REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Anchor Financial Corporation
In our opinion, based upon our audits and the reports of other auditors, the
accompanying consolidated balance sheets and the related consolidated statements
of income, of changes in stockholders' equity and comprehensive income, and of
cash flows present fairly, in all material respects, the financial position of
Anchor Financial Corporation and its subsidiaries at December 31, 1997 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Corporation's management; our responsibility is to express
an opinion on these financial statements based on our audits. We did not audit
the financial statements of ComSouth Bankshares Inc. and M&M Financial
Corporation, which statements reflect total assets of $ 361,842,232 and
$ 298,548,661 at December 31, 1997 and 1996, respectively, and net interest
income of $14,149,936, $11,416,263 and $ 9,503,238 for the years ended
December 31, 1997, 1996 and 1995, respectively. Those statements were
audited by other auditors whose reports thereon have been furnished to us,
and our opinion expressed herein, insofar as it relates to the amounts
included for ComSouth Bankshares Inc. and M&M Financial Corporation, is based
solely on the reports of the other auditors. We conducted our audits of the
consolidated 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 from
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits and the reports of other auditors provide a reasonable
basis for the opinion expressed above.
As described in Note 2, on August 31, 1998, Anchor Financial Corporation merged
with ComSouth Bankshares Inc. and M&M Financial Corporation in transactions
accounted for as poolings of interests. The accompanying consolidated financial
statements give retroactive effect to the mergers.
PricewaterhouseCoopers LLP
Columbia, South Carolina
February 12, 1998, except
as to the poolings of interests
with ComSouth Bankshares, Inc. and
M&M Financial Corporation, which is
as of August 31, 1998.
1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of ComSouth Bankshares, Inc.
We have audited the consolidated balance sheets of ComSouth Bankshares, Inc.
(the "Corporation") and its subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1997. These consolidated 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Corporation and
its subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three -year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
J.W. HUNT AND COMPANY, LLP
Columbia, South Carolina
January 31, 1998
2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO BOARD OF DIRECTORS
M&M FINANCIAL CORPORATION
Marion, South Carolina
We have audited the consolidated balance sheets of M&M Financial as of December
31, 1997 and 1996, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of M&M Financial
Corporation as of December 31, 1997 and 1996, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
TOURVILLE, SIMPSON & HENDERSON
Columbia, South Carolina
March 9, 1998
3
<PAGE>
Anchor Financial Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
- ----------------------------------------------------------------------------------------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 42,123,859 $ 41,761,934
Interest-bearing balances due from banks 2,566,151 1,407,099
Federal funds sold 6,820,000 4,350,000
Investment securities:
Held-to-maturity, at amortized cost (fair value of $32,064,460
in 1997 and $34,725,136 in 1996) 31,900,798 34,603,457
Available-for-sale, at fair value 165,424,294 138,155,824
- ----------------------------------------------------------------------------------------------------------------
Total investment securities 197,325,092 172,759,281
- ----------------------------------------------------------------------------------------------------------------
Loans 665,707,501 542,106,388
Less - unearned income (118,631) (96,869)
- allowance for loan losses (7,321,491) (6,630,958)
- ----------------------------------------------------------------------------------------------------------------
Net loans 658,267,379 535,378,561
- ----------------------------------------------------------------------------------------------------------------
Premises and equipment 22,432,590 21,318,749
Other assets 15,918,058 14,534,901
- ----------------------------------------------------------------------------------------------------------------
Total assets $ 945,453,129 $ 791,510,525
================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand deposits $ 140,840,476 $ 133,561,824
NOW and money market accounts 295,530,031 255,208,142
Time deposits $100,000 and over 122,048,841 82,190,220
Other time and savings deposits 238,262,671 202,132,488
- ----------------------------------------------------------------------------------------------------------------
Total deposits 796,682,019 673,092,674
Federal funds purchased and securities
sold under agreements to repurchase 25,966,838 17,545,870
Other short-term borrowings 5,065,450 3,180,980
Long-term debt 34,189,167 24,200,000
Subordinated notes 11,000,000 11,000,000
Other liabilities 6,450,489 5,365,364
- ----------------------------------------------------------------------------------------------------------------
Total liabilities 879,353,963 734,384,888
- ----------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Common stock, no par value; 50,000,000 shares
authorized; shares issued and outstanding - 6,430,694
in 1997 and 6,379,811 in 1996 46,153,141 45,301,372
Retained earnings 19,658,841 12,222,045
Accumulated other comprehensive income, net of tax 813,809 235,470
Unearned ESOP shares (526,625) (633,250)
- ----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 66,099,166 57,125,637
- ----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 945,453,129 $ 791,510,525
================================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.
4
<PAGE>
Anchor Financial Corporation and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME:
<S> <C> <C> <C>
Interest and fees on loans $ 58,091,521 $ 46,333,791 $ 38,497,287
Interest on investment securities:
Taxable 11,260,353 9,595,309 8,345,355
Non-taxable 493,483 509,354 544,171
Other interest income 606,726 773,806 719,444
- ---------------------------------------------------------------------------------------------------------------------------
Total interest income 70,452,083 57,212,260 48,106,257
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 27,845,800 22,787,796 19,682,633
Interest on short-term borrowings 1,213,026 802,152 941,756
Interest on long-term borrowings 1,741,576 1,331,048 498,331
Interest on subordinated notes 931,225 455,688 439,561
- ---------------------------------------------------------------------------------------------------------------------------
Total interest expense 31,731,627 25,376,684 21,562,281
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income 38,720,456 31,835,576 26,543,976
Provision for loan losses 2,044,000 1,140,000 829,890
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan 36,676,456 30,695,576 25,714,086
losses
- ---------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Service charges on deposit accounts 3,635,562 3,359,300 2,901,476
Commissions and fees 1,544,237 1,206,594 1,039,612
Trust income 312,913 257,703 216,336
Gains on sales of mortgage loans 768,126 592,853 623,944
(Losses) gains on sales of investment securities, net (17,420) (14,523) 227,036
Other operating income 820,699 697,856 344,301
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest income 7,064,117 6,099,783 5,352,705
- ---------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE:
Salaries and employee benefits 15,891,941 13,708,211 12,290,230
Net occupancy expense 2,098,568 2,011,028 1,737,264
Equipment expense 2,232,787 2,249,662 1,915,400
Other operating expense 8,975,043 7,583,598 7,043,881
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 29,198,339 25,552,499 22,986,775
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes 14,542,234 11,242,860 8,080,016
Provision for income taxes 5,305,284 3,951,990 2,783,816
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 9,236,950 $ 7,290,870 $ 5,296,200
===========================================================================================================================
Net income per share - basic $ 1.46 $ 1.16 $ 0.85
Net income per share - diluted 1.38 1.11 0.83
Weighted average common shares outstanding - basic 6,317,141 6,271,333 6,218,729
Weighted average common shares outstanding - diluted 6,703,191 6,539,544 6,349,626
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.
