United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 25049
FORM 10-KSB/A
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1997
Commission File No. 33-78602
Peoples Bancorporation, Inc.
A South Carolina Corporation
(IRS Employer Identification No. 57-0951843)
1800 East Main Street
Easley, South Carolina 29640
(864) 859-2265
Securities Registered Pursuant to Section 12 (b) of the Securities Exchange
Act of 1934:
None
Securities Registered Pursuant to Section 12 (g) of the Securities Exchange
Act of 1934:
None
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No_____
Check if no disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is contained in this form, and no disclosure will be contained, to the best
of Registrant's knowledge, is definitive proxy or information statements
incorporated by reference in Part II of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The issuer's revenues for its fiscal year were $1,303,773.
The aggregate market value of the common stock the Registrant held by
nonaffiliates of the Registrant (1,689,010 shares) on March 9, 1998 was
approximately $21,957,130. As of such date, no organized trading market existed
for the common stock of the Registrant. For the purpose of this response,
officers, directors and holders of 5% or more of the Registrant's common stock
are considered the affiliates of the Registrant at that date.
The number of shares outstanding of the Registrant's common stock, as of March
9, 1998: 1,689,010 shares of $1.67 par value common stock.
DOCUMENTS INCORPORATED BY REFERENCE
None
1
<PAGE>
PART I
ITEM 1. BUSINESS
Peoples Bancorporation, Inc. (the "Company") is a registered bank
holding company under the Federal Bank Holding Company Act of 1956, as amended,
and owns 100% of the outstanding capital stock of The Peoples National Bank,
Easley, South Carolina (the "Bank"). The Bank commenced business operations in
August 1986 in a permanent facility owned by the Bank located at 1800 East Main
Street, Easley, South Carolina. See "Business - Facilities." The Bank was formed
principally in response to perceived opportunities resulting from the takeover
of several South Carolina-based banks by large southeastern regional bank
holding companies. The Company was incorporated under the laws of the State of
South Carolina on March 6, 1992 and on July 1, 1992, the Company acquired all of
the issued and outstanding common stock of the Bank in exchange for a like
number of shares of Common Stock of the Company in a reorganization establishing
a one-bank holding company structure. The holding company structure is a
mechanism designed to enhance the Bank's ability to serve its future customer's
requirements for financial services. The holding company structure provides
flexibility for expansion of the Company's banking business through the
acquisition of other financial institutions and provision of additional
banking-related services, which the traditional commercial bank may not provide
under present laws.
The Bank is a full service commercial bank, without trust powers. The
Bank offers a full range of banking services, including commercial and retail
checking accounts, negotiable order of withdrawal ("NOW") accounts, public funds
accounts, money market accounts, "packaged" accounts, individual retirement
accounts, regular interest-bearing statement savings accounts, certificates of
deposit, daily repurchase agreements, business accounts, commercial loans, real
estate loans, consumer direct/indirect installment loan, an accounts receivable
financing program and a personalized investment and insurance service. In
addition, the Bank provides such consumer services as notary services,
photocopying, signature guarantees, incoming and outgoing collections, travelers
checks, U. S. Savings Bonds, cashiers checks, money orders and wire transfer
services. Moreover, safe deposit boxes, custodial services, ACH processing and
account reconciliation, night depository service, and automated teller services
are available.
On December 16, 1987, the Bank opened a branch office in Powdersville,
South Carolina, approximately seven miles from the Bank's main office. On
February 1, 1993, the Bank opened a second branch in Pickens, South Carolina,
approximately ten miles from the Bank's main office. On September 9, 1997, the
Bank received approval from the Office of the Comptroller of the Currency to
open a branch in Seneca, South Carolina, approximately twenty-five miles from
the Bank's main office. The Seneca office is expected to open for business in
September 1998.
In October 1997 the Company announced it would be forming a new bank in
Anderson, South Carolina. The announcement of Regions Financial Corporation
purchasing First United Banoproation, based in Anderson, South Carolina created
an opportunity for the Company. Anderson, whose $960 million in deposits
represent a market three times as large as Easley, is better suited for a
full-fledged locally owned community bank. Consequently, Bank of Anderson, N. A.
is currently in the the application process through regulatory channels and is
expected to open in the latter part of 1998. The size of the new market
potential will necessitate a stock offering to capitalize the Anderson bank.
2
<PAGE>
MARKET AREA AND COMPETITION
The primary market area of the Bank is the County of Pickens and a
portion of Anderson County, including the communities of Easley, Powdersville
and Pickens, South Carolina, approximately 10 miles west of Greenville, South
Carolina. The Bank encounters competition in its primary service area and in
surrounding areas from two savings and loan institutions, branches of six
statewide banking institutions and one local bank. These competitors offer a
full range of banking services and vigorously compete for all types of services,
especially deposits. Some competition also comes from out-of-state banks seeking
to make loans in the Bank's primary service area. Only two of the competing
financial institutions in the Bank's primary service area are headquartered in
Pickens County. In addition, in certain aspects of its banking business, the
Bank also competes with credit unions, small loan companies, consumer finance
companies, brokerage houses, insurance companies, money market funds and other
financial institutions that have invaded the traditional banking markets.
The competition among various financial institutions is based upon
interest rates offered on deposit accounts, interest rates charged on loans,
credit and credit charges, the quality of services rendered, the convenience of
banking facilities and in the case of loans to large commercial borrowers,
relative lending limits.
The extent to which other types of financial institutions compete with
commercial banks has increased significantly within the past few years as a
result of federal and state legislation that has, in several respects,
deregulated financial institutions. The full impact of existing legislation and
subsequent laws that deregulated the financial services industry cannot be fully
assessed or predicted.
3
<PAGE>
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDER'S EQUITY; INTEREST
RATES AND INTEREST DIFFERENTIAL
The following is a presentation of the average consolidated balance
sheets of the company for the years ended December 31, 1997 and 1996. This
presentation includes all major categories of interest-earning assets and
interest-bearing liabilities:
AVERAGE CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
For the years ended
December 31,
1997 1996
------------ ------------
Assets
<S> <C> <C>
Cash and Due from Banks ................................. $ 3,271,306 $ 3,094,378
Taxable Securities ...................................... 18,022,897 14,122,633
Tax-Exempt Securities ................................... 4,818,725 4,167,452
Federal Funds Sold ...................................... 4,512,572 3,962,707
Net Loans ............................................... 73,098,893 59,895,061
------------ ------------
Total Earning Assets 100,453,087 82,147,853
Other Assets ............................................ 4,034,530 3,044,800
------------ ------------
Total Assets ............................................ $107,758,923 $ 88,287,031
============ ============
Liabilities and
Shareholders' Equity
Noninterest-bearing Deposits ............................ $ 10,790,606 $ 10,349,637
Interest-bearing Deposits:
Interest Checking ..................................... 12,544,560 8,988,648
Savings Deposits ...................................... 4,034,337 4,200,047
Money Market .......................................... 9,769,988 7,370,302
Certificates of Deposit ............................... 44,733,541 37,954,728
Individual Retirement Accounts ........................ 5,433,680 5,190,301
------------ ------------
Total Interest-bearing Deposits ......................... 76,516,106 63,704,026
Short-term Borrowings ................................... 4,695,847 4,831,048
Long-term Borrowings .................................... 5,753,732 601,052
Other Liabilities ....................................... 907,884 784,519
------------ ------------
Total Liabilities .................................. 98,664,175 80,270,282
------------ ------------
Common Stock ............................................ 2,694,780 2,545,299
Surplus ................................................. 4,399,333 3,770,578
Undivided Profits ....................................... 2,000,635 1,700,872
------------ ------------
Total Shareholders' Equity ......................... 9,094,748 8,016,749
------------ ------------
Total Liabilities and
Shareholders' Equity ................................... $107,758,923 $ 88,287,031
============ ============
</TABLE>
4
<PAGE>
The following is a presentation of an analysis of the net interest
earnings of theCompany for the years ended December 31, 1997 and 1996 with
respect to each major category of interest-earning assets and each major
category of interest-bearing liabilities:
<TABLE>
<CAPTION>
Year Ended December 31, 1997
----------------------------
Assets Average Interest Average Net
Amount Earned Yield Yield
------------ --------- ------ -----
<S> <C> <C> <C>
Securities - Taxable ................................. $ 18,022,897 $1,122,296 6.23%
Tax-Exempt ....................... 4,818,725 245,055 8.44%*
Federal Funds Sold ................................... 4,512,572 245,109 5.43
Net Loans ............................................ 73,098,893 6,638,429 9.08%
----------- ----------
Total Earning Assets ............................ $100,453,087 8,250,889 8.37%* 4.34%
============ =========
Liabilities
Interest checking .................................... $ 12,544,560 $ 310,528 2.48%
Savings Deposits ..................................... 4,034,337 92,830 2.30%
Money Market ......................................... 9,769,988 392,665 4.02%
Certificates of Deposit .............................. 44,733,541 2,458,693 5.50%
Individual Retirement Accounts ....................... 5,433,680 307,394 5.66%
----------- ----------
76,516,106 3,562,110 4.66%
Short-term Borrowings ................................ 4,695,847 145,797 3.10
Long-term Borrowings ................................. 5,753,732 345,420 6.00%
----------- ----------
Total Interest-bearing Liabilities .............. $86,965,685 $4,053,327 4.66%
=========== ==========
</TABLE>
* Calculated on a fully taxable equivalent basis using a federal tax rate of
34%.
For purposes of these analyses, non-accruing loans are included in the
average balances. Loan fees included in interest earned are not material to the
presentation. Net yield on interest earning assets is calculated by dividing net
interest earnings by total interest earning assets.
5
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1996
----------------------------
Assets Average Interest Average Net
Amount Earned Yield Yield
------------ --------- ------ -----
<S> <C> <C> <C> <C>
Securities - Taxable ................................... $14,122,633 $ 902,851 6.39%
Tax-Exempt ......................... 4,167,452 211,825 8.44%*
Federal Funds Sold ..................................... 3,962,707 210,978 5.32%
Net Loans .............................................. 59,895,061 5,579,901 9.32%
----------- -----------
Total Earning Assets .............................. $82,147,853 $ 6,905,555 8.58%* 4.76%
Liabilities
Interest checking ...................................... $ 8,988,648 $ 195,189 2.17%
Savings Deposits ....................................... 4,200,047 116,560 2.78%
Money Market ........................................... 7,370,302 247,034 3.35%
Certificates of Deposit ................................ 37,954,728 2,084,082 5.49%
Individual Retirement Accounts ......................... 5,190,301 306,519 5.91%
----------- -----------
63,704,026 2,949,384 4.63%
Short-term Borrowings .................................. 4,831,048 150,345 3.11%
Long-term Borrowings ................................... 601,052 31,951 5.32%
----------- -----------
Total Interest-bearing Liabilities ................ $69,136,126 $ 3,131,680 4.53%
=========== ===========
</TABLE>
* Calculated on a fully taxable equivalent basis using a federal tax rate of
34%.
For purposes of these analyses, non-accruing loans are included in the
average balances. Loan fees included in interest earned are not material to the
presentation. Net yield on interest earning assets is calculated by dividing net
interest earnings by total interest earning assets.
6
<PAGE>
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
The effect of changes in average balances (volume) and rates on
interest income, interest expense and net interest income, for the periods
indicated, is shown below. The effect of a change in average balance has been
determined by applying the average rate in the earlier period to the change in
average balance in the later period, as compared with the earlier period. The
effect of a change in the average rate has been determined by applying the
average balance in the earlier period to the change in the average rate in the
later period, as compared with the earlier period. Changes resulting from
average balance/rate variances are included in changes resulting from volume.
<TABLE>
<CAPTION>
Year Ended December 31,
1997 compared to 1996
Increase (Decrease) Due to
--------------------------
Volume Rate Change
---------- --------- -----------
Interest earned on:
Securities
<S> <C> <C> <C>
Taxable ............................................... $ 243,427 $ (23,982) $ 219,445
33,230
Tax-Exempt ............................................ 33,120 110
Federal Funds Sold ..................................... 29,968 4,163 34,131
Net Loans .............................................. 1,202,276 (143,748) 1,058,528
---------- --------- -----------
Total Interest Income ................................... 1,508,791 (163,457) 1,345,334
---------- --------- -----------
Interest paid on:
Interest Checking ...................................... 93,938 21,401 115,339
Savings Deposits ....................................... (4,835) (18,895) (23,730)
Money Market ........................................... 121,654 23,977 145,631
Certificates of Deposit ................................ 372,586 2,025 374,611
Individual Retirement Accounts ......................... 14,054 (13,179) 875
---------- --------- -----------
597,397 15,329 612,726
Short-term Borrowing ................................... (4,197) (351) (4,548)
Long-term Borrowing .................................... 309,879 3,590 313,469
---------- --------- -----------
Total Interest Expense .................................. 903,079 18,568 921,647
Change in Net Interest Income ........................... $ 605,712 $(182,025) $ 423,687
=========== ========= =========
</TABLE>
7
<PAGE>
As reflected in the table above, the increase in 1997 net interest
income of $423,687 is due to the changes in volume. On the interest income side,
substantially all the $1,345,334 increase was related to the volume growth in
the loan and investment portfolios. At the end of 1996, the Bank won a bid for
municipal funds in excess of $3 million, for which the Bank invested in
securities. The increase in loan volume is the result of the Bank's equity line
product introduced during the third quarter of 1996 and the increase in real
estate loans. On the deposit side, substantially all the $921,647 increase in
interest expense was due to the large volume change in the certificates of
deposit, long-term borrowing and money market accounts during 1997. During the
second quarter of 1997, the Bank increased the rate it pays on its money market
accounts to position itself more in line with investment rates. This strategy
generated money market funds in excess of $7 million.
<TABLE>
<CAPTION>
Year Ended December 31,
1996 compared to 1995
Increase (Decrease) Due to
--------------------------
Volume Rate Change
--------- --------- --------
Interest earned on:
Securities
<S> <C> <C> <C>
Taxable ..................................... $ (506) $ (76) $ (582)
Tax-Exempt .................................. 39,163 (2,536) 36,627
Federal Funds Sold ........................... 23,094 (19,860) 3,234
Net Loans .................................... 572,723 158,708
--------- --------- --------
Total Interest Income ......................... 634,474 (436,487) 197,987
--------- --------- --------
Interest paid on:
Interest Checking ............................ 44,534 (60,926) (16,392)
Savings Deposits ............................. 11,415 (12,664) (1,249)
Money Market ................................. (57,303) 1,989 (55,314)
Certificates of Deposit ...................... 216,098 (23,636) 192,462
Individual Retirement Accounts ............... 33,784 3,578 37,362
--------- --------- --------
248,528 (91,659) 156,869
Short-term Borrowing ......................... 5,904 (262) 5,642
Long-term Borrowing .......................... (40,048) 577 (39,471)
--------- --------- --------
Total Interest Expense ........................ 214,384 (91,344) 123,040
--------- --------- --------
Change in Net Interest Income ................. $ 420,090 $(345,143) $ 74,947
========= ========= ========
</TABLE>
As reflected in the table above, the increase in 1996 net interest
income of $74,947 is due to the changes in volume. On the interest income side,
substantially all the $197,987 increase was related to the volume growth in the
loan and investment portfolios. On the deposit side, all the increase in
interest expense was due to the large volume change in the certificate of
deposit portfolio during 1996. During the third quarter of 1996, the Bank
celebrated its tenth anniversary by offering a premium rate on ten-month
certificates of deposit, which generated an excess of $4,000,000.
8
<PAGE>
LOAN PORTFOLIO
The Company engages, through the Bank, in a full complement of lending
activities, including commercial, consumer, installment and real estate loans.
Commercial lending is directed principally towards businesses whose
demand for funds fall within the Bank's legal lending limits and which are
potential deposit customers of the Bank. This category of loans includes loans
made to individuals, partnerships or corporate borrowers, and which are obtained
for a variety of business purposes. Particular emphasis is placed on loans to
small and medium-sized businesses. The Bank's real estate loans consist of
residential and commercial first mortgage loans, second mortgage financing and
construction loans.
The Bank's direct consumer loans consist primarily of installment loans
to individuals for personal, family and household purposes, including automobile
loans to individuals, and pre-approved lines of credit.
Management believes the loan portfolio is adequately diversified. There
are no foreign loans and few agricultural loans. The following table presents
various categories of loans contained in the Company's loan portfolio and the
total amount of all loans at December 31, 1997 and 1996.
December 31,
Type of Loan 1997 1996
- ------------ ---- ----
Commercial and Industrial ................. $11,030,426 $ 7,295,457
Real Estate ............................... 55,291,191 47,644,328
Consumer Loans ............................ 10,527,486 11,224,839
----------- -----------
Subtotal ............................. 76,849,103 66,164,624
Less allowance for loan losses ....... 987,138 760,679
----------- -----------
Net Loans ................................. $75,861,965 $65,403,945
The following is a presentation of an analysis of maturities of loans
as of December 31, 1997:
<TABLE>
<CAPTION>
Due after 1
Due in 1 year up to Due after
Type of Loans year or less 5 years 5 years Total
- ------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Commercial & Industrial .......... $ 5,043,796 $ 5,684,411 $ 302,219 $11,030,426
Real Estate ...................... 14,117,301 26,639,561 14,534,329 55,291,191
Consumer Loans ................... 3,161,671 6,964,646 401,169 10,527,486
Total ....................... $22,322,768 $39,288,618 $15,237,717 $76,849,103
</TABLE>
All loans are recorded according to original terms, and demand loans,
overdrafts and loans having no stated repayment terms or maturity are reported
as due in one year or less.
At December 31, 1997, the amount of loans due after one year with
predetermined interest rates totaled approximately $34,350,700 while the amount
of loans due after one year with floating interest rates totaled approximately
$8,809,100.
9
<PAGE>
Accrual of interest is discontinued on a loan when management of the
Bank determines, after consideration of economic and business factors affecting
collection efforts, that collection of interest is doubtful. At December 31,
1997, the Company had $757,206 in non-accruing loans, one $9,898 restructured
loan and a $142,317 loan greater that ninety days past due on which interest was
still being accrued. This compares with $397,530 in non-accruing loans, no
restructured loans and a $123,366 loan greater than ninety days past due on
which interest was still being accrued at December 31, 1996. Nonperforming
assets as a percentage of loans and other real estate owned were 1.17% and 0.87%
at December 31, 1997 and 1996, respectively. The allowance for loan losses as a
percentage of nonperforming loans was 91% and 146% as of December 31, 1997 and
1996, respectively.
With respect to the loans accounted for on a non-accrual basis, the
gross interest income that would have been recorded if the loans had been
current in accordance with their original terms and outstanding throughout the
period or since origination amounts to $65,191 for the year ended December 31,
1997 and $24,195 for the year ended December 31, 1996.
