Registration No. 333-60979
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PEOPLES BANCORPORATION, INC.
(Exact name of Registrant as specified in its charter)
South Carolina 57-0951843
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1800 East Main Street
Easley, South Carolina 29640
(864) 859-2265
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------
Robert E. Dye, Sr. Copies to:
President and Chief Executive Officer GEORGE S. KING, JR., ESQ.
Peoples Bancorporation, Inc. SUZANNE HULST CLAWSON, ESQ.
1800 East Main Street Sinkler & Boyd, P.A.
Easley, South Carolina 29640 1426 Main Street, Suite 1200
(864) 859-2265 Columbia, South Carolina 29201
(Name, address, including Zip Code, and telephone (803) 779-3080
number, including area code, of agent for service)
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [x]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box.
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Calculation of Registration Fee
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Proposed
Title of each Amount to be Proposed maximum
class of securities to be registered maximum offering aggregate offering Amount of
registered price per unit price registration fee
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Common Stock 425,000 shares $13.00 $5,525,000 $1,629.88
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The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
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Item
Number Caption in Form S-1 Caption in Prospectus
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1 Forepart of Registration Statement and
Outside Front Cover Page of Prospectus................................ Facing Page of Registration Statement,
Cross Reference Sheet, Prospectus
Cover Page
2 Inside Front and Outside Back Cover Pages
of Prospectus......................................................... Available Information, Summary Table
of Contents
3 Summary Information, Risk Factors and Ratio
of Earnings to Fixed charges.......................................... Summary, Risk Factors
4 Use of Proceeds....................................................... Use of Proceeds
5 Determination of Offering Price....................................... Risk Factors, Offering and Method of Subscription
6 Dilution ............................................................ Not Applicable
7 Selling Security Holders.............................................. Not Applicable
8 Plan of Distribution.................................................. Offering and Method of Subscription
9 Description of Securities to be Registered............................ Description of The Company's Common Stock
10 Interests of Named Experts and Counsel................................ Not Applicable
11 Information with Respect to Registrant................................ Information About The Company and the Banks
12 Disclosure of Commission Position on
Indemnification for Securities Act Liabilities........................ Description of The Company Common Stock
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Prospectus
PEOPLES BANCORPORATION, INC.
425,000 SHARES
COMMON STOCK
$13.00 PER SHARE
Peoples Bancorporation, Inc. (the "Company"), hereby offers for sale up to
425,000 shares of its common stock ($1.67 par value) (the "Peoples Common
Stock") at a price of $13.00 per share. The Company is a South Carolina
corporation and is a bank holding company for The Peoples National Bank, a
national bank located in Easley, South Carolina. This offering is being made
primarily for the purpose of raising capital to support continued growth of the
Company. The Company has just completed an offering of 500,000 shares of its
common stock primarily for the purpose of raising capital to acquire all of the
common stock of Bank of Anderson, N.A. (In Organization), a national bank being
organized in Anderson, South Carolina. That offering was oversubscribed shortly
after it commenced and was, therefore, terminated on July 22, 1998. To provide
subscribers who were not able to purchase shares in the prior offering with an
opportunity to purchase shares, the Company's Board of Directors decided to
commence this offering.
The Peoples Common Stock offered in this offering will be offered first to
persons whose subscriptions in the recently completed offering were rejected
because the Company did not have available for sale sufficient shares to meet
demand. The exclusive offering to such persons will terminate on September 15,
1998. Until such date, such persons may subscribe for up to the number of shares
for which they had previously subscribed. Beginning September 15, 1998, any
remaining shares will be offered as determined by the Company. (The Peoples
National Bank and Bank of Anderson, N.A. are sometimes referred to herein
collectively as the "Banks." The Peoples National Bank is sometimes referred to
herein as the "Bank.")
Directors and executive officers of the Company who did not purchase shares
in the prior offering or who were not able to purchase all of the shares for
which they subscribed will also be permitted to purchase shares in this
offering. Such directors and executive officers have indicated that they plan to
purchase approximately 53,950 shares of Peoples Common Stock in this offering.
They are not, however, obligated to purchase such shares and may decide to
purchase more shares or fewer shares.
Subscription checks should be made payable to Peoples Bancorporation, Inc.
Subscription funds will not be escrowed and subscribers will become shareholders
of the Company upon acceptance of their subscriptions by the Company and
issuance of certificates representing the shares purchased. This offering will
terminate on September 25, 1998 (unless extended to no later than October 16,
1998), and may terminate earlier if the minimum objectives are met. No minimum
amount is required to be raised pursuant to this offering. See "OFFERING AND
METHOD OF SUBSCRIPTION" and "USE OF PROCEEDS."
The Company has offered persons who purchased shares in the offering
that terminated July 22, 1998, the opportunity to rescind their purchases.
The rescission offer will terminate on August 31, 1998. See "PENDING RESCISSION
OFFER."
There is no active market for the Peoples Common Stock and none is
expected to develop in the near future.
THE PURCHASE OF THESE SECURITIES INVOLVES CERTAIN RISKS. SEE "RISK
FACTORS," page 4. THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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Price Underwriting
to Discounts and Proceeds to
Public(1) Commissions(2) the Company(3)
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PER SHARE: $ 13.00 $-0- $ 13.00
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TOTAL:
425,000 shares.......................... $5,525,000.00 $-0- $5,525,000.00
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(1) These securities will be offered only by the executive officers and
directors of the Company and The Peoples National Bank and the proposed
officers and directors of Bank of Anderson, N.A. No commissions or other
compensation will be paid to any such person in connection with this
offering. See "OFFERING AND METHOD OF SUBSCRIPTION -- Plan of
Distribution."
(2) Before deduction of expenses associated with this offering payable by the
Company, estimated at $30,000.
The date of this Prospectus is August 25, 1998.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). Copies of such reports, proxy
statements and other information can be obtained, upon payment of prescribed
fees, from the SEC at 450 Fifth Street, N.W., Room 2120, Judiciary Plaza,
Washington, D.C. 20549. In addition, such reports, proxy statements and other
information can be inspected at the SEC's facilities referred to above and at
the SEC's Regional Offices at 7 World Trade Center, 13th Floor, New York, New
York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. The SEC also maintains a site on the World Wide Web at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC.
The Company has filed with the SEC a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Peoples Common Stock offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Peoples Common Stock offered hereby, reference is hereby made to the
Registration Statement, including the exhibits and schedules thereto. The
Registration Statement can be inspected and copied at the public reference
facilities of the SEC, 450 Fifth Street, N.W., Room 2120, Judiciary Plaza,
Washington, D.C. 20549, and copies of such materials can be obtained by mail
from the Public Reference Section of the SEC at such address at prescribed
rates. In addition, microfiche of the Registration Statement and exhibits
thereto are available for inspection and reproduction at the public reference
facilities of the SEC at its Regional Offices at the addresses set forth above.
The Company furnishes shareholders with annual reports containing audited
financial information.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
termination of this offering shall be deemed to be incorporated by reference in
this Prospectus and to be a part hereof from the respective dates of filing of
such documents. Any statement contained herein will be deemed to be modified or
superseded for the purpose of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document which also is, or is
deemed to be, incorporated herein by reference modifies or supersedes such
statement. Any such statement so modified or superseded will not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
No person is authorized to give any information or to make any
representations other than those contained or incorporated by reference herein
and, if given or made, such information or representations must not be relied
upon as having been authorized. This document does not constitute an offer to
exchange or sell or a solicitation by any one in any jurisdiction in which such
offer or solicitation is not authorized or in which the person making such offer
or solicitation is not qualified to do so or to any person to whom it is
unlawful to make such offer or solicitation. Neither the delivery of this
document nor any distribution of securities made hereunder shall, under any
circumstances, create an implication that there has been no change in the
affairs of the Company since the date hereof or that the information herein is
correct as of any time subsequent to the date hereof.
FORWARD LOOKING STATEMENTS
This prospectus contains forward-looking statements with respect to the
financial condition, results of operations, and business of the Company, The
Peoples National Bank and Bank of Anderson, N.A. (in organization). These
forward-looking statements involve certain risks and uncertainties. Factors that
may cause actual results to differ materially from those contemplated by such
forward-looking statements include, among others, the following possibilities:
(1) the Company and its subsidiary banks may not be able to operate
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profitably; (2) Competitive pressure in the banking industry may increase
significantly; (3) Costs or difficulties related to operation of Bank of
Anderson, N.A. may be greater than expected; (4) Changes in the interest rate
environment may reduce margins; (5) General economic conditions, either
nationally or regionally, may be less favorable than expected, resulting in,
among other things, a deterioration in credit demand and quality; (6) Changes
may occur in the regulatory environment; (7) Changes may occur in business
conditions and/or inflation; and (8) Changes may occur in the securities
markets. Forward-looking statements include statements concerning plans,
objectives, goals, strategies, future events or performance and underlying
assumptions and other statements which are other than statements of historical
facts. Such forward-looking statements may be identified, without limitation, by
the use of the words "anticipates," "estimates," "expects," "intends," "plans,"
"predicts," "projects," and similar expressions. The Company's expectations,
beliefs and projections are expressed in good faith and are believed by the
Company to have a reasonable basis, including without limitation, management's
examination of historical operating trends, data contained in the Company's
records and other data available from third parties, but there can be no
assurance that management's expectations, beliefs or projections will result or
be achieved or accomplished.
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TABLE OF CONTENTS
Page
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AVAILABLE INFORMATION........................................................................................... i
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................................................. i
FORWARD LOOKING STATEMENTS...................................................................................... i
SUMMARY ....................................................................................................... 1
The Company and the Banks.............................................................................. 1
The Offering........................................................................................... 1
Risk Factors........................................................................................... 1
Selected Financial Data................................................................................ 2
RISK FACTORS.................................................................................................... 3
Short Operating History................................................................................ 3
Lack of Minimum Offering Requirement................................................................... 3
No Escrow of Subscription Funds........................................................................ 3
Delay in Obtaining Regulatory Approvals................................................................ 3
No Market for the Shares............................................................................... 4
Regulatory Restrictions On Dividends................................................................... 4
Certain Provisions of the Articles of Incorporation.................................................... 4
Industry Developments.................................................................................. 4
Competition............................................................................................ 4
Loan Losses; Capital Deficiency........................................................................ 5
Governmental Regulation of the Financial Services Industry............................................. 5
Monetary Policy and Other Economic Factors............................................................. 5
Year 2000 Compliance................................................................................... 5
Pending Rescission Offer............................................................................... 6
Potential Effect of Possible Borrowings................................................................ 6
THE COMPANY AND THE BANKS....................................................................................... 6
General .............................................................................................. 6
Recent Developments.................................................................................... 7
PENDING RESCISSION OFFER........................................................................................ 7
OFFERING AND METHOD OF SUBSCRIPTION............................................................................. 7
The Offering........................................................................................... 7
Determination of Offering Price........................................................................ 8
Method of Subscription................................................................................. 8
Plan of Distribution................................................................................... 8
Expiration Date or Extension of the Offering........................................................... 9
Issuance of Stock Certificates......................................................................... 9
USE OF PROCEEDS................................................................................................. 9
CONSOLIDATED CAPITALIZATION..................................................................................... 9
MARKET PRICE OF COMMON STOCK AND DIVIDENDS...................................................................... 10
INFORMATION ABOUT THE COMPANY AND THE BANKS..................................................................... 11
The Company and The Peoples National Bank.............................................................. 11
Market Area of The Peoples National Bank And Competition............................................... 12
Distribution of Assets, Liabilities and Shareholder's Equity;
Interest Rates and Interest Differential.............................................................. 13
Loan Portfolio......................................................................................... 16
Summary of Loan Loss Experience........................................................................ 18
Investments............................................................................................ 19
Deposits .............................................................................................. 20
Return on Equity and Assets............................................................................ 21
Short-Term Borrowings.................................................................................. 22
Asset Liability Management............................................................................. 22
Interest Sensitivity................................................................................... 23
Liquidity.............................................................................................. 24
Capital Adequacy....................................................................................... 24
Monetary Policies...................................................................................... 25
Correspondent Banking.................................................................................. 26
Data Processing........................................................................................ 26
Year 2000.............................................................................................. 26
Employees.............................................................................................. 26
Properties............................................................................................. 26
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Page
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................................................................ 27
Forward Looking Statements............................................................................. 27
Overview .............................................................................................. 27
Financial Condition.................................................................................... 28
Earnings Performance................................................................................... 30
BANK OF ANDERSON, N.A........................................................................................... 33
Background of Organization............................................................................. 33
Organizers of Bank of Anderson, N.A.................................................................... 34
Market Area of Bank of Anderson, N.A................................................................... 36
Competition............................................................................................ 37
Services to be Offered................................................................................. 37
Asset and Liability Management......................................................................... 38
Anticipated Growth..................................................................................... 38
BENEFICIAL OWNERSHIP OF THE COMPANY'S COMMON STOCK.............................................................. 39
MANAGEMENT OF THE COMPANY....................................................................................... 39
Stock Ownership of Executive Officers and Directors.................................................... 40
Business Experience of Executive Officers and Directors for the Past Five Years........................ 41
Director Compensation.................................................................................. 43
Executive Compensation................................................................................. 44
Noncompetition, Severance and Employment Agreements.................................................... 44
Incentive Stock Option Plan............................................................................ 46
Salary Continuation Agreements......................................................................... 46
Certain Relationships and Related Transactions......................................................... 47
DESCRIPTION OF THE PEOPLES COMMON STOCK......................................................................... 47
Capitalization......................................................................................... 47
Dividends.............................................................................................. 47
Voting Rights.......................................................................................... 47
Mergers, Consolidations, Exchanges, Sales of Assets or Dissolution..................................... 47
Classified Board of Directors.......................................................................... 48
Preemptive Rights...................................................................................... 48
Assessment............................................................................................. 48
Conversion; Redemption; Sinking Fund................................................................... 48
Quorum. .............................................................................................. 48
Statutory Matters...................................................................................... 48
General .............................................................................................. 49
SUPERVISION AND REGULATION...................................................................................... 49
Regulation of Bank Holding Companies................................................................... 49
Capital Adequacy Guidelines for Bank Holding Companies and National Banks.............................. 51
Payment of Dividends................................................................................... 52
Certain Transactions by the Company with its Affiliates................................................ 53
FDIC Insurance Assessments............................................................................. 53
Regulation of the Banks................................................................................ 53
Other Safety and Soundness Regulations................................................................. 54
Interstate Banking..................................................................................... 55
Legislative Proposals.................................................................................. 56
Fiscal and Monetary Policy............................................................................. 56
LEGAL MATTERS................................................................................................... 56
EXPERTS ....................................................................................................... 57
FINANCIAL STATEMENTS OF THE COMPANY............................................................................. 58
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APPENDIX A - Subscription Agreement.
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SUMMARY
The following is a brief summary of certain information contained in this
Prospectus and is not intended to be a complete statement of all material facts
regarding the matters set forth herein. It is qualified in its entirety by
reference to more detailed information set forth in this Prospectus, the
accompanying appendices, and the documents incorporated by reference herein.
The Company and the Banks
The Company is a bank holding company which owns The Peoples National Bank.
The Peoples National Bank currently operates as a full service commercial bank
in the Easley, Powdersville and Pickens, South Carolina areas. The deposits of
The Peoples National Bank are insured to applicable limits by the Federal
Deposit Insurance Corporation (the "FDIC"). The Company is in the process of
making application to state and federal regulatory authorities for approval to
acquire Bank of Anderson, N.A.
Bank of Anderson, N.A. is a proposed national bank being organized in
Anderson, South Carolina. The deposits of Bank of Anderson, N.A. will also be
insured to applicable limits by the FDIC. Bank of Anderson, N.A. will operate as
a wholly owned subsidiary of the Company with its own Board of Directors. The
organizers and proposed directors of Bank of Anderson, N.A. are E. Stephen
Darby, Robert E. Dye, Sr., Myrtle E. Gillespie, David C. King, Andrew M. McFall,
III, D. Kirkland Oglesby, J. Calhoun Pruitt, Jr., Robert M. Rainey, and Larry D.
Reeves.
If all state and federal regulatory approvals are received for the Company
to acquire Bank of Anderson, N.A. and for Bank of Anderson, N.A. to be
chartered, the Company intends to use up to $4,500,000 of the aggregate proceeds
of the offering completed July 22, 1998 to acquire all of the common stock of
Bank of Anderson, N.A. and thereby capitalize Bank of Anderson, N.A.
The principal activity of the Company is operation of The Peoples National
Bank and, if approvals are received, will also be operation of Bank of Anderson,
N.A. and, possibly, subject to regulatory approvals, acquisition and operation
of commercial banks and/or other financial institutions in other markets in
South Carolina. The Banks will emphasize their respective local affiliations and
personalized service.
The principal offices of the Company and The Peoples National Bank are
located at 1800 East Main Street, Easley, South Carolina 29640. The Company's
telephone number is (864) 859-2265. The principal office of Bank of Anderson,
N.A. will be located at 201 East Greenville Street, near the intersection of
East Greenville Street and Main Street, Anderson, South Carolina.
The Offering
The Company is offering hereby up to 425,000 shares of its common stock at
a purchase price of $13.00 per share. The minimum individual purchase is 100
shares, and the maximum individual purchase is 10,000 shares. Proceeds of the
offering will be used to support continued growth of the Company and for general
corporate purposes of the Company. See "OFFERING AND METHOD OF SUBSCRIPTION" and
"USE OF PROCEEDS."
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Risk Factors
An investment in the shares offered hereby involves certain risks,
including, among others, lack of substantial operating history, absence of
active trading in the securities offered hereby and lack of assurance that
active trading in such securities will develop, competition from other financial
institutions with substantially greater financial and other resources, certain
provisions of the Articles of Incorporation of the Company that may discourage
or prevent take-over attempts, and other risks attendant to the operation of
financial institutions. See "RISK FACTORS."
Selected Financial Data.
The following table presents on an historical basis selected unaudited
consolidated financial data for The Peoples National Bank and the Company. The
data is based on the financial statements of The Peoples National Bank and the
Company. Reference is made to these statements and the related notes for more
detailed data. All adjustments necessary to a fair statement of results of
interim periods of the Company, in the opinion of management of the Company,
have been included. Such adjustments were of a normal recurring nature.