5
<PAGE>
Anchor Financial Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
and Comprehensive Income
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Accumulated
other Unearned Total
Common Stock Retained comprehensive ESOP stockholders'
-------------------------
Shares Amount earnings income (loss) shares equity
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994, as
previously reported 3,810,630 $23,722,378 $2,696,267 ($636,918) ($1,007,109) $24,774,618
Adjustments for poolings of interests 2,511,809 21,024,634 (424,667) (720,177) 19,879,790
----------------------------------------------------------------------------------
Balance at December 31, 1994 6,322,439 $44,747,012 $2,271,600 ($1,357,095) ($1,007,109) $44,654,408
Comprehensive Income
Net income 5,296,200 5,296,200
Other comprehensive income, net of tax
Unrealized gains on investment securities 1,745,201 1,745,201
---------------
Total Comprehensive Income 7,041,401
---------------
Common stock issued pursuant to:
Dividend Reinvestment Plan 848 12,754 (1,695) 11,059
Stock Option Plan 19,401 118,386 118,386
Change in unearned ESOP shares 9,064 22,730 170,500 202,294
Cash dividends from:
Anchor Financial Corporation
($0.24 per share) (914,526) (914,526)
Cash dividends from:
Acquired entities (301,835) (301,835)
------------------------------------------------------------------------------------
Balance at December 31, 1995 6,342,688 $44,887,216 $6,372,474 $388,106 ($836,609) $50,811,187
Comprehensive Income
Net income 7,290,870 7,290,870
Other comprehensive income, net of tax
Unrealized gains on investment securities (152,636) (152,636)
---------------
Total Comprehensive Income 7,138,234
---------------
Common stock issued pursuant to:
Dividend Reinvestment Plan 8,436 170,874 (16,872) 154,002
Stock Option Plan 28,687 166,571 (38,193) 128,378
Fractional shares paid in stock split (2,216) (2,216)
Change in unearned ESOP shares 76,711 23,495 203,359 303,565
Cash dividends from:
Anchor Financial Corporation
($0.28 per share) (1,072,141) (1,072,141)
Cash dividends from:
Acquired entities (335,372) (335,372)
------------------------------------------------------------------------------------
Balance at December 31, 1996 6,379,811 $45,301,372 $12,222,045 $235,470 ($633,250) $57,125,637
Comprehensive Income
Net income 9,236,950 9,236,950
Other comprehensive income, net of tax
Unrealized gains on investment securities 578,339 578,339
---------------
Total Comprehensive Income 9,815,289
---------------
Common stock issued pursuant to:
Dividend Reinvestment Plan 7,542 202,473 (10,902) 191,571
Stock Option Plan 43,362 282,352 (4,000) 278,352
Fractional shares paid in stock split (21) (123) (2,526) (2,649)
Tax benefit from exercised stock options 218,031 218,031
Change in unearned ESOP shares 149,036 26,612 106,625 282,273
Cash dividends from:
Anchor Financial Corporation
($0.375 per share) (1,440,429) (1,440,429)
Cash dividends from:
Acquired entities (368,909) (368,909)
------------------------------------------------------------------------------------
Balance at December 31, 1997 6,430,694 $46,153,141 $19,658,841 $813,809 ($526,625) $66,099,166
====================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.
6
<PAGE>
Anchor Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Years ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 9,236,950 $ 7,290,870 $ 5,296,200
Adjustments to reconcile net income to net cash provided by
operating activities:
Accretion and amortization of investment securities (220,988) (54,822) 22,576
Depreciation and amortization 2,527,049 2,343,950 2,061,279
Provision for loan losses 2,044,000 1,140,000 829,890
Losses (gains) on sales of investment securities, net 17,420 14,523 (227,036)
Gains on sales of mortgage loans (768,126) (592,853) (623,944)
Gains on sales of premises and equipment (9,230) (14,302) (22,755)
Change in interest receivable (999,370) (878,554) (691,228)
Change in other assets (446,190) 150,443 (400,183)
Change in deferred taxes 62,403 (194,414) (139,290)
Change in interest payable 1,066,309 528,351 1,010,853
Change in other liabilities 18,816 (181,401) (145,047)
Origination of mortgage loans held for sale (16,251,094) (9,755,750) (15,281,185)
Proceeds from sales of mortgage loans held for sale 16,616,789 9,279,337 16,791,283
Net change in unearned ESOP shares 282,273 303,564 202,294
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 13,177,011 9,378,942 8,683,707
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of investment securities held-to-maturity (6,963,543) (10,676,990) (10,407,376)
Proceeds from maturities of investment securities held-to maturity 9,718,820 20,787,557 22,242,406
Purchase of investment securities available-for-sale (72,507,126) (74,762,151) (43,130,386)
Proceeds from sales of investment securities available-for-sale 16,261,551 10,770,039 26,462,808
Proceeds from maturities of investment securities available-for-sale 29,706,394 27,637,468 17,736,297
Net change in loans (124,530,387) (102,255,078) (91,568,863)
Capital expenditures (3,318,480) (4,268,152) (3,807,816)
Purchase of insurance policies related to Salary Continuation Plan 0 (1,875,000) 0
Other, net (313,080) 44,017 700,498
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (151,945,851) (134,598,290) (81,772,432)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net change in deposits 123,589,345 105,370,015 85,285,956
Net change in federal funds purchased and securities
sold under agreements to repurchase 8,420,968 4,264,939 (5,089,449)
Net change in other short-term borrowings 1,884,470 1,317,466 (6,379,604)
Proceeds from issuance of long-term debt 9,989,167 9,200,000 14,875,000
Proceeds from issuance of subordinated notes 0 6,000,000 0
Proceeds from issuance of stock in accordance with:
Stock Option Plan 278,352 128,378 118,386
Dividend Reinvestment Plan 191,571 154,002 11,059
Cash dividends paid (1,809,338) (1,407,513) (1,216,361)
Other, net 215,282 (2,216) 0
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 142,759,817 125,025,071 87,604,987
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 3,990,977 (194,277) 14,516,262
Cash and cash equivalents at January 1 47,519,033 47,713,310 33,197,048
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at December 31 $ 51,510,010 $ 47,519,033 $ 47,713,310
====================================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 30,673,422 $ 24,848,333 $ 20,551,427
Income taxes 5,188,986 4,545,718 2,126,192
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.