During 1997, $206,009 of the $397,530 in nonaccrual loans at December
31, 1996 paid out, $10,840 was charged off, $1,688 was brought current and
$178,993, representing four loans, remain on non-accrual as a result of
bankruptcy proceedings. The loan contractually past due ninety days or more at
December 31, 1996 was brought current during 1997.
As of December 31, 1997, there were no loans classified for regulatory
purposes as doubtful, substandard or special mention that have not been
disclosed above, which (i) represent or result from trends or uncertainties
which management reasonably expects will materially impact future operating
results, liquidity, or capital resources, or (ii) represent material credits
about which management is aware of any information which causes management to
have serious doubts as to the ability of such borrowers to comply with the loan
repayment terms.
The Company accounts for impaired loans in accordance with the
provision of Statement of Financial Accounting Standard (SFAS) No. 114,
"Accounting by Creditors for Impairment of a Loan." SFAS No 114, as amended by
SFAS No. 118, requires that impaired loans be measured based on the present
value of expected future cash flows or the underlying collateral values as
defined in the pronouncement. The Company includes the provision of SFAS No.114,
if any, in the allowance for loan losses. When the ultimate collectibility of an
impaired loan's principal is in doubt, wholly or partially, all cash receipts
are applied to principal. When this doubt does not exist, cash receipts are
applied under the contractual terms of the loan agreement first to principal
then to interest income. Once the recorded principal balance has been reduced to
zero, future cash receipts are applied to interest income, to the extent that
any interest has been foregone. Further cash receipts are recorded as recoveries
on any amounts previously charged off. At December 31, 1997 and 1996, the
recorded investment in loans for which impairment has been recognized is
$195,000 and $0, respectively. The impairment allowance is included in the
allowance for loan losses.
SUMMARY OF LOAN LOSS EXPERIENCE
An analysis of the Company's allowance for loan losses is furnished in
the following table for the years ended December 31, 1997 and 1996.
Years Ended December 31,
1997 1996
-------- --------
Balance at beginning of year $760,679 $669,664
Charge-offs:
Commercial and Industrial............................ 31,941 42,805
Real Estate ......................................... 8,273 2,447
Consumer ............................................ 86,163 147,805
-------- --------
126,377 193,057
-------- --------
10
<PAGE>
Years Ended December 31,
1997 1996
-------- --------
Recoveries:
Commercial and Industrial............................ 11,606 9,727
Real Estate ......................................... 1,747 1,150
Consumer ............................................ 15,008 13,115
-------- --------
28,361 23,992
Net Charge-offs ....................................... 98,016 169,065
Provision for loan losses ............................. 324,475 260,080
-------- --------
Balance at end of year ................................ $987,138 $760,679
======== ========
Asset Quality Ratios:
Net Charge-offs to average loans
outstanding during the period ........................ 0.13% 0.28%
Net charge-offs to total loans
outstanding at end of period ......................... 0.13% 0.26%
Allowance for loan losses to
average loans ........................................ 1.33% 1.26%
Allowance for loan losses to
total loans .......................................... 1.29% 1.15%
Net charge-offs to allowance
for loan losses ...................................... 9.93% 22.23%
Net charge-offs to provision
for loan losses ...................................... 30.21% 65.00%
Net charge-offs of $98,016 in 1997 is $71,048 or 58% lower than 1996's
charge-offs of $169,065. Of the $134,990 in consumer loans charged-off in 1996,
over $92,000 was attributable to the bankruptcy of one business.
The Allowance for Loan Losses is increased by direct charges to
operating expense. Losses on loans are charged against the allowance in the
period in which management determined it is more likely than not such loans have
become uncollectable. Recoveries of previously charged-off loans are credited to
the allowance.
In reviewing the adequacy of the Allowance of Loan Losses, management
takes into consideration the historical loan losses experienced by the Bank,
current economic conditions affecting the borrower's ability to repay, the
volume of loans, and the trends of delinquent, nonaccruing, and potential
problem loans, and the quality of collateral securing nonperforming and problem
loans. After charging off all known losses, management considers the Allowance
for Loan Losses adequate to cover its estimate of possible future loan losses
inherent in the loan portfolio as of December 31, 1997.
11
<PAGE>
In calculating the amount required in the Allowance for Loan Losses,
management applies a consistent methodology that is updated monthly. The
methodology utilizes a loan risk grading system and detailed loan reviews to
assess credit risks and the overall quality of the loan portfolio, as well as
other off-balance sheet credit risks such as loan commitments and standby
letters of credit. In general, consumer and commercial and industrial loans are
considered to have the greatest degree of risk as compared to real estate
secured loans. Also, the calculation provides for management's assessment of
trends in national and local economic conditions that might effect the general
quality of the loan portfolio. Management's calculation of the Allowance for
Loan Losses does not provide an allocation by individual loan categories. Under
management's present policies, the minimum allowance will not be less than 1.0%
of the Company's outstanding total loans plus $100,000.
INVESTMENTS
The Bank invests primarily in obligations of the United States or
obligations guaranteed as to principal and interest by the United States, other
taxable securities and in certain obligations of states and municipalities. The
Bank enters into Federal Funds transactions with its principal correspondent
banks and primarily acts as a net seller of such funds. The sale of Federal
Funds amounts to a short-term loan from the Bank to another bank.
The following table summarizes the book and fair values of investment
securities held by the Company at December 31, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
---- ----
Amortized Fair Amortized Fair
Cost Value Cost Value
-------------------------------- --------------------------------
AVAILABLE FOR SALE:
Obligations of U.S. Treasury
<S> <C> <C> <C> <C>
and other U.S. Government
agencies ..................................... $18,605,977 $18,560,150 $13,644,586 $13,578,978
State and political
subdivisions ................................. 1,047,925 1,054,984 1,454,500 1,470,688
Other Securities ............................... 696,126 705,445 713,426 724,582
----------- ----------- ----------- -----------
Total Available for Sale ....................... $20,350,028 $20,320,579 $15,812,512 $15,774,248
----------- ----------- ----------- -----------
HELD FOR INVESTMENT
State and political
Subdivisions ................................. $ 3,852,356 $ 3,953,648 $ 3,312,304 $ 3,348,651
----------- ----------- ----------- -----------
Total Held for Investment ...................... $ 3,852,356 $ 3,953,648 $ 3,312,304 $ 3,348,651
----------- ----------- ----------- -----------
Total ................................ $24,202,384 $24,274,227 $19,124,816 $19,122,899
=========== =========== =========== ===========
</TABLE>
The Company accounts for investments in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." Investments
classified as Available for Sale are carried at market value. Unrealized holding
gains or losses are reported as a component of shareholder's equity net of
deferred income taxes. Securities classified as Held for Investment are carried
at cost, adjusted for the amortization of premiums and the accretion of
discounts. In order to qualify as Held for Investment, the Company must have the
ability and intent to hold the securities to maturity. Trading securities are
carried at market value. The Company has no trading securities.
At December 31, 1997, the Company's total investment portfolio had a
book value of $24,202,384 and a market value of $24,274,227 for an unrealized
net loss of $29,449.
12
<PAGE>
The following table indicates the respective maturities and weighted
average yields of securities as of December 31, 1997:
<TABLE>
<CAPTION>
Amortized Weighted
Cost Average Yield
------------- -------------
AVAILABLE FOR SALE
<S> <C> <C>
Obligations of U.S. Treasury
and other Government
agencies:
0 - 1 Year ................................................................... $ 7,930,096 6.85%
1 - 5 Years .................................................................. 8,037,213 5.91%
5 - 10 Years ................................................................. 1,385,610 6.36%
Greater than 10 Years ........................................................ 1,253,058 6.72%
State & political subdivisions:
0 - 1 Year ................................................................... 921,988 8.60%*
1 - 5 Years .................................................................. 125,937 9.38%*
Other Securities:
No stated maturity ........................................................... 696,126 6.09%
Total ................................................................... $20,350,028 5.97%
===========
HELD FOR INVESTMENT State & political subdivisions:
1 - 5 Year ................................................................... $ 2,415,831 8.46%*
5 - 10 Years ................................................................. 1,436,525 7.60%*
-----------
Total ................................................................... $ 3,852,356 8.14%*
===========
</TABLE>
* Computed on a fully taxable-equivalent basis using a federal tax rate of 34%.
DEPOSITS
The company offers a full range of interest-bearing and
noninterest-bearing accounts, including commercial and retail checking accounts,
negotiable orders of withdrawal ("NOW") accounts, public funds accounts, money
market accounts, individual retirement accounts, including Keogh plans with
stated maturities, regular interest-bearing statement savings accounts and
certificates of deposit with fixed rates and a range of maturity date options.
The sources of deposits are residents, businesses and employees of businesses
within the Company's market area, obtained through the personal solicitation of
the Company's officers and directors, direct mail solicitations and
advertisements published in the local media. The Company pays competitive
interest rates on interest checking, savings, money market, time and individual
retirement accounts. In addition, the Bank has implemented a service charge fee
schedule competitive with other financial institutions in the Company's market
area, covering such matters as maintenance fees on checking accounts, per item
processing fees on checking accounts, returned check charges and the like.
The Company's average deposits in 1997 were $87,306,712, compared to
$74,053,663 the prior year, an increase of $13,253,049 or 17.90%. Average
noninterest-bearing deposits increased approximately $491,000 in 1997, average
interest checking accounts increased $3.5 million or 39.56%, average money
market accounts increased $2.4 million or 32.56% and certificates of deposit
increased $6.8 million or 17.86%. Internal growth, particularly from account
promotions, the Company's marketing commitment in 1997, and the acquisition of
one of the Bank's main competitors by an out-of-state financial institution,
generated the new deposits. Competition for deposit accounts is primarily based
on the interest rates paid, location convenience and services offered.
13
<PAGE>
The following table presents, for the years ended December 31, 1997 and
1996, the average amount of and average rate paid on each of the following
deposit categories:
<TABLE>
<CAPTION>
Deposit Category Average Amount Average Rate Paid
- ---------------- -------------- -----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Noninterest-bearing
deposits ......................................... $10,790,606 $10,349,637
Interest-bearing Deposits
Interest Checking ................................ 12,544,560 8,988,648 2.48% 2.17%
Savings Deposits ................................. 4,034,337 4,200,047 2.30% 2.78%
Money Market ..................................... 9,769,988 7,370,302 4.02% 3.35%
Certificates of Deposit .......................... 44,733,541 37,954,728 5.50% 5.49%
Individual Retirement
Accounts ....................................... 5,433,680 5,190,301 5.66% 5.91%
</TABLE>
The Company's core deposits consist of consumer time deposits, savings
accounts, NOW accounts, money market accounts and checking accounts. Although
such core deposits are becoming increasingly interest sensitive for both the
Company and the industry as a whole, such core deposits continue to provide the
Company with a large and stable source of funds. Core deposits as a percentage
of average total deposits averaged approximately 82% in 1997. The company
closely monitors its reliance on certificates of deposits greater than $100,000,
which are generally considered less stable and less reliable than core deposits.
The Company does not believe that it has any brokered deposits.
The following table indicates amounts outstanding of time certificates
of deposit of $100,000 or more and respective maturities as of December 31,
1997:
Time Certificates
of Deposit
3 months or less $8,839,092
4 - 6 months 5,751,870
7 - 12 months 5,665,552
Over 12 months 2,282,533
----------
Total $22,539,047
RETURN ON EQUITY AND ASSETS
Returns on average consolidated assets and average consolidated equity
for the years ended December 31, 1997 and 1996 are as follows:
December 31,
1997 1996
---- ----
Return on Average Assets 1.21% 1.21%
Return on Average Equity 14.34% 13.30%
Average Equity to Average
Assets Ratio 8.44% 9.08%
Dividend Payout Ratio 16.06% 16.88%
14
<PAGE>
SHORT-TERM BORROWINGS
The following table summarizes the Company's short-term borrowings for
the years ended December 31, 1997 and 1996. These borrowings consist of federal
funds purchased and securities sold under agreement to repurchase, which
generally mature on a one business day basis.
1997 1996
---- ----
Balance at year end $4,433,554 $4,926,891
Rate at year end 3.10% 3.10%
Maximum amount outstanding at any
month end $4,955,332 $8,293,500
Average amount outstanding during
the year $4,686,696 $4,831,048
Average rate paid during the year 3.10% 3.11%
ASSET LIABILITY MANAGEMENT
Asset/liability management is the process by which the Company monitors
and controls the mix and maturities of its assets and liabilities. The essential
purposes of asset/liability management are to ensure adequate liquidity and to
maintain an appropriate balance between interest sensitive assets and
liabilities. It is the overall philosophy of management to support asset growth
primarily through growth of core deposits, which include deposits of all
categories made by individuals, partnerships and corporations. Management of the
Company seeks to invest the largest portion of its assets in commercial,
consumer and real estate loans.
The Company has an established Asset/Liability Management Committee. It
is the responsibility of the Committee to establish parameters for various
interest risk measures, to set strategies to control interest rate risk within
those parameters, to maintain adequate and stable net interest income, and to
direct the implementation of tactics to facilitate achieving its objectives.
The Company's Asset/Liability Management Committee monitors the
asset/liability mix on a monthly basis and a quarterly report, reflecting
interest sensitive assets and interest sensitive liabilities is prepared and
presented to the Company's Board of Directors.
Management is not aware of any current recommendations by the
regulatory authorities, which if they were to be implemented, would have a
material effect on the Company's liquidity, capital resources or results of
operations.
15
<PAGE>
INTEREST SENSITIVITY
The following is a combined maturity and repricing analysis of rate
sensitive assets and liabilities as of December 31, 1997.
<TABLE>
<CAPTION>
Interest Sensitivity Analysis
(dollars in thousands)
Within 3 4-12 Over 5
months months 1-5 years years Total
INTEREST-EARNING ASSETS:
<S> <C> <C> <C> <C> <C>
Federal Funds Sold ............................................... $ 4,570 $ 0 $ 0 $ 0 $ 4,570
Investment Securities ............................................ 2,367 9,238 8,465 4,132 4,202
Loans ................................................... 38,254 8,648 27,766 2,180 76,848
-------- --------
Total Interest-Earning Assets ...................................... 45,191 17,886 36,231 6,312 105,620
INTEREST-BEARING LIABILITIES:
Interest Checking ................................................ 12,371 0 0 0 12,371
Savings Deposits ................................................ 4,747 0 0 0 4,747
Money Market ..................................................... 14,427 0 0 0 14,427
Time Deposits .................................................... 15,637 31,999 5,886 115 53,637
Other Borrowings ................................................. 31 0 2,000 0 2,031
-------- --------
Total Interest-Bearing Liabilities ................................. $ 47,213 $ 31,999 $ 7,886 $ 115 $ 87,213
Interest sensitive gap ............................................. $ (2,022) $(14,113) $ 28,345 $ 6,197
Cumulative interest sensitive gap .................................. $ (2,022) $(16,134) $ 12,211 $ 18,408
RSA/RSL ............................................................ 96% 56%
Cumulative RSA/RSL ................................................. 96% 80%
</TABLE>
RSA - rate sensitive assets; RSL - rate sensitive liabilities
The objectives of interest rate sensitivity management are to ensure
the adequacy of net interest income and to control the risks to net interest
income associated with movements in interest rates.
The above table reflects the balances of interest earning assets and
interest-bearing liabilities at the earlier of their repricing or maturity
dates. All interest sensitive assets and liabilities are evaluated as maturing
at the earlier of repricing date or contractual maturity date, while liabilities
without specific terms such as interest checking, money market and savings
accounts, are generally considered core deposits for liquidity purposes and
whose rates are subjectively set by management, are deemed to reprice
immediately for purposes of interest rate sensitivity analysis. At December 31,
1997, on a cumulative basis within one year, rate sensitive liabilities of
approximately $79,212,000 (of which approximately $20,545,000 is considered core
deposits) exceeded rate sensitive assets of approximately $63,077,000, resulting
in a liability sensitive position at the end of 1997 of $16,134,000. Based on
historical experience, and that of similar institutions, the Company believes
that it is unlikely that so many deposits would be withdrawn without being
replaced by other deposits.
While the static gap is a widely used measure of interest sensitivity,
management believes it is not a precise indicator of the Company's sensitivity
position. The table above represents a static view of the timing of maturities
and repricing opportunities, without taking into consideration that changes in
interest rates do not affect all assets and liabilities equally. For example,
rates paid on a substantial portion of savings and core time deposits may
contractually change within a relatively short time frame, but those rates are
significantly less interest sensitive than market-based rates such as those paid
on non-core deposits. Net interest income may be impacted by other significant
factors in a given interest rate environment, including the spread between the
prime rate and the incremental borrowing costs and the volume and mix of earning
assets growth. Accordingly, the Company uses an asset/liability simulation model
16
<PAGE>
that qualifies balance sheet and earnings variation under different interest
rate environments as its primary tool to measure and manage of interest rate
risk. The model reports a base case in which interest rates rise or fall 300
basis points. According to the model, the Company is presently position so that
net interest income will increase if interest rates rise in the near future and
will decrease slightly if interest rates decline in the near term
In an effort to reduce the negative gap, management continues to
emphasize variable rate loans, short-term investments (under two year
maturities) and the extension of deposit maturities. Management believes that
the current and future balance sheet structure of interest-sensitive assets and
liabilities does not represent a material risk to earnings or liquidity in the
event of a change in market rates.
LIQUIDITY
Liquidity management involves meeting the cash flow requirements of the
Company. These cash flow requirements primarily involve the withdrawal of
deposits, extensions of credit, payment of operating expenses and repayment of
purchased funds. The Company's principal sources of funds for liquidity purposes
are customer deposits, principal and interest payments on loans, maturities and
sales of debt securities, temporary investments and earnings.
It is the policy of the Company to maintain a liquidity ratio, an
indication of a company's ability to meet its short-term funding obligations, of
greater than 15%. At December 31, 1997, the Company's liquidity ratio was
approximately 24%.
The Company maintains an available for sale portfolio. While investment
securities are purchased with the intent to be held to maturity, such securities
are marketable and occasional sales may occur prior to maturity as part of the
liquidity management. Management deliberately maintains a short-term maturity
schedule for its investments so that there is a continuing stream of maturing
investments. At year-end 1997, the average life of the investment portfolio was
2.3 years. The company intends to maintain a short-term investment portfolio in
order to continue to be able to supply liquidity to its loan portfolio and for
customer withdrawals.
The Bank has demonstrated ability to attract deposits from its market.
Deposits have grown from $17 million in 1986 to over $96 million in 1997. This
stable growing base of deposits is the major source of operating liquidity.
The Company also maintains federal funds lines of credit with
correspondent banks in the amount of $2.5 million, and is able to borrow from
the Federal Home Loan Bank (the "FHLB"). At December 31, 1997 unused borrowing
capacity from the FHLB totaled approximately $14 million. During 1997, the
company decreased FHLB advances to $2,030,612 at December 31, 1997 from
$6,397,959 at December 31, 1996. While FHLB advances remain a source of funding,
the Bank has increased its emphasis on retail banking and raised deposits
through market promotions and sales efforts, thereby decreasing FHLB advances.
