FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2000 Commission file number 0-13759
ANCHOR FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
South Carolina 57-0778015
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification number)
2002 Oak St., Myrtle Beach, S.C. 29577
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (843)448-1411
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at May 8, 2000
- ------------------------------ ---------------------------
(Common stock, no par value) 8,117,346
<PAGE>
ANCHOR FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX
PAGE NO.
Part I - Financial Information
- ------------------------------
Item 1 - Financial Statements (Unaudited)
Consolidated Balance Sheets - March 31, 2000
and December 31, 1999 1
Consolidated Statements of Income - Three months
ended March 31, 2000 and 1999 2
Consolidated Statements of Changes in Stockholders' Equity
and Comprehensive Income - Three months ended
March 31, 2000 and 1999 3
Consolidated Statements of Cash Flows -
Three months ended March 31, 2000 and 1999 4
Notes to Consolidated Financial Statements 5-8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operation 9-12
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 13
Part II - Other Information
- ---------------------------
Item 1 - Legal Proceedings 14
Item 2 - Changes in Securities 14
Item 3 - Defaults Upon Senior Securities 14
Item 4 - Submission of Matters to a Vote of Security-Holders 14
Item 5 - Other Information 14
Item 6 - Exhibits and Reports on Form 8-K 14
<PAGE>
Anchor Financial Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 45,555,230 $ 35,843,218
Interest-bearing balances due from banks 605,042 151,561
Federal funds sold 17,700,000 2,700,000
Investment securities:
Held-to-maturity, at amortized cost (fair value of $6,020,421
in 2000 and $7,971,374 in 1999) 6,031,752 7,965,008
Available-for-sale, at fair value 252,084,471 254,609,916
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment securities 258,116,223 262,574,924
- -----------------------------------------------------------------------------------------------------------------------------------
Total Loans, net of unearned income 872,525,447 862,495,316
Less - allowance for loan losses (10,246,114) (9,924,114)
- -----------------------------------------------------------------------------------------------------------------------------------
Net loans 862,279,333 852,571,202
- -----------------------------------------------------------------------------------------------------------------------------------
Premises and equipment 26,990,050 27,112,076
Other assets 29,444,510 25,889,826
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 1,240,690,388 $ 1,206,842,807
===================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand deposits $ 173,231,656 $ 164,562,983
NOW and money market accounts 451,144,926 427,488,660
Time deposits $100,000 and over 85,078,929 83,947,691
Other time and savings deposits 290,679,225 290,657,318
- -----------------------------------------------------------------------------------------------------------------------------------
Total deposits 1,000,134,736 966,656,652
Federal funds purchased and securities
sold under agreements to repurchase 41,431,653 42,091,707
Other short-term borrowings 674,073 2,611,741
Long-term debt 85,200,000 85,200,000
Subordinated notes 11,000,000 11,000,000
Other liabilities 11,343,126 8,509,863
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,149,783,588 1,116,069,963
- -----------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Common stock, no par value; 50,000,000 shares
authorized; shares issued and outstanding - 8,117,346
in 2000 and 8,093,476 in 1999 54,315,550 54,147,996
Retained earnings 44,217,523 41,673,366
Accumulated other comprehensive income (loss) (6,712,898) (4,135,143)
Unearned ESOP shares (913,375) (913,375)
- -----------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 90,906,800 90,772,844
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 1,240,690,388 $ 1,206,842,807
===================================================================================================================================
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these financial statements.