Selected Financial Data
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Six Months Ended
June 30, Years Ended December 31,
---------------------- -------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
(Amounts in thousands, except per share data)
Balance Sheet
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Total Assets ........................... $ 122,284 $ 105,925 $ 113,416 $ 99,723 $ 84,162 $ 76,028 $ 65,808
Total Deposits ......................... 105,505 86,426 96,190 80,194 71,173 61,696 54,366
Total Loans (Net) ...................... 74,527 73,572 75,862 65,404 56,336 51,306 44,140
Investment Securities .................. 31,021 22,742 24,173 19,087 18,776 15,526 14,330
Total Earning Assets ................... 113,080 99,652 105,592 94,951 78,901 70,692 61,311
Shareholders' Equity ................... 10,166 8,994 9,510 8,378 7,531 5,677 5,050
Income Statement
Net Interest Income .................... 2,302 2,226 4,809 4,192 3,699 3,254 2,789
Provision for Loan Losses .............. 2 101 324 260 108 95 153
Other Operating Income ................. 670 364 531 421 373 273 244
Other Operating Expenses ............... 1,843 1,441 3,072 2,751 2,700 2,431 2,150
Income Before Taxes .................... 1,127 1,048 1,943 1,602 1,265 1,000 731
Income Taxes ........................... 372 346 639 537 411 325 249
Net Income ............................. 755 702 1,304 1,065 854 675 482
Income Per Common Share* ............... 0.45 0.44 0.77 0.64 0.55 0.48 0.34
Cash Dividends Per Common Share ........ 0.07 0.06 0.125 0.115 0.10 0.00 0.00
Selected Ratios
Return on Average Assets ............... 1.25% 1.37% 1.21% 1.21% 1.05% 0.96% 0.78%
Return on Average Equity ............... 15.20% 16.01% 14.34% 13.30% 12.64% 12.60% 10.14%
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*Per share data has been retroactively restated for prior periods to reflect a
two-for-one stock split in 1997.
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RISK FACTORS
Investment in the securities offered hereby involves a significant degree
of risk. Accordingly, each prospective subscriber, before subscribing for any
shares, should consider certain risks and speculative features inherent in and
affecting the business to be carried on by the Banks and the Company. An
investment should be made only after careful consideration of the risk factors
set forth below and elsewhere in this Prospectus, and should be undertaken only
by persons who can afford an investment involving such risks. In addition to
individual considerations and the factors set forth elsewhere herein, each
prospective subscriber should consider the following:
Short Operating History
The Peoples National Bank has been operating for over twelve years.
However, the Company has a relatively short operating history, and Bank of
Anderson, N.A. is currently in the organizational stage and has no operating
history. As a consequence, prospective purchasers of securities offered hereby
have limited information on which to base an investment decision. As a bank
holding company, the Company's profitability depends primarily upon the Banks'
operations. Bank of Anderson, N.A.'s operations are subject to the risks
inherent in the establishment of new businesses and, specifically, of new banks.
Typically, new banks incur substantial initial expenses and are not usually
profitable for several years after commencing business. Furthermore, there can
be no assurance that Bank of Anderson, N.A. will ever operate profitably or that
The Peoples National Bank will continue to operate profitably.
Lack of Minimum Offering Requirement
There is no minimum offering requirement for this offering. Accordingly,
there is a risk that the offering will close and subscribers will become
shareholders of the Company even though the market may have judged the terms of
the offering unsatisfactory because the risk of investment is perceived to be
too high, the valuation placed on the offering by the Company is too high, or
for any other reason. See "OFFERING AND METHOD OF SUBSCRIPTION."
No Escrow of Subscription Funds
Subscription funds received by the Company will not be held in escrow. Upon
acceptance of subscriptions and issuance of stock certificates for the shares
subscribed, subscribers shall become shareholders of the Company. If the
subscription is rejected in whole or in part, the subscription funds
attributable to the rejected portion shall be promptly returned to the
subscriber. No interest will be paid on any such returned funds. See "OFFERING
AND METHOD OF SUBSCRIPTION."
Delay in Obtaining Regulatory Approvals
The Company must secure the prior approval of the Board of Governors of the
Federal Reserve System (the "Federal Reserve") and of the South Carolina State
Board of Financial Institutions (the "State Board") to acquire the stock of Bank
of Anderson, N.A. Before Bank of Anderson, N.A. may issue its stock to the
Company, the Office of the Comptroller of the Currency (the "OCC") must give its
final approval for the issuance of a national bank charter and the Federal
Deposit Insurance Corporation (the "FDIC") must approve deposit insurance.
Capitalization of Bank of Anderson, N.A. is a condition precedent to receipt of
the final regulatory approvals. It is anticipated that all final approvals will
be received within 120 days of the completion of this offering, although no
assurances can begiven as to when or whether such approvals will be received.
Any significant delay in commencing business will increase pre-operating
expenses and may reduce Bank of Anderson, N.A.'s and the Company's capital,
potential revenues and income.
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No Market for the Shares
There is currently no established market for the Peoples Common Stock and
no market is expected to develop in the near future. Subscribers may encounter
difficulty if they need to sell shares of Peoples Common Stock quickly and,
therefore, should be prepared to hold their shares indefinitely. See "MARKET
PRICE OF COMMON STOCK AND DIVIDENDS."
Regulatory Restrictions On Dividends
The Company's principal operations are conducted through its subsidiary,
The Peoples National Bank, and, upon completion of its organization, will also
be conducted through Bank of Anderson, N.A. Accordingly, the Company generates
cash to pay dividends primarily through dividends paid and to be paid to it by
the Banks. The Banks' ability to pay dividends to the Company and the Company's
ability to pay dividends on its Common Stock are, therefore, subject to and
limited by certain legal and regulatory restrictions. See "SUPERVISION AND
REGULATION -- Payment of Dividends."
Certain Provisions of the Articles of Incorporation
The Company's Articles of Incorporation include several provisions that may
have the effect of discouraging or preventing hostile take-over attempts, and
thus of making the removal of incumbent management difficult. The provisions
include staggered terms for the Board of Directors and requirements of
super-majority votes to approve certain business transactions. See "DESCRIPTION
OF THE PEOPLES COMMON STOCK." To the extent that these provisions are effective
in discouraging or preventing take-over attempts, they may tend to reduce the
market price for the Peoples Common Stock.
Industry Developments
In the recent past, legislation has been enacted that could have a dramatic
effect on both the costs of doing business and the competitive factors facing
the financial institutions industry. Additional such legislation is constantly
being considered by Congress. The Company is unable at this time to determine
the impact, if any, of future legislation on its financial condition or
operations. See "SUPERVISION AND REGULATION."
Competition
The Peoples National Bank encounters, and it is anticipated that Bank of
Anderson, N.A. will encounter, strong competition from established financial
institutions operating in their respective market areas. In addition,
established financial institutions not currently operating in their respective
market areas may, under South Carolina law, open branches in such areas at
future dates and other institutions may be organized. In the conduct of certain
aspects of their banking business, The Peoples National Bank competes, and the
Bank of Anderson, N.A. will also compete, with savings and loan associations,
credit unions, mortgage banking firms, consumer finance companies, insurance
companies, money market mutual funds and other financial institutions, some of
which are not subject to the same degree of regulation as The Peoples National
Bank and Bank of Anderson, N.A. Many of these competitors have substantially
greater resources and lending limits than The Peoples National Bank has, or Bank
of Anderson, N.A. will have, and offer certain services, such as extensive and
established branch networks, trust services and international banking services,
that The Peoples National Bank and Bank of Anderson, N.A. either do not provide
or will not provide initially. See "INFORMATION ABOUT THE COMPANY AND THE
BANKS." The Banks believe that they will be able to compete effectively with
these institutions through the use of personalized service, loan participations
and other techniques, but no assurances can be given in this regard.
4
<PAGE>
Loan Losses; Capital Deficiency
The Peoples National Bank lends, and Bank of Anderson, N.A. expects to
lend, a substantial portion of their capital and deposits to individual and
commercial borrowers. Management makes substantial efforts to be prudent in
making such loans, but some loan losses are unavoidable. Changes in the economy
both at the national and local levels and other factors, both unpredictable and
outside the control of the Banks, could affect the ability of borrowers to repay
their loans. It is possible that, collectively, defaults by the Banks' borrowers
could be large enough to impair the ability of the Banks to continue their
operations. Loan losses and other losses might reduce the Banks' capital below
the level required by the OCC and the National Bank Act which could result in
either or both of the Banks being placed in receivership by the OCC and in a
partial or complete loss of the Company's equity in the Banks.
Governmental Regulation of the Financial Services Industry
During the past few years, significant legislative and regulatory
deregulation of certain aspects of the financial services industry has taken
place. Nonbanking financial institutions, such as securities brokerage firms,
insurance companies and money market funds, are now permitted to offer services
which compete directly with services offered by banks. At the same time, the
services which banks are permitted to offer have been expanded, and restrictions
have been reduced on the rates of interest that banks may pay on deposits. The
Banks' profitability will be largely dependent upon the rate differential
between the interest earned by the Banks on loans to customers and the rate of
return on the Banks' investments, and the interest paid by the Banks on deposits
and other liabilities. While deregulation and increasing competition may result
in the Banks' paying increased interest rates to obtain deposits, a comparable
increase in interest rates on their loans and the rate of return on their
investments may not be attainable, resulting in reduced "spread" and lower
earnings or higher losses. See "SUPERVISION AND REGULATION" and "INFORMATION
ABOUT THE COMPANY AND THE BANKS."
Monetary Policy and Other Economic Factors
Changes in governmental economic and monetary policy may affect the ability
of the Banks to attract deposits and make loans. The rates of interest payable
on deposits and chargeable on loans are affected by governmental regulation and
fiscal policy as well as by national, state, and local economic conditions. See
"SUPERVISION AND REGULATION -- Fiscal and Monetary Policy." Furthermore, because
the Banks will for the foreseeable future operate in a limited geographic area,
the Company's ability to operate profitably will depend significantly upon the
economies of the Pickens County and Anderson County market areas.
Year 2000 Compliance
Because the business of the Company and The Peoples National Bank is
heavily dependent upon computers, failure of their computer systems, or the
computer systems of other entities to which their computers are linked or
onwhich they are dependent, to operate properly after December 31, 1999, could
have a material adverse effect on the Company and The Peoples National Bank.
Although the Company has prepared a plan for addressing year 2000 issues and
believes that its computer systems will not experience any significant problems
with the changeover to the year 2000, it has not yet tested its systems for year
2000 compliance. Furthermore, the Company has not received confirmation from all
of the other entities with which its systems are linked or upon which its
systems are dependent that such entities do not expect to encounter problems. In
addition, computer problems experienced by the customers of The Peoples National
Bank and others could cause economic disruptions that would affect the business
of the Company and The Peoples National Bank. Therefore, there can be no
assurance that the Company will not experience year 2000 problems, or that such
problems, if experienced, will not have a material adverse effect on the
Company.
5
<PAGE>
Pending Rescission Offer
The Company has offered all purchasers in the offering completed July 22,
1998, the opportunity to rescind their subscriptions and receive a refund of the
purchase price of their shares plus interest calculated at a rate of 6% per
annum. The rescission offer will terminate on August 31, 1998. See "PENDING
RESCISSION OFFER." To the extent that the rescission offer is accepted, the
current capitalization of the Company will be reduced. If a large number of
purchasers accepts the rescission offer, it is also possible that the Company
would be required to borrow funds to capitalize the Bank of Anderson, N.A. (in
organization). See "--Potential Effect of Possible Borrowings."
Potential Effect of Possible Borrowings
In certain limited circumstances, the Company may borrow money to
capitalize Bank of Anderson, N.A. See "PENDING RESCISSION OFFER." The Company
has not, however, negotiated a commitment with a financial institution to fund
such borrowings and may be unable to negotiate a loan on favorable terms. If a
loan were obtained, the terms of the loan would be likely to require the Company
to pledge as security a portion of its stock in The Peoples National Bank,
restrict the Company's ability to pay dividends and require the Company to
maintain certain financial ratios. Such borrowings may decrease the Company's
profitability and, if the Company failed to repay the loan and the lender
foreclosed a security interest in the Peoples National Bank stock, the Company
could lose its ownership of The Peoples National Bank.
THE COMPANY AND THE BANKS
General
The Company was incorporated under South Carolina law on March 6, 1992, for
the purpose of becoming a bank holding company by acquiring all of the common
stock of The Peoples National Bank. The Company commenced operations on July 1,
1992 upon effectiveness of the acquisition of The Peoples National Bank. The
Peoples National Bank was chartered in 1986 and operates from its main office in
Easley, South Carolina, and from one branch in Powdersville and one branch in
Pickens, South Carolina. The Bank has received approval to open a branch in
Seneca, South Carolina, which it expects to open for business in September,
1998.
The Company is in the process of applying to state and federal regulatory
authorities for approval to acquire Bank of Anderson, N.A. The organizers of
Bank of Anderson, N.A. submitted an application to the Office of the Comptroller
of the Currency (the "OCC") for a national bank charter and preliminary approval
of the charter application was granted on May 8, 1998. If and when the Company
and Bank of Anderson, N.A. obtain all necessary state and federal approvals, the
Company will use up to $4,500,000 of the net proceeds of the offering completed
on July 22, 1998 to acquire all of the common stock of Bank of Anderson, N.A.
The directors of the Company and The Peoples National Bank are Garnet A.
Barnes, William A. Carr, Charles E. Dalton, Robert E. Dye, Sr., Robert E. Dye,
Jr., W. Rutledge Galloway, E. Smyth McKissick, III, Eugene W. Merritt, Jr.,
George B. Nalley, Jr., R. Riggie Ridgeway, Nell W. Smith, and A. J. Thompson,
Jr., M. D.
The organizers and proposed directors of Bank of Anderson, N.A. are E.
Stephen Darby, Robert E. Dye, Sr., Myrtle E. Gillespie, David C. King, Andrew M.
McFall, III, D. Kirkland Oglesby, J. Calhoun Pruitt, Jr., Robert M. Rainey, and
Larry D. Reeves. David C. King, is the proposed president and chief executive
officer of Bank of Anderson, N.A. Upon commencement of business, the deposit
accounts of Bank of Anderson, N.A. will be insured by the FDIC up to the maximum
amount permitted by law. Bank of Anderson, N.A. will serve the Anderson, South
Carolina area as an independent, locally-managed commercial bank emphasizing
high quality, responsive and personalized service. See "BANK OF ANDERSON, N.A."
6
<PAGE>
Recent Developments
On July 22, 1998, the Company completed an offering of 500,000 shares of
Common Stock. Net Proceeds of such offering totalled $6,500,000, of which
$4,500,000 is expected to be used to fund the Company's acquisition and
capitalization of the Bank of Anderson, N.A. (in organization). The remaining
proceeds of such offering are expected to be used to support growth of the
Company and for general corporate purposes.
PENDING RESCISSION OFFER
Issuance of shares of the Peoples Common Stock in this offering will dilute
the percentage ownership in the Company of the persons who purchased Peoples
Common Stock in the offering that terminated on July 22, 1998. The Company is
aware that the proximity of the current offering to the recently completed
offering, and the dilution that will result from the current offering to
purchasers in the recent offering could cause purchasers in the recent offering
to reassess their original investment decisions.
Therefore, the Company has offered purchasers in the recently completed
offering the opportunity to rescind their purchases and be paid their entire
purchase price, plus interest calculated at a rate of 6% per annum. The
rescission offer commenced on July 30, 1998, and will terminate on August 31,
1998.
The Company is not obligated to make this rescission offer because the
decision of when and how to issue additional shares of authorized stock is
completely within the discretion of the Board of Directors. However, the Company
has always appreciated the good relationship it has with its shareholders, and
continued good shareholder relations are very important to the Company.
Accordingly, the Company decided to give purchasers in the recent offering the
opportunity to rescind their purchases if they were unhappy with the Company's
decision to commence a second offering.
If all purchasers in the recently completed offering accepted the
rescission offer, the Company's capital would be reduced by $6,500,000 plus
interest on such funds calculated at a rate of 6% per annum from the date of
purchase until the date of repayment. $4,500,000 of the proceeds of the recently
completed offering were to be used to capitalize the Bank of Anderson, N.A. (in
organization). To the extent acceptances of the rescission offer reduce the
funds available to capitalize the Bank of Anderson, N.A. (in organization), the
Company will use proceeds of the current offering to capitalize the Bank of
Anderson, N.A. (in organization).
If the proceeds of the current offering together with the proceeds of the
prior offering remaining after the rescission offer are less than $4,500,000,
the Company may decide to borrow the funds necessary to capitalize the new bank.
See "RISK FACTORS-- Potential Effect of Possible Borrowing." The Company does
not, however, presently believe that such borrowings will be necessary.
OFFERING AND METHOD OF SUBSCRIPTION
The Offering
The Company is offering hereby up to 425,000 shares of Peoples Common Stock
at a purchase price of $13.00 per share. The minimum individual purchase
pursuant to this offering is 100 shares, and the maximum is 10,000 shares. The
Company reserves the right to alter the individual minimum and maximum purchase
amounts should conditions so warrant and specifically reserves the right to
approve purchases of more than 10,000 shares. Subscribers should be aware that
beneficial ownership of more than 10% of the outstanding Common Stock of the
Company would obligate the beneficial owner to comply with certain reporting and
disclosure requirements of federal banking and securities laws.
Subscription funds will not be held in an escrow account. Upon acceptance
of a subscription by the Company and issuance by the Transfer Agent of
7
<PAGE>
certificates for the shares purchased, a subscriber will become a shareholder of
the Company. If the subscription is rejected in whole or in part, the
subscription funds attributable to the rejected portion will be promptly
returned to the subscriber. No interest will be paid on any such returned funds.
The Peoples Common Stock offered in this offering will be offered first to
persons whose subscriptions in the offering completed July 22, 1998 were
rejected because the Company did not have available for sale sufficient shares
to meet demand. The exclusive offering to such subscribers will terminate on
September 15, 1998. Until such date, persons whose prior subscriptions were
rejected as to all shares subscribed may subscribe for up to the number of
shares for which they had previously subscribed. Beginning September 15, 1998,
any remaining shares will be offered as determined by the Company.
Determination of Offering Price
The offering price was set by the Board of Directors of the Company based
on the price at which the Peoples Common Stock was sold in the recently
completed offering. That price was set based on prices at which the Peoples
Common Stock had traded in a few recent transactions of which management had
knowledge, and without the assistance of underwriters. The offering price of the
Peoples Common Stock may not be indicative of the market price of the Peoples
Common Stock or of prices at which the stock may be resold.
Method of Subscription
Subscribers may mail or deliver their completed subscription agreements,
together with payment in full for the number of shares subscribed. Hand or
courier delivery may be made to the following address:
Peoples Bancorporation, Inc.
1800 East Main Street
Easley, South Carolina 29640
Subscribers may also mail their subscriptions to:
Peoples Bancorporation, Inc.
Post Office Box 1989
Easley, South Carolina 29641-1989
Subscriptions will only be deemed accepted when acceptance is noted thereon
in writing by the President or Chairman of the Board of the Company. Promptly
upon such acceptance, the Company shall instruct its transfer agent to issue the
number of whole shares for which the subscription has been accepted. The Company
will promptly return any excess subscription funds to subscriber.
The Company reserves the right to reject any offer of subscription in whole
or in part or to cancel acceptance of any subscription offer in whole or in part
until the date the shares purchased hereunder are issued. If all or part of a
subscription is not accepted or is cancelled by the Company, all funds relating
to the unaccepted or cancelled portion shall be promptly returned to the
subscriber without interest thereon. Only the President or the Chairman of the
Board of the Company has the authority to accept or reject a subscription, or
portion thereof, on behalf of the Company.
Plan of Distribution
This offering is being made to the public through the executive officers
and directors of the Company and The Peoples National Bank and the proposed
officers and directors of Bank of Anderson, N.A. No commission or other sales
compensation will be paid to any officer or director of the Company or The
Peoples National Bank or any proposed officer or director of Bank of Anderson,
N.A. in connection herewith.
