United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 25049
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1998 Commission File No. 000-20616
Peoples Bancorporation, Inc.
(Exact name or Registrant as specified in its charter)
South Carolina 57-0951843
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1800 East Main Street, Easley, South Carolina 29640
(Address of Principal Executive Offices, Including Zip Code)
Registrant's Telephone Number, Including Area Code: (864) 859-2265
Securities Registered Pursuant to Section 12 (b) of the Securities
Exchange Act of 1934:
None
Securities Registered Pursuant to Section 12 (g) of the Securities
Exchange Act of 1934:
Common Stock, $1.67 Par Value
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The issuer's revenues for its fiscal year were $1,261,000.
The aggregate market value of the voting and non-voting common equity held by
nonaffiliates of the Registrant (2,840,001 shares) on March 9, 1999 was
approximately $42,600,000. As of such date, no organized trading market existed
for the common stock of the Registrant. For the purpose of this response,
officers, directors and holders of 5% or more of the Registrant's common stock
are considered affiliates of the Registrant at that date.
The number of shares outstanding of the Registrant's common stock, as of March
9, 1999: 2,840,001 shares of $1.67 par value common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 1999 Annual Meeting of
Shareholders - Part III
Transitional Small Business Disclosure Format. Yes [ ] No [X]
<PAGE>
PART I
ITEM 1. BUSINESS
Forward Looking Statements
From time to time, Peoples Bancorporation, Inc. (the "Company") may
publish forward-looking statements relating to such matters as anticipated
financial performance, business prospects, technological developments, new
products and similar matters. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements. In order to comply
with terms of the safe harbor, the Company notes that a variety of factors could
cause the Company's actual results and experience to differ materially from the
anticipated results or other expectations expressed in the Company's
forward-looking statements. The risks and uncertainties that may affect the
operations, performances, development and results of the Company's business
include, but are not limited to, the following: risks from changes in economic
and industry conditions; changes in interest rates; risks inherent in making
loans including repayment risks and value of collateral; dependence on senior
management; failure of the Company and those it deals with to completely remedy
the year 2000 problem; and recently-enacted or proposed legislation. Statements
contained in this filing regarding the demand for Peoples Bancorporation's
products and services, changing economic conditions, interest rates, consumer
spending and numerous other factors may be forward-looking statements and are
subject to uncertainties and risks.
The Company
Peoples Bancorporation, Inc. 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, Easley, South
Carolina. The Company commenced operations on July 1, 1992 upon effectiveness of
the acquisition of The Peoples National Bank. The company has three wholly-owned
subsidiaries: The Peoples National Bank, Easley, South Carolina, a national bank
which commenced business operations in August 1986; Bank of Anderson, National
Association, Anderson, South Carolina, a national bank which commenced business
operations in September 1998; and, Seneca National Bank, Seneca, South Carolina,
a national bank which commenced business operations in February 1999 (sometimes
referred to herein as "the Banks").
The Company engages in no significant operations other than the
ownership of its three subsidiaries and the support thereof. The Company
conducts its business from five banking offices located in the Upstate Area of
South Carolina.
The principal offices of the Company are located at 1814 East Main
Street, Easley, South Carolina 29640. The Company's telephone number is (864)
859-2265. The principal office of The Peoples National Bank is located at 1800
East Main Street, Easley, South Carolina 29640. The principal office of Bank of
Anderson, National Association is located at 201 East Greenville Street,
Anderson, South Carolina 29621 and the principal office of Seneca National Bank
is located at 201 Bypass 123, Seneca, South Carolina 29678.
General Business
Some of the major services which the Company provides through its
banking subsidiaries include checking accounts, NOW accounts, savings and other
time deposits of various types, daily repurchase agreements, alternative
investment products such as annuities, mutual funds, stocks and bonds, loans for
business, agriculture, real estate, personal uses, home improvement and
automobiles, credit cards, letters of credit, home equity lines of credit, an
accounts receivable financing program, safe deposit boxes, bank money orders,
wire transfer services and use of ATM facilities. The Banks do not have trust
powers. The Company has no material concentration of deposits from any single
customer or group of customers. No significant portion of its loans is
concentrated within a single industry or group of related industries and the
Company does not have any foreign loans. There are no material seasonal factors
that would have an adverse effect on the Company.
As a bank holding company, the Company is a legal entity separate and
distinct from its subsidiaries. The Company coordinates the financial resources
of the consolidated enterprises and maintains financial, operational and
administrative systems that allow centralized evaluation of subsidiary
operations and coordination of selected policies and activities. The Company's
operating revenues and net income are derived primarily from its subsidiaries
through dividends and fees for services performed.
2
<PAGE>
Territory Served and Competition
The Peoples National Bank serves its customers from three locations;
one office each in the cities of Easley and Pickens, South Carolina located in
Pickens County and one office in the community of Powdersville, South Carolina
located in the northeast section of Anderson County, South Carolina. Easley,
South Carolina is located approximately 10 miles west of Greenville, South
Carolina. Pickens, South Carolina is located approximately 8 miles north of
Easley and Powdersville, South Carolina is located approximately 12 miles
southeast of Easley.
Bank of Anderson, National Association, serves its customers from one
location in the City of Anderson, South Carolina. Anderson is located
approximately 25 miles southwest of Greenville, South Carolina and approximately
25 miles south of Easley.
Seneca National Bank serves is customers from one location in the City
of Seneca, South Carolina. Seneca is located approximately 30 miles northwest of
Easley, South Carolina in Oconee County, South Carolina.
Each subsidiary bank of the Company is an independent bank, and,
therefore, each bank is responsible for developing and maintaining its own
customers and accounts. Located in Easley, South Carolina, The Peoples National
Bank `s customer base has been primarily derived from Pickens County, South
Carolina and the northwest section of Anderson County, South Carolina. Bank of
Anderson's primary service area is Anderson County, South Carolina, more
particularly, the City of Anderson. Seneca National Bank, which commenced
operations on February 5, 1999, expects to derive most of its customer base from
the City of Seneca and surrounding Oconee County, South Carolina. The Banks
compete with several major banks, which dominate the commercial banking industry
in their service areas and in South Carolina generally. In addition, the Banks
compete with savings institutions and credit unions. In Pickens County, there
are seven (7) competitor bank branches, two (2) savings institution branches and
two (2) credit union branches. In Anderson County there are thirteen (13)
competitor bank branches, two (2) savings institution branches and two (2)
credit union branches. In Oconee County, there are seven (7) competitor bank
branches, two (2) savings institution branch and two (2) credit union branches.
The Peoples National Bank has approximately 10% of the deposits in Pickens
County. Both Bank of Anderson and Seneca National Bank have less than 1% of the
deposits in their respective counties. Many competitor institutions have
substantially greater resources and higher lending limits than the Banks and
they perform certain functions for their customers, including trust services and
investment banking services, which none of the Banks is equipped to offer
directly. However, the Banks do offer some of these services through
correspondent banks. In addition to commercial banks, savings institutions and
credit unions, the Banks compete for deposits and loans with other financial
intermediaries and investment alternatives, including, but not limited to
mortgage companies, captive finance companies, money market mutual funds,
brokerage firms, governmental and corporation bonds and other securities.
Several of these non-bank competitors are not subject to the same regulatory
restrictions as the Company and its subsidiaries and many have substantially
greater resources than the Company.
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 deregulate the financial services industry cannot be fully
assessed or predicted.
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, 1998 and 1997. This
presentation includes all major categories of interest-earning assets and
interest-bearing liabilities:
3
<PAGE>
<TABLE>
<CAPTION>
AVERAGE CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
For the years ended December 31,
--------------------------------
1998 1997
---- ----
<S> <C> <C>
Assets
- ------
Cash and Due from Banks......................................................... $ 4,870 $ 3,271
Taxable Securities ............................................................. 25,093 18,023
Tax-Exempt Securities .......................................................... 4,358 4,819
Federal Funds Sold ............................................................. 11,126 4,513
Gross Loans .................................................................... 79,181 73,955
Less: Loan Loss Reserve ....................................................... 1,027 856
-------- --------
New Loans ...................................................................... 78,154 73,099
-------- --------
Other Assets ................................................................... 6,055 4,034
-------- --------
Total Assets ................................................................... $129,656 $107,759
======== ========
Liabilities and Shareholders' Equity
- ------------------------------------
Noninterest-bearing Deposits ................................................... $ 13,884 $ 10,791
Interest-bearing Deposits:
Interest Checking .......................................................... 14,214 12,544
Savings Deposits ........................................................... 4,336 4,034
Money Market ............................................................... 18,353 9,770
Certificates of Deposit .................................................... 49,577 44,734
Individual Retirement Accounts ............................................. 6,944 5,434
-------- --------
Total Interest-bearing Deposits ................................................ 93,424 76,516
-------- --------
Short-term Borrowings .......................................................... 4,638 4,696
Long-term Borrowings ........................................................... 2,002 5,753
Other Liabilities .............................................................. 1,101 908
-------- --------
Total Liabilities .......................................................... 115,049 98,664
-------- --------
Common Stock ................................................................... 3,426 2,695
Surplus ........................................................................ 9,076 4,399
Undivided Profits .............................................................. 2,105 2,001
-------- --------
Total Shareholders' Equity ................................................. $ 14,607 $ 9,095
-------- --------
Total Liabilities and Shareholders Equity ...................................... $129,656 $107,759
======== ========
</TABLE>
The following is a presentation of an analysis of the net interest
earnings of the Company for the years ended December 31, 1998 and 1997 with
respect to each major category of interest-earning assets and each major
category of interest-bearing liabilities:
4
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998
----------------------------
(dollars in thousands)
Average Interest Average Net
Assets Amount Earned/Paid Yield/Rate Yield
- ------ ------ ----------- ---------- -----
<S> <C> <C> <C> <C>
Securities - Taxable ..................................... $ 25,093 $ 1,430 5.70%
Tax-Exempt .................................. 4,358 229 7.96%
Federal Funds Sold ....................................... 11,126 678 6.09%
Gross Loans .............................................. 79,181 7,506 9.48%
-------- -------
Total Earning Assets ................................. $119,758 $ 9,843 8.32% 4.55%
======== =======
Liabilities
- -----------
Interest checking ........................................ $ 14,214 $ 277 1.95%
Savings Deposits ......................................... 4,336 89 2.05%
Money Market ............................................. 18,353 770 4.20%
Certificates of Deposit .................................. 49,577 2,701 5.45%
Individual Retirement Accounts ........................... 6,944 381 5.49%
-------- -------
93,424 4,218 4.51%
Short-term Borrowings .................................... 4,638 186 4.01%
Long-term Borrowings ..................................... 2,002 113 5.64%
-------- -------
Total Interest-bearing Liabilities ................... $100,064 $ 4,517 4.51%
======== =======
</TABLE>
* Calculated on a fully taxable equivalent basis using a federal tax rate of
34%.
For purposes of these analyses, non-accruing loans are included in the
average balances. Loan fees included in interest earned are not material to the
presentation. Net yield on interest earning assets is calculated by dividing net
interest earnings by total interest earning assets.
5
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1997
----------------------------
(dollars in thousands)
Average Interest Average Net
Assets Amount Earned/Paid Yield/Rate Yield
- ------ ------ ----------- ---------- -----
<S> <C> <C> <C> <C>
Securities - Taxable ..................................... $ 18,023 $ 1,122 6.23%
Tax-Exempt .................................. 4,819 245 7.70%
Federal Funds Sold ....................................... 4,512 245 5.43%
Net Loans ................................................ 73,955 6,639 9.08%
-------- -------
Total Earning Assets ................................. $101,309 $ 8,251 8.27% 4.27%
======== =======
Liabilities
- -----------
Interest checking ........................................ $ 12,545 $ 311 2.48%
Savings Deposits ......................................... 4,034 92 2.30%
Money Market ............................................. 9,770 393 4.02%
Certificates of Deposit .................................. 44,733 2,459 5.50%
Individual Retirement Accounts ........................... 5,434 307 5.66%
-------- -------
76,516 3,562 4.66%
Short-term Borrowings .................................... 4,696 146 3.10%
Long-term Borrowings ..................................... 5,754 345 6.00%
-------- -------
Total Interest-bearing Liabilities ................... $ 86,966 $ 4,053 4.66%
======== =======
</TABLE>
* Calculated on a fully taxable equivalent basis using a federal tax rate of
34%.
For purposes of these analyses, non-accruing loans are included in the
average balances. Loan fees included in interest earned are not material to the
presentation. Net yield on interest earning assets is calculated by dividing net
interest earnings by total interest earning assets.
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.
6
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
1998 compared to 1997
(dollars in thousands)
Increase (Decrease) Due to
--------------------------
Volume Rate Change
------ ---- ------
Interest earned on:
- -------------------
Securities
<S> <C> <C> <C>
Taxable .................................................... $ 409 $(102) $ 307
Tax-Exempt ................................................. (24) 8 (16)
Federal Funds Sold .............................................. 407 26 433
Net Loans ....................................................... 617 251 868
------- ----- -------
Total Interest Income ........................................... 1,409 183 1,592
------- ----- -------
Interest paid on:
- -----------------
Interest Checking .......................................... 38 (71) (33)
Savings Deposits ........................................... 6 (10) (4)
Money Market ............................................... 361 16 377
Certificates of Deposit .................................... 264 (22) 242
Individual Retirement Accounts ............................. 83 (10) 73
------- ----- -------
752 (97) 655
Short-term Borrowing ............................................ (2) 42 40
Long-term Borrowing ............................................. (210) (22) (232)
------- ----- -------
Total Interest Expense .......................................... 540 (77) 463
------- ----- -------
Change in Net Interest Income ................................... $ 869 $ 260 $ 1,129
======= ===== =======
</TABLE>
As reflected in the table above, most of the increase in 1998 net
interest income of $1,129,000 was due to the change in volume. Substantially all
the $1,592,000 increase in interest income was related to the volume growth in
the loan portfolios with the balance equally distributed between the investment
portfolio and federal funds sold. During 1998, the Company sold $12,025,000 in
common stock that immediately contributed to the increase in federal funds sold
and investments. In reviewing the Company's deposits, substantially all the
$463,000 increase in interest expense was due to the increases in Money Market
accounts and Certificates of Deposits. Bank of Anderson, N. A. opened in early
September 1998 with a special Certificate of Deposit and Money Market campaign,
which contributed to the increase in their volume.
7
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
1997 compared to 1996
(dollars in thousands)
Increase (Decrease) Due to
--------------------------
Volume Rate Change
------ ---- ------
Interest earned on:
- -------------------
Securities
<S> <C> <C> <C>
Taxable .................................................... $ 243 $ (24) $ 219
Tax-Exempt ................................................. 33 0 33
Federal Funds Sold .............................................. 30 4 34
Net Loans ....................................................... 1,202 (144) 1,058
------- ----- -------
Total Interest Income ........................................... 1,508 (164) 1,344
------- ----- -------
Interest paid on:
- -----------------
Interest Checking .......................................... 94 21 115
Savings Deposits ........................................... (5) (19) (24)
Money Market ............................................... 122 24 146
Certificates of Deposit .................................... 373 2 375
Individual Retirement Accounts ............................. 14 (13) 1
------- ----- -------
598 15 613
Short-term Borrowing ............................................ (4) 0 (4)
Long-term Borrowing ............................................. 310 3 313
------- ----- -------
Total Interest Expense .......................................... 904 18 922
------- ----- -------
Change in Net Interest Income ................................... $ 604 $(182) $ 422
======= ===== =======
</TABLE>
As reflected in the table above, the increase in 1997 net interest
income of $422,000 was primarily due to the changes in volume. On the interest
income side, substantially all the $1,344,000 increase was related to the volume
growth in the loan and investment portfolios. At the end of 1996, The Peoples
National Bank won a bid for municipal funds in excess of $3 million, which was
invested in securities. The increase in loan volume was the result of The
Peoples National Bank's equity line product introduced during the third quarter
of 1996 and the increase in its real estate loans. On the deposit side,
substantially all the $922,000 increase in interest expense was due to the large
volume change in certificates of deposit, long-term borrowings and money market
accounts during 1997. During the second quarter of 1997, The Peoples National
Bank increased the rate it paid on its money market accounts to position itself
more in line with market rates. This strategy generated money market funds in
excess of $7 million.
LOAN PORTFOLIO
The Company engages, through the Banks, in a full complement of lending
activities, including commercial, consumer, installment and real estate loans.
Commercial lending is directed principally towards businesses whose
demands for funds fall within each Bank's legal lending limits and which are
potential deposit customers of the Banks. 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 Company's commercial loans are spread
throughout a variety of industries, with no industry or group of related
industries accounting for a significant portion of the commercial loan
portfolio. Commercial loans are made on either a secured or unsecured basis.
8
<PAGE>
When taken, security consists of liens on inventories, receivables, equipment,
and furniture and fixtures. Unsecured commercial loans are generally short-term
with emphasis on repayment strengths and low debt to worth ratios. At December
31, 1998, approximately $3,844,000 or 12% of commercial loans were unsecured.
The Company's real estate loans are primarily construction loans and
loans secured by real estate, both commercial and residential, located within
the Company's trade areas. The Company does not actively pursue long-term, fixed
rate mortgage loans for retention in its loan portfolio. The Banks each have a
mortgage loan originator who originates and packages loans that are pre-sold at
origination to third parties.
The Banks' direct consumer loans consist primarily of secured
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, 1998 and 1997.
Loan Portfolio Composition
(dollars in thousands)
December 31,
Type of Loan 1998 1997
- ------------ ---- ----
Commercial and Industrial ...................... $13,812 $11,031
Real Estate .................................... 62,099 55,291
Consumer Loans ................................. 12,106 10,527
------- -------
Subtotal ................................... 88,017 76,849
Less allowance for loan losses ............. 1,093 987
------- -------
Net Loans ...................................... $86,924 $75,862
======= =======
The following is a presentation of an analysis of maturities of loans
as of December 31, 1998:
<TABLE>
<CAPTION>
Loan Maturity and Interest Sensitivity
(dollars in thousands)
Due After 1
Due in 1 Year up to Due after
Type of Loans Year or less 5 years 5 years Total
- ------------- ------------ ------- ------- -----
<S> <C> <C> <C> <C>
Commercial and Industrial .......................... $ 4,966 $ 4,859 $ 3,987 $13,812
Real Estate ........................................ 12,405 37,784 11,910 62,099
Consumer Loans ..................................... 4,353 4,259 3,494 12,106
------- ------- ------- -------
Total .......................................... $21,724 $46,902 $19,391 $88,017
</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, 1998, the amount of loans due after one year with
predetermined interest rates totaled approximately $47,555,000 while the amount
of loans due after one year with floating interest rates totaled approximately
$18,738,000.
Accrual of interest is discontinued on a loan when management of the
Company determines, after consideration of economic and business factors
affecting collection efforts, that collection of interest is doubtful. At
December 31, 1998, the Company had $617,000 in non-accruing loans; one $8,000
restructured loan and no loans greater than ninety days past due on which
interest was still being accrued. This compares with $757,000 in non-accruing
loans, one $10,000 restructured loan and $142,000 in loans greater than ninety
days past due on which interest was still being accrued at December 31, 1997.
9
<PAGE>
Non-performing assets as a percentage of loans and other real estate owned were
0.74% and 1.17% at December 31, 1998 and 1997, respectively. The allowance for
loan losses as a percentage of non-performing loans was 177% and 130% as of
December 31, 1998 and 1997, 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 $59,000 for the year ended December 31,
1998 and $65,000 for the year ended December 31, 1997.
As of December 31, 1998, 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 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, 1998 and 1997, the recorded investment in loans for which
impairment was recognized was $0 and $195,000, respectively. The impairment
allowance is included in the allowance for loan losses.
PROVISION AND ALLOWANCE FOR LOAN LOSSES, LOAN LOSS EXPERIENCE
The purpose of the Company's allowance for loan losses is to absorb
loan losses that occur in the loan portfolios of its bank subsidiaries.
Management determines the adequacy of the allowance quarterly and considers a
variety of factors in establishing a level of the allowance for losses and the
related provision, which is charged to expense. Factors considered in
determining the adequacy of the reserve for loan losses include: historical loan
losses experienced by the Company, current economic conditions affecting a
borrower's ability to repay, the volume of outstanding loans, the trends in
delinquent, non-accruing and potential problem loans, and the quality of
collateral securing non-performing and problem loans. By considering the above
factors, management attempts to determine the amount of reserves necessary to
provide for potential losses in the loan portfolios of its subsidiaries,
however, the amount of reserves may change in response to changes in the
financial condition of larger borrowers, changes in the Company's local
economies and expected industry trends.