1
<PAGE>
Anchor Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended March 31,
---------------------------------------------------
2000 1999
---------------------------------------------------
INTEREST INCOME:
<S> <C> <C>
Interest and fees on loans $ 19,692,277 $ 18,134,465
Interest on investment securities:
Taxable 3,825,340 3,660,192
Non-taxable 275,680 323,320
Other interest income 155,309 84,730
---------------------------------------------------
Total interest income 23,948,606 22,202,707
---------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 9,159,853 7,804,344
Interest on short-term borrowings 643,010 627,071
Interest on long-term borrowings 1,000,217 615,784
Interest on subordinated notes 231,572 230,324
---------------------------------------------------
Total interest expense 11,034,652 9,277,523
---------------------------------------------------
Net interest income 12,913,954 12,925,184
Provision for loan losses 550,000 425,750
---------------------------------------------------
Net interest income after provision for loan losses 12,363,954 12,499,434
---------------------------------------------------
NONINTEREST INCOME:
Service charges on deposit accounts 1,102,925 1,098,991
Commissions and fees 772,981 718,307
Trust income 620,994 509,142
Gains on sales of mortgage loans 232,435 382,115
Gains on sales of investment securities, net 0 63,148
Other operating income 272,075 207,628
---------------------------------------------------
Total noninterest income 3,001,410 2,979,331
---------------------------------------------------
NONINTEREST EXPENSE:
Salaries and employee benefits 5,358,049 5,533,429
Net occupancy expense 803,524 745,489
Equipment expense 687,284 696,895
Other operating expense 2,655,976 2,890,491
---------------------------------------------------
Total noninterest expense 9,504,833 9,866,304
---------------------------------------------------
Income before income taxes and equity in net income of
unconsolidated subsidiary 5,860,531 5,612,461
Equity in net income of unconsolidated subsidiary 0 56,103
---------------------------------------------------
Income before income taxes 5,860,531 5,668,564
Provision for income taxes 2,026,281 2,002,877
---------------------------------------------------
Net income $ 3,834,250 $ 3,665,687
===================================================
Net income per share - basic $ 0.48 $ 0.46
===================================================
Net income per share - diluted $ 0.46 $ 0.44
===================================================
Weighted average common shares outstanding - basic 8,061,040 8,039,276
===================================================
Weighted average common shares outstanding - diluted 8,290,015 8,319,098
===================================================
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these financial statements.
2
<PAGE>
Anchor Financial Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
and Comprehensive Income
Three Months ended March 31, 2000 and March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated
other Unearned Total
Common Stock Retained comprehensive ESOP stockholders'
Shares Amount earnings income shares equity
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 8,085,779 $54,653,232 $34,025,512 $1,417,951 ($1,095,000) $89,001,695
Comprehensive Income
Net income 3,665,688 3,665,688
Other comprehensive income,
net of tax
Unrealized loss on investment (1,872,437) (1,872,437)
securities
-------------
Total Comprehensive Income 1,793,251
-------------
Common stock issued pursuant to:
Stock Option Plan 20,453 110,749 110,749
Change in unearned ESOP shares 53,311 9,469 50,000 112,780
Cash dividends ($0.14 per share) (2,142,773) (2,142,773)
=============================================================================================
Balance at March 31, 1999 8,106,232 $54,817,292 $35,557,896 ($454,486) ($1,045,000) $88,875,702
=============================================================================================
Balance at December 31, 1999 8,093,476 $54,147,996 $41,673,366 ($4,135,143) ($913,375) $90,772,844
Comprehensive Income
Net income 3,834,250 3,834,250
Other comprehensive income,
net of tax
Unrealized loss on investment (2,577,755) (2,577,755)
securities
------------
Total Comprehensive Income 1,256,495
------------
Common stock issued pursuant to:
Stock Option Plan 23,870 113,403 113,403
Change in unearned ESOP shares 54,151 8,294 62,445
Cash dividends ($0.16 per share) (1,298,387) (1,298,387)
=============================================================================================
Balance at March 31, 2000 8,117,346 $54,315,550 $44,217,523 ($6,712,898) ($913,375) $90,906,800
=============================================================================================
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these financial statements.