7
<PAGE>
Anchor Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
On August 31, 1998, Anchor Financial Corporation merged with ComSouth Bankshares
Inc. (ComSouth) and M&M Financial Corporation (M&M). The surviving entity was
Anchor Financial Corporation (the Corporation). The transactions were accounted
for as poolings of interests. The financial statements have been restated to
present combined financial information of the Corporation as if the merger had
been in effect for all periods presented.
The Corporation is a registered bank holding company incorporated on January 6,
1984 under the laws of the State of South Carolina. The Corporation was formed
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. The Corporation owns 100% of the issued and
outstanding stock of the Bank and Anchor Automated Services, Inc. (collectively
the "Subsidiaries").
The consolidated financial statements include the accounts of the Corporation
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated.
On August 11, 1997 the Board of Directors of the Corporation completed a
three-for-two split of its common stock. Accordingly, the consolidated
financial statements for all years presented have been restated to reflect the
impact of the stock split.
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, debt 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 as accumulated other comprehensive income. Realized gains and losses are
recognized on the specific identification method. Premiums and discounts are
included in the basis of investment securities and are recognized in income
using the effective interest method.
8
<PAGE>
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, a method approximating the effective interest
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, if material, are
deferred and amortized over the lives of the underlying loans as an adjustment
to interest income in accordance with SFAS No. 91, "Accounting for Nonrefundable
Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct
Costs of Leases." Deferred loan origination fees and direct costs, if material,
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.
Generally, all commercial and commercial real estate loans that are past due 90
days or more as to principal or interest, or where reasonable doubt exists as to
timely collection, including loans which are individually identified as being
impaired, are generally classified as nonaccrual loans unless well secured and
in the process of collection. Interest collections on nonaccrual loans for which
ultimate collectibility of principal is uncertain are applied as principal
reductions. Otherwise, such collections are credited to income when received.
In accordance with SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan," the Corporation measures loans 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 all impaired
commercial and commercial real estate loans on a loan by loan basis.
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
9
<PAGE>
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.
Foreclosed Properties: Assets are classified as foreclosed properties upon
actual foreclosure or when physical possession of the collateral is taken
regardless of whether foreclosure proceedings have taken place.
Foreclosed properties are carried at the lower of the recorded amount of the
loan for which the property previously served as collateral, or the fair value
of the property less estimated costs to sell.
Prior to foreclosure, the recorded amount of the loan is reduced, if necessary,
to the fair value, less estimated costs to sell. Subsequent to foreclosure,
gains and losses on the sale of and losses on the periodic revaluation of
foreclosed properties are credited or charged to expense. Net costs of
maintaining foreclosed properties are expensed as incurred.
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 20 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 $972,813 and
$1,208,234 at December 31, 1997 and 1996, 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 7 for
additional information on the components of income tax expense.
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
Sheets since such items are not assets of the Corporation.
10
<PAGE>
NOTE 2 - MERGERS AND ACQUISITIONS
On August 31, 1998, the Corporation completed the merger of ComSouth with and
into the Corporation through the issuance of .75 shares of the Corporation's
common stock for each share of outstanding common stock of ComSouth, or
1,755,990 shares.
In addition on August 31, 1998, the Corporation completed the merger of M&M
with and into the Corporation through the issuance of .87 shares of the
Corporation's common stock for each share of outstanding common stock of M&M,
or 875,321 shares.
The consolidated financial statements of the Corporation and subsidiaries have
been prepared to give retroactive effect to the mergers with ComSouth and M&M
which were consummated on August 31, 1998 by combining the historical
financial information of the companies for all periods presented. Pre-merger
intercompany balances and transactions, as described below, have been
eliminated.
As of December 31, 1997 and 1996, the Corporation owned 78,478 shares of
ComSouth common stock (58,874 shares after applying the ComSouth exchange ratio)
with a recorded fair value of $ 1,747,000 and $ 759,000, respectively. The
related unrealized gain of $ 842,000 (net of tax effect of $ 501,000) and
$223,000 (net of tax effect of $ 132,000) was recorded as a component of
stockholders' equity as of December 31, 1997 and 1996, respectively.
As of December 31, 1997 and 1996, M&M owned 5,755 and 14,853 shares of the
Corporation's common stock, respectively. M&M sold 9,300 shares of the
Corporation's common stock in 1997 and recognized a $ 258,000 gain on the sale
of the stock. The unrealized gain of $ 100,000 (net of tax effect of $ 62,000)
and $ 156,000 (net of tax effect of $ 98,000) was recorded as a component
of stockholders' equity as of December 31, 1997 and 1996, respectively.
11
<PAGE>
Separate results of the pooled entities for the three years ended December 31,
1997, in thousands, are as follows:
<TABLE>
<CAPTION>
Corporation ComSouth M&M Adjustments Combined
Total Interest and
Noninterest Income
<S> <C> <C> <C> <C> <C> <C>
1997 $ 47,728 $ 16,588 $ 13,476 $ (276) (1) $ 77,516
1996 39,640 12,922 10,750 63,312
1995 33,246 10,703 9,510 53,459
Net Interest Income
1997 23,675 8,013 6,137 895 (2) 38,720
1996 19,783 6,353 5,064 636 (2) 31,836
1995 16,671 5,109 4,394 370 (2) 26,544
Net Income
1997 6,114 2,254 1,127 (258) (1) 9,237
1996 4,769 1,828 859 (165) (3) 7,291
1995 3,539 1,381 593 (217) (3) 5,296
<FN>
(1) M&M realized a gross gain of $258 on the sale of 9,300 shares of
Anchor Common Stock during 1997. The remaining adjustment represents
reclassification of certain immaterial income and expense amounts.
(2) The Corporation reclassifed certain items classified by ComSouth and
M&M as noninterest income to interest income.
(3) The consolidated financial statements have been adjusted to exclude
from net income certain tax benefits recognized by ComSouth in the
years 1993 to 1996 associated with the reversal of deferred tax
valuation allowances.
</FN>
</TABLE>
12
<PAGE>
NOTE 3 - 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, 1997 was approximately $8,810,000.
