock with a par value of Six Dollars ($6.00) per
share. All stock shall be common stock of the same
class.
Fifth: Shareholders shall have no pre-emptive rights to
acquire any shares in the corporation.
Sixth: Any of the directors of the corporation may be
removed by a vote of the majority of the entire Board
for cause, which shall mean fraudulent or dishonest
acts or gross abuse of authority in the discharge of
duties to the corporation and shall be established
after written notice of specific charges and the
opportunity to meet and refute such charges. Such
power is in addition to the power of shareholders
under South Carolina law to remove directors with or
without cause.
Seventh: A majority of the entire Board of Directors is
granted the power to alter, amend or repeal the
bylaws of the corporation. This is in addition to
the power of shareholders under South Carolina law to
alter, amend or repeal the bylaws.
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Eighth: The capital stock of the corporation may be issued
for valid corporate purposes upon authorization by
the Board of Directors of the corporation without
stockholder approval. Such authorization by the Board
of Directors may be made by a majority or other vote
of the Board as may be provided in the Bylaws of the
corporation. The affirmative vote of the holders of
not less than eighty percent (80%) of the outstanding
voting stock of the corporation is required to amend
or repeal the provisions of this Article Eighth.
Ninth: The affirmative vote of the holders of not less than
eighty percent (80%) of the outstanding voting stock
of the corporation is required in the event that the
Board of Directors of the corporation does not
recommend to the stockholders of the corporation a
vote in favor of (1) a merger or consolidation of the
corporation with, or (2) a sale, exchange or lease of
all or substantially all of the assets of the
corporation to, any person or entity. For purposes of
this provision, substantially all of the assets shall
mean assets having a fair market value or book value,
whichever is greater, of 25 percent (25%) or more of
the total assets as reflected on a balance sheet of
the corporation as of a date no earlier than
forty-five (45) days prior to any acquisition of such
assets. The affirmative vote of the holders of not
less than eighty percent (80%) of the outstanding
voting stock of the corporation is required to amend
or repeal the provisions of this Article Ninth.
Tenth: The street and post office address of its initial
registered office in South Carolina are 2002 Oak
Street, P. O. Box 2428, City of Myrtle Beach, County
of Horry, State of South Carolina, 29577, and the
name of its initial registered agent at such address
is Stephen L. Chryst.
Eleventh: The number of directors constituting the initial
Board of Directors is thirteen (13). The names and
addresses of the persons who shall serve as directors
until the first annual meeting of shareholders or
until their successors are elected and qualified are:
Tom E. Baugh, Jr.
90 Club Drive
Myrtle Beach, SC 29577
G. J. Bishop, III
5702 Country Club Drive
Myrtle Beach, SC 29577
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W. C. Brandon, Jr.
Cliffwood Estates
Myrtle Beach, SC 29577
C. D. Cameron
Cove Drive, Dunes Club
Myrtle Beach, SC 29577
Stephen L. Chryst
303 Club Drive
Myrtle Beach, SC 29577
Cecil Clarkson
5820 Sumter Ave.
Myrtle Beach, SC 29577
J. D. Flowers
5630 Pinckney Ave.
Myrtle Beach, SC 29577
A. S. Miles
Woodside Avenue
Myrtle Beach, SC 29577
T. J. Rogers
308-H 71st Ave., North
Myrtle Beach, SC 29577
John B. Singleton
Sunrise Trail
Myrtle Beach, SC 29577
A. A. Springs
5707 Pickens St.
Myrtle Beach, SC 29577
Niles Stevens
4700 North Ocean Blvd.
Myrtle Beach, SC 29577
Zeb Thomas
2400 North Ocean Blvd.
Myrtle Beach, SC 29577
Twelfth: Shareholders shall not have cumulative voting rights.
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Thirteenth: The Board of Directors of the corporation shall
consist of a maximum of twenty (20) persons. The
affirmative vote of the holders of not less than
eighty percent (80%) of the outstanding voting stock
of the corporation is required to amend or repeal the
maximum number provided for herein. The terms of the
Board of Directors elected at the first annual
shareholders' meeting shall be set so as to implement
staggered terms, i.e., the terms of one-third (or as
near one-third as possible) of the directors shall be
one year, the terms of one-third shall be two years
and the terms of one-thirds shall be three years.
Thereafter one-third of the directors shall be
elected by a majority of votes cast at each annual
meeting of the shareholders, or by similar vote at
any special meeting called for that purpose and shall
serve three year terms.
Dated: January 3, 1984
/s/ Ann Watson
Ann Watson, Sole Incorporator
67 Madison Avenue, Third Floor
Memphis, TN 38103
<PAGE>
VERIFICATION CERTIFICATE
State of Tennessee
County of Shelby
I, Ann Watson, do hereby certify that I have read and understood the
meaning and purport of statements contained in these Articles of Incorporation;
that the statement therein contained and the same are true to the best of my
knowledge and belief; and that I signed these Articles of Incorporation as the
sole Incorporator of Anchor Financial Corporation and am authorized to execute
this Verification:
/s/ Ann Watson
Ann Watson
CERTIFICATION OF ATTORNEY
I, James H. Dusenbury , an attorney licensed to practice in the State
of South Carolina, certify that the corporation, to whose Articles of
Incorporation this certificate is attached, has complied with the requirements
of the South Carolina Business Corporation Act relating to the organization of
corporations and that, in my opinion, the corporation is organized for a lawful
purpose.
Date: January 5, 1984
/s/ James H. Dusenbury
(Signature)
James H. Dusenbury
(Typewritten Name)
Address: P. O. Box 189
812 N. Kings Hwy
Myrtle Beach, SC 29578
<PAGE>
ARTICLES OF AMENDMENT
TO THE CHARTER OF
ANCHOR FINANCIAL CORPORATION
To the Secretary of State of the State of South Carolina:
Pursuant to the provisions of ss. 33-10-106 of the South Carolina Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its charter:
1. The name of the corporation is Anchor Financial Corporation.
2. The text of each amendment adopted is as follows:
Article FOURTH of the Articles of Incorporation of the corporation is
amended to read as follows:
Resolved that the authorized shares of common stock of this Corporation
be increased from 1,250,000 to 2,500,000 shares.
3. No exchange, reclassification or cancellation of issued shares is
provided for by this amendment.
4. The amendment was adopted on April 20, 1988.
5. Amendment 2, above, was duly adopted and approved by the shareholders as
follows:
There were 961,477 outstanding common shares of the Corporation and
961,477 shares entitled to vote. There were 585,873 votes cast for the
amendment and no votes against. The number of votes cast for the
amendment by each represented voting group was sufficient for approval of
the amendment.
Anchor Financial Corporation
Date: April 26, 1988
/s/ Stephen L. Chryst
President
/s/ Terry S. Haight
Secretary
ARTICLES OF AMENDMENT
TO THE CHARTER OF
ANCHOR FINANCIAL CORPORATION
To the Secretary of State of the State of South Carolina:
Pursuant to the provisions of ss. 33-10-106 of the South Carolina Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its charter:
1. The name of the corporation is Anchor Financial Corporation.
2. The text of each amendment adopted is as follows:
a. Article FOURTH of the Articles of Incorporation of the corporation
is amended to read as follows:
The aggregate number of shares which the corporation is
authorized to issue is four million (4,000,000) of one
class of common stock with a par value of six dollars
($6.00) per share. All stock shall be common stock of the
same class.
b. A new Article FOURTEENTH is added to the Articles of Incorporation
of the corporation to read as follows:
A director of the corporation shall not be personally
liable to the corporation or its shareholders for monetary
damages for breach of fiduciary duty as a director,
provided, however, that the liability of a director shall
not be limited (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders; (ii) for
acts of omissions not in good faith or which involve gross
negligence, intentional misconduct, or a knowing violation
of law; (iii) for any unlawful distributions under 33-8-330
of the South Carolina Business Corporation Act; or (iv) for
any transaction from which the director derived an improper
personal benefit. This provision shall in no way eliminate
or limit the liability of a director for any act or
omission occurring prior to the date when this provision
becomes effective.
3. No exchange, reclassification or cancellation of issued shares is
provided for by this amendment.
4. The amendment was adopted on April 27, 1994.
5. Amendment 2a., above, was duly adopted and approved by the shareholders
as follows:
There were 1,270,210 outstanding common shares of the
corporation. There were 891,556 shares indisputably
represented at the meeting to vote on the amendment. There
were 866,131 votes cast for the amendment, 15,491 votes
<PAGE>
cast against the amendment and 9,484 votes which abstained.
The number of votes cast for the amendment by each
represented voting group was sufficient for approval of the
amendment.
6. Amendment 2b., above, was duly adopted and approved by the shareholders
as follows:
There were 1,270,210 outstanding common shares of the
corporation. There were 891,556 shares indisputably
represented at the meeting to vote on the amendment. There
were 830,764 votes cast for the amendment, 50,874 votes
cast against the amendment, and 9,918 votes which
abstained. The number of votes cast for the amendment by
each represented voting group was sufficient for approval
of the amendment.
Anchor Financial Corporation
Date: March 15, 1995
By: /s/ Tommy E. Looper
Its: Executive Vice President,
Chief Financial Officer and Secretary
<PAGE>
ARTICLES OF AMENDMENT
TO THE CHARTER OF
ANCHOR FINANCIAL CORPORATION
To the Secretary of State of the State of South Carolina:
Pursuant to the provisions of (section mark) 33-10-106 of the South Carolina
Business Corporation Act, the undersigned corporation adopts the following
Articles of Amendment to its charter:
1. The name of the corporation is Anchor Financial Corporation.
2. The text of each amendment adopted is as follows:
a. Article FOURTH of the Articles of Incorporation of the corporation
is amended to read as follows:
The aggregate number of shares which the corporation is
authorized to issue is seven million (7,000,000) of one
class of common stock with a par value of six dollars
($6.00) per share. All stock shall be common stock of the
same class.
3. No exchange, reclassification or cancellation of issued shares is
provided for by this amendment.
4. The amendment was adopted on April 24, 1996
5. Amendment 2a., above, was duly adopted and approved by the shareholders
as follows:
There were 2,551,595 outstanding common shares of the
corporation. There were 1,726,640 shares indisputably
represented at the meeting to vote on the amendment. There
were 1,678,999 votes cast for the amendment, 22,343 votes
cast against the amendment and 25,298 votes which
abstained. The number of votes cast for the amendment by
each represented voting group was sufficient for approval
of the amendment.
Anchor Financial Corporation
Date: May 14, 1996
By:/s/ Stephen L. Chryst
Its: President
<PAGE>
EXHIBIT 3.2
BYLAWS OF
ANCHOR FINANCIAL CORPORATION
ARTICLE I
MEETINGS OF SHAREHOLDERS
1. Annual Meeting. The annual meeting of the shareholders shall be held
on or before April 30th of each year at its principal office unless a different
time or place, either within or without South Carolina is designated by the
directors.
2. Special Meetings. Special meetings of the shareholders may be called
by the president, the chairman of the board of directors, a majority of the
board of directors, or by the holders of not less than one-tenth (1/10) of all
the shares entitled to vote at such meeting. The place of such meetings shall be
designated by the directors.
3. Notice of Shareholder Meetings. Written or printed notice stating
the place, day, and hour of the meeting, and, in the case of a special meeting,
the purpose or purposes for which the meeting is called and the person or
persons calling the meeting, shall be delivered, either personally or by mail or
at the direction of the president, secretary, officer, or person calling the
meeting, to each shareholder of record entitled to vote at the meeting, not less
than ten (10) nor more than fifty (50) days before the date of the meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail addressed to the shareholder at his address as it appears on the
<PAGE>
stock transfer books of the Corporation, with postage thereon prepaid. The
person giving such notice shall certify that the notice required by this
paragraph has been given.
4. Quorum Requirements. A majority of the shares entitled to vote shall
constitute a quorum for the transaction of business. A meeting may be adjourned
despite the absence of a quorum, and notice of an adjourned meeting need not be
given if the adjourned meeting is not thirty (30) days or more hence and the
time and place to which the meeting is adjourned are announced at the meeting at
which the adjournment is taken. When a quorum is present at any meeting, a
majority in interest of the stock there represented shall decide any question
brought before such meeting, unless the question is one upon which, by express
provision of this Corporation's Articles of Incorporation, these Bylaws, or by
the laws of South Carolina, a larger or different vote is required, in which
case such express provisions shall govern the decision of such questions.
5. Voting and Proxies. Every shareholder entitled to vote at a meeting
may do so either in person or by written proxy, which proxy shall be filed with
the secretary of the meeting before being voted. Such proxy shall entitle the
holder thereof to vote at the next meeting of shareholders after the date of its
execution or at any adjournment of such meeting, but shall not be valid after
the final adjournment thereof.
-2-
<PAGE>
ARTICLE II
BOARD OF DIRECTORS
1. Composition of Board of Directors. The Corporation shall have a
board of directors consisting of active directors, whose qualifications,
election, number, etc. are described and discussed in this Article II and
throughout these Bylaws. The Corporation shall also have advisory directors with
limited rights, as described in Section II of this Article II. Whenever the
terms "director" or "board of directors" or "board" are used herein or in other
corporate documents, the terms shall include active directors only, unless the
word "advisory" is used in conjunction therewith.
2. Qualification and Election of Active Directors. Directors must be
shareholders, not under thirty (30) years of age, and not over seventy (70)
years of age at the time of the shareholders' meeting at which they are elected
by the shareholders. In the event that a director attains age seventy-one (71)
during his term of office, he shall serve only until the next shareholders'
meeting after his (seventy-first) 71st birthday, at which time his successor
shall be appointed to serve out the remainder of his term, or he may continue to
serve after that time with the approval of a majority of the entire board of
directors. The terms of the board of directors elected at the first annual
shareholders' meeting shall be set so as to implement staggered terms, i.e. the
terms of one-third (or as near one-third as possible) of the
-3-
<PAGE>
directors shall be one year, the terms of one-third shall be two years and the
terms of one-third shall be three years. Thereafter, one-third of the directors
shall be elected by a majority of the votes cast at each annual meeting of the
shareholders, or by similar vote at any special meeting called for the purpose
and shall serve three year terms. Each director shall hold office until the
expiration of the term for which he is elected, except as stated above, and
thereafter until his successor has been elected and qualified. Any vacancy
occurring in the board of directors shall be filled by appointment by the
remaining directors and any director so appointed shall serve the remainder of
the term and until the next election.
3. Number. The maximum number of active directors is fixed by the
Articles of Incorporation and may be altered only by amendment thereto, but
shall never be less than the number required by law. The board of directors may,
by a vote of the majority of the full board, between annual meetings of the
shareholders, increase the membership of the board up to the maximum number set
out in the Articles of Incorporation.
4. Meetings. The annual meeting of the board of directors shall be held
immediately after the adjournment of the annual meeting of shareholders, at
which time the officers and the chairman of the board of the Corporation shall
be elected. The Board may also designate more frequent intervals for regular
meetings. Special meetings may be called at any time by any one director or any
two officers of the Corporation.
-4-
<PAGE>
5. Notice of Directors' Meetings. The annual and all regular Board
meetings may be held without notice. Special meetings shall be held with not
less than one hour notice of such meeting to be given to each director, which
notice shall be given on a "best efforts" basis by those calling the meeting.
6. Quorum and Vote. The presence of a majority of the directors shall
constitute a quorum for the transaction of business. A meeting may be adjourned
despite the absence of a quorum, and notice of an adjourned meeting need not be
given if the time and place to which the meeting is adjourned are fixed at the
meeting at which the adjournment is taken, and if the period of adjournment does
not exceed thirty (30) days in any one adjournment. The vote of a majority of
the directors present at a meeting at which a quorum is present shall be the act
of the Board, unless the vote of a greater number is required by the Articles of
Incorporation, these Bylaws, or by the laws of South Carolina.
7. Appointment of Executive and Other Committees. The board of
Directors, by a resolution adopted by a majority of its members, may designate
an executive committee, consisting of two or more directors, and other
committees, consisting of two or more persons, who may or may not be directors,
and may delegate to such committee or committees any and all such authority as
it deems desirable, including the right to delegate to an executive committee
the power to exercise all the authority of the board of directors in the
management of the affairs and property of the Corporation.
-5-
<PAGE>
8. Appointment of Chairman of the Board. The Corporation shall have a
chairman of the board. The chairman of the board shall be elected by the board
at its annual meeting. The chairman of the board shall serve until the
expiration of the term for which he is elected, and thereafter until his
successor has been elected and qualified. The chairman of the board shall have
such authority and perform such duties in the management of the Corporation as
is normally incident to the position of chairman of the board and as the board
of directors may from time to time provide.
9. Powers. In addition to other powers specifically set out herein or
that apply under South Carolina or other applicable law, the board of directors
shall have the power to manage and administer the affairs of the Corporation and
to do and perform all lawful acts with respect to the affairs of the Corporation
except those that may be specifically reserved to the shareholders under South
Carolina or other applicable law.