3
<PAGE>
Anchor Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months ended March 31,
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 3,834,250 $ 3,665,688
Adjustments to reconcile net income to net cash provided by operating activities:
Accretion and amortization of investment securities 32,505 37,751
Depreciation and amortization 833,035 792,855
Provision for loan losses 550,000 425,750
Gains on sales of investment securities, net 0 (63,148)
Gains on sales of mortgage loans (232,435) (382,115)
Gains on sales of premises and equipment (8,000) (3,995)
Change in interest receivable (836,847) 218,295
Change in other assets (1,418,424) 4,564,639
Change in deferred taxes (1,462,178) (1,618,974)
Change in interest payable 953,688 (675,218)
Change in other liabilities 3,334,560 3,889,819
Equity in net income of unconsolidated subsidiary 0 (56,103)
Origination of mortgage loans held for sale (11,203,941) (26,554,951)
Proceeds from sales of mortgage loans held for sale 10,936,373 27,266,041
Net change in unearned ESOP shares 62,445 112,780
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 5,375,031 11,619,114
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from maturities of investment securities held-to-maturity 1,933,138 2,735,786
Purchase of investment securities available-for-sale (7,882,352) (34,456,949)
Proceeds from sales of investment securities available-for-sale 0 18,456,052
Proceeds from maturities of investment securities available-for-sale 6,340,376 14,883,096
Net change in loans (9,758,128) (19,766,278)
Capital expenditures (540,245) (271,530)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (9,907,211) (18,419,823)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net change in deposits 33,478,084 (2,504,688)
Net change in federal funds purchased and securities sold under
agreements to repurchase (660,054) (20,250,009)
Net change in other short-term borrowings (1,937,668) 529,756
Net change in long-term debt 0 27,068,226
Proceeds from issuance of stock in accordance with Stock Option Plan 113,405 110,749
Cash dividends paid (1,296,094) (2,142,773)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 29,697,673 2,811,261
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 25,165,493 (3,989,448)
Cash and cash equivalents at January 1 38,694,779 63,079,110
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at March 31 $ 63,860,272 $ 59,089,662
====================================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 10,080,964 $ 9,952,741
Income taxes 105,000 293,800
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these financial statements.
4
<PAGE>
ANCHOR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
The accompanying consolidated financial statements are
unaudited; however, such information reflects all adjustments
(consisting solely of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair statement of
the financial position and operating results of Anchor Financial
Corporation (the "Corporation") and its subsidiaries for the
periods presented. A summary of the Corporation's significant
accounting policies is set forth in Note 1 to the Consolidated
Financial Statements in the Corporation's Annual Report on Form
10-K for 1999.
The results of operations for the three month period ended March
31, 2000 are not necessarily indicative of the results to be
expected for the full year.
NOTE 2: ACQUISITIONS
On January 10, 2000, Anchor Financial Corporation and The South
Financial Group, formally known as Carolina First Corporation,
signed a definitive agreement for Anchor Financial to be
acquired by The South Financial Group. The merger is expected
to be accounted for as a pooling-of-interests and provide for a
tax-free exchange of 2.175 shares of The South Financial Group's
common stock for each outstanding share of Anchor Financial
common stock. On May 1, 2000 Anchor Financial and The South
Financial Group each received shareholder approval for the
merger. Pending normal regulatory approval, the transaction
is expected to be completed in the second quarter of 2000.
On April 9, 1999, the Corporation merged with Bailey Financial
Corporation ("Bailey Financial"). The surviving entity was
Anchor Financial Corporation. The transaction was accounted for
as a pooling of interests and provided for a tax-free exchange
of 16.32 shares of Anchor Financial common stock for each
outstanding share of Bailey Financial common stock. The
consolidated 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.
5
<PAGE>
ANCHOR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3: RESERVE FOR LOAN LOSSES
Activity in the reserve for loan losses for the three months
ended March 31, 2000 and 1999 is summarized as follows:
<TABLE>
<CAPTION>
2000 1999
-------------------------------------
<S> <C> <C>
Balance, beginning of year $9,924,114 $9,546,139
Provision charged to operations 550,000 425,750
Recoveries of charged off loans 136,086 232,457
Loans charged off (364,086) (153,650)
-------------------------------------
Balance, end of period $10,246,114 $10,050,696
=====================================
</TABLE>
NOTE 4: NONPERFORMING ASSETS
The following is a summary of nonperforming assets at March 31,
2000 and December 31, 1999. The income effect of interest
foregone on these assets is not material. The Corporation did
not have any loans with reduced interest rates because of
troubled debt restructuring, foreign loans, or loans for highly
leveraged transactions. Management is not aware of any
situation, other than those included in the summary below, where
known information about a borrower would require disclosure as a
potential problem loan.
<TABLE>
<CAPTION>
3/31/00 12/31/99
-------------------------------------
<S> <C> <C>
Nonaccrual loans $2,420,526 $2,720,757
Loans past due ninety days or more 0 0
Other real estate owned 500,209 346,727
-------------------------------------
Total nonperforming assets $2,920,735 $3,067,484
=====================================
</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.