8
<PAGE>
Expiration Date or Extension of the Offering
The Company will offer shares hereunder until the earlier of (1) receipt by
the Company of subscriptions for an aggregate of 425,000 shares; (2) a decision
by the Company to terminate the offering; or (3) September 25, 1998, (the
"Expiration Date"). While the Company intends to use its best efforts to sell
all of the shares offered hereby, the offering may be terminated without notice
before all such shares are sold and before September 25, 1998.
The Company reserves the right, at any time and from time to time, to
extend the Expiration Date, but not beyond October 16, 1998. Extension of the
Expiration Date might cause an increase in the Company's organizational and
pre-operating expenses and in the expenses incurred in connection with this
offering.
Issuance of Stock Certificates
Certificates representing Peoples Common Stock offered hereby are expected
to be issued by the Company's transfer agent promptly after acceptance of each
subscription.
USE OF PROCEEDS
No minimum amount is required to be raised pursuant to this offering. The
net proceeds to the Company from this offering would be approximately
$5,495,000, if all shares offered are sold, after deduction of offering expenses
estimated at approximately $30,000. The proceeds of this offering will be used
to help support continued growth of the Company and for general corporate
purposes.
CONSOLIDATED CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of June 30, 1998, and the capitalization of the Company as adjusted to give
effect to (1) the sale of 500,000 shares in the offering ended July 22, 1998,
(2) the sale of 53,950 shares (the number of shares expected to be purchased by
directors and executive officers of the Company), and (3) the sale of 425,000
shares (the total number of shares offered in this offering).
<TABLE>
<CAPTION>
Actual As Adjusted(1)
-------- -------------
If 53,950 If 425,000
June 30, 1998 shares sold(2) shares sold(3)
------------- -------------- --------------
(Dollars in Thousands)
Long-term Debt:
<S> <C> <C> <C>
Federal Home Loan Bank advances.......... $ 2,000 $ 2,000 $ 2,000
------- ------- -------
Stockholders' Equity:
Common Stock - $1.67 par value,
10,000,000 shares authorized;
1,695,619 shares outstanding.......... 2,832
2,249,569 shares outstanding.......... 3,757
2,620,619 shares outstanding.......... 4,376
Additional paid-in capital .............. 5,180 11,376 15,580
Retained Earnings........................ 2,190 2,190 2,190
------- ------- -------
Total Capital.......................... $12,302 $19,323 $24,146
======= ======= =======
</TABLE>
(1) Includes adjustment for 500,000 shares sold in the offering completed July
22, 1998, with net proceeds of approximately $6,450,000, and assumes that
no purchasers in that offering accept the pending rescission offer. See
"PENDING RESCISSION OFFER." If any of such purchasers accept the rescission
offer, the capitalization of the Company would be reduced accordingly.
Further assumes no funds are borrowed to capitalize Bank of Anderson, N.A.
(2) Assumes that only the shares that are expected to be purchased by the
directors and executive officers of the Company are sold and that offering
expenses are $30,000.
(3) Assumes that offering expenses are $30,000 and all shares offered are sold.
9
<PAGE>
MARKET PRICE OF COMMON STOCK
AND DIVIDENDS
There is no established trading market for the Company's stock, and none is
expected to develop in the near future.
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 $7.50 $7.50
June 30, 1996 $8.25 $8.25
September 30, 1996 $8.50 $8.50
December 31, 1996 $9.00 $9.00
March 31, 1997 $9.00 $9.00
June 30, 1997 $9.00 $9.50
September 30, 1997 $10.00 $10.75
December 31, 1997 $13.00 $13.00
March 31, 1998 $13.00 $13.00
June 30, 1998 $13.00 $13.00
-----------------------
* Retroactively adjusted to reflect 2-for-1 stock split effective December 31,
1997.
In the most recent transaction of which management is aware, which was the
recently completely offering, 500,000 shares of Peoples Common Stock were sold
for $13.00 per share. In the most recent transaction of which management was
aware prior to the recently completed offering, 787 shares of Peoples Common
Stock were sold for $13.00 per share. Management has not ascertained that these
transactions are the result of arm's length negotiations between the parties and
such prices may not be indicative of the market value of the Peoples Common
Stock.
As of July 31, 1998, the number of holders of record of the Peoples' Common
Stock was approximately 625. As of such date, 243,529 shares were subject to
acquisition upon exercise of options and 754,197 shares could be sold under Rule
144 of the Securities Act of 1933.
During each of 1997 and 1996, the Company paid four quarterly cash
dividends. Cash dividends of $0.03 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. A cash dividend of $0.035 per common share was declared by
the Company's Board of Directors on December 15, 1997. A cash dividend of $0.025
per common share was declared by the Board on March 11, 1996, and cash dividends
of $0.03 per common share were declared by the Board on each of June 17, 1996,
September 9, 1996 and December 9, 1996. Cash dividends of $0.035 per common
share were declared by the Company's Board of Directors on each of March 9, 1998
and June 8, 1998. In addition, on each of July 13, 1992, July 12, 1993, December
12, 1994, November 30, 1995, November 8, 1996 and October 31, 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
Peoples National 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 current source of dividends paid by the Company is dividends paid to
the Company by The Peoples National Bank. Accordingly, the payment of dividends
10
<PAGE>
by the Company is indirectly subject to the same laws and regulations that
govern the payment of dividends by national banks. The Peoples National Bank is,
and the Bank of Anderson, N.A. will be, restricted in their ability to pay
dividends under the national banking laws and by regulations of the OCC.
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. Payment 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 the
amount of its capital stock capital, unless there has 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 OCC is required if the total of
all dividends declared by the Bank in any calendar year will exceed the total of
its retained net profits for that year combined with its net profits for the
preceding two years, less any required transfers to surplus.
The OCC may also prohibit the payment of dividends that would constitute an
unsafe and unsound banking practice. See "SUPERVISION AND REGULATION -- Payment
of Dividends."
INFORMATION ABOUT THE COMPANY AND THE BANKS
The Company and The Peoples National Bank
The Company is registered as a 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 Peoples
National Bank commenced business operations in August 1986 in a permanent
facility owned by the Bank located at 1800 East Main Street, Easley, South
Carolina. The Peoples National 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 for the purpose of becoming the holding company for the bank, and on
July 1, 1992, the Company acquired all of the issued and outstanding common
stock of The Peoples National 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 customers' 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 Company provides computer and item processing services to The Peoples
National Bank, and will also provide such services to Bank of Anderson, N.A.
upon opening.
The Peoples National 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 loans,
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 Peoples National 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,
11
<PAGE>
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 its plans to sponsor the
organization of a new bank in Anderson, South Carolina. The announcement of
Regions Financial Corporation's plans to acquire Anderson National Bank, based
in Anderson, South Carolina, created an opportunity for the Company to expand
its business into the Anderson area. Anderson, which has $960 million in
deposits, represents a market three times as large as Easley and is believed by
management of the Company to be well suited for a full-fledged locally owned
community bank. See "Bank of Anderson, N.A."
Market Area of The Peoples National Bank And Competition
The primary market area of The Peoples National 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. There is also some competition 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 and one of those has recently agreed to
be acquired by another institution. 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.
12
<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
For the years ended December 31,
--------------------------------
1997 1996
---- ----
Assets
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
============ ============
13
<PAGE>
The following is an analysis of the net interest earnings of the Company
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 Year Ended December 31, 1996
------------------------------------------ ---------------------------------------------
Average Interest Average Net Average Interest Average Net
Assets Amount Earned Yield Yield Amount Earned Yield Yield
------ ------ ----- ----- ------ ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities
Taxable ......................... $ 18,022,897 $1,122,296 6.23% $ 14,122,633 $ 902,851 6.39%
Tax-Exempt ...................... 4,818,725 245,055 8.44%* 4,167,452 211,825 8.44%*
Federal Funds Sold ................ 4,512,572 245,109 5.43% 3,962,707 210,978 5.32%
Net Loans ......................... 73,098,893 6,638,429 9.08% 59,895,061 5,579,901 9.32%
------------ ---------- ------------ ----------
Total Earning Assets ......... $100,453,087 $8,250,889 8.37%* 4.34% $ 82,147,853 $6,905,555 8.58% * 4.76%
============ ========== ============ ==========
Liabilities
Interest checking ................. $ 12,544,560 $ 310,528 2.48% $ 8,988,648 $ 195,189 2.17%
Savings Deposits .................. 4,034,337 92,830 2.30% 4,200,047 116,560 2.78%
Money Market ...................... 9,769,988 392,665 4.02% 7,370,302 247,034 3.35%
Certificates of Deposit ........... 44,733,541 2,458,693 5.50% 37,954,728 2,084,082 5.49%
Individual Retirement Accounts .... 5,433,680 307,394 5.66% 5,190,301 306,519 5.91%
------------ ---------- ------------ ----------
76,516,106 3,562,110 4.66% 63,704,026 2,949,384 4.63%
Short-term Borrowings ............. 4,695,847 145,797 3.10% 4,831,048 150,345 3.11%
Long-term Borrowings .............. 5,753,732 345,420 6.00% 601,052 31,951 5.32%
------------ ----------- ------------ ----------
Total Interest-bearing Liabilities $ 86,965,685 $4,053,327 4.66% $ 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 the foregoing 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.
14
<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, Year Ended December 31,
1997 compared to 1996 1996 compared to 1995
Increase (Decrease) Due to Increase (Decrease) Due to
Volume Rate Change Volume Rate Change
------ ---- ------ ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Securities
Taxable .............................. $ 243,427 $ (23,982) $ 219,445 $ (506) $ (76) $ (582)
Tax-Exempt ........................... 33,120 110 33,230 39,163 (2,536) 36,627
Federal Funds Sold ..................... 29,968 4,163 34,131 23,094 (19,860) 3,234
Net Loans .............................. 1,202,276 (143,748) 1,058,528 572,723 (414,015) 158,708
----------- ----------- ----------- ----------- ----------- -----------
Total Interest Income .................... 1,508,791 (163,457) 1,345,334 634,474 (436,487) 197,987
----------- ----------- ----------- ----------- ----------- -----------
Interest paid on:
Interest Checking ...................... 93,938 21,401 115,339 44,534 (60,926) (16,392)
Savings Deposits ....................... (4,835) (18,895) (23,730) 11,415 (12,664) (1,249)
Money Market ........................... 121,654 23,977 145,631 (57,303) 1,989 (55,314)
Certificates of Deposit ................ 372,586 2,025 374,611 216,098 (23,636) 192,462
Individual Retirement Accounts ......... 14,054 (13,179) 875 33,784 3,578 37,362
----------- ----------- ----------- ----------- ----------- -----------
597,397 15,329 612,726 248,528 (91,659) 156,869
Short-term Borrowing ................... (4,197) (351) (4,548) 5,904 (262) 5,642
Long-term Borrowing .................... 309,879 3,590 313,469 (40,048) 577 (39,471)
----------- ----------- ----------- ----------- ----------- -----------
Total Interest Expense ................... 903,079 18,568 921,647 214,384 (91,344) 123,040
----------- ----------- ----------- ----------- ----------- -----------
Change in Net Interest Income ............ $ 605,712 $ (182,025) $ 423,687 $ 420,090 $ (345,143) $ 74,947
=========== =========== =========== =========== =========== ===========
</TABLE>
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.
As also 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.
15
<PAGE>
Loan Portfolio
The Company engages, through The Peoples National 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 Peoples National 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 Peoples National Bank's real
estate loans consist of residential and commercial first mortgage loans, second
mortgage financing and construction loans.
The Peoples National 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 Loan 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.
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
16
<PAGE>
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, if any, is included in the allowance for
loan losses.
17
<PAGE>
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
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
uncollectible. 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.
18
<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:
<S> <C> <C> <C> <C>
Obligations of U.S. Treasury
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.
19
<PAGE>
The following table indicates the respective maturities and weighted
average yields of securities as of December 31, 1997:
Amortized Weighted
Cost Average Yield
------------ -------------
AVAILABLE FOR SALE
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%*
===========
* 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 Peoples National 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.
20
<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%
21
<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.
22
<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
------ ------ --------- ----- -----
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Federal Funds Sold .......................... $ 4,570 $ 0 $ 0 $ 0 $ 4,570
Investment Securities ....................... 2,367 9,238 8,465 4,132 24,202
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) $(16,135) $ 12,210 $ 18,407
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
23
<PAGE>
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
that quantifies 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 Peoples National 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 June 30, 1998 and 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. At June 30, 1998, FHLB advances totaled
$2,000,000, compared to $6,500,000 at June 30, 1997. 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.
Capital Adequacy
All banks and bank holding companies are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
banks and bank holding companies must meet specific capital guidelines that
involve quantitative
24
<PAGE>
measures of assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. Capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors. For bank holding companies with
less than $150 million in consolidated assets, like the Company, the guidelines
are applied on a bank-only basis.
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, as defined in the regulations, to risk
weighted assets, as defined, and of Tier I capital, as defined, to average
assets, as defined. Management believes, as of June 30, 1998, and December 31,
1997 and 1996, that the Bank exceeded all capital adequacy minimum requirements
to which it was subject.
To be categorized as well capitalized the Company must maintain minimum
Total risk-based, Tier I risk- based, and Tier I leverage ratios as set forth in
the table below. There are no conditions or events that management believes
would cause the Bank's category to be other than that resulting from meeting the
minimum ratio requirements.
The Bank's capital ratios at June 30, 1998 and December 31, 1997 and 1996
were as follow:
<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)
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1998:
Total Capital (to risk-weighted assets) ........ $10,312 13.34% $7,716 10.0% $6,169 8.0%
Tier 1 Capital (to risk-weighted assets) ....... 9,330 12.09% 4,630 6.0% 3,087 4.0%
Tier 1 Capital (to average assets) ............. 9,330 7.55% 6,179 5.0% 4,943 4.0%
As of December 31, 1997
Total Capital (to risk-weighted assets) ........ 9,606 12.59% 6,106 8.0% 7,632 10.0%
Tier 1 Capital (to risk-weighted assets) ....... 8,652 11.34% 3,053 4.0% 4,579 6.0%
Tier 1 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 1 Capital (to risk-weighted assets) ....... 7,561 11.82% 2,556 4.0% 3,834 6.0%
Tier 1 Capital (to average assets) ............. 7,561 8.19% 3,693 4.0% 4,616 5.0%
</TABLE>
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.
25
<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 Peoples National 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 Peoples National 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 Peoples National Bank and will also provide
such services for Bank of Anderson, N.A. Such services include an automated
general ledger, deposit accounting, loan accounting, data processing and
investment portfolio accounting.
Year 2000
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 and other problems after December 31, 1999. 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 Peoples National Bank presently employ 51 full-time and
8 part-time employees, including 14 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.
Properties
The Peoples National 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 Peoples National 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 Peoples National
26
<PAGE>
Bank is a partner. See -- "MANAGEMENT OF THE COMPANY -- Certain Relationships
and Related Transactions." The Peoples National 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 operations 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 has not yet sought regulatory approval to
operate a branch at this location.
The Bank received regulatory approval in September 1997 to open a branch
office in Seneca, South Carolina. The Company has purchased 1.097 acres of
vacant land in Seneca, South Carolina, approximately twenty- five miles west of
the main office, as the future site for this office. 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 has purchased 1.935 unimproved acres in Anderson, South
Carolina for the future sight of Bank of Anderson, N.A. The cost of such
property was $365,000. The new bank is expected to open initially in a temporary
office on such property. The permanent building is expected to be completed in
1999. Construction and equipment costs are estimated at $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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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.
Forward Looking Statements
Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations which are not historical in nature are
intended to be, and are hereby identified as 'forward looking statements' for
purposes of the safe harbor provided by Section 21E of the Securities Exchange
Act of 1934, as amended. The Company cautions readers that forward looking
statements, including without limitation, those relating to the Company's future
business prospects, revenues, working capital, liquidity, capital needs,
interest costs, and income, are subject to certain risks and uncertainties that
could cause actual results to differ materially from those indicated in the
forward looking statements, due to several important factors herein identified,
among others, and other risks and factors identified from time to time in the
Company's reports filed with the S.E.C.
Overview
The Company and The Peoples National Bank, which commenced banking
operations in 1986, currently conduct business through three locations in the
upstate of South Carolina. Through The Peoples National Bank, the Company
27
<PAGE>
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 Peoples National Bank received approval from the OCC
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
1997 Compared to 1996
Earning Assets
1997 average earning assets of $100,453,087 were 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.
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-backed securities whose maturities may be
adversely affected by prepayments, which tend to increase in a declining rate
environment. Mortgage-backed 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 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 averaged $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.
28
<PAGE>
The Peoples National 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 Peoples National 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 represented 12.36% of total average deposits at the end of 1997. The
Peoples National 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.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Earning Assets
As of June 30, 1998, the Company had total loans outstanding of
$75,508,965. Outstanding loans represented 66.68% of total earning assets as of
such date. Loans increased $1,089,011, or 1.46%, from $74,419,954 at June 30,
1997, and decreased $1,340,138, or 1.77%, from $76,849,103 at December 31, 1997.
For the first six months of 1998, the Company's loans averaged $76,277,000
compared to $70,634,000 for the same period of 1997. The increase resulted
primarily from internal growth.
The average yield on the company's loans for the six months ended June 30,
1998 was 9.16% compared to 9.30% for the first six months of 1997 and to 9.21%
for the twelve months ended December 31, 1997. The decline in the Company's loan
yield was primarily attributable to a shift in the composition of the loan
portfolio to a higher concentration of mortgage loans which generally carry
lower rates of interest than other types of loans. At June 30, 1998
approximately 40% of the Company's outstanding loans carried adjustable rates of
interest.
Allowance for Loan Losses
The allowance for loan losses at June 30, 1998 was $981,840, or 1.30%, of
total loans outstanding compared to $847,924, or 1.14%, of loans outstanding at
June 30, 1997 and to $987,138, or 1.30%, at December 31, 1997.
At June 30, 1998 the Company had $496,521 in non-accruing loans, two
restructured loans totalling $219,405 and no loans more than ninety days past
due on which interest was still being accrued. This compares to $408,320 in
non-accruing loans, no restructured loans and one loan more than ninety days
past due on which interest was still being accrued in the amount of $89,719 at
June 30, 1997. At December 31, 1997, there was $757,206 in non-accruing loans;
one $9,898 restructured loan and a $142,317 loan more than ninety days past due
on which interest was still being accrued. Nonperforming assets as a percentage
of loans and other real estate owned were 0.82% and 0.70% at June 30, 1998 and
1997, respectively.
Net charge-offs during the first six months of 1998 were $7,398, compared to
net charge-offs of $14,194 for the first six months 1997 and to net charge-offs
of $98,016 for the year ended December 31, 1997. The allowance for loan losses
as a percentage of nonperforming loans was 158% and 162% as of June 30, 1998 and
1997, respectively.
