United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 25049
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____ TO ____
Commission File No. 000-20616
---------
Peoples Bancorporation, Inc.
(Exact name of Registrant as specified in its charter)
South Carolina 57-0951843
-------------- ----------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1814 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)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting and non-voting common equity held by
nonaffiliates of the Registrant (2,253,320 shares) on March 1, 2000 was
approximately $42,813,000. 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
1, 2000: 2,988,402 shares of $1.67 par value common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 2000 Annual Meeting of
Shareholders - Part III
<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; 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 six 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.
2
<PAGE>
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.
Territory Served and Competition
The Peoples National Bank serves its customers from four locations; two
offices in the city of Easley and one office in the city of Pickens, South
Carolina which are located in Pickens County, and one office in the
unincorporated community of Powdersville, South Carolina which is 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 in Anderson County.
Seneca National Bank serves its 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
3
<PAGE>
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 derives 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 twenty-two (22) competitor bank branches,
six (6) savings institution branches, and three (3) credit union branches. In
Anderson County there are twenty-six (26) competitor bank branches, five (5)
savings institution branches and seven (7) credit union branches. In Oconee
County, there are thirteen (13) competitor bank branches, six (6) savings
institution branch and one (1) credit union branch. The Peoples National Bank
has approximately 10.5% of the FDIC insured deposits in Pickens County. The
Peoples National Bank and Bank of Anderson, combined, have approximately 5.7% of
the FDIC insured deposits in Anderson County. Seneca National Bank has
approximately 1.7% of the FDIC insured deposits in Oconee County.
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.
4
<PAGE>
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDER'S EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
The following is a presentation of the average consolidated balance
sheets of the Company for the years ended December 31, 1999, 1998 and 1997. This
presentation includes all major categories of interest-earning assets and
interest-bearing liabilities:
<TABLE>
<CAPTION>
AVERAGE CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
For the years ended December 31,
--------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Assets ........................................................ $ 6,617 $ 4,870 $ 3,271
Cash and Due from Banks
Taxable Securities ............................................ 34,308 25,093 18,023
Tax-Exempt Securities ......................................... 4,265 4,358 4,819
Federal Funds Sold ............................................ 14,414 11,126 4,513
Gross Loans ................................................... 119,623 79,181 73,955
Less: Loan Loss Reserve ...................................... 1,378 1,027 856
-------- -------- --------
Net Loans ..................................................... 118,245 78,154 73,099
-------- -------- --------
Other Assets .................................................. 9,156 6,055 4,034
-------- -------- --------
Total Assets .................................................. $187,005 $129,656 $107,759
======== ======== ========
Liabilities and
Shareholders' Equity
Noninterest-bearing Deposits .................................. $ 20,798 $ 13,884 $ 10,791
Interest-bearing Deposits:
Interest Checking ......................................... 21,739 14,214 12,544
Savings Deposits .......................................... 4,879 4,336 4,034
Money Market .............................................. 24,823 18,353 9,770
Certificates of Deposit ................................... 65,406 49,577 44,734
Individual Retirement Accounts ............................ 9,370 6,944 5,434
-------- -------- --------
Total Interest-bearing Deposits ............................... 126,217 93,424 76,516
-------- -------- --------
Short-term Borrowings ......................................... 12,309 4,638 4,696
Long-term Borrowings .......................................... 3,308 2,002 5,753
Other Liabilities ............................................. 1,093 1,101 908
-------- -------- --------
Total Liabilities ......................................... 163,725 115,049 98,664
-------- -------- --------
Common Stock .................................................. 4,737 3,426 2,695
Surplus ....................................................... 17,183 9,076 4,399
Undivided Profits ............................................. 1,360 2,105 2,001
-------- -------- --------
Total Shareholders' Equity ................................ 23,280 14,607 9,095
-------- -------- --------
Total Liabilities and Shareholders Equity ..................... $187,005 $129,656 $107,759
======== ======== ========
</TABLE>
5
<PAGE>
The following is a presentation of an analysis of the net interest
earnings of the Company for the years ended December 31, 1999, 1998 and 1997
with respect to each major category of interest-earning assets and each major
category of interest-bearing liabilities:
<TABLE>
<CAPTION>
Year Ended December 31, 1999
(dollars in thousands)
Average Interest Average
Assets Amount Earned/Paid Yield/Rate
------ ----------- ----------
<S> <C> <C> <C>
Securities - Taxable .............................................. $ 34,308 $ 1,969 5.74%
Tax-Exempt ........................................... 4,265 214 7.64%*
Federal Funds Sold ................................................ 14,414 783 5.43%
Gross Loans ....................................................... 119,623 10,611 8.87%
-------- --------
Total Earning Assets .......................................... $172,610 $ 13,577 7.93%*
======== ========
Liabilities
Interest Checking ................................................. $ 21,739 $ 456 2.10%
Savings Deposits .................................................. 4,879 87 1.78%
Money Market ...................................................... 24,823 986 3.98%
Certificates of Deposit ........................................... 65,406 3,404 5.20%
Individual Retirement Accounts .................................... 9,370 494 5.28%
-------- --------
126,217 5,427
Short-term Borrowings ............................................. 12,309 521 4.22%
Long-term Borrowings .............................................. 3,308 174 5.26%
-------- --------
Total Interest-bearing Liabilities ............................ $141,834 $ 6,122 4.32%
======== ========
Excess of interest-earning assets
over interest-bearing liabilities ............................... $ 30,776
========
Net interest income ............................................... $ 7,455
========
Interest rate spread .............................................. 3.61%*
Net yield on earning assets ....................................... 4.38%*
</TABLE>
* Calculated on a fully taxable equivalent basis using a federal tax rate of
34%.
For purposes of these analyses, non-accruing loans are included in the
average balances. Loan fees included in interest earned are not material to the
presentation. Net yield on interest earning assets is calculated by dividing net
interest earnings by total interest earning assets.
6
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998
(dollars in thousands)
Average Interest Average
Assets Amount Earned/Paid Yield/Rate
------ ----------- ----------
<S> <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%*
======== ========
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 .................................... 6,944 380 5.49%
-------- -------
93,424 4,217 4.51%
Short-term Borrowings ............................................. 4,638 186 4.01%
Long-term Borrowings .............................................. 2,002 113 5.64%
-------- -------
Total Interest-bearing Liabilities ............................ $100,064 $ 4,516 4.51%
======== =======
Excess of interest-earning assets
over interest-bearing liabilities ............................... $ 19,694
========
Net interest income ............................................... $ 5,327
========
Interest rate spread .............................................. 3.81%*
Net yield on earning assets ....................................... 4.55%*
</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.
7
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1997
(dollars in thousands)
Average Interest Average
Assets Amount Earned/Paid Yield/Rate
------ ----------- ----------
<S> <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%
======== =======
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%
======== =======
Excess of interest-earning assets
over interest-bearing liabilities ............................... $ 14,343
========
Net interest income ............................................... $ 4,198
========
Interest rate spread .............................................. 3.94%*
Net yield on earning assets ....................................... 4.27%*
</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.
8
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
1999 compared to 1998
(dollars in thousands)
Increase (Decrease) Due to
Volume Rate Change
------ ---- ------
Interest earned on:
Securities
<S> <C> <C> <C>
Taxable .................................................. $ 529 $ 10 $ 539
Tax-Exempt ............................................... (5) (10) (15)
Federal Funds Sold ............................................ 184 (79) 105
Net Loans ..................................................... 3,715 (610) 3,105
------- ------- -------
Total Interest Income ......................................... 4,423 (689) 3,734
------- ------- -------
Interest paid on:
Interest Checking ........................................ 160 19 179
Savings Deposits ......................................... 10 (12) (2)
Money Market ............................................. 259 (43) 216
Certificates of Deposit .................................. 828 (126) 702
Individual Retirement Accounts ........................... 129 (14) 115
------- ------- -------
1,386 (176) 1,210
Short-term Borrowings ......................................... 325 10 335
Long-term Borrowings .......................................... 69 (8) 61
------- ------- -------
Total Interest Expense ........................................ 1,780 (174) 1,606
------- ------- -------
Change in Net Interest Income ................................. $ 2,643 $ (515) $ 2,128
======= ======= =======
</TABLE>
As reflected in the table above, the increase in 1999 net interest
income of $2,128,000 was primarily due to the changes in volume. On the interest
income side, substantially all the $3,734,000 increase was related to the volume
growth in the loan and investment portfolios. On the deposit side, substantially
all the $1,606,000 increase in interest expense was due to the large volume of
interest-bearing deposit accounts coupled with additional interest expense
associated with both long-term and short term borrowings.
9
<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 Borrowings ......................................... (2) 42 40
Long-term Borrowings .......................................... (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.
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
10
<PAGE>
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.
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, 1999, approximately $10,792,000, or 42%, of commercial loans were unsecured
compared to approximately $3,844,000 or 28% at December 31, 1998.