NOTE 4 - INVESTMENT SECURITIES
The amortized cost and the estimated fair value of investment securities
held-to-maturity at December 31, 1997 and 1996 are presented below:
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------- ------------------------------------------------
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 $17,313,382 $66,687 $18,142 $17,361,927 $19,334,694 $40,553 $63,748 $19,311,499
Securities of other U.S. Government
agencies and corporations 9,582,189 23,762 4,873 9,601,078 9,562,456 21,603 44,694 9,539,365
Mortgage-backed securities 144,137 7,804 0 151,941 219,922 10,908 0 230,830
Obligations of states and
political subdivisions 4,861,090 88,424 0 4,949,514 5,486,385 157,057 0 5,643,442
-------------------------------------------- ------------------------------------------------
Total debt securities $31,900,798 $186,677 $23,015 $32,064,460 $34,603,457 $230,121 $108,442 $34,725,136
============================================ ================================================
</TABLE>
The amortized cost and the estimated fair value of investment securities
available-for-sale at December 31, 1997 and 1996 are presented below:
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------- ------------------------------------------------
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 $38,359,676 $382,413 $26,216 $38,715,873 $39,907,926 $330,138 $70,761 $40,167,303
Securities of other U.S. Government
agencies and corporations 78,140,991 467,689 48,372 78,560,308 63,510,583 214,599 199,716 63,525,466
Mortgage-backed securities 36,502,814 336,420 285 36,838,949 24,942,186 55,318 88,848 24,908,656
Obligations of states and
political subdivisions 5,085,722 137,921 0 5,223,643 4,143,341 115,460 1,175 4,257,626
-------------------------------------------- ------------------------------------------------
Total debt securities 158,089,203 1,324,443 74,873 159,338,773 132,504,036 715,515 360,500 132,859,051
Marketable equity securities 6,085,521 0 0 6,085,521 5,296,773 0 0 5,296,773
-------------------------------------------- ------------------------------------------------
Total investment securities $164,174,724 $1,324,443 $74,873 $165,424,294 $137,800,809 $715,515 $360,500 $138,155,824
============================================ ================================================
</TABLE>
13
<PAGE>
The amortized cost and estimated fair value of debt securities held-to-maturity
at December 31, 1997, 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 $12,022,112 $12,029,718
Due after one year through five years 19,450,706 19,598,951
Due after five years through ten years 260,474 263,794
Due after ten years 167,506 171,997
- ------------------------------------------------------------------------------------------------------------------------
Total $31,900,798 $32,064,460
========================================================================================================================
</TABLE>
The amortized cost and estimated fair value of debt securities
available-for-sale at December 31, 1997, 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 $25,603,701 $25,637,816
Due after one year through five years 68,109,399 68,649,076
Due after five years through ten years 36,675,074 37,071,875
Due after ten years 27,701,029 27,980,006
- -------------------------------------------------------------------------------------------------------------------------
Total $158,089,203 $159,338,773
=========================================================================================================================
</TABLE>
Investment securities with an amortized cost of $122,113,000 and $85,850,000, at
December 31, 1997 and 1996, 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
$16,261,551, $10,770,039, and $26,462,808 in 1997, 1996, and 1995, respectively.
Gross realized gains of $24,034, $5,009, and $267,296 were realized on these
sales during 1997, 1996, and 1995, respectively. Gross realized losses of
$41,455, $19,532, and $40,260 were realized on these sales during 1997, 1996,
and 1995, respectively.
There were no sales of held-to-maturity investment securities during 1997, 1996,
or 1995. In 1995, the Corporation transferred held-to-maturity investment
securities with an amortized cost of $20,064,377 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
($5,923), ($4,938), and $104,569 for 1997, 1996, and 1995, respectively.
14
<PAGE>
NOTE 5 - LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans at December 31 are comprised of the following:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial, financial, and agricultural $121,426,384 $107,990,553
Real estate-construction 64,417,006 43,249,407
Real estate-mortgage 260,927,621 214,999,895
Installment loans to individuals 174,553,733 146,762,335
Other 44,382,757 29,104,198
- ----------------------------------------------------------------------------------------------------------------------------
Gross Loans 665,707,501 542,106,388
Unearned income (118,631) (96,869)
- ----------------------------------------------------------------------------------------------------------------------------
Total Loans $665,588,870 $542,009,519
============================================================================================================================
</TABLE>
Loans made by the Corporation to directors, executive officers, and their
associates totaled $16,981,739 and $15,936,049 at December 31, 1997 and 1996,
respectively. During 1997, loans made and other additions totaled $10,811,346
and repayments and other deductions totaled $9,765,656. 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
$995,290 and $1,090,700 in 1997 and 1996, respectively, and are recorded at the
lower of cost or market value.
The primary market area served by the Corporation is along the coast of South
Carolina. The coastal resort areas of the Grand Strand, Charleston, 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. The Corporation's borrowers may be subject
to adverse economic events including the effects of local economic conditions or
natural disasters.
Activity in the allowance for loan losses for the three years ended December
31, 1997 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $6,630,958 $5,648,801 $5,115,809
Provision for loan losses 2,044,000 1,140,000 829,890
Recoveries on loans previously charged off 295,819 358,279 511,128
Loans charged off (1,649,286) (516,122) (808,026)
- ----------------------------------------------------------------------------------------------------------------------------
Balance at end of year $7,321,491 $6,630,958 $5,648,801
============================================================================================================================
</TABLE>
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, 1997 and 1996 held by the Corporation, are summarized below:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans $789,766 $990,432
Loans past due 90 days or more 77,673 137,428
Other real estate owned 187,000 126,245
Interest income which would have been recorded on
nonaccrual loans pursuant to original terms 71,992 72,374
Interest income recorded on nonaccrual loans 26,436 7,688
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
At December 31, 1997 and 1996 impaired loans had a related specific allowance
for loan losses totaling $224,022, and $254,672, respectively. There were no
material commitments to lend additional funds to customers whose loans were
classified as impaired at December 31, 1997 and 1996.
At December 31, 1997 and 1996, the Corporation did not have any loans for which
terms had been modified in troubled debt restructurings.
NOTE 6 - PREMISES AND EQUIPMENT
Premises and equipment at December 31 consist of the following:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $6,366,786 $5,802,392
Buildings and improvements 15,945,882 14,151,666
Leasehold improvements 972,862 1,233,911
Furniture and equipment 14,379,537 13,273,317
Construction in process 497,203 801,756
- ------------------------------------------------------------------------------------------------------------
Total 38,162,270 35,263,042
Less-Accumulated depreciation (15,729,680) (13,944,293)
- ------------------------------------------------------------------------------------------------------------
Net premises and equipment $22,432,590 $21,318,749
============================================================================================================
</TABLE>
Provisions for depreciation included in noninterest expense in 1997, 1996, and
1995 were $2,085,903, $1,979,479 and $1,781,418, 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 1997, 1996, and 1995 were $554,641, $505,804, and $401,309, respectively.