The Company believes that the potential benefits of cross-selling these
customers other products and services would offset any increase in the cost of
funds.
MONETARY POLICIES
The earnings of bank holding companies are affected by the policies of
regulatory authorities, including the Board of Governors of the Federal Reserve
System, in connection with its regulation of the money supply. Various methods
employed by the Federal Reserve Board include open market operations in U. S.
Government securities, changes in the discount rate on member bank borrowings
and changes in reserve requirements against member bank deposits. These methods
are used in varying combinations to influence overall growth and distribution of
bank loans, investments and deposits, and their use may also affect interest
rates charged on loans or paid on deposits. The monetary policies of the Federal
Reserve Board have had a significant effect on the operating results of
commercial banks in the past and are expected to continue to do so in the
future.
17
<PAGE>
CORRESPONDENT BANKING
Correspondent banking involves the provision of services by one bank to
another bank, which cannot provide that service for itself from an economic or
practical standpoint. The Bank is required to purchase correspondent services
offered by larger banks, including check collections, purchase of Federal Funds,
security safekeeping, investment services, overline and liquidity loan
participations and sales of loans to or participations with correspondent banks.
The Bank sells loan participations to correspondent banks with respect
to loans which exceed the Bank's lending limit. Management of the Bank has
established a correspondent relationship with Wachovia Bank and Trust,
Charlotte, North Carolina, AmSouth Bank, N. A., Birmingham, Alabama, Bankers
Bank of the South, Atlanta, Georgia and First Tennessee Bank, N. A., Memphis,
Tennessee. As compensation for services provided by a correspondent, the Bank
maintains certain balances with such correspondent in non-interest bearing
accounts.
DATA PROCESSING
The Company has a data processing department, which performs a full
range of data processing services for the Bank. Such services include an
automated general ledger, deposit accounting, loan accounting, data processing
and investment portfolio accounting.
YEAR 2000
The Company acknowledges that there is a business risk in computerized
systems as the new century approaches. Many computer-based information systems
in use today exclude the century as part of the date definition, which could
cause inaccurate interest calculations on loans and deposits. A number of
computer systems used by the Company in its day-to-day operations will be
affected by the "Year 2000 Problem." Management has established a Year 2000
Project Team (the "Y2K Team") which has identified all affected systems and is
currently working to ensure that this event will not disrupt operations. The Y2K
Team reports regularly to the Company's Board of Directors. The Company is also
working closely with all outside computer vendors to ensure that all software
corrections and warranty commitments are obtained and to implement internal
"mock" testing. The estimated cost to the Company for these corrective actions
is $100,000, which is included in the Company's 1998 and 1999 budgets.
Incomplete or untimely compliance, however, could have a material adverse effect
on the company, the dollar amount of which cannot be accurately quantified at
this time because of the inherent variables and uncertainties involved.
EMPLOYEES
The Company and the Bank presently employ forty-five (45) full-time and
nine (9) part-time persons, including thirteen (13) officers. The Bank will hire
additional persons as needed on a full-time and part-time basis, including
additional tellers and customer service representatives. Management believes
that its employee relations are excellent.
SUPERVISION AND REGULATION
The Company and the Bank operate in a highly regulated
environment, and their business activities are governed by statute, regulation
and administrative policies. The business activities of the Company and Bank are
closely supervised by a number of federal regulatory agencies, including the
Federal Reserve Board, the Comptroller of the Currency (the "Comptroller") and
the Federal Deposit Insurance Corporation (the "FDIC"). The Company is regulated
by the Federal Reserve Board under the Federal Bank Holding Company Act of 1956,
as amended, which requires every bank holding company to obtain the prior
approval of the Federal Reserve Board before acquiring more than 5% of the
voting shares of any bank or all or substantially all of the assets of a bank,
and before merging or consolidating with another bank holding company. The
Federal Reserve Board (pursuant to regulation and published policy statements)
has maintained that a bank holding company must serve as a source of financial
strength to its subsidiary banks. In adhering to the Federal Reserve Board
policy the Company may be required to provide financial support to a subsidiary
bank at a time when, absent from such Federal Reserve Board policy, the Company
may not deem it advisable to provide such assistance.
18
<PAGE>
Under the Riegel-Neal Interstate Banking and Branching Efficiency Act
of 1994, the existing restrictions on interstate acquisition of banks by bank
holding companies are being repealed, such that the Company and any other bank
holding company located in South Carolina would be able to acquire a bank
located in any other state, and a bank holding company located outside South
Carolina could acquire any South Carolina-based bank, in either case subject to
certain deposit percentages and other restrictions. The legislation also
provides that, unless an individual state elects beforehand with (i) to
accelerate the effective dates or (ii) to prohibit out-of-state banks from
operating interstate branches within its territory, on or after June 1, 1997,
adequately capitalized and managed bank holding companies will be able to
consolidate their multi-state bank operations into a single bank subsidiary and
to branch interstate through acquisitions. De novo branching by an out-of-state
bank would be permitted only if it is expressly permitted by the laws of the
host state. The authority of a bank to establish and operate branches within a
state will continue to be subject to applicable state branching laws.
A bank holding company is generally prohibited from acquiring control
of any company which is not a bank and from engaging in any business other than
the business of banking or managing and controlling banks. However, there are
certain activities which have been identified by the Federal Reserve Board to be
so closely related to banking as to be a proper incident thereto thus
permissible for bank holding companies, including the following activities:
acting as an investment or financial advisor to subsidiaries and certain outside
companies; leasing personal and real property or acting as a broker with respect
thereto; providing management consulting advice to nonaffiliated banks and
nonbank depository institutions; operating collection agencies and credit
bureaus; acting as a futures commission merchant; providing data processing and
data transmission services; acting as an insurance agent or underwriter with
respect to limited types of insurance; performing real estate appraisals;
arranging commercial real estate equity financing; providing securities
brokerage services; and underwriting and dealing in obligation of the United
States, the states and their political subdivisions.
As a bank holding company registered under the South Carolina Bank
Holding Company Act, the Company also is subject to regulation by the South
Carolina State Board of Financial Institutions (the "State Board").
Consequently, the Company must receive the approval of the State Board prior to
engaging in the acquisition of banking or nonbanking institutions or assets. The
Company must also file with the State Board periodic reports with respect to its
financial condition and operation, management and intercompany relations between
the Company and its subsidiaries.
As a national bank, the Bank is subject tot he supervision of the
Comptroller and, to a limited extent, the FDIC and the Federal Reserve Board.
With respect to expansion, the Bank may establish branch offices anywhere within
the State of South Carolina. The Bank is also subject to the South Carolina
banking and usury laws restricting the amounts of interest which it may charge
in making loans or other extensions of credit. In addition, the Bank, as a
subsidiary of the Company, is subject to restrictions under federal law in
dealing with the Company and other affiliates, if any. The restrictions apply to
the extensions of credit to an affiliate, investment in securities of an
affiliate and the purchase of assets from an affiliate.
Loans and extensions of credit by national banks are subject to legal
lending limitations, under federal law, a national bank may grant unsecured
loans and extensions of credit in an amount up to 15% of its unimpaired capital
and surplus to any person. In addition, a national bank may grant loans and
extension of credit to a single person up to 10% of its unimpaired capital
surplus, provided that the transactions are fully secured by readily marketable
collateral having a market value determined by reliable and continuously
available price quotations. This 10% limitation is separate from, and in
addition to, the 15% limitation for unsecured loans. Loans and extensions of
credit may exceed the general lending limits if they qualify under one of
several exceptions. Such exceptions include certain loans or extensions of
credit arising from the discount of commercial or business paper, the purchase
of banker's acceptances, loans secured by documents of title, loans secured by
U. S. obligations and loans to or guaranteed by the federal government.
19
<PAGE>
Both the Company and the Bank are subject to regulatory capital
requirements imposed by the Federal Reserve Board and the Comptroller. The
Federal Reserve Board as adopted capital adequacy guidelines for holding
companies and banks that are members of the Federal Reserve System to its
regulation. For bank holding companies with less than $150 million in
consolidated assets, such as the Company, the guidelines are applied on a
bank-only basis.
Under the guidelines, the minimum ratio of total capital for
risk-weighted assets (including certain off-balance sheet activities, such as
standby letters of credit) is 8%. At least half of the total capital is required
to be "Tier 1 Capital," principally consisting of common shareholders' equity,
noncumulative perpetual preferred stock, and a limited amount of cumulative
perpetual preferred stock, less certain goodwill items. The remainder ("Tier 2
Capital" may consist of a limited amount of subordinated debt, certain hybrid
capital instruments and other debt securities, perpetual preferred stock, and a
limited amount of the general loan loss allowance. In addition to the risk-based
capital guidelines, the Federal Reserve Board has adopted a minimum level for
the ratio of Tier 1 Capital to average total assets (the "Tier 1 Leverage
Ratio"), under which a bank holding company must maintain a level of Tier 1
Capital to average total consolidated assets of at least 3% in the case of a
bank holding company which has the highest regulatory examination rating and is
not contemplating significant growth or expansion. All other bank holding
companies are expected to maintain a Tier 1 Leverage Ratio of at least 1% to 2%
above the state minimum. The Federal Reserve Board's guidelines also require
bank holding companies to maintain a minimum ratio of primary capital to total
assets and total capital to total assets of 5.5% and 6.0%, respectively. Primary
capital is defined as common stock. Perpetual preferred stock, surplus,
undivided profits contingency and other capital reserves, mandatory convertible
debt, allowance for possible loan and lease losses, minority interests in equity
of consolidated subsidiaries and perpetual debt instruments, all subject to
various limitations.
The following is a presentation of the capital ratios for both the
Company and the Bank as of December 31, 1997:
Company Bank
------- ----
Tier 1 Leverage 8.16% 7.51%
Primary capital to total assets 9.27% 8.56%
Total capital to total assets 8.40% 7.69%
Tier 1 Capital to risk weighted assets 12.10% 11.34%
Total capital to risk weighted assets 13.35% 12.59%
Failure to meet capital guidelines could subject the Bank to a variety
of enforcement remedies, including the termination of deposit insurance by the
FDIC.
Bank regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations beyond their current levels.
However, management of the Company is unable to predict whether and when higher
capital requirements would be imposed and, if so, at what levels and on what
schedule.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"1991 Banking Law") required each federal banking agency, including the Federal
reserve Board, to revise its risk-based capital standards to ensure that those
standards take adequate account of interest rate risk, concentration of credit
risk and the risks of non-traditional activities, as well as reflect the actual
performance and expected risk of loss on multi-family mortgages. The Federal
Reserve Board, the FDIC and the Comptroller have issued a joint rule amending
the capital standards to specify that the banking agencies will include in their
evaluations of a bank's capital adequacy an assessment of the exposure to
declines in the economic value of the bank's capital due to changes in interest
rates. The agencies have also issued statements that describe the process the
banking agencies will use to measure and assess the exposure of a bank's net
economic value to changes in interest rates.
20
<PAGE>
The Federal Reserve Board, the FDIC, the Comptroller and the Office of
Thrift Supervision have also issued a joint rule amending the risk-based capital
guidelines to take account of concentration of credit risk and the risk of
non-traditional activities. The rule amends each agency's risk-based capital
standards by explicitly identifying concentration of credit risk and the risk
arising from other sources, as well as an institution's overall capital
adequacy. The Company is still assessing the impact these rules and proposed
policy statement would have on the capital requirements of the Company and Bank.
As an FDIC-insured institution, the Bank is subject to insurance
assessments imposed by the FDIC. Effective January 1, 1993, the FDIC replaced
the uniform assessment rate with a transitional risk-based assessment schedule.
The actual assessment to be paid by each FDIC-insured institution is based on
the institution's assessment risk classifications, which is determined based on
whether the institution is considered "well capitalized," "adequately
capitalized," or "undercapitalized," as such terms have been defined in
applicable federal regulations adopted to implement the prompt corrective action
provisions of FDICIA, and whether such institution is considered by its
supervisory agency to be financially sound or to have supervisory concerns.
At its August 1995 meeting, the FDIC approved a reduction in the
insurance assessments for Bank Insurance Funds ("BIF") deposits. This reduction
decreased Peoples National Bank's insurance assessment for BIF deposits from
0.23% to 0.04% of the average assessment base. The implementation date was
retroactive to the second quarter of 1995.
On November 14, 1995, the FDIC Board voted to reduce the insurance
premiums paid on deposits covered by the BIF and maintain existing assessment
rates for deposits covered by the Savings Association Insurance Funds ("SAIF").
Under the new rate structure for the BIF, assessment rates were lowered by four
cents per $100 assessable deposits for all risk categories, subject to the
statutory requirement that all institutions pay at least $2,000 annually for
FDIC insurance. The Peoples National Bank is a "well capitalized" bank, and paid
the $2,000 in 1996.
On September 30, 1996, the President signed into law legislation
requiring a special assessment to re-capitalize the SAIF. For 1997 through 1999,
the banking industry will help pay for the Financing Corporation's ("FICO")
interest payments at an assessment rate that is one-fifth the rate paid by
thrifts. FICO assessment rates for the first semiannual period of 1997 were set
at 1.3 cents per $100 in deposits for BIF-assessable deposits and for
SAIF-assessable deposits the rate of 6.48 cents. As a result, The Peoples
national Bank's 1997 assessment was $9,720. Beginning January 1, 2000, the FICO
interest payment will be paid pro-rata by banks and thrifts based on deposits
(approximately 2.4 cents per $100 in deposits. The three-year delay in pro-rata
sharing will save the banking industry more than $800 million.
As a national bank, the Bank is subject to examination and review by
the Comptroller. This examination is typically completed on-site every twelve
months, and is subject to off-site review as well. The Bank submits to the
Comptroller quarterly reports of condition, as well as such additional reports
as may be required by the national banking laws.
In 1986, South Carolina adopted legislation which permitted banks and
bank holding companies in certain southern states to acquire banks in South
Carolina to the extend that such other states had reciprocal legislation which
was applicable to South Carolina banks and bank holding companies. The
legislation resulted in a number of South Carolina banks being acquired by large
out-of-state bank holding companies. Size gives the larger banks certain
advantages in competing for business from larger corporations. These advantages
include higher lending limits and the ability to offer services in other areas
of South Carolina and the region. As a result, the Company does not generally
attempt to compete for the banking relationships of large corporations, but
concentrates its efforts on small to medium-sized businesses and on individuals.
The Company believes it has competed effectively in this market segment by
offering quality, personal service.
In July 1994, South Carolina enacted legislation which effectively
provides that, after June 30, 1996, out-of-state bank holding companies
(including bank holding companies in the Southern Region, as defined under the
21
<PAGE>
statute) may acquire other banks or bank holding companies having offices in
South Carolina upon the approval of the South Carolina State Board of Financial
Institutions and assuming compliance with certain other conditions, including
that the effect of the transaction not lessen competition and that the laws of
the state in which the out-of-state banking holding company filing the
application has its principal place of business permit South Carolina bank
holding companies to acquire banks and bank holding companies in that state.
Although such legislation may increase takeover activity in South Carolina the
Company does not believe that such legislation had a material impact on its
competitive position in 1997.
As a bank holding company, the Company is required to file with the
Federal Reserve Board an annual report of its operations at the end of each
fiscal year and such additional information as the Federal Reserve Board may
require pursuant to the Act. The Federal Reserve Board may also make examination
of the Company and any subsidiaries.
The scope of regulation and permissible activities of the Company and
the Bank is subject to change by future federal and state legislation.
ITEM 2. PROPERTIES
The Bank's main office is located at 1800 East Main Street in Easley,
South Carolina. The property consists of a two-story brick building of
approximately 10,400 square feet, which is constructed on 1.75 acres of land
owned by the Bank. Improvements include a three-lane drive through teller
installation, vault, night deposit and safe deposit facilities and a drive
through automated teller machine.
The Bank operates a branch office in Powdersville, South Carolina
approximately seven miles east of the Bank's main office. The branch office is
leased from a partnership of which a director of the Bank is a partner. See
"Certain Transactions." The Bank also operates a branch office in Pickens, South
Carolina approximately ten miles west of the Bank's main office. This branch
operates out of a two-story brick building of approximately 6,800 square feet on
.925 acres of land owned by the Bank. Both branch facilities have improvements
including a two-lane drive through teller installation, drive-through automated
teller machine, vault, night depository and safe deposit facilities.
The Company owns .566 acres of land, with no improvements, adjacent to
the Bank's main office in Easley, South Carolina. The Company purchased the
property as a site for a future operation center and holding company
administrative offices, which is expected to be completed in 1998 with a
projected cost of $600,000.
The Company also owns 1.07 acres in Easley, South Carolina
approximately 4 miles southwest of the main office. The Company purchased the
property as a site for a branch office, which is expected to be completed in the
year 2000 with a projected cost of $350,000.
The Bank received regulatory approval in September 1997 to open a
branch office in Seneca, South Carolina. On June 27, 1997, the Company made a
tender offer to purchase 1.097 acres of land, with no improvements, in Seneca,
South Carolina, approximately twenty-five miles west of the main office as the
future site for this office. The company closed on this property on January 14,
1998. Construction has begun for this office and should be completed in late
1998. The land purchase, building construction and equipment purchases are
estimated to cost $965,000
The Company purchased 1.935 unimproved acres in Anderson, South
Carolina for the future sight of a new bank under the Company for $365,000 in
1997. Pending regulatory approval, the new bank is expected to open in 1998 in a
temporary office on the land purchased. The final building construction,
expected to be completed in 1999, and equipment purchases are estimated to cost
$1,125,000.
All locations of the Company and Bank are considered suitable and
adequate for their intended purposes. Management believes that insurance
coverage on the foregoing properties is adequate.
22
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or
the Bank is a party or of which any of their properties are subject; nor are
there material proceedings known to the Company to be contemplated by any
governmental authority; nor are there material proceedings known to the Company,
pending or contemplated, in which any director, officer or affiliate or any
principal security holder of the Company, or any associate of any of the
foregoing, is a party or has an interest adverse to the Company or the Bank.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter ended December 31,
1997 to a vote of security holders of the Company.
PART II
ITEM 5. MATTERS FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
During the period covered by this report and to date, there has been no
established trading market for the Company's stock.
The following table summarizes the range of high and low prices for the
Company's Common Stock of which management has knowledge for each quarterly
period over the last two years:
Sales Price of the Company's Common Stock
Quarter Ended Low High
------------- --- ----
March 31, 1996 $15.00 $15.00
June 30, 1996 $16.50 $16.50
September 30, 1996 $17.00 $17.00
December 31, 1996 $18.00 $18.00
March 31, 1997 $18.00 $18.00
June 30, 1997 $18.00 $19.00
September 30, 1997 $20.00 $21.50
December 31, 1997 $13.00 $26.00
The low price of $13.00 per share during the fourth quarter of 1997 was
the result of a two-for-one stock split on December 31, 1997.