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 have mortgage
loan originators who originate and package loans that are pre-sold at
origination to third parties and are classified as loans held for sale for
reporting purposes. In 1999, the Company originated $75,720,000, and sold
$69,058,000 in mortgage loans held for sale.
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, 1999, 1998, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
Loan Portfolio Composition
(dollars in thousands)
December 31,
Type of Loan 1999 1998 1997 1996 1995
- ------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial and Industrial .......................... $ 25,677 $ 13,812 $ 11,031 $ 7,296 $ 7,811
Real Estate ........................................ 101,277 62,099 55,291 47,644 40,102
Consumer Loans ..................................... 14,963 12,106 10,527 11,225 9,093
Mortgage loans held for sale ....................... 6,662 0 0 0 0
-------- -------- -------- -------- --------
Subtotal ...................................... 148,579 88,017 76,849 66,165 57,006
Less allowance for loan losses .................. 1,581 1,093 987 761 670
-------- -------- -------- -------- --------
Net Loans .......................................... $146,998 $ 86,924 $ 75,862 $ 65,404 $ 56,336
======== ======== ======== ======== ========
</TABLE>
11
<PAGE>
The following is a presentation of an analysis of maturities of loans
as of December 31, 1999:
<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 .......................... $ 9,659 $ 9,733 $ 6,285 $ 25,677
Real Estate ........................................ 31,897 52,321 17,059 101,277
Consumer Loans ..................................... 5,629 5,672 3,662 14,963
Mortgage Loans Held for Sale ....................... 6,662 0 0 6,662
-------- -------- -------- --------
Total .......................................... $ 53,847 $ 67,726 $ 27,006 $148,579
</TABLE>
All loans are recorded according to original terms, and demand loans,
overdrafts, mortgage loans held for sale and loans having no stated repayment
terms or maturity are reported as due in one year or less.
At December 31, 1999, the amount of loans due after one year with
predetermined interest rates totaled approximately $76,279,000 while the amount
of loans due after one year with floating interest rates totaled approximately
$18,453,000.
The following table presents information on non-performing loans and
real estate acquired in settlement of loans:
<TABLE>
<CAPTION>
December 31,
Non-performing Assets 1999 1998 1997 1996 1995
- --------------------- ---- ---- ---- ---- ----
(dollar in thousands)
Non-performing loans:
<S> <C> <C> <C> <C> <C>
Non-accrual loans ........................... $ 628 $ 617 $ 757 $ 398 $ 158
Past due 90 days or more .................... 0 0 142 123 347
Other restructured loans .................... 150 8 10 0 0
------ ------ ------ ------ ------
Total non-performing loans .................... $ 778 $ 625 $ 909 $ 411 $ 505
Real estate acquired in
settlement of loans ......................... 219 101 125 197 197
------ ------ ------ ------ ------
Total non-performing assets ................... $ 997 $ 726 $1,034 $ 608 $ 702
====== ====== ====== ====== ======
Non-performing assets as a
percentage of loans and
other real estate ........................... 0.67% 0.82% 1.34% 0.92% 1.23%
Allowance for loan losses as
a percentage of non-
performing loans ............................ 252% 177% 130% 146% 133%
</TABLE>
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.
12
<PAGE>
With respect to the loans accounted for on a non-accrual basis and
restructured loans, 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 $60,000 for
the year ended December 31, 1999. The amount of interest on those loans that was
included in net income for 1999 amounts to $30,000.
As of December 31, 1999, 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 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 collectability 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. 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, 1999 and 1998, the recorded
investment in loans for which impairment was recognized was $0 and $0,
respectively.
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.
13
<PAGE>
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 judgment 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 judgments 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
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, 1999, the allowance for loan losses was $1,581,000, or
1.06% of gross outstanding loans compared to $1,093,000, or 1.24% of gross
outstanding loans at December 31, 1998. During fiscal 1999, the Company
experienced net charge-offs of $83,000, or 0.07% of average loans, compared to
net charge-offs of $88,000, or 0.11% of average loans in fiscal 1998. Consumer
loan net charge-offs were $35,000 in 1999 compared to net charge-offs of $5,000
in 1998. Commercial loan net recoveries were $2,000 in 1999 compared to net
charge-offs of $27,000 in 1998. Mortgage loan net charge-offs were $50,000 in
1999 compared to net charge-offs of $56,000 in 1998.
The Company made provisions for loan losses of $571,000 in fiscal 1999
compared to $194,000 for fiscal 1998.
In fiscal 1999 and 1998, The Peoples National Bank made provisions for
loan losses of $204,000 and $101,000, respectively. In fiscal 1999 and 1998, The
Peoples National Bank recorded net charge-offs of $83,000 and $88,000,
respectively. In fiscal 1999, Bank of Anderson made provisions for loan losses
of $219,000 compared to $93,000 in 1998 as it continued to establish its
allowance for loan losses. Seneca National Bank, which commenced operations in
February of 1999, made provisions for loan losses of $148,000 in 1999 as it
began to establish its allowance for loan losses. Bank of Anderson and Seneca
National Bank did not record any charge-offs in 1999 or 1998.
14
<PAGE>
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 tables set forth the allocation of the allowance for loan
losses based on the percentage of total loans in each category at December 31,
1999, 1998, 1997, 1996 and 1995. Management does not segregate the allowance by
category and the entire allowance is available to absorb losses from all
categories.
<TABLE>
<CAPTION>
Composition of Allowance for Loan Losses
(dollars in thousands)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial and industrial ..................... $ 286 $ 172 $ 142 $ 84 $ 92
Real Estate ................................... 1,128 771 710 548 471
Consumer ...................................... 167 150 135 129 107
------ ------ ------ ------ ------
Total .................................... $1,581 $1,093 $ 987 $ 761 $ 670
====== ====== ====== ====== ======
<CAPTION>
Percentage of Loans in Category
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial and industrial ..................... 18.09% 15.69% 14.35% 11.04% 13.70%
Real Estate ................................... 71.36% 70.55% 71.95% 71.97% 70.35%
Consumer ...................................... 10.55% 13.75% 13.70% 16.99% 15.95%
----- ----- ----- ----- -----
Total .................................... 100.00% 100.00% 100.00% 100.00% 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.
15
<PAGE>
<TABLE>
<CAPTION>
Summary of Loan Loss Experience
(dollars in thousands)
Years Ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance at beginning of year ................................ $1,093 $ 987 $ 761 $ 670 $ 619
Charge-offs:
Commercial and industrial ............................... 15 30 32 43 2
Real estate ............................................. 50 56 8 2 29
Consumer ................................................ 80 53 86 148 60
------ ------ ------ ------ ------
145 139 126 193 91
Recoveries:
Commercial and industrial ............................... 17 3 11 10 14
Real estate ............................................. 0 0 5 1 2
Consumer ................................................ 45 48 15 13 18
------ ------ ------ ------ ------
62 51 28 24 34
------ ------ ------ ------ ------
Net Charge-offs .............................................. 83 88 98 169 57
Provision for loan losses .................................... 571 194 324 260 108
------ ------ ------ ------ ------
Balance at end of year ....................................... $1,581 $1,093 $ 987 $ 761 $ 670
====== ====== ====== ====== ======
<CAPTION>
Asset Quality Ratios:
- --------------------
Years Ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net charge-offs to average loans ................... 0.07% 0.11% 0.13% 0.28% 0.11%
outstanding during the year
Net charge-offs to total loans ..................... 0.06% 0.10% 0.13% 0.26% 0.10%
outstanding at end of year
Allowance for loan losses to ....................... 1.32% 1.38% 1.33% 1.26% 1.23%
average loans
Allowance for loan losses to ....................... 1.06% 1.24% 1.29% 1.15% 1.17%
total loans
Net charge-offs to allowance for ................... 5.25% 8.07% 9.93% 22.33% 8.16%
loan losses
Net charge-offs to provision for ................... 14.54% 45.40% 30.21% 65.00% 53.36%
loan losses
</TABLE>
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, 1999. 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
16
<PAGE>
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.
The following table summarizes the book and market values of investment
securities held by the Company at December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
Securities Composition
(dollars in thousands)
1999 1998 1997
---- ---- ----
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
---- ----- ---- ----- ---- -----
AVAILABLE FOR SALE
<S> <C> <C> <C> <C> <C> <C>
Obligations of U.S. Treasury and
other U.S. Government agencies ............... $30,957 $30,184 $31,087 $31,014 $18,606 $18,560
State and Political Subdivisions ............... 0 0 125 126 1,048 1,055
Other Securities ............................... 1,025 1,025 831 831 696 705
------- ------- ------- ------- ------- -------
Total Available for Sale ....................... $31,982 $31,209 $32,043 $31,971 $20,350 $20,320
------- ------- ------- ------- ------- -------
HELD FOR INVESTMENT
State and Political Subdivisions ............... $ 4,445 $ 4,438 $ 4,129 $ 4,265 $ 3,852 $ 3,954
------- ------- ------- ------- ------- -------
Total Held for Investment ...................... $ 4,445 $ 4,438 $ 4,129 $ 4,265 $ 3,852 $ 3,954
------- ------- ------- ------- ------- -------
Total ................................. $36,427 $35,647 $36,172 $36,236 $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 in
comprehensive income. Securities classified as held for investment are carried
at cost, adjusted for the amortization of premiums and the accretion of
discounts. In order to qualify as held for investment, the Company must have the
ability to hold the securities to maturity. The Company has no trading
securities.