At December 31, 1997, 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>
1998 $549,020
1999 538,266
2000 239,753
2001 214,993
2002 179,787
2003 and thereafter 400,772
-----------------------------------------------------------------------
Total minimum obligation $2,122,591
=======================================================================
</TABLE>
16
<PAGE>
NOTE 7 - INCOME TAXES
The components of consolidated income tax expense (benefit) for the years ended
December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
Current:
<S> <C> <C> <C>
Federal $4,659,093 $3,761,905 $2,623,447
State 583,788 384,499 299,659
- ------------------------------------------------------------------------------------------------------------
Total 5,242,881 4,146,404 2,923,106
- ------------------------------------------------------------------------------------------------------------
Deferred:
Federal 22,054 (210,437) (132,860)
State 40,349 16,023 (6,430)
- ------------------------------------------------------------------------------------------------------------
Total 62,403 (194,414) (139,290)
- ------------------------------------------------------------------------------------------------------------
Provision for income taxes $5,305,284 $3,951,990 $2,783,816
============================================================================================================
</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 Sheets at December 31, are as follows:
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------------------
Deferred tax liabilities:
<S> <C> <C>
Tax depreciation over book ($585,412) ($561,576)
Unrealized gain - SFAS No. 115 (441,859) (119,552)
Other (404,314) (298,456)
- -----------------------------------------------------------------------------------------------
Total deferred tax liabilities (1,431,585) (979,584)
- -----------------------------------------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses 1,759,409 1,626,440
Deferred loan fees and costs 148,195 259,457
Deferred compensation 369,477 365,653
State net operating loss carryforward 370,353 176,502
Other 214,817 329,694
- -----------------------------------------------------------------------------------------------
Total deferred tax assets 2,862,251 2,757,746
- -----------------------------------------------------------------------------------------------
Net deferred tax asset before valuation allowance 1,430,666 1,778,162
Less: Valuation allowance (350,984) (313,764)
- -----------------------------------------------------------------------------------------------
Net deferred tax asset $1,079,682 $1,464,398
===============================================================================================
</TABLE>
17
<PAGE>
The realization of deferred tax assets may be based on the utilization of
carrybacks to prior taxable years and the anticipation of future taxable income
in certain periods. The valuation allowance primarily relates to deductible
temporary differences for state tax purposes. Management believes that it is
more likely than not that the deferred tax assets less the valuation allowance
will be realized.
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,
- ------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax expense at statutory rate $4,944,359 $3,822,572 $2,747,205
Increase (decrease) in taxes resulting from:
Non-taxable interest on investment securities (143,548) (153,524) (171,256)
State income tax expense, net of federal
income tax benefit 384,771 242,518 202,747
Other, net 119,702 40,424 5,120
- ------------------------------------------------------------------------------------------------------------
Total $5,305,284 $3,951,990 $2,783,816
============================================================================================================
</TABLE>
NOTE 8 - SHORT-TERM BORROWINGS
Short-term borrowings at December 31 include the following:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Federal funds purchased $8,500,000 $4,980,000
Securities sold under agreements to repurchase 17,466,838 12,565,870
- ----------------------------------------------------------------------------------------
Federal funds purchased and securities sold under
agreements to repurchase 25,966,838 17,545,870
- ----------------------------------------------------------------------------------------
Other short-term borrowings 5,065,450 3,180,980
- ----------------------------------------------------------------------------------------
Total short-term borrowings $31,032,288 $20,726,850
========================================================================================
Weighted average interest rate at December 31 5.18 % 5.08 %
Weighted average interest rate during the year 4.75 4.69
Maximum amount outstanding at any month-end $34,924,755 $38,843,377
Average amount outstanding during the year 21,928,226 16,221,887
</TABLE>
The Bank has a line of credit with the Federal Home Loan Bank ("FHLB") of
$87.5 million under which short-term and long-term funds may be borrowed. At
December 31, 1997, 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, qualifying first mortgage loans in the amount of
$105.4 million, and $1.6 million of debt securities. 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, 1997. 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.
18
<PAGE>
NOTE 9 - LONG-TERM DEBT AND SUBORDINATED NOTES
Advances from the FHLB with an initial maturity of more than one year totaled
$33,000,000 at December 31, 1997. These advances are collateralized by the same
collateral agreements as short-term funds from the FHLB (See Note 8). Fixed
interest rates on these advances ranged from 5.48% to 7.21%, payable monthly or
quarterly, 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 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 this issue 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 related to Subordinated Notes. This long-term debt
qualifies for inclusion in the determination of total capital under the
Risk-Based Capital guidelines.
During 1996, ComSouth borrowed $1,200,000 from another financial institution
under a revolving line of credit which was subsequently converted to a term loan
that matures December 2001. During 1997, ComSouth also borrowed $250,000 from
the same financial institution under another term loan agreement that matures in
September 2000. Both loans have variable interest rates (8.0% average rate for
1997 and at December 31, 1997) with quarterly principal payments plus interest.
These loans are collateralized with Bank of Columbia, a bank subsidiary of
ComSouth, common stock and have both been repaid subsequent to December 31,
1997.
Principal maturities on long-term debt and subordinated notes are summarized
below:
<TABLE>
<S> <C>
1998 11,323,333
1999 4,323,334
2000 6,302,500
2001 1,240,000
2002 6,000,000
2003 and thereafter 16,000,000
- -------------------------------------------------------------------------
Total $45,189,167
=========================================================================
</TABLE>
NOTE 10 - COMPARISON OF OTHER OPERATING EXPENSE
Other operating expense for the years ended December 31 includes the following:
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Postage and freight $478,316 $435,785 $390,580
Advertising and promotional materials 888,054 717,226 515,225
FDIC insurance assessment 83,000 10,054 569,731
Legal 933,357 201,901 321,313
Supplies 651,439 728,626 661,052
Telephone and data communications 692,504 582,739 518,219
Other 5,248,373 4,907,267 4,067,761
- -----------------------------------------------------------------------------------------------------------------------------
Total $8,975,043 $7,583,598 $7,043,881
=============================================================================================================================
</TABLE>
19
<PAGE>
Note 11: Net Income Per Share
In February 1997 the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings Per Share," which establishes standards for computing and
presenting earnings per share ("EPS") by replacing the presentation of primary
EPS with a presentation of basic EPS. In addition, SFAS No. 128 requires dual
presentation of basic and diluted EPS on the face of the income statement and
requires a reconciliation of the numerator and denominator of the diluted EPS
calculation. The Corporation has adopted SFAS No. 128 as of December 31, 1997
and has restated EPS for all prior periods presented.
Net income per share - basic is computed by dividing net income by the weighted
average number of common shares outstanding. Net income per share - diluted 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. Dilutive 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.