As of March 9, 1998, the number of holders of record for the company's
common stock was 505.
During 1997 the Company paid four quarterly cash dividends. Cash
dividends of $0.06 per common share were declared by the Company's Board of
Directors on each of March 10, 1997, June 9, 1997 and September 8, 1997. Cash
dividends of $0.07 per common share were declared by the Company's Board of
Directors on December 15, 1997. In addition, on each of July 13, 1992, July 12,
1993, November 14, 1994, November 13, 1995, October 15, 1996 and October 14,
1997, the Company paid 5% stock dividends to shareholders. It is the policy of
the Board of Directors of the Company to reinvest earnings for such a period of
time as is necessary to ensure the success of the operations of the company and
of the Bank. Future dividend policy will depend on the Company's earnings,
capital requirements, financial condition and other factors considered relevant
by the Board of Directors of the Company.
The Bank is restricted in its ability to pay dividends under the
national banking laws and by regulations of the Comptroller. Pursuant to 12 U.
S. C., section 56, a national bank may not pay dividends from its capital. All
dividends must be paid out of net profits then on hand, after deducting losses
and bad debts. Payments of dividends out of net profits is further limited by 12
U. S. C. section 60(a), which prohibits a bank from declaring a dividend on its
shares of common stock until its surplus equals its shared capital, unless there
had been transferred to surplus not less than 1/10 of the Bank's net profits of
the preceding two consecutive half years periods (in the case of an annual
dividend). Pursuant to 12 U. S. C. section 60 (b), the approval of the
23
<PAGE>
Comptroller is required if the total of all dividends declared by the Bank in
any calendar year exceeds the total of its net profits for that year combined
with its retained net profits for the preceding two years, less any required
transfers to surplus.
In December 1990, the Comptroller promulgated regulations concerning
the level of allowable dividend payments by national banks. The intended effect
of these regulations is to make the calculation of national banks'
dividend-paying capacity consistent with generally accepted accounting
principals ("GAAP"). In this regard, the allowance for loan and lease losses is
not considered an element of either "undivided profits then on hand" or "net
profits." Further a national bank may be able to use a portion of its capital
surplus accounts as "undivided profits on hand," depending on the composition of
that account. In addition, the Comptroller's regulations clarify that dividends
on preferred stock are not subject to the limitation of 12 U. S. C. section 56,
while explicitly making such dividends subject to the constraints of 12 U. S. C.
section 60. The regulations do not diminish or impair a well-capitalized bank's
ability to make cash payments to its shareholders in the form of a return of
capital.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Peoples Bancorporation, Inc. (the "Company"), was incorporated on March
6, 1992 for the primary purpose of effecting the reorganization of The Peoples
National Bank (the "Bank") into a bank holding company structure which
reorganization resulted in ownership by the Company of 100% of the issued and
outstanding shares of common stock of the Bank. The Bank, a national banking
association, operates three offices in Easley, Pickens and Powdersville, South
Carolina.
The following discussion is intended to assist in understanding the
financial condition and results of operation of the Company and should be read
in conjunction with the consolidated financial statements of the Company
included herein.
Overview
The Company and Bank, which commenced banking operations in 1986,
currently conducts business through three locations in the upstate of South
Carolina. Through the Bank, the Company provides a full range of banking
services designed to meet substantially all of the financial needs of its
customers. At December 31, 1997, the Company had approximately $113,417,000 in
assets, $76,849,000 in gross loans, $96,190,000 in deposits and $9,510,000 in
shareholders' equity.
In September 1997, the Bank received approval from the Comptroller of
the Currency to open a branch location in Seneca, South Carolina. This new
office is expected to be open for business in September 1998.
In October 1997, the Company announced plans to form a new bank in
Anderson, South Carolina. The Company plans to issue additional common stock to
capitalize the new bank during 1998. Pending regulatory approval, the Company
expects to open the new bank during late 1998 in a temporary banking facility.
FINANCIAL CONDITION
Earning Assets
1997 Average earning assets of $100,453,087 was 22.23% above the
$82,147,853 average in 1996. Average total net loans of $73,098,893 in 1997 and
$59,895,061 in 1996 represented 72.77% and 72.91% of average earning assets for
the respective years. The average total loan growth of $13,203,832 during 1997
was accomplished while continuing to maintain quality-underwriting standards. At
December 31, 1997, commercial loans comprised 14.35% of total outstanding loan
balances versus 11.03% of the prior year balances. Real estate related loans,
which include construction and land development, commercial owner-occupied,
commercial income producing and mortgages, represented 71.95% of outstanding
balances versus 72.01% at December 31, 1996. Consumer and installment loans
represented 13.70% of the loan portfolio at December 31, 1997 versus 16.97% at
the prior year-end.
24
<PAGE>
Average securities constituted $22.8 million (22.74%) of the Company's
average earning assets in 1997 and $18.3 million (22.26%) in 1996. Proceeds from
the sales, calls and maturities of investments in 1997 were $2,250,547,
$6,100,000 and $5,130,000, respectively, with net gains of $2,740 realized on
sales. Proceeds from the sales and maturities of investment securities in 1996
were $6,031,018 and $6,040,000, respectively, with the resulting loss on sales
of $1,836. As of December 31, 1997, $4,888,263 or 20.20% of the investment
portfolio consisted of mortgage-basked securities whose maturities may be
adversely affected by prepayments, which tend to increase in a declining rate
environment. Mortgage-basked securities represented $3,974,015 or 21.7% of the
investment portfolio in 1996.
At December 31, 1997 total investments classified as held for sale had
a book value of $20,350,28 and a market value of $20,320,579 for an unrealized
loss of $29,449. At December 31, 1996, total held for sale investments had a
book value of $15,812,512 and a market value of $15,774,248 for an unrealized
loss of $38,264.
The Company uses its investment portfolio to provide liquidity for
unexpected deposit liquidation or loan generation, to meet the Company's
interest sensitivity goals and to generate income. The Company emphasizes the
safety in its selection of investment securities. Accordingly, the investment
portfolio is limited to securities of the United States government or its
agencies, mortgage backed securities and investment grade state and municipal
securities. The Company does not invest in corporate bonds and to date, the
Company does not own any derivative products.
Average federal funds sold were $4,512,572 in 1997 or 4.49% of average
earning assets, compared to $3,962,707 or 4.82% in 1996 of average earning
assets.
Liabilities
During 1997 interest-bearing liabilities average $86,965,685 compared
to $69,136,126 for 1996, an increase of 25.79%. The average interest rates were
4.66% and 4.53%, respectively. At December 31, 1997, interest-bearing deposits
comprised approximately 88.56% of total deposits and 82.98% of interest-bearing
liabilities.
During 1997, the Company decreased its Federal Home Loan Bank ("FHLB")
advances to $2,030,612 at December 31, 1997 from $6,397,959 at December 31,
1996. While FHLB advances remain a source of funding, the Bank has increased its
emphasis on retail banking and raised deposits through market promotion and
sales efforts, thereby decreasing FHLB advances. The Company believes that
potential benefits of cross-selling these customers other products and services
would offset any increase in the cost of funds.
The Bank's primary source of funds for loans and investments is
deposits. Deposits grew 19.95% to $96,189,848 at December 31, 1997, from
$80,194,463 at December 31, 1996. Account promotions and sales efforts during
the year generated the almost $16 million in new deposits. During 1997 total
interest-bearing deposits averaged $76,516,106 with a rate of 4.66%, compared
with $63,704,026 with a rate of 4.63% in 1996. During 1997, deposit pricing was
very competitive in the Bank's market areas, resulting in upward pressure on
deposit interest rates. In particular, the interest rates paid on money market
accounts rose significantly as a result of customers' rate sensitivity from
deposit promotions. The Company does not believe that it has any brokered
deposits.
Average noninterest-bearing deposits were $10,790,606 in 1997 versus
$10,349,637 in 1996, reflecting growth of 4.26%. Average noninterest-bearing
deposits represent 12.36% of total average deposits at the end of 1997. The Bank
continues to heavily promote their interest-bearing package account.
The Company is not able to accurately predict the results of operations
for 1998 due to a variety of factors that could cause the Company's actual
results to differ materially from the anticipated results. The risks and
uncertainties that may affect the operations, performance, development and
results of the Company's business include, but are not limited to the following
risks: risks from changes in economic and industry conditions; changes in
interest rates; risks inherent in making loans including repayment risk and
value of collateral; and recently enacted or proposed legislation.
25
<PAGE>
EARNINGS PERFORMANCE
1997 Compared to 1996
The Company reported record earnings in 1997. Net income for the year
ended December 31, 1997 was $1,303,773 compared to $1,064,785 in 1996. Basic and
diluted net income per share was $0.77 and $0.73 in 1997, compared to $0.64 and
$0.61 in 1996, respectively. The increase in 1997 net income resulted
principally from increases in the volume of earning assets, primarily loans and
investments which increased net interest income 14.71% or $616,482.
The largest component of the Company's net income is The Peoples
National Bank's net interest income. Net interest income is the difference
between the interest earned on assets and the interest paid for the liabilities
used to support such assets. Net interest income constituted 90.1% of net
revenues (net interest income plus non-interest income) in 1997, compared to
90.8% in 1996 and 90.5% in 1995. Net interest income after provision for loan
losses for 1997 increased $552,087 or 14.0% over 1996.
The net interest margin, defined as net interest income divided by
average earning assets, decreased to 4.34% in 1997 compared to 4.59% at the end
of 1996 and 4.93% at the end of 1995. The decline in the net interest margin is
primarily due a small increase in the prime interest rate, with a larger
increase in deposit pricing and an especially competitive deposit rate
environment. The prime interest rate decreased from 9.00% to 8.75% in July 1995
and decreased further to 8.5% in December 1995. In February 1996, the prime rate
lowered to 8.25%. In March 1997, the prime rate increased to 8.50%.
Approximately 40% of the loan portfolio have variable rates and immediately
repriced according to the changes in the prime rate. While deposit rates were
lowered somewhat during the prime decreases, rates were increased during 1997
with the prime rate increase and in response to the public's demand of increased
rates. During 1997, many financial institutions offered deposit promotions above
the market rates, creating upward pressure on the Company's cost of funds. Also,
the Company has instituted deposit promotions and kept its deposit rates
competitive in an effort to increase its liquidity levels. The Company expects
the competitive deposit rate environment to continue.
Non-interest income, excluding securities transactions, increased
$105,006 or 24.8% for 1997 compared to 1996. Service charges and other fees on
deposits increased $46,140 or 14.0%, resulting from a 20.0% increase in total
deposits. The Bank also increased many of it's service charges on deposit
accounts effective April 1,1997.
Non-interest expense increased $317,581 or 11.5% in 1997 compared to
1996. Personnel costs in 1997 were $1,748,930 compared to $1,598,182 the prior
year, an increase of $150,748 or 9.4%. The increase is primarily the result of
additional staffing and normal salary increases. Occupancy and equipment
expenses in 1997 were $459,276 compared to $395,144 in 1996, an increase of
$64,132 or 16.3% due primarily to an increase in depreciation expense on new
equipment purchased in 1997. Other operating expenses increased $94,981 or 12.6%
primarily attributable to a $20,398 increase in closing costs paid by the Bank
on its Equity Line loan product, $30,157 additional expense on the Business
Manager (accounts receivable) product and a $26,300 increase in board fees paid
to the Company and Bank board members, as well as to the advisory board members
at the Bank's Powdersville and Pickens locations.
The allowance for loan losses is established to provide for expected
losses in the Bank's loan portfolio. The allowance for loan losses at December
31, 1997 was $987,138, compared to $760,679 at December 31, 1996. At December
31, 1997 the allowance for loan losses represented 1.29% of outstanding loans,
compared to 1.15% at the end of 1996. The allowance for loan losses is based
upon management's continuing evaluation of the collectibility of past due loans
based on historical loan losses experienced by the bank, current economic
conditions affecting the ability of borrowers to repay, the volume of loans, the
quality of collateral securing non-performing and problem loans, and other
factors deserving recognition.
The provision for loan losses charged to operations during 1997 was
$324,475 compared to $260,080 in 1996. Management considers this reserve to be
very adequate based upon evaluation of specific loans and weighing of various
26
<PAGE>
loan categories as suggested by the Bank's internal loan rating system. The
Company increased the 1997 provision as a result of consumer credit concerns.
During 1997, net charged-off loans totaled $98,016 or 0.1% of total loans
outstanding. This compares to net charged-off loans of $169,065 or 0.3% of total
loans outstanding during 1996. The ratio of non-performing loans (including
loans 90 days or more past due) and other real estate owned to total outstanding
loans was 1.17% at December 31, 1997 compared to 0.87% at the end of 1996.
1996 Compared to 1995
The Company's net income for 1996 was $1,064,785 a 24.74% increase
compared to $853,622 in 1995. Earnings per common share increased to $0.61 from
$0.54 per diluted share in 1995. Basic net income per share increased to $0.64
in 1996 from $0.55 in 1995. The increase in net income resulted primarily from
increases in the volume of earning assets, primarily loans, which increased net
income 9.19%, as well as increases in non-interest income of 12.8% which
resulted from increases in loan fees and deposit account charges.
Return on average equity for 1996 was 13.30%, compared to 12.64% for
1995. Return on average assets for 1996 was 1.21%, compared to 1.05% in 1995.
Net interest income, which is the difference between the interest
earned on assets and the interest paid for liabilities used to support such
assets, measured the gross profit from lending and investing activities. As the
primary contributor to the Company's earnings, net interest income constituted
90.9% of net revenues (net interest income plus non-interest income) in 1996,
compared to 90.5% in 1995 and 90.9% in 1994. Net interest income after provision
for loan losses for 1996 increased $341,235 or 9.5% over 1995. This represents a
4.59% net interest margin (net interest income divided by average earning
assets) on average earning assets of $82,147,853. For 1995, the net interest
margin was 4.93% on earning assets of $75,010,056. This decrease was primarily
due to reduced rates on interest-bearing liabilities after the reduction in the
prime interest rate during 1995 and early 1996. The high percentage of
non-interest bearing deposits also aided in driving the cost of funds down. For
1996, 13.9% of average total deposits were demand deposits, compared to 13.1%
during 1995.
Non-interest income, excluding securities transactions, increased
$32,346 or 8.3% for 1996 as compared to 1995. Service charges and other fees on
deposits increased $34,250 or 13.4%, resulting from a 12.7% increase in total
deposits. During the second quarter of 1996, the Bank sold its charge cards that
resulted in a $6,487 decrease in charge card income in 1996 when compared to
1995.
Non-interest expense increased a low $51,793 or 1.9% in 1996 over 1995.
Personnel cost in 1996 were $1,598,182 compared to $1,457,122 the prior year,
and increased of $141,060 or 9.68%. The increase is primarily the result of
additional staffing and normal salary increases. Occupancy and equipment
expenses in 1996 were $395,144 compared to $415,298 in 1995, a decrease of
$20,154 or 5.1%, due primarily to a decrease in depreciation expense on original
equipment. Other operating expenses increased $1,029, primarily attributable to
normal operating expenses.
FDIC insurance costs were $2,000 in 1996, compared to $72,142 in 1995.
At its August 1995 meeting, the FDIC approved a reduction in the insurance
assessments for Bank Insurance Fund ("BIF") deposits. This reduction decreased
the Bank's insurance assessment for BIF deposits from 0.26% to 0.04% of the
average assessment base. This decrease was retroactive to June 1, 1995.
Effective January 1996, the insurance assessment for the Bank" BIF deposits was
set at zero (although banks pay a $2,000 annual fee).
The allowance for loan losses is established to provide for expected
losses in the Bank's loan portfolio. The allowance for loan losses at December
31, 1996 was $760,679, compared to $669,664 at December 31, 1995. At December
31, 1996, the allowance for loan losses represented 1.15% of loan outstanding,
compared to 1.17% at the end of 1995. The allowance for loan losses is based
upon management's continuing evaluation of the collectibility of past due loans
based on historical loan losses experienced by the Bank, current economic
conditions affecting the ability of borrowers to repay, the volume of loans, the
quality of collateral securing non-performing and problem loans, and other
factors deserving recognition.
27
<PAGE>
The provision for loan losses charged to operations during 1996 was
$260,080 compared to $108,000 for 1995. Management considers this reserve to be
very adequate based upon evaluation of specific loans and weighing of various
loan categories as suggested by the Bank's internal loan rating system. During
1996, net charged-off loans totaled $169,065 or 0.3% of total loans outstanding.
This compares to $57,627 or 0.1% of loans outstanding during 1995. The ratio of
non-performing loans (including loans 90 days or more past due) to total
outstanding loans was 0.79% at December 31, 1996 compared to 0.86% at 1995.
28
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The following financial statements are filed with this report:
- - Independent Auditor's Report.
- - Balance Sheet as of December 31, 1997 and 1996.
- - Statement of Income for the years ended December 31, 1997, 1996 and 1995.
- - Statement of Changes in Stockholders' Equity for the years ended December
31, 1997, 1996 and 1995
- - Statement of Cash Flows for the years ended December 31, 1997, 1996 and
1995.
- - Notes for Financial Statements.
29
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
Peoples Bancorporation, Inc.
Easley, South Carolina
We have audited the accompanying consolidated balance sheets of
Peoples Bancorporation, Inc. and Subsidiary as of December 31, 1997 and 1996,
and the related consolidated statements of income, changes in shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Peoples Bancorporation, Inc. and Subsidiary as of 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.
Elliott Davis & Co., L.L.P.