At December 31, 1999, the Company's total investment portfolio
classified as available for sale had a book value of $31,982,000 and a market
value of $31,209,000 for an unrealized net loss of $773,000.
17
<PAGE>
The following table indicates the respective maturities and weighted
average yields of securities as of December 31, 1999:
<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 ........................................................................ $ 1,399 5.89%
1-5 Years ....................................................................... 23,503 6.01%
5-10 Years ...................................................................... 3,197 6.21%
Greater than 10 Years ........................................................... 2,858 5.89%
Other Securities
No stated maturity .............................................................. 1,025 7.16%
-------
$31,982 5.99%
=======
HELD FOR INVESTMENT
State and political subdivisions:
0-1 Year ........................................................................ $ 684 8.67%*
1-5 Years ....................................................................... 2,050 7.69%*
5-10 Years ...................................................................... 1,611 6.78%*
Greater than 10 Years ........................................................... 100 6.74%*
-------
Total .................................................................. $ 4,445 7.50%*
=======
</TABLE>
*Calculated on a fully taxable equivalent basis using a federal tax rate of 34%.
DEPOSITS
The Company offers a full range of interest-bearing and
noninterest-bearing accounts, including commercial and retail checking accounts,
negotiable orders of withdrawal ("NOW") accounts, public funds accounts, money
market accounts, individual retirement accounts, including Keogh plans with
stated maturities, regular interest-bearing statement savings accounts and
certificates of deposit with fixed rates and a range of maturity date options.
The sources of deposits are residents, businesses and employees of businesses
within the Company's market areas obtained through the personal solicitation of
the Company's officers and directors, direct mail solicitations and
advertisements published in the local media. The Company pays competitive
interest rates on interest checking, savings, money market, time and individual
retirement accounts. In addition, the Banks have implemented a service charge
fee schedule competitive with other financial institutions in the Banks' 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 1999 were $147,015,000, compared to
$107,308,000 the prior year, an increase of $39,707,000, or 37%. The increase in
average deposits in 1999 is largely attributable to new deposits generated by
Bank of Anderson and Seneca National Bank.
18
<PAGE>
Average noninterest-bearing deposits increased approximately
$6,914,000, or 50%, in 1999, average interest-bearing checking accounts
increased $7,525,000,or 53%, average money market accounts increased
$6,470,000,or 35%, average certificates of deposit increased $15,829,000, or
32%, and individual retirement accounts increased $2,426,000, or 35%. The
significant growth in all deposit categories is attributable to new deposits
generated by Bank of Anderson and Seneca National Bank in 1999, coupled with
continued internal deposit growth at The Peoples National Bank. Competition for
deposit accounts is primarily based on the interest rates paid, service charge
structure, location convenience and other services offered.
The following table presents, for the years ended December 31, 1999,
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)
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing Deposits ................... $20,798 $13,884 $10,791
Interest-bearing Deposits
Interest Checking .......................... 21,739 14,214 12,544 2.10% 1.95% 2.48%
Savings Deposits ........................... 4,879 4,336 4,034 1.78% 2.05% 2.30%
Money Market ............................... 24,823 18,353 9,770 3.98% 4.20% 4.02%
Certificates of Deposit .................... 65,406 49,577 44,734 5.20% 5.45% 5.50%
Individual Retirement Accounts ............. 9,370 6,944 5,434 5.28% 5.49% 5.66%
</TABLE>
The Company's core deposit base consists of consumer time deposits less
than $100,000, 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 80% in 1999 compared to 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 accept 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,
1999:
Time Certificates
of Deposit
----------
(dollars in thousands)
3 months or less .................. $ 19,061
4-6 months ........................ 12,954
7-12 months ....................... 4,226
Over 12 months .................... 1,767
-------------------
Total .................... $ 38,008
===================
19
<PAGE>
RETURN ON EQUITY AND ASSETS
Returns on average consolidated assets and average consolidated equity
for the years ended December 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Return on average assets ............................................ 0.74% 0.96% 1.21%
Return on average equity ............................................ 5.91% 8.71% 14.34%
Average equity to average assets ratio .............................. 12.45% 11.27% 8.44%
Dividend payout ratio ............................................... 28.95% 24.09% 16.06%
</TABLE>
SHORT-TERM BORROWINGS
The following table summarizes the Company's short-term borrowings for
the years ended December 31, 1999, 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.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at year end ........................................... $15,434,000 $ 5,980,000 $ 4,434,000
Rate at year end .............................................. 4.93% 2.90% 3.10%
Maximum amount outstanding at any month end ................... $16,595,000 $ 5,980,000 $ 4,955,000
Average amount outstanding during the year .................... $12,803,000 $ 4,575,000 $ 4,687,000
Average rate paid during the year ............................. 4.07% 3.30% 3.10%
</TABLE>
MARKET RISK - INTEREST RATE SENSITIVITY
Market risk is the risk of loss arising from adverse changes in the
fair value of financial instruments due to a change in interest rates, exchange
rate and equity prices. The Company's primary risk is interest rate risk.
The primary objective of Asset/Liability Management at the Company is
to manage interest rate risk and achieve reasonable stability in net interest
income throughout interest rate cycles. This is achieved by maintaining the
proper balance of rate sensitive earning assets and rate sensitive earning
liabilities. The relationship of rate sensitive earning assets to rate sensitive
liabilities, is the principal factor in projecting the effect that fluctuating
interest rates will have on future net interest income. Rate sensitive assets
and interest-bearing liabilities are those that can be repriced to current
market rates within a relatively short time period. Management monitors the rate
sensitivity of earning assets and interest-bearing liabilities over the entire
life of these instruments, but places particular emphasis on the first year. At
December 31, 1999, approximately 45% of the Company's interest-earning assets
repriced or matured within one year compared to approximately 96% of
interest-bearing liabilities.
The following table shows the Company's rate sensitive position at
December 31, 1999, as measured by gap analysis (the difference between the
earning asset and interest-bearing liability amounts scheduled to be repriced to
current market rates in subsequent periods). Over the next 12 months
20
<PAGE>
approximately $72 million more interest-bearing liabilities than earning assets
can be repriced to current market rates at least once. As a result, the one-year
cumulative gap (the ratio of rate sensitive assets to rate sensitive
liabilities) at December 31, 1999, was 56%, indicating a "liability sensitive"
position.
The following table sets forth the Company's interest sensitivity
position as of December 31, 1999.
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 ................................ $ 9,200 $ 0 $ 0 $ 0 $ 9,200
Investment Securities ............................. 388 1,790 26,143 8,106 36,427
Interest Bearing Deposits in Other Banks .......... 5,047 0 0 0 5,047
Loans ............................................. 63,631 10,461 59,801 14,686 148,579
-------- -------- -------- -------- --------
Total Interest-Earning Assets ....................... $ 78,266 $ 12,251 $ 85,944 $ 22,792 $199,253
-------- -------- -------- -------- --------
INTEREST-BEARING LIABILITIES:
Interest Checking ............................... 0 24,295 0 0 24,295
Savings Deposits ................................ 0 4,822 0 0 4,822
Money Market .................................... 26,808 0 0 0 26,808
Time Deposits ................................... 34,103 52,141 6,519 135 92,898
Other Borrowings ................................ 20,434 0 0 0 20,434
-------- -------- -------- -------- --------
Total Interest-Bearing Liabilities .................. $ 81,345 $ 81,258 $ 6,519 $ 135 $169,257
-------- -------- -------- -------- --------
Interest sensitive gap .............................. $ (3,079) $(69,007) $ 79,425 $ 22,657
Cumulative interest sensitive gap ................... $ (3,079) $(72,086) $ 7,339 $ 29,996
RSA/RSL ............................................. 96% 15%
Cumulative RSA/RSL .................................. 96% 56%
</TABLE>
RSA - rate sensitive assets; RSL - rate sensitive 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
21
<PAGE>
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 also use an asset/liability
simulation model that estimates balance sheet and earnings variations under
different interest rate environments to measure and manage interest rate risk.