10. Contracts with Interested Directors. No contract or other
transaction between this Corporation and any other corporation shall be affected
by the fact that any director of this Corporation is interested in, or is a
director or officer of, such other corporation, and any director, individually
or jointly, may be a party to, or may be interested in, any contract or
transaction of this Corporation or in which this Corporation is interested; and
not contract, or other transaction, of this Corporation with any person, firm or
corporation, shall be affected by the fact that any director of this Corporation
is a party to, or is interested in,
-6-
<PAGE>
such contract, act, or transaction, or is in any way connected with such person,
firm, or corporation, and every person who may become a director of this
Corporation is hereby relieved from any liability that might otherwise exist
from contracting with the Corporation for the benefit of himself or any firm,
association, or corporation in which he may be in any way interested.
11. Special Consideration by Directors. The directors of this
Corporation shall consider all factors they deem relevant in evaluating any
proposed tender offer or exchange offer for the Corporation's stock, any
proposed merger or consolidation of the Corporation with or into another
corporation and any proposal to purchase or otherwise acquire all of the assets
of the Corporation. The directors shall evaluate whether the proposal is in the
best interests of the Corporation by considering the best interests of the
shareholders and other factors the directors determine to be relevant, including
the social, legal and economic effects on employees, customers and the
communities served by the Corporation and its subsidiary or subsidiaries. The
directors shall evaluate the consideration being offered to the shareholders in
relation to the then current market value of shares of the Corporation in a
freely negotiated transaction, and the directors' estimate of the future value
of shares of the Corporation as an independent entity.
12. Advisory Directors. The active board of directors may nominate
persons over the age of seventy (70) years who have previously served as active
directors to the shareholders for election, at the annual meeting of
shareholders, as advisory
-7-
<PAGE>
directors. Advisory directors shall serve in an advisory capacity to the
officers of the Corporation and to the active board. They shall, at the
invitation of the board, attend all meetings of the active board. Advisory
directors shall not have voting powers, nor may they serve as active members of
any committee. Advisory directors shall not incur the responsibilities or
liabilities which vest with active directors.
ARTICLE III
OFFICERS
1. Number. The Corporation shall have a president, one or more vice
presidents; a secretary and a treasurer, and such other officers as the board of
directors shall from time to time deem necessary. Any two or more offices may be
held by the same person.
2. Election and Term. The officers shall be elected by the board at its
annual meeting. Each officer shall serve until the expiration of the term for
which he is elected, and thereafter until his successor has been elected and
qualified.
3. Duties. All officers shall have such authority and perform such
duties in the management of the Corporation as are normally incident to their
offices and as the board of directors may from time to time provide.
-8-
<PAGE>
ARTICLE IV
RESIGNATIONS, REMOVALS AND VACANCIES
1. Resignations. Any officer or director may resign at any time by
giving written notice to the chairman of the board of directors, the president,
or the secretary. Any such resignation shall take effect at the time specified
therein, or, if no time is specified, then upon its acceptance by the board of
directors.
2. Removal of Officers. Any officer or agent may be removed by the
board of directors whenever in its judgment the best interests of the
Corporation will be served thereby.
3. Removal of Directors. Any or all of the directors may be removed
with or without cause, as defined in the Articles of Incorporation, by a proper
vote of the shareholders or with cause, as so defined, by a majority vote of the
entire board of directors.
4. Vacancies. Newly created directorships resulting from an increase in
the number of directors and any vacancies occurring in any office or
directorship for any other reason, including removal of an officer or director,
may be filled by the vote of a majority of the directors then in office, even if
less than a quorum exists, and said directors shall serve until the next
election of directors by shareholders and until their successors be elected and
qualified.
-9-
<PAGE>
ARTICLE V
CAPITAL STOCK
1. Stock Certificates. Every shareholder shall be entitled to a
certificate or certificates of capital stock of the Corporation in such form as
may be prescribed by the board of directors. Unless otherwise decided by the
board of directors, such certificates shall be signed by the president or a vice
president and the secretary or Assistant Secretary.
2. Transfer of Shares. Any share or shares of stock may be transferred
on the books of the Corporation by delivery and surrender of the properly
assigned certificate, but subject to any restrictions on transfer imposed by
either the applicable securities laws or any shareholder agreement.
3. Loss of Certificates. In the case of the loss, mutilation, or
destruction of a certificate of stock, a duplicate certificate may be issued
upon such terms as the board of directors shall prescribe.
-10-
<PAGE>
ARTICLE VI
ACTION BY CONSENT
1. Shareholders may act without a meeting if written consent letting
forth the action so taken, is signed by the holders of all outstanding shares
entitled to vote on such action or their attorneys-in-fact or proxy holders.
Directors or any executive committee can act without a meeting on
action taken by a majority thereof, or by such larger vote as the Articles of
Incorporation or Bylaws require, if all directors or committee members execute,
before or after the action taken, a written consent thereto. Action which is
permitted to be taken only when authorized at a meeting of the board or
committee, can be taken without a meeting, if before or after the action, all
Board or committee members consent thereto in writing.
-11-
<PAGE>
ARTICLE VII
INDEMNIFICATION
Any person, his heirs, executors, or administrators, may be indemnified
or reimbursed by the Corporation for reasonable expenses actually incurred in
connection with any action, suit or proceeding, civil or criminal, in which he
or they shall be made a party by reason of his being or having been a director,
officer, or employee of the Corporation or of any firm, corporation, or
organization which he served in any such capacity at the request of the
Corporation; provided, however, that no person shall be so indemnified or
reimbursed in relation to any matter in such action, suit, or proceeding as to
which he shall finally be adjudged to have been guilty or liable for gross
negligence, willful misconduct or criminal acts in the performance of his duties
to the Corporation; and, provided, further, that no such person shall be so
indemnified or reimbursed in relation to any matter in such action, suit, or
proceeding which has been made the subject of a compromise settlement except
with the approval of a court of competent jurisdiction, or the holders of record
of a majority of the outstanding shares of the Corporation, or the board of
directors, acting by vote of directors not parties to the same or substantially
the same action, suit, or proceeding, constituting a majority of the whole
number of directors. The foregoing right of indemnification or reimbursement
shall not be exclusive of other rights to which such persons, his heirs,
executors, or
-12-
<PAGE>
administrators, may be entitled as a matter of law.
The Corporation may, upon the affirmative vote of a majority of its
board of directors, purchase insurance for the purpose of indemnifying its
directors, officers, and other employees to the extent that such
indemnifications are allowed in the preceding paragraph. Such insurance may, but
need not, be for the benefit of all directors officers, or employees.
ARTICLE VIII
AMENDMENT OF BYLAWS
These bylaws may be amended, added to, or repealed by: (1) a majority
vote of the entire board of directors or (2) a majority vote of the shareholders
entitled to vote thereon, unless the Articles of Incorporation, these Bylaws, or
the laws of South Carolina require a greater vote.
CERTIFICATION
I certify that these are the Bylaws of the Corporation as amended by
the board of directors on December 14, 1992.
Tommy E. Looper, Secretary
-13-
<PAGE>
EXHIBIT 13
Anchor
Financial
Corporation
1996
Annual
Report
<PAGE>
Table of Contents
1 To Our Shareholders and Friends
5 Banking the Carolina Coast
11 The Year in Review
and a Look Ahead
16 Management's Discussion
and Analysis
34 Report of Management
34 Report of Independent Accountants
35 Consolidated Balance Sheet
36 Consolidated Statement of Income
37 Consolidated Statement of Changes in Stockholders' Equity
38 Consolidated Statement
of Cash Flows
39 Notes to Consolidated
Financial Statements
58 In Memoriam
59 Directors, Principal Officers,
and Advisory Boards
60 Investor Services
Anchor Financial Corporation
Anchor Financial Corporation (the "Corporation") is the parent of The Anchor
Bank (the "Bank"), headquartered in Myrtle Beach, South Carolina. Founded in
1974 to meet the unique financial needs of commercial and retail customers in
the Myrtle Beach area, The Anchor Bank today has eighteen offices located along
the Carolina coast. This coastal branch network extends northward to
Jacksonville, North Carolina, and southward to Hilton Head Island, South
Carolina. The Bank offers customers an array of financial services, including
credit card, trust, and mortgage products, and also provides convenient access
to non-traditional investment services through its subsidiary, Anchor Capital
Corporation.
Executive Offices
2002 Oak Street
Post Office Box 2428
Myrtle Beach, South Carolina 29578
Annual Meeting
The annual meeting of shareholders of Anchor Financial Corporation will be held
on Thursday, April 24, 1997, at 4 p.m. at the Myrtle Beach Martinique,
Oceanfront at 71st Avenue North, Myrtle Beach, South Carolina.
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
Senior Vice President and Comptroller
Anchor Financial Corporation
Post Office Box 2428
Myrtle Beach, South Carolina 29578-2428
Independent Accountants
Price Waterhouse LLP
Columbia, South Carolina
<PAGE>
To Our Shareholders and Friends
(PHOTO OF Stephen L. Chryst Stephen L. Chryst
appears on the left) President and
Chief Executive Officer
1996 marked another record year for Anchor Financial Corporation, continuing a
trend of strong performance and dynamic growth that began more than five years
ago. Since 1992, the Corporation has experienced yearly growth rates of 16%,
17%, 15%, 15%, and now 21% in 1996. As time passes, we can visibly measure our
success and demonstrate the progress we have made.
Net income for the year ended December 31, 1996, was $4,769,003, or $1.81 per
share, compared to $3,538,900, or $1.39 per share reported for the year ended
December 31, 1995. These figures represent a 34.8% increase in net income and a
30.5% increase in earnings per share.
The increase in net income was primarily attributed to an 18.7% increase in net
interest income and a 26.3% increase in noninterest income, along with
controlled growth of noninterest expense. Very favorable growth in all the
Bank's deposit products provided funds to take advantage of quality lending
opportunities in all our markets. Stable interest rates and good economic
conditions combined with these opportunities to contribute considerable strength
to the Corporation's net interest income. Significant gains are being made
quickly in the efficient application of overhead to a broader base of banking
operations. Gains in operational efficiency came faster and
Core Earnings*
IN MILLIONS
(Core Earnings graph appears here. Plot points are below.)
92 93 94 95 96
$1.678 $2.375 $2.537 $3.481 $4.779
*Net Income excluding securities gains and losses.
Earnings Per Share*
(Earnings Per Share graph appears here. Plot points are below.)
92 93 94 95 96
$0.66 $0.95 $1.00 $1.37 $1.82
*Net Income excluding securities gains and losses.
1
<PAGE>
surpassed our expectations; therefore, we were able to achieve a strong return
on assets of 1.04% and return on equity of 15.4%, representing significant
improvement in a short period of time. Our management goals remain focused on
continued improvement.
Total assets for the year ended December 31, 1996, were $493.5 million, an
increase of 21.1% from $407.5 million reported at December 31, 1995. Total
deposits increased 18.7%, from $353.9 million reported at December 31, 1995, to
$420.2 million reported at December 31, 1996. Total loans increased 21.2%, from
$285.1 million reported at December 31, 1995, to $345.4 million reported at
December 31, 1996. While all areas of the balance sheet have experienced
significant growth, the mix within the balance sheet remains constant, which is
a sign of overall strength and healthy growth.
The Corporation continues to experience strong loan demand which is fueled by
the large scale expansion occurring in all our markets. Competition for quality
earning assets continues to be quite heated, resulting in an environment where
pricing and underwriting standards in the markets may be insufficient to support
the inherent risk. In such an environment, we will remain patient and cautious,
allowing our traditional standards of credit quality to guide us. We will work
harder to seek out the healthy, well-structured lending opportunities and
compete for them aggressively. Loan quality continues to be outstanding in all
our markets. Annualized net loan losses for the year ended December 31, 1996,
were 0.03% of average total loans. Nonperforming assets represented only 0.05%
of loans outstanding at year-end. These ratios indicate that the Corporation's
credit quality remains excellent, surpassing its peers in the banking industry.
Substantial growth in each banking
Return on Assets*
PERCENT
(Return on Assets graph appears here. Plot points are below.)
92 93 94 95 96
0.71 0.83 0.77 0.92 1.04
*Net Income excluding securities gains and losses.
Return on Equity*
PERCENT
(Return on Equity graph appears here. Plot points are below.)
92 93 94 95 96
7.99 10.50 10.09 12.54 15.42
*Net Income excluding securities gains and losses.
2
<PAGE>
office played a major role in our success in 1996. Offices along the Grand
Strand, in Hilton Head Island, and southeastern North Carolina all experienced
double digit growth in deposits and market share. The Mt. Pleasant office marked
its first full year in operation with increases of 197% in deposits and 132% in
loans.
The growth within our branches is tangible evidence that our expansion
strategies work and that we are meeting the financial services needs of
customers in these new markets. Growth in the branches and in overall size has
helped to build profitability faster and more efficiently while creating the
momentum for further expansion. To provide the capital needed to expand, the
Corporation has issued $6 million of ten-year subordinated debt, which is
considered Tier 2 capital by bank regulatory agencies. Thus, we are positioned
well to take advantage of opportunities in our quest to develop further our
coastal banking network. In addition, our success allows us to invest in the
technology and infrastructure needed to support future growth.
Loans
IN MILLIONS
(Loan graph appears here. Plot points are below.)
92 93 94 95 96
$187.2 $203.0 $236.8 $285.1 $345.4
Deposits
IN MILLIONS
(Deposit graph appears here. Plot points are below.)
92 93 94 95 96
$232.2 $271.8 $308.2 $353.9 $420.2
Total Assets
IN MILLIONS
(Total Assets graph appears here. Plot points are below.)
92 93 94 95 96
$259.4 $304.3 $351.9 $407.5 $493.5
3
<PAGE>
In other news, the Corporation's common stock was listed on the Nasdaq National
Market(R) tier of The Nasdaq Stock Market in August, trading under the symbol
"AFSC." Listing the stock not only improved its visibility and accessibility
while boosting its trading price, but also helped to establish the Corporation's
presence as a financial services leader.
It is with great sadness that I advise our shareholders of the passing of John
D. Flowers. Mr. Flowers was a founding shareholder and director of The Anchor
Bank and Anchor Financial Corporation. As a founder, he recognized the Bank's
potential immediately, and his strong belief in its future and his support along
the way helped bring the Corporation to its present success and stature. His
compassion and kindness were well known in the community and his leadership,
friendship, and wise counsel are missed by us all.
The passage of time effectively illustrates our progress and highlights the
power and strength of the financial services Corporation we have created. It is
very rewarding to see this progress continue in 1996 and to realize the even
greater potential it provides us in 1997. Our annual meeting will be held on
Thursday, April 24, at 4 p.m. at the Myrtle Beach Martinique. It will give me
great pleasure to see you there and to share news of our progress with you. In
the meantime, if we may be of any further assistance to you, please do not
hesitate to call on us. We appreciate your support and look forward to serving
you.
(Signature appears here)
Stephen L. Chryst
President and Chief Executive Officer
4
<PAGE>
(Map appears to the left)
Anchor Financial Corporation
Banking
The
Carolina
Coast
The Anchor Bank was founded in 1974 to follow a clearly defined mission: Meet
the unique financial needs of individuals and businesses in the coastal
community of Myrtle Beach, while providing a sound return for its shareholders.
5
<PAGE>
Banking the Carolina Coast
During the past 22 years, The Anchor Bank has expanded this mission to
communities all along the Carolina coast. From its headquarters in Myrtle Beach,
its eighteen-office network extends as far north as Jacksonville, North Carolina
and as far south as Hilton Head Island, South Carolina.
By delivering state-of-the-art banking products and quality service that is
professional and technologically advanced, yet personal and caring, the bank has
established itself as a financial services leader along the Carolina coast.
Expansion strategies that focused on bringing the Bank's style of community
banking to new areas have created four markets for the bank, all linked by their
geographic positions along the coast. While each is unique, all boast
significant population growth and continued economic expansion. The robust
health in these markets has fueled strong performance and provides a promising
outlook for the future. A keen understanding of what it means to do business in
a coastal community enhances our business acumen and directs our decision-making
process to the best interest of our customers and the communities served.
Conway, SC
Georgetown, SC
Hampstead, NC
Hilton Head Island, SC
Jacksonville, NC
Little River, SC
Mount Pleasant, SC
Murrells Inlet, SC
Myrtle Beach, SC
North Myrtle Beach, SC
Surfside Beach, SC
Wilmington, NC
6
<PAGE>
(the whole page is a picture)
7
<PAGE>
STONG ECONOMIC CONDITIONS AND PHENOMENAL
GROWTH HAVE PROVIDED A SOLID ECONOMIC BASE FOR
THE BANK'S GRAND STRAND OFFICES.