The allowance for loan losses represents management's estimate of an
amount adequate in relation to the risk of future losses inherent in the loan
portfolios of its bank subsidiaries. While it is the Company's policy to
charge-off in the current period loans in which a loss is considered probable,
there are additional risks of future losses that cannot be quantified precisely
or attributed to particular loans or classes of loans. Because these risks
include the state of the economy, industry trends and conditions affecting
individual borrowers, management's judgement of the allowance is necessarily
approximate and imprecise. The Company and its bank subsidiaries are also
subject to regulatory examinations and determinations as to adequacy, which may
take into account such factors as the methodology used to calculate the
allowance for loan losses and the size of the allowance for loan losses in
comparison to a group of peer companies identified by the regulatory agencies.
In assessing the adequacy of the allowance, management relies
predominantly on its ongoing review of the loan portfolio, which is undertaken
both to ascertain whether there are probable losses that must be charged-off and
to assess the risk characteristics of the portfolio in the aggregate. The
Company utilizes the services of an outside consultant to perform quality
reviews of its loan portfolio. The review considers the judgements of management
and also those of bank regulatory agencies that review the loan portfolio as
part of their regular examination process. The Comptroller of the Currency, as
10
<PAGE>
part of its routine examination process of various national banks, including the
Banks, may require additions to the allowance for loan losses based upon the
regulators' credit evaluations differing from those of management. The Company's
management believes they have in place the controls and personnel to adequately
monitor its loan portfolios.
On December 31, 1998, the allowance for loan losses was $1,093,000, or
$106,000, (11%), higher than one year earlier. The ratio of the allowance for
loan losses to net loans outstanding was 1.24% at December 31, 1998 compared to
1.29% at December 31, 1997. During 1998, the Company experienced net charge-offs
of $88,000, or 0.11% of average loans, compared to net charge-offs of $98,000 or
0.13% of average loans, in 1997. Installment loan net charge-offs were $5,000 in
1998 versus $71,000 in 1997. Commercial loan net charge-offs were $27,000 in
1998 compared to net charge-offs of $20,000 in 1997. There were no credit card
charge-offs in 1998. Mortgage loan net charge-offs were $56,000 in 1998 compared
to net charge-offs of $6,000 in 1997.
The Company made provisions for loan losses of $194,000 and $324,000
for the years ended December 31, 1998 and 1997, respectively.
In fiscal 1998 and 1997, The Peoples National Bank made provisions for
loan losses of $101,000 and $324,000, respectively. In fiscal 1998 and 1997, The
Peoples National Bank recorded net charge-offs of $88,000 and $98,000,
respectively. In fiscal 1998, Bank of Anderson, National Association made
provisions for loan losses of $93,000 as it began to establish its allowance for
loan losses.
Management continues to closely monitor the levels of non-performing
and potential problem loans and will address the weaknesses in these credits to
enhance the amount of ultimate collection or recovery on these assets. Should
increases in the overall level of non-performing and potential problem loans
accelerate from the current trend, management will adjust the methodology for
determining the allowance for loan losses and will increase the provision and
allowance for loan losses. This would likely decrease net income.
The following table sets forth the allocation by category at December
31, 1998 and 1997.
<TABLE>
<CAPTION>
Composition of Allowance for Loan Losses
(dollars in thousands)
1998 1997
---- ----
Percent of Percent of
Loans in each Loans in each
Category to Category to
Amount Total loans Amount Total loans
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Commercial and industrial .......................... $ 172 15.69% $142 14.35%
Real Estate ........................................ 771 70.55% 710 71.95%
Consumer ........................................... 150 13.75% 135 13.70%
------ ----
Total .......................................... $1,093 100.00% $987 100.00%
====== ====
</TABLE>
The following table summarizes loan balances of the Company at the end
of each period and averages for each period, changes in the allowance arising
from charge-offs and recoveries by category and additions to the allowance which
have been charged to expense.
11
<PAGE>
Summary of Loan Loss Experience
(dollars in thousands)
Years Ended December 31,
1998 1997
---- ----
Balance at beginning of year $ 987 $ 761
Charge-offs:
Commercial and industrial ................. 30 32
Real estate ............................... 56 8
Consumer .................................. 53 86
------ -----
139 126
Recoveries:
Commercial and industrial ................. 3 11
Real estate ............................... 0 2
Consumer .................................. 48 15
------ ----
51 28
------ ----
Net Charge-offs ................................ 88 98
Provision for loan losses ...................... 194 324
------ ----
Balance at end of year ......................... $1,093 $987
====== ====
Asset Quality Ratios:
- ---------------------
Years Ended December 31,
1998 1997
---- ----
Net charge-offs to average loans
outstanding during the year ............................ 0.11% 0.13%
Net charge-offs to total loans
outstanding at end of year ............................. 0.10% 0.13%
Allowance for loan losses to average loans .............. 1.38% 1.33%
Allowance for loan losses to total loans ................ 1.24% 1.29%
Net charge-offs to allowance for loan losses ............ 8.07% 9.93%
Net charge-offs to provision for loan losses ............ 45.40% 30.21%
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 determines it is more likely than not such loans have
become uncollectable. Recoveries of previously charged-off loans are credited to
the allowance.
Management considers the allowance for loan losses adequate to cover
inherent losses on the loans outstanding at December 31, 1998. In the opinion of
management, there are no material risks or significant loan concentrations in
the present portfolio. It must be emphasized, however, that the determination of
the allowance for loan losses using the Company's procedures and methods rests
upon various judgments and assumptions about future economic conditions and
other factors affecting loans. No assurance can be given that the Company will
not in any particular period sustain loan losses which are sizable in relation
to the amount reserved or that subsequent evaluation of the loan portfolio, in
light of conditions and factors then prevailing, will not require significant
changes in the allowance for loan losses or future charges to earnings. The
allowance for loan losses is also subject to review and approval by various
regulatory agencies through their periodic examinations of the Company's
subsidiaries. Such examinations could result in required changes to the
allowance for loan losses.
INVESTMENTS
The Company 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
Banks enter into Federal Funds transactions with their principal correspondent
banks and usually act as net sellers of such funds. The sale of Federal Funds
amounts to a short-term loan from one bank to another bank.
12
<PAGE>
The following table summarizes the book and market values of investment
securities held by the Company at December 31, 1998 and 1997.
<TABLE>
<CAPTION>
Securities Composition
(dollars in thousands)
1998 1997
---- ----
Amortized Market Amortized Market
Cost Value Cost Value
---- ----- ---- -----
AVAILABLE FOR SALE:
<S> <C> <C> <C> <C>
Obligations of U.S. Treasury and
other U.S. Government agencies ....................... $31,087 $31,014 $18,606 $18,560
State and Political Subdivisions ....................... 125 126 1,048 1,055
Other Securities ....................................... 831 831 696 705
------- ------- ------- -------
Total Available for Sale ............................... $32,043 $31,971 $20,350 $20,320
------- ------- ------- -------
HELD TO MATURITY
State and Political Subdivisions ....................... $ 4,128 $ 4,264 $ 3,852 $ 3,954
------- ------- ------- -------
Total Held to Maturity ................................. $ 4,128 $ 4,264 $ 3,852 $ 3,954
------- ------- ------- -------
Total ......................................... $36,171 $36,235 $24,202 $24,274
======= ======= ======= =======
</TABLE>
The Company accounts for investments in accordance with Statement of
Financial Accounting Standard (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 to Maturity 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 to hold the securities to
maturity. The Company has no trading securities.
At December 31, 1998, the Company's total investment portfolio
classified as held for sale had a book value of $32,043,000 and a market value
of $31,971,000 for an unrealized net loss of $72,000.
The following table indicates the respective maturities and weighted
average yields of securities as of December 31, 1998:
<TABLE>
<CAPTION>
Securities Maturity Schedule
(dollars in thousands)
Amortized Weighted
Cost Average Yield
---- -------------
AVAILABLE FOR SALE
Obligations of U.S. Treasury and other Government
agencies:
<S> <C> <C>
0-1 Year ..................................................................... $ 2,805 5.65%
1-5 Years .................................................................... 14,477 5.83%
Greater than 10 Years ........................................................ 5,465 5.97%
8,340 6.22%
State and political subdivisions:
0-1 Year ..................................................................... 125 8.60%*
No stated maturity .................................................................... 831 6.22%
-------
$32,043 5.77%
=======
HELD FOR INVESTMENT
State and political subdivisions:
1-5 Years .................................................................... $ 2,410 8.34%
5-10 Years ................................................................... 1,718 7.28%
-------
Total ................................................................ $ 4,128 7.70%
=======
</TABLE>
* Computed on a fully taxable-equivalent basis using a federal tax rate of 34%.
13
<PAGE>
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 areas obtained through the personal solicitation of
the Company's officers and directors, direct mail solicitations and
advertisements published in the local medias. The Company pays competitive
interest rates on interest checking, savings, money market, time and individual
retirement accounts. In addition, the Banks have implemented a service charge
fee schedule competitive with other financial institutions in the Bank's market
areas, 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 1998 were $107,308,000, compared to
$87,307,000 the prior year, an increase of $20,001,000 or 23%. Average
noninterest-bearing deposits increased approximately $3,093,000 in 1998, average
interest checking accounts increased $1,670,000 million or 13%, average money
market accounts increased $8,583,000 million or 88% and average certificates of
deposit increased $4,844,000 million or 11%. Internal growth at The Peoples
National Bank, particularly from account promotions, the Company's marketing
commitments in 1998, the opening of Bank of Anderson, National Association in
September 1998 and the acquisition of The Peoples National Bank's main local
competitor by a large in-state financial institution, generated the new
deposits. Competition for deposit accounts is primarily based on the interest
rates paid, location convenience and services offered.
The following table presents, for the years ended December 31, 1998 and
1997, the average amount of and average rate paid on each of the following
deposit categories:
<TABLE>
<CAPTION>
Deposit Category Average Amount Average Rate Paid
- ---------------- -------------- -----------------
(dollars in thousands)
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Noninterest-bearing Deposits ............................... $13,884 $10,791
Interest-bearing Deposits
Interest Checking ...................................... 14,214 12,544 1.95% 2.48%
Savings Deposits ....................................... 4,336 4,034 2.05% 2.30%
Money Market ........................................... 18,353 9,770 4.20% 4.02%
Certificates of Deposit ................................ 49,577 44,734 5.45% 5.50%
Individual Retirement Accounts ......................... 6,944 5,434 5.49% 5.66%
</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 83% in 1998. 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,
1998:
14
<PAGE>
Time Certificates
of Deposit
(dollars in thousands)
----------------------
3 months or less .................. $ 9,884
4-6 months ........................ 14,127
7-12 months ....................... 2,156
Over 12 months .................... 0
------------------
Total .................... $ 26,167
==================
RETURN ON EQUITY AND ASSETS
Returns on average consolidated assets and average consolidated equity
for the years ended December 31, 1998 and 1997 are as follows:
December 31,
1998 1997
---- ----
Return on average assets ................ 0.96% 1.21%
Return on average equity ................ 8.71% 14.34%
Average equity to average assets ratio .. 11.27% 8.44%
Dividend payout ratio ................... 24.09% 16.06%
SHORT-TERM BORROWINGS
The following table summarizes the Company's short-term borrowings for
the years ended December 31, 1998 and 1997. These borrowings consist of federal
funds purchased and securities sold under agreements to repurchase, which
generally mature on a one business day basis.
1998 1997
---- ----
Balance at year end ............................ $5,979,994 $4,433,554
Rate at year end ............................... 2.90% 3.10%
Maximum amount outstanding at any month end .... $5,979,994 $4,955,332
Average amount outstanding during the year ..... $4,575,489 $4,686,696
Average rate paid during the year .............. 3.30% 3.10%
INTEREST RATE SENSITIVITY AND ASSET LIABILITY MANAGEMENT
An important aspect of achieving satisfactory levels of net income is
the management of the composition and maturities of rate sensitive assets and
liabilities in order to optimize net interest income as interest rates earned on
assets and paid on liabilities fluctuate from time to time.
The interest sensitivity gap is the difference between total interest
sensitive assets and liabilities in a given time period. The objective of
interest sensitivity management is to maintain reasonably stable growth in net
interest income despite changes in market interest rates by maintaining the
proper mix of interest sensitive assets and liabilities. Management seeks to
maintain a general equilibrium between interest sensitive assets and liabilities
in order to insulate net interest income from significant adverse changes in
market rates.
15
<PAGE>
The following table sets forth the Company's interest sensitivity
position as of December 31, 1998.
Interest Sensitivity Analysis
(dollars in thousands)
<TABLE>
<CAPTION>
Within 3 4-12 Over 5
Months months 1-5 years Years Total
------ ------ --------- ----- -----
INTEREST-EARNING ASSETS:
<S> <C> <C> <C> <C> <C>
Federal Funds Sold ................... $ 17,980 $ 0 $ 0 $ 0 $ 17,980
Investment Securities ................ 13,258 13,004 6,202 3,707 36,171
Loans ................................ 32,696 7,007 40,724 7,590 88,017
---------- ---------- ---------- ---------- ----------
Total Interest-Earning Assets ........... $ 63,934 $ 20,011 $ 46,926 $ 11,297 $ 142,168
---------- ---------- ---------- ---------- ----------
INTEREST-BEARING LIABILITIES:
Interest Checking ................... 17,295 0 0 0 17,295
Savings Deposits .................... 5,126 0 0 0 5,126
Money Market ........................ 23,015 0 0 0 23,015
Time Deposits ....................... 15,219 33,687 10,456 311 59,673
Other Borrowings .................... 0 2,000 0 0 2,000
---------- ---------- ---------- ---------- ----------
Total Interest-Bearing Liabilities ...... $ 60,655 $ 35,687 $ 10,456 $ 311 $ 107,109
---------- ---------- ---------- ---------- ----------
Interest sensitive gap .................. $ 3,279 $ (15,676) $ 36,470 $ 10,986
Cumulative interest sensitive gap ....... $ 3,279 $ (12,397) $ 24,073 $ 35,059
RSA/RSL ................................. 105% 24%
Cumulative RSA/RSL ...................... 105% 64%
</TABLE>
RSA - rate sensitive assets; RSL - rate sensitive liabilities
At December 31, 1998, approximately 59% of the Company's
interest-earning assets repriced or matured within one year compared to
approximately 90% of interest -bearing liabilities.
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.
Each of the Company's banking subsidiaries has established an
Asset/Liability Management Committee. These committees use a variety of tools to
analyze interest rate sensitivity, including a static gap presentation and a
simulation model. A "static gap" presentation reflects the difference between
total interest-sensitive assets and liabilities within certain time periods.
While the static gap is a widely used measure of interest sensitivity, it is
not, in management's opinion, a true indicator of a company's sensitivity
position. It presents a static view of the timing of maturities and repricing
opportunities, without taking into consideration that changes in interest rates
do not affect all assets and liabilities equally. For example, rates paid on a
substantial portion of savings and core time deposits may contractually change
within a relatively short time frame, but those rates are significantly less
interest-sensitive than market based rates such as those paid on non-core
deposits. Accordingly, a liability sensitive gap position is not as indicative
of a company's true interest sensitivity as would be the case for an
organization which depends to a greater extent on purchased funds to support
earning assets. Net interest income would also be impacted by other significant
incremental borrowing cost and the volume and mix of earning asset growth.
Accordingly, the Company's banking subsidiaries use an asset/liability
simulation model that quantifies balance sheet and earnings variations under
different interest rate environments to measure and manage interest rate risk.
16
<PAGE>
It is the responsibility of the Committees 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.
Management is not aware of any known events or uncertainties that will
have or are reasonably likely to have a material effect on the Company's
liquidity, capital resources or results of operations. 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.
LIQUIDITY
Liquidity management involves meeting the cash flow requirements of the
Company. The Company's liquidity position is primarily dependent upon its need
to respond to short-term demand for funds caused by withdrawals from deposit
accounts and upon the liquidity of its assets. The Company's primary liquidity
sources include cash and due from banks, federal funds sold and "securities
available for sale". In addition, the Company (through the Banks) has the
ability, on a short-term basis, to borrow funds from the Federal Reserve System
and to purchase federal funds from other financial institutions. The Peoples
National Bank is also a member of the Federal Home Loan Bank System and has the
ability to borrow both short and long term funds on a secured basis. At December
31, 1998, The Peoples National Bank had $2,000,000 in long-term borrowings from
the Federal Home Loan Bank of Atlanta. At December 31, 1998, The Peoples
National Bank had unused borrowing capacity from the Federal Home Loan Bank of
Atlanta of $14,000,000. The Company's other two bank subsidiaries, Bank of
Anderson and Seneca National Bank have applied to become members of the Federal
Home Loan Bank System. At December 31, 1998, The Peoples National Bank and Bank
of Anderson had unused federal funds lines of credit totalling $2,500,000 with
correspondent banks.
Peoples Bancorporation, Inc., the parent holding company, has limited
liquidity needs. Peoples Bancorporation requires liquidity to pay limited
operating expenses and dividends.
Company management believes its liquidity sources are adequate to meet
its operating needs and does not know of any trends that may result in the
Company's liquidity materially increasing or decreasing.
CAPITAL ADEQUACY AND RESOURCES
The capital needs of the Company have been met through the retention of
earnings and from the proceeds of prior public stock offerings.
For bank holding companies with total assets of more than $150 million,
such as the Company, capital adequacy is generally evaluated based upon the
capital of its banking subsidiaries. Generally, the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") expects bank holding
companies to operate above minimum capital levels. The Office of the Comptroller
of the Currency ("Comptroller") regulations establish the minimum leverage
capital ratio requirement for national banks at 3% in the case of a national
bank that has the highest regulatory examination rating and is not contemplating
significant growth or expansion. All other national banks are expected to
maintain a ratio of at least 1% to 2% above the stated minimum. Furthermore, the
Comptroller reserves the right to require higher capital ratios in individual
banks on a case by case basis when, in its judgement, additional capital is
warranted by a deterioration of financial condition or when high levels of risk
otherwise exist. Neither The Peoples National Bank nor Bank of Anderson have
been notified that they must maintain capital levels above regulatory minimums.
The Company's newest bank subsidiary, Seneca National Bank, commenced banking
operations on February 5, 1999. It also has not been notified that it must
maintain capital levels above regulatory minimums. The Company's leverage
capital ratio was 14.87% at December 31, 1998 compared to 8.16% at December 31,
1997. The leverage capital ratios for The Peoples National Bank and Bank of
Anderson were 7.60% and 25.05%, respectively at December 31, 1998. The Peoples
National Bank's leverage capital ratio at December 31, 1997 was 7.51%. The
increase in the Company's leverage capital in 1998 resulted from the sale of
additional common stock during 1998.
The Federal Reserve Board has adopted a risk -based capital rule which
requires bank holding companies to have qualifying capital to risk-weighted
assets of at least 8%, with at least 4% being "Tier 1" capital. Tier 1 capital
17
<PAGE>
consists principally of common stockholders' equity, non-cumulative preferred
stock, qualifying perpetual preferred stock, and minority interests in equity
accounts of consolidated subsidiaries, less goodwill and certain intangible
assets. "Tier 2" (or supplementary) capital consists of general loan loss
reserves (subject to certain limitations), certain types of preferred stock and
subordinated debt, and certain hybrid capital instruments and other debt
securities such as equity commitment notes. A bank holding company's qualifying
capital base for purposes of its risk-based capital ratio consists of the sum of
its Tier 1 and Tier 2 capital components, provided that the maximum amount of
Tier 2 capital that may be treated as qualifying capital is limited to 100% of
Tier 1 capital. The Comptroller imposes a similar standard on national banks.
The regulatory agencies expect national banks and bank holding companies to
operate above minimum risk-based capital levels. The Company's risk-based
capital ratio was 23.97% and its Tier 1 capital to risk weighted assets ratio
was 22.86% at December 31, 1998, compared to 13.35% and 12.10%, respectively, at
December 31, 1997. The Peoples National Bank's risk-based capital ratio was
13.16% and its Tier 1 capital to risk weighted assets ratio was 11.96% at
December 31, 1998, compared to 12.59% and 11.34%, respectively, at December 31,
1997. Bank of Anderson's risk-based capital ratio was 43.40% and its Tier 1
capital to risk weighted assets ratio was 42.48% at December 31, 1998. The
increases in the Company's risk-based capital ratio and its Tier 1 capital to
risk weighted assets ratio in 1998 resulted from the sale of additional common
stock in 1998, which was initially invested primarily in low risk assets.