At March 31, 2000, impaired loans had a related specific
allowance for loan losses totaling $1,589,415. There were no
material commitments to lend additional funds to customers whose
loans were classified as impaired at March 31,2000.
6
<PAGE>
ANCHOR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5: LONG-TERM DEBT AND SUBORDINATED NOTES
The principal maturity of long-term debt and subordinated notes
for the next five years subsequent to March 31, 2000 is
summarized below:
<TABLE>
<CAPTION>
<S> <C>
2000 $ 0
2001 1,000,000
2002 10,200,000
2003 16,000,000
2004 5,000,000
2005 and thereafter 64,000,000
--------------------------------------------------------------------------------------
Total $96,200,000
--------------------------------------------------------------------------------------
</TABLE>
At March 31, 2000, $9,000,000 of this long-term debt qualified
for inclusion in the determination of total capital under the
Risk-Based Capital guidelines.
NOTE 6: EARNINGS PER SHARE DATA
Earnings per share - basic is computed by dividing net income by
the weighted average number of shares outstanding. Earnings 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 shares outstanding.
7
<PAGE>
ANCHOR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In accordance with SFAS No. 128, "Earnings Per Share," the
calculation of net income per share - basic and net income per
share - diluted, including the effect of nonrecurring charges,
for the three months ended March 31 is presented below:
<TABLE>
<CAPTION>
Three months ended March 31,
-------------------------------------
2000 1999
-------------------------------------
<S> <C> <C>
Net income per share - basic computation
Net income $3,834,250 $3,665,687
Income available to common shareholders $3,834,250 $3,665,687
=====================================
Average common shares outstanding 8,105,356 8,099,012
Unallocated ESOP Shares (44,316) (59,736)
-------------------------------------
Average common shares outstanding - basic 8,061,040 8,039,276
-------------------------------------
Net income per share - basic $0.48 $0.46
=====================================
Net income per share - diluted computation
Income available to common shareholders $3,834,250 $3,665,687
=====================================
Average common shares outstanding - basic 8,061,040 8,039,276
Incremental shares from assumed conversions:
Stock Options 228,975 279,822
-------------------------------------
Average common shares outstanding - diluted 8,290,015 8,319,098
-------------------------------------
Net income per share - diluted $0.46 $0.44
=====================================
</TABLE>
NOTE 7: OTHER MATTERS
At March 31, 2000, outstanding standby letters of credit totaled
$2,995,022.
For the three months ended March 31, 2000 and 1999, the
Corporation paid interest of $10,080,964 and $9,952,741
respectively. The Corporation paid $105,000 in income taxes
during the three months ended March 31, 2000 and $293,800 during
the same period in 1999.
8
<PAGE>
ITEM 2. Management's Discussion and Analysis
Certain information included in this discussion contains forward-
looking statements with respect to the financial condition, results of
operations and business of the Corporation, based on management's belief and
information currently available to management. Such forward-looking statements
are subject to risks, uncertainties and assumptions. Actual results may vary
materially from those anticipated, estimated, projected, or expected. Among the
factors that may cause variations from such forward-looking statements are
fluctuations in the economy, especially in the Corporation's market areas;
changes in the interest rate environment; the Corporation's ability to realize
anticipated cost savings relating to recently completed mergers; the
Corporation's success in assimilating acquired operations in the Corporation's
culture, including its ability to instill the Corporation's credit culture into
acquired operations; the continued growth of the markets in which the
Corporation operates; and the enactment of legislation impacting the
Corporation.
Net Income
Net income for the first quarter of 2000 totaled $3,834,250, or $0.46
per diluted share, compared to net income of $3,665,688, or $0.44 per diluted
share earned in the same period of 1999.
The primary factors affecting the increase in net income for the first
quarter of 2000 were increases of $1,745,899 in interest income and $22,079 in
noninterest income, and a decrease in noninterest expense of $361,471. These
positive factors were offset by increases in interest expense of $1,757,129, the
provision for loan losses of $124,250, and the provision for income taxes of
$23,404.