The Grand Strand
Before his death in 1897, Myrtle Beach founder F.G. Burroughs looked at the
expanse of coastline that is now the Grand Strand and wrote, "I may not live to
see it, but one day this whole Strand will be a resort." His words were indeed
prophetic. Today, the Grand Strand's 60 mile stretch of coastline that begins in
Little River and extends into Pawleys Island in Georgetown County is
experiencing phenomenal growth, fueled by the area's popularity for retirement
living, lower taxes, and business investments.
Tourism is a major industry along the Grand Strand, responsible for 65 to 70% of
all employment. Emerging from decades of popularity as a summer tourist
destination focused on beach side activities, the Grand Strand has become a
diversified year round resort. The golf industry, with nearly 100 courses along
the Grand Strand, has been the main force behind this shift with spring and fall
being the busiest golf seasons. Additional activities such as entertainment
theaters and significant regional shopping facilities also have bolstered
interest in seasons other than summer.
The area is home to heavy and light manufacturing, institutions of higher
education, hospitals and medical centers, and is enjoying a growing interest in
arts and cultural events.
Strong economic conditions and phenomenal growth have provided a solid economic
base for the Bank's Grand Strand offices. These ten offices have experienced
double digit deposit growth in the past year and have increased market share in
Horry and Georgetown Counties.
Hilton Head Island and
Beaufort County
Hilton Head Island has a rich and varied history dating to the 1500s when the
Spanish first explored the southeast coastal islands. During the colonial period
and up to the War Between the States, the island had a thriving plantation
economy and a population of 40,000. With the war's end and departure of the
military presence, Hilton Head Island returned to nature, only to be
rediscovered in the early 1900s.
It was Charles Fraser's pioneering vision that created the Hilton Head Island of
the 20th century, creating a lifestyle that is one with the natural environment.
Today, the desire for this lifestyle is causing growth throughout southern
Beaufort County as new developments are born. Del Webb's Sun City, Callawassie,
Indigo Plantation, Indian Hills, Colleton River Plantation, Belfair, and Spring
Island are examples of this trend as growth spills off the Island into Beaufort
County.
Beaufort County stretches for nearly 30 miles along the Atlantic Ocean and
includes 64 major islands and hundreds of small islands. Its mild climate, wide
variety of activities including golf, arts and cultural events, and shopping
have helped to make the area the fastest growing county in
8
<PAGE>
South Carolina. In fact, projections indicate that the population will grow
26.3% by the year 2000.
Hilton Head Island tourism is not as driven by seasonality as in the Grand
Strand market, but is a year round destination due to its mild climate and wide
variety of activities, including golf, shopping, arts and cultural events, and
conventions. Overall, the economy is also less dependent on tourism than the
Grand Strand market.
A wide variety of heavy and light manufacturing companies call Beaufort County
home, and are important to its economic balance.
The Bank's two Hilton Head Island offices have experienced growth in deposits
and market share of nearly 18% in the past year.
Charleston Metropolitan Area
The Charleston Metropolitan Area stretches along the central and southern South
Carolina coast, includes over 90 miles of Atlantic coastline and reaches some 50
miles inland toward the intersection of Interstates 26 and 95.
Just a few years ago, this area was faced with potentially devastating news --
the closing of the Charleston Naval Complex along with its impending loss of
jobs and impact on the local economy. But the Chamber of Commerce acted swiftly,
forming the Charleston Regional Development Alliance, and this group helped turn
a serious situation into one of tremendous growth and opportunity for the
Lowcountry. By 1996, the Alliance's hard work began paying dividends. New
industry announcements brought $170 million in new capital investment and 1,870
new jobs for the region. A wide variety of industries provide jobs in
construction, manufacturing, and services. Major new players include Amoco
Chemical Co., Nucor Steel, Bayer, Westvaco Corporation and Bosch.
In addition, the tourism industry continues to grow in the Charleston
Metropolitan Area, bolstered by the region's rich history and culture, fine
dining and shopping, and special events, including Spoleto. Tourism is
responsible for 34,000 jobs in the Lowcountry, has spawned 1,700 visitor-related
industries, and has an annual $1.5 billion economic impact. Due to the variety
of activities available, the tourism industry is not impacted by seasonality.
The number one draw during all four seasons is the historic area, followed
closely by festivals and special events.
The Mount Pleasant office completed its first full year of operation in 1996,
and at year end reported very strong increases of 197% in deposits and 132% in
loans over figures reported for 1995. Market share in this office continues to
grow and will serve as a springboard to additional expansion in this market.
Southeastern North Carolina
The Bank's network continues through the coastal communities of Wilmington,
Hampstead, and Jacksonville, North Carolina. This southeast
9
<PAGE>
corner is experiencing strong growth, anchored by Wilmington's renaissance as an
economic force and cultural center and the proud military presence in
Jacksonville.
In 1991, Interstate 40 was completed which connected Wilmington to Interstate
95, Raleigh, and points beyond. A $23 million expansion at the New Hanover
International Airport in 1990 helped that facility bring more air traffic into
the city. Population growth has been strong, with a 13.1% increase from 1990 to
1995, and is expected to increase by 34% by the year 2000. Industry is varied in
the southeast corner of the state ranging from light to medium manufacturing.
In addition, the diverse economy also includes the Port of Wilmington, where
total tonnage reached 2.2 million tons in 1994-95. A major industry in
southeastern North Carolina, tourism is not overly seasonal and is driven by
historical sites, festivals and special events, museums, golf, fishing, and the
beaches. Approximately 6,500 jobs in the three county area are directly
attributed to travel and tourism. Wilmington is also a center for higher
education, including the University of North Carolina at Wilmington and Cape
Fear Community College. A growing film industry also contributes to the area's
diversity and has a significant impact on the local economy. In Onslow County,
Camp LeJeune and Marine Corps Air Station New River have 42,000 active duty
personnel and a $2 billion yearly economic impact on the area.
Market share continues to grow in these counties as deposits increased more than
22% in Pender County, more than 21% in Onslow County, and nearly 59% in New
Hanover County in the past year.
Sources
Myrtle Beach Area Statistical Abstract
Beaufort County: A Guide to Economic Development Opportunities
Hilton Head Island Visitor Profile Survey Results
Charleston Metro Chamber Commerce Magazine,
1st Quarter 1995, 1st Quarter 1996, and 2nd Quarter 1996
Charleston Area Visitor Profile Study
Charleston Metropolitan Region Economic Profile
New Hanover County Fact Book 1996
1996 State Profile - North Carolina
North Carolina Department of Commerce 1996 County and Regional Scans
North Carolina Department of Commerce Travel and Tourism Department Facts
Onslow County Profile and Fact Book
Shesunoff(R)The Branches of North Carolina
Shesunoff(R)The Branches of South Carolina
Wilmington: Treasure on the Atlantic
The Sands of Time: A History of Hilton Head Island
Profits and Politics in Paradise: The Development of Hilton Head Island
10
<PAGE>
The Year In Review and a Look Ahead
In 1996, Anchor Financial Corporation continued its course of growth through
geographic expansion, development of new products and services, and a commitment
to use technology to meet customer needs while providing superior service.
Stock Moves to Nasdaq
The Corporation's Common Stock began trading on the Nasdaq National Market(R)
tier of The Nasdaq Stock Market in August 1996, under the symbol "AFSC." Listing
the stock on the Nasdaq National Market greatly improved its visibility and
accessibility. Since listing the stock, the price has closed as high as $35.50
through December 31, 1996. Interstate/Johnson Lane, Sterne, Agee & Leach, Inc.,
and Wheat First Securities are the market makers in the stock.
Shareholder Services Expanded
The Corporation offered shareholders the option of direct deposit service for
their cash dividend checks in 1996. This service will save time and provides
additional safety and security. The cash dividend check can be direct deposited
into any Anchor Bank checking or savings account or at any U.S. financial
institution.
The Dividend Reinvestment Plan is another convenient service. Shareholders with
100 shares or more are eligible to participate and have their cash dividends
automatically reinvested in the purchase of additional shares of common stock.
Dividends will be reinvested on a quarterly basis as paid. Shareholders pay no
brokerage commissions, fees, or service charges for purchases made under the
Dividend Reinvestment Plan.
Closing Stock Price
AT DECEMBER 31
(Closing Stock Price graph appears here. Plot points are below.)
92 93 94 95 96
$8.94 $13.00 $13.75 $19.75 $32.50
11
<PAGE>
Our Visa Check Card is linked to the customer's
primary checking account and is used instead of
cash or checks for payment and for ATM access.
Products and Services
The year also saw the Corporation take aggressive steps in updating its product
menu and introducing new services.
The product conversion for the North Carolina offices was completed, resulting
in similarly structured product offerings at all eighteen offices. Customers now
have the convenience of banking at any North or South Carolina location.
The Visa Check Card debuted in June. The card is linked to the customer's
primary checking account and is used instead of cash or checks for payment and
for ATM access. The College Account was introduced in August and further expands
the checking services menu. The account provides a valuable service to students
and has no minimum balance requirements or monthly fees. Studies show that
students are loyal to the bank where they had their student account long after
graduation, using additional services as their financial needs change.
(Photo of Visa Check card appears at left.)
The Corporation now provides 24-hour banking access at all locations. New
drive-up ATMs were installed at the Little River and Main offices. The drive-up
models offer a safe, convenient environment for customers to transact business
any time of day, seven days a week, 365 days a year.
Expansion and Renovation
On Hilton Head Island, the Pope Avenue office underwent an $800,000 renovation.
The project began in May 1996, was completed in December of that year, and
included an entire roof redesign, extensive interior renovations, a redesign of
the main entrance and improvements to the landscaping. The renovation shows the
Corporation's commitment to this market and the progress made since entering the
market more than five years ago.
In Wilmington, North Carolina, the eighteenth Anchor Bank office opened at
Oleander Drive in February, joining the office on South College Road that opened
in December 1995. Combined with the existing office at 7320 North Market Street,
there are now three Wilmington locations.
The Corporation has established a strong presence in the Wilmington area and
provides much needed financial resources to a variety of businesses.
12
<PAGE>
Community Development
Anchor Financial Corporation helped advance the communities it serves in 1996.
The Corporation participated in downtown revitalization projects in
Jacksonville, North Carolina and Myrtle Beach, South Carolina by creating loan
pools for business owners. Loans are available to make improvements that will
draw customers back to the area. The Corporation also made the first corporate
pledge of $1,500 to the North Myrtle Beach Main Street Redevelopment Project.
Community Service
The Corporation's relationship with many charitable, cultural, and civic groups
in each market reinforces the strategy of establishing a strong, caring presence
in all the communities we serve. Anchor Bank employees are involved in their
communities and donate their time and efforts to support local organizations.
Along the Grand Strand, the Bank's team won awards at the American Heart
Association's Heart Walk for the third consecutive year. Our employees were
recognized as the top team, raising $8,771, and as the team with the most
walkers, with 130 participants. Employees also participated in the American Red
Cross Blood Drives, donating a total of 124 pints of blood in 1996. The Blood
Donors Group is open to employees in all markets and grows each year as its
members provide a wonderful gift to the community. The Grand Strand and Mount
Pleasant offices participated in the Adopt-a-Beach program and are committed to
cleaning a one-mile stretch of beach in their area twice a year. In September,
employees took part in Beach Sweep `96, a worldwide cleanup effort.
The Mount Pleasant office also sponsors youth soccer teams through the town's
recreation department and is an active sponsor of Wando High School's athletic
programs.
The Oleander and South College Road offices provided $850 to the Lower Cape Fear
Hospice as a result of a $5 donation the bank made for every account opened
during the grand opening celebration. The North Carolina offices also
contributed to high school athletic programs, the March of Dimes and the
University of North Carolina at Wilmington.
The Hilton Head Island offices are a major sponsor of the March of Dimes
walk-a-thon, and support youth soccer teams, local schools, and a variety of
cultural events including Hilton Head Playhouse productions and Hilton Head
Orchestra concerts.
A Look Ahead
In 1996, the Corporation recorded the best single year performance in its
history, continuing the trend of increased earnings while approaching the $500
million mark in asset size and paving the way for further growth in 1997.
13
<PAGE>
Geographic Expansion
Future plans are to continue building a coastal banking network with further
expansion in Beaufort, Charleston, and Wilmington. This geographic expansion
will be aggressively pursued during the next three to five years. The goal is to
fill in the branch network strategically located along the Carolina coast, while
efficiently serving the needs of consumers in these coastal markets.
Technological Advances
Technology will play a vital role in helping the Corporation provide superior
service to its customers. In 1996, the Corporation took advantage of new
computer systems and software, and will use these technological advances as a
base to further improve operations. Plans are being developed for the following
new products and services:
A Telephone Call Center will be established because the telephone is believed to
be the electronic delivery channel for the next three to five years. Telephone
banking is emerging as the number one alternative delivery channel for service
24 hours a day, 7 days a week service, 365 days a year.
PC Cash Management will allow business customers to access their accounts via
computer, and through PC Home Banking, personal customers can view their
accounts, transfer funds between accounts, and electronically pay their bills
from home.
An expansion of the wide area network (WAN) is planned and will allow for faster
communication between branches, improved customer service through faster
delivery of check images, use of file folder imaging and reports, implementation
of our intranet, and eventually, video conferencing. The implementation of voice
communications over the network is also being explored. This will provide
savings on long distance calls between branches and will help offset the
additional cost of the communications upgrade.
Strong growth has prompted a need for more efficient, yet secure storage of
documents. To meet this need, the Corporation has decided to invest in a
document imaging system. This system allows the Bank to store original images on
optical disc and electronically communicate these images to the appropriate
branch or department. It is technology similar to the Check ManagerSM check
imaging used by the Corporation since 1993.
A loan platform system will be developed as a result of an increase in retail
lending. Processing consumer and most commercial loans electronically will
increase operational efficiency, decrease the chances of compliance and
documentation errors, and increase the productivity of our lenders.
14
<PAGE>
(Photo of boats appears on entire page.)
15
<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 subsidiary, The Anchor Bank
(the "Bank") for each of the three years in the period ended December 31, 1996.
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
Annual 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, 1996 totaled $4,769,003, an increase
of $1,230,103 or 34.8% over 1995. Net income for 1995 was $3,538,900, an
increase of $34,298 or 1.0% from the $3,504,602, earned in 1994. Net income per
share increased 30.5% to $1.81 in 1996, compared with $1.39 in 1995 and $1.38 in
1994.
The increase in earnings during 1996 was primarily due to a $3,112,579 or 18.7%
increase in net interest income and a $783,237 or 26.3% increase in noninterest
income. These favorable changes were partially offset by a $254,000 or 42.6%
increase in the provision for loan losses, a $1,770,977 or 13.1% increase in
noninterest expense, and a $640,736 or 32.8% increase in the provision for
income taxes. Net income excluding securities gains and losses increased
$1,297,433 or 37.3% to $4,778,588 in 1996, versus $3,481,155 in 1995.
The increase in earnings from 1994 to 1995 was primarily due to a 16.9% increase
in net interest income and a 36.6% decrease in the provision for loan losses.
These favorable changes were partially offset by a 32.9% decrease in noninterest
income, a 9.6% increase in noninterest expense, and a 3.9% increase in the
provision for income taxes. Net income excluding securities gains and losses
increased $944,289 or 37.2% to $3,481,155 in 1995, versus $2,536,866 in 1994.
Return on average assets and return on average stockholders' equity are key
measures of earnings performance. Return on average assets for 1996 was 1.04%
compared with 0.93% in 1995 and 1.06% in 1994. Return on average stockholders'
equity for 1996 was 15.38% versus 12.75% in 1995 and 13.94% in 1994.
In accordance with the Riegle-Neal Interstate Banking and Branch Efficiency Act
of 1994, the Corporation merged its two banking subsidiaries, The Anchor Bank
and The Anchor Bank of North Carolina, on October 4, 1996. The Anchor Bank
survived the merger and all information presented in this Annual Report reflects
this merger for all periods presented. The Anchor Bank of North Carolina's five
branch offices are now part of The Anchor Bank branch system. By bringing the
two subsidiary banks together, the Corporation will achieve greater economies of
scale and improved efficiencies. Customers of both institutions are now able to
do their banking at any of The Anchor Bank's eighteen branches along the
Carolina coast.