January 9, 1998
30
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
------------- -------------
ASSETS
<S> <C> <C>
CASH AND DUE FROM BANKS ............................................................ $ 3,908,784 $ 2,626,956
FEDERAL FUNDS SOLD ................................................................. 4,570,000 9,700,000
SECURITIES
Available for sale .............................................................. 20,320,579 15,774, 248
Held for investment (fair value $3,953,648 and $3,348,651) ...................... 3,852,356 3,312,304
LOANS - less allowance for loan losses of $987,138 and $760,679 .................... 75,861,965 65,403,945
PREMISES AND EQUIPMENT, net of accumulated depreciation ............................ 2,673,712 1,858,429
ACCRUED INTEREST RECEIVABLE ........................................................ 878,459 728,931
OTHER ASSETS ....................................................................... 1,350,449 318,577
------------- -------------
$ 113,416,304 $ 99,723,390
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS
Noninterest-bearing ............................................................. $ 11,007,809 $ 10,073,108
Interest-bearing ................................................................ 85,182,039 70,121,355
------------- -------------
Total deposits ................................................................. 96,189,848 80,194,463
FEDERAL FUNDS PURCHASED ............................................................ - 1,000,000
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS ........................................ 4,433,554 3,926,891
NOTES PAYABLE TO FEDERAL HOME LOAN BANK ............................................ 2,030,612 5,397,959
ACCRUED INTEREST PAYABLE ........................................................... 860,877 675,596
OTHER LIABILITIES .................................................................. 391,924 150,488
------------- -------------
Total liabilities .............................................................. 103,906,815 91,345,397
------------- -------------
COMMITMENTS AND CONTINGENCIES - Notes 11 and 12
SHAREHOLDERS' EQUITY
Common stock - 10,000,000 and 5,000,000 shares authorized; $1.67 and $3.33 par
value per share; 1,687,250 shares and 800,071 shares outstanding ............... 2,817,708 2,664,237
Additional paid-in capital ...................................................... 5,158,024 4,232,918
Retained earnings ............................................................... 1,553,206 1,506,102
Unrealized holding loss on securities available for sale ........................ (19,449) (25,264)
------------- -------------
9,509,489 8,377,993
$ 113,416,304 $ 99,723,390
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
31
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended December 31,
1997 1996 1995
-------------- ------------- --------------
INTEREST INCOME
<S> <C> <C> <C>
Interest and fees on loans $ 7,249,601 $ 5,998,270 $ 5,421,193
Interest on securities
Taxable 1,122,296 902,851 903,433
Tax-exempt 245,055 211,825 175,198
Interest on federal funds sold 245,109 210,978 207,744
-------------- ------------- -------------
Total interest income 8,862,061 7,323,924 6,707,568
-------------- ------------- -------------
INTEREST EXPENSE
Interest on deposits 3,562,111 2,949,384 2,792,515
Interest on federal funds purchased and securities sold
under repurchase agreements 145,797 150,346 144,703
Interest on notes payable Federal Home Loan Bank 345,428 31,951 71,422
-------------- ------------- -------------
Total interest expense 4,053,336 3,131,681 3,008,640
-------------- ------------- -------------
Net interest income 4,808,725 4,192,243 3,698,928
PROVISION FOR LOAN LOSSES 324,475 260,080 108,000
-------------- ------------- -------------
Net interest income after provision for loan losses 4,484,250 3,932,163 3,590,928
-------------- ------------- -------------
NON-INTEREST INCOME
Service fees and other income 527,845 422,839 390,493
Gain (loss) on sale of securities available for sale 2,740 (1,836) (17,261)
-------------- ------------- ------------
530,585 421,003 373,232
-------------- ------------- -------------
NON-INTEREST EXPENSES
Salaries and benefits 1,748,930 1,598,182 1,457,122
Occupancy 185,990 155,314 173,872
Equipment 273,286 239,830 241,426
Other operating expenses 863,638 758,005 827,118
-------------- ------------- -------------
3,071,844 2,751,331 2,699,538
-------------- ------------- -------------
Income before income taxes 1,942,991 1,601,835 1,264,622
PROVISION FOR INCOME TAXES 639,218 537,050 411,000
-------------- ------------- -------------
Net income $ 1,303,773 $ 1,064,785 $ 853,622
============== ============= =============
BASIC NET INCOME PER COMMON SHARE $ .77 $ .64 $ .55
============== ============= =============
DILUTED NET INCOME PER COMMON SHARE $ .73 $ .61 $ .54
============== ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
32
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Unrealized
holding gain
(loss) on
Additional securities Total
Common stock paid-in Retained available shareholders'
Shares Amount capital earnings for sale equity
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 ............... 652,511 $ 2,172,862 $ 2,757,583 $ 1,058,962 $ (312,600) $ 5,676,807
Net income ............................ - - - 853,622 - 853,622
Stock dividend (5%) ................... 35,748 119,041 381,431 (500,472) - -
Cash dividends (.20 per share) ........ - - - (142,991) - (142,991)
Proceeds from sale of stock net of
issuance costs ...................... 66,712 222,151 532,563 - - 754,714
Cash in lieu of fractional shares on
stock dividend ...................... - - - (2,984) - (2,984)
Net change in unrealized holding loss
on securities available for sale, net
of taxes of $208,893 ................ - - - - 391,353 391,353
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1995 ............... 754,971 2,514,054 3,671,577 1,266,137 78,753 7,530,521
Net income ............................ - - - 1,064,785 - 1,064,785
Stock dividend (5%) ................... 37,945 126,357 518,708 (645,065) - -
Cash dividends (.23 per share) ........ - - - (177,133) - (177,133)
Proceeds from stock options
exercised ........................... 7,155 23,826 42,633 - - 66,459
Cash in lieu of fractional shares on
stock dividend ...................... - - - (2,622) - (2,622)
Net change in unrealized holding gain
on securities available for sale, net
of taxes of $53,585 ................. - - - - (104,017) (104,017)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1996 ............... 800,071 2,664,237 4,232,918 1,506,102 (25,264) 8,377,993
Net income ............................ - - - 1,303,773 - 1,303,773
Stock dividend (5%) ................... 39,954 133,047 905,756 (1,038,803) - -
Cash dividends (.25 per share) ........ - - - (203,462) - (203,462)
Proceeds from stock options
exercised ........................... 3,600 11,988 19,350 - - 31,338
Cash in lieu of fractional shares on
stock dividend ...................... - - - (5,968) - (5,968)
Two-for-one stock split ............... 843,625 8,436 - (8,436) - -
Net change in unrealized holding gain
on securities available for sale, net
of taxes of $3,000 .................. - - - - 5,815 5,815
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1997 ............... 1,687,250 $ 2,817,708 $ 5,158,024 $ 1,553,206 $ (19,449) $ 9,509,489
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
33
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
1997 1996 1995
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income .................................................................. $ 1,303,773 $ 1,064,785 $ 853,622
Adjustments to reconcile net income to net cash provided
by operating activities
(Gain) loss on sale of securities available for sale ....................... (2,740) 1,836 17,261
Gain of sale of premises and equipment ..................................... (22,910) (2,125) (4,804)
Provision for loan losses .................................................. 324,475 260,080 108,000
Depreciation ............................................................... 208,443 176,018 206,858
Net amortization and (accretion) of premiums and discounts
on securities ........................................................... 51,233 49,709 (61,197)
(Increase) decrease in accrued interest receivable ......................... (149,528) 13,502 (168,020)
Increase in other assets ................................................... (1,031,872) (8,917) (42,181)
Increase in accrued interest payable ...................................... 185,281 74,676 229,188
Increase (decrease) in other liabilities ................................... 238,436 (201,566) 235,961
------------ ------------ ------------
Net cash provided by operating activities ............................ 1,104,591 1,427,998 1,374,688
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities held for investment ................................. (550,420) (1,062,568) (3,967,859)
Purchases of securities available for sale .................................. (18,551,041) (11,533,625) (8,387,126)
Proceeds from the maturity of securities available for sale ................. 5,607,553 6,040,000 6,530,166
Proceeds from the sale and call of securities available for sale ............ 8,367,847 6,031,018 2,796,847
Net increase in loans ....................................................... (10,782,495) (9,273,709) (4,921,519)
Proceeds from the sale of premises and equipment ............................ 39,000 3,025 21,500
Purchase of premises and equipment .......................................... (1,039,816) (56,507) (242,158)
------------ ------------ ------------
Net cash used for investing activities ............................... (16,909,372) (9,852,366) (8,170,149)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits .................................................... 15,995,385 9,030,958 9,477,399
Net increase (decrease) in federal funds purchased .......................... (1,000,000) 1,000,000 -
Net increase (decrease) in securities sold under repurchase agreements ...... 506,663 237,209 (2,574,826)
Net increase (decrease) in notes payable to Federal Home Loan Bank ............. (3,367,347) 4,572,653 (1,087,347)
Proceeds from the sale of stock and exercise of stock options ............... 31,338 66,459 754,714
Cash dividends paid ......................................................... (203,462) (177,133) (142,991)
Cash in lieu of fractional shares on stock dividends ........................ (5,968) (2,622) (2,984)
------------ ------------ ------------
Net cash provided by financing activities ............................ 11,956,609 14,727,524 6,423,965
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents ................. (3,848,172) 6,303,156 (371,496)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ................................... 12,326,956 6,023,800 6,395,296
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR ......................................... $ 8,478,784 $ 12,326,956 $ 6,023,800
============ ============ ============
CASH PAID FOR
Interest .................................................................... $ 3,868,055 $ 3,040,705 $ 3,079,452
============ ============ ============
Income taxes ................................................................ $ 719,836 $ 729,401 $ 348,209
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
34
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES
Principles of consolidation and nature of operations
The consolidated financial statements include the accounts of Peoples
Bancorporation, Inc. (the "Company") and its wholly-owned subsidiary, The
Peoples National Bank (the "Bank"). All significant intercompany balances and
transactions have been eliminated. The Bank operates under a national bank
charter and provides full banking services to customers. The Bank is subject
to regulation by the Office of the Comptroller of the Currency. The Company
is subject to regulation by the Federal Reserve Board.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of interest and noninterest income and expenses during
the reporting period. Actual results could differ from those estimates.
Concentrations of credit risk
The Bank makes loans to individuals and small businesses located primarily in
upstate South Carolina for various personal and commercial purposes. The Bank
has a diversified loan portfolio and the borrowers' ability to repay their
loans is not dependent upon any specific economic sector.
Securities
The Company accounts for securities in accordance with Statement of Financial
Accounting Standards (SFAS) No. 115 "Accounting for Certain Investments in
Debt and Equity Securities." Debt securities are classified upon purchase as
available for sale, held for investment or trading. Such assets classified as
available for sale are carried at fair value. Unrealized holding gains or
losses are reported as a component of shareholders' equity net of deferred
income taxes. Securities classified as held for investment are carried at
cost, adjusted for the amortization of premiums and the accretion of
discounts. In order to qualify as held for investment, the Company must have
the ability and intent to hold the securities to maturity. Trading securities
are carried at market value. The Company has no trading securities. Gains or
losses on dispositions of securities are based on the difference between the
net proceeds and the adjusted carrying amount of the securities sold, using
the specific identification method.
Loans and allowance for loan losses
Loans are stated at the amount of unpaid principal reduced by an allowance
for loan losses. Interest is calculated using the simple interest method on
daily balances of the principal amounts outstanding. The allowance for loan
losses is established through a provision for loan losses charged to
operations. Loans are charged against the allowance when management believes
that the collectibility of the principal is unlikely. The allowance is an
amount that management believes will be adequate to absorb possible losses on
existing loans that may become uncollectible based on evaluations of the
collectibility of loans and prior loan loss experience; however, management's
judgment is based upon a number of assumptions about future events, which are
believed to be reasonable, but which may or may not prove valid. Thus, there
can be no assurance that charge-offs in future periods will not exceed the
allowance for loan losses or that additional increases in the allowance for
loan losses will not be required. Accrual of interest is discontinued on a
loan when management believes, after considering economic and business
conditions and collection efforts, that the borrower's financial condition is
such that collection of interest is doubtful.
35
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, Continued
Loans and interest income, continued
The Company accounts for impaired loans in accordance with SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". This standard requires
that all creditors value loans at the loan's fair value if it is probable
that the creditor will be unable to collect all amounts due according to
the terms of the loan agreement. Fair value may be determined based upon
the present value of expected cash flows, market price of the loan, if
available, or value of the underlying collateral. Expected cash flows are
required to be discounted at the loan's effective interest rate. SFAS No.
114 was amended by SFAS No. 118 to allow a creditor to use existing
methods for recognizing interest income on an impaired loan and by
requiring additional disclosures about how a creditor recognizes interest
income on an impaired loan.
Under SFAS No. 114, as amended by SFAS 118, when the ultimate
collectibility of an impaired loan's principal is in doubt, wholly or
partially, all cash receipts are applied to principal. When this doubt
does not exist, cash receipts are applied under the contractual terms of
the loan agreement first to principal then to interest income. Once the
reported principal balance has been reduced to zero, future cash receipts
are applied to interest income, to the extent that any interest has been
foregone. Further cash receipts are recorded as recoveries of any amounts
previously charged off.
A loan is also considered impaired if its terms are modified in a troubled
debt restructuring. For these accruing impaired loans, cash receipts are
typically applied to principal and interest receivable in accordance with
the terms of the restructured loan agreement. Interest income is
recognized on these loans using the accrual method of accounting.
Premises and equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the assets. Additions to premises and equipment and major
replacements or betterments are added at cost. Maintenance and repairs and
minor replacements are charged to expense when incurred. When assets are
retired or otherwise disposed of, the cost and accumulated depreciation are
removed from the accounts and any gain or loss is reflected in income.
Income taxes
The provision for income taxes includes deferred taxes on temporary
differences between the recognition of certain income and expense items for
tax and financial statement purposes. Income taxes are computed on the
liability method as described in SFAS No. 109, "Accounting for Income
Taxes".
Statements of cash flows
In accordance with the provisions of SFAS No. 95, "Statement of Cash Flows",
the Company considers cash and cash equivalents to be those amounts included
in the balance sheet captions "Cash and Due From Banks" and "Federal Funds
Sold".
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current presentation. These reclassifications have no effect on previously
reported net income.
Recently issued accounting standards
Accounting standards that have been issued or proposed by the Financial
Accounting Standards Board that do not require adoption until a future date
are not expected to have a material impact on the consolidated financial
statements upon adoption.
36
<PAGE>
NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required to maintain average reserve balances with the
Federal Reserve Bank based upon a percentage of deposits. The average amounts of
these reserve balances for the years ended December 31, 1997 and 1996 were
approximately $632,000 and $484,000, respectively.
NOTE 3 - SECURITIES
Securities are summarized as follows as of December 31:
<TABLE>
<CAPTION>
1997
Amortized Unrealized holding Fair
cost Gain Loss value
------------ ------------ ------------- ------------
SECURITIES AVAILABLE FOR SALE:
U. S. TREASURY SECURITIES
<S> <C> <C> <C> <C>
Maturing after one but within five years $ 1,101,558 $ 476 $ - $ 1,102,034
------------ ------------ ------------- ------------
OBLIGATIONS OF OTHER U. S. GOVERNMENT
AGENCIES AND CORPORATIONS
Maturing within one year 7,930,096 - 8,148 7,921,948
Maturing after one but within five years 6,935,655 - 14,014 6,921,641
Maturing after five but within ten years 1,385,610 - 18,882 1,366,728
Maturing after ten years 1,253,058 - 5,259 1,247,799
------------ ------------ ------------- ------------
17,504,419 - 46,303 17,458,116
------------ ------------ ------------- ------------
OBLIGATIONS OF STATES AND POLITICAL
SUBDIVISIONS
Maturing within one year 921,988 3,832 - 925,820
Maturing after one but within five years 125,937 3,227 - 129,164
------------ ------------ ------------- ------------
1,047,925 7,059 - 1,054,984
------------ ------------ ------------- ------------
OTHER - RESTRICTED
Federal Reserve Bank Stock 108,250 - - 108,250
Federal Home Loan Bank Stock 533,300 - - 533,300
Bankers Bank Stock 54,576 9,319 - 63,895
------------ ------------ ------------- ------------
696,126 9,319 - 705,445
------------ ------------ ------------- ------------
Total securities available for sale $ 20,350,028 $ 16,854 $ 46,303 $ 20,320,579
============ ============ ============= ============
SECURITIES HELD FOR INVESTMENT:
OBLIGATIONS OF STATES AND POLITICAL
SUBDIVISIONS
Maturing after one but within five years $ 2,415,831 $ 64,864 $ - $ 2,480,695
Maturing after five but within ten years 1,436,525 36,428 - 1,472,953
------------ ------------ ------------- ------------
Total securities held for investment $ 3,852,356 $ 101,292 $ - $ 3,953,648
============ ============ ============= ============
37
<PAGE>
<CAPTION>
NOTE 3 - SECURITIES, Continued
1996
Amortized Unrealized holding Fair
SECURITIES AVAILABLE FOR SALE: cost Gain Loss value
<S> <C> <C> <C> <C>
U. S. TREASURY SECURITIES
Maturing after one but within five years $ 599,828 $ - $ 1,873 $ 597,955
------------ ------------ ------------- ------------
OBLIGATIONS OF OTHER U. S. GOVERNMENT
AGENCIES AND CORPORATIONS
Maturing within one year 2,295,023 10,711 - 2,305,734
Maturing after one but within five years 6,941,297 - 15,275 6,926,022
Maturing after five but within ten years 1,000,000 6,883 - 1,006,883
Maturing after ten years 2,808,438 - 66,054 2,742,384
------------ ------------ ------------- ------------
13,044,758 17,594 81,329 12,981,023
------------ ------------ ------------- ------------
OBLIGATIONS OF STATES AND POLITICAL
SUBDIVISIONS
Maturing within one year 400,458 678 - 401,136
Maturing after one but within five years 1,054,042 15,510 - 1,069,552
------------ ------------ ------------- ------------
1,454,500 16,188 - 1,470,688
------------ ------------ ------------- ------------
OTHER - RESTRICTED
Federal Reserve Bank Stock 108,250 - - 108,250
Federal Home Loan Bank Stock 550,600 - - 550,600
Bankers Bank Stock 54,576 11,156 - 65,732
------------ ------------ ------------- ------------
713,426 11,156 - 724,582
------------ ------------ ------------- ------------
Total securities available for sale $ 15,812,512 $ 44,938 $ 83,202 $ 15,774,248
============ ============ ============= ============
SECURITIES HELD FOR INVESTMENT:
OBLIGATIONS OF STATES AND POLITICAL
SUBDIVISIONS
Maturing after one but within five years $ 1,269,304 $ 34,462 $ - $ 1,303,766
Maturing after five but within ten years 2,043,000 1,885 - 2,044,885
------------ ------------ ------------- ------------
Total securities held for investment $ 3,312,304 $ 36,347 $ - $ 3,348,651
============ ============ ============= ============
</TABLE>
Securities with carrying amounts of $12,836,000 and $8,886,500 at
December 31, 1997 and 1996, respectively, were pledged to secure public deposits
and for other purposes required or permitted by law.
38
<PAGE>
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
----------- ----------
<S> <C> <C>
Commercial and industrial - not secured by real estate ................................... $11,030,426 $ 7,295,457
Commercial and industrial - secured by real estate ....................................... 13,820,036 13,440,758
Residential real estate - mortgage ....................................................... 39,827,868 33,316,125
Residential real estate - construction ................................................... 1,643,287 887,445
Loans to individuals for household, family and other personal expenditures ............... 10,527,486 11,224,839
----------- -----------
76,849,103 66,164,624
Less allowance for loan losses ........................................................... 987,138 760,679
----------- -----------
$75,861,965 $65,403,945
=========== ===========
</TABLE>
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
BALANCE, BEGINNING OF YEAR .................................... $ 760,679 $ 669,664 $ 619,291
Provision for loan losses ................................... 324,475 260,080 108,000
Loans charged off, net of recoveries ........................ (98,016) (169,065) (57,627)
--------- --------- ---------
BALANCE, END OF YEAR .......................................... $ 987,138 $ 760,679 $ 669,664
========= ========= =========
</TABLE>
At December 31, 1997 and 1996 nonaccrual loans amounted to $757,206 and
$397,530, respectively. Foregone interest income was approximately $65,200,
$24,200 and $12,100 on nonaccrual loans for 1997, 1996 and 1995, respectively.