During 1998 the Company successfully completed the sale of 925,000
shares of its common stock through two public stock offerings. From these two
stock offerings the company raised $12,025,000 in additional capital. $4,500,000
of this additional capital was used to initially capitalize Bank of Anderson,
National Association in September of 1998 and $3,500,000 was used to initially
capitalize Seneca National Bank in February 1999. In January 1999, the Company
injected $1,000,000 in additional capital in The Peoples National Bank and
$1,000,000 in additional capital in Bank of Anderson, N. A. to provide for
future growth of these two subsidiaries. The remaining funds from the two stock
offerings are being held at the parent company level for future operating needs.
PAYMENT of DIVIDENDS
If a national bank's surplus fund equals the amount of its capital
stock, the directors may declare quarterly, semi-annual or annual dividends out
of the bank's net profits, after deduction of losses and bad debts. If the
surplus fund does not equal the amount of capital stock, a dividend may not be
paid until one-tenth of the bank's net profits of the preceding half year, in
the case of quarterly or semi-annual dividends, or the preceding two years, in
the case of an annual dividend, are transferred to the surplus fund.
The approval of the Comptroller is required if the total of all
dividends declared by a national bank in any calendar year will exceed the total
of its retained net profits of that year combined with its retained net profits
for the preceding two years, less any required transfers to surplus or a fund
for the retirement of any preferred stock. The Comptroller's regulations provide
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 payment of dividends by 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 Comptroller, 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 bank, could
include the payment of dividends), the Comptroller may require, after notice and
hearing, that such bank cease and desist from such practice. The Comptroller 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 Comptroller and the FDIC have issued policy statements that provide
that bank holding companies and insured banks should generally only pay
dividends out of current operating earnings.
In 1998, The Peoples National Bank paid dividends of $299,598 to the
Company. Bank of Anderson paid no dividends in 1998.
18
<PAGE>
MONETARY POLICIES AND EFFECT OF INFLATION
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.
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principals which require the measurement of
financial position and results of operations in terms of historical dollars,
without consideration of changes in the relative purchasing power over time due
to inflation. Unlike most other industries, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant effect on a financial
institution's performance that does the effect of inflation. Interest rates do
not necessarily change in the same magnitude as the prices of goods and
services.
While the effect of inflation on banks is normally not as significant
as is its influence on those businesses that have large investments in plant and
inventories, it does have an effect. During periods of high inflation, there are
normally corresponding increases in the money supply, and banks will normally
experience above average growth in assets, loans and deposits. Also, general
increases in the prices of goods and services will result in increased operating
expenses.
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 Banks are 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 Banks sell loan participations to correspondent banks with respect
to loans that exceed the Banks' lending limits. Management of the Banks have
established correspondent relationships with Wachovia Bank, Charlotte, North
Carolina, The Bankers Bank, Atlanta, Georgia and First Tennessee Bank, N. A.,
Memphis, Tennessee. As compensation for services provided by a correspondent,
the Banks maintain certain balances with such correspondents 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 Banks. Such services include an
automated general ledger, deposit accounting, loan accounting and data
processing.
YEAR 2000
The Company recognizes that there is a business risk in computerized
systems as the new century approaches. Many computer-based information systems
in use today exclude the century as part of the date definition, which could
cause inaccurate interest calculations or possibly even cause the program or
computer system on which it runs to cease functioning altogether. This problem
can arise in any system containing a computer chip, such as a telephone system.
This problem is commonly called the "Year 2000 Problem." Computer systems used
by the Company in its day-to-day operations could be affected by this problem.
19
<PAGE>
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. At its April 1998 board meeting, the Company's
Board of Directors approved a year 2000 project plan and members of the Y2K
Team. 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.
Testing of all software applications began during the 2nd quarter of
1998, and the testing phase of the core operating system began in the 3rd
quarter of 1998. The testing phase of the core operating system and software
applications was completed during the 4th quarter of 1998. All third-party
providers of non-information technology systems which include elevators, alarm
systems and utilities have been contacted. While responses have been received
from many of the larger vendors, the Company is still waiting for responses from
some of the smaller companies. Alternative vendors/programs have been identified
for all critical function areas, as classified by the Y2K Team, and will be
purchased and installed in the event the primary vendor can not provide
satisfactory Y2K compliance by July 31, 1999. In the event the Company learns on
January 1, 2000, that some of its systems are not year 2000 compliant, the
Company has an agreement with an outside provider to use its off-site facilities
for core banking systems.
The estimated cost to the Company for these corrective actions is
$111,250 for 1998 and 1999. All estimated costs associated with correcting the
year 2000 problem are included in the Company's budget. 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. Factors which could
contribute to the Company's experiencing an adverse effect include the
availability of skilled personnel and compliant software, the performance of
vendors, the ability of others with which the Company does business and the
Company's customers to resolve their Year 2000 problems and the ability to
identify non-compliant software and the applications or functions affected.
Year 2000 surveys have been sent to all commercial loan customers with
relationships greater than $25,000 to assist in assessing their year 2000
compliance. In addition, an analysis is being performed on the entire loan
portfolio based on Standard Industry Codes to determine if the Company has any
concentrations of loans in industries which are considered to be of greater risk
based on their year 2000 exposure. In the 2nd quarter of 1999, the Company is
hosting customer seminars to educate customers in the Company's three major
markets.
SUPERVISION AND REGULATION
The Company and the Banks operate in a highly regulated environment,
and their business activities are governed by statute, regulation and
administrative policies. 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. The business activities of the Company and Banks are closely supervised
by a number of federal regulatory agencies, including the Federal Reserve Board,
the Comptroller of the Currency (the "Comptroller") and the Federal Deposit
Insurance Corporation (the "FDIC"). The Company is regulated by the Federal
Reserve Board under the Federal Bank Holding Company Act of 1956, as amended,
which requires every bank holding company to obtain the prior approval of the
Federal Reserve Board before acquiring more than 5% of the voting shares of any
bank or all or substantially all of the assets of a bank, and before merging or
consolidating with another bank holding company. The Federal Reserve Board
(pursuant to regulation and published policy statements) has maintained that a
bank holding company must serve as a source of financial strength to its
subsidiary banks. In adhering to the Federal Reserve Board policy the Company
may be required to provide financial support to a subsidiary bank at a time
when, absent such Federal Reserve Board policy, the Company may not deem it
advisable to provide such assistance.
The Riegel-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 Riegel-Neal, the former restrictions on interstate
acquisition of banks by bank holding companies have been repealed, such that the
Company and any other adequately capitalized bank holding company located in
South Carolina can 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 percentages and other
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restrictions. The legislation also provides that, unless an individual state
elects beforehand either (i) to accelerate the effective dates or (ii) to
prohibit out-of-state banks from operating interstate branches within its
territory, on or after June 1, 1997, adequately capitalized and managed bank
holding companies will be able to consolidate their multi-state bank operations
into a single bank subsidiary and to branch interstate through acquisitions. De
novo branching by an out-of-state bank is permitted only if the laws of the host
state expressly permit it. The authority of a bank to establish and operate
branches within a state 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.
A bank holding company is generally prohibited from acquiring control
of any company that is not a bank and from engaging in any business other than
the business of banking or managing and controlling banks. However, there are
certain activities which have been identified by the Federal Reserve Board to be
so closely related to banking as to be a proper incident thereto thus
permissible for bank holding companies, including the following activities:
acting as an investment or financial advisor to subsidiaries and certain outside
companies; leasing personal and real property or acting as a broker with respect
thereto; providing management consulting advice to nonaffiliated banks and
non-bank depository institutions; operating collection agencies and credit
bureaus; acting as a futures commission merchant; providing data processing and
data transmission services; acting as an insurance agent or underwriter with
respect to limited types of insurance; performing real estate appraisals;
arranging commercial real estate equity financing; providing securities
brokerage services; and underwriting and dealing in obligation of the United
States, the states and their political subdivisions.
As a bank holding company registered under the South Carolina Bank
Holding Company Act, the Company also is subject to regulation by the South
Carolina State Board of Financial Institutions (the "State Board").
Consequently, the Company must receive the approval of the State Board prior to
engaging in the acquisition of banking or non-banking institutions or assets.
The Company must also file with the State Board periodic reports with respect to
its financial condition and operation, management and inter-company relations
between the Company and its subsidiaries.
As national banks, the Banks are subject to supervision by the
Comptroller and, to a limited extent, the FDIC and the Federal Reserve Board.
With respect to expansion, the Banks may establish branch offices anywhere
within the State of South Carolina. In addition, the Banks are 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 Banks' loan operations are 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 Banks are 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 Banks are 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 are evaluated as part of the
examination process, and also are considered in evaluating mergers, acquisitions
and applications to open a branch or facility.
Loans and extensions of credit by national banks are subject to legal
lending limitations, under federal law, a national bank may grant unsecured
loans and extensions of credit in an amount up to 15% of its unimpaired capital
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and surplus to any person. In addition, a national bank may grant loans and
extension of credit to a single person up to 10% of its unimpaired capital
surplus, provided that the transactions are fully secured by readily marketable
collateral having a market value determined by reliable and continuously
available price quotations. This 10% limitation is separate from, and in
addition to, the 15% limitation for unsecured loans. Loans and extensions of
credit may exceed the general lending limits if they qualify under one of
several exceptions. Such exceptions include certain loans or extensions of
credit arising from the discount of commercial or business paper, the purchase
of banker's acceptances, loans secured by documents of title, loans secured by
U. S. obligations and loans to or guaranteed by the federal government.
Both the Company and the Banks are subject to regulatory capital
requirements imposed by the Federal Reserve Board and the Comptroller (see
"CAPITAL ADEQUACY and RESOURCES").
Failure to meet capital guidelines could subject the Banks to a variety
of enforcement remedies, including the termination of deposit insurance by the
FDIC.
Bank regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations beyond their current levels.
However, management of the Company is unable to predict whether and when higher
capital requirements would be imposed and, if so, at what levels and on what
schedule.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"1991 Banking Law") required each federal banking agency, including the Federal
Reserve Board, to revise its risk-based capital standards to ensure that those
standards take adequate account of interest rate risk, concentration of credit
risk and the risks of non-traditional activities, as well as reflect the actual
performance and expected risk of loss on multi-family mortgages. The Federal
Reserve Board, the FDIC and the Comptroller have issued a joint rule amending
the capital standards to specify that the banking agencies will include in their
evaluations of a bank's capital adequacy an assessment of the exposure to
declines in the economic value of the bank's capital due to changes in interest
rates. The agencies have also issued statements that describe the process the
banking agencies will use to measure and assess the exposure of a bank's net
economic value to changes in interest rates.
The Federal Reserve Board, the FDIC, the Comptroller and the Office of
Thrift Supervision have also issued a joint rule amending the risk-based capital
guidelines to take account of concentration of credit risk and the risk of
non-traditional activities. The rule amends each agency's risk-based capital
standards by explicitly identifying concentration of credit risk and the risk
arising from other sources, as well as an institution's overall capital
adequacy. The Company is still assessing the impact these rules and proposed
policy statement would have on the capital requirements of the Company and the
Banks.
As FDIC-insured institutions, the Banks are subject to insurance
assessments imposed by the FDIC.
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 the 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).
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
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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.
As national banks, the Banks are subject to examinations and reviews by
the Comptroller. The examinations are typically completed on-site and are
subject to off-site review as well. The Banks also submit to the FDIC quarterly
reports of condition, as well as such additional reports as may be required by
the national banking laws.
The FDIC equalized the assessment rates for BIF-insured and
SAIF-insured deposits effective January 1, 1997. Thus, for the semi-annual
period beginning January 1, 1997, the assessment imposed on all FDIC deposits
for deposit insurance have an effective rate ranging from 0 to 27 basis points
per $100 of insured deposits, depending on the institution's capital position
and other supervisory factors. however, because legislation enacted in 1996
requires that both SAIF-insured and BIF-insured deposits pay a pro rata portion
of the interest due on the obligations issued by the Financing Corporation
("FICO"), the FDIC is currently assessing BIF-insured deposits an additional
1.26 basis points per $100 of deposits, and SAIF-insured deposits an additional
6.30 basis points per $100 of deposits, to cover those obligations. 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.
In 1986, South Carolina adopted legislation which permitted banks and
bank holding companies in certain southern states to acquire banks in South
Carolina to the extend that such other states had reciprocal legislation which
was applicable to South Carolina banks and bank holding companies. The
legislation resulted in a number of South Carolina banks being acquired by large
out-of-state bank holding companies. Size gives the larger banks certain
advantages in competing for business from larger corporations. These advantages
include higher lending limits and the ability to offer services in other areas
of South Carolina and the region. As a result, the Company does not generally
attempt to compete for the banking relationships of large corporations, but
concentrates its efforts on small to medium-sized businesses and on individuals.
The Company believes it has competed effectively in this market segment by
offering quality, personal service.
In July 1994, South Carolina enacted legislation which effectively
provides that, after June 30, 1996, out-of-state bank holding companies
(including bank holding companies in the Southern Region, as defined under the
statute) may acquire other banks or bank holding companies having offices in
South Carolina upon the approval of the South Carolina State Board of Financial
Institutions and assuming compliance with certain other conditions, including
that the effect of the transaction not lessen competition and that the laws of
the state in which the out-of-state banking holding company filing the
application has its principal place of business permit South Carolina bank
holding companies to acquire banks and bank holding companies in that state.
Although such legislation may increase takeover activity in South Carolina the
Company does not believe that such legislation had a material impact on its
competitive position in 1998.
As a bank holding company, the Company is required to file with the
Federal Reserve Board an annual report of its operations at the end of each
fiscal year and such additional information as the Federal Reserve Board may
require pursuant to the Act. The Federal Reserve Board may also make examination
of the Company and any subsidiaries.
The scope of regulation and permissible activities of the Company and
the Banks are subject to change by future federal and state legislation.
EMPLOYEES
The Company and the Banks presently employ seventy-one (71) full-time
and nine (9) part-time persons. Management believes that its employee relations
are good.
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ITEM 2. PROPERTIES
The Company's corporate office is located at 1814 East Main Street in
Easley, South Carolina. The property consists of a two-story brick building
containing approximately 6,600 square feet on .566 acres of land owned by the
Company. This building houses the Company's centralized operational support
functions, including data processing, central operations, accounting and
financial reporting, human resources, audit and compliance and purchasing.
The Company also owns 1.07 acres in Easley, South Carolina
approximately 4 miles southwest of the corporate office. The Company purchased
the property as a site for a branch office of The Peoples National Bank. The
Company expects to transfer ownership of this piece of property to The Peoples
National Bank in 1999. A decision to begin construction on a branch facility on
this piece of property for The Peoples National Bank has not yet been made.
The main office of The Peoples National Bank 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 Peoples National 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 owns and operates a branch office in
Powdersville, South Carolina approximately seven miles east of the Bank's main
office containing approximately 2,100 square feet in a one story brick building
situated on .81 acres of land. The Peoples National Bank also owns and 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 6,700 square feet on .925 acres of land. Both branch facilities
have improvements including drive through teller installations, drive-through
automated teller machines, a vault, a night depository and safe deposit
facilities.
Bank of Anderson, National Association operates out of a temporary
facility containing approximately 1,400 square feet situated on 1.935 acres of
land owned by Bank of Anderson in Anderson, South Carolina. The temporary
facility is owned by the Company and leased to Bank of Anderson for $1,500 per
month. A permanent building to house the operations of Bank of Anderson is being
constructed adjacent to the temporary facility and is expected to be completed
in the early part of the second quarter of 1999 at an estimated total cost of
$800,000.
Seneca National Bank, which commenced banking operations on February 5,
1999, operates out of a two story brick building containing approximately 6,700
square feet situated on 1.097 acres of land in Seneca, South Carolina.
All locations of the Company and the Banks are considered suitable and
adequate for their intended purposes. Management believes that insurance
coverage on the foregoing properties is adequate.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or
the Banks are a party or of which any of their properties are subject; nor are
there material proceedings known to the Company to be contemplated by any
governmental authority; nor are there material proceedings known to the Company,
pending or contemplated, in which any director, officer or affiliate or any
principal security holder of the Company, or any associate of any of the
foregoing, is a party or has an interest adverse to the Company or the Banks.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter ended December 31,
1998 to a vote of security holders of the Company.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
During the period covered by this report and to date, there has been no
established trading market for the Company's stock.
The following table summarizes the range of high and low prices for the
Company's Common Stock of which management has knowledge for each quarterly
period over the last two years (prices have been adjusted to reflect the 2 for 1
stock split effective December 31, 1997 and the 5% stock dividend effective
December 7, 1998):
Sales Price of the Company's Common Stock
Quarter Ended Low High
March 31, 1997 $ 8.58 $ 8.58
June 30, 1997 $ 8.58 $ 8.58
September 30, 1997 $ 9.53 $ 10.24
December 31, 1997 $ 12.38 $ 12.38
March 31, 1998 $ 12.38 $ 12.38
June 30, 1998 $ 12.38 $ 12.38
September 30, 1998 $ 12.38 $ 12.38
December 31, 1998 $ 12.38 $ 15.00
As of March 1, 1998, the number of holders of record for the company's
common stock was 1,112.
During 1998 the Company paid four quarterly cash dividends. Cash
dividends of $0.035 per common share were declared by the Company's Board of
Directors on each of March 9, 1998, June 8, 1998, September 14, 1998 and
December 14, 1998. In addition, on each of July 13, 1992, July 12, 1993,
November 14, 1994, November 13, 1995, October 15, 1996, October 14, 1997 and
November 9, 1998 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 Banks. Future dividends will depend on the Company's
earnings, capital requirements, financial condition and other factors considered
relevant by the Board of Directors of the Company.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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.
FINANCIAL CONDITION
Earning Assets
1998 Average earning assets of $119.8 million were 19.3% above the
$100.4 million average in 1997. Average total net loans of $78.2 million in 1998
and $73.1 million in 1997 represented 65.3% and 72.8% of average earning assets
for the respective years. The average total loan growth of $5.1 million during
1998 is largely attributable to loans generated by Bank of Anderson, which
commenced operations in September 1998. At December 31, 1998, commercial loans
comprised 15.7% of total outstanding loan balances versus 14.4% of the prior
year balances. Real estate related loans, which include construction and land
development, commercial owner-occupied, commercial income producing and
mortgages, represented 70.6% of outstanding balances versus 72.0% at December
31, 1997. Consumer and installment loans represented 13.7% of the loan portfolio
at December 31, 1998 and 1997.
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Average securities constituted $29.5 million (24.6%) of the Company's
average earning assets in 1998 and $22.7 million (22.7%) in 1997. Proceeds from
calls and maturities of investment securities in 1998 were $26.2 million.
Proceeds from the sales, calls and maturities of investments in 1997 were $13.9
million with net gains of $3 thousand realized on sales. As of December 31,
1998, $13.9 million or 38.5% 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 $4.0 million or 21.7% of the investment
portfolio at December 31, 1997.
At December 31, 1998 total investments classified as held for sale had
a book value of $32,043,000 and a market value of $31,971,000 for an unrealized
loss of $72,000. At December 31, 1997, total held for sale investments had a
book value of $20,350,000 and a market value of $20,321,000 for an unrealized
loss of $29,000.
The Company uses its investment portfolio to provide liquidity for
unexpected deposit liquidation or loan generation, to meet the Company's
interest sensitivity goals and to generate income. The Company emphasizes the
safety in its selection of investment securities. Accordingly, the investment
portfolio is limited to securities of the United States government or its
agencies, mortgage-backed securities and investment grade state and municipal
securities. The Company does not invest in corporate bonds and to date, the
Company does not own any derivative products.
Average federal funds sold were $11.1 million in 1998 or 9.3% of
average earning assets, compared to $4.5 million in 1997 or 4.5% of average
earning assets.
Liabilities
During 1998 interest-bearing liabilities averaged $100.1 million
compared to $87.0 million for 1997, an increase of 15.1 %. The average interest
rates paid were 4.51% and 4.66%, respectively. At December 31, 1998,
interest-bearing deposits comprised approximately 87.1% of total deposits and
93.4% of interest-bearing liabilities.
During 1998, the Company decreased its Federal Home Loan Bank ("FHLB")
advances to $2,000,000 at December 31, 1998 from $2,031,000 at December 31,
1997. While FHLB advances remain a source of funding, the Bank has increased its
emphasis on retail banking and raised deposits through market promotion and
sales efforts, thereby decreasing FHLB advances. The Company believes that
potential benefits of cross-selling these customers other products and services
would offset any increase in the cost of funds.