16
Anchor Financial Corporation 1996 Annual Report
<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>
Five Year
Compound
1996 1995 1994 1993 1992 Growth Rate
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Interest income $ 35,880,068 $ 30,269,788 $ 23,391,823 $ 19,612,321 $ 17,589,578 15.1%
Interest expense 16,096,201 13,598,500 9,132,518 7,552,105 7,610,506 11.8
Net interest income 19,783,867 16,671,288 14,259,305 12,060,216 9,979,072 18.3
Provision for loan losses 850,000 596,000 940,117 521,526 586,489 12.9
Net interest income after provision
for loan losses 18,933,867 16,075,288 13,319,188 11,538,690 9,392,583 18.6
Noninterest income 3,759,757 2,976,520 4,432,767 3,349,749 2,724,900 13.9
Noninterest expense 15,330,535 13,559,558 12,367,737 11,152,580 9,401,731 13.7
Income before income taxes,
extraordinary item and cumulative
effect of a change in accounting
principle 7,363,089 5,492,250 5,384,218 3,735,859 2,715,752 30.1
Provision for income taxes 2,594,086 1,953,350 1,879,616 1,366,585 971,229 31.8
Income before extraordinary item and
cumulative effect of a change in
accounting principle 4,769,003 3,538,900 3,504,602 2,369,274 1,744,523 29.2
Extraordinary item 0 0 0 0 2,000 NM
Cumulative effect on prior years (to
December 31, 1992) of changing to
a different method of accounting
for income taxes 0 0 0 49,500 0 NM
Net income $ 4,769,003 $ 3,538,900 $ 3,504,602 $ 2,418,774 $ 1,746,523 28.4
Net income per share $ 1.81 $ 1.39 $ 1.38 $ 0.96 $ 0.69 27.5
Average common shares outstanding 2,631,458 2,548,671 2,538,956 2,513,164 2,533,456 0.7
SELECTED YEAR-END ASSETS AND
LIABILITIES
Total assets $493,504,292 $407,506,417 $351,866,962 $304,334,422 $259,409,152 17.3%
Interest-earning assets 445,952,966 368,649,235 316,949,552 269,163,354 232,042,276 17.7
Investment securities 100,231,145 83,446,700 79,079,276 60,066,395 39,206,762 19.5
Loans - net of unearned income 345,405,167 285,103,535 236,771,276 202,987,210 187,200,506 17.8
Deposits 420,211,850 353,875,756 308,208,417 271,758,555 232,230,645 17.0
Noninterest-bearing deposits 79,958,880 61,748,670 52,730,429 48,516,294 34,051,506 23.2
Interest-bearing deposits 340,252,970 292,127,086 255,477,988 223,242,261 198,179,139 15.8
Interest-bearing liabilities 377,437,946 314,829,664 272,472,176 231,099,670 201,881,005 17.0
Stockholders' equity 32,975,405 28,542,018 24,774,618 23,216,579 21,250,997 10.2
SELECTED RATIOS
Return on average assets 1.04% 0.93% 1.06% 0.85% 0.74%
Return on average stockholders'
equity 15.38 12.75 13.94 10.70 8.32
Net yield on average
interest-earning assets (tax
equivalent) 4.74 4.84 4.77 4.70 4.77
Average loans to average deposits 79.28 78.33 74.99 76.73 82.12
Net loan losses to average loans 0.03 0.13 0.23 0.16 0.21
Nonperforming loans to total loans 0.02 0.06 0.19 0.18 0.33
Allowance for loan losses to loans 1.10 1.07 1.18 1.16 1.16
Allowance for loan losses to
nonperforming loans 7,169.91 1,666.10 638.27 505.66 164.45
Average stockholders' equity to
average assets 6.75 7.32 7.60 7.93 8.95
Total risk-based capital ratio 13.33 12.18 13.53 14.46 11.70
Tier 1 leverage ratio 6.79 6.76 6.85 7.19 7.77
Dividend payout ratio 22.48 25.84 22.83 20.95 28.98
</TABLE>
NM -- NOT MEANINGFUL
17
Anchor Financial Corporation 1996 Annual Report
<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, 1996, 1995, and 1994.
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)
1996 1995 1994
AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $315,471 $29,578,147 9.38% $ 260,757 $25,277,156 9.69% $ 221,388 $19,353,495
Investment securities:
Taxable 94,800 5,816,582 6.14 75,527 4,471,051 5.92 67,571 3,485,152
Non-taxable 3,934 323,503 8.22 3,368 286,533 8.51 3,160 271,724
Total investment
securities 98,734 6,140,085 6.22 78,895 4,757,584 6.03 70,731 3,756,876
Interest-bearing balances
due from banks 117 7,331 6.27 99 6,613 6.68 426 20,917
Federal funds sold and
securities purchased
under
agreements to resell 4,965 264,496 5.33 6,807 325,856 4.79 8,062 352,921
Total interest-earning
assets 419,287 $35,990,059 8.58% 346,558 $30,367,209 8.76% 300,607 $23,484,209
Noninterest-earning assets:
Cash and due from banks 19,342 15,250 14,132
Premises and equipment 14,758 12,969 11,798
Other, less allowance for
loan losses 5,865 4,221 4,162
Total noninterest-earning
assets 39,965 32,440 30,092
TOTAL ASSETS $459,252 $ 378,998 $ 330,699
Interest-bearing
liabilities:
Interest-bearing
deposits:
Interest checking $ 40,151 $ 803,121 2.00% $ 36,407 $ 743,781 2.04% $ 36,107 $ 696,567
Savings 30,472 775,337 2.54 35,542 1,091,911 3.07 47,741 1,454,369
Money market 159,920 7,531,176 4.71 123,368 6,319,858 5.12 95,769 3,882,964
Time deposits 94,585 5,204,301 5.50 77,247 4,316,352 5.59 62,837 2,540,763
Total interest-bearing
deposits 325,128 14,313,935 4.40 272,564 12,471,902 4.58 242,454 8,574,663
Federal funds purchased
and securities sold
under agreements to
repurchase 2,735 136,976 5.01 2,020 111,741 5.53 1,799 61,404
Other short-term
borrowings 1,916 85,533 4.46 2,883 157,504 5.46 1,662 56,690
Long-term debt 17,811 1,104,069 6.20 6,260 417,792 6.67 0 0
Subordinated notes 5,197 455,688 8.77 5,000 439,561 8.79 5,000 439,761
Total interest-bearing
liabilities 352,787 16,096,201 4.56% 288,727 13,598,500 4.71% 250,915 9,132,518
Noninterest-bearing
liabilities:
Demand deposits 72,806 60,320 52,750
Other liabilities 2,745 2,309 2,026
Total noninterest-bearing
liabilities 75,551 62,629 54,776
Stockholders' equity 30,914 27,642 25,008
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $459,252 $ 378,998 $ 330,699
Net interest income $19,893,858 $16,768,709 $14,351,691
Interest income/earning
assets 8.58% 8.76%
Interest expense/earning
assets 3.84 3.92
Net interest income/earning
assets 4.74% 4.84%
YIELD/
RATE
<S> <C>
Interest-earning assets:
Loans 8.74 %
Investment securities:
Taxable 5.16
Non-taxable 8.60
Total investment
securities 5.31
Interest-bearing balances
due from banks 4.91
Federal funds sold and
securities purchased
under
agreements to resell 4.38
Total interest-earning
assets 7.81 %
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 1.93 %
Savings 3.05
Money market 4.05
Time deposits 4.04
Total interest-bearing
deposits 3.54
Federal funds purchased
and securities sold
under agreements to
repurchase 3.41
Other short-term
borrowings 3.41
Long-term debt 0.00
Subordinated notes 8.80
Total interest-bearing
liabilities 3.64 %
Noninterest-bearing
liabilities:
Demand deposits
Other liabilities
Total noninterest-bearing
liabilities
Stockholders' equity
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
Net interest income
Interest income/earning
assets 7.81 %
Interest expense/earning
assets 3.04
Net interest income/earning
assets 4.77 %
</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%.
18
Anchor Financial Corporation 1996 Annual Report
<PAGE>
Net interest income on a tax equivalent basis increased $3,125,149 or 18.6% from
$16,768,709 in 1995 to $19,893,858 in 1996. This increase was primarily
attributable to the increased volume of earning assets. The net interest margin
decreased ten basis points from 4.84% in 1995 to 4.74% in 1996.
Interest income on a tax equivalent basis increased $5,622,850 or 18.5% in 1996
primarily due to the increased volume of earning assets. Average earning assets
increased 21.0% to $419,287,000 or 91.3% of average total assets in 1996,
compared with $346,558,000 or 91.4% in 1995. 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 $54,714,000 or 21.0%. Average loans were 75.2% of
average earning assets in 1996 and 1995. Average investment securities increased
$19,839,000 or 25.2%. The yield on earning assets decreased 18 basis points from
8.76% in 1995 to 8.58% in 1996. The primary reason for the decline in the yield
on earning assets during the period was a decrease in the yield on loans due to
a lower prime lending rate during 1996. The yield on investment securities
increased from 6.03% in 1995 to 6.22% in 1996.
The cost of funding sources increased $2,497,702 or 18.4% in 1996 primarily due
to the increased volume of average interest-bearing liabilities of $64,060,000
or 22.2%. The average rate paid on interest-bearing liabilities decreased 15
basis points from 4.71% in 1995 to 4.56% in 1996. The mix of interest-bearing
liabilities changed because traditionally lower-yielding interest checking,
savings, and money market deposit accounts as a group decreased as a percentage
of interest-bearing liabilities from 67.7% in 1995 to 65.3% in 1996. Average
long-term debt and subordinated notes increased $11,748,000 in 1996 to 6.5% of
interest-bearing liabilities versus 3.9% in 1995. Interest-bearing liabilities
increased as a percentage of average earning assets to 84.1% in 1996 from 83.3%
in 1995.
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 decrease in the net interest margin were an
increase in the level of interest-bearing liabilities used to fund earning
assets and narrower net interest rate spreads due to the lower prime lending
rate for most of 1996. An increase in noninterest-bearing sources helped to
offset the increased cost of funding sources. Table 3, the Analysis of Net
Interest Income Changes, shows the impact of balance sheet changes which
occurred during 1996 and 1995 and the changes in interest rate levels.
19
Anchor Financial Corporation 1996 Annual Report
<PAGE>
TABLE 3: ANALYSIS OF NET INTEREST INCOME CHANGES
<TABLE>
<CAPTION>
1996 COMPARED TO 1995 1995 COMPARED TO 1994
CHANGE IN CHANGE IN CHANGE IN CHANGE IN
VOLUME RATE TOTAL VOLUME RATE TOTAL
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans $5,153,422 $(852,431) $4,300,991 $3,674,020 $2,249,641 $5,923,661
Investment securities:
Taxable 1,177,321 168,210 1,345,531 437,240 548,659 985,899
Non-taxable 46,810 (9,840) 36,970 17,722 (2,913) 14,809
Interest-bearing balances due
from banks 1,147 (429) 718 (19,994) 5,690 (14,304)
Federal funds sold and securities
purchased under agreements to
resell (95,199) 33,839 (61,360) (58,149) 31,084 (27,065)
Total interest-earning assets 6,283,501 (660,651) 5,622,850 4,050,839 2,832,161 6,883,000
Interest expense:
Interest checking 75,160 (15,820) 59,340 5,830 41,384 47,214
Savings (143,620) (172,954) (316,574) (374,673) 12,215 (362,458)
Money market 1,753,708 (542,390) 1,211,318 1,273,021 1,163,873 2,436,894
Time deposits 954,925 (66,976) 887,949 666,145 1,109,444 1,775,589
Federal funds purchased and
securities sold under agreements to
repurchase 36,599 (11,364) 25,235 8,317 42,020 50,337
Other short-term borrowings (46,577) (25,394) (71,971) 55,424 45,390 100,814
Long-term debt 718,063 (31,786) 686,277 417,792 0 417,792
Subordinated notes 17,276 (1,149) 16,127 0 (200) (200)
Total interest-bearing liabilities 3,365,534 (867,833) 2,497,701 2,051,856 2,414,126 4,465,982
Net interest income $2,917,967 $ 207,182 $3,125,149 $1,998,983 $ 418,035 $2,417,018
</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%.
Net interest income on a tax equivalent basis for 1995 increased $2,417,018 or
16.8% from the amount earned in 1994. The increase was primarily attributed to
the increased volume and net yield of earning assets. The net interest margin
increased seven basis points from 4.77% in 1994 to 4.84% in 1995. 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 cost of funding sources
increased $4,465,982 or 48.9% in 1995 primarily due to the increase in the
volume of average interest-bearing liabilities of $37,812,000 or 15.1% and the
average rate paid on interest-bearing liabilities which increased 107 basis
points from 3.64% in 1994 to 4.71% in 1995.
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 increased $783,237 or 26.3% and totaled
$3,759,757 in 1996 compared to $2,976,520 in 1995. Noninterest income excluding
net investment securities transactions was $3,774,280 in 1996, an increase of
30.6% from the $2,889,028 reported in 1995.
20
Anchor Financial Corporation 1996 Annual Report
<PAGE>
Service charges on deposit accounts represent the largest single item of
noninterest income. Such charges, reflecting significant growth in deposits and
competitive pricing, increased $387,664 or 25.4% to $1,914,131 in 1996, from
$1,526,467 in 1995.
Commissions and fees, which include revenues from credit card-related services,
ATM networks, and alternative investment product services increased $297,383 or
46.4% to $938,414 in 1996 from $641,031 in 1995. The primary reasons for this
growth were an increase of $121,088 or 28.6% to $544,307 in credit card-related
revenues and an increase of $131,100 or 314.4% in ATM network revenues.
The trust operation produced revenues of $257,703 in 1996, an increase of 19.1%
compared with $216,336 in 1995. In 1996, mortgage banking income (which includes
profits from the origination and sale of loans) decreased $129,274 or 41.9% to a
total of $179,537 compared with $308,811 in 1995. The significant decrease in
mortgage banking income was the result of lower originating activity and the
Corporation retaining in its portfolio more of the loans it originated. 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.
Losses on sales of investment securities totaled $14,523 in 1996, compared with
gains of $87,492 in 1995 and $1,466,266 in 1994. The net loss in 1996 and net
gain 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.
Other operating income increased $288,112 or 146.7% to $484,495 in 1996 from
$196,383 in 1995. The primary reasons for this significant increase were
non-recurring income of $100,000 for check services and $100,657 from life
insurance proceeds.
Noninterest income excluding net investment securities gains decreased $77,473
or 2.6% to $2,889,028 in 1995 compared to $2,966,501 in 1994. The primary reason
for this decrease was a 30.4% decrease in mortgage banking income. The decrease
in mortgage banking income resulted from lower refinancing activity during 1995.
NONINTEREST EXPENSE
Noninterest expense in 1996 increased $1,770,977 or 13.1% and totaled
$15,330,535 compared with $13,559,558 in 1995. Each category of noninterest
expense was affected by the significant growth experienced by the Corporation
during 1996 and 1995.
Salaries and employee benefits increased $1,102,157 or 15.4% during 1996. 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
contributed to this increase.
21
Anchor Financial Corporation 1996 Annual Report
<PAGE>
Net occupancy expense increased $260,352 or 25.1% and equipment expense
increased $221,484 or 21.0% during 1996. These increases were primarily due to
two new banking locations in Wilmington, North Carolina and investments to
maintain existing facilities. Also, the Corporation continues to invest in new
computer equipment to provide capacity for future growth.
Other operating expense increased $186,984 or 4.3% in 1996. Note 9 to 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 Insurance Corporation ("FDIC") for deposit insurance decreased
significantly. The FDIC eliminated the insurance premium for 1996, and charged a
quarterly registration fee of $500.
Noninterest expense in 1995 increased $1,191,821 or 9.6% from 1994. The primary
reasons for the increase were increases in all categories of noninterest expense
due to the Corporation's growth in 1995. Salaries and employee benefits
increased 15.2% due primarily to the increased number of employees from
expansion and development of infrastructure. Net occupancy expense and equipment
expense increased 13.4% and 4.4%, respectively, because of the addition of
banking locations in Mt. Pleasant, South Carolina and Wilmington, North Carolina
during 1995 and investments to maintain existing facilities. Other operating
expense increased 2.0% primarily due to expansion related expenses and expenses
related to the significant growth realized by the Corporation.
INCOME TAXES
Total income tax expense included in the Consolidated Statement of Income was
$2,594,086 in 1996, compared with $1,953,350 in 1995 and $1,879,616 in 1994. The
primary reason for the increase in income tax expense was higher pre-tax income.
The Corporation's effective tax rates were 35.2%, 35.6%, and 34.9% in 1996,
1995, and 1994, respectively.
The Corporation's effective tax rate decreased slightly in 1996 primarily due to
an increase in non-taxable interest income and the receipt of life insurance
proceeds. 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. The Corporation's effective tax
rate was higher than the statutory federal income tax rate of 34% in 1994
because of the declining impact of interest income earned on non-taxable
obligations and an increase in certain non-deductible expenses.