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 Banks are
also members of the Federal Home Loan Bank System and have the ability to borrow
both short and long term funds on a secured basis. At December 31, 1999, The
Peoples National Bank had $5,000,000 in long-term borrowings from the Federal
Home Loan Bank of Atlanta. At December 31, 1999, The Peoples National Bank had
unused borrowing capacity from the Federal Home Loan Bank of Atlanta of
$18,000,000. The Company's other two bank subsidiaries, Bank of Anderson, N. A.
and Seneca National Bank have established lines of credit with the Federal Home
Loan Bank totaling ten percent (10%) of each respective bank's total assets. At
December 31, 1999, the Banks', in aggregate, had unused federal funds lines of
credit totaling $10,800,000 with correspondent banks.
22
<PAGE>
Peoples Bancorporation, Inc., the parent holding company, has limited
liquidity needs. Peoples Bancorporation requires liquidity to pay limited
operating expenses and dividends. The parent company's liquidity needs are
fulfilled through management fees assessed each subsidiary bank and from
dividends passed up to the parent company from The Peoples National Bank.
The Company plans to meet its future cash needs through the liquidation
of temporary investments, maturities or sales of loans and investment securities
and generation of deposits. 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 judgment, additional capital is
warranted by a deterioration of financial condition or when high levels of risk
otherwise exist. The Banks have not been notified that they must maintain
capital levels above regulatory minimums. The Company's leverage capital ratio
was 11.05% at December 31, 1999 compared to 14.87% at December 31, 1998. The
leverage capital ratio for The Peoples National Bank was 7.87% at December 31,
1999 compared to 7.60% at December 31, 1998. Bank of Anderson's leverage capital
ratio was 12.61% at December 31, 1999 compared to 25.05% at December 31, 1998.
Seneca National Bank's leverage capital ratio was 20.19% at December 31, 1999.
The decreases in the Company's and Bank of Anderson's leverage capital ratios
resulted from growth experienced during 1999.
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
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
23
<PAGE>
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 16.23% and its Tier 1 capital to risk weighted assets ratio
was 15.22% at December 31, 1999, compared to 23.97% and 22.86%, respectively, at
December 31, 1998. The Peoples National Bank's risk-based capital ratio was
11.73% and its Tier 1 capital to risk weighted assets ratio was 10.75% at
December 31, 1999, compared to 13.16% and 11.96%, respectively, at December 31,
1998. Bank of Anderson's risk-based capital ratio was 19.21% and its Tier 1
capital to risk weighted assets ratio was 18.10% at December 31, 1999 compared
to 43.40% and 42.48%, respectively at December 31, 1998. Seneca National Bank's
risk-based capital ratio was 26.62% and its Tier 1 capital to risk weighted
assets ratio was 25.46% at December 31, 1999. The decreases in the Company's,
The Peoples National Bank's and Bank of Anderson's risk-based capital ratios and
their Tier 1 capital to risk weighted assets ratios in 1999 resulted from growth
experienced during 1999. (See "Item 7, Notes to Consolidated Financial
Statements).
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.
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<PAGE>
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 1999, The Peoples National Bank paid dividends of $398,079 to the
Company compared to $299,598 in 1998. Bank of Anderson paid no dividends in 1999
or 1998. Seneca National Bank paid no dividends in 1999.
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.
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<PAGE>
CORRESPONDENT BANKING
Correspondent banking involves the provision of services by one bank to
another bank, which cannot provide that service for itself from an economic,
regulatory or practical standpoint. The Banks purchase correspondent services
offered by larger banks, including check collections, purchase of Federal Funds,
security safekeeping, investment services, over-line 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. Managements of the Banks have
established correspondent relationships with Wachovia Bank, N. A., 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
During 1998, the Company established a Year 2000 Project Team whose
responsibilities were to identify all computer systems utilized by the Company
and to ensure that those systems would not be affected by the problem that was
commonly called the "Year 2000 Problem". As a result of the team's efforts, the
Company did not experience any problems from the "Year 2000 Problem". The
Company's expenses in preparing for the Year 2000 Problem in 1999 were not
material.
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.
As discussed below under the caption "Recent Legislation", Congress has
recently adopted extensive changes in the laws governing the financial services
industry. Among the changes adopted are creation of the financial holding
company, a new type of bank holding company with powers that greatly exceed
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<PAGE>
those of standard holding companies, and creation of the financial subsidiary, a
subsidiary that can be used by national banks to engage in many, though not all,
of the same activities in which a financial holding company may engage. The
legislation also establishes the concept of functional regulation whereby the
various financial activities in which financial institutions engage are overseen
by the regulator with the relevant regulatory experience. Neither the Company
nor the Banks has yet made a decision as to how to adapt the new legislation to
its use. Accordingly, the following discussion relates to the supervisory and
regulatory provisions that apply to the Company and the Banks as they currently
operate.
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.
Under the Riegel-Neal Interstate Banking and Branching Efficiency Act
of 1994, 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 restrictions. The legislation also provides that in any state that has not
previously elected to prohibit out-of-state banks from operating interstate
branches within its territory, adequately capitalized and managed bank holding
companies can consolidate their multi-state bank operations into a single bank
subsidiary and 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.
The Riegel-Neal Act, together with legislation adopted in South
Carolina, 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
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<PAGE>
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.
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 discussed below under "Recent Legislation", a bank holding company
that meets certain requirements may now qualify as a financial holding company
and thereby significantly increase the variety of services it may provide and
the investments it may make.
The Company also is subject to limited regulation by the South Carolina
State Board of Financial Institutions (the "State Board"). Consequently, the
Company must give notice to, or receive the approval of, the State Board
pursuant to applicable law and regulations prior to engaging in the acquisition
of banking or non-banking institutions or assets. The Company also may be
required to 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
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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 is evaluated as part of the
examination process, and also is 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
and surplus to any person. In addition, a national bank may grant loans and
extensions of credit to a single person up to 10% of its unimpaired capital and
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, among others, 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.
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A joint rule promulgated by the Federal Reserve Board, the FDIC and the
Comptroller provides that the banking agencies must 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 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.
Another joint rule promulgated by the financial institution regulators
further provides that the risk-based capital guidelines must take account of
concentration of credit risk and the risk of non-traditional activities. The
rule explicitly identifies concentration of credit risk and the risk arising
from other sources, as well as an institution's overall capital adequacy.
The Company is a legal entity separate and distinct from the Banks.
Most of the revenues of the Company are expected to continue 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 retained net income (as defined and
interpreted by regulation) for that year to date plus, (ii) the retained net
income (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 income (including the portion
transferred to surplus) exceeds losses.
The payment of dividends by the Company and the Banks may also be
affected or limited by other factors, such as the requirements to maintain
adequate capital above regulatory guidelines. In addition, if, in the opinion of
the applicable regulatory authority, a bank under its jurisdiction is engaged in
or is about to engage in an unsafe or unsound practice (which, depending on the
financial condition of the Banks, could include the payment of dividends), such
authority may require, after notice and hearing, that such bank cease and desist
from such practice. The OCC has indicated that paying dividends that deplete a
national bank's capital base to an inadequate level would be an unsafe and
unsound banking practice. The Federal Reserve, the OCC and the FDIC have issued
policy statements which provide that bank holding companies and insured banks
should generally only pay dividends out of current operating earnings.
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.
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The Banks are required to pay semiannual assessments to the FDIC. Since
January 1997, the assessments imposed on all FDIC deposits for deposit insurance
has 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.
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.
Recent Legislation
On November 12, 1999, the President signed the Gramm-Leach-Bliley Act,
which makes it easier for affiliations between banks, securities firms and
insurance companies to take place. The Act removes Depression-era barriers that
had separated banks and securities firms, and seeks to protect the privacy of
consumers' financial information. Most of the provisions of the Act require the
applicable regulators to adopt regulations in order to implement these
provisions.
Under provisions of the new legislation, which are effective March 11,
2000, banks, securities firms and insurance companies are able to structure new
affiliations through a holding company structure or through a financial
subsidiary. The legislation creates a new type of bank holding company called a
"financial holding company" which has powers much more extensive than those of
standard holding companies. These expanded powers include authority to engage in
"financial activities," which are activities that are (1) financial in nature;
(2) identical to activities that are financial in nature; or (3) complimentary
to a financial activity and that do not impose a safety and soundness risk.
Significantly, the permitted financial activities for financial holding
companies include authority to engage in merchant banking and insurance
activities, including insurance portfolio investing. A bank holding company can
qualify as a financial holding company and expand the services it offers only if
all of its subsidiary depository institutions are well-managed, well-capitalized
and have received a rating of "satisfactory" on their last Community
Reinvestment Act examination.