29
<PAGE>
Securities
Investment securities constituted 33.32% and 26.17% of earning assets as of
June 30, 1998 and 1997, respectively. At June 30, 1998, securities totaled
$31,021,292, up $8,279,729 from $22,741,563 invested as of June 30, 1997 and up
$6,848,357 from December 31, 1997's balance of $24,172,935. The increase is
investment securities resulted from the investment of excess funds attributable
to an increase in deposits coupled with soft loan demand. The yield on
investment securities decreased from 6.0% at June 30, 1997 and 5.94% at December
31, 1997 to 5.87% at June 30, 1998. The portfolio yield decreased due to
maturities of higher yielding government securities being reinvested at lower
rates. The investment portfolio has a weighted average maturity of approximately
1.03 years.
At June 30, 1998 the book value of the Company's available-for-sale
investment portfolio was $27,125,190 and the market value of its
available-for-sale portfolio was $27,071,124 resulting in an unrealized loss
before tax of $54,066. The Company's total securities averaged $35,198,300 for
the first six months of 1998, 54.60% above the first six months of 1997 average
of $22,767,700.
Liabilities
Deposits increased 22.08% to $105,505,288 at June 30, 1998 from $86,425,575
at June 30, 1997. At December 31, 1997, deposits totaled $96,189,848. The
increase resulted principally from account promotions.
During the first six months of 1998, interest-bearing deposits averaged
$90,588,430 compared to $72,079,700 for the same period in 1997, and to
$76,516,106 for the twelve months ended December 31, 1997. The average interest
rate paid on interest-bearing deposits was 4.59% for the first six months of
1998 compared to 4.59% for the first six months of 1997. During the first six
months of 1998, deposit pricing continued to be very competitive in the
Company's market areas, resulting in little downward pressure on deposit
interest rates. The Company expects this competitive deposit environment to
continue. As of June 30, 1998, interest-bearing deposits comprised 86.43% of
total deposits.
Core deposits as a percentage of total deposits averaged approximately
84.49% for the six months ended June 30, 1998.
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.
30
<PAGE>
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 to 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 has 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
deposit 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 Peoples National Bank also increased many of its 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
Peoples National 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 Peoples National Bank's Powdersville and
Pickens locations.
The allowance for loan losses is established to provide for expected losses
in The Peoples National 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
loan categories as suggested by The Peoples National 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.
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 on average earning assets of $82,147,853.
31
<PAGE>
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 Peoples National Bank sold its charge
cards resulting 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 costs in 1996 were $1,598,182 compared to $1,457,122 the prior year,
an 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 Peoples National 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 Peoples National
Bank's 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 Peoples National 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 loans
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 Peoples National
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 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 Peoples National 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.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
The Company's net income for the second quarter of 1998 was $397,768, or
$0.24 per basic share ($0.21 per diluted share), compared to net income of
$354,857, or $0.22 per basic share ($0.21 per diluted share) for the second
quarter of 1997. Net income for the six months ended June 30, 1998 was $755,221
or $0.45 per basic share ($0.41 per diluted share), compared to $701,946, or
$0.44 per basic share ($0.42 per diluted share) for the six months ended June
30, 1997. Return on average equity for the six months and three months ended
June 30, 1998 was 15.20% and 16.01%, respectively, compared to 16.03% and
16.20%, respectively, for the same periods in 1997. Return on average assets for
the six months ended June 30, 1998 was 1.25% compared to 1.37% for the same
period in 1997. For the second quarter of 1998, return on average assets was
1.32%, compared to 1.38% for the same period in 1997.
Net interest income before the provision for loan losses for the second
quarter of 1998 amounted to $1,193,706, an increase of $55,433, or 4.87%, over
the second quarter of 1997. Net interest income before the provision for loan
losses for the six months ended June 30, 1998 amounted to $2,302,963, an
increase of $76,915, or 3.46%, over the same period in 1997. This represents a
4.12% net interest margin (net interest income divided by average earning
assets) on average earning assets of $111,809,600. For this same period in 1997,
the net interest margin was 4.47% based on average earning assets of
$99,651,500. The decrease in the net interest margin resulted primarily from an
increase in the amounts paid on interest-bearing liabilities and lower yields
earned on interest earning assets.
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<PAGE>
Non-interest Income
Non-interest income, excluding securities transactions, increased $183,655,
or 109.09%, to $352,023 for the second quarter of 1998 compared to $168,358 for
the second quarter of 1997. For the first six months of 1998, non-interest
income, excluding securities transactions, increased $308,163, or 85.24%, to
$669,696 compared to $361,533 for the first six months of 1997. A $129,028
increase in origination fees on mortgage loans; increased earnings from the
Bank's business manager product of $39,363; earnings of $32,235 on the Bank's
salary continuation plan; and earnings of $45,108 from the Bank's specialized
investment program were the main contributors to the increase in non-interest
income in both 1998 periods when compared to the 1997 periods. No gain or loss
was realized on the sale of available for sale securities during the first six
months of 1998. The Company recorded a $2,740 gain on the sale of available for
sale securities during the first six months of 1997.
Non-interest Expense
Non-interest expense increased $222,437, or 30.68%, to $947,451 for the
second quarter of 1998 compared to $725,014 for the second quarter of 1997. For
the first six months of 1998, non-interest expense increased $402,183, or
27.91%, to $1,843,368 compared to $1,441,185 for the same period in 1997.
Salaries and benefits, the largest single category of non-interest expense
items, increased $195,643, or 23.47%, to $529,298 in the second quarter of 1998
due to normal salary increases, the addition of several key employees during the
last six months of 1997, and the partial staffing of the Bank of Anderson, N.A.
(In Organization), in 1998. Occupancy and equipment expense increased $47,836,
or 23.26%, primarily due to an increase in the purchase and maintenance of
equipment for The Peoples National Bank and Bank of Anderson, N.A. (In
Organization). Other operating expenses increased $158,704, or 39.50%, primarily
as a result of a $23,140 increase in marketing expenses due to advertising
commitments made by Company management; a $31,705 increase in computer expenses
associated with the installment of a wide area network; a $10,040 increase in
legal fees associated with collection efforts; a $4,818 additional expense
associated with the Business Manager (accounts receivable) product; a $5,700
increase in board fees paid to the Company and Bank board members; and $33,912
in expenses associated with the Company's Salary Continuation Plan.
Provision for Loan Losses
The provision for loan losses charged to operations during the six months
ended June 30, 1998 was $2,100 compared to a charge of $101,440 for the same
period in 1997. The decrease is due primarily to $7,398 in net charge-offs
through June 30, 1998 compared to $14,194 in net charge-offs through June 30,
1997. Also contributing to the decrease is the additional provision made in
December 1997 of $40,000. At 1.30% of total outstanding loans, management
considers this reserve to be adequate based upon evaluations of specific loans
and weighing of various loan categories as suggested by the Bank's internal loan
rating system.
BANK OF ANDERSON, N.A.
On May 8, 1998, the OCC granted the organizers of Bank of Anderson, N.A.
preliminary approval to organize Bank of Anderson, N.A. On July 22, 1998, the
Company completed a stock offering, the majority of the proceeds of which will
be used to capitalize the Bank of Anderson, N.A. If the conditions to final
approval are met, the Company will use $4.5 million to acquire the Bank of
Anderson, N.A., and Bank of Anderson, N.A. will commence commercial banking
business in Anderson, South Carolina. The principal offices of Bank of Anderson,
N.A. will be located near the intersection of East Greenville Street and Main
Street in Anderson, South Carolina. The site contains 1.935 acres with frontage
on both streets. The organizers of the Bank of Anderson, N.A. plan to build a
two story building of 6,800 square feet on the site for the offices of the new
bank.
Background of Organization
Substantially all of the large financial institutions headquartered in
South Carolina have been acquired by regional bank holding companies over the
past five years. As a result, South Carolina and its citizens have lost much of
the ability to control financial resources and decisions relating to allocations
of those resources. More and more frequently, underwriting decisions are being
made outside South Carolina by entities and people not familiar with the
borrowers or the communities to be served. In many instances, banking customers
have become frustrated with the delays attendant to such external decision
making and with the lower levels of personal services occasioned by
consolidation and reductions in personnel.
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<PAGE>
In the face of encroaching bank regionalism, The Peoples National Bank was
organized in 1986 to take advantage of perceived opportunities for a community
bank offering local decision making, highly personalized service and a
commitment to the well-being and advancement of the communities served. The
perceived opportunity proved to be a reality and The Peoples National Bank has
successfully attracted a substantial loan and deposit base away from regional
competitors. Although these competitors have greater financial and managerial
resources than The Peoples National Bank, management of The Peoples National
Bank believes that it compensates for these differences by offering a high level
of personal service and by responding quickly and efficiently to customer needs.
The impetus to organize a national bank in Anderson was the announcement on
September 20, 1997 that Anderson National Bank ("ANB") was to be acquired by
Regions Financial Corporation which is headquartered in Birmingham, Alabama. The
acquisition of ANB would remove the only locally owned, locally headquartered
commercial bank in Anderson. Robert E. Dye, who led the effort to organize The
Peoples National Bank in 1986, was immediately interested in organizing an
institution to become the true "hometown bank" in Anderson and to fill the void
that would exist once the acquisition of ANB was consummated. Mr. Dye, who is
originally from Anderson, felt strongly that this $1 billion deposit market
would support an institution such as the one being proposed. After two special
meetings of the Peoples Bancorporation Board of Directors, an announcement was
made on September 27, one week after the news of the proposed ANB acquisition,
that the Company planned to sponsor organization of a new bank in Anderson.
The Company contacted David C. King about leading the organizational effort
in Anderson and serving as President and Chief Executive Officer of the new
bank. Mr. Dye and Mr. King had worked together at Carolina National Bank from
1975 to 1981. Mr. King, who is also a native of Anderson, was most recently
employed in the banking industry as the President and Chief Executive Officer of
Barrow Bank & Trust Company in Winder, Georgia. After that institution was
acquired in 1996, Mr. King continued his employment with the acquiror until
March of 1997, when he returned to Anderson to manage the family mortuary
business. Eager to resume his 23-year banking career, Mr. King readily accepted
the offer to become the President and Chief Executive Officer of the proposed
bank. Mr. King and Mr. Dye then carefully developed a list of approximately
thirty of Anderson's foremost community, business, and civic leaders as
potential board members. After prioritizing the list, they approached their
seven top prospects, and all seven enthusiastically agreed to serve as
organizers and directors.
The group, which is comprised of Mr. King and Mr. Dye along with E. Stephen
Darby, Myrtle E. Gillespie, Andrew M. McFall, III, D. Kirkland Oglesby, J.
Calhoun Pruitt, Robert M. Rainey and Larry D. Reeves, met for the first time in
January and discussed plans to organize the bank. After considerable discussion,
the decision was made to pursue a national charter, and the application process
was begun.
Organizers of Bank of Anderson, N.A.
Set forth below is information about the Anderson business people who are
the organizers of Bank of Anderson, N.A.
Robert E. Dye serves as Chairman, President, and Chief Executive Officer of
Peoples Bancorporation, Chairman and Chief Executive Officer of The Peoples
National Bank, and will be Chairman of Bank of Anderson, N.A. A native of
Anderson, he graduated with a B.S. in engineering from Clemson University,
completed numerous American Institute of Banking courses, and attended Stonier,
the Graduate School of Banking. Mr. Dye currently serves as vice president of
the IPTAY Board of Directors, Trustee of the YMCA of Pickens County, deacon of
Easley First Baptist Church, and member of Easley Rotary. He was the first
Chairman of Baptist Medical Center Easley Foundation, past president of the
Easley Chamber of Commerce, Easley YMCA, and Easley Community Theater, Chairman
of the Easley First Baptist Church Planning and Building Committee, and has
served on numerous civic and vocational groups throughout his career.
David C. King, co-owner of Sullivan King Mortuary, will serve as President
and Chief Executive Officer of Bank of Anderson, N.A. Mr. King was President and
34
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CEO of Barrow Bank and Trust in Winder, Georgia from December, 1994 until its
acquisition by Regions Financial Corporation in March, 1996, and continued his
employment with Regions until March of 1997. Mr. King has been in banking for 23
years. Prior to his tenure with Barrow Bank and Trust, Mr. King was Executive
Vice President with The Citizens Bank in Toccoa, Georgia from February 1989 to
December 1994, and was Vice President and Regional Retail Credit Manager with
The Citizens and Southern National Bank in Anderson, South Carolina from March
1987 to February 1989. Mr. King also served as Vice President and City Executive
for First Union National Bank in Anderson, South Carolina from April 1982 to
March 1987, and as Vice President and City Executive for Carolina National Bank
in Clemson, South Carolina from September 1975 to June 1981. Prior to joining
Carolina National Bank in 1975, Mr. King was a Management Associate with the
Trust Company Bank in Atlanta, Georgia. A native of Anderson, Mr. King is a
finance and real estate graduate of Auburn University. He also finished the
Graduate School of Banking of the South, as well as First Union National Bank's
Commercial Lending School. Mr. King currently serves on the Foothills United Way
Campaign Cabinet, is District Chairman of Boy Scouts of America Friends of
Scouting Campaign, is Secretary-elect of Rotary Club of Anderson, and serves on
the Boards of Anderson County Arts Council and Anderson Soiree. A Leadership
Anderson Graduate, he has served on the Anderson area Medical Center Board and
Finance Committee, the Anderson Area Chamber of Commerce Board and Executive
Committee, the American Cancer Society Board, as President of American Heart
Association, as Chairman of Anderson Area YMCA Board, and on many other
community associations throughout his banking career.
E. Stephen Darby, President and General Manager of Darby Electric Company,
Inc. for 25 years, received the 1995 Small Business Person of the Year Award
from the Anderson Area Chamber of Commerce in 1996. A native of Anderson, he is
a business administration graduate of The Citadel. Mr. Darby currently serves on
the Tri- County Technical College Foundation Board and Anderson College Trustee
Board, is a member and past president of Anderson Rotary, and member and former
deacon of Anderson First Baptist Church. Mr. Darby has served on the Boards of
Anderson YMCA, Chamber of Commerce, and Salvation Army, as well as other civic
and vocational groups throughout his career. He served on Advisory Boards for
Southern Bank and Trust from 1979 to 1987 and First Union from 1987 to 1998.
Myrtle E. Gillespie, an Alabama native, has been a resident of Anderson for
28 years. She received a Bachelor of Science degree from University of Southern
Mississippi and a Master of Arts from Ohio State University. She has been a
Board member of the Greater Anderson Musical Arts Consortium since its founding,
a member of the Anderson County Medical Alliance, and a member of Anderson First
Baptist Church, where she serves as Sunday School teacher and Chairman of the
Personnel Committee. Ms. Gillespie has also worked with Anderson County Arts
Council, Anderson Junior Assembly, Anderson/Oconee Speech and Hearing Services,
American Cancer Society, Anderson Music Club, and South Carolina Governors
School for the Arts.
Andrew M. McFall, III, a 6th generation Andersonian, attended Auburn
University, School for Executive Development at University of Georgia, American
Savings and Loan Institute, and Graduate School for Banking at University of
Indiana. Mr. McFall worked with Anderson Savings and Loan and its successor
Security Federal, Security Mortgage and its successor Painewebber Mortgage, and
Columbia National, Inc., retiring in 1995. He currently serves as Chairman of
Deacons and has served as teacher, department head, and Treasurer at Boulevard
Baptist Church, is a member of Greater Anderson Rotary Club, a life member of
Sertoma, past President of the South Carolina Controllers Society, and has
served on the Anderson area Chamber of Commerce Board, United Way, Anderson
County Mental Health Association, Electric City Centennial Committee, and
numerous vocational groups.
D. Kirkland Oglesby retired at the end of the year as President and CEO of
Anderson Area Medical Center, a position he had held since 1967. During his 45
years in the health care industry, Mr. Oglesby served as Chairman 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. A North Carolina native, he graduated from Davidson
College with a B.S. degree and obtained a Certificate in Hospital Administration
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<PAGE>
from Duke University Medical Center. Mr. Oglesby currently serves as a member of
the Board of Trustees of Healthcare Research and Development Institute, Inc. of
Pensacola, Florida, consultants to the health care industry. He served, from
1981 to 1997 on the Anderson Advisory Board of Wachovia Bank, and has worked
with numerous community organizations.
J. Calhoun Pruitt, a practicing attorney in Anderson since 1974, is
licensed by the Supreme Court of South Carolina, the U.S. Federal District
Court, the U. S. Court of Appeals, and the United States Supreme Court. Mr.
Pruitt is also involved in real estate development. An Anderson native, Pruitt
received a B.A. in Economics, cum laude, from the University of South Carolina
and a Juris Doctor from the University of South Carolina School of Law. He is a
member of the Anderson Area Chamber of Commerce, a member of the Greenville
Power Squadron, a member of First Presbyterian Church, and a former member of
the Anderson Jaycees. He has served as a boating safety instructor for both
adult and youth safety classes.
Robert M. Rainey, an Anderson resident and native, is a Senior
Environmental Engineer with RMT, Inc., a firm of Consulting Engineers in
Greenville, and a cattle farmer. Mr. Rainey graduated from Washington and Lee
University with a B.S. in Natural Sciences and Mathematics, received an M.A. in
Earth and Planetary Sciences from The Johns Hopkins University and an M.S. in
Environmental Systems Engineering from Clemson University. He has served as
Trustee for both Anderson Area Medical Center and AnMed Healthy Futures Trust,
Advisory Board Member for The Salvation Army, Executive Board Member for Blue
Ridge Council-Boy Scouts of America, Chairman of the City of Anderson Board of
Architectural Review, Chairman of Anderson County Arts Council Endowment
Committee, member of Advisory Board and Strategic Gifts Committee for Anderson
College, on the Board of Directors of Anderson YMCA, Church Council of St.
John's United Methodist Church, and Advisory Boards for both C & S National Bank
of South Carolina and NationsBank. Mr. Rainey is also trustee of three private
foundations.
Larry D. Reeves is Senior Vice President and General Manager of Cromer Food
Services, an Anderson food and beverage vending company. Mr. Reeves had
previously worked for 13 years with Owens Corning Fiberglass, including serving
as Plant Manager of the Anderson plant. He also worked as Vice President of
Advertising with Hart Hanks Communications. Also an Anderson native, Mr. Reeves
graduated from Clemson University with a B.S. in Chemical Engineering. He
completed many management courses at Harvard Business School, Stanford
University, and George Washington University. He currently serves as Treasurer
of Christian Youth Camp, Inc., Trustee and Elder at Bethany Chapel, Advisory
Board member of The Salvation Army, member of Anderson Rotary Club, and Building
Authority member of Anderson County Courthouse. He has worked with United Way,
South Carolina Chamber of Commerce, Anderson Area Chamber of Commerce, Anderson
Junior Achievement, Tri-County Technical College Foundation Board, Anderson
YMCA, Anderson Medical Center Board and Foundation, and South Carolina Private
Industry Council.
Market Area of Bank of Anderson, N.A.
Using the broadest definition of market, the proposed bank will offer its
services to Anderson County. Located in the northwestern portion of South
Carolina, Anderson County is bordered by Oconee County and Pickens County to the
northwest, Greenville County to the northeast, Laurens County to the east,
Abbeville County to the southeast, and the State of Georgia to the southwest.