The Company's primary source of funds for loans and investments is its
deposits. Deposits grew 24.8% to $120.1 million at December 31, 1998, from $96.2
million at December 31, 1997. The opening of Bank of Anderson in September 1998
generated $13.7 million, or 57.3%, of the increase with account promotions and
renewed sales efforts during the year at The Peoples National Bank generating
the remaining increase in total deposits. During 1998 total interest-bearing
deposits averaged $93.4 million with a rate of 4.51%, compared with $76.5
million with a rate of 4.66% in 1997. During 1998, deposit pricing eased in the
Company's market areas, resulting in downward pressure on deposit interest
rates. The Company does not believe that it has any brokered deposits.
Average noninterest-bearing deposits were $13.9 million in 1998 versus
$10.8 million in 1997, reflecting growth of 28.7%. Average noninterest-bearing
deposits represented 12.94% of total average deposits in 1998 compared to 12.36%
in 1997. The Company continues to heavily promote its interest-bearing package
account.
EARNINGS PERFORMANCE
1998 Compared to 1997
The Company reported net income of $1,261,000 in 1998 a $43,000, or
3.4%, decrease from $1,304,000 reported for fiscal 1997. Basic and diluted net
income per common share was $0.57 and $0.54, respectively for 1998 compared to
$0.74 and $0.69, respectively, for 1997. The decrease in net income and the
corresponding decrease in earnings per common share is attributable to
pre-opening and early operating losses associated with Bank of Anderson, N.A.
which commenced operations in September 1998, pre-opening expenses associated
with the formation of Seneca National Bank, which commenced operations in
February 1999 and the addition of several key management positions at the parent
company level. The disproportionate decrease in earnings per common share is due
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to issuance of a large number of shares of new common stock in the third quarter
of 1998.
Net interest income before the provision for loan losses, which is the
difference between the interest earned on interest-earning assets and the
interest paid on interest-bearing liabilities, is the largest contributor to the
Company's earnings. Net interest income before provision for loan losses
increased $744,000, or 16.3%, in 1998 to $5,327,000 compared to $4,583,000 in
fiscal 1997. Net interest income after the provision for loan losses increased
$875,000 or 20.5%, in 1998, to $5,133,000 compared to $4,258,000 in 1997. The
increase in net interest income before provision for loan losses is primarily
attributable to an increase in the volume of earning assets coupled with a
decrease in the rates paid on interest-bearing liabilities in 1998 compared to
1997. This represents a 4.55% net interest margin in 1998 compared to a 4.27%
net interest margin in 1997. The increase in net interest income after provision
for loan losses is attributable to an increase in the volume of earning assets,
a decrease in the rates paid on interest-bearing liabilities coupled with a
decrease in the provision for loan losses in 1998 when compared to 1997.
Non-interest income, including securities transactions, increased
$467,000, or 61.8%, to $1,224,000 in 1998 compared to $757,000 in 1997. A
$327,000 increase in origination fees on mortgage loans, an increase of $74,000
in fees generated from the sale of alternative investment products and an
increase of $44,000 in service charge income on deposit accounts were the main
contributors to the overall increase in non-interest income in 1998. In 1997 the
Company recorded gains on the sale of other real estate and investment
securities of $35,000 and $3,000, respectively. There were no such gains
recorded on these two items in 1998.
Total non-interest expense increased $1,403,000, or 45.7%, to
$4,475,000 in 1998 compared to $3,072,000 in 1997. Salaries and benefits, the
largest component of total non-interest expense, increased $770,000, or 44.4%,
in 1998 compared to 1997. This large increase is primarily attributable to the
addition of several key employees at the parent company level, the staffing of
Bank of Anderson, N. A., partial staffing for Seneca National Bank and normal
salary increases at Peoples National Bank and the parent company level. The
Company also experienced large percentage increases in most other categories of
non-interest expense items in 1998 resulting from the Company's continuing
growth, the opening of Bank of Anderson, N. A. in September and organizational
expenses associated with Seneca National Bank. Most notable were a $86,000, or
31.5%, increase in furniture and equipment expenses, a $46,000, or 39.7%,
increase in marketing and advertising expense, a $44,000, or 65.7%, increase in
bank paid loan costs, a $28,000, or 45.3%, increase in legal and professional
fees, a $46,000, or 109.1%, increase in telephone expense, a $55,000, or 118.1%,
increase in printing and supplies expense and $43,000 in Y2K computer related
expenses.
The allowance for loan losses is established to provide for expected
losses in the Company's loan portfolios. The allowance for loan losses for the
consolidated company at December 31, 1998 was $1,093,000, or 1.24% of
outstanding loans, compared to $987,000, or 1.28% of outstanding loans, at
December 31, 1997. The allowance for loan losses for The Peoples National Bank
was $1,000,000, or 1.25% of outstanding loans, at December 31, 1998, compared to
$987,000, or 1.28% of outstanding loans, at December 31, 1997. At December 31,
1998, the allowance for loan losses for Bank of Anderson, N.A. was $93,000, or
1.19% of outstanding loans. The allowance for loan losses is based upon
management's continuing evaluation of the collectibility of past due and problem
loans based on historical loan losses experienced by the Company, 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 for the consolidated company charged to
operations during 1998 was $194,000 compared to $324,000 in 1997. During 1998,
The Peoples National Bank made provision for loan losses of $101,000 compared to
$324,000 in 1997. During 1998, Bank of Anderson, N.A. began establishing its
allowance for loan losses and made provisions for loan losses of $93,000. In
1998, The Peoples National Bank recorded net charge-offs of $88,000, or 0.10% of
total loans outstanding compared to net charge-offs of $98,000, or 0.13% of
total outstanding loans in 1997. Bank of Anderson, N.A. had no losses in its
loan portfolio in 1998.
Management considers the reserve for loan losses adequate to cover
inherent losses on the loans outstanding at December 31, 1998. In the opinion of
management, there are no material risks or significant loan concentrations in
the present portfolio. It must be emphasized, however, that the determination of
the allowance for loan losses using the Company's procedures and methods rests
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upon various judgements and assumptions about future economic conditions and
other factors affecting loans. No assurance can be given the Company will not in
any particular period sustain loan losses which are sizable in relation to the
amount reserved or that subsequent evaluation of the loan portfolio, in light of
conditions and factors then prevailing, will not require significant changes in
the allowance for loan losses or future charges to earnings. The allowance for
loan losses is also subject to review and approval by various regulatory
agencies through their periodic examinations of the Company's banking
subsidiaries. Such examinations could result in required changes to the
allowance for loan losses.
1997 Compared to 1996
The Company reported record earnings in 1997. Net income for the year
ended December 31, 1997 was $1,304,000 compared to $1,065,000 in 1996. Net
income per share was $0.74 in 1997 compared to $0.61 in 1996. 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 $616,000.
The largest component of the Company's net income is 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 $552,000 or
14.0% over 1996.
The net interest margin, defined as net interest income divided by
average earning assets, decreased to 4.34% in 1997 compared to 4.59% at the end
of 1996 and 4.93% at the end of 1995. The decline in the net interest margin is
primarily due 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 for
increased rates. During 1997, many financial institutions offered deposit
promotions above the market rates, creating upward pressure on the Company's
cost of funds. Also, the Company has instituted deposit promotions and kept its
deposit rates competitive in an effort to increase its liquidity levels.
The Company expects the competitive deposit rate environment to continue.
Non-interest income, excluding securities transactions, increased
$105,000 or 24.8% for 1997 compared to 1996. Service charges and other fees on
deposits increased $46,000 or 14.0%, resulting from a 20.0% increase in total
deposits. The Company also increased many of its service charges on deposit
accounts effective April 1,1997.
Non-interest expense increased $318,000 or 11.5% in 1997 compared to
1996. Personnel costs in 1997 were $1,749,000 compared to $1,598,000 the prior
year, an increase of $151,000 or 9.4%. The increase is primarily the result of
additional staffing and normal salary increases. Occupancy and equipment
expenses in 1997 were $459,000 compared to $395,000 in 1996, an increase of
$64,000 or 16.3% due primarily to an increase in depreciation expense on new
equipment purchased in 1997. Other operating expenses increased $95,000 or 12.6%
primarily attributable to a $20,000 increase in closing costs paid by the
Company on its Equity Line loan product, $30,000 additional expense on the
Business Manager (accounts receivable) product and a $26,000 increase in board
fees paid to the Company's 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 Bank's loan portfolio. The allowance for loan losses at December
31, 1997 was $987,000, compared to $761,000 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 Company, 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.
28
<PAGE>
The provision for loan losses charged to operations during 1997 was
$324,000 compared to $260,000 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 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 $98,000 or 0.13% of total loans
outstanding. This compares to net charged-off loans of $169,000 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.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements are filed with this report:
- - Independent Auditor's Report.
- - Balance Sheet as of December 31, 1998 and 1997.
- - Statement of Income for the years ended December 31, 1998, 1997 and 1996.
- - Statement of Changes in Stockholders' Equity for the years ended December
31, 1998, 1997 and 1996
- - Statement of Cash Flows for the years ended December 31, 1998, 1997 and
1996.
- - Notes to Financial Statements.
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARIES
REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
Peoples Bancorporation, Inc.
Easley, South Carolina
We have audited the accompanying consolidated balance sheets of
Peoples Bancorporation, Inc. and Subsidiaries as of December 31, 1998 and 1997,
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, 1998. 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 Subsidiaries as of December 31, 1998 and 1997
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
Elliott, Davis & Company, L.L.P.
February 5, 1999
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1997
---- ----
ASSETS
------
<S> <C> <C>
CASH AND DUE FROM BANKS ............................................................ $ 3,413,192 $ 3,908,784
FEDERAL FUNDS SOLD ................................................................. 17,980,000 4,570,000
SECURITIES
Available for sale .............................................................. 31,970,972 20,320,579
Held for investment (fair value $4,264,583 and $3,953,648) ...................... 4,128,267 3,852,356
LOANS - less allowance for loan losses of $1,093,280 and $987,138 .................. 86,923,604 75,861,965
PREMISES AND EQUIPMENT, net of accumulated depreciation ............................ 4,926,263 2,673,712
ACCRUED INTEREST RECEIVABLE ........................................................ 922,430 878,459
OTHER ASSETS ....................................................................... 1,406,612 1,350,449
------------- -------------
$ 151,671,340 $ 113,416,304
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS
Noninterest-bearing ............................................................. $ 14,991,107 $ 11,007,809
Interest-bearing ................................................................ 105,109,104 85,182,039
------------- -------------
Total deposits ................................................................. 120,100,211 96,189,848
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS ........................................ 5,979,994 4,433,554
NOTES PAYABLE TO FEDERAL HOME LOAN BANK ............................................ 2,000,000 2,030,612
ACCRUED INTEREST PAYABLE ........................................................... 867,014 860,877
OTHER LIABILITIES .................................................................. 253,014 391,924
------------- -------------
Total liabilities .............................................................. 129,200,233 103,906,815
------------- -------------
COMMITMENTS AND CONTINGENCIES - Notes 5, 11 and 12
SHAREHOLDERS' EQUITY
Common stock - 10,000,000 shares authorized; $1.67 par value
per share; 2,764,016 shares and 1,687,250 shares outstanding ................... 4,615,907 2,817,708
Additional paid-in capital ...................................................... 17,092,059 5,158,024
Retained earnings ............................................................... 810,885 1,553,206
Accumulated other comprehensive income .......................................... (47,744) (19,449)
------------- -------------
22,471,107 9,509,489
------------- -------------
$ 151,671,340 $ 113,416,304
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-2-
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1998 1997 1996
---- ---- ----
INTEREST INCOME
<S> <C> <C> <C>
Interest and fees on loans ........................................... $7,506,106 $7,023,648 $ 5,828,245
Interest on securities
Taxable ............................................................. 1,430,073 1,122,296 902,851
Tax-exempt .......................................................... 229,160 245,055 211,825
Interest on federal funds sold ....................................... 678,057 245,109 210,978
---------- ---------- -----------
Total interest income ............................................ 9,843,396 8,636,108 7,153,899
---------- ---------- -----------
INTEREST EXPENSE
Interest on deposits ................................................. 4,216,671 3,562,111 2,949,384
Interest on federal funds purchased and securities sold
under repurchase agreements ......................................... 186,518 145,797 150,346
Interest on notes payable Federal Home Loan Bank ..................... 112,939 345,428 31,951
---------- ---------- -----------
Total interest expense ........................................... 4,516,128 4,053,336 3,131,681
---------- ---------- -----------
Net interest income .............................................. 5,327,268 4,582,772 4,022,218
PROVISION FOR LOAN LOSSES ............................................... 194,400 324,475 260,080
---------- ---------- -----------
Net interest income after provision for loan losses .............. 5,132,868 4,258,297 3,762,138
---------- ---------- -----------
NON-INTEREST INCOME
Service fees and other income ........................................ 1,223,893 753,798 592,864
Gain (loss) on sale of securities available for sale ................. - 2,740 (1,836)
---------- ---------- -----------
1,223,893 756,538 591,028
---------- ---------- -----------
NON-INTEREST EXPENSES
Salaries and benefits ................................................ 2,531,686 1,748,930 1,598,182
Occupancy ............................................................ 204,871 185,990 155,314
Equipment ............................................................ 364,388 273,286 239,830
Other operating expenses ............................................. 1,373,777 863,638 758,005
---------- ---------- -----------
4,474,722 3,071,844 2,751,331
---------- ---------- -----------
Income before income taxes ....................................... 1,882,039 1,942,991 1,601,835
PROVISION FOR INCOME TAXES .............................................. 621,100 639,218 537,050
---------- ---------- -----------
Net income ....................................................... $1,260,939 $1,303,773 $ 1,064,785
========== ========== ===========
BASIC NET INCOME PER COMMON SHARE ....................................... $ .57 $ .74 $ .61
========== ========== ===========
DILUTED NET INCOME PER COMMON SHARE ..................................... $ .54 $ .69 $ .58
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Accumulated
Additional other Total
Common stock paid-in Retained comprehensive shareholders'
Shares Amount capital earnings income equity
------ ------ ------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
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
Other comprehensive income, net of tax:
Unrealized holding losses on securities
available for sale .................. - - - - (105,853) (105,853)
Add reclassification adjustments for
losses included in net income ....... - - - - 1,836 1,836
------------
Comprehensive income ..................... - - - - - 960,768
Stock dividend (5%) ...................... 37,945 126,357 518,708 (645,065) - -
Cash in lieu of fractional shares on
stock dividend ........................ - - - (2,622) - (2,622)
Cash dividends (.23 per share) ........... - - - (177,133) - (177,133)
Proceeds from stock options exercised ... 7,155 23,826 42,633 - - 66,459
--------- ---------- ----------- ----------- --------- ------------
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
Other comprehensive income, net of tax:
Unrealized holding gains on securities
available for sale .................. - - - - 8,555 8,555
Less reclassification adjustments for
gains included in net income ........ - - - - (2,740) (2,740)
------------
Comprehensive income ..................... - - - - - 1,309,588
Stock dividend (5%) ...................... 39,954 133,047 905,756 (1,038,803) - -
Cash in lieu of fractional shares on
stock dividend ........................ - - - (5,968) - (5,968)
Cash dividends (.25 per share) ........... - - - (203,462) - (203,462)
Proceeds from stock options exercised ... 3,600 11,988 19,350 - - 31,338
Two-for-one stock split .................. 843,625 8,436 - (8,436) - -
--------- ---------- ----------- ----------- --------- ------------
BALANCE, DECEMBER 31, 1997 .................. 1,687,250 2,817,708 5,158,024 1,553,206 (19,449) 9,509,489
------------
Net income ............................... - - - 1,260,939 - 1,260,939
Other comprehensive income, net of tax:
Unrealized holding losses on securities
available for sale .................. - - - - (28,295) (28,295)
Less reclassification adjustments for
gains included in net income ........ - - - - - -
------------
Comprehensive income ..................... - - - - - 1,232,644
Stock dividend (5%) ...................... 130,733 218,324 1,481,205 (1,699,529) - -
Cash in lieu of fractional shares on
stock dividend ........................ - - - (3,873) - (3,873)
Cash dividends (.14 per share) ........... - - - (299,858) - (299,858)
Proceeds from stock options exercised .... 21,033 35,125 48,766 - - 83,891
Proceeds from sale of stock net of
issuance costs ........................ 925,000 1,544,750 10,404,064 - - 11,948,814
--------- ---------- ----------- ----------- --------- ------------
BALANCE, DECEMBER 31, 1998 .................. 2,764,016 $4,615,907 $17,092,059 $ 810,885 $ (47,744) $ 22,471,107
========= ========== =========== =========== ========= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-4-
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1998 1997 1996
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income ............................................................. $ 1,260,939 $ 1,303,773 $ 1,064,785
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
Gain of sale of premises and equipment ................................ (10,526) (22,910) (2,125)
Provision for loan losses ............................................. 194,400 324,475 260,080
Provision for deferred income taxes ................................... (158,660) (80,000) -
Depreciation .......................................................... 247,825 208,443 176,018
Net amortization of premiums and discounts on securities .............. 75,162 51,233 49,709
(Increase) decrease in accrued interest receivable .................... (43,971) (149,528) 13,502
Increase in other assets .............................................. 44,332 (951,872) (8,917)
Increase in accrued interest payable ................................. 6,137 185,281 74,676
Increase (decrease) in other liabilities .............................. (138,910) 238,436 (201,566)
------------ ------------ ------------
Net cash provided by operating activities ....................... 1,476,728 1,104,591 1,427,998
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities held for investment ............................ (708,158) (550,420) (1,062,568)
Purchases of securities available for sale ............................. (37,416,602) (18,551,041) (11,533,625)
Proceeds from the maturity of securities available for sale ............ 16,252,212 5,607,553 6,040,000
Proceeds from the sale and call of securities available for sale ....... 9,900,000 8,367,847 6,031,018
Net increase in loans .................................................. (11,256,038) (10,782,495) (9,273,709)
Proceeds from the sale of premises and equipment ....................... 82,055 39,000 3,025
Purchase of premises and equipment ..................................... (2,570,954) (1,039,816) (56,507)
------------ ------------ ------------
Net cash used for investing activities .......................... (25,717,485) (16,909,372) (9,852,366)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits ............................................... 23,910,363 15,995,385 9,030,958
Net increase (decrease) in federal funds purchased ..................... - (1,000,000) 1,000,000
Net increase in securities sold under repurchase agreements ............ 1,546,440 506,663 237,209
Net increase (decrease) in notes payable to Federal Home Loan Bank ..... (30,612) (3,367,347) 4,572,653
Proceeds from the sale of stock and exercise of stock options .......... 12,032,705 31,338 66,459
Cash dividends paid .................................................... (299,858) (203,462) (177,133)
Cash in lieu of fractional shares on stock dividends ................... (3,873) (5,968) (2,622)
------------ ------------ ------------
Net cash provided by financing activities ....................... 37,155,165 11,956,609 14,727,524
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents ............ 12,914,408 (3,848,172) 6,303,156
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR .............................. 8,478,784 12,326,956 6,023,800
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR .................................... $ 21,393,192 $ 8,478,784 $ 12,326,956
============ ============ ============
CASH PAID FOR
Interest ............................................................... $ 4,509,991 $ 3,868,055 $ 3,040,705
============ ============ ============
Income taxes ........................................................... $ 648,266 $ 719,836 $ 729,401
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-5-
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARIES
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 subsidiaries, The
Peoples National Bank, Bank of Anderson, N.A., and Seneca National Bank
(collectively referred to as the "Banks"). The Company formed Bank of
Anderson, N.A. and Seneca National Bank during 1998 with the proceeds, net of
issuance costs, from two stock offerings totaling $11,948,814. The capital
from the offerings was invested $5.5 million in Bank of Anderson, $3.5
million in Seneca National Bank and $1 million in The Peoples National Bank.
Bank of Anderson, N. A. and Seneca National Bank commenced operations in the
fourth quarter of 1998 and the first quarter of 1999, respectively. All
significant intercompany balances and transactions have been eliminated. The
Banks operate under national bank charters and provide full banking services
to customers. The Banks are 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 Banks make loans to individuals and small businesses located primarily in
upstate South Carolina for various personal and commercial purposes. The
Banks have diversified loan portfolios and borrowers' abilities to repay
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 (accumulated other
comprehensive income) 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. 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. An 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)
-6-
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, Continued
Loans and allowance for loan losses, 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 No. 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".