At December 31, 1997 and 1996, the recorded investment in loans for which
impairment has been recognized in accordance with SFAS No. 114 is $195,000 and
$0, respectively. The impairment allowance is included in the allowance for loan
losses.
39
<PAGE>
NOTE 5 - PREMISES AND EQUIPMENT
The principal categories and estimated useful lives of premises and
equipment are summarized below:
<TABLE>
<CAPTION>
Estimated December 31,
useful lives 1997 1996
-------------- ----------- ----------
<S> <C> <C> <C>
Land ........................................................ - $ 1,133,984 $ 403,012
Building and improvements ................................... 15-30 years 1,473,725 1,389,431
Furniture, fixtures and equipment ........................... 5 - 7 years 1,498,032 1,323,512
------------- ------------
4,105,741 3,115,955
Less accumulated depreciation ............................... 1,432,029 1,257,526
------------- ------------
$ 2,673,712 $ 1,858,429
============= ============
</TABLE>
Depreciation expense of $208,443, $176,018 and $206,858 for 1997,
1996 and 1995, respectively, is included in occupancy and equipment expenses in
the accompanying consolidated statements of income.
NOTE 6 - DEPOSITS
The amounts and scheduled maturities of deposits are as follows:
December 31,
1997
Time certificates maturing
Within one year ..................................... $ 47,636,153
After one but within two years ...................... 4,433,699
After two but within three years .................... 535,877
After three but within four years ................... 421,351
After four years .................................... 610,129
---------------
53,637,209
Transaction and savings accounts ...................... 42,552,639
$ 96,189,848
Certificates of deposit in excess of $100,000 totaled approximately
$17,821,000 and $13,152,000, at December 31, 1997 and 1996, respectively.
Interest expense on certificates of deposit was approximately $880,000 in 1997,
$601,000 in 1996 and $513,400 in 1995.
NOTE 7 - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Securities sold under agreements to repurchase are summarized as
follows:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---------- ----------
<S> <C> <C>
U. S. Government securities with an amortized cost of $5,664,281 ($5,641,697
fair value) and $4,663,640 ($4,634,612 fair value) at December 31, 1997
and 1996, respectively, are pledged for the agreements ................................... $4,433,554 $3,926,891
========== ==========
</TABLE>
The Bank enters into sales of securities under agreements to
repurchase. These obligations to repurchase securities sold are reflected as
liabilities in the consolidated balance sheets. The dollar amount of securities
underlying the agreements remains in the asset accounts. The securities
underlying the agreements are book entry securities maintained by a safekeeping
40
<PAGE>
agent. The weighted average interest rate of these agreements was 3.10 percent
at December 31, 1997 and 1996. Securities sold under agreements to repurchase
averaged $4,686,696 and $4,825,829 during 1997 and 1996, respectively. The
maximum amounts outstanding at any month-end were $4,955,332 and $8,293,500
during 1997 and 1996, respectively.
NOTE 8 - NOTES PAYABLE TO FEDERAL HOME LOAN BANK (FHLB)
The Bank had various notes payable aggregating $2,030,612 and
$5,397,959 at December 31, 1997 and 1996, respectively, to the Federal Home Loan
Bank. The proceeds of these notes were used to meet the residential loan demand
of its customers. Additional borrowings under similar terms are available by
pledging additional collateral and purchasing additional stock in the FHLB.
Interest rates on these borrowings ranged from 5.46 percent to 5.76 percent. The
notes are collateralized by mortgage loans aggregating approximately
$15,604,000.
Minimum required payments of principal are as follows:
1998 .............................................. $ 30,612
1999 .............................................. 2,000,000
-------------
$ 2,030,612
NOTE 9 - UNUSED LINES OF CREDIT
The Bank has unused short-term lines of credit to purchase Federal
Funds from unrelated banks totaling $2,500,000 at December 31, 1997. These lines
of credit are available on a one to seven day basis for general corporate
purposes.
The Bank has the ability to borrow an additional $14,000,000 from the
Federal Home Loan Bank as of December 31, 1997. The borrowings are available by
pledging collateral and purchasing additional stock in the Federal Home Loan
Bank.
NOTE 10 - INCOME TAXES
Provision for income taxes consists of the following:
<TABLE>
<CAPTION>
For the years ended December 31,
1997 1996 1995
------------ ------------- -------------
Current tax provision
<S> <C> <C> <C>
Federal ..................................................... $ 657,000 $ 490,350 $ 411,400
State ....................................................... 62,218 46,700 36,760
------------ ------------- -------------
Total current taxes ..................................... 719,218 537,050 448,160
Deferred tax benefit .......................................... (80,000) - (37,160)
------------ ------------- -------------
Provision for income taxes .............................. $ 639,218 $ 537,050 $ 411,000
============ ============= =============
</TABLE>
Income taxes are different from the tax expense computed by applying
the statutory federal income tax rate of 34 percent to income before income
taxes. The reasons for these differences are as follows:
41
<PAGE>
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Tax expense at statutory rate ............................... $ 660,600 $ 544,600 $ 429,980
Increase (decrease) in taxes resulting from:
State income taxes net of federal benefit ................. 41,000 37,600 24,500
Tax-exempt interest ....................................... (76,700) (68,980) (66,840)
Other ..................................................... 14,318 23,830 23,360
------------- ------------- -------------
Provision for income taxes .............................. $ 639,218 $ 537,050 $ 411,000
</TABLE>
Deferred tax assets (liabilities) result from temporary differences in
the recognition of revenue and expenses for tax and financial statement
purposes. The sources and the cumulative tax effect of temporary differences are
as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
------------- -------------
<S> <C> <C>
Allowance for loan losses ............................................... $ 335,600 $ 258,600
Deferral of loan origination fees and costs ............................. (51,400) (40,260)
Tax depreciation in excess of book depreciation ......................... (89,200) (130,700)
Adjustments from the accrual to the cash basis of accounting ........... (25,800) (39,130)
Unrealized holding loss on securities available for sale ................ 10,000 13,000
Other ................................................................... 2,100 -
------------- -------------
.......................................................................... 181,300 61,510
Valuation allowance ..................................................... (170,960) (128,170)
------------- -------------
.......................................................................... $ 10,340 $ (66,660)
============= =============
</TABLE>
Net deferred income taxes are included in other liabilities.
NOTE 11 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit and
standby letters of credit. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amounts recognized in
the balance sheets. The contract amounts of those instruments reflect the extent
of involvement the Bank has in particular classes of financial instruments. The
Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
Financial instruments whose contract amounts Contract
represent credit risk: amount
--------------
Commitments to extend credit $ 18,014,527
Standby letters of credit $ 1,486,000
Commitments to extend credit are agreements to lend as long as there
is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained by
the Bank upon extension of credit is based on management's credit evaluation.
42
<PAGE>
NOTE 12 - COMMITMENTS AND CONTINGENT LIABILITIES
The Bank intends to enter into a construction contract in the first
quarter of 1998 for the construction of a building in Seneca, South Carolina.
The land purchase, building construction and equipment purchases are estimated
to cost $965,000. The new branch is anticipated to open in the latter part of
1998 upon completion of the construction. The Bank has received regulatory
approval for this branch.
The Company intends to enter into a construction contract in the
first quarter of 1998 for the construction of a building in Anderson, South
Carolina. The new building will house the operations of a new bank (the "Bank of
Anderson, N.A.") which will be a wholly-owned subsidiary of the Company. The
building construction and equipment purchases are estimated to cost $1,125,000.
Land on which the building will be constructed was purchased in 1997 for
$365,000 and is included in premises and equipment. The new bank is expected to
open in the latter part of 1998 upon completion of construction, receipt of all
regulatory approvals and the raising of the required capital.
The Company has, from time to time, various lawsuits and claims
arising from the conduct of its business. Such items are not expected to have
any material adverse effect on the financial position or results of operations
of the Company.
NOTE 13 - RELATED PARTY TRANSACTIONS
At December 31, 1997 and 1996, certain officers, directors,
employees, related parties and companies in which they have 10 percent or more
beneficial ownership, were indebted to the Bank in the aggregate amount of
$3,343,161 and $2,433,935, respectively. During 1997, $2,186,604 of new loans
were made to this group and repayments of $1,277,378 were received.
The Company leases its Powdersville branch office from a
partnership in which a shareholder/director of the Company is a partner. During
1996, the Company purchased unimproved land at its appraised value of $110,000
from a partnership in which an executive officer and member of the Board of
Directors is a partner.
NOTE 14 - COMMON STOCK AND EARNINGS PER SHARE
The Company adopted SFAS No. 128, Earnings per Share, on December 31,
1997. This statement requires that the Company present basic and diluted net
income per common share. The assumed conversion of stock options creates the
differences between basic and diluted net income per common share. Income per
share is calculated by dividing net income by the weighted average number of
common shares outstanding for each period presented. The weighted average number
of common shares outstanding for basic net income per common share was 1,686,199
in 1997, 1,674,546 in 1996 and 1,547,807 in 1995. The weighted average number of
common shares outstanding for diluted net income per common share was 1,789,622
in 1997, 1,747,175 in 1996 and 1,577,606 in 1995.
The Company issued a five percent common stock dividend and a
two-for-one stock split in 1997. Net income per common share in prior years has
been restated to reflect these transactions.
NOTE 15 - RESTRICTION OF DIVIDENDS
The ability of the Company to pay cash dividends is dependent upon
receiving cash in the form of dividends from the Bank. Federal banking
regulations restrict the amount of dividends that can be paid and such dividends
are payable only from the retained earnings of the Bank. At December 31, 1997
the Bank's retained earnings were approximately $5,044,000.
NOTE 16 - STOCK OPTION COMPENSATION PLANS
The Company has a stock option compensation plan through which
the Board of Directors may grant stock options to officers and employees to
purchase common stock of the Company at prices not less than 100 percent of the
fair value on the date of grant. The outstanding options become exercisable in
various increments beginning the date of grant and expiring five to ten years
from the date of grant. The Company also has a directors stock option plan
43
<PAGE>
through which non-employee directors of the Company shall be granted options to
purchase 500 shares of common stock for each year served on the board to a
maximum of 5,000 options per director. The option price shall not be less than
100 percent of the fair value on the grant date. The outstanding options become
exercisable on the grant date and expire at the earlier of the end of the
director's term or ten years from the grant date.
The Company applies Accounting Principles Board (APB) Opinion 25 and
related Interpretations in accounting for the plans. Accordingly, no
compensation cost has been charged to operations. Had compensation cost for the
plans been determined based on the fair value at the grant dates for awards
under the plans consistent with the accounting method available under SFAS No.
123, "Accounting for Stock - Based Compensation", the Company's net income and
net income per common share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- ---------------- --------------
Net income
<S> <C> <C> <C>
As reported .............................................. $ 1,303,773 $ 1,064,785 $ 853,622
Pro forma ................................................ 1,277,629 1,055,592 829,087
Basic net income per common share
As reported .............................................. $ .77 $ .64 $ .55
Pro forma ............................................... .76 .63 .53
Diluted net income per common share
As reported .............................................. $ .73 $ .61 $ .54
Pro forma ................................................ .72 .61 .52
</TABLE>
NOTE 16 - STOCK OPTION COMPENSATION PLANS, Continued
The fair value of each option grant is estimated on the date of grant
using the Black - Scholes option - pricing model with the following weighted -
average assumptions for grants in 1997: dividend yield of $.25 per share,
expected volatility of 15 percent, risk-free interest rate of 6.0 percent and
expected lives of 5 and 10 years.
A summary of the status of the plans as of December 31, 1997 and 1996,
and changes during the years ending on those dates is presented below (all
shares have been adjusted for the stock dividends and the stock split):
<TABLE>
<CAPTION>
1997 1996
---------------------------- ----------------------------
Weighted- Weighted-
average average
Shares exercise price Shares exercise price
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year ................. 179,148 $4.82 194,910 $4.94
Granted .......................................... 78,750 8.57 - -
Exercised ........................................ (7,560) 4.15 (15,762) 4.42
Forfeited or expired ............................. - - - -
----------- ----------
Outstanding at end of year ....................... 250,338 5.98 179,148 4.82
=========== ==========
Options exercisable at year-end .................. 213,838 130,559
Weighted - average fair value of options
granted during the year ...................... $ 8.57 $ -
Shares available for grant ....................... 126,192 197,337
</TABLE>
44
<PAGE>
The following table summarizes information at December 31, 1997:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
------------------------------------------------ ------------------------------
Weighted-
average Weighted- Weighted-
Range of remaining average average
exercise Number contractual exercise Number exercise
prices outstanding life price exercisable price
- ----------- -------------- ---------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$4.98 - $3.98 95,523 1.0 years $ 4.49 95,523 $ 4.49
$5.47 - $4.97 76,065 7.5 years 5.15 39,565 5.16
$8.57 78,750 9.7 years 8.57 78,750 8.57
--------- ----------
250,338 213,838
========= ==========
</TABLE>
NOTE 17 - EMPLOYEE BENEFIT PLANS
The Bank maintains the Peoples National Bank 401(k) Retirement Plan
for all eligible employees. Upon ongoing approval of the Board of Directors, the
Bank matches employee contributions equal to fifty percent of the first four
percent of such contributions, subject to certain adjustments and limitations.
Contributions to the plan of $32,861, $28,223 and $19,457 were charged to
operations during 1997, 1996 and 1995, respectively.
Supplemental benefits have been approved by the Board of Directors
for certain executive officers of the Bank. These benefits are not qualified
under the Internal Revenue Code and they are not funded. However, certain
funding is provided informally and indirectly by life insurance policies.
NOTE 18 - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
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 Bank to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier I capital to risk-weighted assets, and of
Tier I capital to average assets. Management believes, as of December 31, 1997,
that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the Office
of the Comptroller of the Currency categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. There are no
conditions or events since that notification that management believes have
changed the institution's category. The Bank's actual capital amounts and ratios
and minimum regulatory amounts and ratios are presented as follows:
45
<PAGE>
<TABLE>
<CAPTION>
To be well
capitalized under
For capital prompt corrective
adequacy purposes action provisions
----------------- -----------------
Actual Minimum Minimum
------ ------- -------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(amounts in $000)
As of December 31, 1997
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to risk-weighted assets) $ 9,606 12.59% $ 6,106 8.0% $ 7,632 10.0%
Tier I Capital (to risk-weighted assets) 8,652 11.34 3,053 4.0 4,579 6.0
Tier I Capital (to average assets) 8,652 7.51 4,608 4.0 5,760 5.0
As of December 31, 1996
Total Capital (to risk-weighted assets) 8,321 13.01 5,112 8.0 6,390 10.0
Tier I Capital (to risk-weighted assets) 7,561 11.82 2,556 4.0 3,834 6.0
Tier I Capital (to average assets) 7,561 8.19 3,693 4.0 4,616 5.0
</TABLE>
NOTE 19 - FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107, "Disclosures about Fair Value of Financial Instruments"
requires disclosure of fair value information, whether or not recognized in the
balance sheet, when it is practical to estimate the fair value. SFAS 107 defines
a financial instrument as cash, evidence of an ownership interest in an entity
or contractual obligations which require the exchange of cash or other financial
instruments. Certain items are specifically excluded from the disclosure
requirements, including the Company's common stock, premises and equipment and
other assets and liabilities.
Fair value approximates carrying value for the following financial
instruments due to the short-term nature of the instrument: cash and due from
banks and federal funds sold.
NOTE 19 - FAIR VALUE OF FINANCIAL INSTRUMENTS, Continued
Securities are valued using quoted market prices. Fair value for the
Company's off-balance-sheet financial instruments is based on the discounted
present value of the estimated future cash flows.
Fair value for variable rate loans that reprice frequently and for
loans that mature in less than one year is based on the carrying value. Fair
value for fixed rate mortgage loans, personal loans and all other loans
(primarily commercial) maturing after one year is based on the discounted
present value of the estimated future cash flows. Discount rates used in these
computations approximate the rates currently offered for similar loans of
comparable terms and credit quality.
Fair value for demand deposit accounts and interest-bearing accounts
with no fixed maturity date is equal to the carrying value. Certificate of
deposit accounts maturing within one year are valued at their carrying value.
Certificate of deposit accounts maturing after one year are estimated by
discounting cash flows from expected maturities using current interest rates on
similar instruments.
Fair value for long-term debt is based on discounted cash flows using
the Company's current incremental borrowing rate. Discount rates used in these
computations approximate rates currently offered for similar loans of comparable
terms and credit quality.
The Company has used management's best estimate of fair value based
on the above assumptions. Thus, the fair values presented may not be the amounts
which could be realized in an immediate sale or settlement of the instrument. In
addition, any income taxes or other expenses which would be incurred in an
actual sale or settlement are not taken into consideration in the fair value
presented.