In accordance with SFAS No. 128, the calculation of net income per share - basic
and net income per share - diluted is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------------------------
Net income per share - basic computation
<S> <C> <C> <C>
Net income $9,236,950 $7,290,870 $5,296,200
Income available to common shareholders $9,236,950 $7,290,870 $5,296,200
========================================================
Weighted average common shares outstanding 6,380,398 6,347,452 6,308,038
Unallocated ESOP Shares (63,257) (76,119) (89,309)
--------------------------------------------------------
Weighted average common shares outstanding - basic 6,317,141 6,271,333 6,218,729
========================================================
Net income per share - basic $1.46 $1.16 $0.85
========================================================
Net income per share - diluted computation
Income available to common shareholders $9,236,950 $7,290,870 $5,296,200
========================================================
Weighted average common shares outstanding - basic 6,317,141 6,271,333 6,218,729
Incremental shares from assumed conversions:
Stock Options 386,050 268,211 130,897
--------------------------------------------------------
Weighted average common shares outstanding - diluted 6,703,191 6,539,544 6,349,626
--------------------------------------------------------
Net income per share - diluted $1.38 $1.11 $0.83
========================================================
</TABLE>
Options to purchase 30,000 shares of common stock at $33.50 per share were
outstanding during the fourth quarter of 1997, but were not included in the
computation of net income per share - diluted because the options' exercise
price was greater than the average market price of the common shares. The
options, which expire on December 8, 2007 were still outstanding at December 31,
1997.
20
<PAGE>
NOTE 12 - 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. Both ComSouth and M&M also had 401(k) plans which were
terminated subsequent to December 31, 1997. 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) Plans allow for
discretionary employer matching contributions and/or profit sharing
contributions. For 1997, the Boards of Directors of each company approved a
discretionary employer matching contribution and/or a profit sharing
contribution to the plans. 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, 1997, 1996, and 1995 were $700,797,
$571,384, and $474,515, 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, 1997, the ESOP
owned 338,457 shares of Corporation stock of which 58,186 shares were pledged to
secure loans outstanding. At December 31, 1997 and 1996, the principal balance
outstanding on the loans was $526,625 and $633,250, 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 stockholders' equity on the Consolidated Balance Sheet. As of
December 31, 1997 and 1996, the historical cost of unallocated shares of
$526,625 and $633,250, respectively were reflected as a reduction of
stockholders' equity. Compensation expense related to the ESOP of $409,532,
$386,649, and $328,257, respectively, has been included in employee benefits
expense for the three years ended December 31, 1997, 1996, and 1995 as discussed
above.
During 1997, M&M terminated its noncontributory defined benefit pension plan and
replaced it with a money purchase pension plan and trust which was also
terminated subsequent to December 31, 1997. A gain of $53,005 was recognized on
the termination of the defined benefit plan. For 1997, M&M accrued $140,000 in
plan expense for the money purchase pension plan including $130,000 in
contributions to the plan.
During 1996 and 1997, the Corporation adopted Salary Continuation Plans ("the
Plans") which provide salary continuation benefits after retirement for certain
officers. The Plans also provide for limited benefits in the event of early
termination or disability while employed by the Corporation and full benefits
to beneficiaries in the event of death of the officer. The officers vest in
the benefits in periods up to eight years and 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 Plans
totaled $114,272 and $79,440 for 1997 and 1996, respectively.
21
<PAGE>
NOTE 13 - STOCK OPTION PLANS
During 1988, 1994 and 1996, 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 and 1996 plans 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 and 1996 plans is ten years from the date of
grant. M&M adopted a stock option plan in 1997 covering certain of its officers
and employees. The per-share exercise price of options granted under the plan
may not be less than fair market value on the date of the grant and the
expiration date cannot exceed ten years. Participants become vested in options
granted based on years of service, and vesting is accelerated to 100% upon a
change of control of the company. ComSouth also had a number of stock option
plans for certain officers, employees and non-employee directors of the company.
The options are exercisable after periods of six months to five years with
accelerated vesting in the event of a change in control of the company, and the
options expire in periods of five to ten years. During 1997 two officers of
ComSouth were awarded options to purchase 13,500 shares each at $0.89 per share
with the options vesting one fifth each year for five years beginning October
10, 1998 and immediate vesting in the event of a change in control. Since these
options were granted at a price less than fair market value, ComSouth expensed
approximately $28,000 in additional compensation during 1997 and plans to
expense the balance over the existing vesting period.
Activity under the plans is summarized below:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------- ------------------------------- -------------------------------
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 540,323 $7.45 561,149 $7.25 313,176 $5.44
of year
Granted 127,162 16.87 7,607 10.90 274,500 9.16
Exercised (42,763) (6.51) (28,433) (4.52) (21,206) (5.58)
Expired (499) (9.67) 0 0.00 (5,321) (5.97)
------------- --------------- ------------- --------------- ------------- ---------------
Outstanding at end of year 624,223 $9.43 540,323 $7.45 561,149 $7.25
------------------------------- ------------------------------- -------------------------------
Options exercisable at end 441,555 $7.45 390,323 $6.59 286,649 $5.42
of year
Weighted-average fair value of
options granted during the year $12.49 $5.27 $2.24
</TABLE>
22
<PAGE>
At December 31, 1997, 441,555 optioned shares were exercisable at prices between
$0.89 and $15.33 per share for a total of $3,288,245. When options are
exercised, the exercise price is recorded as an addition to common stock
(including any tax benefit, if applicable). With the exception of the
ComSouth stock options above, 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, 1997.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------- ---------------------------------
Number Weighted-Average Number
Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Exercise Prices at December 31 Contractual Life Exercise Price at December 31 Exercise Price
---------------- -------------- ---------------- ---------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
$0.89 - 5.92 225,970 3.1 Years $4.75 198,970 $5.24
$6.87 - 15.33 358,503 6.7 Years 10.03 242,585 9.23
$21.22 - 33.50 39,750 9.5 Years 30.64 0 0.00
</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 1997, 1996 and 1995 as indicated below:
<TABLE>
<CAPTION>
As Reported Pro Forma
----------------------------------------------- -------------------------------------------------
1997 1996 1995 1997 1996 1995
------------- --------------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net income $9,236,950 $7,290,870 $5,296,200 $9,055,408 $7,098,379 $5,230,172
Net income per share-basic $1.46 $1.16 $0.85 $1.43 $1.13 $0.84
Net income per $1.38 $1.11 $0.83 $1.35 $1.09 $0.82
share-diluted
</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 for options granted by Anchor in
1997 and 1995, a risk-free interest rate of 6.00% and 6.18%, a dividend yield of
1.70% and 2.57%, an expected life of ten years, and a volatility ratio of 34%
and 8%, respectively. ComSouth assumptions for options issued in 1997, 1996, and
1995 were: risk-free interest rate of 6.43%, 6.25% and 6.25%, a dividend
yield of 0.00% for each year, an expected life of 5.7 years, 10.0 years and
5.0 years, respectively, and expected volatility of 17% for each year. M&M
used the following assumptions for options granted in 1997: risk-free interest
rate of 6.84%, a dividend yield of 2.78%, an expected life of ten years, and an
expected volatility of 0%. 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 prior to 1995.