Comprehensive income
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130, "Reporting Comprehensive Income," which establishes standards for
reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. Under this statement, the
Company is required to classify items of "other comprehensive income" by
their nature in the financial statements and display the balance of
comprehensive income separately in the equity section of a balance sheet.
Statement 130 is effective for both interim and annual periods beginning
after December 15, 1997. Comparative financial statements provided for
earlier periods were required to be reclassified to reflect the provisions of
the statement. The adoption of SFAS No. 130 had no effect on the Company's
net income or shareholders' equity.
(Continued)
-7-
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, Continued
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current presentation. These reclassifications have no effect on previously
reported net income.
Recently issued accounting standards
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS No. 131 requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments. Operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. SFAS No. 131 requires that
a public enterprise report a measure of segment profit or loss, certain
specific revenue and expense items, segment assets, information about the
way that the operating segments were determined and other items. The
Statement is effective for the fiscal years beginning after December 15,
1997. The Company's subsidiaries have similar characteristics that allow
them to be aggregated into one operating segment. The Company does not
anticipate that adoption of SFAS No. 131 will have a material effect on its
financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." All derivatives are to be measured at
fair value and recognized in the balance sheets as assets or liabilities.
The statement is effective for fiscal years and quarters beginning after
June 15, 1999. Because the Company does not use derivative instruments or
transactions at this time, management does not expect that this standard
will have a significant effect on financial statements of the Company.
NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANKS
The Banks are 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, 1998 and 1997 were
approximately $701,000 and $632,000, respectively.
NOTE 3 - SECURITIES
Securities are summarized as follows as of December 31:
<TABLE>
<CAPTION>
1998
---------------------------------------------------------------
Unrealized holding
Amortized ------------------ Fair
cost Gain Loss value
---- ---- ---- -----
SECURITIES AVAILABLE FOR SALE:
U. S. TREASURY SECURITIES
<S> <C> <C> <C> <C>
Maturing within one year ................................. $ 99,951 $ 674 $ - $ 100,625
----------- ------- --------- -----------
OBLIGATIONS OF OTHER U. S. GOVERNMENT
AGENCIES AND CORPORATIONS
Maturing within one year ................................. 2,705,037 - 13,915 2,691,122
Maturing after one but within five years ................. 14,477,435 19,784 - 14,497,219
Maturing after five but within ten years ................. 5,465,102 - 18,164 5,446,938
Maturing after ten years ................................. 8,339,625 - 61,420 8,278,205
----------- ------- --------- -----------
30,987,199 19,784 93,499 30,913,484
----------- ------- --------- -----------
OBLIGATIONS OF STATES AND POLITICAL
SUBDIVISIONS
Maturing within one year ................................. 125,110 627 - 125,737
----------- ------- --------- -----------
OTHER - RESTRICTED
Federal Reserve Bank Stock ............................. 243,250 - - 243,250
Federal Home Loan Bank Stock ........................... 533,300 - - 533,300
Bankers Bank Stock ..................................... 54,576 - - 54,576
----------- -------- -------- -----------
831,126 - - 831,126
----------- -------- -------- -----------
Total securities available for sale ................ $32,043,386 $ 21,085 $ 93,499 $31,970,972
=========== ======== ======== ===========
SECURITIES HELD FOR INVESTMENT:
OBLIGATIONS OF STATES AND POLITICAL
SUBDIVISIONS
Maturing after one but within five years ............... $ 2,409,675 $ 70,318 $ - $ 2,479,993
Maturing after five but within ten years ............... 1,718,592 65,998 - 1,784,590
----------- -------- -------- -----------
Total securities held for investment ............... $ 4,128,267 $136,316 $ - $ 4,264,583
=========== ======== ======== ===========
</TABLE>
-8-
<PAGE>
<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>
Securities with carrying amounts of $12,684,000 and $12,836,000 at
December 31, 1998 and 1997, respectively, were pledged to secure public deposits
and for other purposes required or permitted by law.
-9-
<PAGE>
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------
1998 1997
---- ----
<S> <C> <C>
Commercial and industrial - not secured by real estate ................................... $13,812,049 $11,030,426
Commercial and industrial - secured by real estate ....................................... 19,501,382 13,820,036
Residential real estate - mortgage ....................................................... 39,533,118 39,827,868
Residential real estate - construction ................................................... 3,064,586 1,643,287
Loans to individuals for household, family and other personal expenditures ............... 12,105,749 10,527,486
----------- -----------
88,016,884 76,849,103
Less allowance for loan losses ........................................................... 1,093,280 987,138
----------- -----------
$86,923,604 $75,861,965
=========== ===========
</TABLE>
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
BALANCE, BEGINNING OF YEAR .................................. $ 987,138 $ 760,679 $ 669,664
Provision for loan losses ................................. 194,400 324,475 260,080
Loans charged off, net of recoveries ...................... (88,258) (98,016) (169,065)
----------- --------- ---------
BALANCE, END OF YEAR ........................................ $ 1,093,280 $ 987,138 $ 760,679
=========== ========= =========
</TABLE>
At December 31, 1998 and 1997 nonaccrual loans amounted to $649,561
and $757,206, respectively. Foregone interest income was approximately $59,500,
$65,200 and $24,200 on nonaccrual loans for 1998, 1997 and 1996, respectively.
At December 31, 1998 and 1997, the recorded investment in loans for which
impairment has been recognized in accordance with SFAS No. 114 is $0 and
$195,000, respectively. The impairment allowance is included in the allowance
for loan losses.
-10-
<PAGE>
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 1998 1997
------------ ---- ----
<S> <C> <C> <C>
Land ............................................................................... - $1,370,526 $1,133,984
Building and improvements .......................................................... 15 - 40 years 1,425,980 1,449,121
Furniture, fixtures and equipment .................................................. 3 - 10 years 2,250,775 1,498,032
---------- ----------
5,047,281 4,081,137
Less accumulated depreciation ...................................................... 1,678,432 1,432,029
---------- ----------
3,368,849 2,649,108
Construction in process ............................................................ 1,557,414 24,604
---------- ----------
$4,926,263 $2,673,712
========== ==========
</TABLE>
Depreciation expense of $247,825, $208,443 and $176,018 for 1998,
1997 and 1996, respectively, is included in occupancy and equipment expenses in
the accompanying consolidated statements of income.
At December 31, 1998, construction in process included costs incurred to
date for building construction and equipment purchases for the Company's new
operations center and for the main offices of Seneca National Bank and Bank of
Anderson, N.A. The Company and it subsidiaries anticipate additional costs for
1999 of approximately $550,000 for completion of these facilities. The
operations center and Seneca National Bank were placed in service in the first
quarter of 1999. Construction of the main office of Bank of Anderson, N.A. is
anticipated to be completed in the second quarter of 1999.
NOTE 6 - DEPOSITS
The amounts and scheduled maturities of deposits are as follows:
<TABLE>
<CAPTION>
December 31,
------------
1998 1997
---- ----
Time certificates maturing
<S> <C> <C>
Within one year ....................................................... $ 53,092,974 $47,636,153
After one but within two years ........................................ 4,368,907 4,433,699
After two but within three years ...................................... 1,420,148 535,877
After three but within four years ..................................... 479,761 421,351
After four years ...................................................... 311,395 610,129
------------ -----------
59,673,185 53,637,209
Transaction and savings accounts ........................................ 60,427,026 42,552,639
------------ -----------
$120,100,211 $96,189,848
============ ===========
</TABLE>
Certificates of deposit in excess of $100,000 totaled approximately
$25,161,000 and $17,821,000, at December 31, 1998 and 1997, respectively.
Interest expense on certificates of deposit in excess of $100,000 was
approximately $986,000 in 1998, $880,000 in 1997 and $601,000 in 1996.
-11-
<PAGE>
NOTE 7 - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Securities sold under repurchase agreements are summarized as
follows:
<TABLE>
<CAPTION>
December 31,
------------
1998 1997
---- ----
<S> <C> <C>
U. S. Government securities with an amortized cost of $4,729,215 ($4,720,518
fair value) and $5,664,281 ($5,641,697 fair value) at December 31, 1998
and 1997, respectively, collateralize the agreements ..................................... $5,979,994 $4,433,554
========== ==========
</TABLE>
The Banks enter 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 3.30 and 3.10
percent at December 31, 1998 and 1997, respectively. Securities sold under
agreements to repurchase averaged $4,575,489 and $4,686,696 during 1998 and
1997, respectively. The maximum amounts outstanding at any month-end were
$5,979,994 and $4,955,332 during 1998 and 1997, respectively.
NOTE 8 - NOTES PAYABLE TO FEDERAL HOME LOAN BANK (FHLB)
The Peoples National Bank had various notes payable aggregating
$2,000,000 and $2,030,612 at December 31, 1998 and 1997, respectively, to the
FHLB. The proceeds of these notes were used to meet the residential loan demand
of their 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 5.10 percent to 5.75 percent at
December 31, 1998 and 5.46 to 5.76 at December 31, 1997. The notes are
collateralized by mortgage loans aggregating approximately $12,962,000 and
$15,604,000 at December 31, 1998 and 1997, respectively. The notes mature in
1999.
NOTE 9 - UNUSED LINES OF CREDIT
The Banks have unused short-term lines of credit to purchase Federal
Funds from unrelated banks totaling $2,500,000 at December 31, 1998. These lines
of credit are available on a one to seven day basis for general corporate
purposes.
The Peoples National Bank has the ability to borrow an additional
$14,000,000 from the FHLB as of December 31, 1998. The borrowings are available
by pledging collateral and purchasing additional stock in the FHLB.
NOTE 10 - INCOME TAXES
Provision for income taxes consists of the following:
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1998 1997 1996
---- ---- ----
Current tax provision
<S> <C> <C> <C>
Federal ................................................. $ 711,254 $ 657,000 $490,350
State ................................................... 68,506 62,218 46,700
--------- --------- --------
Total current taxes ................................. 779,760 719,218 537,050
Deferred tax benefit ...................................... (158,660) (80,000) -
--------- --------- --------
Provision for income taxes .......................... $ 621,100 $ 639,218 $537,050
========= ========= ========
</TABLE>
(Continued)
-12-
<PAGE>
NOTE 10 - INCOME TAXES, Continued
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,
--------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Tax expense at statutory rate .................................. $ 640,000 $ 660,600 $ 544,600
Increase (decrease) in taxes resulting from:
State income taxes net of federal benefit .................... 45,000 41,000 37,600
Tax-exempt interest .......................................... (63,000) (76,700) (68,980)
Other ........................................................ (900) 14,318 23,830
--------- --------- ---------
Provision for income taxes ................................. $ 621,100 $ 639,218 $ 537,050
========= ========= =========
</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,
------------
1998 1997
---- ----
<S> <C> <C>
Allowance for loan losses ........................................................... $ 372,000 $ 335,600
Deferral of loan origination fees and costs ......................................... (47,000) (51,400)
Tax depreciation in excess of book depreciation ..................................... (97,000) (89,200)
Adjustments from the accrual to the cash basis of accounting ........................ (11,000) (25,800
Unrealized holding losses on securities available for sale .......................... 25,000 10,000
Tax deferral of business start-up costs ............................................. 55,000 -
Other ............................................................................... 22,000 2,100
--------- ---------
319,000 181,300
Valuation allowance ................................................................. (135,000) (170,960)
--------- ---------
$ 184,000 $ 10,340
========= =========
</TABLE>
Net deferred tax assets are included in other assets.
NOTE 11 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Banks are parties to financial instruments with off-balance
sheet risk in the normal course of business to meet the financing needs of their
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 Banks have in particular classes of financial instruments.
The Banks use the same credit policies in making commitments and conditional
obligations as they do for on-balance sheet instruments.
<TABLE>
<CAPTION>
Financial instruments whose contract amounts December 31,
represent credit risk: ------------
1998 1997
---- ----
<S> <C> <C>
Commitments to extend credit ......................................... $24,255,623 $18,014,527
Standby letters of credit ............................................ 1,920,000 1,486,000
</TABLE>
(Continued)
-13-
<PAGE>
NOTE 11 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK, Continued
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 Banks evaluate each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained by
the Banks upon extension of credit is based on management's credit evaluation.
NOTE 12 - LEGAL CONTINGENCIES
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, 1998 and 1997, certain officers, directors,
employees, related parties and companies in which they have 10 percent or more
beneficial ownership, were indebted to the Banks in the aggregate amount of
$2,943,055 and $3,343,161, respectively. During 1998, $1,497,126 of new loans
were made to this group and repayments of $1,897,232 were received.
The Peoples National Bank has leased its Powdersville branch office
from a partnership in which a director of the Company is a partner. The Peoples
National Bank purchased this branch from the partnership for $476,878 in the
first quarter of 1999.
NOTE 14 - COMMON STOCK AND EARNINGS PER SHARE
SFAS No. 128, "Earnings per Share" requires that the Company present
basic and diluted net income per common share. The assumed conversion of stock
options creates the difference 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 2,218,376 in 1998, 1,770,509 in 1997 and 1,758,273 in 1996. The
weighted average number of common shares outstanding for diluted net income per
common share was 2,330,287 in 1998, 1,879,103 in 1997 and 1,834,534 in 1996.
The Company issued five percent common stock dividends in 1998, 1997
and 1996. The Company also issued 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 Banks. Federal banking
regulations restrict the amount of dividends that can be paid and such dividends
are payable only from the retained earnings of the Banks. At December 31, 1998
the Banks' retained earnings were approximately $6,112,000.
-14-
<PAGE>
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 of the stock on the date of grant. The outstanding options become
exercisable in various increments beginning on 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 of the stock 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>
For the year ended December 31,
-------------------------------
1998 1997 1996
---- ---- ----
Net income
<S> <C> <C> <C>
As reported ......................................... $ 1,260,939 $ 1,303,773 $ 1,064,785
Pro forma ........................................... 1,228,825 1,277,629 1,055,592
Basic net income per common share
As reported ......................................... $ .57 $ .74 $ .61
Pro forma .......................................... .55 .72 .60
Diluted net income per common share
As reported ......................................... $ .54 $ .69 $ .58
Pro forma ........................................... .53 .68 .58
</TABLE>
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 1998 and 1997, respectively: dividend yield of
$.15 and $.25 per share, expected volatility of 12 and 15 percent, risk-free
interest rate of 4.75 and 6.0 percent and expected life of 10 years. No options
were granted in 1996.
A summary of the status of the plans as of December 31, 1998 and 1997,
and changes during the years ending on those dates is presented below (all
shares have been adjusted for stock dividends and the 1997 stock split):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Weighted Weighted Weighted
average average average
Shares exercise price Shares exercise price Shares exercise price
------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year ............... 262,903 $ 5.61 188,154 $4.58 204,704 $ 4.69
Granted ................... 31,500 12.38 82,687 8.14 - -
Exercised ................. (21,451) 4.08 (7,938) 3.74 (16,550) 4.20
Forfeited or expired ...... (1,642) 4.73 - - - -
-------- -------- ---------
Outstanding at end
of year .................. 271,310 4.31 262,903 5.61 188,154 4.58
======== ======== =========
</TABLE>
(Continued)
-15-
<PAGE>
NOTE 16 - STOCK OPTION COMPENSATION PLANS, Continued
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Options exercisable at year-end .................................... 234,964 224,529 137,087
Weighted - average fair value of options
granted during the year ........................................ $ 12.38 $ 8.14 $ -
Shares available for grant ......................................... 259,542 265,003 207,204
</TABLE>
The following table summarizes information at December 31, 1998:
<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>
$3.90 - $4.73 81,617 less than 1 year $ 4.39 81,617 $ 4.39
$4.74 - $5.20 75,504 6.5 years 4.81 61,604 4.81
$8.16 82,689 8.7 years 8.16 82,689 8.16
$12.38 31,500 9.2 years 12.38 9,054 12.38
-------- --------
271,310 234,964
======== ========
</TABLE>
NOTE 17 - EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) retirement plan for all eligible
employees. Upon ongoing approval of the Board of Directors, the Company 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 $33,088, $32,861 and $28,223 were charged to operations during 1998,
1997 and 1996, respectively.
Supplemental benefits have been approved by the Board of Directors
for certain executive officers of The Peoples National Bank. These benefits are
not qualified under the Internal Revenue Code and they are not funded. However,
certain funding is provided informally and indirectly by life insurance
policies.
NOTE 18 - REGULATORY MATTERS
The Banks 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 Banks' financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Banks
must meet specific capital guidelines that involve quantitative measures of the
Banks' assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The Banks' capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weighting, and other factors.
(Continued)
-16-
<PAGE>
NOTE 18 - REGULATORY MATTERS, Continued
Quantitative measures established by regulation to ensure capital
adequacy require the Banks 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, 1998,
that the Banks meet all capital adequacy requirements to which they are subject.
As of December 31, 1998, the most recent notification from the Office
of the Comptroller of the Currency categorized the Banks 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 Banks' categories. The Banks' 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)
The Peoples National Bank:
As of December 31, 1998
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to risk-weighted assets) ............ $11,008 13.16% $6,692 8.00% $8,365 10.00%
Tier I Capital (to risk-weighted assets) ........... 10,008 11.96 3,347 4.00 5,021 6.00
Tier I Capital (to average assets) ................. 10,008 7.60 5,267 4.00 6,584 5.00
As of December 31, 1997
Total Capital (to risk-weighted assets) ............ $ 9,606 12.59% $6,106 8.0% $7,632 10.0%
Tier I Capital (to risk-weighted assets) ........... 8,652 11.34 3,053 4.0 4,579 6.0
Tier I Capital (to average assets) ................. 8,652 7.51 4,608 4.0 5,760 5.0
Bank of Anderson, N.A.:
As of December 31, 1998
Total Capital (to risk-weighted assets) ............ $ 4,352 43.40% $ 802 8.00% $1,003 10.00%
Tier I Capital (to risk-weighted assets) ........... 4,259 42.48 401 4.00 602 6.00
Tier I Capital (to average assets) ................. 4,259 25.05 680 4.00 850 5.00
</TABLE>
NOTE 19 - FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments"
requires disclosure of fair value information, whether or not recognized in the
balance sheets, when it is practical to estimate the fair value. SFAS No. 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)
-17-
<PAGE>
NOTE 19 - FAIR VALUE OF FINANCIAL INSTRUMENTS, Continued
Securities are valued using quoted fair 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.