22
Anchor Financial Corporation 1996 Annual Report
<PAGE>
TABLE 4: SOURCES AND USES OF FUNDS
(AVERAGE BALANCES IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
AMOUNT PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C>
Composition of Sources:
Demand deposits $ 72,806 15.9 % $ 60,320 15.9 %
Interest checking 40,151 8.8 36,407 9.6
Savings 30,472 6.6 35,542 9.4
Money market 159,920 34.8 123,368 32.5
Time deposits 94,585 20.6 77,247 20.4
Short-term borrowings 4,651 1.0 4,903 1.3
Long-term borrowings 17,811 3.9 6,260 1.7
Subordinated notes 5,197 1.1 5,000 1.3
Other liabilities 2,745 0.6 2,309 0.6
Stockholders' equity 30,914 6.7 27,642 7.3
Total sources $459,252 100.0 % $378,998 100.0 %
Composition of Uses:
Loans $315,471 68.7 % $260,757 68.8 %
Investment securities 98,734 21.5 78,895 20.8
Other interest-earning assets 5,082 1.1 6,906 1.8
Total interest-earning assets 419,287 91.3 346,558 91.4
Noninterest-earning assets 39,965 8.7 32,440 8.6
Total uses $459,252 100.0 % $378,998 100.0 %
</TABLE>
(1) Loan balances are stated net of unearned income.
23
Anchor Financial Corporation 1996 Annual Report
<PAGE>
FINANCIAL CONDITION
INVESTMENT SECURITIES
Average investment securities represented 23.5% of average earning assets during
1996 compared to 22.8% in 1995. The increase in the percentage of investment
securities was due to strong deposit growth in each of the Corporation's market
areas. At December 31, 1996, investment securities totaled $100,231,145 or 22.5%
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
(DECEMBER 31 BALANCES IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
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 $ 6,000 $ 6,003 $ 6,021 5.63% $ 9,725 $ 9,708 $ 5,018
One to five years 5,000 5,050 5,037 5.42 10,060 10,078 18,962
Five to ten years 0 0 0 0.00 0 0 0
Over ten years 0 0 0 0.00 0 0 0
Total 11,000 11,053 11,058 1/0 5.54 19,785 19,786 23,980
Securities of other U.S.
Government agencies and
corporations:
Within one year 1,000 1,000 1,006 6.51 2,306 2,322 854
One to five years 4,030 3,992 3,982 6.01 6,917 6,983 7,639
Five to ten years 0 0 0 0.00 0 0 0
Over ten years 0 0 0 0.00 0 0 0
Total 5,030 4,992 4,988 2/4 6.11 9,223 9,305 8,493
Obligations of states and
political subdivisions:
Within one year 90 90 91 9.34 227 225 0
One to five years 1,963 1,962 1,994 8.80 1,807 1,823 1,246
Five to ten years 90 90 95 9.36 361 383 1,293
Over ten years 0 0 0 0.00 0 0 0
Total 2,143 2,142 2,180 2/8 8.85 2,395 2,431 2,539
Total portfolio $18,173 $ 18,187 $ 18,226 1/7 6.09% $31,403 $ 31,522 $35,012
ESTIMATED
FAIR
VALUE
<S> <C>
U.S. Treasury securities:
Within one year $ 4,993
One to five years 18,128
Five to ten years 0
Over ten years 0
Total 23,121
Securities of other U.S.
Government agencies and
corporations:
Within one year 855
One to five years 7,485
Five to ten years 0
Over ten years 0
Total 8,340
Obligations of states and
political subdivisions:
Within one year 0
One to five years 1,201
Five to ten years 1,288
Over ten years 0
Total 2,489
Total portfolio $ 33,950
</TABLE>
(1) Tax equivalent yield has been calculated using an incremental income tax
rate of 34%.
24
Anchor Financial Corporation 1996 Annual Report
<PAGE>
TABLE 5: INVESTMENT SECURITIES - AVAILABLE-FOR-SALE (CONTINUED)
(DECEMBER 31 BALANCES IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
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 $ 8,000 $ 8,015 $ 8,058 6.30% $12,540 $ 12,566 $ 1,689
One to five years 21,000 21,065 21,218 6.16 14,505 14,711 23,060
Five to ten years 0 0 0 0.00 0 0 0
Over ten years 0 0 0 0.00 0 0 0
Total 29,000 29,080 29,276 1/11 6.20 27,045 27,277 24,749
Securities of other U.S.
Government agencies and
corporations:
Within one year 4,750 4,786 4,800 6.26 3,984 3,993 561
One to five years 31,680 31,349 31,401 6.18 16,029 16,194 17,036
Five to ten years 1,000 955 980 7.34 0 0 0
Over ten years 0 0 0 0.00 0 0 0
Total 37,430 37,090 37,181 2/6 6.22 20,013 20,187 17,597
Mortgage-backed securities:
Within one year 3 3 3 9.66 0 0 11
One to five years 0 0 0 0.00 3 3 68
Five to ten years 5,674 5,535 5,560 6.92 0 0 0
Over ten years 2,967 2,895 2,925 7.05 111 112 117
Total 8,644 8,433 8,488 3/11 6.97 114 115 196
Obligations of states and
political subdivisions:
Within one year 0 0 0 0.00 0 0 0
One to five years 650 653 678 8.85 538 560 540
Five to ten years 2,200 2,193 2,242 7.69 869 889 269
Over ten years 0 0 0 0.00 0 0 0
Total 2,850 2,846 2,920 6/4 7.96 1,407 1,449 809
Marketable equity securities 3,158 3,824 4,179 N/A 6.18 3,015 3,015 1,681
Total portfolio $81,082 $ 81,273 $ 82,044 2/7 6.35% $51,594 $ 52,043 $45,032
ESTIMATED
FAIR
VALUE
<S> <C>
U.S. Treasury securities:
Within one year $ 1,665
One to five years 22,365
Five to ten years 0
Over ten years 0
Total 24,030
Securities of other U.S.
Government agencies and
corporations:
Within one year 560
One to five years 16,808
Five to ten years 0
Over ten years 0
Total 17,368
Mortgage-backed securities:
Within one year 11
One to five years 67
Five to ten years 0
Over ten years 113
Total 191
Obligations of states and
political subdivisions:
Within one year 0
One to five years 531
Five to ten years 266
Over ten years 0
Total 797
Marketable equity securities 1,681
Total portfolio $ 44,067
</TABLE>
(1) Tax equivalent yield has been calculated using an incremental income tax
rate of 34%.
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
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,
recorded at fair value, were $82,044,037 or 81.9% of the total investment
portfolio at December 31, 1996, compared with $52,043,206 or 62.4% at December
31, 1995. Investment securities held-to-maturity and recorded at amortized cost
aggregated $18,187,108 or 18.1% of the total investment portfolio at December
31, 1996, compared with $31,403,494 or 37.6% at December 31, 1995. The estimated
fair value of such securities exceeded the carrying value by $38,745 or 0.2% and
$118,376 or 0.4%, at December 31, 1996 and 1995, respectively.
LOANS
Loans, the largest component of earning assets, represented 75.2% of average
earning assets and 68.7% of average total assets during 1996, compared with
75.2% and 68.8%, respectively, during 1995. In 1996, average loans grew 21.0% to
$315,471,000 from $260,757,000 in 1995. In 1996, the Corporation focused on
growth in new markets, loan quality, and expansion of existing customer
relationships.
25
Anchor Financial Corporation 1996 Annual Report
<PAGE>
Loan policies and procedures provide the overall direction for 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 1996, 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 Mount 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, 1996 increased 21.2% to $345,405,167 over the
$285,103,535 reported in 1995. This 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 decreased
9.8% from 1995 and represent 16.0% of gross loans at December 31, 1996. Real
estate-construction loans, which were 10.4% of gross loans at December 31, 1996,
increased 61.3% compared to the previous year. Real estate-mortgage or
commercial real estate loans increased 36.4% from 1995 and represent 40.5% of
gross loans at December 31, 1996. Installment loans to individuals which include
residential real estate loans, represent 28.7% of gross loans and increased
13.2% during 1996.
TABLE 6: LOAN PORTFOLIO COMPOSITION
(DECEMBER 31 BALANCES)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
PERCENT PERCENT PERCENT PERCENT
AMOUNT OF GROSS AMOUNT OF GROSS AMOUNT OF GROSS AMOUNT OF GROSS AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial,
financial,
and
agricultural $ 55,295,682 16.0% $ 61,305,772 21.5% $ 51,738,108 21.8% $ 46,546,587 22.9% $ 44,156,143
Real estate-
construction 35,765,701 10.4 22,167,895 7.8 13,338,735 5.6 11,624,767 5.7 11,460,569
Real estate-
mortgage 139,968,899 40.5 102,614,478 36.0 102,908,198 43.5 82,687,436 40.7 81,339,550
Installment
loans to
individuals 98,997,901 28.7 87,419,793 30.6 60,417,815 25.5 55,600,141 27.4 44,563,839
Other 15,401,351 4.4 11,621,074 4.1 8,399,071 3.6 6,566,413 3.3 5,731,182
Gross loans 345,429,534 100.0% 285,129,012 100.0% 236,801,927 100.0% 203,025,344 100.0% 187,251,283
Unearned
income (24,367) (25,477) (30,651) (38,134) (50,777)
Total loans $345,405,167 $285,103,535 $236,771,276 $202,987,210 $187,200,506
PERCENT
OF GROSS
<S> <C>
Commercial,
financial,
and
agricultural 23.6%
Real estate-
construction 6.1
Real estate-
mortgage 43.4
Installment
loans to
individuals 23.8
Other 3.1
Gross loans 100.0%
Unearned
income
Total loans
</TABLE>
26
Anchor Financial Corporation 1996 Annual Report
<PAGE>
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 1996, real estate-construction and commercial real estate loans
experienced the fastest growth. The primary reason for this increase is the
rapid growth and expansion in the Corporation's market areas.
TABLE 7: SELECTED LOAN MATURITIES AND INTEREST RATE SENSITIVITY
(DECEMBER 31, 1996 BALANCES IN THOUSANDS)
<TABLE>
<CAPTION>
ONE YEAR ONE TO OVER FIVE
OR LESS FIVE YEARS YEARS TOTAL
<S> <C> <C> <C> <C>
Types of loans:
Commercial, financial, and agricultural $ 25,927 $ 22,641 $ 6,728 $ 55,296
Real estate-construction 13,128 13,745 8,893 35,766
Real estate-mortgage 21,922 48,917 69,130 139,969
Installment loans to individuals and other loans 46,975 54,360 13,064 114,399
Total $107,952 $ 139,663 $97,815 $345,430
Total of loans above with:
Predetermined interest rates $ 55,415 $ 105,990 $20,266 $181,671
Adjustable interest rates 52,537 33,673 77,549 163,759
Total $107,952 $ 139,663 $97,815 $345,430
</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>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 53,016 $182,801 $438,052 $293,256 $ 572,827
Loans past due ninety days or more 0 0 0 68,103 39,388
Troubled debt restructurings 0 0 0 0 0
Other real estate owned 126,245 0 0 105,689 702,609
Total nonperforming assets $179,261 $182,801 $438,052 $467,048 $1,314,824
Nonperforming assets to total loans and
other real estate owned 0.05% 0.06% 0.19% 0.23% 0.70%
</TABLE>
During 1996, nonperforming assets decreased slightly. The nonperforming assets
to total loans and other real estate owned ratio declined to 0.05% and remains
at a very favorable level. During 1995, nonperforming assets decreased $255,251
or 58.3% and the nonperforming assets to total loans and other real estate owned
ratio was 0.06%.
27
Anchor Financial Corporation 1996 Annual Report
<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
(BALANCES FOR THE YEARS ENDED DECEMBER 31)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Allowance for loan losses at beginning of year $3,045,656 $2,795,941 $2,361,656 $2,162,265 $1,938,456
Amounts charged off during year:
Commercial, financial, and agricultural 164,009 214,651 315,001 196,559 136,249
Real estate-construction 0 0 0 0 0
Real estate-mortgage 85,890 146,768 216,146 142,148 202,808
Installment loans to individuals and other
loans 103,807 91,588 88,440 124,228 90,378
Total loans charged off 353,706 453,007 619,587 462,935 429,435
Amount of recoveries during year:
Commercial, financial, and agricultural 94,905 79,911 56,156 55,470 38,845
Real estate-construction 0 0 0 0 0
Real estate-mortgage 130,897 12,523 12,663 71,791 19,080
Installment loans to individuals and other
loans 33,449 14,288 44,936 13,539 8,830
Total recoveries 259,251 106,722 113,755 140,800 66,755
Net loans charged off 94,455 346,285 505,832 322,135 362,680
Provision for loan losses 850,000 596,000 940,117 521,526 586,489
Allowance for loan losses at end of year $3,801,201 $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 0.03% 0.13% 0.23% 0.16% 0.21%
</TABLE>
[NET CHARGE-OFFS TO AVERAGE LOANS OUTSTANDING CHART APPEARS
HERE. PLOT POINTS ARE BELOW.]
'92 '93 '94 '95 '96
0.21 0.16 0.23 0.13 0.03
[NONPERFORMING ASSETS TO TOTAL LOANS AND OREO CHART APPEARS HERE. PLOT POINTS
ARE BELOW.]
'92 '93 '94 '95 '96
0.70 0.23 0.19 0.06 0.05
28
Anchor Financial Corporation 1996 Annual Report
<PAGE>
The ratio of net charge-offs to average loans was 0.03% in 1996, 0.13% in 1995,
and 0.23% in 1994. The level of net charge-offs in 1996 decreased from 1995,
primarily due to lower gross charged off loans and an increase in recovered
loans. The provision for loan losses totaled $850,000 in 1996 compared with
$596,000 in 1995, and $940,117 in 1994.
The level of the provision for loan losses during 1996 was primarily
attributable to loan growth because 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, 1996.
The level of the provision for loan losses in 1995 and 1994 primarily reflected
significant loan growth.
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.
Effective January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment
of a Loan," 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. 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. 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.
29
Anchor Financial Corporation 1996 Annual Report
<PAGE>
TABLE 9: ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(DECEMBER 31 BALANCES)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
PERCENT PERCENT PERCENT PERCENT
OF OF OF OF
TOTAL TOTAL TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial,
financial, and
agricultural $ 941,972 16.01 % $ 933,486 21.50 % $ 787,802 21.85 % $ 698,199 22.93 % $ 662,342
Real
estate-construction 357,655 10.35 221,678 7.77 133,387 5.63 116,248 5.72 114,606
Real estate-mortgage 799,844 40.52 513,072 35.99 514,541 43.46 413,437 40.73 406,698
Installment loans to
individuals and
other loans 1,201,730 33.12 877,420 34.74 860,211 29.06 683,772 30.62 578,619
Unallocated 500,000 500,000 500,000 450,000 400,000
Total $3,801,201 100.00 % $3,045,656 100.00 % $2,795,941 100.00 % $2,361,656 100.00 % $2,162,265
PERCENT
OF
TOTAL
LOANS
<S> <C>
Commercial,
financial, and
agricultural 23.58 %
Real
estate-construction 6.12
Real estate-mortgage 43.44
Installment loans to
individuals and
other loans 26.86
Unallocated
Total 100.00 %
</TABLE>
FUNDING SOURCES
Average deposits increased 19.5% to $397,934,000 in 1996 from $332,884,000 in
1995. In 1996, the mix of interest-bearing deposits changed as average
certificates of deposit increased 22.4%, while average interest checking, money
market and passbook savings accounts as a group increased 18.0%. Average
certificates of deposit represented 23.8% of average deposits in 1996 compared
with 23.2% in 1995. Average interest checking, money market and passbook savings
accounts as a group were 57.9% of average deposits in 1996 compared with 58.7%
in 1995. Average demand deposits increased 20.7% to $72,806,000 and represented
18.3% of average deposits in 1996 compared with 18.1% in 1995.
Average short-term borrowings decreased $252,000 or 5.1% to $4,651,000 in 1996
from $4,903,000 in 1995. 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. 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. Advances on the line of credit
with the Federal Reserve Bank must be secured by U.S. Treasury or Government
agency securities. The Corporation's liquidity position remained favorable
through the winter months of 1996; however, the need for short-term borrowings
increased. At December 31, 1996, the Corporation had short-term borrowings of
$8,184,976, an increase of $5,482,398 from the $2,702,578 reported at December
31, 1995. The primary reason for this increase was to fund seasonal lending
needs.
Advances from the FHLB with an initial maturity of more than one year totaled
$18,000,000 at December 31, 1996, versus $15,000,000 at December 31, 1995. These
advances are collateralized by the same collateral agreements as short-term
funds from the FHLB. Fixed interest rates on these advances ranged from 5.48% to
7.21%, payable monthly, with principal due at various maturities ranging from
1998 to 2005.
On December 20, 1996, the Corporation issued $6,000,000 of 7.89% Subordinated
Notes due December 20, 2006. Under the terms of the Subordinated Note Agreement,
the balance of the debt can be prepaid on December 20, 2001 at par plus accrued
and unpaid interest. On December 20, 2001, the interest rate on the Notes will
be reset to a rate approximately equal to the yield on the 5-year U.S. Treasury
Note plus 195 basis points. On December 1, 1993, the Corporation issued
$5,000,000 of 8.60% Subordinated Notes due December 1, 2003. Under the terms of
the Subordinated Note Agreement, the balance of the
30
Anchor Financial Corporation 1996 Annual Report
<PAGE>
debt cannot be paid prior to its final maturity. The interest on these single
principal payment issues is payable semi-annually of each year and at 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, 1996, stockholders' equity was
$32,975,405 versus $28,542,018 at December 31, 1995. The Corporation paid cash
dividends of $0.42 per share in 1996, $0.36 per share in 1995, and $0.315 per
share in 1994.