23
<PAGE>
NOTE 14 - 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 15).
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, 1997
and 1996.
The following is a description of the methods and assumptions used to estimate
the fair value of each class of the Corporation's financial instruments:
Cash and short-term investments: The carrying amount is a reasonable estimate of
fair value.
Investment securities: For marketable securities held-to-maturity, fair values
are based on quoted market prices or dealer quotes. For securities
available-for-sale, fair value equals the carrying amount which is the quoted
market price. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.
Loans: For certain categories of loans, such as variable rate loans, credit card
receivables, and other lines of credit, the carrying amount, adjusted for credit
risk, is a reasonable estimate of fair value because there is no contractual
maturity and/or the Corporation has the ability to reprice the loan as interest
rate shifts occur. The fair value of other types of loans is estimated by
discounting the future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities. As the discount rates are based on current loan rates as
well as management estimates, the fair values presented may not necessarily be
indicative of the value negotiated in an actual sale.
Deposit liabilities: The fair value of demand deposits, savings accounts, and
certain money market deposits is the amount payable on demand at the reporting
date. The fair value of fixed-maturity certificates of deposit is estimated by
discounting the future cash flows using the rates currently offered for deposits
of similar remaining maturities.
Short-term borrowings: The carrying amount is a reasonable estimate of fair
value.
Long-term debt and subordinated notes: The fair value of long-term debt and
subordinated notes is estimated using discounted cash flow analyses, based on
the Corporation's estimated borrowing rates for similar types of borrowing
arrangements.
24
<PAGE>
NOTE 14 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
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.
The estimated fair values (in thousands) of the Corporation's financial
instruments at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- ----------------------------------------------------------------------------------------------------------------------------
Financial Assets:
<S> <C> <C> <C> <C>
Cash and short-term investments $51,510 $51,510 $47,519 $47,519
Investment securities 197,325 197,489 172,759 172,881
Loans 658,267 663,277 535,379 539,378
Financial Liabilities:
Deposits 796,682 797,460 673,093 673,351
Short-term borrowings 31,032 31,032 20,727 20,727
Long-term debt and subordinated notes 45,189 45,425 35,200 35,034
</TABLE>
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
Notional Estimated Notional Estimated
Amount Fair Value Amount Fair Value
- ----------------------------------------------------------------------------------------------------------------------------
Off-Balance Sheet Financial Instruments:
<S> <C> <C> <C> <C>
Commitments to extend credit $150,109 ($97) $108,968 $6
Standby letters of credit 5,406 0 2,839 0
Interest rate 25,000 24 25,000 103
contracts
</TABLE>
25
<PAGE>
NOTE 15 - 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 14) 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).
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 instuments at December 31, 1997 and 1996 are presented in Note 14.
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%. As of December 31, 1997, three-month Libor was
5.8125%. The Corporation paid a premium of $102,500 for the contract. The
notional and estimated fair value of this interest rate contract at December 31,
1997 and 1996 is presented in Note 14.
26
<PAGE>
Note 16 - 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, 1997, that the Corporation and the Bank
meet all capital adequacy requirements to which they are subject.
As of December 31, 1997, 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, 1997 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.
(Dollars in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
To Be Well
Capitalized
For Capital Under Prompt
Corrective
Actual Adequacy Purposes Action Provisions
- ------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------
As of December 31, 1997:
Total Capital
(to Risk-Weighted Assets)
<S> <C> <C> <C> <C> <C> <C>
Anchor Financial Corporation $82,182 11.93 % $55,120 8.00 % $68,900 10.00 %
The Anchor Bank 77,941 11.31 55,151 8.00 68,939 10.00
Tier 1 Capital
(to Risk-Weighted Assets)
Anchor Financial Corporation 63,861 9.27 27,560 4.00 41,340 6.00
The Anchor Bank 66,125 9.59 27,576 4.00 41,363 6.00
Tier 1 Capital
(to Average Assets)
Anchor Financial Corporation 63,861 6.88 37,120 4.00 46,400 5.00
The Anchor Bank 66,125 7.13 37,106 4.00 46,382 5.00
As of December 31, 1996:
Total Capital
(to Risk-Weighted Assets)
Anchor Financial Corporation 72,994 13.19 44,276 8.00 55,345 10.00
The Anchor Bank 68,801 12.40 44,371 8.00 55,464 10.00
Tier 1 Capital
(to Risk-Weighted Assets)
Anchor Financial Corporation 55,634 10.05 22,138 4.00 33,207 6.00
The Anchor Bank 58,013 10.46 22,186 4.00 33,278 6.00
Tier 1 Capital
(to Average Assets)
Anchor Financial Corporation 55,634 7.32 30,393 4.00 37,992 5.00
The Anchor Bank 58,013 7.65 30,338 4.00 37,922 5.00
</TABLE>
27
<PAGE>
NOTE 17 - 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 financial statements have been
restated for all periods presented to reflect the mergers with ComSouth and M&M
which were accounted for as poolings of interest.
The Parent's condensed balance sheets at December 31, 1997 and 1996 and
condensed statements of income and of cash flows for each of the three years in
the period ended December 31, 1997 are presented below.