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The legislation also creates another new type of entity called a
"financial subsidiary." A financial subsidiary may be used by a national bank or
a group of national banks to engage in many of the same activities permitted for
a financial holding company, though several of these activities, including real
estate development or investment, insurance or annuity underwriting, insurance
portfolio investing and merchant banking, are reserved for financial holding
companies. A bank's investment in a financial subsidiary affects the way in
which the bank calculates its regulatory capital, and the assets and liabilities
of financial subsidiaries may not be consolidated with those of the bank. The
bank must also be certain that its risk management procedures are adequate to
protect it from financial and operational risks created both by itself and by
any financial subsidiary. Further, the bank must establish policies to maintain
the separate corporate identities of the bank and its financial subsidiary and
to prevent each from becoming liable for the obligations of the other.
The Act also establishes the concept of "functional supervision,"
meaning that similar activities should be regulated by the same regulator.
Accordingly, the Act spells out the regulatory authority of the bank regulatory
agencies, the Securities and Exchange Commission and state insurance regulators
so that each type of activity is supervised by a regulator with corresponding
expertise. The Federal Reserve Board is intended to be an umbrella supervisor
with the authority to require a bank holding company or financial holding
company or any subsidiary of either to file reports as to its financial
condition, risk management systems, transactions with depository institution
subsidiaries and affiliates, and compliance with any federal law that it has
authority to enforce.
Although the Act reaffirms that states are the regulators for insurance
activities of all persons, including federally chartered banks, the Act
prohibits states from preventing depository institutions and their affiliates
from conducting insurance activities.
The Act also establishes a minimum federal standard of privacy to
protect the confidentiality of a consumer's personal financial information and
gives the consumer the power to choose how personal financial information may be
used by financial institutions. The privacy provisions of the Act will not go
into effect until after adoption of implementing regulations by various federal
agencies.
The Company anticipates that the Act and the regulations which are to
be adopted pursuant to the Act will be likely to create new opportunities for it
to offer expanded services to customers in the future, though the Company has
not yet determined what the nature of the expanded services might be or when the
Company might find it feasible to offer them. The Company further expects that
the Act will increase competition from larger financial institutions that are
currently more capable than the Company of taking advantage of the opportunity
to provide a broader range of services. However, the Company continues to
believe that its commitment to providing high quality, personalized service to
customers will permit it to remain competitive in its market area.
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EMPLOYEES
The Company and the Banks presently employ eighty-seven (87) full-time
and twelve (12) part-time persons. Management believes that its employee
relations are good.
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 6,624 square feet on 0.566 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 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 10,412 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 three branch facilities:
one in Powdersville, South Carolina located approximately seven miles east of
the Bank's main office containing approximately 2,096 square feet in a one-story
brick building situated on 0.812 acres of land; a second branch office in
Pickens, South Carolina located approximately ten miles west of the Bank's main
office containing approximately 6,688 square feet in a two-story building on
0.925 acres of land; and a third office in Easley located approximately 4 miles
west of the Bank's main office containing approximately 3,523 square feet in a
one and one-half story building situated on l.077 acres of land.. All 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 one location in
Anderson, South Carolina. The two-story building contains approximately 6,992
square feet and is situated on 1.935 acres of land owned by Bank of Anderson in
Anderson, South Carolina.
Seneca National Bank operates out of a two-story brick building
containing approximately 6,688 square feet situated on 1.097 acres of land in
Seneca, South Carolina which is owned by Seneca National Bank.
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.
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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,
1999 to a vote of security holders of the Company.
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 5%
stock dividend issued January 14, 2000):
Sales Price of the Company's Common Stock
Quarter Ended Low High
March 31, 1998 $ 11.76 $ 11.76
June 30, 1998 $ 11.76 $ 11.76
September 30, 1998 $ 11.76 $ 11.76
December 31, 1998 $ 11.76 $ 14.25
March 31, 1999 $ 14.25 $ 14.25
June 30, 1999 $ 16.15 $ 16.15
September 30, 1999 $ 17.10 $ 17.10
December 31, 1999 $ 18.05 $ 18.05
As of March 1, 1999, the number of holders of record of the Company's
common stock was 1,110.
During 1999 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 8, 1999, June 14, 1999, September 13, 1999 and
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December 13, 1999. In addition, on each of July 13, 1992, July 12, 1993,
November 14, 1994, November 13, 1995, October 15, 1996, October 14, 1997,
November 9, 1998 and December 13, 1999 the Company declared 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 (see
Item 1, "PAYMENT of DIVIDENDS").
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FIVE-YEAR FINANCIAL SUMMARY
(All mounts, except per share data, in thousands)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
INCOME STATEMENT DATA
<S> <C> <C> <C> <C> <C>
Net interest income ......................... $ 7,455 $ 5,327 $ 4,583 $ 4,022 $ 3,560
Provision for loan losses ................... 571 194 325 260 108
Other operating income ...................... 1,768 1,224 757 591 512
Other operating expenses .................... 6,534 4,475 3,072 2,751 2,700
Net income .................................. 1,375 1,261 1,304 1,065 854
PER SHARE DATA *
Net income per common share -
Basic .................................... $ 0.46 $ 0.54 $ 0.70 $ 0.58 $ 0.49
Cash dividends declared ..................... $ 0.14 $ 0.14 $ 0.12 $ 0.12 $ 0.10
BALANCE SHEET DATA
Total Assets ................................ $213,913 $151,671 $113,417 $ 99,723 $ 84,162
Total Deposits .............................. 168,776 120,100 96,190 80,194 71,173
Total Loans (Net) ........................... 146,998 86,924 75,862 65,404 56,336
Investment Securities ....................... 35,654 36,100 24,173 19,087 18,776
Total Earning Assets ........................ 196,899 141,004 105,592 94,989 78,901
Shareholders' Equity ........................ 23,346 22,471 9,510 8,378 7,531
OTHER DATA
Return on average assets .................... 0.74% 0.96% 1.21% 1.21% 1.05%
Return on average equity .................... 5.91% 8.71% 14.34% 13.30% 12.64%
</TABLE>
* Per share data has been restated to reflect 5% stock dividends in 1995, 1996,
1997, 1998 and 1999 and the two-for-one stock split in 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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.
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DISCUSSION OF CHANGES IN FINANCIAL CONDITION
Total assets increased $62,242,000, or 41.0%, from $151,671,000 at
December 31, 1998 to $213,913,000 at December 31, 1999.
The Company experienced significant loan growth during 1999 as total
outstanding loans, the largest single category of assets, increased $60,562,000,
or 68.8%, to $148,579,000 at December 31, 1999 as a result of an increase in the
amount of outstanding loans at the Company's three bank subsidiaries. Total
loans outstanding at December 31, 1999 for The Peoples National Bank amounted to
$110,270,000, a $30,081,000, or 37.5%, increase over the $80,189,000 reported at
December 31, 1998. Total loans outstanding at December 31, 1999 for Bank of
Anderson amounted to $25,986,000, a $18,158,000, or 232.0% increase over the
$7,828,000 reported at December 31, 1998. Total loans outstanding at December
31, 1999 for Seneca National Bank, which commenced operations in February 1999,
amounted to $12,323,000.
Premises and equipment increased $2,043,000, or 41.5%, during the
period ending December 31, 1999. This increase is largely attributable to
building and equipment costs associated with the main office of Seneca National
Bank which was occupied in February 1999, the main office of Bank of Anderson
which was occupied in April of 1999, and building and equipment costs associated
with a new branch facility for The Peoples National Bank which officially opened
for business in November 1999.
The Company's securities portfolios, collectively, at amortized cost,
remained relatively stable for 1999 when compared to 1998. Cash and due from
bank's balances increased $3,094,000, or 90.7%, to $6,507,000 at December 31,
1999. The increase was largely the result of a build up in cash in anticipation
of additional currency needs by the Banks' customers as a result of Y2K concerns
and additional uncollected funds in correspondent bank accounts at year-end
resulting from a larger deposit base. $5,047,000 in interest-bearing deposits in
other banks is primarily due to a $5,000,000 Certificate of Deposit purchased
from the Federal Home Loan Bank of Atlanta. The amount of Federal funds sold at
December 31, 1999 was $9,200,000, a decrease of $8,780,000, or 95.4%, from the
amount sold at December 31,1998. The decrease in Federal funds sold was largely
attributable to the increase in loans experienced by the Banks in 1999 coupled
with the increase in cash on hand held by the Banks in anticipation of possible
Y2K currency needs.
Accrued interest receivable, comprised largely of accrued interest on
the Company's loans, increased $622,000, or 67.5%, to $1,544,000 at December 31,
1999. The significant increase resulted from the increase in outstanding loans
experienced by the Company in 1999.
Other assets, comprised largely of cash surrender value on life
insurance policies on key executives, prepaid expenses, other real estate owned
and deferred income taxes, increased $588,000, or 41.8%, to $1,994,000 at
December 31, 1999. This increase is largely attributable to an increase of
36
<PAGE>
$118,000 in other real estate owned to $219,000 at December 31, 1999, an
increase in the cash surrender value of life insurance policies of approximately
$56,000, an increase in the amount of prepaid expenses of approximately $115,000
and an increase in the amount of deferred income taxes associated with recording
the Company's available for sale securities at market value in accordance with
FASB #115.