The primary market for the proposed Bank of Anderson, N.A., from which it
would expect to draw 75% of its business, is a 3-mile radius surrounding the
proposed bank location. The secondary market extends to a 6-mile radius of the
site. A total of 90% of the bank's business should be generated from the
combination of the primary and secondary markets. This service area engages the
central portion of the county and more importantly the City of Anderson. The
proposed bank office will very nearly be located in the geographic center of the
city.
Statistics dated June 30, 1997 indicate that of the $1.47 billion of
deposits located in Anderson County, 65% of these deposits are in the City of
Anderson. Four national banks, six state banks, and one savings bank currently
divide this $959 million market. Each of these eleven depository institutions
currently maintains an office in the downtown area within one half mile of the
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proposed bank site. Between the recent acquisitions of First Federal Savings and
Loan Association of Anderson by Carolina First and Anderson National Bank by
Regions Financial, approximately $250 million in deposits, or 26% of the market,
is in a state of transition. The proposed bank will be the only commercial bank
headquartered in this market. The organizers believe that the proposed bank will
offer a distinct alternative to the large regional banks that will be welcomed
in this market.
Competition
South Carolina law permits statewide branching by banks and savings and
loan associations, and many financial institutions have branch networks. South
Carolina law also permits regional interstate banking, and seven of the larger
commercial banks in the Anderson area are affiliated with regional banking
groups. Twenty-two financial institutions are represented in Anderson County,
including 14 banking groups ranging in total market area deposits from $237
million to $1.6 million, one savings and loan association with market area
deposits of $62 million, and 7 credit unions with market area deposits ranging
from $41 million to $1 million. (Source: Sheshunoff - The Branches of South
Carolina, 1997)
Banks generally compete with other financial institutions through the
banking products and services offered, the pricing of services, the level of
service provided, the convenience and availability of services, and the degree
of expertise and personal concern with which services are offered. It is
anticipated that Bank of Anderson, N.A. will encounter strong competition from
most of the financial institutions in Bank of Anderson, N.A.'s extended market
area. In the conduct of certain areas of its banking business, Bank of Anderson,
N.A. will also compete with credit unions, consumer finance companies, insurance
companies, money market mutual funds and other financial institutions, some of
which are not subject to the same degree of regulation and restriction imposed
upon Bank of Anderson, N.A. Many of these competitors have substantially greater
resources and lending limits than Bank of Anderson, N.A. will have and offer
certain services, such as international banking services and trust services,
that Bank of Anderson, N.A. will not provide initially. Moreover, most of these
competitors have numerous branch offices located throughout the extended market
area, a competitive advantage that Bank of Anderson, N.A. will not have in the
near future. Bank of Anderson, N.A. believes, however, that its relatively small
size will permit it to offer more personalized service than many of its
competitors, which may provide a competitive advantage. Bank of Anderson, N.A.
should also be able to compensate for its lower initial lending limits by
participating larger loans with The Peoples National Bank and other
institutions.
Services to be Offered
Bank of Anderson, N.A. plans to emphasize local management and commitment
to the industrial and business growth of the Anderson area, and intends to
provide personalized banking services, with emphasis on knowledge of the
individual financial needs and objectives of its customers and an appropriate
array of services to meet those needs and objectives.
The services offered are expected to be substantially the same as the
services offered by The Peoples National Bank, including the full range of
deposit services that are typically available in most banks and savings and loan
associations, such as checking accounts, NOW accounts, and savings and other
time deposits of various types, ranging from daily money market accounts to
longer-term certificates of deposit. The transaction accounts and time
certificates will be tailored to the principal market area at rates competitive
with those offered in the area. In addition, retirement accounts such as IRA's
(Individual Retirement Accounts) will be made available. All deposit accounts
will be insured by the FDIC up to the maximum amount permitted by law. Bank of
Anderson, N.A. intends to solicit these accounts from individuals, businesses,
associations and organizations, and government authorities. Although Bank of
Anderson, N.A. intends to be competitive in its efforts to attract deposit
accounts, it will not aggressively seek jumbo certificates of deposit
(certificates in amounts greater than $100,000) and does not intend to accept
brokered deposit accounts.
Bank of Anderson, N.A. plans to offer a full range of short- and
intermediate-term commercial and personal loans. Bank of Anderson, N.A. also
plans to originate variable-rate, residential and other mortgage loans for its
37
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own account, and intends to make personal loans directly to individuals for
various other purposes, including purchases of automobiles, mobile homes, boats
and other recreational vehicles, home improvements, education and personal
investments. Commercial loans, secured and unsecured, are expected to be made
primarily to individuals and small and mid-sized businesses operating in and
around Anderson County. These loans are expected to be available for general
operating purposes, acquisition of fixed assets, including real estate,
purchases of equipment and machinery, financing of inventory and accounts
receivable, and other business purposes. Although Bank of Anderson, N.A. plans
to take a progressive and competitive approach to lending, it will stress high
quality in its loans.
Bank of Anderson, N.A. may participate in a regional network of automated
teller machines that may be used by its customers in major cities throughout the
Southeast. Bank of Anderson, N.A. plans to offer both VISA and MasterCard brand
credit cards together with related lines of credit. The lines of credit may be
used for overdraft protection as well as a pre-authorized credit for personal
purchases and expenses.
Bank of Anderson, N.A. also plans to provide safe deposit boxes, travelers
checks, direct deposit of payroll and social security checks, and automatic
drafts for various accounts, but does not expect to provide international or
trust banking services in the near future.
Asset and Liability Management
The primary assets of Bank of Anderson, N.A. will consist of the loan
portfolio and investment account. Efforts will be made generally to match
maturities and rates of loans and the investment portfolio with those of
deposits, although exact matching will not be possible. The majority of Bank of
Anderson, N.A.'s securities investments are expected to be in marketable
obligations of the United States Government, federal agencies and state and
municipal governments, generally with varied maturities.
Long-term loans are expected to be priced primarily to be interest-rate
sensitive with only a small portion of Bank of Anderson, N.A.'s portfolio of
long-term loans at fixed rates. For the foreseeable future, such fixed-rate
loans are not expected to have maturities longer than five years, except in
exceptional cases.
Deposit accounts will represent the majority of the liabilities of Bank of
Anderson, N.A. These will include transaction accounts, time deposits and
certificates of deposit. Bank of Anderson, N.A. does not intend to aggressively
seek certificates of deposit over $100,000. The maturities of most
interest-sensitive accounts are expected to be six months or less.
Anticipated Growth
Bank of Anderson, N.A.'s initial capitalization is expected to be
$4,500,000, which would support Bank of Anderson, N.A. assets of approximately
$60 million, based on current bank regulatory guidelines. See "USE OF PROCEEDS."
Bank of Anderson, N.A.'s growth is expected to come primarily from within the
Anderson area through loan and deposit business generated at Bank of Anderson,
N.A.'s proposed main office located in the central business section of Anderson.
The foregoing discussion of the proposed business of Bank of Anderson, N.A.
contains forward looking statements with respect to the anticipated business
operations of Bank of Anderson, N.A. These forward looking statements contain
certain uncertainties since Bank of Anderson, N.A. has not yet commenced
business operations, and may not commence business operations at all if
necessary regulatory approvals are not received. If Bank of Anderson, N.A. opens
for business, actual business operations could differ from the foregoing
description if management of the Company and Bank of Anderson, N.A. determine
that different business strategies are prudent to meet the needs and demands of
the Anderson community.
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BENEFICIAL OWNERSHIP OF THE COMPANY'S COMMON STOCK
Set forth below is information as of July 31, 1998 about persons who may be
considered beneficial owners of 5% or more of the Peoples' Common Stock.
Number of Shares % of Outstanding
Name and Address Beneficially Owned Common Stock
- ---------------- ------------------ ------------
Robert E. Dye, Sr. 304,164(1) 12.70%
1800 East Main Street
Easley, South Carolina 29640
(1) Includes 117,958 shares owned by the estate of Mr. Dye's wife, as to which
Mr. Dye serves as personal representative, and currently exercisable
options to purchase 67,644 shares.
MANAGEMENT OF THE COMPANY
The following tables set forth information as of the dates indicated about
the persons who currently serve as executive officers and directors of the
Company.
39
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Stock Ownership of Executive Officers and Directors
The following table sets forth information about (i) the beneficial stock
ownership of executive officers and directors of the Company as of July 31,
1998; and (ii) the pro forma beneficial stock ownership of such persons after
this Offering. Such persons are not, however, obligated to purchase the number
of shares shown below, and may decide to purchase more shares or fewer shares.
<TABLE>
<CAPTION>
July 31, 1998
Actual Pro Forma
-------------------------------- ----------------------------------------------------
% of
Common % of
Stock Common
Number of % of Number of Ownership Stock
Shares Common Shares if 53,950 Ownership
Beneficially Stock Beneficially Shares (14) if 425,000(15)
Name Owned Ownership(1) Owned Sold Shares Sold
- ---- ------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Garnet A. Barnes (2) 54,592 2.28% 62,092 2.75% 2.36%
William A. Carr (3) 11,570 * 12,570 * *
Charles E. Dalton (4) 8,944 * 10,444 * *
Robert E. Dye, Sr. (5) 304,164 12.70% 314,164 13.56% 11.69%
Robert E. Dye, Jr. (6) 43,524 1.82% 49,524 2.20% 1.89%
W. Rutledge Galloway (7) 52,618 2.20% 52,618 2.33% 2.00%
E. Smyth McKissick, III (8) 43,978 1.84% 43,978 1.95% 1.67%
Eugene W. Merritt, Jr. (9) 20,270 * 20,270 * *
George B. Nalley, Jr. (10) 58,854 2.46% 74,854 3.31% 2.84%
R. Riggie Ridgeway (11) 43,213 1.80% 48,413 2.12% 1.82%
Nell W. Smith (12) 18,536 * 18,536 * *
A. J. Thompson, Jr., M. D. (13) 63,484 2.65% 69,484 3.07% 2.64%
Directors and Officers
As a Group (15 persons) 754,197 31.49% 808,147 33.00% 28.66%
</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 each such person, but are not 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 27,100 shares owned by Mr. Barnes' wife, and 10,500 shares subject
to currently exercisable options.
(3) Includes 10,500 shares subject to currently exercisable options.
(4) Includes 6,300 shares subject to currently exercisable options.
(5) Includes 117,958 shares held by the estate of Mr. Dye, Sr.'s wife, as to
which Mr. Dye serves as personal representative, and 67,644 shares subject
to currently exercisable options.
(6) Includes 2,414 shares owned jointly with Mr. Dye, Jr.'s wife and 1,490
shares held by Mr. Dye, Jr.'s minor child.
(7) Includes 26,118 shares held in the name of Galloway- Tripp, Inc. Profit
Sharing Plan for the benefit of Mr. Galloway, and 10,500 shares subject to
currently exercisable options.
(8) Includes 6,300 shares subject to currently exercisable options.
(9) Includes 6,300 shares subject to currently exercisable options.
(10) Includes 12,058 shares owned by Mr. Nalley's wife, an aggregate of 20,622
shares held in two trusts administered by Mr. Nalley, and 10,500 shares
subject to currently exercisable options.
(11) Includes 33,848 shares subject to currently exercisable options.
(12) Includes 10,500 shares subject to currently exercisable options.
(13) Includes 16,910 shares held by Dr. Thompson's wife, 10,464 shares held by
Dr. Thompson's minor child, and 10,500 shares subject to currently
exercisable options.
(14) Assumes that only the 53,950 shares expected to be purchased by the
directors and executive officers of the Company are sold.
(15) Assumes that all shares offered hereby are sold. Also assumes that no
purchaser in the offering completed July 22, 1998 accepts the pending
rescission offer. See "PENDING RESCISSION OFFER."
40
<PAGE>
Business Experience of Executive Officers and Directors for the Past Five Years
The information below sets forth the age, business experience for the past
five years, and term in office for each of the directors and executive officers
of the Company. Each of the directors of the Company is also a director of The
Peoples National Bank.
<TABLE>
<CAPTION>
Term as
Director Director
Position Position of the Company of the Company
Name with Bank with Company Since(1) Expires
- ---- --------- ------------ -------- -------
<S> <C> <C> <C> <C>
Garnet A. Barnes Director Director 1986 1999
William A. Carr Director Director 1987 2000
Charles E. Dalton Director Director 1993 1999
Robert E. Dye, Sr. Chairman of the Chairman of the 1986 1999
Board and Chief Board, President and
Executive Officer Chief Executive
Officer
Robert E. Dye, Jr. Director of Director of 1997 2000
Expansion and Expansion and
Development Development
and Director and Director
Marvin W. Ellenburg Vice President- Vice President -
Operations
W. Rutledge Galloway Director Director 1986 2000
Patricia A. Jensen Vice President, Vice President -
Cashier
E. Smyth McKissick, III Director Director 1993 2000
Eugene W. Merritt, Jr. Director Director 1993 2001
George B. Nalley, Jr. Director Director 1986 2001
R. Riggie Ridgeway President and Executive Vice President, 1986 1999
Director Secretary
Treasurer and
Director
Nell W. Smith Director Director 1986 2001
A. J. Thompson, Jr., M. D. Director Director 1986 2001
William B. West - Senior Vice President - -
and Chief Financial
Officer
</TABLE>
- -------------
(1) Includes service as a director of the Bank prior to its acquisition by the
Company.
41
<PAGE>
Each of the directors of the Bank named above also serves on the Board of
Directors of the Bank. 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.
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
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 Manufacturers Alliance and the
American Textile Manufacturers Institute. In addition, Mr. McKissick is on the
Board of Trustees of the Institute of Textile Technology.
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.
42
<PAGE>
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,
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.
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.
William B. West, age 48, has been Senior Vice President and Chief Financial
Officer of the Company since July, 1998. Prior to that time, Mr. West was Senior
Vice President, Chief Financial Officer, Secretary, Treasurer and Director of
First United Bancorporation, Executive Vice President and Cashier of Anderson
National Bank, Cashier of Spartanburg National Bank and Treasurer of Quick
Credit Corporation from 1985 until the merger of First United Bancorporation
into Regions Financial Corporation in June of 1998. Mr. West was also Cashier of
Community Bank of Greenville, N.A. from its organization in 1996 until such
merger. Mr. West also served as a director of Anderson National Bank and
Community Bank of Greenville, N.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. There are no other
family relationships among directors or executive officers of the Company.
Director Compensation
Directors' Fees
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.
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 10 years from the effective date of the 1997
Plan.
43
<PAGE>
During 1997, 78,750 options to purchase shares of Peoples Common Stock at
an exercise price of $8.57 were granted, as follows:
Number of
Options Granted
Name in 1997*
---- --------
Garnet A. Barnes 10,500
William A. Carr 10,500
Charles E. Dalton 5,250
W. Rutledge Galloway 10,500
E. Smyth McKissick, III 5,250
Eugene W. Merritt, Jr. 5,250
George B. Nalley, Jr. 10,500
Nell W. Smith 10,500
A. J. Thompson, Jr., M. D. 10,500
* All options are currently exercisable.
Executive Compensation
The following table provides certain summary information for the years
ended December 31, 1997, 1996 and 1995 concerning compensation paid or accrued
by either the Company or the Bank to the Company's Chief Executive Officer and
the only other executive officer whose compensation for 1997 exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
Securities
Name and Annual Compensation Underlying All Other
Principal Position Year Salary Bonus Options Compensation(1)
- ------------------ ---- ------ ----- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Robert E. Dye, Sr. 1997 $110,201 $12,820 75,996 $ 4,609
President and Chief 1996 $102,141 $ 8,319 36,203 $ 2,892
Executive officer 1995 $ 97,206 $ 4,084 34,479 $ 1,942
R. Riggie Ridgeway 1997 $106,628 $10,280 38,013 $ 4,392
Executive Vice 1996 $ 98,665 $ 6,175 18,102 $ 2,916
President 1995 $ 93,787 $ 2,903 17,240 $ 1,874
</TABLE>
- ------------------------
(1) Represents the Bank's matching contributions under the Bank's 401(k) Plan
during 1997, 1996 and 1995 of $3,688, $2,892 and $1,942 for Mr. Dye and
$3,504, $2,916 and $1,874 for Mr. Ridgeway; and life insurance premiums
paid by the Bank in 1997 of $921 for Mr. Dye and $888 for Mr. Ridgeway.
Noncompetition, Severance and Employment Agreements
The Company has entered into a Noncompetition, Severance and Employment
Agreement with each of Messrs. Dye and Ridgeway. Mr. Dye's Agreement provides
for his employment as Chairman, President and Chief Executive Officer of the
Company and Mr. Ridgeway's Employment Agreement provides for his employment as
44
<PAGE>
Executive Vice President of the Company. The terms of both Agreements are
substantially the same. Each Agreement commenced on August 7, 1995 and is for a
term of 2.99 years, which is deemed to extend each day for an additional day
automatically without any action by either party. Each Agreement provides for a
minimum annual salary, which is to be reviewed annually by the Board of
Directors and may, in the sole discretion of the Board be increased, and for the
payment of bonuses in accordance with the Company's Incentive Compensation Plan.
Each Agreement also provides that the executive will be entitled to any other
officer/employee benefits generally provided by the Company to its most
highly-ranking executives and to other employees, and to a full-sized automobile
and country club dues.
Either the Company or the executive may, by notice to the other, cause the
Agreement to cease to extend automatically and upon such notice, the term will
be fixed at 2.99 years following the date of the notice. The Agreements may also
be terminated by the Company (i) for cause (as defined in the Agreement), (ii)
if the executive becomes disabled, or (iii) upon the executive's death. If the
Company terminates the Agreement other than for one of the foregoing reasons and
there has been a "change in control", the executive will be entitled to receive
immediately the compensation and benefits that would otherwise be payable to him
under the Agreement over the 2.99 years subsequent to such termination.
Compensation which is not fixed (such as bonus), shall be deemed to be equal to
the average of such compensation over the 2.99 year period immediately prior to
the termination. For purposes of the Agreements a "change in control" includes
(i) acquisition by any person of 20% of the voting stock of the Company within
any 12 month period; (ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board, for any
reason cease to constitute at least a majority of the board, unless the election
of each new director was approved in advance by a vote of at least a majority of
the directors then still in office who were directors at the beginning of the
period; or (iii) consummation of (A) a merger, consolidation or other business
combination of the Company with any other person or affiliate, other than a
merger, consolidation or business combination which would result in the
outstanding common stock of the Company immediately prior thereto continuing to
represent at least 67% of the outstanding common stock of the Company
immediately after such merger, consolidation or business combination, or (B) a
plan of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of its assets; or (iv)
the occurrence of any other event or circumstance not covered by (i) through
(iii) above which the Board determines affects control of the Company. If the
Company terminates either such executive other than for cause, disability or
death, and there has been no change of control, the executive will be entitled
to receive immediately as severance the compensation and benefits provided for
under the Agreement for the then remaining term of the Agreement. In the event
of termination other than for cause, disability or death, all rights of the
executive pursuant to awards of share grants or options granted by the Company
will be deemed to have vested and exercisable, and the executive will be deemed
to be credited with service with the Company for the remaining term of the
Agreement for purposes of the Company's benefit plans.