46
<PAGE>
The estimated fair values of the Company's financial instruments are
as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
---------------------------- -----------------------------
Carrying Carrying
amount Fair value amount Fair value
Financial Assets:
<S> <C> <C> <C> <C>
Cash and due from banks $ 3,908,784 $ 3,908,784 $ 2,626,956 $ 2,626,956
Federal funds sold 4,570,000 4,570,000 9,700,000 9,700,000
Securities available for sale 20,320,579 20,320,579 15,774,248 15,774,248
Securities held for investment 3,852,356 3,953,648 3,312,304 3,348,651
Loans 76,849,103 76,726,000 66,164,624 65,798,000
Financial Liabilities:
Deposits 96,189,848 96,441,809 80,194,463 80,291,108
Federal funds purchased - - 1,000,000 1,000,000
Securities sold under repurchase agreements 4,433,554 4,433,554 3,926,891 3,926,891
Notes payable Federal Home Loan Bank 2,030,612 2,026,000 5,397,959 5,397,959
Financial Instruments with Off-Balance-Sheet Risk:
Commitments to extend credit 18,014,527 18,014,527 14,312,517 14,312,517
Standby letters of credit 1,486,000 1,486,000 1,395,263 1,395,263
</TABLE>
NOTE 20 - CONDENSED FINANCIAL INFORMATION
Following is condensed financial information of Peoples Bancorporation,
Inc. (parent company only):
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
December 31,
1997 1996
------------- ----------
ASSETS
<S> <C> <C>
Cash ................................................................... $ 166,216 $ 644,714
Investment in bank subsidiary .......................................... 8,811,083 7,676,282
Organization costs - net ............................................... 16,752 20,474
Land and building ...................................................... 902,973 110,000
------------- ------------
......................................................................... $ 9,897,024 $ 8,451,470
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Due to subsidiary ...................................................... $ 54,611 $ 48,213
Account payable ........................................................ 313,475 -
Shareholders' equity ................................................... 9,528,938 8,403,257
------------- ------------
$ 9,897,024 $ 8,451,470
============= ============
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
For the years ended December 31,
1997 1996 1995
------------- ------------- ----------
<S> <C> <C> <C>
INCOME ........................................................ $ 204,033 $ 177,133 $ 142,991
EXPENSE
Amortization ................................................ 3,722 3,722 3,722
------------- ------------- ------------
Income before undistributed net income of bank subsidiary 200,311 173,411 139,269
EQUITY IN UNDISTRIBUTED NET INCOME OF BANK
SUBSIDIARY .................................................. 1,103,462 891,374 714,354
------------- ------------- ------------
Net income .............................................. $ 1,303,773 $ 1,064,785 $ 853,623
============= ============= ============
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
For the years ended December 31,
1997 1996 1995
------------- ------------- ----------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income .................................................. $ 1,303,773 $ 1,064,785 $ 853,623
Adjustments to reconcile net income to net cash provided
by operating activities
Equity in undistributed net income of bank subsidiary ..... (1,103,462) (891,374) (714,354)
Amortization .............................................. 3,722 3,722 3,722
------------- ------------- ------------
Net cash provided by operating activities ............ 204,033 177,133 142,991
------------- ------------- ------------
INVESTING ACTIVITIES
Investment in bank subsidiary ............................... (31,338) (66,459) -
Purchase of land ............................................ (479,498) - (110,000)
------------- ------------- ------------
Net cash used for investing activities ............... (510,836) (66,459) (110,000)
------------- ------------- ------------
</TABLE>
NOTE 20 - CONDENSED FINANCIAL INFORMATION, Continued
CONDENSED STATEMENTS OF CASH FLOWS, Continued
<TABLE>
<CAPTION>
For the years ended Decmber 31,
1997 1996 1995
------------- ------------- ----------
FINANCING ACTIVITIES
<S> <C> <C> <C>
Proceeds from the sale of stock and exercise of stock options . 31,767 66,459 754,714
Cash dividends ................................................ (203,462) (177,133) (142,991)
------------- ------------- ------------
Net cash used for financing activities ................. (171,695) (110,674) 611,723
------------- ------------- ------------
Net change in cash ..................................... (478,498) - 644,714
CASH, BEGINNING OF YEAR ......................................... 644,714 644,714 -
------------- ------------- ------------
CASH, END OF YEAR ............................................... $ 166,216 $ 644,71 $ 644,714
============= ============= ============
</TABLE>
48
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTS AND FINANCIAL DISCLOSURE
There has been no occurrence requiring a response to this item.
ITEM 9. DIRECTOR AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows:
Position Position
Name with Bank with Company
---- --------- ------------
Garnet A. Barnes Director Director
William A. Carr Director Director
Charles E. Dalton Director Director
Robert E. Dye, Sr. Chairman of the Chairman of the
Board, Chief Board, President
Executive Officer Chief Executive
and Director Officer and Director
Robert E. Dye, Jr. Director of Director of
Expansion and Expansion and
Development Development
and Director and Director
Marvin W. Ellenburg Vice President- Vice President
Operations
W. Rutledge Galloway Director Director
Patricia A. Jensen Vice President, Vice President
Cashier
E. Smyth McKissick, III Director Director
Eugene W. Merritt, Jr. Director Director
George B. Nalley, Jr. Director Director
R. Riggie Ridgeway President and Executive Vice President
Director President, Secretary
Treasurer and
Director
Nell W. Smith Director Director
A. J. Thompson, Jr., M. D. Director Director
Each of the directors of the Bank named above has served on the Board
of Directors of the Bank since it was organized in August, 1986 with the
exception of Messrs. Nalley and Ridgeway (who were elected to the Board in
October 1986), Mr. Carr (who was elected to the Board in September 1987),
Messrs. McKissick and Merritt (who were elected to the Board in July 1992), Mr.
Dalton (who was elected to the Board in December 1992) and Mr. Dye, Jr. (who was
elected to the Board in November 1997). Each director of the Bank serves a term
of one year and is elected by the Company as the Bank's sole Shareholder. The
Bank's officers are appointed by the Board of Directors of the Bank and hold
office at the will of the Board.
Each of the directors of the Company named above has served on the
initial Board of Directors of the Company since March 1992, with the exception
of Messrs. Dalton, McKissick and Merritt (who were elected to the Board in April
1993) and Mr. Dye, Jr. (who was elected to the Board in November 1997). The
Board of Directors of the Company is divided into three classes and the
directors are elected to classified terms with one-third of the directors being
elected at each Annual Meeting of Shareholders. Each class serves a term of
49
<PAGE>
three years. The Company's officers are appointed by the Board of Directors of
the Company and hold office at the will of the Board. The Company's officers
named above have served in such capacities since the formation of the Company in
1992.
Garnet A. Barnes, age 73, has been President of Barnes Real Estate,
Inc. since 1964. In addition, Mr. Barnes is President of Insurance Investment,
Inc. and Smithfields Development Corporation and Vice President and Secretary of
Pinnacle Associates.
William A. Carr, age 71, has served as mayor of the City of Easley,
South Carolina since 1983.
Charles E. Dalton, age 55, has been President and Chief Executive
Officer of Blue Ridge Electric Cooperative, located in Pickens, South Carolina,
since 1982. Mr. Dalton is past president of the Association of Electric
Cooperatives of South Carolina.
Robert E. Dye, Sr., age 56, has served as Chairman of the Board and
Chief Executive Officer of the Bank since August 1986. Mr. Dye served as
President of the Bank from 1986 through 1995. Mr. Dye was involved in the
organization of the Bank from July 1985 to August 1986, at which time the Bank
opened for business. Prior to joining the Bank, Mr. Dye served as Chairman of
the Board and Chief Executive officer of Carolina National Bank until 1983 when
the bank was acquired by C & S National Bank of South Carolina. Mr. Dye served
as Senior Vice President/Regional Executive for C & S until 1985 when he
resigned to organize the Bank.
Robert E. Dye, Jr., age 30, has served as Director of Expansion and
Development for the Bank and Company since November 1997. Prior to joining the
Bank, Mr. Dye was Vice President at Britt, Peters & Associates, Inc., an
engineering firm in Greenville, South Carolina. Mr. Dye also served as an
engineer for South Carolina operations of Vulcan Materials Company
Marvin W. Ellenburg, age 60, has served as Vice President and
Operations Officer of the Bank since 1986. Mr. Ellenburg served as Operations
Officer, Trust Officer and branch manager of C & S National Bank of South
Carolina from 1983 to 1986.
W. Rutledge Galloway, age 54, has been President of Galloway-Tripp,
Inc., a commercial insulation contractor, since 1972. Mr. Galloway also serves
as director of the Greenville, South Carolina Home Builders
Association.
Patricia A. Jensen, age 44, has been Vice President and Cashier of the
Bank since 1986. From 1983 to 1986, Mrs. Jensen served variously as Assistant
Controller and Assistant Deputy Controller with First Union National Bank.
E. Smyth McKissick, III, age 40, has been President of Alice
Manufacturing Company, a textile manufacturing company, since 1988. Mr.
McKissick is a member of the Board of Directors of the South Carolina Textile
Manufacturers Association and the American Textile Manufaurers Association. In
addition, Mr. McKissick is on the Board of Trustees of the Institute of Textile
Technology and is a member of the American Textile Institute.
Eugene W. Merritt, Jr., age 53, has been co-owner and President of
Merritt Brothers, Inc., a commercial landscape company, since 1971. In addition,
Mr. Merritt is a co-owner of Merritt Brothers Tree Farm located in Easley, South
Carolina. Mr. Merritt is currently serving as a member of the Board of Directors
of the Ag First Farm Credit Bank in Columbia, South Carolina.
George B. Nalley, Jr., age 59, has been Managing partner of Nalley
Commercial Properties since 1964 and is also President of Easley Lumber Company,
Quality Construction Company, Nalley Construction Company and Town N' Country
Realty, Inc., each of which is located in the Easley, South Carolina area.
R. Riggie Ridgeway, age 51, has been Executive Vice President, Senior
Loan Officer and a director of the Bank from 1986 through 1995. Mr. Ridgeway was
promoted to President of the Bank in 1996, and continues to serve as a director.
Mr. Ridgeway, who has been involved in the banking industry for over 27 years,
50
<PAGE>
served as Vice President of Commercial Banking at American Federal Savings Bank,
N. A. from 1983 to 1986.
Nell W. Smith, age 69, has been a director of the bank since August
1986. Ms. Smith served as a South Carolina State Senator from 1981 to 1993. Ms.
Smith is currently serving on the Clemson University Board of Nursing and as a
board member of the Alliance for South Carolina Children. Ms. Smith also serves
on the Intergenerational Board for At Risk Youth, the South Carolina State Board
of Education, the South Carolina State United Fund and the Office of the South
Carolina Governor's "Link" program.
A. J. Thompson, Jr., M. D., age 50, has practiced ophthalmology in
Easley South Carolina since 1981 and is a principal and director of the Jervey
Eye Group, P. A.
Robert E. Dye, Jr., Director of Expansion and Development for the
Company and Bank is the son of Robert E. Dye, Sr., Chairman of the Board, Chief
Executive Officer and Director of the Company and Bank.
During fiscal 1997, directors of the Company received fees of $500 in
January and received $700 per regular board meeting the remainder of 1997,
regardless of attendance. The Company paid an aggregate of $91,600 in director
fees for 1997.
The Bank of Anderson, N. A., in organization, announced in February
1998 its Board of Directors. They include:
Robert E. Dye, Sr., serves as Chairman, President and Chief Executive
Officer of Peoples Bancorporation, Inc. Mr. Dye is also Chief Executive Officer
and Director of The Peoples National Bank. Mr. Dye will be Chairman of the
Anderson bank.
David King, co-owner of Sullivan King Mortuary will serve as President
and Chief Executive Officer of the Anderson bank. Mr. King was President and CEO
of Barrow Bank and Trust in Winder, Georgia, and has been in banking for 23
years.
E. Stephen Darby is President and General Manager of Darby Electric,
Inc. in Anderson. Mr. Darby received the 1995 Small Business Person of the Year
Award from the Anderson Area Chanber of Commerce. He vurrently serves on the
Tri-County Technical College Foundation Board and Anderson College Trustee
Board.
Myrtle E. Gillespie, who has lived in Anderson for 28 years and has
served as a board member of the Greater Anderson Musical Arts Consortium since
its founding and is a member of the Anderson County Medical Alliance.
Andrew M. McFall III, a sixth-generation Anderson native, retired from
banking in 1995 after working with Anderson Savings and Loan and its successors.
Mr. McFall is a member of the Greater Anderson Rotary Club, a life member of
Sertoma and past president of the South Carolina Controllers Society.
D. Kirkland Oglesby, who retired recently after 30 years as president
and chief executive officer of Anderson Area Medical Center. During his 45 years
in the health care industry, Mr. Oglesby served as Chariman of the South
Carolina Hospital Association, the American Hospital Association, the American
College of Health Care Executives and the Joint Commission of Accreditation of
Health Care Organizations.
J. Calhoun Pruitt has been an Anderson lawyer since 1974 and also works
in real estate development. Mr. Pruitt is a member of the Anderson Area Chamber
of Commerce, a member of the Greenville Pwer Squadron, a member of First
Presbyterian Church and a former member of the Anderson Jaycees.
Robert M. Rainey, is a senior environmental engineer with RMT Inc. in
Greenville, a firm of Consulting Engineers in Greenville and a cattle farmer..
He has served as trustee for Anderson Area Medical Center and AnMed Healthy
Futures Trust, an Advisory Board Member of the Salvation Army, an Executive
Board Member for the Blue Ridge Council of the Boy Scouts of America, Chairman
of Anderson County Arts Council Endowment Committee and on the Board of
Directors of Anderson YMCA.
51
<PAGE>
.Larry D. Reeves is senior vice president and general manager of Cromer
Food Services, an Anderson food and beverage vending company. Mr. Reeves
currently serves as Treasurer of Christian Youth Camp, Inc., Advisory Borad
member of the Salvation Army, member of the Anderson Rotary Club and Building
Authority member of Anderson County Courthouse.
The Bank of Anderson, N. A., in organization, with its new board, is
moving ahead with applications to the Office of the Comptroller of Currency,
Federail Deposit Insurance Commission and Federal Reserve.
ITEM 10. EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation paid or accrued by either the Company or the Bank to or on behalf
of the Company's Executive Officers for the years ended December 31, 1997, 1996
and 1995:
<TABLE>
<CAPTION>
Long-Term
Name and Annual Compensation Compensation All Other
Principal Position Year Salary Stock Options Compensation (1)
------------------ ---- ------ ------------- ----------------
<S> <C> <C> <C> <C>
Robert E. Dye, Sr. 1997 $123,021 75,996 $ 3,688
President and Chief 1996 $110,460 36,203 $ 2,892
Executive officer 1995 $101,290 34,479 $ 1,942
R. Riggie Ridgeway 1997 $116,908 38,013 $ 3,504
Executive Vice 1996 $104,840 18,102 $ 2,916
President 1995 $ 96,690 17,240 $ 1,874
- ------------------------
</TABLE>
(1) Represents the Bank's matching contribution under the Bank's 401(k) Plan
during 1997, 1996 and 1995
The Board of Directors has approved supplemental benefits for certain
executive officers of the Bank. These benefits were funded in 1997 through the
purchase of whole life insurance policies and are reflected in the Company's
balance sheet as other assets.
Incentive Stock Option Plan
On March 8, 1993, the Board of Directors of the Company adopted the
1993 Peoples Bancorporation, Inc. Incentive Stock Option Plan (the "Plan").
Shareholders of the Company approved the Plan at the 1993 Annual Meeting of
Shareholders. The Plan authorizes options for up to 382,882 shares and provides
for the grant of options at the discretion of the Board of Directors or a
committee designated by the Board of Directors to administer the Plan. The
option exercise price must be at least 100% of the fair market value of the
stock on the date the option is granted (or 110% in the case of an option
granted to a person who owns more than 10% of the total combined voting power of
all classes of stock of the Company), and the options are exercisable by the
holder thereof prior to their expiration in accordance with the terms of his or
her Stock Option Agreement and the plan. Stock options granted pursuant to the
1993 Plan expire no later than ten (10) years from the date on which such option
is granted, except in the case of options granted to 10 percent (10%)
shareholders, which options expire not later than five (5) years from the date
on which such option is granted.
During 1997, no options to purchase shares of the Company's common
stock were granted under the 1993 Peoples Bancorporation, Inc. Incentive Stock
Option Plan.
52
<PAGE>
The following table presents information regarding the value of options
outstanding under the Incentive Stock Option Plan at December 31, 1997:
<TABLE>
<CAPTION>
Fiscal Year End Option Values
-----------------------------
Number of Value of
Unexercised Options Unexercised Options
At Fiscal year End At Fiscal year End
Name/Position Exercisable/Unexercisable Exercisable/Unexercisable
------------- ------------------------- -------------------------
<S> <C> <C>
Robert E. Dye, Sr. 63,481 / 12,515 $4.98 / $5.47
President and Chief
Executive Officer
R. Riggie Ridgeway, 38,013 / 6,256 $3.98 / $4.97
Executive Vice
President
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 9, 1998
with respect to the ownership of the outstanding common stock of the Company by
(I) all persons known to the Company to own beneficially more than five percent
(5%) of the outstanding common stock of the Company, (ii) each director of the
Company and (iii) all directors and executive officers of the Company as a
group:
<TABLE>
<CAPTION>
Shares of
Name of Common Stock Exercisable Percent of
Beneficial Owner Beneficially Owned(1) Stock Options Total (1)
- ---------------- --------------------- ------------- ---------
<S> <C> <C> <C>
Garnet A. Barnes (2) .............................. 46,692 10,500 2.46%
William A. Carr ................................... 11,570 10,500 *
Charles E. Dalton ................................. 6,014 5,250 *
Robert E. Dye , Sr.(3) ............................ 301,751 63,481 15.87%
Robert E. Dye, Jr. (4) ............................ 38,499 0 2.03%
W. Rutledge Galloway (5) .......................... 36,618 10,500 1.93%
E. Smyth McKissick, III ........................... 22,928 5,250 1.21%
Eugene W. Merritt, Jr ............................. 10,220 5,250 *
George B. Nalley, Jr. (6) ......................... 58,854 10,500 3.10%
R. Riggie Ridgeway ................................ 35,369 31,757 1.86%
Nell W. Smith ..................................... 18,536 10,500 *
A. J. Thompson, Jr., M.D. ......................... 57,484 10,500 3.02%
Directors and Officers
As a Group (14 persons) ......................... 671,878 188,701 35.34%
</TABLE>
* Less than 1%.
(1) Pursuant to the rules of the Securities and Exchange Commission, certain
shares of the Company's Common Stock that a beneficial owner has the right
to acquire within 60 days pursuant to the exercise of stock options are
deemed to be outstanding for purposes of computing the percentage ownership
of any other person. Unless otherwise indicated, the named individual or
entity has sole voting and investment power with respect to all shares.
(2) Includes 19,300 shares owned by Mr. Barnes' wife.
53
<PAGE>
(3) Includes 117,958 shares by Mr. Dye, Sr.'s wife. Mr. Dye, Sr.'s business
address is 1800 East Main Street, Easley, South Carolina 29640.
(4) Includes 2,414 shares owned jointly with Mr. Dye, Jr.'s wife and 1,490
shares held by Mr. Dye, Jr.'s minor child.
(5) Includes 26,118 shares held in the name of Galloway-Tripp, Inc. Profit
Sharing Plan for the benefit of Mr. Galloway. Mr. Galloway is the President
of Galloway-Tripp, Inc.
(6) Includes 12,058 shares owned by Mr. Nalley's wife and an aggregate of
20,622 shares held in two trusts administered by Mr. Nalley.
(7) Includes 6,446 shares held by Dr. Thompson's wife and 10,464 shares held by
each of Dr. Thompson's two minor children.
1997 Non-Employee Director Stock Option Plan
On March 10, 1997, the Board of Directors of the Company adopted the
1997 Non-Employee Director Stock Option Plan (the "1997 Plan"). Shareholders of
the Company approved the 1997 Plan at the 1997 Annual Meeting of Shareholders.
The 1997 Plan authorizes options for up to 168,000 shares and provides for the
granting to non-employee director's options under a non-discretionary formula
set forth in the 1997 Plan. The option exercise price of each option must not be
less than 100% of the fair market value of the shares on common stock of the
Company on the date of grant, and the options are exercisable by the holder
thereof prior to their expiration in accordance with the terms of his or her
Stock Option Agreement and the 1997 Plan. Stock options granted pursuant to the
1997 Plan expire no later than ten (10) years from the effective date of the
1997 Plan.
During 1997, seventy-eight thousand seven hundred and fifty (78,750)
options to purchased shares of the Company's common stock were granted.