Total liabilities increased $61,367,000, or 47.5%, to $190,567,000 at
December 31, 1999 largely as a result of a $48,676,000, or 40.5%, increase in
total deposits at the Company's bank subsidiaries. Of the $48,676,000 increase
in total deposits, $19,344,000, or 39.7%, is attributable to new deposits
generated by Bank of Anderson, N. A. and $13,951,000, or 28.7%, is attributable
to new deposits generated by Seneca National Bank. The remaining increase
resulted from continued growth in deposits at The Peoples National Bank. The
majority of the deposit growth during 1999 was in interest-bearing deposits,
largely certificates of deposit and interest-bearing transaction accounts.
Other interest-bearing liabilities, comprised of securities sold under
repurchase agreements and Federal Home Loan Bank borrowings, increased
$9,454,000 and $3,000,000, respectively during 1999 from December 31, 1998
levels. The $9,454,000 or 158.1% increase in securities sold under repurchase
agreements is largely attributable to monies temporarily placed with the Company
by two local municipalities from bond issues during 1999. The $3,000,000
increase in Federal Home Loan Bank borrowings resulted from the Company's
decision to borrow additional funds to take advantage of an interest rate
arbitrage.
Shareholders' equity increased $875,000, or 3.9%, from December 31,
1998 to December 31, 1999 as a result of net earnings for the period of
$1,375,000 and the exercise of stock options under the Company's Stock Option
Plans in the amount of $368,000. These additions to shareholders equity were
partially offset by the declaration and payment of cash dividends in 1999 and an
increase in the amount of net unrealized losses on the Company's "available for
sale" securities portfolio of $462,000 during the period.
EARNINGS PERFORMANCE
1999 Compared to 1998
Overview
The consolidated Company's operations for the twelve-months ended
December 31, 1999 resulted in net income of $1,375,000, or $0.46 per basic share
($0.44 per diluted share), compared to $1,261,000, or $0.54 per basic share
($0.51 per diluted share) for the twelve-months ended December 31, 1998. The
increase in the Company's net income of $114,000, or 9.0%, for 1999 resulted
largely from a significant increase in total interest income, largely from
loans, coupled with a significant increase in non-interest income during 1999.
The decreases in basic and diluted earnings per share in 1999 are attributable
37
<PAGE>
to an increase in the number of outstanding shares of common stock as a result
of the two public stock offerings completed in the third quarter of 1998. 1999's
results were significantly affected by early operating losses of both Bank of
Anderson, N. A., which commenced operations in September 1998, and Seneca
National Bank, which commenced operations in February 1999. For the
twelve-months ended December 31, 1999, Bank of Anderson recorded net losses of
$158,000 and Seneca National Bank recorded net losses of $204,000. The Peoples
National Bank recorded net profits of $1,718,000 in 1999, an increase of
$50,000, or 3.0%, over 1998 net profits.
Interest Income, Interest Expense and Net Interest Income
Net interest income, before provision for loan losses, the major
component of the Company's income, is the amount by which interest and fees on
interest-earning assets exceeds the interest paid on interest-bearing deposits
and other interest-bearing funds. The Company's net interest income increased
$2,128,000, or 40.0%, to $7,455,000 for the year-ended December 31, 1999
compared to $5,327,000 for the year-ended December 31, 1998. The increase is
largely attributable to an increase in interest income on loans of $3,105,000 or
41.4%, resulting from an increase in the volume of outstanding loans during 1999
coupled with an increase in interest income on taxable investment securities of
$539,000 or 37.7%, resulting from an increase in the volume of average
outstanding securities in 1999.
The Company's total interest income increased $3,734,000, or 38.0%, to
$13,577,000 in 1999 compared to $9,843,000 for 1998. As previously disclosed,
the increase is largely attributable to an increase in loan interest income of
$3,105,000 coupled with an increase in interest income on taxable investment
securities resulting from an increase in the average outstanding volume of these
categories of interest-earning assets in 1999 when compared to 1998.
Total interest expense increased $1,606,000, or 35.6% to $6,122,000 in
1999 compared to $4,516,000 for 1998. This increase is attributable to an
increase of $1,210,000, or 28.7 %, on interest-bearing deposit accounts, an
increase of $335,000, or 180.1%, on securities sold under repurchase agreements,
and an increase of $61,000, or 54.0%, on borrowings from the Federal Home Loan
Bank. The increases in the amount of interest paid on these categories of
interest-bearing liability accounts in 1999 is largely attributable to an
increase in the volume of outstanding balances in these types of accounts in
1999 when compared to 1998.
Provision and Allowance for Loan Losses
The Company's provision for loan losses was $571,000 in 1999 compared
to $194,000 for 1998, a $377,000, or 194.3% increase. This increase is
attributable to the significant increase in the volume of outstanding loans
during 1999 when compared to 1998. The Peoples National Bank made provisions for
loan losses of $204,000 in 1999 compared to $101,000 in 1998. Bank of Anderson
made provisions for loan losses of $219,000 in 1999 compared to $93,000 in 1998
as it continued to establish its allowance for loan losses. Seneca National
Bank, which commenced operations in February 1999, made provisions for loan
38
<PAGE>
losses of $148,000 in 1999 as it began to establish its allowance for loan
losses. During fiscal 1999, the Company experienced net charge-offs of $83,000,
or 0.07% of average outstanding loans, compared to net charge-offs of $88,000,
or 0.11% of average outstanding loans in fiscal 1998. All net charge-offs for
1999 and 1998 are attributable to loans charged off at The Peoples National
Bank. At December 31, 1999, the allowance for loan losses as a percentage of
outstanding loans was 1.06% compared to 1.24% at December 31, 1998.
At December 31, 1999 the Company had $628,000 in non-accrual loans, one
$150,000 restructured loan, no loans past due 90 days or more and still accruing
interest and $219,000 in other real estate owned, compared to $617,000, $8,000,
$0 and $101,000, respectively at December 31, 1998. Non-performing assets as a
percentage of loans and other real estate owned were 0.42% and 0.74% at December
31, 1999 and 1998, respectively.
In the cases of non-performing loans, management of the Company has
reviewed the carrying value of any underlying collateral. In those cases where
the collateral value may be less than the carrying value of the loan the Company
has taken specific write-downs to the loan, even though such loan may still be
performing. Management of the Company does not believe it has any non-accrual
loan, which, individually, could materially impact the reserve for loan losses
or long term future operating results of the Company.
The Company records real estate acquired through foreclosure at the
lower of cost or estimated market value less estimated selling costs. Estimated
market value is based upon the assumption of a sale in the normal course of
business and not on a quick liquidation or distressed basis. Estimated market
value is established by independent appraisal at the time acquisition is
completed. Management believes that other real estate owned at December 31, 1999
will not require significant write-downs in future accounting periods and
therefore, will not have a significant effect on the Company's future
operations.
Other Income
Total consolidated other income, including securities transactions,
increased $544,000, or 44.4% in 1999. This increase is largely attributable to
an increase of $297,000 in origination and service release fees on mortgage
loans generated by the Company in 1999 coupled with an increase of $167,000 in
service charge income on deposit accounts resulting from a larger deposit base.
During 1999, the Company recorded gains on the sale of other real estate of
$9,000 compared to none in 1998. The Company did not record any gains or losses
on the sale of securities in either of 1999 or 1998.
39
<PAGE>
Other Expenses
Total non-interest or other expenses increased $2,059,000, or 46.0%, to
$6,534,000 in 1999 compared to $4,475,000 in 1998. The significant increase in
overall non-interest expense is indicative of a significantly larger scale of
operations for the Company. Salaries and benefits, the largest component of
non-interest expense, increased $1,247,000, or 49.3% to $3,779,000 in 1999
compared to $2,532,000 in 1998. The large increase in salaries and benefits for
the comparative periods is primarily attributable to the addition of several key
employees at the parent company level in the second half of 1998, the staffing
of Bank of Anderson in the third quarter of 1998, the staffing of Seneca
National Bank in the first quarter of 1999, additional staffing associated with
the Company's mortgage lending activities during 1999 and additional staffing
and normal salary increases at The Peoples National Bank.
Occupancy expense increased $93,000, or 45.4%, to $298,000 in 1999
compared to $205,000 in 1998. The increase in occupancy expense for the two
comparative periods is attributable to an increase in depreciation, maintenance
expenses and utilities associated with the new facilities for Bank of Anderson,
Seneca National Bank, the Company's new corporate headquarters occupied during
the fourth quarter of 1998 and the new branch facility of The Peoples National
Bank occupied during the fourth quarter of 1999. Equipment expense increased
$201,000, or 56.0%, to $560,000 in 1999 compared to $359,000 in 1998. The
increase for the comparative periods is attributable to increases in
depreciation and maintenance expense associated with the Company's Wide Area
Network installed in 1998, and new equipment for Bank of Anderson, Seneca
National Bank, the Company's new corporate headquarters and the new branch
facility for The Peoples National Bank.