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 6.79% and
6.76% at December 31, 1996 and 1995, 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 9.13% and
9.37% at December 31, 1996 and 1995, respectively, and a total risk-based
capital ratio of 13.33% and 12.18% at December 31, 1996 and 1995, respectively,
well above the regulatory requirements for a well-capitalized institution. Note
14 to the consolidated financial statements presents the Bank's actual capital
amounts and ratios at December 31, 1996 and 1995.
The following table shows several capital ratios for the last three years:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Average stockholders' equity to:
Average assets 6.75% 7.32% 7.60%
Average deposits 7.77 8.30 8.47
Average loans and leases 9.80 10.60 11.30
Risk-based capital ratios:
Tier 1 9.13 9.37 10.19
Total 13.33 12.18 13.53
Tier 1 Leverage ratio 6.79 6.76 6.85
</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 and North
Carolina during the summer months. Seasonality affects the Corporation because
there is an inverse relationship between sources of funds (deposits) and demand
for
31
Anchor Financial Corporation 1996 Annual Report
<PAGE>
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, 1996, the most significant cash flows
impacting the components of the Corporation's liquidity relate to a $59.7
million increase in net loans and a $16.4 million increase in net investment
securities which were funded by an increase of $66.3 million in deposits, an
increase of $9.0 million in long-term debt and subordinated notes, and a $5.5
million increase in short-term borrowings.
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 of significant
interest rate shifts on the net interest margin.
Table 10 shows the Corporation's interest rate sensitivity at December 31, 1996,
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 $14,700,000 or 3.3% of total
interest-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.
During 1996, the Corporation purchased an interest rate floor contract with a
notional value of $25 million and a three-year term. The floor index of the
contract is three-month Libor and has a strike rate of 5.25%. The Corporation
paid a premium of $102,500 for the contract. In a floor contract, the
Corporation pays a premium at the initiation of the contract for the right to
receive payments if market interest rates are less than the strike rate during a
period of the contract. The Corporation's liability is limited to the premium
paid for the contract. The primary purpose of this contract is to reduce the
Corporation's exposure to a significant decline in interest rates.
32
Anchor Financial Corporation 1996 Annual Report
<PAGE>
TABLE 10: INTEREST RATE SENSITIVITY ANALYSIS
(DECEMBER 31, 1996 BALANCES IN THOUSANDS)
<TABLE>
<CAPTION>
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 $183,419 $ 20,626 $ 25,668 $229,713 $ 115,639 $345,352
Investment securities 8,285 5,127 6,648 20,060 75,992 96,052
Interest-bearing balances due from banks 317 0 0 317 0 317
Total interest-earning assets $192,021 $ 25,753 $ 32,316 $250,090 $ 191,631 $441,721
Percent of total interest-earning assets 43.5% 5.8% 7.3% 56.6% 43.4% 100.0%
Interest-bearing liabilities:
Interest checking $ 0 $ 0 $ 0 $ 0 $ 44,331 $ 44,331
Savings 0 0 0 0 29,499 29,499
Money market 155,549 0 0 155,549 0 155,549
Certificates of deposit of $100,000 or more 19,454 8,981 12,759 41,194 3,906 45,100
Certificates of deposit less than $100,000 24,531 18,984 16,347 59,862 35,412 95,274
Short-term borrowings 8,185 0 0 8,185 0 8,185
Long-term debt 0 0 0 0 18,000 18,000
Subordinated notes 0 0 0 0 11,000 11,000
Total interest-bearing liabilities 207,719 27,965 29,106 264,790 142,148 406,938
Other sources - net 0 0 0 0 34,783 34,783
Total sources - net $207,719 $ 27,965 $ 29,106 $264,790 $ 176,931 $441,721
Percent of total interest-earning assets 47.0% 6.3% 6.6% 59.9% 40.1% 100.0%
Interest-sensitive gap $(15,698) $ (2,212) $ 3,210 $(14,700) $ 14,700 --
Cumulative interest-sensitive gap (15,698) (17,910) (14,700) (14,700) -- --
Percent of total interest-earning assets (3.6)% (4.1)% (3.3)% (3.3)% -- --
</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.
33
Anchor Financial Corporation 1996 Annual Report
<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 5, 1997
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders (Price Waterhouse LLP logo
of Anchor Financial Corporation appears here)
In our opinion, 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, 1996 and 1995,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996, 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 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 provide a reasonable basis for the opinion expressed above.
(Price Waterhouse LLP signature appears here)
Columbia, South Carolina
February 5, 1997
34
Anchor Financial Corporation 1996 Annual Report
<PAGE>
Anchor Financial Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
ASSETS
Cash and due from banks $ 25,346,998 $ 20,483,117
Interest-bearing balances due from banks 316,654 132,071
Investment securities:
Held-to-maturity, at amortized cost (fair value of $18,225,853 in 1996 and
$31,521,870 in 1995) 18,187,108 31,403,494
Available-for-sale, at fair value (amortized cost of $81,272,830 in 1996 and
$51,594,192 in 1995) 82,044,037 52,043,206
Total investment securities 100,231,145 83,446,700
Loans 345,429,534 285,129,012
Less - unearned income (24,367) (25,477)
- allowance for loan losses (3,801,201) (3,045,656)
Net loans 341,603,966 282,057,879
Premises and equipment 16,121,015 13,866,646
Other assets 9,884,514 7,520,004
Total assets $493,504,292 $407,506,417
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand deposits $ 79,958,880 $ 61,748,670
NOW and money market accounts 199,879,530 168,984,005
Time deposits $100,000 and over 45,099,776 35,505,253
Other time and savings deposits 95,273,664 87,637,828
Total deposits 420,211,850 353,875,756
Federal funds purchased and securities sold under agreements to repurchase 6,337,197 1,748,127
Other short-term borrowings 1,847,779 954,451
Long-term debt 18,000,000 15,000,000
Subordinated notes 11,000,000 5,000,000
Other liabilities 3,132,061 2,386,065
Total liabilities 460,528,887 378,964,399
STOCKHOLDERS' EQUITY:
Common stock, $6.00 par value; 7,000,000 shares authorized; shares issued and
outstanding - 2,559,340 in 1996 and 2,540,985 in 1995 15,356,040 15,245,910
Surplus 1,070,326 875,331
Retained earnings 16,684,988 12,964,631
Unrealized gains on investment securities available-for-sale, net of tax 497,301 292,755
Unearned ESOP shares (633,250) (836,609)
Total stockholders' equity 32,975,405 28,542,018
Commitments and contingencies (Note 13)
Total liabilities and stockholders' equity $493,504,292 $407,506,417
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.
35
Anchor Financial Corporation 1996 Annual Report
<PAGE>
Anchor Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 29,578,147 $25,277,156 $19,353,495
Interest on investment securities:
Taxable 5,816,582 4,471,051 3,485,152
Non-taxable 213,512 189,112 179,338
Other interest income 271,827 332,469 373,838
Total interest income 35,880,068 30,269,788 23,391,823
INTEREST EXPENSE:
Interest on deposits 14,313,935 12,471,902 8,574,663
Interest on short-term borrowings 222,509 269,245 118,094
Interest on long-term borrowings 1,104,069 417,792 0
Interest on subordinated notes 455,688 439,561 439,761
Total interest expense 16,096,201 13,598,500 9,132,518
Net interest income 19,783,867 16,671,288 14,259,305
Provision for loan losses 850,000 596,000 940,117
Net interest income after provision for loan losses 18,933,867 16,075,288 13,319,188
NONINTEREST INCOME:
Service charges on deposit accounts 1,914,131 1,526,467 1,525,641
Commissions and fees 938,414 641,031 602,354
Trust income 257,703 216,336 200,554
Gains on sales of mortgage loans 179,537 308,811 443,912
Gains (losses) on sales of investment securities, net (14,523) 87,492 1,466,266
Other operating income 484,495 196,383 194,040
Total noninterest income 3,759,757 2,976,520 4,432,767
NONINTEREST EXPENSE:
Salaries and employee benefits 8,261,455 7,159,298 6,217,368
Net occupancy expense 1,297,602 1,037,250 914,437
Equipment expense 1,278,615 1,057,131 1,012,982
Other operating expense 4,492,863 4,305,879 4,222,950
Total noninterest expense 15,330,535 13,559,558 12,367,737
Income before income taxes 7,363,089 5,492,250 5,384,218
Provision for income taxes 2,594,086 1,953,350 1,879,616
Net income $ 4,769,003 $ 3,538,900 $ 3,504,602
Net income per share $ 1.81 $ 1.39 $ 1.38
Weighted average common shares outstanding 2,631,458 2,548,671 2,538,956
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.
36
Anchor Financial Corporation 1996 Annual Report
<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, 1993 2,513,714 $15,082,284 $ 797,234 $ 7,613,156 $ 88,405 $ (364,500) $ 23,216,579
Common stock issued pursuant to:
Stock Option Plan 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
Common stock issued pursuant to:
Dividend Reinvestment Plan 5,624 33,744 120,258 154,002
Stock Option Plan 12,731 76,386 (1,974) 74,412
Change in unrealized gains
(losses) on investment
securities available-for-sale,
net of tax 204,546 204,546
Change in unearned ESOP shares 76,711 23,495 203,359 303,565
Cash dividends
($0.42 per share) (1,072,141) (1,072,141)
Net income 4,769,003 4,769,003
Balance at December 31, 1996 2,559,340 $15,356,040 $1,070,326 $16,684,988 $ 497,301 $ (633,250) $ 32,975,405
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.
37
Anchor Financial Corporation 1996 Annual Report
<PAGE>
Anchor Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,769,003 $ 3,538,900 $ 3,504,602
Adjustments to reconcile net income to net cash provided by
operating activities:
Accretion and amortization of investment securities (62,015) 73,856 404,798
Depreciation of premises and equipment 1,227,346 1,019,575 971,639
Amortization of intangible assets 356,603 343,620 294,658
Provision for loan losses 850,000 596,000 940,117
Losses (gains) on sales of investment securities, net 14,523 (87,492) (1,466,266)
Gains on sales of mortgage loans (179,537) (308,811) (443,912)
Gains on sales of premises and equipment (14,302) (22,755) (21,388)
Change in interest receivable (421,876) (566,687) (1,158,886)
Change in prepaid expenses 14,907 216,406 (153,810)
Change in income taxes payable 26,223 41,713 (43,015)
Change in deferred taxes (92,989) 321,291 (598,415)
Change in interest payable 365,551 403,758 37,011
Change in accrued expenses (4,285) (577,376) 680,765
Origination of mortgage loans held for sale (9,755,750) (15,281,185) (22,497,603)
Proceeds from sales of mortgage loans held for sale 9,279,337 16,791,283 23,319,906
Net change in unearned ESOP shares 303,564 202,294 (642,609)
Net cash provided by operating activities 6,676,303 6,704,390 3,127,592
Cash flows from investing activities:
Purchase of investment securities held-to-maturity (2,053,653) (4,005,000) (10,053,001)
Proceeds from maturities of investment securities held-to-maturity 15,222,608 5,992,552 8,445,000
Purchase of investment securities available-for-sale (54,417,576) (15,115,327) (39,896,934)
Proceeds from sales of investment securities available-for-sale 10,770,039 4,759,856 15,693,225
Proceeds from maturities of investment securities available-for-sale 14,063,823 5,428,171 7,014,675
Net change in loans (59,740,137) (49,879,830) (34,668,289)
Capital expenditures (3,535,678) (3,259,103) (1,355,987)
Purchase of insurance policies related to Salary Continuation Plan (1,875,000) 0 0
Other, net (37,030) (420,335) (241,715)
Net cash used for investing activities (81,602,604) (56,499,016) (55,063,026)
Cash flows from financing activities:
Net change in deposits 66,336,094 45,667,340 36,449,862
Net change in federal funds purchased and securities sold under
agreements to repurchase 4,589,070 (3,147,972) 4,371,786
Net change in other short-term borrowings 893,328 (6,143,638) 4,764,993
Proceeds from issuance of long-term debt 3,000,000 15,000,000 0
Proceeds from issuance of subordinated notes 6,000,000 0 0
Proceeds from issuance of stock in accordance with:
Stock Option Plan 74,412 0 221,600
Dividend Reinvestment Plan 154,002 11,059 0
Cash dividends paid (1,072,141) (914,526) (800,231)
Net cash provided by financing activities 79,974,765 50,472,263 45,008,010
Net change in cash and cash equivalents 5,048,464 677,637 (6,927,424)
Cash and cash equivalents at January 1 20,615,188 19,937,551 26,864,975
Cash and cash equivalents at December 31 $ 25,663,652 $ 20,615,188 $ 19,937,551
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 15,730,650 $ 13,194,742 $ 9,095,507
Income taxes 2,850,785 2,014,245 2,521,046
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.
38
Anchor Financial Corporation 1996 Annual Report
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ANCHOR FINANCIAL CORPORATION AND SUBSIDIARIES (THE "CORPORATION")
ANCHOR FINANCIAL CORPORATION (THE "PARENT")
THE ANCHOR BANK (THE "BANK")
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION:
The Corporation is a 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, the Bank, Anchor Capital Corporation, and Anchor Automated
Services, Inc., after elimination of all material intercompany accounts and
transactions. In accordance with the Riegle-Neal Interstate Banking and Branch
Efficiency Act of 1994, the Corporation merged its two banking subsidiaries, The
Anchor Bank and The Anchor Bank of North Carolina, on October 4, 1996. The
Anchor Bank survived the merger and all information presented in this Annual
Report reflects this merger for all periods presented. 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
give retroactive effect to the stock split, including the transfer of an
appropriate amount to common stock from surplus.
USE OF ESTIMATES:
The financial statements are prepared in accordance with generally accepted
accounting principles which require management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
INVESTMENT SECURITIES:
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," management
determines at the time of purchase 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 are 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.
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
39
Anchor Financial Corporation 1996 Annual Report
<PAGE>
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.
Effective January 1, 1995, the Corporation adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," 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 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 to 40 years for buildings and improvements; 3 to 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.
INTANGIBLE ASSETS:
Goodwill and deposit base premium amounts arising from a bank acquisition in
1991 and included in other assets aggregated $1,208,234 and $1,443,655 at
December 31, 1996 and 1995, 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:
The Corporation recognizes 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 6 for additional information
on 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.
40
Anchor Financial Corporation 1996 Annual Report
<PAGE>
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 the Bank in a
fiduciary or agency capacity are not included in the Consolidated Balance Sheet
since such items are not assets of the Bank.
NOTE 2: RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS
The Bank is 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, 1996 was approximately $6,646,000.
NOTE 3: INVESTMENT SECURITIES
The amortized cost and the estimated fair value of investment securities
held-to-maturity at December 31, 1996 and 1995 are presented below:
<TABLE>
<CAPTION>
1996 1995
GROSS GROSS ESTIMATED GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
securities $11,052,945 $ 27,148 $ 22,124 $11,057,969 $19,785,013 $ 63,830 $ 62,759 $19,786,084
Securities of other
U.S. Government
agencies and
corporations 4,992,200 17,253 21,159 4,988,294 9,222,856 91,942 9,455 9,305,343
Obligations of states
and political
subdivisions 2,141,963 37,627 0 2,179,590 2,395,625 39,798 4,980 2,430,443
Total debt securities $18,187,108 $ 82,028 $ 43,283 $18,225,853 $31,403,494 $195,570 $ 77,194 $31,521,870
</TABLE>
The amortized cost and the estimated fair value of investment securities
available-for-sale at December 31, 1996 and 1995 are presented below:
<TABLE>
<CAPTION>
1996 1995
GROSS GROSS ESTIMATED GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $29,079,824 $242,233 $ 46,433 $29,275,624 $27,044,576 $245,360 $ 13,266 $27,276,670
Securities of other U.S.
Government
agencies and
corporations 37,089,682 209,276 117,549 37,181,409 20,012,967 216,369 42,591 20,186,745
Mortgage-backed
securities 8,432,631 55,318 441 8,487,508 113,941 1,261 0 115,202
Obligations of states
and political
subdivisions 2,845,712 75,548 1,175 2,920,085 1,407,570 43,546 1,665 1,449,451
Total debt securities 77,447,849 582,375 165,598 77,864,626 48,579,054 506,536 57,522 49,028,068
Marketable equity
securities 3,824,981 354,430 0 4,179,411 3,015,138 0 0 3,015,138
Total investment
securities $81,272,830 $936,805 $165,598 $82,044,037 $51,594,192 $506,536 $ 57,522 $52,043,206
</TABLE>
41
Anchor Financial Corporation 1996 Annual Report
<PAGE>
The amortized cost and estimated fair value of debt securities held-to-maturity
at December 31, 1996, based on their contractual maturities, are shown below.