The fair value of 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 borrowings 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,
------------
1998 1997
---- ----
Carrying Carrying
amount Fair value amount Fair value
------ ---------- ------ ----------
Financial Assets:
<S> <C> <C> <C> <C>
Cash and due from banks ................................ $ 3,413,192 $ 3,413,192 $ 3,908,784 $ 3,908,784
Federal funds sold ..................................... 17,980,000 17,980,000 4,570,000 4,570,000
Securities available for sale .......................... 31,970,972 31,970,972 20,320,579 20,320,579
Securities held for investment ......................... 4,128,267 4,264,583 3,852,356 3,953,648
Loans .................................................. 88,016,884 88,302,000 76,849,103 76,726,000
Financial Liabilities:
Deposits ............................................... 120,100,211 120,444,107 96,189,848 96,441,809
Securities sold under repurchase agreements ............ 5,979,994 5,986,000 4,433,554 4,433,554
Notes payable to Federal Home Loan Bank ................ 2,000,000 2,002,000 2,030,612 2,026,000
Financial Instruments with Off-Balance Sheet Risk:
Commitments to extend credit ........................... 24,255,623 24,255,623 18,014,527 18,014,527
Standby letters of credit .............................. 1,920,000 1,920,000 1,486,000 1,486,000
</TABLE>
-18-
<PAGE>
NOTE 20 - CONDENSED FINANCIAL INFORMATION
Following is condensed financial information of Peoples
Bancorporation, Inc. (parent company only):
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------
1998 1997
---- ----
ASSETS
<S> <C> <C>
Cash .................................................................... $ 6,030,694 $ 166,216
Due from subsidiaries ................................................... 294,318 43,190
Investment in bank subsidiaries ......................................... 14,219,533 8,693,833
Premises and equipment .................................................. 2,124,846 902,973
Organization costs - net ................................................ 13,028 16,752
Other assets ............................................................ 158,901 -
----------- ----------
$22,841,320 $9,822,964
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Due to subsidiaries ..................................................... $ 267,844 $ -
Accounts payable ........................................................ 102,369 313,475
Shareholders' equity .................................................... 22,471,107 9,509,489
----------- ----------
$22,841,320 $9,822,964
=========== ==========
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1998 1997 1996
---- ---- ----
INCOME
<S> <C> <C> <C>
Fees and dividends from subsidiaries ......................... $ 522,200 $ 204,033 $ 177,133
Other income ................................................. 22,324 - -
----------- ---------- ----------
544,524 204,033 177,133
----------- ---------- ----------
EXPENSES
Salaries and benefits ........................................ 294,982 - -
Occupancy .................................................... 17,692 - -
Equipment .................................................... 27,926 - -
Other operating .............................................. 73,328 3,722 3,722
----------- ---------- ----------
413,928 3,722 3,722
EQUITY IN UNDISTRIBUTED NET INCOME OF BANK
SUBSIDIARIES ................................................. 1,053,993 1,103,462 891,374
----------- ---------- ----------
Income before income taxes ............................... 1,184,589 1,303,773 1,064,785
INCOME TAX BENEFIT ............................................. (76,350) - -
----------- ---------- ----------
Net income ............................................... $ 1,260,939 $1,303,773 $1,064,785
=========== ========== ==========
</TABLE>
(Continued)
-19-
<PAGE>
NOTE 20 - CONDENSED FINANCIAL INFORMATION, Continued
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1998 1997 1996
---- ---- ----
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income ............................................................. $ 1,260,939 $ 1,303,773 $ 1,064,785
Adjustments to reconcile net income to net cash provided
by (used for) operating activities
Equity in undistributed net income of bank subsidiaries ............ (1,053,993) (1,103,462) (891,374)
Depreciation ....................................................... 15,732 - -
Amortization ....................................................... 3,722 3,722 3,722
Increase in other assets ........................................... (410,029) - -
Increase in other liabilities ...................................... 56,738 - -
------------ ----------- -----------
Net cash provided by (used for) operating activities ............ (126,891) 204,033 177,133
------------ ----------- -----------
INVESTING ACTIVITIES
Investment in bank subsidiaries ........................................ (4,500,000) (31,338) (66,459)
Purchase of premises and equipment ..................................... (1,237,605) (479,498) -
------------ ----------- -----------
Net cash used for investing activities .......................... (5,737,605) (510,836) (66,459)
------------ ----------- -----------
FINANCING ACTIVITIES
Proceeds from the sale of stock and exercise of stock options .......... 12,032,705 31,767 66,459
Cash dividends ......................................................... (303,731) (203,462) (177,133)
------------ ----------- -----------
Net cash provided by (used for) financing activities ............ 11,728,974 (171,695) (110,674)
------------ ----------- -----------
Net change in cash .............................................. 5,864,478 (478,498) -
CASH, BEGINNING OF YEAR .................................................. 166,216 644,714 644,714
------------ ----------- -----------
CASH, END OF YEAR ........................................................ $ 6,030,694 $ 166,216 $ 644,714
============ =========== ===========
</TABLE>
-20-
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTS AND FINANCIAL
DISCLOSURE
There has been no occurrence requiring a response to this item.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information set forth under the captions "ELECTION OF DIRECTORS"
and "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" in the Proxy
Statement to be used in conjunction with the 1999 Annual Meeting of Shareholders
(the "Proxy Statement"), which was filed within 120 days of the Company's fiscal
year end, is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The information set forth under the caption "EXECUTIVE COMPENSATION" in
the Proxy Statement is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information set forth under the caption "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" in the Proxy Statement is incorporated
herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "CERTAIN TRANSACTIONS" in
the Proxy Statement is incorporated herein by reference.
29
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description of Exhibit
3 (i) Articles of Incorporation as amended (incorporated by reference
to the Registrant's Registration Statement on Form 8-A).
3(ii) Bylaws (incorporated by reference to the Registrant's
Registration Statement on Form 8-A).
4.1 Specimen Common Stock Certificate (incorporated by reference to
Exhibits to Registrant's Registration Statement on Form S-4
(Number 33-46649)).
10.1 Lease agreement, dated December 10, 1987 between Rut Galloway,
Bobby Sexton, Alva Goodwin, as landlord, and The Peoples
National Bank, as Tenant, relating to the branch facility in
Powdersville, South Carolina (incorporated by reference to
Exhibits to Registrant's Registration Statement on Form S-4
(Number 33-46649)).
10.2 Peoples Bancorporation, Inc. 1993 Incentive Stock Option Plan
(incorporated by reference to Exhibits to Registrant's
Registration Statement on Form SB-1 (Number 33-78602)).
10.3 Noncompetition, Severance and Employment Agreement entered into
between the Company and Robert E. Dye (incorporated by
reference to Exhibit 10.5 of Peoples Bancorporation, Inc.'s
Annual Report on Form 10-KSB for the year ended December 31,
1995. Commission File No. 33-78607.)
10.4 Noncompetition, Severance and Employment Agreement entered into
between the Company and R. Riggie Ridgeway (incorporated by
reference to Exhibit 10.6 of Peoples Bancorporation, Inc.'s
Annual Report on Form 10-KSB for the year ended December 31,
1995. Commission File No. 33-78607.)
10.5 Peoples Bancorporation, Inc 1997 Non-Employee Director Stock
Option Plan (incorporated by reference to exhibits to
Registrant's Form 10-KSB for the year ended December 31, 1997).
10.6 Salary Continuation Agreement between The Peoples National Bank
and Robert E. Dye, Sr., dated July 7, 1998.
10.7 Salary Continuation Agreement between The Peoples National Bank
and Ralph R. Ridgeway, dated July 7, 1998.
21. Subsidiaries of the Registrant
22. Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1997.
30
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Peoples Bancorporation, Inc.
s/Robert E. Dye
Dated: March 9, 1999 By: _______________________
Robert E. Dye
Chairman of the Board,
President and Chief
Executive Officer
s/William B. West
Dated: March 9, 1999 By: _______________________
William B. West
Senior Vice President
(Principal Financial and
Principal Accounting Officer)
In accordance with the Exchange Act, this Report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated:
Signature Title Date
s/Garnet A. Barnes
____________________________ Director March 9, 1999
Garnet A. Barnes
s/William A. Carr
____________________________ Director March 9, 1999
William A. Carr
s/Charles E. Dalton
____________________________ Director March 9, 1999
Charles E. Dalton
s/Robert E. Dye
____________________________ President, Chief March 9, 1999
Robert E. Dye Executive Officer
And Director
s/Robert E. Dye, Jr.
____________________________ Director March 9, 1999
Robert E. Dye, Jr.
s/W. Rutledge Galloway
____________________________ Director March 9, 1999
W. Rutledge Galloway
s/E. Smyth McKissick, III
____________________________ Director March 9, 1999
E. Smyth McKissick, III
s/Eugene W. Merritt, Jr.
____________________________ Director March 9, 1999
Eugene W. Merritt, Jr.
s/George B. Nalley, Jr.
____________________________ Director March 9, 1999
George B. Nalley, Jr.
s/R. Riggie Ridgeway
____________________________ Secretary, March 9, 1999
R. Riggie Ridgeway Treasurer and
Director
s/Nell W. Smith
____________________________ Director March 9, 1999
Nell W. Smith
s/A. J. Thompson, Jr., M. D.
____________________________ Director March 9, 1999
A. J. Thompson, Jr., M. D.
31
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
3 (i) Articles of Incorporation as amended (incorporated by reference
to the Registrant's Registration Statement on Form 8-A).
3(ii) Bylaws (incorporated by reference to the Registrant's
Registration Statement on Form 8-A).
4.1 Specimen Common Stock Certificate (incorporated by reference to
Exhibits to Registrant's Registration Statement on Form S-4
(Number 33-46649)).
10.1 Lease agreement, dated December 10, 1987 between Rut Galloway,
Bobby Sexton, Alva Goodwin, as landlord, and The Peoples
National Bank, as Tenant, relating to the branch facility in
Powdersville, South Carolina (incorporated by reference to
Exhibits to Registrant's Registration Statement on Form S-4
(Number 33-46649)).
10.2 Peoples Bancorporation, Inc. 1993 Incentive Stock Option Plan
(incorporated by reference to Exhibits to Registrant's
Registration Statement on Form SB-1 (Number 33-78602)).
10.3 Noncompetition, Severance and Employment Agreement entered into
between the Company and Robert E. Dye (incorporated by
reference to Exhibit 10.5 of Peoples Bancorporation, Inc.'s
Annual Report on Form 10-KSB for the year ended December 31,
1995. Commission File No. 33-78607.)
10.4 Noncompetition, Severance and Employment Agreement entered into
between the Company and R. Riggie Ridgeway (incorporated by
reference to Exhibit 10.6 of Peoples Bancorporation, Inc.'s
Annual Report on Form 10-KSB for the year ended December 31,
1995. Commission File No. 33-78607.)
10.5 Peoples Bancorporation, Inc 1997 Non-Employee Director Stock
Option Plan (incorporated by reference to exhibits to
Registrant's Form 10-KSB for the year ended December 31, 1997).
10.6 Salary Continuation Agreement between The Peoples National Bank
and Robert E. Dye, Sr., dated July 7, 1998.
10.7 Salary Continuation Agreement between The Peoples National Bank
and Ralph R. Ridgeway, dated July 7, 1998.
21. Subsidiaries of the Registrant
22. Financial Data Schedule
32
THE PEOPLES NATIONAL BANK
SALARY CONTINUATION AGREEMENT
THIS SALARY CONTINUATION AGREEMENT (the "Agreement") is made this 7th day
of July, 1998 by and between The Peoples National Bank, a national banking
association having a principal office in Easley, South Carolina (the "Company"),
and Robert E. Dye (the "Executive").
INTRODUCTION
To encourage the Executive to remain an employee of the Company, the
Company is willing to provide salary continuation benefits to the Executive.
Now, therefore, in consideration of the mutual covenants and agreements
herein, the Executive and the Company agree as follows:
Article 1
Definitions
1.1 Definitions. Whenever used in this Agreement, the following words and
phrases shall have the meanings specified:
1.1.1 "Anniversary Date" means September 30th of each Plan Year.
1.1.2 "Board" or "Board of Directors" means the Board of Directors of
Company.
1.1.3 "Change of Control" means (i) the acquisition, directly or
indirectly, by any person within any twelve (12) month period
of securities of the Company representing an aggregate of
twenty (20%) percent or more of the combined voting power of
the Company's then outstanding securities; or (ii) during any
period of two (2) consecutive years, individuals who at the
beginning of such period constitute the Board, cease for any
reason to constitute at least a majority thereof, 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
thereof, 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 (either by remaining outstanding or by being
converted into common stock of the surviving entity or a parent
or affiliate thereof) at least sixty-seven (67%) percent of the
outstanding common stock (on a fully diluted basis) of the
Company or such surviving entity or parent or affiliate thereof
outstanding 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 the Company's assets; or
(iv) the occurrence of any other event or circumstance which is
not covered by (i) through (iii) above which the Board
determines affects control of the Company and, in order to
implement the purposes of this Agreement as set forth above,
adopts a resolution that such event or circumstances
constitutes a Change in Control for the purposes of this
Agreement.
1.1.4 "Code" means the Internal Revenue Code of 1986, as amended.
References to a Code section shall be deemed to be that section
as it now exists and to any successor provisions.
33
<PAGE>
1.1.5 "Consumer Price Index" shall mean an annual cost of living
increase (but not decrease) of the benefit provided Executive
in this Agreement. The cost of living increase shall be
determined based upon the annual increase in the Consumer Price
Index for all Urban Consumer Index for all Urban Consumers -
South, All Items (base year 1982-84=100) as published by the
U.S. Department of Labor (the "Index"). If publication of the
Consumer Price Index is discontinued, the parties shall accept
comparable statistics on the cost of living for Greenville,
South Carolina as such statistics are computed and published by
a federal agency or by a recognized financial periodical
selected by the parties.
1.1.6 "Disability" means sickness, accident or injury which, in the
judgment of a physician appointed and paid for by the Company,
prevents the Executive from performing all of the Executive's
customary duties for the Company. As a condition to any
benefits, the Company may require the Executive to submit to
such physical or mental evaluations and tests as the Board of
Directors deems appropriate.
1.1.7 "Early Termination" means the Termination of Employment before
Normal Retirement Age for reasons other than death, Disability
or Termination for Cause.
1.1.8 "Early Termination Date" means the month, day and year in which
Early Termination occurs.
1.1.9 "Effective Date" means the 1st day of October, 1997.
1.1.10 "Month of Service" means each completed full month of a Year of
Service.
1.1.11 "Normal Retirement Age" means the date the Executive attains
age sixty-six (66).
1.1.12 "Normal Retirement Date" means the later of the Normal
Retirement Age or Termination of Employment.
1.1.13 "Plan Year" means the twelve (12) consecutive month period
beginning on September 26th and ending on September 25th of the
following calendar year. The first Plan Year shall commence on
the Effective Date of the Agreement.
1.1.14 "Retirement Account" means the hypothetical account established
on the Company's books for the Executive. The Retirement
Account as of any date shall be determined by subtracting the
value of the Simulated Cost of Funds Investment from the value
of the Simulated Investment and dividing the difference by the
"adjustment rate." For purposes of this paragraph, the
adjustment rate shall mean the figure equal to one minus the
Company's highest marginal federal and state income tax rate
for the previous calendar year.
1.1.15 "Simulated Cost of Funds Investment" means the value of an
investment comprised of principal and accumulated after-tax
interest earnings. The initial investment of principal is
assumed to be $690,000 on September 26, 1997. In determining
the value of the Simulated Cost of Funds Investment, the
following assumptions are to be used:
(1) the interest shall accrue monthly;
(2) the interest shall compound annually on the Anniversary
Date; and
(3) the after-tax interest rate shall equal the Company's
after-tax average cost of funds from the Company's
third quarter Call Report ending within the Plan Year
as filed with the Federal Reserve.
34
<PAGE>
1.1.16 "simulated Investment" means the following life insurance
contract:
Insurance Company: Transamerica Life Insurance Co.
Policy Type: Flexible Premium Universal Life
Insured's Age and Sex: 53, Male
Riders: None
Ratings: None
Option: A
Single Premium: $690,000
Net Life Insurance: $906,000
Total Death Benefits: $1,596,000
Assumed Purchase Date: September 26, 1997
The investment specified above is for use in measuring the
Disability Benefit in Section 2.3.3 and the Death Benefit
stated in Section 3.1.3 of this Agreement. The Company can
change the Simulated Investment only with the Executive's prior
written agreement. The investment is assumed to continue to be
in force after the Executive has died.
1.1.17 "Simulated Investment Rate" means the after-tax rate of return
on the Simulated Investment. The Simulated Investment Rate
shall not include receipt of the policy's death benefits.
1.1.18 "Termination of Employment" means the Executive's ceasing to be
employed by the Company for any reason whatsoever, voluntary or
involuntary.
35
<PAGE>
Article 2
Lifetime Benefits
2.1 Normal Retirement Benefit. Upon Termination of Employment on or after
the Normal Retirement Age for reasons other than Executive's death, the Company
shall pay to the Executive the benefit described in this Section 2.1 in lieu of
any other benefit under this Agreement.
2.1.1 Amount of Benefit. The annual benefit under this Section 2.1 is
$35,130 increased by four (4%) percent each Plan Year between the
Effective Date of this Agreement and the Executive's Normal
Retirement Date.
2.1.2 Payment of Benefit. The Company shall pay the annual benefit to
the Executive in twelve (12) equal consecutive monthly
installments payable on the first day of each month commencing
with the month following the Executive's Normal Retirement Date
and continuing for the greater of the life of the Executive or
two hundred twenty seven (227) additional months.
2.1.3 Benefit Increases. Commencing on the first anniversary of the
first benefit payment, and continuing on each subsequent
anniversary, the annual benefit shall increase by the Consumer
Price Index.
2.2 Early Termination Benefit. Upon Early Termination, the Company shall pay
to the Executive the benefit described in this Section 2.2 in lieu of any
other benefit under this Agreement.
2.2.1 Amount of Benefit. The annual benefit under this Section 2.2 is
the Early Termination Annual Benefit amount set forth in
Schedule A for the Plan Year ending immediately prior to the
Early Termination Date plus the amount determined by the
following formula:
2.2.1.1 The amount set forth in the Early Termination Annual
Benefit column of Schedule A for the Plan Year in
which the Executive's Termination of Employment
occurred; less
2.2.1.2 The amount set forth in the Early Termination Annual
Benefit column of Schedule A for the Plan Year
completed immediately prior to the date of the
Executive's Termination of Employment (zero if
termination takes place in Plan Year 1); multiplied
times
2.2.1.3 A fraction where the numerator is the number of
Months of Service completed in the Plan Year in
which the Executive's Termination of Employment
occurred and the denominator is twelve (12).
2.2.2 Payment of Benefit. The Company shall pay the annual benefit to
the Executive in twelve (12) equal consecutive monthly
installments payable on the first day of each month commencing
with the month following the Executive's Normal Retirement Date
and continuing for the greater of the life of the Executive or
two hundred twenty-seven (227) additional months. If the
Executive dies after Early Termination but prior to the
commencement of benefit payments, the Company shall pay the
benefits otherwise called for in Section 2.2 to the Executive's
beneficiary commencing with the month following the Executive's
death and continuing for two hundred twenty-seven (227)
additional months.
2.2.3 Benefit Increases Before Payment. The annual benefit determined
under Section 2.2.1 shall be increased annually by the Consumer
Price Index for each full Plan Year subsequent to the Plan Year
in which the Executive's Termination of Employment occurs until
the commencement of payments under Section 2.2.2.
Notwithstanding the provisions of this Section 2.2.3, the
annual benefit at the commencement of payments under Section
2.2.2 shall not exceed the Normal Retirement Benefit amounts in
Section 2.1 and shall be reduced so as not to exceed the Normal
Retirement Benefit amounts in Section 2.1. Commencing on the
first anniversary of the first benefit payment, and continuing
on each subsequent anniversary, the annual benefit shall
increase by the Consumer Price Index.
36
<PAGE>
2.3 Disability Benefit. If the Executive terminates employment due to
Disability prior to the Normal Retirement Age, the Company shall pay to
the Executive the benefit described in this Section 2.3 in lieu of any
other benefit under this Agreement.
2.3.1 Amount of Disability Benefit. The Disability Benefit under this
Section 2.3 is the Disability Annual Benefit amount set forth in
Schedule A for the Plan Year ending immediately prior to the date
in which the Termination of Employment occurs plus the additional
amount set forth in Section 2.3.3. Commencing on the first
anniversary of the first benefit payment, and continuing on each
subsequent anniversary, the annual benefit shall increase by the
Consumer Price Index.
2.3.2 Payment of Benefit. The Company shall pay the annual benefit to
the Executive in twelve (12) equal monthly installments payable
on the first day of each month commencing with the month
following the Executive's Normal Retirement Date and continuing
for the greater of the life of the Executive or two hundred
twenty seven (227) additional months.
2.3.3 Payment of Additional Disability Amount. In addition to the
Disability payment described in Section 2.3.2, the Executive
shall receive an annual benefit beginning at Termination of
Employment under this Section 2.3.3 provided that the Executive
incurs Disability prior to attaining his Normal Retirement Age.
If the Executive incurs Disability prior to attaining his Normal
Retirement Age (i.e. no benefits under this Section 2.3.3 are
paid if the Executive becomes disabled on or after his Normal
Retirement Age), the Company shall pay the Executive an annual
benefit which is calculated at the end of each Plan Year equal to
the increase in the Retirement Account for the Plan Year. The
benefit payments will be paid annually within sixty (60) days
after the end of the Plan Year for which the payment is
calculated. Benefits under this Section 2.3.3 shall commence at
the end of the Plan Year in which the Termination of Employment
for Disability occurs and continue until the end of payments
under Section 2.1.2. Total annual Disability benefit amounts
subsequent to the commencement of benefit payments under Section
2.3.2 are not to exceed Normal Retirement Benefit amounts in
Section 2.1 and shall be reduced so as not to exceed the Normal
Retirement Benefit amounts in Section 2.1 by reducing the annual
benefit provided for in this Section 2.3.3.
Article 3
Death Benefits
3.1 Death During Active Service. If the Executive dies while employed by the
Company, the Company shall pay to the Executive's beneficiary the benefit
described in this Section 3.1 in lieu of any other benefit under this
Agreement.
3.1.1 Amount of Benefit. The Death Benefit under Section 3.1 shall be
the Vested Accrual Balance set forth in Schedule A for the Plan
Year ending immediately prior to the date of Executive's death
plus the additional amount set forth in Section 3.1.3.
3.1.2 Payment of Vested Accrual Balance Benefit. The Company shall pay
the Vested Accrual Balance death benefit to the Executive's
beneficiary in the form of a lump-sum payable within sixty (60)
days after the date of the Executive's death.