Miscellaneous other operating expense increased $518,000, or 37.6%, to
$1,897,000 in 1999 compared to $1,374,000 in 1998. The increase in miscellaneous
other operating expenses is primarily attributable to increases in marketing and
advertising expenses for all three of the Company's banking subsidiaries,
additional printing and supplies expense, telephone expense and other expenses
associated with Bank of Anderson, Seneca National Bank and the new branch
facility of The Peoples National Bank.
40
<PAGE>
1998 Compared to 1997
Overview
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 $0.54 and $0.51, respectively for 1998 compared to
$0.70 and $0.66, respectively, for 1997. The decrease in net income and the
corresponding decrease in earnings per common share were 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 to issuance of a large number of shares of new common stock in the third
quarter of 1998.
Interest Income, Interest Expense and Net Interest Income
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.
Provision and Allowance for Loan Losses
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 provision for loan losses for the consolidated company charged to
operations during 1998 was $194,000 compared to $325,000 in 1997. During 1998,
The Peoples National Bank made provision for loan losses of $102,000 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.
41
<PAGE>
Other Income
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.
Other Expenses
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 $783,000, or 44.8%,
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.
ITEM 7A QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to page 20 through page 22 "Market Risk - Interest
Rate Sensitivity" included in Business under Item 1 of this Annual Report on
Form 10-K.
42
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements are filed with this report:
- - Independent Auditor's Report.
- - Consolidated Balance Sheets as of December 31, 1999 and 1998.
- - Consolidated Statements of Income for the years ended December 31, 1999,
1998 and 1997.
- - Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1999, 1998 and 1997
- - Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997.
- - Notes to Financial Statements.
43
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARIES
REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
44
<PAGE>
ELLIOTT, DAVIS & COMPANY, L.L.P.
Certified Public Accountants
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, 1999 and 1998,
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, 1999. 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, 1999 and 1998
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with generally
accepted accounting principles.
Elliott, Davis & Company, LLP
January 27, 2000
45
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except share information)
<TABLE>
<CAPTION>
December 31,
1999 1998
---- ----
ASSETS
<S> <C> <C>
CASH AND DUE FROM BANKS ............................................................................ $ 6,507 $ 3,413
INTEREST - BEARING DEPOSITS IN OTHER BANKS ......................................................... 5,047 -
FEDERAL FUNDS SOLD ................................................................................. 9,200 17,980
SECURITIES
Available for sale .............................................................................. 31,209 31,971
Held for investment (fair value $4,438 and $4,265) .............................................. 4,445 4,129
LOANS - less allowance for loan losses of $1,581 and $1,093 ........................................ 140,336 86,924
LOANS HELD FOR SALE ................................................................................ 6,662 -
PREMISES AND EQUIPMENT, net of accumulated depreciation ............................................ 6,969 4,926
ACCRUED INTEREST RECEIVABLE ........................................................................ 1,544 922
OTHER ASSETS ....................................................................................... 1,994 1,406
--------- ---------
$ 213,913 $ 151,671
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS
Noninterest-bearing ............................................................................. $ 19,953 $ 14,991
Interest-bearing ................................................................................ 148,823 105,109
--------- ---------
Total deposits ................................................................................ 168,776 120,100
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS ........................................................ 15,434 5,980
NOTES PAYABLE TO FEDERAL HOME LOAN BANK ............................................................ 5,000 2,000
ACCRUED INTEREST PAYABLE ........................................................................... 1,154 867
OTHER LIABILITIES .................................................................................. 203 253
--------- ---------
Total liabilities ............................................................................. 190,567 129,200
--------- ---------
COMMITMENTS AND CONTINGENCIES - Notes 11 and 12
SHAREHOLDERS' EQUITY
Common stock - 10,000,000 shares authorized; $1.67 par value
per share; 2,987,627 shares and 2,764,016 shares outstanding .................................. 4,989 4,616
Additional paid-in capital ...................................................................... 18,867 17,092
Retained earnings ............................................................................... - 811
Accumulated other comprehensive income .......................................................... (510) (48)
--------- ---------
23,346 22,471
--------- ---------
$ 213,913 $ 151,671
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
46
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands except share information)
<TABLE>
<CAPTION>
For the years ended December 31,
---------------------------------
1999 1998 1997
---- ---- ----
INTEREST INCOME
<S> <C> <C> <C>
Interest and fees on loans ................................................... $10,611 $ 7,506 $ 7,024
Interest on securities
Taxable .................................................................... 1,969 1,430 1,122
Tax-exempt ................................................................. 214 229 245
Interest on federal funds sold ............................................... 783 678 245
------- ------- -------
Total interest income ................................................... 13,577 9,843 8,636
------- ------- -------
INTEREST EXPENSE
Interest on deposits ......................................................... 5,427 4,217 3,562
Interest on federal funds purchased and securities sold
under repurchase agreements ................................................ 521 186 146
Interest on notes payable Federal Home Loan Bank ............................. 174 113 345
------- ------- -------
Total interest expense .................................................. 6,122 4,516 4,053
------- ------- -------
Net interest income ..................................................... 7,455 5,327 4,583
PROVISION FOR LOAN LOSSES ....................................................... 571 194 325
------- ------- -------
Net interest income after provision for loan losses ..................... 6,884 5,133 4,258
------- ------- -------
NON-INTEREST INCOME
Service fees and other income ................................................ 1,768 1,224 754
Gain on sale of securities available for sale ................................ - - 3
------- ------- -------
1,768 1,224 757
------- ------- -------
NON-INTEREST EXPENSES
Salaries and benefits ........................................................ 3,779 2,532 1,749
Occupancy .................................................................... 298 205 186
Equipment .................................................................... 560 359 273
Marketing and advertising .................................................... 270 164 118
Communications ............................................................... 177 89 42
Other operating expenses ..................................................... 1,450 1,126 704
------- ------- -------
6,534 4,475 3,072
------- ------- -------
Income before income taxes .............................................. 2,118 1,882 1,943
PROVISION FOR INCOME TAXES ...................................................... 743 621 639
------- ------- -------
Net income .............................................................. $ 1,375 $ 1,261 $ 1,304
======= ======= =======
BASIC NET INCOME PER COMMON SHARE ............................................... $ .46 $ .54 $ .70
======= ======= =======
DILUTED NET INCOME PER COMMON SHARE ............................................. $ .44 $ .51 $ .66
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
47
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended December 31, 1999, 1998 and 1997
(Amounts in thousands except share information)
<TABLE>
<CAPTION>
Accumu-
lated
other Total
Common stock Additional compre- share-
------------ paid-in Retained hensive holders'
Shares Amount capital earnings income equity
------ ------ ------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 .................................... 800,071 $ 2,664 $ 4,233 $ 1,506 $ (25) $ 8,378
---------
Net income ................................................. - - - 1,304 - 1,304
Other comprehensive income, net of tax:
Unrealized holding gains on securities
available for sale ..................................... - - - - 9 9
Less reclassification adjustments
for gains included in net income ....................... - - - - (3) (3)
---------
Comprehensive income ....................................... - - - - - 1,310
Stock dividend (5%) ........................................ 39,954 133 906 (1,039) - -
Cash in lieu of fractional shares on stock dividend ........ - - - (6) - (6)
Cash dividends ($.25 per share) ............................ - - - (203) - (203)
Proceeds from stock options exercised ..................... 3,600 12 19 - - 31
Two-for-one stock split .................................... 843,625 9 - (9) - -
--------- --------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1997 .................................... 1,687,250 2,818 5,158 1,553 (19) 9,510
---------
Net income ................................................. - - - 1,261 - 1,261
Other comprehensive income, net of tax:
Unrealized holding losses on securities
available for sale ..................................... - - - - (29) (29)
Less reclassification adjustments for
gains included in net income ........................... - - - - - -
---------
Comprehensive income ....................................... - - - - - 1,232
Stock dividend (5%) ........................................ 130,733 218 1,481 (1,699) - -
Cash in lieu of fractional shares
on stock dividend ..................................... - - - (4) - (4)
Cash dividends ($.14 per share) ............................ - - - (300) - (300)
Proceeds from stock options exercised ...................... 21,033 35 49 - - 84
Proceeds from sale of stock net of
issuance costs ........................................ 925,000 1,545 10,404 - - 11,949