Each such executive may also terminate the Agreement if (i) the Company
materially breaches the Agreement and does not cure the breach within 30 days
after written notice of the breach; (ii) the executive terminates his employment
following a change of control and not for any of the reasons in (iii) below (a
"voluntary termination"); or (iii) following a change of control if in the sole
judgment of the executive there has been a change in his responsibilities,
title, reporting relationships or working conditions, authority or duties, a
change in the terms or status of the Agreement, a reduction in his compensation
or benefits, a forced relocation out of the Easley area, or a significant
increase in his travel requirements (an "involuntary termination"). If the
executive terminates his employment because of material breach by the Company of
the Agreement which is not cured or because of involuntary termination, he shall
be entitled to the same benefits he would receive upon termination by the
Company after a change in control other than for cause, disability or death. If
the executive terminates the Agreement as a result of a voluntary termination,
he will be entitled to receive as severance the compensation and benefits that
would otherwise be provided under the Agreement for one year following the date
of the voluntary termination. Compensation that is not fixed (such as bonus),
shall be deemed equal to the average of such compensation over the five year
period immediately prior to the termination. In addition, in the event of
termination as a result of material breach of the Agreement by the Company which
is not cured or involuntary termination, all of executive's rights pursuant to
awards of share grants or options granted by the Company shall be deemed to have
vested and be exercisable, and the executive shall be deemed to be credited with
45
<PAGE>
service with the Company for such remaining term for the purposes of the
Company's benefit plans.
If the executive's employment is terminated before a change in control
voluntarily by the executive or by the Board of Directors for cause, then the
executive agrees for a period of one year not to engage in certain competitive
activities against the Company. In the event that the executive's employment is
terminated for any reason following a change of control, there will be no
limitation on any of executive's activities, including direct competition with
the Company or its successor.
The foregoing is merely a summary of certain provisions of the
Noncompetition Severance and Employment Agreement, and is qualified in its
entirety by reference to such Agreement.
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 "1993 Plan").
Shareholders of the Company approved the 1993 Plan at the 1993 Annual Meeting of
Shareholders. The 1993 Plan reserves 382,882 shares for issuance upon exercise
of options 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 1993 Plan. Stock options granted
pursuant to the 1993 Plan expire no later than 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 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 Plan.
The following table presents information regarding the value of options
held under the 1993 Plan at December 31, 1997 by the persons named in the
Summary Compensation Table:
<TABLE>
<CAPTION>
Fiscal Year End Option Values
-----------------------------
Number of Securities Underlying Value of
Unexercised Options Unexercised In-the-Money Options
At Fiscal year End At Fiscal year End
Name Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------------------- -------------------------
<S> <C> <C>
Robert E. Dye, Sr. 63,481 / 12,515 $501,639/$94,238
R. Riggie Ridgeway, 31,757 / 6,256 $278,889/$50,236
</TABLE>
No options to purchase shares of the Company's common stock were exercised
by either of such persons in 1997.
Salary Continuation Agreements
The Company is in the process of preparing a salary continuation plan
pursuant to which salary continuation agreements will be entered into with each
of Messrs. Dye and Ridgeway. When implemented, such agreements would provide for
the terms and conditions upon which post retirement benefits would be paid to
Messrs. Dye and Ridgeway. The Company has already purchased insurance to fund
such agreements.
46
<PAGE>
Certain Relationships and Related Transactions
The Peoples National Bank has outstanding loans to certain of its
directors, executive officers, their associates and members of the 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's branch office facility in Powdersville, South Carolina, 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 years 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.
DESCRIPTION OF THE PEOPLES COMMON STOCK
The Company is a South Carolina corporation which was organized to become
the holding company for The Peoples National Bank. As such, the rights of
shareholders and other matters relating to the stock of the Company are
controlled by South Carolina law. The following is merely a summary of certain
provisions of the Articles of Incorporation and is qualified in its entirety by
reference thereto.
Capitalization. The Company is authorized to issue 10,000,000 shares of
common stock ($1.67 par value). The common stock has unlimited voting rights and
is entitled to receive the net assets of the Company upon dissolution.
Dividends. Subject to certain state and federal law and federal regulatory
restrictions, payment of dividends on the common stock is solely at the
discretion of the Board of Directors. See "SUPERVISION AND REGULATION -- Payment
of Dividends."
Voting Rights. In general, each holder of the Peoples Common Stock is
entitled to one vote per share and to the same and identical voting rights as
other holders of the Peoples Common Stock. In the election of directors, each
shareholder has the right to vote the number of shares owned by him on the
record date for as many persons as there are directors to be elected.
Shareholders are entitled to cumulate their votes in the election of directors.
Mergers, Consolidations, Exchanges, Sales of Assets or Dissolution. The
Company's Articles of Incorporation provide that, in addition to a two-thirds
vote typically required by South Carolina corporate law to effect a corporate
action with prior stockholder approval, the Company may not effect a merger or
consolidation, sale or other disposition of all or substantially all of its
assets or dispose of by any means all or substantially all of the stock or
assets of any subsidiary of the Company (collectively referred to as a "Business
Combination") if the transaction involves a ten percent beneficial stockholder
("Major Stockholder") unless one of four additional requirements is met: (1) the
Business Combination is approved by a majority of the Board of Directors of the
Company prior to the Major Stockholder becoming a Major Stockholder; (2) the
Major Stockholder obtains the unanimous prior approval of the Board of Directors
of the Company to become a Major Stockholder and the Business Combination is
approved by a majority of the Directors of the Company who were directors
immediately prior to the time that the Major Stockholder became a Major
Stockholder ("Continuing Directors") and by a majority of the Continuing
Directors; (3) the Business Combination is approved by the Board of Directors,
including at least 80% of the Continuing Directors of the Company; or (4) the
Business Combination is approved by at least 80% of the outstanding voting stock
of the Company and by at least 80% of the outstanding voting stock beneficially
owned by stockholders other than any Major Stockholder. The Company also may not
acquire all or substantially all of the assets or business of a Major
Stockholder, issue securities to a Major Stockholder, acquire securities of a
Major Stockholder, or effect certain types of reclassification of voting stock
or recapitalizations which would have the effect of increasing the proportionate
amount of voting stock of the Company owned by a Major Stockholder, unless
47
<PAGE>
approval of the transaction is obtained in the manner described above. The
Articles of Incorporation provide that the provision may not be amended, changed
or repealed unless such amendment, change or repeal is approved by at least 80%
of the outstanding voting stock of the Company and by at least 80% of the
outstanding voting stock beneficially owned by stockholders other than any Major
Stockholder.
Classified Board of Directors. The Articles provide that the Board of
Directors shall be divided into three classes, each class to be as nearly equal
in number as possible. The Bylaws provide that the number of directors is as set
from time to time by the Board of Directors, but may not be fewer than nine. At
each annual shareholders' meeting, directors constituting approximately
one-third of the members of the Board of Directors are chosen for terms of three
years to succeed those directors whose terms expire. Existence of a classified
board makes it more difficult to effect a change in control because it would
normally require at least two elections to gain a majority representation on the
board, and three elections to change the entire board.
Preemptive Rights. Shareholders of the Company do not have preemptive
rights with respect to the issuance of additional shares, options or rights of
any class of the Peoples Common Stock. As a result, the directors may sell
additional authorized shares of the Peoples Common Stock without first offering
them to existing shareholders and giving them the opportunity to purchase
sufficient additional shares to prevent dilution of their ownership interests.
Assessment. All shares of the Peoples Common Stock, upon issuance and
receipt of the consideration for their issuance, will be fully paid and
nonassessable.
Conversion; Redemption; Sinking Fund. None of the Company shares issued or
proposed to be issued pursuant to this offering is convertible, has any
redemption rights or is entitled to any sinking fund.
Quorum. A majority of the shares entitled to vote constitutes a quorum at
any meeting of shareholders.
Statutory Matters.
Business Combination Statute. The South Carolina Business Combinations
Statute provides that a 10% or greater shareholder of a resident domestic
corporation cannot engage in a "business combination" (as defined in the
statute) with such corporation for a period of two years following the date on
which the 10% shareholder became such, unless the business combination or the
acquisition of shares is approved by a majority of the disinterested members of
such corporation's board of directors before the 10% shareholder's share
acquisition date. This statute further provides that at no time (even after the
two-year period subsequent to such share acquisition date) may the 10%
shareholder engage in a business combination with the relevant corporation
unless certain approvals of the board of directors or disinterested shareholders
are obtained or unless the consideration given in the combination meets certain
minimum standards set forth in the statute. The law is very broad in its scope
and is designed to inhibit unfriendly acquisitions but it does not apply to
corporations whose articles of incorporation contain a provision electing not to
be covered by the law. The Company's articles of incorporation do not contain
such a provision. An amendment of the articles of incorporation to that effect
will, however, permit a business combination with an interested shareholder even
though that status was obtained prior to the amendment.
Control Share Acquisitions. The South Carolina corporations law also
contains provisions that, under certain circumstances, would preclude an
acquiror of the shares of a South Carolina corporation who crosses one of three
voting thresholds (20%, 331/3% or 50%) from obtaining voting rights with respect
to such shares unless a majority in interest of the disinterested shareholders
of the corporation votes to accord voting power to such shares.
The legislation provides that, if authorized by the articles of
incorporation or bylaws prior to the occurrence of a control share acquisition,
48
<PAGE>
the corporation may redeem the control shares for their fair value if the
acquiring person has not complied with certain procedural requirements
(including the filing of an "acquiring person statement" with the corporation
within 60 days after the control share acquisition) or if the control shares are
not accorded full voting rights by the shareholders. The Company is not
authorized by its articles or bylaws to redeem control shares pursuant to such
legislation.
Indemnification of Directors and Officers. Under South Carolina law, a
corporation has the power to indemnify directors and officers who meet the
standards of good faith and reasonable belief that their conduct was lawful and
in the corporate interest (or not opposed thereto) set forth by statute. A
corporation may also provide insurance for directors and officers against
liability arising out of their positions even though the insurance coverage is
broader than the power of the corporation to indemnify. Unless limited by its
articles of incorporation, a corporation must indemnify a director or officer
who is wholly successful, on the merits or otherwise, in the defense of any
proceeding to which he was a party because he is or was a director against
reasonable expenses incurred by him in connection with the proceeding. The
Company's articles of incorporation do not limit such indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
General. Taken together, the foregoing provisions of the Articles of
Incorporation and South Carolina law favor maintenance of the status quo and may
make it more difficult to change current management, and may impede a change of
control of the Company even if desired by a majority of its shareholders.
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under federal
and state law. To the extent that the following information describes statutory
and regulatory provisions, it is qualified in its entirety by reference to such
statutes and regulations. Any change in applicable law or regulation may have a
material effect on the business of the Company and the Banks.
Regulation of Bank Holding Companies
General
As a bank holding company registered under the Bank Holding Company Act
("BHCA"), the Company is subject to the regulations of the Federal Reserve.
Under the BHCA, the Company's activities and those of its subsidiaries are
limited to banking, managing or controlling banks, furnishing services to or
performing services for its subsidiaries or engaging in any other activity which
the Federal Reserve determines to be so closely related to banking or managing
or controlling banks as to be a proper incident thereto. The BHCA prohibits the
Company from acquiring direct or indirect control of more than 5% of the
outstanding voting stock or substantially all of the assets of any bank or from
merging or consolidating with another bank holding company without prior
approval of the Federal Reserve. The BHCA also prohibits the Company from
acquiring control of any bank operating outside the State of South Carolina
unless such action is specifically authorized by the statutes of the state where
the Bank to be acquired is located.
Additionally, the BHCA prohibits the Company from engaging in or from
acquiring ownership or control of more than 5% of the outstanding voting stock
of any company engaged in a non-banking business unless such business is
determined by the Federal Reserve to be so closely related to banking as to be
properly incident thereto. The BHCA generally does not place territorial
restrictions on the activities of such non-banking related activities.
The Company is also registered under the bank holding company laws of South
Carolina. Accordingly, the Company is subject to regulation and supervision by
the State Board.
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A registered South Carolina bank holding company must provide the State
Board with information with respect to the financial condition, operations,
management and inter-company relationships of the holding company and its
subsidiaries. The State Board also may require such other information as is
necessary to keep itself informed about whether the provisions of South Carolina
law and the regulations and orders issued thereunder by the State Board have
been complied with, and the State Board may examine any bank holding company and
its subsidiaries.
Under the South Carolina Bank Holding Company Act (the "SCBHCA"), it is
unlawful without the prior approval of the State Board for any South Carolina
bank holding company (i) to acquire direct or indirect ownership or control of
more than 5% of the voting shares of any bank or any other bank holding company,
(ii) to acquire all or substantially all of the assets of a bank or any other
bank holding company, or (iii) to merge or consolidate with any other bank
holding company.
Obligations of Holding Company to its Subsidiary Banks
Under the policy of the Federal Reserve, a bank holding company is required
to serve as a source of financial strength to its subsidiary depository
institutions and to commit resources to support such institutions in
circumstances where it might not do so absent such policy. Under the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("1991 Banking Law"), to
avoid receivership of its insured depository institution subsidiary, a bank
holding company is required to guarantee the compliance of any insured
depository institution subsidiary that may become "undercapitalized" with the
terms of any capital restoration plan filed by such subsidiary with its
appropriate federal banking agency up to the lesser of (i) an amount equal to 5%
of the institution's total assets at the time the institution became
undercapitalized, or (ii) the amount which is necessary (or would have been
necessary) to bring the institution into compliance with all applicable capital
standards as of the time the institution fails to comply with such capital
restoration plan. Under the BHCA, the Federal Reserve has the authority to
require a bank holding company to terminate any activity or to relinquish
control of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon
the Federal Reserve's determination that such activity or control constitutes a
serious risk to the financial soundness and stability of any bank subsidiary of
the bank holding company.
In addition, the "cross-guarantee" provisions of the Federal Deposit
Insurance Act, as amended ("FDIA"), require insured depository institutions
under common control to reimburse the FDIC for any loss suffered or reasonably
anticipated by either the Savings Association Insurance Fund ("SAIF") or the
Bank Insurance Fund ("BIF") of the FDIC as a result of the default of a commonly
controlled insured depository institution or for any assistance provided by the
FDIC to a commonly controlled insured depository institution in danger of
default. The FDIC may decline to enforce the cross-guarantee provisions if it
determines that a waiver is in the best interest of the SAIF or the BIF or both.
The FDIC's claim for damages is superior to claims of stockholders of the
insured depository institution or its holding company but is subordinate to
claims of depositors, secured creditors and holders of subordinated debt (other
than affiliates) of the commonly controlled insured depository institutions.
The FDIA also provides that amounts received from the liquidation or other
resolution of any insured depository institution by any receiver must be
distributed (after payment of secured claims) to pay the deposit liabilities of
the institution prior to payment of any other general or unsecured senior
liability, subordinated liability, general creditor or stockholder. This
provision would give depositors a preference over general and subordinated
creditors and stockholders in the event a receiver is appointed to distribute
the assets of the Banks.
Any capital loans by a bank holding company to any of its subsidiary banks
are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary bank. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
Under the National Bank Act, if the capital stock of a national bank is
impaired by losses or otherwise, the OCC is authorized to require payment of the
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deficiency by assessment upon the bank's shareholders, pro rata, and to the
extent necessary, if any such assessment is not paid by any shareholder after
three months notice, to sell the stock of such shareholder to make good the
deficiency.
Capital Adequacy Guidelines for Bank Holding Companies and National Banks
The Federal Reserve has adopted capital adequacy guidelines for holding
companies and banks that are members of the Federal Reserve System subject 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 to 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 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 minimum 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
stated minimum. The Federal Reserve's guidelines also require bank holding
companies to maintain minimum ratios 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 Peoples National Bank is, and Bank of Anderson, N.A. will be, subject
to similar capital requirements adopted by the OCC. For information about the
Company's capital position, see "INFORMATION ABOUT THE COMPANY AND THE BANKS --
Capital Adequacy."
Failure to meet capital guidelines could subject the Banks to a variety of
enforcement remedies, including the termination of deposit insurance by the FDIC
and a prohibition on the taking of brokered deposits.
Bank regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations beyond their current levels.
However, the 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.
Recent Regulations and Proposals Relating to Capital Adequacy
The 1991 Banking Law required each federal banking agency, including the
Federal Reserve, 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, the FDIC and the OCC 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 a joint policy statement that provides bankers
guidance on sound practices for managing interest rate risk. The policy
statement identifies the key elements of sound interest rate risk management and
describes prudent principles and practices for each element, emphasizing the
importance of adequate oversight by a bank's board of directors and senior
management and of a comprehensive risk management process. The policy statement
also outlines the critical factors that will affect the agencies' evaluation of
a bank's interest rate risk when making a determination of capital adequacy. In
adopting the policy statement, the agencies have asserted their intention to
continue to place significant emphasis on the level of a bank's interest rate
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risk exposure and the quality of its risk management process when evaluating a
bank's capital adequacy.
The Federal Reserve, the FDIC, the OCC and the Office of Thrift Supervision
have also issued joint rules amending the risk-based capital guidelines to take
into account concentration of credit risk and the risk of non-traditional
activities, and to incorporate a measure for exposure to market risk. The rule
relating to concentration of credit risk and risk of non-traditional activities
amends each agency's risk-based capital standards by explicitly identifying
concentration of credit risk and the risk arising from activities that have not
customarily been part of the banking business but have been conducted as a
result of developing technology and changes in financial markets, as well as an
institution's ability to manage these risks, as important factors to be taken
into account by the agency in assessing an institution's overall capital
adequacy. The rule relating to market risk amends each agency's risk-
based-capital standards to incorporate measures for market risk to cover all
positions located in a banking institution's trading account, foreign exchange
and commodity positions. The effect of the market risk rules is that any bank or
bank holding company regulated by the Federal Reserve, the FDIC or the OCC that
has significant exposure to market risk must measure that risk using its own
internal value-at-risk model and also hold a commensurate amount of capital.
"Market risk" means the risk of loss resulting from movements in market prices.
"Value-at-risk" is an estimate of potential changes in portfolio value based on
a statistical confidence interval of changes in market prices that occur during
some time intervals. The effective date of the market risk rules is January 1,
1997, and compliance with the rules was mandatory January 1, 1998.
The Company is still assessing the impact these rules and proposed policy
statement would have on the capital requirements of the Banks or the Company,
but does not expect the impact to be material.
Payment of Dividends
The Company is a legal entity separate and distinct from the Banks. Most of
the revenues of the Company are expected to result from dividends paid to the
Company by the Banks. There are statutory and regulatory requirements applicable
to the payment of dividends by subsidiary banks as well as by the Company to its
shareholders.
Each national banking association is required by federal law to obtain the
prior approval of the OCC for the payment of dividends if the total of all
dividends declared by the board of directors of such bank in any year will
exceed the total of (i) such bank's net profits (as defined and interpreted by
regulation) for that year plus (ii) the retained net profits (as defined and
interpreted by regulation) for the preceding two years, less any required
transfers to surplus. In addition, national banks can only pay dividends to the
extent that retained net profits (including the portion transferred to surplus)
exceed bad debts (as defined by regulation). In 1990, the OCC issued a
regulation that redefines certain of the terms and methods of calculation used
in these two dividend restrictions. The rule, among other things, changed the
methodology of calculating net profits to be more consistent with GAAP with the
result that provisions for possible credit losses cannot be added back to net
income and charge-offs cannot be deducted from net income in calculating the
level of net profits available for the payment of dividends. The regulation has
not thus far had a material effect on the ability of The Peoples National Bank
to pay dividends to the Company.