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------------------------------------------------
Balance Sheet Data 1997 1996
- --------------------------------------------------------------------------------------------------
Assets:
<S> <C> <C>
Cash and cash equivalents $318,998 $545,657
Repurchase agreements 3,278,990 2,002,080
Investment in bank subsidiaries 67,927,214 59,472,627
Investment in bank subsidiary subordinated notes 4,500,000 4,500,000
Investment in other subsidiaries 108,694 103,767
Loans 526,625 633,250
Other assets 1,960,824 2,258,165
- --------------------------------------------------------------------------------------------------
Total assets $78,621,345 $69,515,546
==================================================================================================
Liabilities and Stockholders' Equity:
Notes payable $1,189,167 $1,200,000
Subordinated notes 11,000,000 11,000,000
Other liabilities 333,012 189,909
- --------------------------------------------------------------------------------------------------
Total liabilities 12,522,179 12,389,909
Stockholders' equity 66,099,166 57,125,637
- --------------------------------------------------------------------------------------------------
Total liabilities and stockholders'equity $78,621,345 $69,515,546
==================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
- --------------------------------------------------------------------------------------------------
Income Statement Data 1997 1996 1995
- --------------------------------------------------------------------------------------------------
Income:
<S> <C> <C> <C>
Dividend income from bank subsidiaries $2,866,580 $1,610,372 $2,009,991
Interest income from subsidiaries 106,911 25,169 98,658
Management fees from subsidiaries 1,019,265 971,336 878,193
Interest and fees on loans 435,185 64,851 11,015
Other income 45,101 58,221 66,823
- --------------------------------------------------------------------------------------------------
Total income 4,473,042 2,729,949 3,064,680
- --------------------------------------------------------------------------------------------------
Expense:
Interest on short-term borrowings 0 0 2,282
Interest on notes payable 90,096 45,912 233
Interest on subordinated notes 931,225 455,688 439,561
Salaries and employee benefits 752,165 640,763 579,079
Other expense 1,322,909 1,114,111 794,069
- --------------------------------------------------------------------------------------------------
Total expense 3,096,395 2,256,474 1,815,224
- --------------------------------------------------------------------------------------------------
Income before equity in undistributed earnings of
subsidiaries and taxes 1,376,647 473,475 1,249,456
Equity in undistributed earnings of subsidiaries 7,380,872 6,535,939 3,720,783
- --------------------------------------------------------------------------------------------------
Income before taxes 8,757,519 7,009,414 4,970,239
Benefit of income taxes (479,431) (281,456) (325,961)
- --------------------------------------------------------------------------------------------------
Net income $9,236,950 $7,290,870 $5,296,200
==================================================================================================
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31,
- -----------------------------------------------------------------------------------------------------
Cash Flows Data 1997 1996 1995
- -----------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $9,236,950 $7,456,192 $5,513,189
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiaries (7,380,872) (6,701,261) (3,937,772)
Depreciation of premises and equipment 66,250 57,980 41,528
Change in other assets (42,447) (216,916) (156,095)
Change in other liabilities 116,215 (268,441) 270,504
- -----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,996,096 327,554 1,731,354
- -----------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Investment in bank subsidiaries 0 (100,000) (1,500,000)
Investment in bank subsidiary subordinated notes 0 (4,500,000) 0
Investment in bank repurchase agreement (1,276,911) (1,700,169) 2,578,089
Net change in loans 106,625 203,359 (836,609)
Capital expenditures (30,570) (41,321) (606,406)
Other, net 330,998 (64,926) (7,580)
- -----------------------------------------------------------------------------------------------------
Net cash used for investing activities (869,858) (6,203,057) (372,506)
- -----------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net change in notes payable (10,833) 1,200,000 (125,000)
Proceeds from issuance of subordinated notes 0 6,000,000 0
Proceeds from issuance of common stock pursuant to:
Stock Option Plan 278,352 128,378 118,386
Dividend Reinvestment Plan 191,571 154,002 11,059
Fractional shares paid in stock split (2,649) (2,216) 0
Cash dividends paid (1,809,338) (1,407,513) (1,216,361)
- -----------------------------------------------------------------------------------------------------
Net cash (used for) provided by financing
activities (1,352,897) 6,072,651 (1,211,916)
- -----------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents (226,659) 197,148 146,932
Cash and cash equivalents at January 1 545,657 348,509 201,577
- -----------------------------------------------------------------------------------------------------
Cash and cash equivalents at December 31 $318,998 $545,657 $348,509
=====================================================================================================
</TABLE>
The Parent paid interest of $1,021,321, $487,094, and $442,266 in 1997, 1996,
and 1995, respectively.
29
<PAGE>
NOTE 18 - 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, 1997 and
1996:
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
1997 1996
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 $18,964 $18,073 $17,323 $16,094 $15,013 $14,743 $14,082 $13,375
Interest expense 8,719 8,103 7,731 7,181 6,693 6,431 6,220 6,033
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 10,245 9,970 9,592 8,913 8,320 8,312 7,862 7,342
Provision for loan losses 852 469 424 299 365 245 315 215
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 9,393 9,501 9,168 8,614 7,955 8,067 7,547 7,127
Gains (losses) on sale of investment
securities, net (21) 4 0 0 8 (4) (19) 0
Noninterest income 1,840 1,832 1,722 1,687 1,677 1,457 1,585 1,395
Noninterest expense 7,532 7,431 7,387 6,848 6,428 6,525 6,423 6,176
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 3,680 3,906 3,503 3,453 3,212 2,995 2,690 2,346
Provision for income taxes 1,444 1,387 1,234 1,240 1,130 1,083 934 805
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $2,236 $2,519 $2,269 $2,213 $2,082 $1,912 $1,756 $1,541
====================================================================================================================================
Net income per share - basic $0.35 $0.40 $0.36 $0.35 $0.33 $0.30 $0.28 $0.24
Net income per share - diluted 0.33 0.38 0.34 0.33 0.31 0.29 0.27 0.24
Weighted average shares
outstanding - basic 6,335,533 6,316,065 6,309,263 6,305,659 6,340,864 6,333,017 6,328,088 6,324,728
Weighted average shares
outstanding - diluted 6,769,416 6,694,799 6,652,478 6,643,312 6,612,079 6,534,533 6,501,562 6,495,373
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
30
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-73186) of
Anchor Financial Corporation of our report dated February 12, 1998, except as to
Note 2 which is as of August 31, 1998, relating to the consolidated financial
statements of Anchor Financial Corporation appearing on page 1 of this Current
Report on Form 8-K.
PricewaterhouseCoopers LLP
Columbia, South Carolina
January 27, 1999
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-73186) of
Anchor Financial Corporation of our report dated January 31, 1998, relating to
the consolidated financial statements of ComSouth Bankshares Inc.
appearing on page 2 of this Current Report on Form 8-K. The
consolidated financial statements of ComSouth Bankshares Inc. are not
separately presented on the Form 8-K.
J.W. Hunt and Company, LLP
Columbia, South Carolina
January 27, 1999
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-73186) of
Anchor Financial Corporation of our report dated March 9, 1998, relating to the
consolidated financial statements of M&M Financial Corporation appearing
on page 3 of this Current Report on Form 8-K. The consolidated financial
statements of M&M Financial Corporation are not separately presented in the
Form 8-K.
Tourville, Simpson & Henderson, LLP
Columbia, South Carolina
January 27, 1999