Actual maturities may differ from contractual maturities or maturities shown
below because borrowers have the right to prepay obligations with or without
prepayment penalties.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
<S> <C> <C>
Due in one year or less $ 7,092,272 $ 7,117,705
Due after one year through five years 11,005,219 11,013,012
Due after five years through ten years 89,617 95,136
Due after ten years 0 0
Total $18,187,108 $18,225,853
</TABLE>
The amortized cost and estimated fair value of debt securities
available-for-sale at December 31, 1996, based on contractual maturities, are
shown below. Actual maturities may differ from contractual maturities or
maturities shown below because borrowers have the right to prepay obligations
with or without prepayment penalties.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
<S> <C> <C>
Due in one year or less $12,804,221 $12,860,784
Due after one year through five years 53,065,867 53,297,342
Due after five years through ten years 8,682,786 8,781,502
Due after ten years 2,894,975 2,924,998
Total $77,447,849 $77,864,626
</TABLE>
Investment securities with a par value of $41,400,000 and $27,250,000, at
December 31, 1996 and 1995, 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
$10,770,039, $4,759,856, and $15,693,225 in 1996, 1995, and 1994, respectively.
Gross realized gains of $5,009, $87,492, and $1,719,038 were realized on these
sales during 1996, 1995, and 1994, respectively. Gross realized losses of
$19,532 and $252,772 were realized on these sales during 1996 and 1994,
respectively.
There were no sales of held-to-maturity investment securities during 1996, 1995,
and 1994. 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 Financial
Accounting Standards Board ("FASB") Special Report, "A Guide to Implementation
of Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities."
Income tax (benefit) expense attributable to securities transactions was
($4,938), $29,747, and $498,530 for 1996, 1995, and 1994, respectively.
42
Anchor Financial Corporation 1996 Annual Report
<PAGE>
NOTE 4: LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans at December 31 are comprised of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Commercial, financial, and agricultural $ 55,295,682 $ 61,305,772
Real estate-construction 35,765,701 22,167,895
Real estate-mortgage 139,968,899 102,614,478
Installment loans to individuals 98,997,901 87,419,793
Other 15,401,351 11,621,074
Gross loans 345,429,534 285,129,012
Unearned income (24,367) (25,477)
Total loans $345,405,167 $285,103,535
</TABLE>
Loans made by the Corporation to directors, executive officers, and their
associates totaled $10,619,042 and $14,408,826 at December 31, 1996 and 1995,
respectively. During 1996, loans made and other additions totaled $7,537,784 and
repayments and other deductions totaled $11,327,568. 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
$1,090,700 and $434,750 in 1996 and 1995, respectively, and are recorded at the
lower of cost or estimated market value.
The primary market area served by the Corporation is centered in Myrtle Beach,
South Carolina and consists of the entire area known as the Grand Strand. The
Corporation recently acquired offices in Mount 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, 1996 and
1995, the Corporation had approximately 65% and 72%, respectively, of its loans
outstanding in the Grand Strand and Hilton Head Island areas.
Activity in the allowance for loan losses for the years ended December 31 is
summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Balance at beginning of year $3,045,656 $2,795,941 $2,361,656
Provision for loan losses 850,000 596,000 940,117
Recoveries on loans previously charged off 259,251 106,722 113,755
Loans charged off (353,706) (453,007) (619,587)
Balance at end of year $3,801,201 $3,045,656 $2,795,941
</TABLE>
43
Anchor Financial Corporation 1996 Annual Report
<PAGE>
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, are summarized below:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Nonaccrual loans $ 53,016 $182,801
Other real estate owned 126,245 0
Interest income which would have been recorded on
nonaccrual loans pursuant to original terms 7,595 27,124
Interest income recorded on nonaccrual loans 3,556 1,754
</TABLE>
At December 31, 1996, impaired loans had a related specific allowance for loan
losses totaling $5,000. There were no material commitments to lend additional
funds to customers whose loans were classified as impaired at December 31, 1996.
At December 31, 1996 and 1995, the Corporation did not have any loans for which
terms had been modified in troubled debt restructurings.
NOTE 5: PREMISES AND EQUIPMENT
Premises and equipment at December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Land $ 5,081,628 $ 4,401,628
Buildings and improvements 10,635,714 9,562,087
Furniture and equipment 8,411,575 7,600,914
Construction in process 798,756 0
Total 24,927,673 21,564,629
Less-Accumulated depreciation (8,806,658) (7,697,983)
Total $16,121,015 $13,866,646
</TABLE>
Provisions for depreciation included in operating expense in 1996, 1995, and
1994 were $1,227,346, $1,019,575, and $971,639, 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 expense
in 1996, 1995, and 1994 were $243,804, $127,309, and $110,886, respectively.
At December 31, 1996, 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>
1997 $144,047
1998 121,745
1999 105,057
2000 86,157
2001 80,872
2002 and thereafter 366,443
Total minimum obligation $904,321
</TABLE>
44
Anchor Financial Corporation 1996 Annual Report
<PAGE>
NOTE 6: INCOME TAXES
The components of consolidated income tax expense (benefit) for the years ended
December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current:
Federal $2,603,406 $1,929,797 $1,942,741
State 201,318 197,315 148,694
Total 2,804,724 2,127,112 2,091,435
Deferred:
Federal (213,465) (153,595) (210,182)
State 2,827 (20,167) (1,637)
Total (210,638) (173,762) (211,819)
Provision for income taxes $2,594,086 $1,953,350 $1,879,616
</TABLE>
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>
1996 1995 1994
<S> <C> <C> <C>
Deferred tax liabilities:
Tax depreciation over book $ (577,346) $ (531,221) $ (510,644)
Unrealized gain - SFAS No. 115 (273,907) (156,261) 0
Prepaid expenses 0 0 (112,846)
Other, net (251,443) (165,513) (53,877)
Total deferred tax liabilities (1,102,696) (852,995) (677,367)
Deferred tax assets:
Allowance for loan losses 963,108 731,901 613,062
Unrealized loss - SFAS No. 115 0 0 338,792
Deferred loan fees and costs 259,457 234,999 221,884
Deferred compensation 199,882 165,681 161,705
Other, net 164,411 111,584 54,387
Total deferred tax assets 1,586,858 1,244,165 1,389,830
Net deferred tax asset $ 484,162 $ 391,170 $ 712,463
</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.
45
Anchor Financial Corporation 1996 Annual Report
<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,
1996 1995 1994
<S> <C> <C> <C>
Tax expense at statutory rate $2,503,450 $1,867,365 $1,830,634
Increase (decrease) in taxes resulting from:
Non-taxable interest on investments (68,968) (64,298) (55,298)
State income tax expense, net of federal income tax benefit 135,623 110,070 98,138
Other, net 23,981 40,213 6,142
Total $2,594,086 $1,953,350 $1,879,616
</TABLE>
NOTE 7: SHORT-TERM BORROWINGS
Short-term borrowings at December 31 include the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Federal funds purchased $ 4,980,000 $ 1,100,000
Securities sold under agreements to repurchase 1,357,197 648,127
Federal funds purchased and securities sold under agreements to repurchase 6,337,197 1,748,127
Other short-term borrowings 1,847,779 954,451
Total short-term borrowings $ 8,184,976 $ 2,702,578
Weighted average interest rate at December 31 5.82% 4.98%
Weighted average interest rate during the year 4.78 5.49
Maximum amount outstanding at any month-end $17,555,950 $10,724,003
Average amount outstanding during the year 4,651,093 4,903,334
</TABLE>
The Bank has a line of credit with the Federal Home Loan Bank ("FHLB") under
which short-term funds may be borrowed. At December 31, 1996, the Bank had no
short-term borrowings outstanding on this line of credit. 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. The Bank has a
line of credit with the Federal Reserve Bank of Richmond of $1,000,000 of which
no amounts were outstanding at December 31, 1996. Advances on this line of
credit must be secured by U.S. Treasury or Government agency securities.
Advances on the Federal Reserve Bank line of credit generally mature within 31
days of the date of the advance. Securities sold under agreements to repurchase
generally mature on demand while federal funds purchased are generally for
one-day periods.
NOTE 8: LONG-TERM DEBT AND SUBORDINATED NOTES
Advances from the FHLB with an initial maturity of more than one year totaled
$18,000,000 at December 31, 1996. These advances are collateralized by the same
collateral agreements as short-term funds from the FHLB. Fixed interest rates on
these advances ranged from 5.48% 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. Under the terms of the Subordinated Note Agreement,
the balance of the debt cannot be paid prior to its final maturity. On December
20, 1996, the Corporation issued $6,000,000 of 7.89% Subordinated
46
Anchor Financial Corporation 1996 Annual Report
<PAGE>
Notes due December 20, 2006. Under the terms of the Subordinated Note Agreement,
the balance of the debt can be prepaid on December 20, 2001 at par plus accrued
and unpaid interest. On December 20, 2001, the interest rate on the Notes will
be reset to a rate approximately equal to the yield on the 5-year U.S. Treasury
Note plus 195 basis points. The interest on these single principal payment
issues is payable semi-annually each year and at maturity. There are no
significant debt covenants for this debt. 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, 1996 are $5,000,000 in 1998, $3,000,000 in
1999, and $5,000,000 in 2000.
NOTE 9: COMPARISON OF OTHER OPERATING EXPENSE
Other operating expense for the years ended December 31 includes the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Postage and freight $ 241,444 $ 223,650 $ 198,200
Directors fees 279,775 318,585 210,650
Advertising and promotional materials 479,355 352,767 298,791
Courier service 229,004 223,042 191,993
FDIC insurance assessment 4,000 363,042 638,365
Supplies 389,638 360,712 327,527
Telephone and data communications 401,471 341,162 264,744
Amortization of intangible assets 397,068 343,938 294,658
Other 2,071,108 1,778,981 1,798,022
Total other operating expense $4,492,863 $4,305,879 $4,222,950
</TABLE>
NOTE 10: EMPLOYEE BENEFIT PLANS
The Corporation has an Employee Stock Ownership Plan ("ESOP") and a pre-tax
savings plan ("401(k) Plan") which cover substantially all employees of the
Corporation. Contributions to the ESOP, which are at the discretion of and
determined annually by the Board of Directors, 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 1996, the Board of Directors 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 ESOP and 401(k) plans, including amounts
contributed, which are included in employee benefits expense for the three years
ended December 31, 1996, 1995, and 1994 were $461,880, $396,694, and $340,000,
respectively.
At various times, the ESOP has borrowed funds from the Bank and used the
proceeds to purchase stock of the Corporation. At December 31, 1996, the ESOP
owned 218,405 shares of Corporation stock of which 48,691 shares were pledged to
secure loans outstanding. At December 31, 1996 and 1995, the principal balance
outstanding on the loans was $633,250 and $836,609, 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," 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
47
Anchor Financial Corporation 1996 Annual Report
<PAGE>
stockholders' equity on the Consolidated Balance Sheet. As of December 31, 1996
and 1995, the historical cost of unallocated shares of $633,250 and $836,609,
respectively were reflected as a reduction of stockholders' equity. Compensation
expense related to the ESOP of $386,649, $328,257, and $281,454, respectively,
has been included in employee benefits expense for the three years ended
December 31, 1996, 1995, and 1994 as discussed above.
During 1996, the Corporation adopted a Salary Continuation Plan for certain
officers. The plan provides for monthly benefits for a period of fifteen years
beginning at age 65 or at the death of the officer prior to age 65. The plan
also provides for reduced benefits in the event of disability of the officer
prior to age 65 while still in the employ of the Corporation. The officers are
30% vested in the accrued liability of the plan one year from the date of the
plan and vest in an additional 10% each year until they become fully vested
after eight years from the date of the plan. In the event of a change in control
of the Corporation as defined in the plan, the officers become 100% vested in
the total benefit immediately. The Corporation has purchased life insurance
policies on these officers in order to fund the payments required by the plan.
Compensation expense related to the Salary Continuation Plan totaled $79,440
during 1996.
NOTE 11: STOCK OPTION PLANS
During 1988 and 1994, the Corporation adopted stock option plans covering
certain of its officers. Options granted under the 1988 plan are fully vested.
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 grant.
Activity under the plans, after restatement for the two-for-one stock split
described in Note 1, is summarized below:
<TABLE>
<CAPTION>
1996 1995 1994
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 273,572 $11.68 123,572 $ 8.27 150,278 $ 8.27
Granted 0 0.00 150,000 14.50 0 0.00
Exercised (12,731) 5.85 0 0.00 (26,706) 8.30
Outstanding at end of year 260,841 $11.97 273,572 $11.68 123,572 $ 8.27
Options exercisable at
end of year 160,841 $10.40 123,572 $ 8.27 123,572 $ 8.27
Weighted-average fair
value of options
granted during the year 0 $ 0.00 150,000 $ 3.42 0 $ 0.00
</TABLE>
At December 31, 1996, 160,841 optioned shares were exercisable at prices between
$5.85 and $14.50 per share for a total of $1,672,244. 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. The following table summarizes information about stock options
outstanding at December 31, 1996.
48
Anchor Financial Corporation 1996 Annual Report
<PAGE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
NUMBER WEIGHTED-AVERAGE NUMBER
RANGE OF OUTSTANDING AT REMAINING WEIGHTED-AVERAGE EXERCISABLE AT WEIGHTED-AVERAGE
EXERCISE PRICES DECEMBER 31 CONTRACTUAL LIFE EXERCISE PRICE DECEMBER 31 EXERCISE PRICE
<S> <C> <C> <C> <C> <C>
$ 5.85-8.88 110,841 3.3 Years $ 8.55 110,841 $ 8.55
14.50 150,000 8.5 Years 14.50 50,000 14.50
<CAPTION>
</TABLE>
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 adopted 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
Corporation has elected to provide SFAS No. 123 disclosures as if the
Corporation had adopted the fair value approach to recording stock-based
compensation in 1995 and 1996 as indicated below:
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net income $4,769,003 $3,538,900 $4,659,563 $3,484,180
Net income per share $ 1.81 $ 1.39 $ 1.77 $ 1.37
</TABLE>
In determining the pro forma disclosures above, the fair value of options
granted was estimated on the date of grant using the Black-Scholes Option
Pricing Model using the following assumptions, a risk-free interest rate of
6.18%, a dividend yield of 3.30%, an expected life of ten years, and a
volatility ratio of 25%. The effects of applying SFAS No. 123 in the above pro
forma disclosure are not indicative of future amounts. SFAS No. 123 does not
apply to awards granted prior to 1995.
NOTE 12: 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 13).
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
judgments 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, 1996
and 1995.
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.
49
Anchor Financial Corporation 1996 Annual Report
<PAGE>
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 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.
INTEREST RATE CONTRACTS:
The fair values of interest rate contracts are based on quoted markets prices or
dealer quotes.
50
Anchor Financial Corporation 1996 Annual Report
<PAGE>
The estimated fair values (in thousands) of the Corporation's financial
instruments at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
<S> <C> <C> <C> <C>
Financial Assets:
Cash and short-term investments $ 25,446 $ 25,446 $ 20,615 $ 20,615
Investment securities 100,231 100,270 83,446 83,565
Loans 341,604 342,500 282,058 282,193
Financial Liabilities:
Deposits 420,212 420,326 353,876 354,132
Short-term borrowings 8,185 8,185 2,702 2,702
Long-term debt and subordinated notes 29,000 28,834 20,000 20,443
<CAPTION>
1996 1995
NOTIONAL ESTIMATED NOTIONAL ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
<S> <C> <C> <C> <C>
Off-Balance Sheet Financial Instruments:
Commitments to extend credit $ 69,890 $ 6 $ 53,535 $ 1
Standby letters of credit 1,150 0 453 0
Interest rate contracts 25,000 103 0 0
<CAPTION>
</TABLE>
NOTE 13: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 12) 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 notional value of those instruments reflect the
extent of involvement the Corporation has in each class of financial
instruments.
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 comparable to the prices charged to customers to originate
loans and are generally contingent on the closing of the loan(s).
51
Anchor Financial Corporation 1996 Annual Report
<PAGE>
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.
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 notional value 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. The notional and estimated fair value of these
financial instruments at December 31, 1996 and 1995 are presented in Note 12.
The Corporation may utilize financial instruments such as interest rate
contracts to transfer, modify, or reduce its interest rate risk exposure. In an
interest rate cap or floor contract, the Corporation pays a premium at the
initiation of the contract for the right to receive payments if market interest
rates are greater than the strike rate of a cap or less than the strike rate of
a floor during a period of the contract. The Corporation's liability is limited
to the premium paid for the contract. During 1996, the Corporation purchased an
interest rate floor contract with a notional value of $25 million and a
three-year term. The floor index of the contract is equal to three-month Libor
and has a strike rate of 5.25%. The Corporation paid a premium of $102,500 for
the contract. The notional and estimated fair value of these interest rate
contracts at December 31, 1996 and 1995 are presented in Note 12.