The payment of dividends by the Company and the Banks may also be affected
or limited by other factors, such as the requirements to maintain adequate
capital above regulatory guidelines. In addition, if, in the opinion of the
applicable regulatory authority, a bank under its jurisdiction is engaged in or
is about to engage in an unsafe or unsound practice (which, depending on the
financial condition of the Banks, could include the payment of dividends), such
authority may require, after notice and hearing, that such bank cease and desist
from such practice. The OCC has indicated that paying dividends that deplete a
national bank's capital base to an inadequate level would be an unsafe and
unsound banking practice. The Federal Reserve, the OCC and the FDIC have issued
policy statements which provide that bank holding companies and insured banks
should generally only pay dividends out of current operating earnings.
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Certain Transactions by the Company with its Affiliates
There are various legal restrictions on the extent to which bank holding
companies and their nonbank subsidiaries can borrow or otherwise obtain credit
from their bank subsidiaries. An insured bank and its subsidiaries are limited
in engaging in "covered transactions" with their nonbank affiliates to the
following amounts: (i) in the case of any such affiliate, the aggregate amount
of covered transactions of the insured bank and its subsidiaries will not exceed
10% of the capital stock and surplus of the insured bank and (ii) in the case of
all affiliates, the aggregate amount of covered transactions of the insured bank
and its subsidiaries will not exceed 20% of the capital stock and surplus of the
bank. "Covered transactions" are defined by statute to include a loan or
extension of credit, as well as a purchase of securities issued by an affiliate,
a purchase of assets (unless otherwise exempted by the Federal Reserve), the
acceptance of securities issued by the affiliate as collateral for a loan and
the issuance of a guarantee, acceptance, or letter of credit on behalf of an
affiliate. Further, a bank holding company and its subsidiaries are prohibited
from engaging in certain tie-in arrangements in connection with any extension of
credit, lease or sale of property or furnishing of services.
FDIC Insurance Assessments
Because The Peoples National Bank's deposits are, and Bank of Anderson,
N.A.'s deposits will be, insured by the BIF, the Banks are subject to insurance
assessments imposed by the FDIC. Under current law, the insurance assessment to
be paid by BIF-insured institutions is as specified in a schedule issued by the
FDIC that specifies, at semiannual intervals, target reserve ratios designated
to maintain the FDIC insurance funds' reserve ratios at 1.25% of estimated
insured deposits (or such higher ratio as the FDIC may determine in accordance
with the statute). Further, the FDIC is authorized to impose one or more special
assessments in any amount deemed necessary to enable repayment of amounts
borrowed by the FDIC from the United States Department of the Treasury
("Treasury Department"). The FDIC has implemented a risk-based assessment
schedule, imposing assessments ranging from 0.00% to 0.27% of an institution's
average assessment base. The actual assessment to be paid by each BIF member is
based on the institution's assessment risk classification, 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 the 1991 Banking Law (see "---Other Safety and Soundness
Regulations"), and whether such institution is considered by its supervisory
agency to be financially sound or to have supervisory concerns.
The FDIC may increase or decrease the new assessment rates semiannually up
to a maximum increase or decrease of 5 basis points, as deemed necessary to
maintain the BIF reserve ratio at $1.25 per $100 of insured deposits.
The Deposit Insurance Funds Act of 1996 (the "Funds Act") authorized the
FICO to levy assessments on BIF- and SAIF-assessable deposits, and stipulated
that the BIF rate must equal one-fifth the SAIF rate through year- end 1999, or
until the insurance funds are merged, whichever occurs first. Thereafter, BIF
and SAIF payers will be assessed pro rata for FICO. The BIF rate and the SAIF
rate are based on deposit balances taken from insured institutions' Call Reports
and Thrift Financial Reports. The FICO assessment will continue to be adjusted
quarterly to reflect changes in the assessment bases of the respective funds
based on quarterly Call Report and Thrift Financial Report submissions.
Regulation of the Banks
The Peoples National Bank is, and Bank of Anderson, N.A. will be, also
subject to examination by the OCC bank examiners. In addition, The Peoples
National Bank is, and Bank of Anderson, N.A. will be, subject to various other
state and federal laws and regulations, including state usury laws, laws
relating to fiduciaries, consumer credit and laws relating to branch banking.
The Peoples National Bank's loan operations also are, and Bank of Anderson,
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N.A.'s loan operations will be, subject to certain federal consumer credit laws
and regulations promulgated thereunder, including, but not limited to: the
federal Truth-In-Lending Act, governing disclosures of credit terms to consumer
borrowers; the Home Mortgage Disclosure Act, requiring financial institutions to
provide certain information concerning their mortgage lending; the Equal Credit
Opportunity Act and the Fair Housing Act, prohibiting discrimination on the
basis of certain prohibited factors in extending credit; the Fair Credit
Reporting Act, governing the use and provision of information to credit
reporting agencies; the Bank Secrecy Act, dealing with, among other things, the
reporting of certain currency transactions; and the Fair Debt Collection Act,
governing the manner in which consumer debts may be collected by collection
agencies. The deposit operations of The Peoples National Bank also are, and the
deposit operations of Bank of Anderson, N.A. will be, subject to the Truth in
Savings Act, requiring certain disclosures about rates paid on savings accounts;
the Expedited Funds Availability Act, which deals with disclosure of the
availability of funds deposited in accounts and the collection and return of
checks by banks; the Right to Financial Privacy Act, which imposes a duty to
maintain certain confidentiality of consumer financial records and the
Electronic Funds Transfer Act and regulations promulgated thereunder, which
govern automatic deposits to and withdrawals from deposit accounts and
customers' rights and liabilities arising from the use of automated teller
machines and other electronic banking services.
The Peoples National Bank is also, and Bank of Anderson, N.A. will be,
subject to the requirements of the Community Reinvestment Act (the "CRA"). The
CRA imposes on financial institutions an affirmative and ongoing obligation to
meet the credit needs of their local communities, including low- and
moderate-income neighborhoods, consistent with the safe and sound operation of
those institutions. Each financial institution's actual performance in meeting
community credit needs is evaluated as part of the examination process, and also
is considered in evaluating mergers, acquisitions and applications to open a
branch or facility.
Subject to certain exceptions, the OCC assesses the CRA performance of a
bank by applying lending, investment and service tests. The lending test
evaluates a bank's record of helping to meet the credit needs of its assessment
area through its lending activities by considering a bank's home mortgage, small
business, small farm, community development, and consumer lending. The
investment test evaluates a bank's record of helping to meet the credit needs of
its assessment area through qualified investments that benefit its assessment
area or a broader statewide or regional area that includes the bank's assessment
area. The service test evaluates a bank's record of helping to meet the credit
needs of its assessment area by analyzing both the availability and
effectiveness of a bank's systems for delivering retail banking services and the
extent and innovativeness of its community development services. The OCC assigns
a rating to a bank of "outstanding," satisfactory," "needs to improve," or
"substantial noncompliance" based on the bank's performance under the lending,
investment and service tests. To evaluate compliance with the tests, subject to
certain exceptions, banks will be required to collect and report to the OCC
extensive demographic and loan data.
For banks with total assets of less than $250 million that are affiliates
of a holding company with banking and thrift assets of less than $1 billion,
such as the Bank and the Company, the OCC evaluates the bank's record of helping
to meet the credit needs of its assessment area pursuant to the following
criteria: (1) the bank's loan-to-deposit ratio, adjusted for seasonal variation
and, as appropriate, other lending-related activities, such as loan originations
for sale to the secondary markets, community development loans, or qualified
investments; (2) the percentage of loans and, as appropriate, other
lending-related activities located in the bank's assessment area; (3) the bank's
record of lending to and, as appropriate, engaging in other lending-related
activities for borrowers of different income levels and businesses and farms of
different sizes; (4) the geographic distribution of the bank's loans; and (5)
the bank's record of taking action, if warranted, in response to written
complaints about its performance in helping to meet credit needs in its
assessment area. Small banks may also elect to be assessed under the generally
applicable standards of the rule, but to do so a small bank must collect and
report extensive data.
A bank may also submit a strategic plan to the OCC and be evaluated on its
performance under the plan.
Other Safety and Soundness Regulations
Prompt Corrective Action. The federal banking agencies have broad powers
under current federal law to take prompt corrective action to resolve problems
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of insured depository institutions. The extent of these powers depends upon
whether the institutions in question are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" or
"critically undercapitalized." Under uniform regulations defining such capital
levels issued by each of the federal banking agencies, a bank is considered
"well capitalized" if it has (i) a total risk- based capital ratio of 10% or
greater, (ii) a Tier 1 risk-based capital ratio of 6% or greater, (iii) a
leverage ratio of 5% or greater and (iv) is not subject to any order or written
directive to meet and maintain a specific capital level. An "adequately
capitalized" bank is defined as one that has (i) a total risk-based capital
ratio of 8% or greater, (ii) a Tier 1 risk-based capital ratio of 4% or greater
and (iii) a leverage ratio of 4% or greater (or 3% or greater in the case of a
bank that has a composite CAMEL rating of 1 and is not experiencing or
anticipating significant growth). A bank is considered (A) "undercapitalized" if
it has (i) a total risk-based capital ratio of less than 8%, or (ii) a Tier 2
risk-based capital ratio of less that 4%, and (iii) a leverage ratio of less
than 4% (or 3% in the case of a bank that has a composite CAMEL rating of 1 and
is not experiencing or anticipating significant growth); (B) "significantly
undercapitalized" if the bank has (i) a total risk-based capital ratio of less
than 6%, or (ii) a Tier 1 risk-based capital ratio of less than 3%; or (iii) a
leverage ratio of less than 3%; and (C) "critically undercapitalized" if the
bank has a ratio of tangible equity to total assets equal to or less than 2%.
A bank that is "undercapitalized" becomes subject to provisions of the FDIA
restricting payment of capital distributions and management fees; requiring OCC
to monitor the condition of the bank; requiring submission by the bank of a
capital restoration plan; restricting the growth of the bank's assets and
requiring prior approval of certain expansion proposals. A bank that is
"significantly undercapitalized" is also subject to restrictions on compensation
paid to senior management of the bank, and a bank that is "critically
undercapitalized" is further subject to restrictions on the activities of the
bank and restrictions on payments of subordinated debt of the bank. The purpose
of these provisions is to require banks with less than adequate capital to act
quickly to restore their capital and to have the OCC move promptly to take over
banks that are unwilling or unable to take such steps.
Brokered Deposits. Under current FDIC regulations, "well capitalized" banks
may accept brokered deposits without restriction, "adequately capitalized" banks
may accept brokered deposits with a waiver from the FDIC (subject to certain
restrictions on payments of rates), while "undercapitalized" banks may not
accept brokered deposits. The regulations provide that the definitions of "well
capitalized", "adequately capitalized" and "undercapitalized" are the same as
the definitions adopted by the agencies to implement the prompt corrective
action provisions of the 1991 Banking Law (described above). The Company does
not believe that these regulations will have a material adverse effect on its
operations.
Operational and Managerial Standards. The federal banking agencies have
issued Interagency Guidelines Establishing Standards for Safety and Soundness,
which set forth general operational and managerial standards in the areas of
internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth and
compensation, fees and benefits. The Guidelines also prohibit payment of
excessive compensation as an unsafe and unsound practice. Compensation is
defined as excessive if it is unreasonable or disproportionate to the services
actually performed. The Guidelines contemplate that each federal agency will
determine compliance with these standards through the examination process, and
if necessary to correct weaknesses, require an institution to file a written
safety and soundness compliance plan. Management does not expect the Guidelines
to materially change current operations of the Banks.
Interstate Banking
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 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 bank holding company filing the applications 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 has increased takeover activity in South Carolina, the Company does
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not believe that such legislation has had, or will have a material impact on its
competitive position. However, no assurance of such fact may be given.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 has
increased the ability of bank holding companies and banks to operate across
state lines. Under the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994, the former restrictions on interstate acquisitions of banks by bank
holding companies have been 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 can acquire any South Carolina-based bank, in either case subject to
certain deposit percentage and other restrictions. The legislation also provides
that, unless an individual state elects beforehand either (i) to accelerate the
effective date 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 multistate
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. South Carolina law was amended,
effective July 1, 1996, to permit such interstate branching but not de novo
branching by an out-of-state bank. This legislation has resulted in additional
acquisitions of South Carolina financial institutions by out-of-state financial
institutions. However, the Company does not presently anticipate that such
legislation will have a material impact on its operations or future plans.
Legislative Proposals
The Treasury Department has issued a proposal to consolidate the federal
bank regulatory agencies. Under this proposal, most of the supervisory and
regulatory oversight authority of the FDIC, the OCC, the OTS and the Federal
Reserve would be transferred to a new independent federal banking agency. The
FDIC would continue to have oversight over the deposit insurance funds and the
Federal Reserve would continue to carry out monetary and fiscal policy, discount
window operations and payments system functions. The Treasury Department is
expected to seek to introduce a bill in Congress providing for such
consolidation in the near future. However, the plan already is opposed by the
Federal Reserve, which has proposed a competing consolidation plan that would
preserve its regulatory oversight authority. Due to the preliminary nature of
the proposal and opposition by industry groups and others, the Company cannot
determine at this time the effect of any regulatory consolidation.
Other proposed legislation which could significantly affect the business of
banking has been introduced or may be introduced in Congress from time to time.
The Company cannot predict the future course of such legislative proposals or
their impact on the Company should they be adopted.
Fiscal and Monetary Policy
Banking is a business which depends to a large extent on interest rate
differentials. In general, the difference between the interest paid by a bank on
its deposits and its other borrowings, and the interest received by a bank on
its loans and securities holdings, constitutes the major portion of a bank's
earnings. Thus, the earnings and growth of the Company are subject to the
influence of economic conditions generally, both domestic and foreign, and also
to the monetary and fiscal policies of the United States and its agencies,
particularly the Federal Reserve. The Federal Reserve regulates the supply of
money through various means, including open-market dealings in United States
government securities, the discount rate at which banks may borrow from the
Federal Reserve, and the reserve requirements on deposits. The nature and timing
of any changes in such policies and their impact on the Company cannot be
predicted.
LEGAL MATTERS
Certain matters relating to this offering of Common Stock have been passed
on for the Company by Sinkler & Boyd, P.A., Columbia, South Carolina, special
counsel to the Company.
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EXPERTS
The consolidated balance sheets of the Company 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 years in the three- year
period ended December 31, 1997, included in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1997, have been audited by Elliott, Davis
& Company, LLP, independent certified public accountants, as indicated in their
report with respect thereto, dated January 9, 1998, and are incorporated by
reference herein in reliance upon the authority of Elliott Davis & Company, LLP,
as experts in accounting and auditing.
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FINANCIAL STATEMENTS OF THE COMPANY
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 & Company, L.L.P.
January 9, 1998
58
<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.
59
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended December 31,
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
INTEREST INCOME
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.
60
<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.
61
<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.
62
<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.
(Continued)
63
<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.
64
<PAGE>
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.
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
----
Unrealized holding
Amortized ----------------------------- 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
=========== =========== =========== ===========
</TABLE>
(Continued)
65
<PAGE>
NOTE 3 - SECURITIES, Continued
<TABLE>
<CAPTION>
1996
----
Unrealized holding
Amortized ----------------------------- Fair
cost Gain Loss value
----------- ----------- ----------- -----------
SECURITIES AVAILABLE FOR SALE:
<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.
66
<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.
NOTE 5 - PREMISES AND EQUIPMENT
The principal categories and estimated useful lives of premises and
equipment are summarized below:
<TABLE>
<CAPTION>
December 31,
Estimated ---------------------------
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.
67
<PAGE>
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 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
==========
68
<PAGE>
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
---- ---- ----
<S> <C> <C> <C>
Current tax provision
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:
<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.
69
<PAGE>
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
represent credit risk: Contract
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.
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.
70
<PAGE>
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 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
------------ ------------- -----------
<S> <C> <C> <C>
Net income
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>
(Continued)
71
<PAGE>
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>
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.
72
<PAGE>
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:
<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 1 Capital (to risk-weighted assets) .............. 8,652 11.34% 3,053 4.0% 4,579 6.0%
Tier 1 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 1 Capital (to risk-weighted assets) .............. 7,561 11.82% 2,556 4.0% 3,834 6.0%
Tier 1 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.
(Continued)
73
<PAGE>
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.