3.1.3 Payment of Additional Amount. In addition to the lump-sum payment
described in Section 3.1.2, the Executive's beneficiary shall
receive an annual benefit under this Section 3.1.3 provided that
the Executive dies while employed with Company prior to attaining
his Normal Retirement Age. If the Executive dies prior to
attaining his Normal Retirement Age (i.e. no benefits under this
Section 3.1.3 are paid if the Executive dies on or after his
Normal Retirement Age), the Company shall pay the Executive's
beneficiary an annual benefit which is calculated at the end of
each Plan Year equal to the increase in the Retirement Account
for the Plan Year. The benefit payments will be paid annually
within sixty (60) days after the end of the Plan Year for which
the payment is calculated. Benefits under this Section 3.1.3
shall commence at the end of the Plan Year in which the
Executive's death occurs and continue for the number of years
specified on Schedule A in the column entitled "Death Benefit
Payout Period."
37
<PAGE>
3.2 Death During Benefit Period. If the Executive dies after benefit payments
have commenced under this Agreement but before receiving all such
payments, the Company shall pay the remaining benefits to the Executive's
beneficiary at the same time and in the same amounts the benefit would
have been paid to the Executive if the Executive survived.
Article 4
Beneficiaries
4.1 Beneficiary Designations. The Executive shall designate a primary and
contingent beneficiary by filing a written designation with the Company.
The Executive may revoke or modify the designation at any time by filing
a new designation. However, designations will only be effective if signed
by the Executive and accepted by the Company during the Executive's
lifetime. A beneficiary's designation shall be deemed automatically
revoked if the beneficiary predeceases the Executive, or if the Executive
names a spouse as beneficiary and the marriage is subsequently dissolved.
If the Executive dies without a valid beneficiary designation, all
payments shall be made to the Executive's estate. If Executive dies and
subsequently the beneficiary receiving benefit payments dies, then any
remaining payments shall be paid pursuant to a written beneficiary
designation filed with Company made by such beneficiary, or if none to
such beneficiary's estate.
4.2 Facility of Payment. If a benefit is payable to a minor, to a person
declared incompetent, or to a person incapable of handling the
disposition of his or her property, the Company may pay such benefit to
the guardian, conservator, legal representative or person having the care
or custody of such minor, incompetent person or incapable person. The
Company may require proof of incompetence, minority or guardianship as it
may deem appropriate prior to distribution of the benefit. Such
distribution shall completely discharge the Company from all liability
with respect to such benefit.
Article 5
General Limitations
Notwithstanding any provision of this Agreement to the contrary, Executive shall
irrevocably forfeit and the Company shall not pay any benefit under this
Agreement for the following reasons:
5.1 Excess Parachute Payment. In the event that the benefit payable to
Executive pursuant to this Agreement should cause a "parachute payment,"
as defined in Code Section 280G(b)(2), then such benefit shall be reduced
One Dollar ($1.00) at a time until the payment will not constitute a
parachute payment. In the event the benefit Executive receives under this
Agreement should be incorrectly calculated so that such amount
constitutes a parachute payment, then Executive will promptly refund to
Company the excess amount. Excess amount shall mean the amount in excess
of Executive's base amount, as defined in Code Section 280G(b)(3),
multiplied by 2.999.
5.2 Termination for Cause. No benefits shall be payable if the Company
terminates the Executive's employment for:
5.2.1 Gross negligence or gross neglect of duties prior to a Change of
Control;
5.2.2 Commission of a felony; or
5.2.3 Fraud, disloyalty, dishonesty or willful violation of any law or
material Company policy in connection with the Executive's
employment.
38
<PAGE>
5.3 Suicide. No benefits shall be payable if the Executive commits suicide
within two (2) years after the Effective Date of this Agreement, or if
the Executive has made any material misstatement of fact on any
application for life insurance purchased by the Company.
5.4 No Duplication of Benefits. Each of the benefits described in Article 2
and 3 are intended to be separate benefits and mutually exclusive of the
other so that once benefit payments commence under one Section Executive
(or his beneficiary, as the case may be) shall not thereafter receive
payments or become entitled to benefits under another Section.
5.5 Non-Competition Covenant. While Executive is employed by the Company and
during the period of time the Executive is receiving any benefit payments
pursuant to this Agreement, the Executive will not, for himself or on
behalf of, or in conjunction with any other person or persons, company,
partnership, limited liability company, proprietorship, trust, company,
bank, financial services institution, or other entity, directly or
indirectly, own, manage, operate, control, be employed by, consult with,
participate in, or be connected in any manner with the ownership,
employment, management, operation, consulting or control of any financial
services institution that competes with Company. In the event of any
actual breach by the Executive of the provisions of this non-competition
covenant, all payments under this Agreement payable to the Executive
shall irrevocably terminate and no further amount shall be due or payable
to the Executive pursuant to this Agreement. Executive specifically
acknowledges that the restrictions as set forth above are reasonable and
bear a valid connection with the business operations of Company, and
specifically admits that Executive is capable of obtaining suitable
employment not in competition with Company. If any one of the
restrictions contained herein shall for any reason be held to be
excessively broad as to duration or geographical area, it shall be deemed
amended by limiting and reducing it so as to be valid and enforceable to
the extent compatible with applicable state law as it shall then appear.
Executive acknowledges that the Company would not have entered into this
Agreement without the non-competition covenant contained herein. This
covenant not to compete shall not prohibit the Executive from owning
stock in any publicly traded company provided Executive's stock ownership
is five (5%) percent or less of the issued and outstanding stock of such
publicly traded company and the Executive has no corporate responsibility
other than the Executive's rights as a stockholder.
Article 6
Claims and Review Procedures
6.1 Claims Procedure. The Company shall notify any person or entity that
makes a claim pursuant to this Agreement (the "Claimant"), in writing,
within ninety (90) days of the claimant's written application for
benefits, of eligibility or non- eligibility for benefits under the
Agreement. If the Company determines that the claimant is not eligible
for benefits or full benefits, the notice shall set forth (1) the
specific reasons for such denial, (2) a specific reference to the
provisions of the Agreement on which the denial is based, (3) a
description of any additional information or material necessary for the
claimant to perfect claimant's claim, and a description of why it is
needed, and (4) an explanation of the Agreement's claims review procedure
and other appropriate information as to the steps to be taken if the
claimant wishes to have the claim reviewed. If the Company determines
that there are special circumstances requiring additional time to make a
decision, the Company shall notify the claimant of the special
circumstances and the date by which a decision is expected to be made,
and may extend the time for up to an additional ninety (90) day period.
6.2 Review Procedure. If the claimant is determined by the Company not to be
eligible for benefits, or if the claimant believes that claimant is
entitled to greater or different benefits, the claimant shall have the
opportunity to have such claim reviewed by the Company by filing a
petition for review with the Company within sixty (60) days after receipt
of the notice issued by the Company. Said petition shall state the
specific reasons which the claimant believes entitle claimant to benefits
or to greater or different benefits. Within sixty (60) days after receipt
by the Company of the petition, the Company shall afford the claimant
(and counsel, if any) an opportunity to present claimant's position to
the Company orally or in writing, and the claimant (or counsel) shall
have the right to review the pertinent documents. The Company shall
notify the claimant of its decision in writing within the sixty (60) day
period, stating specifically the basis of its decision, written in a
manner calculated to be understood by the claimant and the specific
provisions of the Agreement on which the decision is based. If, because
of the need for a hearing, the sixty (60) day period is not sufficient,
the decision may be deferred for up to another sixty (60) day period at
the election of the Company, but notice of this deferral shall be given
to the claimant.
39
<PAGE>
Article 7
Amendments and Termination
7.1 The Company reserves the right to amend or terminate this Agreement at
any time. In the event of termination, the Executive shall be 100% vested
in the Normal Retirement Benefit accrued under Schedule A as of the
effective year of the termination. The Company shall pay the benefit to
the Executive, at the Company's discretion, in either lump sum payment
within sixty (60) days of Executive's Termination of Employment, or in
monthly payments, beginning with the month following the Executive's
Termination of Employment and continuing for one hundred seventy-nine
(179) months. In the event of amendment, the vested benefit amount
accrued under Section 2.2 as of the effective date of the amendment shall
not be reduced by the amendment.
Article 8
Miscellaneous
8.1 Binding Effect. This Agreement shall bind the Executive and the Company,
and their heirs, beneficiaries, legal representatives, executors,
administrators, successors and permitted assigns.
8.2 No Guaranty of Employment. This Agreement is not an employment policy or
contract. It does not give the Executive the right to remain an employee
of the Company, nor does it interfere with the Company's right to
discharge the Executive. It also does not require the Executive to remain
an employee nor interfere with the Executive's right to terminate
employment at any time. Nothing in this Agreement shall be construed as
an employment agreement, either express or implied.
8.3 Non-Transferability. No amounts payable under this Agreement shall be
transferable by the Executive. Further, Executive may not sell, assign,
alienate, pledge or otherwise encumber any benefits under this Agreement.
8.4 Tax Withholding. The Company shall withhold any taxes that are required
to be withheld from the benefits provided under this Agreement.
8.5 Applicable Law. The Agreement and all rights hereunder shall be governed
by the laws of the State of South Carolina, except to the extent
preempted by the laws of the United States of America.
8.6 Unfunded Arrangement. The Executive and any beneficiary are general
unsecured creditors of the Company for the payment of benefits under this
Agreement. This Agreement shall always be an unfunded Agreement. The
benefits represent the mere promise by the Company to pay such benefits.
The rights to benefits are not subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, attachment,
or garnishment by creditors. Insurance on the Executive's life, if any,
is a general asset of the Company to which the Executive and any
beneficiary shall have no preferred or secured claim. Title to and
beneficial ownership of any cash or assets Company may earmark to pay
Executive or his beneficiary shall at all times remain with Company.
8.7 Reorganization. The Company shall not merge or consolidate into or with
another company, or reorganize, or sell substantially all of its assets
to another company, firm, or person unless such succeeding or continuing
company, firm, or person agrees to assume and discharge the obligations
of the Company under this Agreement. Upon the occurrence of such event,
the term "Company" as used in this Agreement shall be deemed to refer to
the successor or survivor company.
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8.8 Entire Agreement. This Agreement constitutes the entire agreement between
the Company and the Executive as to the subject matter hereof. No rights
are granted to the Executive by virtue of this Agreement other than those
specifically set forth herein.
8.9 Administration. The Company shall have powers which are necessary to
administer this Agreement, including but not limited to:
8.9.1 Interpreting the provisions of the Agreement;
8.9.2 Establishing and revising the method of accounting for the
Agreement;
8.9.3 Maintaining a record of benefit payments; and
8.9.4 Establishing rules and prescribing any forms necessary or
desirable to administer the Agreement.
8.9.5 No member of the Board shall be liable to any person for any
action taken or omitted in connection with the interpretation and
administration of this Agreement unless attributable to his own
willful misconduct or lack of good faith.
8.10 Named Fiduciary. For purposes of the Employee Retirement Income Security
Act of 1974, if applicable, the Company shall be the named fiduciary and
plan administrator under the Agreement. The named fiduciary may delegate
to others certain aspects of the management and operation
responsibilities under this Agreement including the employment of
advisors and the delegation of ministerial duties to qualified
individuals.
8.11 No Trust Created. Nothing contained in this Agreement, and no action
taken pursuant to its provisions by either party hereto, shall create,
nor be construed to create, a trust of any kind or a fiduciary
relationship between the Company and the Executive, his designated
beneficiary, any other beneficiary of the Executive or any other person.
8.12 Consumer Price Index Dispute. In the event of a dispute in determining
the Consumer Price Index or the amount of the increased benefit based
upon the Consumer Price Index the certified public accounting firm of
Elliott Davis & Company, Greenville, South Carolina, or its successor
shall make such determination which shall be conclusive and binding upon
all parties to this Agreement.
8.13 Date of Birth. Executive hereby represents to Company that his date of
birth is September 2, 1941.
IN WITNESS WHEREOF, the Executive and a duly authorized Company officer
have signed this Agreement.
EXECUTIVE: COMPANY:
The Peoples National Bank
s/Robert E. Dye s/R. R. Ridgeway
______________________ By: _________________________
Robert Dye
Its: President
41
<PAGE>
SCHEDULE A
THE PEOPLES NATIONAL BANK SALARY CONTINUATION AGREEMENT
Robert Dye
<TABLE>
<CAPTION>
Early Section 2.1.3
Vested Termination Disability Annual Section 3.1.3
Plan Benefit Accrual Vesting Accrual Vested Annual Benefit Benefit Payable Death Benefit
Year Level Balance Schedule Balance Benefit Payable at Age 66 at Age 66 Payout Period
- ---- ----- ------- -------- ------- ------- ----------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 35,130 20,255 100% 20,255 35,130 35,130 4,610 29
2 36,535 43,124 100% 43,124 36,535 36,535 9,063 27
3 37,997 69,018 100% 69,018 37,997 37,997 13,393 25
4 39,516 98,439 100% 98,439 39,516 39,516 17,638 23
5 41,097 132,015 100% 132,015 41,097 41,097 21,842 21
6 42,741 170,546 100% 170,546 42,741 42,741 26,054 19
7 44,451 215,100 100% 215,100 44,451 44,451 30,342 17
8 46,229 267,183 100% 267,183 46,229 46,229 34,801 15
9 48,078 329,128 100% 329,128 48,078 48,078 39,584 13
10 50,001 405,218 100% 405,218 50,001 50,001 45,000 11
11 52,001 507,128 100% 507,128 52,001 52,001 52,001 9
</TABLE>
42
<PAGE>
The Peoples National Bank
SALARY CONTINUATION AGREEMENT
BENEFICIARY DESIGNATION
I designate the following as beneficiary of any death benefits under The Peoples
National Bank Salary Continuation Agreement:
Primary: __________________________________
__________________________________
__________________________________
Contingent A: __________________________________
__________________________________
__________________________________
Contingent B: __________________________________
__________________________________
__________________________________
Contingent C: __________________________________
__________________________________
__________________________________
Note: To name a trust as beneficiary, please provide the name of the
Trustee and the exact date of the trust agreement.
I understand that I may change any beneficiary designations by filing a new
written designation with the Company. This benefit designation shall be
controlled by section 4.1 of the Salary Continuation Agreement.
Signature: _____________________________
Date: _______________
Accepted by the Company this _______ day of ______________, 1998.
By: _______________________________
Title: ______________________________
43
THE PEOPLES NATIONAL BANK
SALARY CONTINUATION AGREEMENT
THIS CONTINUATION AGREEMENT (the "Agreement") is made this 7th day of
July, 1998 by and between The Peoples National Bank, a national banking
association having a principal office in Easley, South Carolina (the "Company"),
and Ralph R. Ridgeway (the "Executive").
INTRODUCTION
To encourage the Executive to remain an employee of the Company, the
Company is willing to provide salary continuation benefits to the Executive.
Now, therefore, in consideration of the mutual covenants and agreements
herein, the Executive and the Company agree as follows:
Article 1
Definitions
1.1 Definitions. Whenever used in this Agreement, the following words and
phrases shall have the meanings specified:
1.1.1 "Board" or "Board of Directors" means the Board of Directors of
Company.
1.1.2 "Change of Control" shall mean (i) the acquisition, directly or
indirectly, by any person within any twelve month period of
securities of the Company representing an aggregate of 20% or
more of the combined voting power of the Company's then
outstanding securities; or (ii) during any period of two
consecutive years, individuals who at the beginning of such
period constitute the Board, cease for any reason to constitute
at least a majority thereof, 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 thereof, 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 (either by
remaining outstanding or by being converted into common stock
of the surviving entity or a parent or affiliate thereof) at
least 67% of the outstanding common stock (on a fully diluted
basis) of the Company or such surviving entity or parent or
affiliate thereof outstanding 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 the Company's assets; or (iv) the occurrence of any other
event or circumstance which is not covered by (i) through (iii)
above which the Board determines affects control of the Company
and, in order to implement the purposes of this Agreement as
set forth above, adopts a resolution that such event or
circumstances constitutes a Change in Control for the purposes
of this Agreement.
1.1.3 "Code" means the Internal Revenue Code of 1986, as amended.
References to a Code section shall be deemed to be that section
as it now exists and to any successor provisions.
1.1.4 "Consumer Price Index" shall mean an annual cost of living
increase (but not decrease) of the benefit provided Executive
in this Agreement. The cost of living increase shall be
determined based upon the annual increase in the Consumer Price
Index for all Urban Consumer Index for all Urban Consumers -
South, All Items (base year 1982-84=100) as published by the
44
<PAGE>
U.S. Department of Labor (the "Index"). If publication of the
Consumer Price Index is discontinued, the parties shall accept
comparable statistics on the cost of living for Greenville,
South Carolina as such statistics are computed and published by
a federal agency or by a recognized financial periodical
selected by the parties.
1.1.5 "Disability" means sickness, accident or injury which, in the
judgment of a physician appointed and paid for by the Company,
prevents the Executive from performing all of the Executive's
customary duties for the Company. As a condition to any
benefits, the Company may require the Executive to submit to
such physical or mental evaluations and tests as the Company's
Board of Directors deems appropriate.
1.1.6 "Early Termination" means the Termination of Employment before
Normal Retirement Age for reasons other than death, Disability
or Termination for Cause.
1.1.7 "Early Termination Date" means the month, day and year in which
Early Termination occurs.
1.1.8 "Effective Date" means the 1st day of October, 1997.
1.1.9 "Month of Service" means each completed full month of a Year of
Service.
1.1.10 "Normal Retirement Age" means the Executive attaining age
sixty-five (65).
1.1.11 "Normal Retirement Date" means the later of the Normal
Retirement Age or Termination of Employment.
1.1.12 "Plan Year" means the twelve (12) consecutive month period
beginning on October 1 and ending on September 30 of the
following calendar year. The first Plan Year shall commence on
the Effective Date of the Agreement.
1.1.13 "Retirement Account" means the hypothetical account established
on the Company's books for the Executive. The Retirement
Account as of any date shall be determined by subtracting the
value of the Simulated Cost of Funds Investment from the value
of the Simulated Investment and dividing the difference by the
"adjustment rate" For purposes of this paragraph, the
adjustment rate shall mean the figure equal to one minus the
Company's highest marginal federal and state income tax rate
for the previous calendar year.
1.1.14 "Simulated Cost of Funds" means the value of an investment
comprised of principal and accumulated after-tax interest
earnings. The initial investment of principal is assumed to be
$690,000 on September 26, 1997. In determining the value of the
Simulated Cost of Funds Investment, the following assumptions
are to be used:
(1) the interest shall accrue monthly;
(2) the interest shall compound annually on the Anniversary
Date; and
(3) the after-tax interest rate shall equal the
Company'safter-tax average cost of funds from the
Company'sthird quarter Call Report ending within the
Plan Year as filed with the Federal Reserve.
1.1.15 "Simulated Investment" means the following life insurance
contract:
Insurance Company: West Coast Life
Policy Type: Flexible Premium Universal Life
Insured's Age and Sex: 51, Male
Riders: None
Ratings: None
Option: A
Singe Premium: $400,400
Net Life Insurance: $609,600
Total Death Benefits: $1,010,000
Assumed Purchase Date: September 26, 1997
45
<PAGE>
The investment specified is for use in measuring the Disability
Benefit in Section 2.3.3 and the Death Benefit stated in
Section 3.1.3 of this Agreement. The Company can change the
Simulated Investment only with the Executive's written
agreement. The investment is assumed to continue to be in force
after the Executive has died.
1.1.16 "Simulated Investment Rate" means the after-tax rate of return
on the Simulated Investment. The Simulated Investment Rate
shall not include receipt of the policy's death benefits.
1.1.17 "Termination of Employment" means the Executive's ceasing to be
employed by the Company for any reason whatsoever, voluntary or
involuntary.
Article 2
Lifetime Benefits
2.1 Normal Retirement Benefit. Upon Termination of Employment on or after
the Normal Retirement Age for reasons other than Executive's death, the
Company shall pay to the Executive the benefit described in this
Section 2.1 in lieu of any other benefit under this Agreement.
2.1.1 Amount of Benefit. The annual benefit under this Section 2.1 is
$30,029 increased by 4% each Plan Year between the Effective
Date of this Agreement and the Executive's Normal Retirement
Date.
2.1.2 Payment of Benefit. The Company shall pay the annual benefit to
the Executive in twelve (12) equal monthly installments payable
on the first day of each month commencing with the month
following the Executive's Normal Retirement Date and continuing
for the greater of the life of the Executive or two hundred
thirty nine (239) additional months.