NOTE 14: REGULATORY MATTERS
The Corporation and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary actions by regulators that if undertaken, could have a
direct material effect on the Corporation's and the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Corporation and the Bank must meet specific capital
guidelines that involve quantitative measures of the Corporation's and the
Bank's assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The Corporation's and the Bank's capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weighting, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital to risk-weighted assets,
and of Tier 1 capital to average assets as defined in the regulations.
Management believes, as of December 31, 1996, that the Corporation and the Bank
meet all capital adequacy requirements to which they are subject.
52
Anchor Financial Corporation 1996 Annual Report
<PAGE>
As of December 31, 1996, the Corporation and the Bank were well capitalized
under this regulatory framework. To be categorized as well-capitalized, each
entity must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1
leverage ratios as set forth in the table. There are no conditions or events
since December 31, 1996 that management believes have changed either the
Corporation's or the Bank's capital classifications.
The Corporation's and the Bank's actual capital amounts and ratios are also
presented in the table.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
FOR CAPITAL UNDER PROMPT
ADEQUACY CORRECTIVE
ACTUAL PURPOSES: ACTION PROVISIONS:
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital
(to Risk-Weighted Assets)
Anchor Financial Corporation $47,000,204 13.33% $28,209,962 8.00% $35,262,453 10.00%
The Anchor Bank 41,882,059 11.95 28,036,768 8.00 35,045,960 10.00
Tier 1 Capital
(to Risk-Weighted Assets)
Anchor Financial Corporation 32,199,003 9.13 14,104,981 4.00 21,157,472 6.00
The Anchor Bank 33,580,858 9.58 14,018,384 4.00 21,027,576 6.00
Tier 1 Capital
(to Average Assets)
Anchor Financial Corporation 32,199,003 6.79 18,978,444 4.00 23,723,055 5.00
The Anchor Bank 33,580,858 7.12 18,858,441 4.00 23,573,051 5.00
As of December 31, 1995:
Total Capital
(to Risk-Weighted Assets)
Anchor Financial Corporation 34,851,264 12.18 22,896,204 8.00 28,620,255 10.00
The Anchor Bank 32,147,504 11.27 22,824,865 8.00 28,531,082 10.00
Tier 1 Capital
(to Risk-Weighted Assets)
Anchor Financial Corporation 26,805,608 9.37 11,448,102 4.00 17,172,153 6.00
The Anchor Bank 29,120,084 10.21 11,412,433 4.00 17,118,649 6.00
Tier 1 Capital
(to Average Assets)
Anchor Financial Corporation 26,805,608 6.76 15,868,436 4.00 19,835,545 5.00
The Anchor Bank 29,120,084 7.33 15,898,198 4.00 19,872,747 5.00
</TABLE>
53
Anchor Financial Corporation 1996 Annual Report
<PAGE>
NOTE 15: ANCHOR FINANCIAL CORPORATION (PARENT COMPANY ONLY)
The Parent's principal assets are its investments in the Bank, and the principal
source of income for the Parent is dividends from the Bank. Certain regulatory
and legal requirements restrict payment of dividends and lending of funds
between the Bank and the Parent.
The Parent's condensed balance sheet at December 31, 1996 and 1995 and condensed
statements of income and of cash flows for each of the three years in the period
ended December 31, 1996 are presented below.
<TABLE>
<CAPTION>
DECEMBER 31,
BALANCE SHEET DATA 1996 1995
<S> <C> <C>
Assets:
Cash and cash equivalents $ 165,600 $ 189,250
Repurchase agreements 2,002,080 301,911
Investment in bank subsidiaries 35,064,165 30,856,494
Investment in bank subsidiary subordinated notes 4,500,000 0
Investment in other subsidiaries 60,000 60,000
Loans 633,250 836,609
Premises and equipment 665,684 684,870
Other assets 1,057,803 665,813
Total assets $44,148,582 $33,594,947
Liabilities and Stockholders' Equity:
Subordinated notes $11,000,000 $ 5,000,000
Other liabilities 173,177 52,929
Total liabilities 11,173,177 5,052,929
Stockholders' equity 32,975,405 28,542,018
Total liabilities and stockholders' equity $44,148,582 $33,594,947
</TABLE>
54
Anchor Financial Corporation 1996 Annual Report
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
INCOME STATEMENT DATA 1996 1995 1994
<S> <C> <C> <C>
Income:
Dividend income from bank subsidiaries $1,250,000 $1,650,000 $ 0
Dividend income from other subsidiaries 0 0 51,351
Interest income from subsidiaries 25,169 98,658 43,127
Interest and fees on loans 64,851 11,015 5,339
Other income 39,643 44,997 40,327
Total income 1,379,663 1,804,670 140,144
Expense:
Interest on short-term borrowings 0 2,282 0
Interest on subordinated notes 455,688 439,561 439,761
Depreciation 19,186 7,418 2,558
Other expense 179,982 151,318 97,279
Total expense 654,856 600,579 539,598
Income before equity in undistributed earnings of subsidiaries and taxes 724,807 1,204,091 (399,454)
Equity in undistributed earnings of subsidiaries 3,821,788 2,145,220 3,722,634
Income before taxes 4,546,595 3,349,311 3,323,180
Benefit of income taxes (222,408) (189,589) (181,422)
Net income $4,769,003 $3,538,900 $3,504,602
</TABLE>
55
Anchor Financial Corporation 1996 Annual Report
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
CASH FLOWS DATA 1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,769,003 $ 3,538,900 $ 3,504,602
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Equity in undistributed earnings of subsidiaries (3,821,788) (2,145,220) (3,722,634)
Depreciation of premises and equipment 19,186 7,418 2,558
Change in interest receivable 0 0 10,619
Change in interest payable 14,506 (200) 0
Change in income taxes payable (3,207) (22,118) (14,860)
Net cash provided by (used for) operating activities 977,700 1,378,780 (219,715)
Cash flows from investing activities:
Investment in bank subsidiaries (100,000) (1,500,000) (500,000)
Investment in bank subsidiary subordinated notes (4,500,000) 0 0
Investment in bank repurchase agreement (1,700,169) 2,578,089 (2,880,000)
Net change in loans 203,359 (836,609) 442,873
Capital expenditures 0 (535,143) (159,703)
Other, net (60,813) (28,852) 5,290
Net cash used for investing activities (6,157,623) (322,515) (3,091,540)
Cash flows from financing activities:
Proceeds from issuance of subordinated notes 6,000,000 0 0
Proceeds from issuance of common stock pursuant to:
Stock Option Plan 154,002 0 221,600
Dividend Reinvestment Plan 74,412 11,059 0
Cash dividends paid (1,072,141) (914,526) (800,231)
Net cash provided by (used for) financing activities 5,156,273 (903,467) (578,631)
Net change in cash and cash equivalents (23,650) 152,798 (3,889,886)
Cash and cash equivalents at January 1 189,250 36,452 3,926,338
Cash and cash equivalents at December 31 $ 165,600 $ 189,250 $ 36,452
</TABLE>
The Parent received income tax refunds of $219,201, $167,471, and $166,562 for
the years ended December 31, 1996, 1995, and 1994, respectively. The Parent paid
interest of $441,182, $442,043, and $439,761 in 1996, 1995, and 1994,
respectively.
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Anchor Financial Corporation 1996 Annual Report
<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, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
QUARTER ENDED QUARTER ENDED
DEC. 31 SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30 MARCH 31
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $9,323,962 $9,253,007 $8,898,570 $8,404,529 $7,969,032 $7,944,756 $7,458,462 $6,897,538
Interest expense 4,175,561 4,064,017 4,017,650 3,838,973 3,660,281 3,604,222 3,352,898 2,981,099
Net interest income 5,148,401 5,188,990 4,880,920 4,565,556 4,308,751 4,340,534 4,105,564 3,916,439
Provision for loan losses 260,000 200,000 230,000 160,000 140,500 206,000 115,000 134,500
Net interest income after
provision for loan losses 4,888,401 4,988,990 4,650,920 4,405,556 4,168,251 4,134,534 3,990,564 3,781,939
Gains (losses) on sale of
investment securities, net 0 (3,860) (10,663) 0 50,608 0 36,884 0
Noninterest income 1,005,901 960,076 1,027,673 780,630 750,476 755,214 711,594 671,744
Noninterest expense 3,838,692 3,854,575 3,906,585 3,730,683 3,542,503 3,424,729 3,443,861 3,148,465
Income before income taxes 2,055,610 2,090,631 1,761,345 1,455,503 1,426,832 1,465,019 1,295,181 1,305,218
Provision for income taxes 725,857 765,579 579,039 523,611 521,689 518,666 451,527 461,468
Net income $1,329,753 $1,325,052 $1,182,306 $ 931,892 $ 905,143 $ 946,353 $ 843,654 $ 843,750
Net income per share $ 0.50 $ 0.50 $ 0.45 $ 0.36 $ 0.35 $ 0.37 $ 0.33 $ 0.34
Weighted average shares
outstanding 2,679,855 2,630,707 2,609,180 2,605,565 2,588,308 2,549,308 2,529,224 2,527,166
</TABLE>
57
Anchor Financial Corporation 1996 Annual Report
<PAGE>
In Memoriam
John D. Flowers' strong (Photo of John D. Flowers appears at right.)
belief in the future of
The Anchor Bank and
his support along
the way helped bring
the Corporation to its
present success and
stature. His leadership,
friendship, and wise
counsel are missed by
us all.
58
Anchor Financial Corporation 1996 Annual Report
<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.
W. Cecil Brandon, Jr. (1,2)
President
Brandon Advertising & Sales Co., Inc.
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)
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
J. Bryan Floyd (1)
Vice President and Secretary
Caro-Strand Corporation
Admah Lanier, Jr. (1)
Co-Owner and President
Lanwillo Development Co.
A. Iverson Lewis (2)
Owner-Operator
Ocean Drive Tile and Paint Company
Tommy E. Looper (1,2)
Executive Vice President and
Chief Financial Officer
Anchor Financial Corporation and The Anchor Bank
W. Gairy Nichols, III (1,2)
Owner
Dunes Realty, Inc.
Ruppert L. Piver (1)
U.S. Postal Service
Thomas J. Rogers (1,2)
President
Grand Strand Broadcasting Corp.
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)
President
The Dayton House, Inc.
(1) Anchor Financial Corporation
(2) The Anchor Bank
Directors Emeriti
George J. Bishop, III
Chairman of the Board
Waccamaw Clay Products, Co., Inc.
Isadore E. Lourie
The Lourie Law Firm
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
Advisory Boards
South Strand
W. Winston Hoy, Jr.
W. Gairy Nichols, III
E.J. Servant, III
Willie C. "Booty" Shelley
John Stokes Springs
J. Roddy Swaim
William G. Thomas, Jr.
Georgetown
Douglas L. Hinds
Louis P. Parsons
T.C. Sawyer
Dr. Wright S. Skinner, III
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
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
North Carolina
Durwood T. Bradshaw
W. James Brandon
David E. Buffaloe
Paul M. Howe
Martin E. Kegel
Admah Lanier, Jr.
Forrest R. Lewis
Ruppert L. Piver
B. Terry Shepard
59
Anchor Financial Corporation 1996 Annual Report
<PAGE>
Investor Services
Stock Transfer Agent and Investor Relations
The Anchor Bank
Post Office Box 2428
Myrtle Beach, SC 29578
(803) 946-3105
1-800-ANCHOR-8 (if long distance)
Dividend Reinvestment Plan
The Dividend Reinvestment Plan enables shareholders to reinvest in full and
fractional shares of Anchor Financial Corporation. Shareholders with 100 or more
shares of stock are eligible for the program.
Direct Deposit Service
With direct deposit, shareholders can have Anchor Financial Corporation cash
dividends deposited directly into the savings or checking account of their
choice. There is no charge for this convenient service.
For additional information on either the Dividend Reinvestment Plan or Direct
Deposit Service, please contact Investor Relations at the address or telephone
number above.
Common Stock
Anchor Financial Corporation common stock trades on the Nasdaq National
Market(R) tier of The Nasdaq Stock Market under the symbol AFSC. The high and
low market prices for each quarter of 1996 and 1995 are set forth in the
following table. The Corporation paid cash dividends of $0.42 per share in 1996
and $0.36 per share in 1995. As of December 31, 1996, there were 1,809
shareholders of record.
<TABLE>
<CAPTION>
1996 1995
Fourth Third Second First Fourth Third Second First
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common Stock:
High for the Period $35.50 $30.50 $21.00 $22.00 $20.25 $19.50 $14.75 $14.00
Low for the Period $27.00 $20.00 $20.25 $19.75 $18.25 $14.25 $13.25 $13.25
</TABLE>
Nasdaq Market Makers
Interstate/Johnson Lane
Sterne, Agee, & Leach, Inc.
Wheat First Securities
60
Anchor Financial Corporation 1996 Annual Report
<PAGE>
Offices
South Carolina
Main Office
2002 Oak Street
Myrtle Beach, SC 29577
(803) 448-1411
Dunes Office
7901 North Kings Highway
Myrtle Beach, SC 29572
(803) 449-6314
Thirteenth Avenue Office
1205 South Kings Highway
Myrtle Beach, SC 29577
(803) 448-3518
Cherry Grove Office
1201 Sea Mountain Highway
North Myrtle Beach, SC 29582
(803) 249-8484
Crescent Beach Office
1801 Highway 17 South
North Myrtle Beach, SC 29582
(803) 272-7344
Little River Office
Highway 17 at Baldwin Avenue
Little River, SC 29566
(803) 249-7993
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
Conway Office
1500 3rd Avenue
Conway, SC 29526
(803) 248-6293
Pope Avenue Office
62 New Orleans Road
Hilton Head Island, SC 29928
(803) 785-4848
Northridge Office
2 Northridge Drive
Hilton Head Island, SC 29926
(803) 341-4545
Mount Pleasant Office
1021 Anna Knapp Boulevard
Mount Pleasant, SC 29464
(803) 881-0402
North Carolina
North Market Street Office
7320 North Market Street
Wilmington, NC 28405
(910) 686-1070
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
Hampstead Office
15280 Highway 17
Hampstead, NC 28443
(910) 270-4108
Jacksonville Office
202 Wilmington Highway
Jacksonville, NC 28540
(910) 938-1990
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.
The Anchor Bank is a member bank of the FDIC.
Equal Housing Lender Logo Appears Here
<PAGE>
Anchor Financial Corporation
2002 Oak Street
Post Office Box 2428
Myrtle Beach, South Carolina 29578
<PAGE>
EXHIBIT 21
<PAGE>
SUBSIDIARY OF THE REGISTRANT
STATE OR OTHER JURISDICTION
SUBSIDIARY OF INCORPORATION
The Anchor Bank South Carolina
<PAGE>
EXHIBIT 23.1
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 5, 1997 appearing on page 34 of the 1996 Annual Report to
Shareholders which in incorporated in this Annual Report on Form 10-K.
(Signature of Price Waterhouse LLP)
PRICE WATERHOUSE LLP
Columbia, South Carolina
March 25, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 25,346,998
<INT-BEARING-DEPOSITS> 316,654
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 82,044,037
<INVESTMENTS-CARRYING> 18,187,108
<INVESTMENTS-MARKET> 18,225,853
<LOANS> 345,405,167
<ALLOWANCE> 3,801,201
<TOTAL-ASSETS> 493,504,292
<DEPOSITS> 420,211,850
<SHORT-TERM> 8,184,976
<LIABILITIES-OTHER> 3,132,061
<LONG-TERM> 29,000,000
0
0
<COMMON> 15,356,040
<OTHER-SE> 17,619,365
<TOTAL-LIABILITIES-AND-EQUITY> 493,504,292
<INTEREST-LOAN> 29,578,147
<INTEREST-INVEST> 6,030,094
<INTEREST-OTHER> 271,827
<INTEREST-TOTAL> 35,880,068
<INTEREST-DEPOSIT> 14,313,935
<INTEREST-EXPENSE> 16,096,201
<INTEREST-INCOME-NET> 19,783,867
<LOAN-LOSSES> 850,000
<SECURITIES-GAINS> (14,523)
<EXPENSE-OTHER> 15,330,535
<INCOME-PRETAX> 7,363,089
<INCOME-PRE-EXTRAORDINARY> 7,363,089
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,769,003
<EPS-PRIMARY> 1.81
<EPS-DILUTED> 1.81
<YIELD-ACTUAL> 4.74
<LOANS-NON> 53,016
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,045,656
<CHARGE-OFFS> 353,706
<RECOVERIES> 259,251
<ALLOWANCE-CLOSE> 3,801,201
<ALLOWANCE-DOMESTIC> 3,801,201
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 500,000
</TABLE>