For the quarter ended March 31, 2000, return on average assets and
return on average equity were 1.26% and 15.78%, respectively, compared to prior
year ratios of 1.28% and 16.57%.
Net Interest Income
Net interest income, the major component of the Corporation's net
income, was $12,913,954 for the first quarter of 2000, a decrease of $11,230 or
0.09% from the $12,925,184 reported for the same period in 1999. This slight
decrease was attributed to the decreased tax equivalent net yield on earning
assets which was 4.55% for the first quarter of 2000 compared with 4.88% for the
same period last year. The net interest margin narrowed from 1999 primarily
because of a higher cost of funding earning assets.
Interest income increased $1,745,899 or 7.9% for the three months ended
March 31, 2000 compared with the same period in 1999. The increase was due to
the growth in the volume of interest earning assets and the yield on earning
assets, which increased from 8.35% in 1999 to 8.40% in 2000. Average interest
earning assets for the three months ended March 31, 2000 increased $66.6 million
or 6.1% from the same period in 1999. Average loans increased $47.8
9
<PAGE>
million or 5.8% and average investment securities increased $14.9 million or
5.7% for the three months ended March 31, 2000 compared with the same period
in 1999. Average interest-earning assets represented 94.6% of average total
assets during the three months ended March 31, 2000 compared with 93.0% in 1999.
The yield on earning assets increased primarily because the yield on loans
increased from 8.99% in 1999 to 9.12% in 2000. The composition of average
interest-earning assets changed very slightly as the percentage of average loans
to average interest-earning assets was 75.5% in 1999 and 75.3% in 2000.
Interest expense increased $1,757,129 or 18.9% for the quarter ended
March 31, 2000 compared with the same period in 1999. The increase in interest
expense was due to an increase in the volume of average interest-bearing
liabilities and a higher rate paid on these funds during the period. The rate
paid on average interest-bearing liabilities increased from 4.19% for the three
months ended March 31, 1999 to 4.64% for the same period in 2000. Average
interest-bearing liabilities for the three months ended March 31, 2000 increased
$60.0 million or 6.2% from the same period in 1999. Average noninterest-bearing
sources decreased $3.1 million or 1.8% for the three months ended March 31, 2000
compared with the same period in 1999. Average interest-bearing liabilities
represented 83.0% of funding sources during the three months ended March 31,
2000 and 82.9% in 1999.
Provision for Loan Losses
A $550,000 provision for loan losses was made during the first quarter
of 2000 compared with a provision of $425,750 in 1999. The increase in the
provision for loan losses in 2000 was primarily due to the increase in loan
growth and an increase in net charge-offs. At March 31, 2000, the ratio of
annualized net charge-offs to average loans was 0.11%, compared with annualized
net recoveries to average loans of 0.04% at March 31, 1999.
Nonperforming assets at March 31, 2000 totaled $2,920,735 compared with
$3,187,210 reported at the same time last year. The Corporation's nonperforming
assets have historically remained relatively low as the result of conservative
underwriting policies and favorable market conditions. The ratio of
nonperforming assets to total loans and other real estate owned was 0.33% at
March 31, 2000, down from 0.38% at March 31, 1999.
The reserve for loan losses at March 31, 2000 and March 31, 1999
represented 1.17% and 1.21% respectively of total loans outstanding. Based on
the current evaluation of the loan portfolio, management believes the reserve
at March 31, 2000 is adequate to cover potential losses in the portfolio.
10
<PAGE>
Noninterest Income
Noninterest income for the first quarter of 2000 was up $22,079 or 0.7%
from the same period in 1999. The primary factors contributing to this increase
were increases in commissions and fees of $54,674 or 7.6% and trust income of
$111,852 or 22.0%. These positive factors were offset by a decrease in mortgage
banking income of $149,680 or 39.2%.
The growth in commissions and fees for the first quarter ended March
31, 2000 resulted primarily from increases in investment fee income, ATM network
revenue, and credit card-related service fees. Investment fee income benefited
from increased market penetration in existing markets and expansion into new
markets. Trust revenue continues to benefit from increased sales efforts and
favorable conditions in the Corporation's expanding markets. Mortgage banking
income was down due to the Corporation's markets experiencing a less favorable
interest rate environment.