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
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Financial Assets:
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>
74
<PAGE>
NOTE 20 - CONDENSED FINANCIAL INFORMATION
Following is condensed financial information of Peoples Bancorporation,
Inc. (parent company only):
CONDENSED BALANCE SHEETS
December 31,
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
ASSETS
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>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
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>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
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>
(Continued)
75
<PAGE>
NOTE 20 - CONDENSED FINANCIAL INFORMATION, Continued
CONDENSED STATEMENTS OF CASH FLOWS, Continued
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
FINANCING ACTIVITIES
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 $ 644,714 $ 644,714
========= ========= =========
</TABLE>
76
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997 1997
------------ ------------ --------------
Unaudited Audited
--------- --------------
ASSETS
<S> <C> <C> <C>
CASH AND DUE FROM BANKS ............................................. $ 4,549,012 $ 2,759,024 $ 3,908,784
FEDERAL FUNDS SOLD .................................................. 6,550,000 2,490,000 4,570,000
SECURITIES
Available for sale ................................................ 27,071,123 18,883,702 20,320,579
Held for investment (market value of $4,100,687
$3,918,359 and $3,953,648) ...................................... 3,950,169 3,857,861 3,852,356
LOANS - less allowance for loan losses of $981,840
$847,924 and $987,138 ........................................... 74,527,125 73,572,029 75,861,965
PREMISES AND EQUIPMENT, net of accumulated
depreciation and amortization ................................... 3,264,758 1,858,546 2,673,712
ACCRUED INTEREST RECEIVABLE ......................................... 922,949 810,315 878,459
OTHER ASSETS ........................................................ 1,448,866 1,693,064 1,350,449
------------- ------------- -------------
TOTAL ASSETS ........................................................ $ 122,284,002 $ 105,924,541 $ 113,416,304
============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Noninterest-bearing ............................................... $ 14,316,459 $ 10,305,480 $ 11,007,809
Interest-bearing .................................................. 91,188,829 76,120,095 85,182,039
------------- ------------- -------------
Total deposits ................................................. 105,505,288 86,425,575 96,189,848
SECURITIES SOLD UNDER REPURCHASE
AGREEMENTS ........................................................ 3,612,891 3,258,276 4,433,554
NOTES PAYABLE TO FEDERAL HOME LOAN BANK ............................. 2,000,000 6,500,000 2,030,612
ACCRUED INTEREST PAYABLE ............................................ 925,592 670,678 860,877
OTHER LIABILITIES ................................................... 74,305 76,471 391,924
------------- ------------- -------------
Total liabilities .............................................. 112,118,076 96,931,000 103,906,815
------------- ------------- -------------
SHAREHOLDERS' EQUITY
Common Stock-10,000,000 shares authorized, $1.67 par
value per share, 1,695,619 shares and 1,687,250 shares
outstanding at June 30, 1998 and December 31, 1997,
respectively; 5,000,000 shares authorized, $3.33 par value
per share, 803,071 shares outstanding at June 30, 1997 .......... 2,831,684 2,674,226 2,817,708
Additional paid-in capital .......................................... 5,179,939 4,248,008 5,158,024
Retained earnings ................................................... 2,189,989 2,112,290 1,553,206
Unrealized loss on securities available for sale .................... (35,686) (40,983) (19,449)
------------- ------------- -------------
Total shareholders' equity ..................................... 10,165,926 8,993,541 9,509,489
------------- ------------- -------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY ............................ $ 122,284,002 $ 105,924,541 $ 113,416,304
============= ============= =============
</TABLE>
77
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
INTEREST INCOME
<S> <C> <C> <C> <C>
Interest and fees on loans ................................. $1,750,209 $1,725,564 $3,491,639 $3,332,395
Interest on securities
Taxable ............................................... 387,855 299,088 692,232 575,219
Tax-exempt ............................................ 57,454 60,336 118,361 119,815
Interest on fed funds ...................................... 113,534 33,027 198,639 84,920
---------- ---------- ---------- ----------
Total interest income ...................................... 2,309,052 2,118,015 4,500,871 4,112,349
INTEREST EXPENSE
Interest on deposits ....................................... 1,046,269 855,334 2,063,651 1,642,207
Interest on federal funds purchased
and securities sold
under repurchase agreements ........................... 41,490 32,178 78,140 72,919
Interest on notes payable Federal Home
Loan Bank ............................................. 27,587 92,230 56,117 171,175
---------- ---------- ---------- ----------
Total interest expense ..................................... 1,115,346 979,742 2,197,908 1,886,301
---------- ---------- ---------- ----------
Net interest income ........................................ 1,193,706 1,138,273 2,302,963 2,226,048
PROVISION FOR LOAN LOSSES .................................. 4,600 54,700 2,100 101,440
---------- ---------- ---------- ----------
Net interest income after provision for
loan losses ........................................... 1,189,106 1,083,573 2,300,863 2,124,608
NON-INTEREST INCOME
Service fees and other income .............................. 352,023 168,358 669,696 361,533
Gain on sales of securities
available for sale ..................................... 0 2,740 0 2,740
---------- ---------- ---------- ----------
352,023 171,098 669,696 364,273
NON-INTEREST EXPENSE
Salaries and benefits ...................................... 529,298 417,923 1,029,381 833,738
Occupancy .................................................. 50,474 38,842 107,448 80,144
Equipment .................................................. 79,320 60,933 146,018 125,486
Other operating expenses ................................... 288,359 207,316 560,521 401,817
---------- ---------- ---------- ----------
947,451 725,014 1,843,368 1,441,185
Income before income taxes ................................. 593,678 529,657 1,127,191 1,047,696
PROVISION FOR INCOME TAXES ................................. 195,910 174,800 371,970 345,750
---------- ---------- ---------- ----------
Net income ................................................. $ 397,768 $ 354,857 $ 755,221 $ 701,946
========== ========== ========== ==========
INCOME PER COMMON SHARE:
BASIC ................................................. $ 0.24 $ 0.22 $ 0.45 $ 0.44
========== ========== ========== ==========
DILUTED ............................................... $ 0.21 $ 0.21 $ 0.41 $ 0.42
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC ................................................. 1,657,367 1,612,986 1,693,010 1,606,142
========== ========== ========== ==========
DILUTED ............................................... 1,894,133 1,689,795 1,821,867 1,657,954
========== ========== ========== ==========
DIVIDENDS PAID PER COMMON
SHARE ................................................. $ 0.035 $ 0.03 $ 0.07 $ 0.06
========== ========== ========== ==========
</TABLE>
78
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
--------- -------- --------- ----------
<S> <C> <C> <C> <C>
Net income ................................................... $ 397,768 $354,857 $ 755,221 $ 701,946
Other comprehensive income, net of tax:
Unrealized income (loss) on securities:
Unrealized income (loss) arising during period .......... (16,798) 61,060 (16,237) (15,719)
--------- -------- --------- ---------
Other comprehensive income ................................... (16,798) 61,060 (16,237) (15,719)
--------- -------- --------- ---------
Comprehensive income ......................................... $ 380,970 $415,917 $ 738,984 $ 686,227
========= ======== ========= =========
</TABLE>
79
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income ....................................................................... $ 755,221 $ 701,946
Adjustments to reconcile net cash provided
by operating activities:
Loss (gain) on sales of securities ............................................. 0 (2,740)
Provision for loan losses ...................................................... 2,100 101,440
Depreciation ................................................................... 103,782 60,661
Net amortization and (accretion) of premiums and
discounts on securities ........................................................ 85,165 29,321
Increase in accrued interest receivable ........................................ (44,490) (81,384)
(Increase) in other assets ..................................................... (158,625) (1,374,487)
Increase (decrease) in accrued interest payable ................................ 64,715 (4,918)
Increase (decrease) in other liabilities ....................................... (317,618) 91,797
------------ ------------
Net cash provided by operating activities ................................... 490,250 (478,364)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities held for investments ..................................... (102,508) (550,420)
Purchases of securities available for sale ....................................... (16,463,731) (8,745,581)
Proceeds from the maturity of securities available for sale ...................... 6,474,585 1,150,000
Proceeds from the sale of securities available for sale .......................... 0 2,250,547
Proceeds from the call of securities available for sale .......................... 3,200,000 1,900,000
Net (increase) decrease in loans ................................................. 1,334,840 (8,168,084)
Proceeds from the sale of property ............................................... 0 39,000
Purchase of premises and equipment ............................................... (694,827) (58,539)
------------ ------------
Net cash used by investing activities ....................................... (6,251,641) (12,183,077)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits ......................................................... 9,315,440 6,221,192
Net decrease in securities sold under
repurchase agreements .......................................................... (820,662) (668,615)
Net (decrease) increase in notes payable to Federal home Loan Bank ............... (30,612) 102,041
Proceeds from stock options exercised ............................................ 35,891 25,080
Cash dividend .................................................................... (118,438) (96,189)
------------ ------------
Net cash provided by financing activities ................................... 8,381,619 5,583,509
------------ ------------
Net increase (decrease) in cash and cash equivalents ........................ 2,620,228 (7,077,932)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................................... 8,478,784 12,326,956
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ......................................... $ 11,099,012 $ 5,249,024
============ ============
CASH PAID FOR
Interest ......................................................................... $ 1,928,555 $ 1,726,129
============ ============
Income taxes ..................................................................... $ 356,269 $ 255,400
============ ============
</TABLE>
80
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of these policies is included in the 1997 Annual Report to
shareholders.
STATEMENT OF CASH FLOWS
Cash includes currency and coin, cash items in process of collection,
amounts due from banks and federal funds sold.
COMMON STOCK
The board of Directors declared a cash dividend of $0.035 per common share
to shareholders of record June 18, 1998 and March 19, 1998, payable June 30,
1998 and March 31, 1998, respectively.
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 share. The assumed conversion of stock options creates the difference
between basic and diluted net income per 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 1,693,010 at June
30, 1998 and 1,606,142 at June 30, 1997. The weighted average number of common
shares outstanding for diluted net income per common share was 1,821,867 at June
30, 1998 and 1,657,954 at June 30, 1997.
The Company issued a five-percent common stock dividend and a two-for-one
stock split in 1997. Net income per common share in 1997 has been restated to
reflect these transactions.
NONPERFORMING LOANS
As of June 30, 1998, there were eleven nonaccrual loans totalling $496,521
and there were no loans 90 days past due or more as to principal or interest
payments.
MANAGEMENT'S OPINION
In the opinion of management, the accompanying unaudited consolidated
financial statements of Peoples Bancorporation, Inc. contain all adjustments
necessary to fairly present the financial results for the interim periods
presented. The results of operations for any interim period are not necessarily
indicative of the results to be expected for an entire year.
81
<PAGE>
APPENDIX A
SUBSCRIPTION AGREEMENT
<PAGE>
PEOPLES BANCORPORATION, INC.
SUBSCRIPTION AGREEMENT
The undersigned, having received and reviewed the Prospectus (the
"Prospectus") dated August 25, 1998, of Peoples Bancorporation, Inc. (the
"Company"), subject to the terms and conditions of the Prospectus, hereby
subscribes for the number of shares of Common Stock, of Peoples Bancorporation,
Inc. (the "Common Stock"), shown below. The undersigned submits herewith the
purchase price of $13.00 per share to the Company. All payments shall be in
United States dollars in cash or by check, draft or money order drawn to the
order of Peoples Bancorporation, Inc.
Your Properly Completed Subscription Form and Payment Must Be Returned To
one of the Following Addresses:
PEOPLES BANCORPORATION, INC. PEOPLES BANCORPORATION, INC.
1800 East Main Street Post Office Box 1989
Easley, South Carolina 29640 Easley, South Carolina 29641-1989
(864) 859-2265
Acknowledgments and Representations
In connection with this subscription, the undersigned hereby acknowledges
and agrees that:
(1) This subscription may not be cancelled, terminated, or revoked by the
undersigned. Upon acceptance in writing by the Company, the
Subscription will be binding and legally enforceable. This
subscription will only be deemed accepted when acceptance is noted
hereon by the President or Chairman of the Board of the Company. No
other person has authority to accept or reject a subscription on
behalf of the Company.
(2) The Company reserves the right to accept this subscription in whole or
in part. If this subscription is accepted in part, the undersigned
agrees to purchase the accepted number of shares subject to all of the
terms of this offer.
(3) Funds relating to this subscription received by the Company will not
be held in escrow. Upon acceptance of this subscription, subscriber
shall become a shareholder of the Company. If the subscription is
rejected in whole or in part, the subscription funds attributable to
the rejected portion shall be promptly returned to the undersigned. No
interest will be paid on any such returned funds.
(4) The Company reserves the right to cancel this subscription after
acceptance until the date of issue of the Common Stock.
(5) The shares of Common Stock subscribed for hereby are equity securities
and are not savings accounts or deposits, and INVESTMENT THEREIN IS
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE Company.
(6) This subscription is nonassignable and nontransferable, except with
the written consent of the Company.
(7) Certificates will be delivered by first class mail to the address set
forth herein.
(8) The undersigned has received a copy of the Prospectus, and represents
that this Subscription Agreement is made solely on the basis of the
information contained in the Prospectus and is not made in reliance on
any inducement, representation or statement not contained in the
Prospectus. No person (including any Officer or Director of the
Company or organizer of Bank of Anderson, N.A.) has authority to give
any information or to make any representation not contained in the
Prospectus, and if given or made, such information or representation
must not be relied upon as having been authorized.
<PAGE>
Subscription
I wish to subscribe for the following shares of Common Stock:
Number of shares I want to buy is
______________ Shares x $13.00 = $_________________.
My payment of that amount is enclosed.
*If this amount is more or less than the correct amount for the number of shares
shown or as to which the subscription is accepted, I want to buy as many shares
as this amount will buy at $13.00 per share.
(Please Type or Print)
- --------------------------------------------------------------------------------
(Name(s) in which stock certificates should be registered**)
- --------------------------------------------------------------------------------
(Street Address)
- --------------------------------------------------------------------------------
(City/State/Zip Code)
- --------------------------------------------------------------------------------
(Social Security or Employer I.D. No.)
( ) ( )
- --------------------------------------------------------------------------------
(Home Telephone No.) (Business Telephone No.)
**Stock certificates for shares to be issued in the names of two or more persons
will be registered in the names of such persons as joint tenants with right of
survivorship, and not as tenants in common.
SUBSTITUTE W-9
Under the penalties of perjury, I certify that: (1) the Social Security number
or taxpayer identification number given above is correct; and (2) I am not
subject to backup withholding. INSTRUCTION: YOU MUST CROSS OUT #2 ABOVE IF YOU
HAVE BEEN NOTIFIED BY THE INTERNAL REVENUE SERVICE THAT YOU ARE SUBJECT TO
BACKUP WITHHOLDING BECAUSE OF UNDERREPORTING INTEREST OR DIVIDENDS ON YOUR TAX
RETURN.
I HAVE READ AND UNDERSTAND THE PROSPECTUS AND THIS SUBSCRIPTION AGREEMENT.
- --------------------------------------------------------------------------------
(Signature) (Date)
- --------------------------------------------------------------------------------
(Signature) (Date)
If shares are to be held in joint ownership, all joint owners should sign
this Agreement.
SUBSCRIPTION ACCEPTED AS TO _________ SHARES.
PEOPLES BANCORPORATION, INC.
BY:--------------------------------------------
ITS:-------------------------------------------
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
SEC registration fee and blue sky filing fees.......................... $ 3,000
Accounting fees........................................................ 2,000
Legal fees and expenses................................................ 16,000
Mailing and Printing Costs............................................. 8,000
Miscellaneous.......................................................... 1,000
-------
TOTAL......................................................... $30,000
Item 14. Indemnification of Directors and Officers.
Under South Carolina law, Section 33-8-510, Code of Laws of South
Carolina 1976, as amended, a corporation has the power to indemnify directors
and officers who meet the standards of good faith and reasonable belief that
conduct was lawful and in the corporate interest (or not opposed thereto) set
forth in such statute. Such statute also empowers a corporation to provide
insurance for directors and officers against liability arising out of their
positions even though the insurance coverage is broader than the power of the
corporation to indemnify. Under Section 33-8-520, unless limited by its articles
of incorporation, a corporation must indemnify a director or officer who is
wholly successful, on the merits or otherwise, in the defense of any proceeding
to which he was a party because he is or was a director against reasonable
expenses incurred by him in connection with the proceeding. The registrant's
Articles of Incorporation do not provide otherwise.
Item 15. Recent Sales of Unregistered Securities.
During the past three years, the registrant has issued securities to
its employees upon exercise of options on the dates and for the prices set forth
in the table below. Issuance of such shares was exempt from the registration
requirements of the Securities Act of 1933 pursuant to Section 4(2) thereof.
Per Share
Number of Exercise
Date Shares Price
1/31/96 100 $10.95
5/10/96 5,470 8.79
5/10/96 394 10.95
7/3/96 1,050 10.95
11/21/96 141 10.43
4/23/97 1,000 8.36
4/23/97 2,000 8.36
7/3/97 600 10.43
1/23/98 1,760 3.98
3/27/98 3,000 3.98
3/27/98 1,000 3.98
6/3/98 1,909 4.97
6/29/98 700 4.97
Item 16. Exhibits and Financial Statement Schedules.
See Exhibit Index.
<PAGE>
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(5) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Easley,
State of South Carolina, on August 20, 1998.
PEOPLES BANCORPORATION, INC.
s/Robert E. Dye, Sr.
By:--------------------------------------------
Robert E. Dye, Sr.
Its President and Chief Executive Officer
s/R. Riggie Ridgeway
By:--------------------------------------------
R. Riggie Ridgeway
Its Secretary and Treasurer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-1 has been signed by the following persons in
the capacities indicated on the dates indicated.
Signature Title Date
- --------- ----- ----
s/Garnet A. Barnes
- ------------------------- Director August 20, 1998
(Garnet A. Barnes)
s/William A. Carr
- ------------------------- Director August 20, 1998
(William A. Carr)
s/Charles E. Dalton
- ------------------------- Director August 20, 1998
(Charles E. Dalton)
s/Robert E. Dye, Sr.
- ------------------------- President, Chief Executive August 20, 1998
Robert E. Dye, Sr.) Officer and Director
s/Robert E. Dye, Jr.
- ------------------------- Director August 20, 1998
(Robert E. Dye, Jr.)
- ------------------------- Director
(W. Rutledge Galloway)
- ------------------------- Director
(E. Smyth McKissick, III)
s/Eugene W. Merritt, Jr.
- ------------------------- Director August 20, 1998
(Eugene W. Merritt, Jr.)
s/George B. Nalley, Jr.
- ------------------------- Director August 20, 1998
(George B. Nalley, Jr.)
s/R. Riggie Ridgeway
- ------------------------- Secretary, Treasurer August 20, 1998
(R. Riggie Ridgeway) and Director
- ------------------------- Director
(Nell W. Smith)
- ------------------------- Director
(A. J. Thompson, Jr., M.D.)
s/Robert E. Dye, Sr.
By:----------------------
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No.
(per Exhibit
Tables in
Item 601 of
Regulation S-K Description of Exhibit Page No.
-------------- ---------------------- --------
<S> <C> <C>
3.1 Articles of Incorporation of Registrant, as amended (incorporated by
reference to the Registrant's Registration Statement on Form 8-A)
3.2 Bylaws of Registrant (incorporated by reference to the Registrant's
Registration Statement on Form 8-A)
4 Form of stock certificate of Peoples Bancorporation, Inc.
(incorporated by reference to the Registrant's Form S-4, Commission
File No. 33-46649, filed March 25, 1992)
5* Opinion of Sinkler & Boyd, P.A. as to legality of securities being
registered
10.1 Lease Agreement, dated December 10, 1987 between Rut Galloway, Bobby
Sexton, Alva Goodwin and The Peoples National Bank, relating to
branch facility in Powdersville, S.C. (incorporated by reference to
exhibits filed with Registrant's Form S-4, Commission File No.
33-46649)
10.2 Peoples Bancorporation 1993 Incentive Stock Option Plan (incorporated
by reference to exhibits filed with Registrant's Form SB-1,
Commission File No. 33-78602, effective July 25, 1994)
10.3 Noncompetition, Severance and Employment Agreement, dated August 7,
1995, between Peoples Bancorporation and Robert E. Dye (incorporated
by reference to exhibits filed with Registrant's Form 10-KSB for the
year ended December 31, 1995.)
10.4 Noncompetition, Severance and Employment Agreement, dated August 7,
1995, between Peoples Bancorporation and R. Riggie Ridgeway
(incorporated by reference to exhibits filed with Registrant's Form
10-KSB for the year ended December 31, 1995.)
10.5 Peoples Bancorporation, Inc. 1997 Non-Employee Director Stock Option
Plan (incorporated by reference to exhibits filed with Registrant's
Form 10-KSB for the year ended December 31, 1997)
21* Subsidiaries of the Registrant
23.1 Consent of Elliott, Davis & Company, L.L.P., Certified Public
Accountants
23.2 Consent of Sinkler & Boyd, P.A. (included in Exhibit 5 above)
24* Power of Attorney
* previously filed
</TABLE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Peoples Bancorporation, Inc.
We consent to the reference to our firm under the caption "Experts" and to the
use in Amendment No. 1 to the Registration Statement on Form S-1 of Peoples
Bancorporation, Inc., relating to the registration of up to 425,000 shares of
its common stock, of our report dated January 9, 1998, which is included in
Peoples Bancorporation, Inc.'s Annual Report on Form 10-KSB for the year ended
December 31, 1997.
Elliott, Davis & Company, L.L.P.
Greenville, South Carolina
August 21, 1998