The following table presents information regarding the value of options
outstanding at December 31, 1997 under the 1997 Plan.
Fiscal Year End Option Values
-----------------------------
Number of Value of
Unexercised Options Unexercised Options
Name At Fiscal year End* At Fiscal year End*
---- ------------------- -------------------
Garnet A. Barnes 10,500 $8.57
William A. Carr 10,500 $8.57
Charles E. Dalton 5,250 $8.57
W. Rutledge Galloway 10,500 $8.57
E. Smyth McKissick, III 5,250 $8.57
Eugene W. Merritt, Jr. 5,250 $8.57
George B. Nalley, Jr. 10,500 $8.57
Nell W. Smith 10,500 $8.57
A. J. Thompson, Jr., M. D. 10,500 $8.57
* All options are currently exercisable.
ITEM 11. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Bank has outstanding loans to certain of its directors, executive
officers, their associates and members of their immediate families of such
directors and executive officers. All of such loans were made in the ordinary
course of business, were made on substantially the same terms including interest
rates, collateral and repayment terms as those prevailing at the time for
comparable transactions with persons not affiliated with the Bank and did not
involve more than the normal risk of collectibility or present other unfavorable
features.
The Bank operates a branch office in Powdersville, South Carolina,
which is approximately seven miles east of the Bank's main office in Easley,
54
<PAGE>
South Carolina. The branch building is leased from a partnership in which W.
Rutledge Galloway, a director of the Company and the Bank, holds a 33.3%
interest. The lease was entered into on December 10, 1987 for an initial period
of seven years and was renewed in December 1994 for an additional five years, at
a monthly rate of $2,953.69. The lease additionally provides for two additional
consecutive renewal options of five yeas each and each renewal calls for a 12%
increase in the annual renewal rate. The minimum annual rental payment required
in 1998 under this lease is $35,228. Bank management considers the lease rate to
be comparable to prevailing lease rates of similar facilities and not
unfavorable to the Bank. During 1995, the Company purchased unimproved last at
its appraised value of $110,000 from an executive officer and a member of the
Board of Directors.
The son of the Chairman of the Board of Directors and Chief Executive
Officer, Robert E. Dye, Jr., was voted a Director of the Company and Bank at the
November, 1997 meeting of the Company's Board of Directors. Robert E. Dye, Jr.
also became an employee of the Bank in November 1997 in the capacity of Director
of Expansion and Development.
ITEM 12. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed with or incorporated by reference in
this Report. The exhibits which are designated with an asterisk (*) were
previously filed as part of, and are hereby incorporated by reference from
either (i) the Registration Statement on Form S-4 under the Securities Act of
1933 for the Registrant, Registration Number 33-46649 filed with the Commission
on March 25, 1992 (the "S-4), or (ii) the Registration Statement on Form SB-1
under the Securities Act of 1933 for the Registrant, Registration Number
33-78602, declared effective by the Commission on July 25, 1994, and amended
effective by the Commission on February 6, 1995, as amended ("the SB-1"). Unless
otherwise indicated, the exhibit number corresponds to the exhibit number in the
referenced document.
Exhibit No. Description of Exhibit
*2.1 Form of Registration and Consolidation Agreement among The
Peoples National Bank, New Peoples National Bank and Peoples
Bancorporation, Inc. (S-4).
*3 (i) Articles of Incorporation dated March 6, 1992 (S-4
Exhibit 3.1).
*3(ii) Bylaws adopted March 7, 1992 (S-4 Exhibit 3.2).
*4.1 Specimen Common Stock Certificate (S-4). *4.2 Form of
Subscription Agreement (SB-1 Exhibit 4.1).
*10.1 Lease agreement, dated December 10, 1987 between Rut
Galloway, Bobby Sexton, Alva Goodwin, as landlord, and The
Peoples National Bank, as Tenant, relating to the branch
facility in Powdersville, South Carolina (S-4).
*10.2 Construction Contract dated October 19, 1993 between the Bank
and Norungelo-Davis, Inc. relating to the construction of the
Bank's Pickens, South Carolina branch office building (SB-1
Exhibit 6.2).
*10.3 Peoples Bancorporation, Inc. 1993 Incentive Stock Option Plan
(SB-1 Exhibit 6.3).
*10.4 Contract for the Sale of Stock between the Registrant and W.
C. Smith & Co., Inc. (SB-1 Exhibit 1.1).
*10.5 Noncompetition, Severance and Employment Agreement entered
into between the Company and Robert E. Dye. Incorporated by
reference to Exhibit 10.5 of Peoples Bancorporation, Inc.'s
Annual Report on Form 10-KSB for the year ended December 31,
55
<PAGE>
1995. Commission File no. 33-78607.
*10.6 Noncompetition, Severance and Employment Agreement entered
into between the Company and R. Riggie Ridgeway. Incorporated
by reference to Exhibit 10.6 of Peoples Bancorporation,
Inc.'s Annual Report on Form 10-KSB for the year ended
December 31, 1995. Commission File No. 33-78607.
10.7 Peoples Bancorporation, Inc 1997 Non-Employee Director Stock
Option Plan.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1997.
56
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amended Report to be
signed on its behalf by the undersigned, thereunto authorized.
Peoples Bancorporation, Inc.
Dated: April 27, 1998 By: /s/ Robert E. Dye
-----------------
Robert E. Dye
Chairman of the Board,
President and Chief
Executive Officer
Dated: April 27, 1998 By: /s/ R. Riggie Ridgeway
----------------------
R. Riggie Ridgeway
Secretary and Treasurer
(principal financial and
accounting officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
*2.1 Form of Registration and Consolidation Agreement among The
Peoples National Bank, New Peoples National Bank and Peoples
Bancorporation, Inc. (S-4).
*3 (i) Articles of Incorporation dated March 6, 1992 (S-4
Exhibit 3.1).
*3(ii) Bylaws adopted March 7, 1992 (S-4 Exhibit 3.2).
*4.1 Specimen Common Stock Certificate (S-4). *4.2 Form of
Subscription Agreement (SB-1 Exhibit 4.1).
*10.1 Lease agreement, dated December 10, 1987 between Rut
Galloway, Bobby Sexton, Alva Goodwin, as landlord, and The
Peoples National Bank, as Tenant, relating to the branch
facility in Powdersville, South Carolina (S-4).
*10.2 Construction Contract dated October 19, 1993 between the Bank
and Norungelo-Davis, Inc. relating to the construction of the
Bank's Pickens, South Carolina branch office building (SB-1
Exhibit 6.2).
*10.3 Peoples Bancorporation, Inc. 1993 Incentive Stock Option Plan
(SB-1 Exhibit 6.3).
*10.4 Contract for the Sale of Stock between the Registrant and W.
C. Smith & Co., Inc. (SB-1 Exhibit 1.1).
*10.5 Noncompetition, Severance and Employment Agreement entered
into between the Company and Robert E. Dye. Incorporated by
reference to Exhibit 10.5 of Peoples Bancorporation, Inc.'s
Annual Report on Form 10-KSB for the year ended December 31,
1995. Commission File no. 33-78607.
*10.6 Noncompetition, Severance and Employment Agreement entered
into between the Company and R. Riggie Ridgeway. Incorporated
by reference to Exhibit 10.6 of Peoples Bancorporation,
Inc.'s Annual Report on Form 10-KSB for the year ended
December 31, 1995. Commission File No. 33-78607.
10.7 Peoples Bancorporation, Inc 1997 Non-Employee Director Stock
Option Plan.
Exhibit 10.7
PEOPLES BANCORPORATION, INC
1997 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
1. PURPOSE. The purpose of the Peoples Bancorporation, Inc.1997 Non-Employee
Directors Stock Option Plan (the "Plan") is to provide Peoples Bancorporation,
Inc. (the "Company") maximum flexibility to meet the evolving needs of the
Company and its subsidiaries by providing stock-based compensation to directors
in order to align more closely the interests of corporate management with those
of shareholders. The Plan is also expected to promote the interests of the
Company and its shareholders by strengthening the Company's ability to attract
and retain talented individuals to serve as members of the Board of Directors by
furnishing additional incentives whereby such present and future directors may
be encouraged to acquire, or to increase their acquisition of, Common Stock,
thus maintaining their personal and proprietary interests in the Company's
continued success and progress.
2. ADMINISTRATION. Grants of options under the Plan shall be automatic. The Plan
is intended to be a "formula" plan as recognized by Rule 16b-3(c) (2) (ii)
promulgated under the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), and shall be interpreted accordingly.
The Board of Directors has established the Directors Stock Option Plan
Committee, (the "Committee") to oversee and carry out the provision of the Plan,
and to assume such other duties as are contemplated for such Committee under the
terms of the Plan. The Board of Directors has appointed each of the members of
the Personnel Committee of the Board of Directors to serve as members of the
Committee.
The Committee is responsible to the Board of Directors for the operation of
the Plan. The interpretation and construction of any provision of the Plan by
the Committee is final, unless otherwise determined by the Board.
3. ELIGIBILITY. Except as provided otherwise in this Paragraph 3, options under
the Plan shall be granted in accordance with Paragraph 5 to each member of the
Company's Board of Directors who is not also an employee of the Company or its
subsidiaries; provided that shares of Common Stock remain available for grant
hereunder in accordance with Paragraph 4. No employee of the Company or its
subsidiaries who is also a member of the Company's Board of Directors may
participate in the Plan. A Director to whom an option is granted under the Plan
shall be referred to hereinafter as a "Grantee."
4. SHARES SUBJECT TO PLAN. The shares of the Company's Common Stock subject to
the Plan shall be authorized but unissued, or re-acquired. Subject to adjustment
in accordance with the provisions of Paragraph 6 of the Plan, the maximum number
of shares of Common Stock for which options may be granted under the Plan shall
be eighty thousand (80,000). Any shares subject to an option which for any
reason expires or is terminated unexercised may again be subject to an option
under the Plan.
5. TERMS AND CONDITIONS OF OPTIONS. All awards made under the Plan are evidenced
by written agreements between the Company and the participant.
(a) Grant. Beginning with the adjournment of the 1997 Annual Meeting of
Shareholders of Peoples Bancorporation, Inc. (the "1997 Annual Meeting") each
person who has served as a non-employee director of the Company or any of its
bank subsidiaries shall be granted an option to purchase five hundred (500)
shares of the Company's Common Stock for each year served and receive such
number of options at the adjournment of the annual meeting of each of the
succeeding years, to a maximum of five thousand (5,000) shares per director.
Such options become exercisable immediately and expire at the earlier of
termination of the Grantee's status as director or ten (10) years after grant.
59
<PAGE>
(b) Option Price. The option price of each option granted under the Plan
shall not be less than 100% of the fair market value of the shares of Common
Stock of the Company on the Grant Date, as determined by the last sales price on
the day on which value is to be determined or, if no shares were traded on such
day, on the next preceding day on which the shares were traded, as quoted by a
national quotation service, or if none, by Edgar M. Norris & Company,
Greenville, South Carolina. If the shares are listed on a national securities
exchange, "Fair Market Value" means the closing price of the shares on such
national securities exchange on the day on which such value is to be determined
or, if no shares were traded on such day, on the next preceding day on which
shares were traded, as reported on National Quotation Bureau, Inc. or other
national quotation service.
The maximum aggregate fair market value (determined as of the Grant Date)
of the shares with respect to which stock options are exercisable for the first
time by the Grantee during any calendar year shall not exceed $100,000.
(c) Medium and Time of Payment. The option price shall be payable in full
upon exercise of an option in cash or check. Upon receipt of payment, the
Company shall, without transfer or issue tax, deliver to the Grantee (or other
person entitled to exercise the options granted) a certificate or certificates
for such shares.
(d) Term. Each option granted under the Plan shall, to the extent not
previously exercised, terminate and expire at the earlier of termination of the
grantee's status as director or ten (10) years after grant.
(e) Exercisability. Each option granted under the Plan shall, unless earlier
terminated as provided hereinafter in Paragraph 5(g), becomes exercisable on the
Grant Date.
(f) Method of Exercise. All options granted under the Plan shall be
exercised by an irrevocable written notice directed to the Secretary of the
Company at the Company's principal place of business.
(g) Effect of Termination of Directorship or Death.
(i) Termination of Directorship. In the event that a Grantee during his
directorship ceases to be a director of the Company for any reason other than
death or permanent and total disability, any option or unexercised portion
thereof which was otherwise exercisable on the date of termination of
directorship, shall expire unless exercised within a period of ninety (90) days
from the date on which the Grantee ceased to be a non-employee director, but in
no event after the term provided in the Grantee's Agreement.
(ii) Death. In the event that a Grantee during his Directorship ceases
to be a Director of the Company by reason of death or permanent and total
disability, any Option or unexercised portion thereof which was otherwise
exercisable on the date such Grantee's directorship ceased shall expire unless
exercised within a period of one (1) year from the date on which the Grantee
ceased to be a non-employee director, but in no event after the term provided in
the Grantee's Agreement.
In the event of the death of a Grantee, the option shall be
exercisable by his or her personal representatives, heirs or legatees, as
provided herein.
Permanent and total disability as used herein is as defined in Section
22(e)(3) of the Internal Revenue Code of 1986 (the "Code").
(h) Nonassignability of Option Rights. Options may not be transferred
except by will or the laws of descent and distribution. During the lifetime of
the Grantee, the option shall be exercisable only by the Grantee.
(i) Rights as Shareholder. Neither the Grantee nor the Grantee's successors
shall have rights as a shareholder of the Company with respect to shares of
common stock covered by the Grantee's option until the Grantee or the Grantee's
successors become the holder of record of such shares.
60
<PAGE>
6. ADJUSTMENTS.
(a) Recapitalization. In the event that dividends are payable in common
stock of the Company or in the event there are splits, subdivisions or
combinations of shares of common stock of the Company, the number of shares
available under the Plan shall be increased or decreased proportionately, as the
case may be, and the number of shares deliverable upon the exercise thereafter
of an option therefore granted shall be increased or decreased proportionately,
as the case may be, without change in the aggregate purchase price.
(b) Reorganization. In case the Company is merged or consolidated with
another corporation and the Company is not the surviving corporation, or in case
the property or stock of the Company is acquired by another corporation, or in
case of a separation, reorganization, recapitalization or liquidation of the
Company, the Board of Directors of the Company, or the Board of Directors of any
corporation assuming the obligations of the Company hereunder, shall either (i)
make appropriate provision for the protection of any outstanding options by the
substitution on an equitable basis of appropriate stock of the Company, or of
the merged, consolidated or otherwise reorganized corporation which will be
issuable in respect to the shares of common stock of the Company, provided only
that the excess of the aggregate fair market value of the shares subject to
option immediately after such substitution over the purchase price thereof is
not more than the excess of the aggregate fair market value of the shares
subject to option immediately before such substitution over the purchase price
thereof, or (ii) upon written notice to the Grantee provided that the option
(including the shares not then exercisable) must be exercised within sixty (60)
days of the date of such notice or will be terminated.
(c) General Restriction. Each option shall be subject to the requirement
that, if at any time the Board of Directors of the Company shall determine, in
its discretion, that the listing, registration or qualification of the shares
subject to such option upon any securities exchange or under any state or
federal law, or the consent or approval of any government regulatory body, is
necessary or desirable as a condition of, or in connection with, the granting of
such option or the issue or purchase of shares thereunder, such option may not
be exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Board of Directors.
7. EFFECTIVE DATE AND DURATION OF PLAN.
(a) Effective Date. If approved by the Board of Directors and shareholders
of the Company, the Plan shall become effective upon the adjournment of the 1997
Annual Shareholder Meeting (April 14, 1997).
(b) Duration. The Plan shall remain in effect until all shares subject to
or which may become subject to the Plan shall have been purchased pursuant to
options granted under the Plan; provided that options under the Plan must be
granted within ten (10) years from the Effective Date.
8. NO OBLIGATION TO EXERCISE OPTION. The granting of an option shall impose no
obligation upon the Grantee to exercise such option.
9. AMENDMENT. The Board of Directors of the Company, by majority vote, may amend
the Plan; provided, however, that without the approval of the shareholders of
the Company, no such amendments shall change:
(a) The maximum number of shares of Common Stock as to which options may
be granted under the Plan (except by operation of the adjustment
provision of the Plan; or
(b) The date on which the Plan will terminate as provided by Paragraph
7(b) of the Plan; or
(c) The number of shares of Common Stock subject to each option; or
(d) The option price as provided under Paragraph 5(b) of the Plan; or
(e) The provision of Paragraph 3 of the Plan relating to the determination
of persons to whom options may be granted; or
61
<PAGE>
(f) The provision of the Plan in such a manner so as to increase
materially (within the meaning of Rule 16b-3 of the Exchange Act) the
benefits accruing under the Plan.
The provision of the Plan determining (i) the person eligible to receive
grants of options, (ii) the timing of option grants, (iii) the number of shares
subject to options, (iv) the exercise price of options, (v) the periods during
which options are exercisable, and (vi) the dates on which options terminate,
may not be amended more than once every six (6) months other than to comport
with changes in the Code, ERISA or the rules and regulations thereunder.
10. BINDING EFFECT. All decisions of the Board of Directors or the Committee
involving the implementation, administration or operation of the Plan or any
offering under the Plan shall be binding on the Company, all eligible
non-employee directors participating in the Plan, and all persons eligible or
who become eligible to participate in the Plan.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at December 31, 1997 and the Consolidated Statement
of Income for the year Ended December 31, 1997 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,289
<INT-BEARING-DEPOSITS> 85,182
<FED-FUNDS-SOLD> 4,570
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 20,321
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 3,954
<LOANS> 76,849
<ALLOWANCE> 987
<TOTAL-ASSETS> 113,417
<DEPOSITS> 96,190
<SHORT-TERM> 4,434
<LIABILITIES-OTHER> 392
<LONG-TERM> 2,031
0
0
<COMMON> 2,818
<OTHER-SE> 6,692
<TOTAL-LIABILITIES-AND-EQUITY> 113,417
<INTEREST-LOAN> 7,250
<INTEREST-INVEST> 1,367
<INTEREST-OTHER> 245
<INTEREST-TOTAL> 8,862
<INTEREST-DEPOSIT> 3,562
<INTEREST-EXPENSE> 4,053
<INTEREST-INCOME-NET> 4,809
<LOAN-LOSSES> 324
<SECURITIES-GAINS> 3
<EXPENSE-OTHER> 3,072
<INCOME-PRETAX> 1,943
<INCOME-PRE-EXTRAORDINARY> 1,943
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,304
<EPS-PRIMARY> 0.77
<EPS-DILUTED> 0.73
<YIELD-ACTUAL> 4.34
<LOANS-NON> 757
<LOANS-PAST> 142
<LOANS-TROUBLED> 10
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 761
<CHARGE-OFFS> 126
<RECOVERIES> 28
<ALLOWANCE-CLOSE> 987
<ALLOWANCE-DOMESTIC> 987
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