2.1.3 Benefit Increases. Commencing on the first anniversary of the
first benefit payment, and continuing on each subsequent
anniversary, the Company's Board of Directors shall increase
the annual benefit by the Consumer Price Index.
2.2 Early Termination Benefit. Upon Early Termination, the Company shall
pay to the Executive the benefit described in this Section 2.2 in lieu
of any other benefit under this Agreement.
2.2.1 Amount of Benefit. The annual benefit under this Section 2.2 is
the Early Termination Annual Benefit amount set forth in
Schedule A for the Plan Year ending immediately prior to the
Early Termination Date plus the amount determined by the
following formula:
2.2.1.1 The amount set forth in the Early Termination
Annual Benefit column of Schedule A for the
Plan Year in which the Executive's Termination
of Employment occurred; less
2.2.1.2 The amount set forth in the Early Termination
Annual Benefit column of Schedule A for the
Plan Year completed immediately prior to the
date of the Executive's Termination of
Employment (zero if termination takes place in
Plan Year 1); times
2.2.1.3 A fraction where the numerator is the number
of Months of Service completed in the Plan
Year in which the Executive's Termination of
Employment occurred and the denominator is
twelve (12).
46
<PAGE>
2.2.2 Payment of Benefit. The Company shall pay the annual benefit to
the Executive in twelve (12) equal consecutive monthly
installments payable on the first day of each month commencing
with the month following the Executive's Normal Retirement Date
and continuing for the greater of the life of the Executive or
two hundred thirty-nine (239) additional months. If the
Executive dies after Early Termination but prior to the
commencement of benefit payments, the Company shall pay the
benefits otherwise called for in Section 2.2 to the Executive's
beneficiary commencing with the month following the Executive's
death and continuing for two hundred thirty-nine (239)
additional months.
2.2.3 Benefit Increases Before Payment. The annual benefit determined
under Section 2.2.1 shall be increased annually by the Consumer
Price Index for each full Plan Year subsequent to the Plan Year
in which the Executive's Termination of Employment occurs until
the commencement of payments under Section 2.2.2.
Notwithstanding the provisions of this Section 2.2.3, the
annual benefit at the commencement of payments under Section
2.2.2 shall not exceed the Normal Retirement Benefit amounts in
Section 2.1 and shall be reduced so as not to exceed the Normal
Retirement Benefit amounts in Section 2.1. Commencing on the
first anniversary of the first benefit payment, and continuing
on each subsequent anniversary, the annual benefit shall
increase by the Consumer Price Index.
2.3 Disability Benefit. If the Executive terminates employment due to
Disability prior to the Normal Retirement Age, the Company shall pay to
the Executive the benefit described in this Section 2.3 in lieu of any
other benefit under this Agreement.
2.3.1 Amount of Disability Benefit. The Disability Benefit under this
Section 2.3 is the Disability Annual Benefit amount set forth
in Schedule A for the Plan Year ending immediately prior to the
date in which the Termination of Employment occurs plus the
additional amount set forth in Section 2.3.3. Commencing on the
first anniversary of the first benefit payment, and continuing
on each subsequent anniversary, the Company's Board of
Directors shall increase the annual benefit by the Consumer
Price Index.
2.3.2 Payment of Benefit. The Company shall pay the annual benefit to
the Executive in twelve (12) equal monthly installments payable
on the first day of each month commencing with the month
following the Normal Retirement Date and continuing for the
greater of the life of the Executive or two hundred thirty-nine
(239) additional months.
2.3.3 Payment of Additional Disability Amount. In addition to the
Disability payment described in Section 2.3.2, the Executive
shall receive an annual benefit beginning at Termination of
Employment under this Section 2.3.3 provided that the Executive
incurs Disability prior to attaining his Normal Retirement Age.
If the Executive incurs Disability prior to attaining his
Normal Retirement Age (i.e. no benefits under this Section
2.3.3 are paid if the Executive becomes disabled on or after
his Normal Retirement Age), the Company shall pay the Executive
an annual benefit which is calculated at the end of each Plan
Year equal to the increase in the Retirement Account for the
Plan Year. The benefit payments will be paid annually within
sixty (60) days after the end of the Plan Year for which the
payment is calculated. Benefits under this Section 2.3.3 shall
commence at the end of the Plan Year in which the Termination
of Employment for Disability occurs and continue until the end
of payments under Section 2.1.2. Total annual Disability
benefit amounts subsequent to the commencement of benefit
payments under Section 2.3.2 are not to exceed Normal
Retirement Benefit amounts in Section 2.1 and shall be reduced
so as not to exceed the Normal Retirement Benefit amounts in
Section 2.1 by reducing the annual benefit provided for in this
Section 2.3.3.
47
<PAGE>
Article 3
Death Benefits
3.1 Death During Active Service. If the Executive dies while employed by
the Company, the Company shall pay to the Executive's beneficiary the
benefit described in this Section 3.1 in lieu of any other benefit
under this Agreement.
3.1.1 Amount of Benefit. The Death Benefit under Section 3.1 shall be
the lesser of $145,000 or the Vested Accrual Balance set forth
in Schedule A for the Plan Year ending immediately prior to the
date of death.
3.1.2 Payment of Benefit. The Company shall pay the death benefit to
the Executive's beneficiary in the form of a lump sum payable
within sixty (60) days after the date of the death of the
Executive.
3.2 Death During Benefit Period. If the Executive dies after benefit
payments have commenced under this Agreement but before receiving all
such payments, the Company shall pay the remaining benefits to the
Executive's beneficiary at the same time and in the same amounts the
benefit would have been paid to the Executive if the Executive
survived.
Article 4
Beneficiaries
4.1 Beneficiary Designations. The Executive shall designate a primary and
contingent beneficiary by filing a written designation with the
Company. The Executive may revoke or modify the designation at any time
by filing a new designation. However, designations will only be
effective if signed by the Executive and accepted by the Company during
the Executive's lifetime. A beneficiary's designation shall be deemed
automatically revoked if the beneficiary predeceases the Executive, or
if the Executive names a spouse as beneficiary and the marriage is
subsequently dissolved. If the Executive dies without a valid
beneficiary designation, all payments shall be made to the Executive's
estate. If Executive dies and subsequently the beneficiary receiving
benefit payments dies, then any remaining payments shall be paid
pursuant to a written beneficiary designation filed with Company made
by such beneficiary, or if none to such beneficiary's estate.
4.2 Facility of Payment. If a benefit is payable to a minor, to a person
declared incompetent, or to a person incapable of handling the
disposition of his or her property, the Company may pay such benefit to
the guardian, conservator, legal representative or person having the
care or custody of such minor, incompetent person or incapable person.
The Company may require proof of incompetence, minority or guardianship
as it may deem appropriate prior to distribution of the benefit. Such
distribution shall completely discharge the Company from all liability
with respect to such benefit.
Article 5
General Limitations
Notwithstanding any provision of this Agreement to the contrary,
Executive shall irrevocably forfeit and the Company shall not pay any benefit
under this Agreement for the following reasons:
5.1 Excess Parachute Payment. In the event that the benefit payable to
Executive pursuant to this Agreement should cause a "parachute
payment," as defined in Code Section 280G(b)(2), then such benefit
shall be reduced One Dollar ($1.00) at a time until the payment will
not constitute a parachute payment. In the event the benefit Executive
receives under this Agreement should be incorrectly calculated so that
such amount constitutes a parachute payment, then Executive will
promptly refund to Company the excess amount. Excess amount shall mean
the amount in excess of Executive's base amount, as defined in Code
Section 280G(b)(3), multiplied by 2.999.
5.2 Termination for Cause. No benefits shall be payable if the Company
terminates the Executive's employment for:
5.2.1 Gross negligence or gross neglect of duties prior to a Change
of Control;
5.2.2 Commission of a felony; or
5.2.3 Fraud, disloyalty, dishonesty or willful violation of any law
or material Company policy in connection with the Executive's
employment.
5.3 Suicide. No benefits shall be payable if the Executive commits suicide
within two (2) years after the Effective Date of this Agreement, or if
the Executive has made any material misstatement of fact on any
application for life insurance purchased by the Company.
5.4 No Duplication of Benefits. Each of the benefits described in Article 2
and 3 are intended to be separate benefits and mutually exclusive of
the other so that once benefit payments commence under one Section
Executive (or his beneficiary, as the case may be) shall not thereafter
receive payments or become entitled to benefits under another Section.
5.5 Non-Competition Covenant. While Executive is employed by the Company
and during the period of time the Executive is receiving any benefit
payments pursuant to this Agreement, the Executive will not, for
himself or on behalf of, or in conjunction with any other person or
persons, company, partnership, limited liability company,
proprietorship, trust, company, bank, financial services institution,
or other entity, directly or indirectly, own, manage, operate, control,
be employed by, consult with, participate in, or be connected in any
manner with the ownership, employment, management, operation,
consulting or control of any financial services institution that
competes with Company. In the event of any actual breach by the
Executive of the provisions of this non-competition covenant, all
payments under this Agreement payable to the Executive shall
irrevocably terminate and no further amount shall be due or payable to
the Executive pursuant to this Agreement. Executive specifically
acknowledges that the restrictions as set forth above are reasonable
and bear a valid connection with the business operations of Company,
and specifically admits that Executive is capable of obtaining suitable
employment not in competition with Company. If any one of the
restrictions contained herein shall for any reason be held to be
excessively broad as to duration or geographical area, it shall be
deemed amended by limiting and reducing it so as to be valid and
enforceable to the extent compatible with applicable state law as it
shall then appear. Executive acknowledges that the Company would not
have entered into this Agreement without the non-competition covenant
contained herein. This covenant not to compete shall not prohibit the
Executive from owning stock in any publicly traded company provided
Executive's stock ownership is five (5%) percent or less of the issued
and outstanding stock of such publicly traded company and the Executive
has no corporate responsibility other than the Executive's rights as a
stockholder.
Article 6
Claims and Review Procedures
6.1 Claims Procedure. The Company shall notify any person or entity that
makes a claim pursuant to this Agreement (the "Claimant"), in writing,
within ninety (90) days of the claimant's written application for
benefits, of eligibility or non-eligibility for benefits under the
Agreement. If the Company determines that the claimant is not eligible
for benefits or full benefits, the notice shall set forth (1) the
specific reasons for such denial, (2) a specific reference to the
provisions of the Agreement on which the denial is based, (3) a
description of any additional information or material necessary for the
claimant to perfect claimant's claim, and a description of why it is
needed, and (4) an explanation of the Agreement's claims review
48
<PAGE>
procedure and other appropriate information as to the steps to be taken
if the claimant wishes to have the claim reviewed. If the Company
determines that there are special circumstances requiring additional
time to make a decision, the Company shall notify the claimant of the
special circumstances and the date by which a decision is expected to
be made, and may extend the time for up to an additional ninety (90)
day period.
6.2 Review Procedure. If the claimant is determined by the Company not to
be eligible for benefits, or if the claimant believes that claimant is
entitled to greater or different benefits, the claimant shall have the
opportunity to have such claim reviewed by the Company by filing a
petition for review with the Company within sixty (60) days after
receipt of the notice issued by the Company. Said petition shall state
the specific reasons which the claimant believes entitle claimant to
benefits or to greater or different benefits. Within sixty (60) days
after receipt by the Company of the petition, the Company shall afford
the claimant (and counsel, if any) an opportunity to present claimant's
position to the Company orally or in writing, and the claimant (or
counsel) shall have the right to review the pertinent documents. The
Company shall notify the claimant of its decision in writing within the
sixty (60) day period, stating specifically the basis of its decision,
written in a manner calculated to be understood by the claimant and the
specific provisions of the Agreement on which the decision is based.
If, because of the need for a hearing, the sixty (60) day period is not
sufficient, the decision may be deferred for up to another sixty (60)
day period at the election of the Company, but notice of this deferral
shall be given to the claimant.
Article 7
Amendments and Termination
7.1 The Company reserves the right to amend or terminate this Agreement at
any time. In the event of termination, the Executive shall be 100%
vested in the Normal Retirement Benefit accrued under Schedule A as of
the effective year of the termination. The Company shall pay the
benefit to the Executive, at the Company's discretion, in either lump
sum payment within sixty (60) days of Executive's Termination of
Employment, or in monthly payments, beginning with the month following
the Executive's Termination of Employment and continuing for one
hundred seventy-nine (179) months. In the event of amendment, the
vested benefit amount accrued under Section 2.2 as of the effective
date of the amendment shall not be reduced by the amendment.
Article 8
Miscellaneous
8.1 Binding Effect. This Agreement shall bind the Executive and the
Company, and their heirs, beneficiaries, legal representatives,
executors, administrators, successors and permitted assigns.
8.2 No Guaranty of Employment. This Agreement is not an employment policy
or contract. It does not give the Executive the right to remain an
employee of the Company, nor does it interfere with the Company's right
to discharge the Executive. It also does not require the Executive to
remain an employee nor interfere with the Executive's right to
terminate employment at any time. Nothing in this Agreement shall be
construed as an employment agreement, either express or implied.
8.3 Non-Transferability. No amounts payable under this Agreement shall be
transferable by the Executive. Further, Executive may not sell, assign,
alienate, pledge or otherwise encumber any benefits under this
Agreement.
8.4 Tax Withholding. The Company shall withhold any taxes that are required
to be withheld from the benefits provided under this Agreement.
8.5 Applicable Law. The Agreement and all rights hereunder shall be
governed by the laws of the State of South Carolina, except to the
extent preempted by the laws of the United States of America.
8.6 Unfunded Arrangement. The Executive and any beneficiary are general
unsecured creditors of the Company for the payment of benefits under
this Agreement. This Agreement shall always be an unfunded Agreement.
49
<PAGE>
The benefits represent the mere promise by the Company to pay such
benefits. The rights to benefits are not subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, attachment, or garnishment by creditors. Insurance on the
Executive's life, if any, is a general asset of the Company to which
the Executive and any beneficiary shall have no preferred or secured
claim. Title to and beneficial ownership of any cash or assets Company
may earmark to pay Executive or his beneficiary shall at all times
remain with Company.
8.7 Reorganization. The Company shall not merge or consolidate into or with
another company, or reorganize, or sell substantially all of its assets
to another company, firm, or person unless such succeeding or
continuing company, firm, or person agrees to assume and discharge the
obligations of the Company under this Agreement. Upon the occurrence of
such event, the term ?Company? as used in this Agreement shall be
deemed to refer to the successor or survivor company.
8.8 Entire Agreement. This Agreement constitutes the entire agreement
between the Company and the Executive as to the subject matter hereof.
No rights are granted to the Executive by virtue of this Agreement
other than those specifically set forth herein.
8.9 Administration. The Company shall have powers which are necessary to
administer this Agreement, including but not limited to:
8.9.1 Interpreting the provisions of the Agreement;
8.9.2 Establishing and revising the method of accounting for the
Agreement;
8.9.3 Maintaining a record of benefit payments; and
8.9.4 Establishing rules and prescribing any forms necessary or
desirable to administer the Agreement.
8.9.5 No member of the Board shall be liable to any person for any
action taken or omitted in connection with the interpretation
and administration of this Agreement unless attributable to his
own willful misconduct or lack of good faith.
8.10 Named Fiduciary. For purposes of the Employee Retirement Income
Security Act of 1974, if applicable, the Company shall be the named
fiduciary and plan administrator under the Agreement. The named
fiduciary may delegate to others certain aspects of the management and
operation responsibilities under this Agreement including the
employment of advisors and the delegation of ministerial duties to
qualified individuals.
8.11 No Trust Created. Nothing contained in this Agreement, and no action
taken pursuant to its provisions by either party hereto, shall create,
nor be construed to create, a trust of any kind or a fiduciary
relationship between the Company and the Executive, his designated
beneficiary, any other beneficiary of the Executive or any other
person.
8.12 Consumer Price Index Dispute. In the event of a dispute in determining
the Consumer Price Index or the amount of the increased benefit based
upon the Consumer Price Index the certified public accounting firm of
Elliott Davis & Company, Greenville, South Carolina, or its successor
shall make such determination which shall be conclusive and binding
upon all parties to this Agreement.
8.13 Date of Birth. Executive hereby represents to Company that his date of
birth is April 20, 1946.
<PAGE>
IN WITNESS WHEREOF, the Executive and a duly authorized Company officer
have signed this Agreement.
EXECUTIVE: COMPANY:
The Peoples National Bank
s/R. R. Ridgeway s/Robert E. Dye
______________________ By: _________________________
Ralph R. Ridgeway Robert E. Dye
Its: Chairman of Board
50
<PAGE>
SCHEDULE A
THE PEOPLES NATIONAL BANK SALARY CONTINUATION AGREEMENT
Ralph R. Ridgeway
<TABLE>
<CAPTION>
Section
Early 2.1.3
Termination Disability
Vested Annual Annual
Plan Benefit Accrual Vesting Accrual Vested Benefit Benefit
Year Level Balance Schedule Balance Benefit Payable at 65 Payable at 65
- ---- ----- ------- -------- ------- ------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 30,029 12,092 100% 12,092 30,029 30,029 3,422
2 31,230 25,734 100% 25,734 31,230 31,230 6,725
3 32,479 41,153 100% 41,153 32,479 32,479 9,929
4 33,779 58,616 100% 58,616 33,779 33,779 13,059
5 35,130 78,445 100% 78,445 35,130 35,130 16,137
6 36,535 101,027 100% 101,027 36,535 36,535 19,190
7 37,996 126,837 100% 126,837 37,996 37,996 22,246
8 39,516 156,470 100% 156,470 39,516 39,516 25,341
9 41,097 190,694 100% 190,694 41,097 41,097 28,516
10 42,741 230,534 100% 230,534 42,741 42,741 31,832
11 44,450 277,443 100% 277,443 44,450 44,450 35,373
12 46,228 333,687 100% 333,687 46,228 46,228 39,284
13 48,077 403,443 100% 403,443 48,077 48,077 43,856
14 50,000 498,148 100% 498,148 50,000 50,000 50,000
</TABLE>
<PAGE>
The Peoples National Bank
SALARY CONTINUATION AGREEMENT
BENEFICIARY DESIGNATION
I designate the following as beneficiary of any death benefits under the The
Peoples National Bank Salary Continuation Agreement:
Primary: __________________________________
__________________________________
__________________________________
Contingent A: __________________________________
__________________________________
__________________________________
Contingent B: __________________________________
__________________________________
__________________________________
Contingent C: __________________________________
__________________________________
__________________________________
Note: To name a trust as beneficiary, please provide the name of the Trustee and
the exact date of the trust agreement.
I understand that I may change any beneficiary designations by filing a new
written designation with the Company. This benefit designation shall be
controlled by section 4.1 of the Salary Continuation Agreement.
Signature: _____________________________
Date: _______________
Accepted by the Company this _______ day of ______________, 1998.
By: _______________________________
Title: ______________________________
SUBSIDIARIES OF THE REGISTRANT
The Peoples National Bank
Bank of Anderson, National Association
Seneca National Bank
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at December 31, 1998 and the Consolidated Statement
of Income for the year Ended December 31, 1998 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,637
<INT-BEARING-DEPOSITS> 105,109
<FED-FUNDS-SOLD> 17,980
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 31,971
<INVESTMENTS-CARRYING> 4,128
<INVESTMENTS-MARKET> 4,265
<LOANS> 88,017
<ALLOWANCE> 1,093
<TOTAL-ASSETS> 151,671
<DEPOSITS> 120,100
<SHORT-TERM> 5,980
<LIABILITIES-OTHER> 253
<LONG-TERM> 2,000
0
0
<COMMON> 4,616
<OTHER-SE> 17,855
<TOTAL-LIABILITIES-AND-EQUITY> 151,671
<INTEREST-LOAN> 7,506
<INTEREST-INVEST> 2,337
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 9,843
<INTEREST-DEPOSIT> 4,217
<INTEREST-EXPENSE> 4,516
<INTEREST-INCOME-NET> 5,327
<LOAN-LOSSES> 194
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,475
<INCOME-PRETAX> 1,882
<INCOME-PRE-EXTRAORDINARY> 1,882
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1261
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.54
<YIELD-ACTUAL> 4.55
<LOANS-NON> 617
<LOANS-PAST> 0
<LOANS-TROUBLED> 8
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 987
<CHARGE-OFFS> 139
<RECOVERIES> 51
<ALLOWANCE-CLOSE> 1,093
<ALLOWANCE-DOMESTIC> 1,093
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