Noninterest Expense
Noninterest expense for the first quarter of 2000 decreased $361,471
or 3.7% from the same period in 1999. The primary factors contributing to this
decrease were decreases in salaries and employee benefits of $175,380 or 3.2%,
other operating expense of $234,515 or 8.1%, and a decrease in equipment expense
of $9,611 or 1.4%. These decreases were offset by a 7.8% increase in occupancy
expense.
Noninterest expense for the first quarter of 1999 included pretax
nonrecurring merger-related charges of $121,787. Excluding the impact of these
nonrecurring charges, noninterest expense decreased $239,684 or 2.5% from the
first quarter of 1999 to the first quarter of 2000.
The Corporation's overhead efficiency ratio was 59.2% for the first
three months of 2000, an improvement from 60.7% for the same period in 1999.
These ratios exclude nonrecurring charges. The more favorable overhead
efficiency ratio resulted from management's focus on controlling costs and the
Corporation beginning to realize efficiencies from its acquisitions in
1999.
Income Taxes
The provision for income taxes for the first quarter of 2000 increased
$23,404 or 1.2% from the same period in 1999. The provision for income taxes
increased in 2000 primarily due to higher income before taxes since tax rates
remained the same.
11
<PAGE>
Financial Position
For the three months ended March 31, 2000, average total assets
increased 4.4%, average loans increased 5.8% and average deposits increased
1.9% from the same period in 1999.
Because the economy of the Corporation's coastal market areas are
seasonal in nature, deposit growth is strong during the summer months and loan
demand usually reaches its peak during the winter months. This seasonality is
caused by the economic impact of a large number of tourists visiting coastal
South Carolina and North Carolina during the summer months. Thus, the
Corporation historically has a more favorable liquidity position during the
summer. To meet loan demand and liquidity needs during the winter months, the
Corporation typically invests sizable amounts of its deposit growth during the
summer months in temporary investments and short-term securities maturing in the
winter months. Additionally, the Corporation has access to other funding
sources including federal funds purchased from correspondent banks, and a line
of credit with the Federal Home Loan Bank ("FHLB") to meet its liquidity needs.
The Corporation utilizes long-term advances from the FHLB as part of
its funding strategy. FHLB long-term advances totaled $68,687,080 at March 31,
2000 compared with $45,683,511 at March 31, 1999.
The Corporation continues to have a strong capital position by industry
standards with the ratio of average stockholders' equity to average total assets
at March 31, 2000 of 7.97% and March 31, 1999 of 7.70%. At March 31, 2000 and
March 31, 1999, the total risk-based capital ratio was 12.46% and 12.38%,
respectively, and the leverage ratio was 7.94% and 7.63%, respectively.
Accounting and Regulatory Matters
On June 15, 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," (SFAS No. 133"). SFAS No. 133
is effective for all fiscal quarters of all fiscal years beginning after
June 15, 1999 (January 1, 2000 for the Corporation). SFAS No. 133 requires that
all derivative instruments be recorded on the balance sheet at their fair value.
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133," which delays the original effective date of SFAS No. 133
until fiscal years beginning after June 15, 2000. Adoption of SFAS No. 133 is
not expected to have a material impact on the Corporation. Changes in the fair
value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, the type of hedge transaction. Due to its
limited use of derivative instruments, the adoption of SFAS No. 133 is not
expected to have a significant effect on the Corporation's results of operations
or its financial position.
Management is not aware of any known trends, events,
uncertainties, or current recommendations by regulatory authorities that
will have or that are reasonably likely to have a material effect on the
Corporation's liquidity, capital resources, or other operations.
12
<PAGE>
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in market risk exposures that
affect the quantitative or qualitative disclosures presented as of the preceding
fiscal year end in the Corporation's Annual Report on Form 10-K.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
ITEM 5. OTHER INFORMATION
Anchor Bank's Annual Meeting has been delayed indefinitely pending the
completion of the merger with Carolina First.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
/s/ Stephen L. Chryst
Stephen L. Chryst, Chairman,
President and Chief Executive
Officer
/s/ Tommy E. Looper
Tommy E. Looper, Executive Vice
President and Chief Financial
Officer
Date: May 8, 2000
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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