--------- --------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1998 .................................... 2,764,016 4,616 17,092 811 (48) 22,471
---------
Net income ................................................. - - - 1,375 - 1,375
Other comprehensive income, net of tax:
Unrealized holding losses on securities
available for sale ..................................... - - - - (462) (462)
Less reclassification adjustments
for gains included in net income ....................... - - - - - -
---------
Comprehensive income ....................................... - - - - - 913
Stock dividend (5%) ........................................ 141,857 237 1,543 (1,780) - -
Cash in lieu of fractional shares on
stock dividend ......................................... - - - (8) - (8)
Cash dividends ($.14 per share) ............................ - - - (398) - (398)
Proceeds from stock options exercised ...................... 81,754 136 232 - - 368
--------- --------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1999 .................................... 2,987,627 $ 4,989 $ 18,867 $ - $ (510) $ 23,346
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
48
<PAGE>
PEOPLES BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands except share information)
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1999 1998 1997
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income ......................................................................... $ 1,375 $ 1,260 $ 1,304
Adjustments to reconcile net income to net cash provided
by operating activities
Gain on sale of premises and equipment ........................................... (13) (10) (26)
Provision for loan losses ........................................................ 571 194 325
Provision for deferred income taxes .............................................. (79) (159) (80)
Depreciation ..................................................................... 464 247 208
Net amortization of premiums and accretion of discounts on securities ............ 195 76 51
Origination of mortgage loans held for sale ...................................... (75,720) - -
Sale of mortgage loans held for sale ............................................. 69,058 - -
Increase in accrued interest receivable .......................................... (622) (43) (149)
(Increase) decrease in other assets .............................................. (724) 43 (951)
Increase in accrued interest payable ............................................. 287 6 185
Increase (decrease) in other liabilities ......................................... (58) (138) 238
-------- -------- --------
Net cash provided by (used for) operating activities ........................ (5,266) 1,476 1,105
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities held for investment ........................................ (327) (708) (550)
Purchases of securities available for sale ......................................... (10,383) (37,416) (18,551)
Proceeds from the maturity of securities available for sale ........................ 7,405 16,252 5,607
Proceeds from the sale and call of securities available for sale ................... 3,060 9,900 8,368
Net increase in loans .............................................................. (53,899) (11,256) (10,782)
Proceeds from the sale of premises and equipment ................................... 43 82 39
Purchase of premises and equipment ................................................. (2,373) (2,570) (1,040)
-------- -------- --------
Net cash used for investing activities ...................................... (56,474) (25,716) (16,909)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits ........................................................... 48,684 23,910 15,994
Net decrease in federal funds purchased ............................................ - - (1,000)
Net increase in securities sold under repurchase agreements ........................ 9,454 1,546 507
Net increase (decrease) in notes payable to Federal Home Loan Bank ................. 3,000 (31) (3,367)
Proceeds from the sale of stock and exercise of stock options ...................... 369 12,032 31
Cash dividends paid ................................................................ (398) (299) (203)
Cash in lieu of fractional shares on stock dividends ............................... (8) (4) (6)
-------- -------- --------
Net cash provided by financing activities ................................... 61,101 37,154 11,956
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ........................ (639) 12,914 (3,848)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR .......................................... 21,393 8,479 12,327
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR ................................................ $ 20,754 $ 21,393 $ 8,479
======== ======== ========
CASH PAID FOR
Interest ........................................................................... $ 5,835 $ 4,510 $ 3,868
======== ======== ========
Income taxes ....................................................................... $ 836 $ 648 $ 720
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
49
<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)
50
<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, 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",
"Interest-bearing deposits in other 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.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current presentation. These reclassifications have no effect on previously
reported net income.
(Continued)
51
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, Continued
Risk and Uncertainties
In the normal course of its business the Company encounters two significant
types of risk: economic and regulatory. There are three main components of
economic risk: interest rate risk, credit risk and market risk. The Company
is subject to interest rate risk to the degree that its interest-bearing
liabilities mature or reprice at different speeds, or on different bases,
than its interest-earning assets. Credit risk is the risk of default on the
Company's loan portfolio that results from borrowers' inability or
unwillingness to make contractually required payments. Market risk reflects
changes in the value of collateral underlying loans receivable, the
valuation of real estate held by the Company, and the valuation of loans
held for sale and mortgage-backed securities available for sale.
The Company is subject to the regulations of various government agencies.
These regulations can and do change significantly from period to period. The
Company also undergoes periodic examinations by the regulatory agencies,
which may subject it to further changes with respect to asset valuations,
amounts of required loss allowances and operating restrictions resulting
from the regulators' judgments based on information available to them at the
time of their examination.
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. Accordingly, the
adoption of SFAS No. 131 had no 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.
This statement's effective date was delayed by SFAS No. 137 and is
effective for fiscal years and quarters beginning after June 15, 2000.
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 at December 31, 1999 and 1998 were approximately $512,300
and $701,000, respectively.
52
<PAGE>
NOTE 3 - SECURITIES
Securities are summarized as follows as of December 31 (tabular
amounts in thousands):
<TABLE>
<CAPTION>
1999
----
Amortized Unrealized holding Fair
cost Gain Loss value
---- ---- ---- -----
SECURITIES AVAILABLE FOR SALE:
U. S. TREASURY SECURITIES
<S> <C> <C> <C> <C>
Maturing after one but within five years ................. $ 249 $ - $ 2 $ 247
------- ------- ------- -------
OBLIGATIONS OF OTHER U. S. GOVERNMENT
AGENCIES AND CORPORATIONS
Maturing within one year ................................. 1,399 - 9 1,390
Maturing after one but within five years ................. 23,254 - 582 22,672
Maturing after five but within ten years ................. 3,197 - 115 3,082
Maturing after ten years ................................. 2,858 - 65 2,793
------- ------- ------- -------
30,708 - 771 29,937
------- ------- ------- -------
OTHER - RESTRICTED
Federal Reserve Bank Stock ............................... 397 - - 397
Federal Home Loan Bank Stock ............................. 573 - - 573
Bankers Bank Stock ....................................... 55 - - 55
------- ------- ------- -------
1,025 - - 1,025
------- ------- ------- -------
Total securities available for sale .................. $31,982 $ - $ 773 $31,209
======= ======= ======= =======
SECURITIES HELD FOR INVESTMENT:
OBLIGATIONS OF STATES AND POLITICAL
SUBDIVISIONS
Maturing within one year ................................. $ 684 $ 2 $ - $ 686
Maturing after one but within five years ................. 2,050 16 - 2,066
Maturing after five but within ten years ................. 1,611 - 15 1,596
Maturing after ten years ................................. 100 - 10 90
------- ------- ------- -------
Total securities held for investment ................. $ 4,445 $ 18 $ 25 $ 4,438
======= ======= ======= =======
<CAPTION>
1998
----
Amortized Unrealized holding Fair
cost Gain Loss value
---- ---- ---- -----
SECURITIES AVAILABLE FOR SALE:
U. S. TREASURY SECURITIES
<S> <C> <C> <C> <C>
Maturing within one year ................................. $ 100 $ 1 $ - $ 101
------- ------- ------- -------
OBLIGATIONS OF OTHER U. S. GOVERNMENT
AGENCIES AND CORPORATIONS
Maturing within one year ................................. 2,705 - 14 2,691
Maturing after one but within five years ................. 14,477 19 - 14,496
Maturing after five but within ten years ................. 5,465 - 18 5,447
Maturing after ten years ................................. 8,340 - 61 8,279
------- ------- ------- -------
30,987 19 93 30,913
------- ------- ------- -------
</TABLE>
53
<PAGE>
NOTE 3 - SECURITIES, Continued
<TABLE>
<CAPTION>
1998
----
Amortized Unrealized holding Fair
cost Gain Loss value
---- ---- ---- -----
OBLIGATIONS OF STATES AND POLITICAL
SUBDIVISIONS
<S> <C> <C> <C> <C>
Maturing within one year ................................. $ 125 $ 1 $ - $ 126
------- ------- ------- -------
OTHER - RESTRICTED
Federal Reserve Bank Stock ............................... 243 - - 243
Federal Home Loan Bank Stock ............................. 533 - - 533
Bankers Bank Stock ....................................... 55 - - 55
------- ------- ------- -------
831 - - 831
------- ------- ------- -------
Total securities available for sale .................. $32,043 $ 21 $ 93 $31,971
======= ======= ======= =======
SECURITIES HELD FOR INVESTMENT:
OBLIGATIONS OF STATES AND POLITICAL
SUBDIVISIONS
Maturing after one but within five years ................. $ 2,410 $ 70 $ - $ 2,480
Maturing after five but within ten years ................. 1,719 66 - 1,785
------- ------- ------- -------
Total securities held for investment ................. $ 4,129 $ 136 $ - $ 4,265
======= ======= ======= =======
</TABLE>
Securities with carrying amounts of $25,578,000 and $12,684,000 at
December 31, 1999 and 1998, respectively, were pledged to secure public deposits
and for other purposes required or permitted by law.
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are summarized as follows (tabular amounts in thousands):
<TABLE>
<CAPTION>
December 31,
1999 1998
---- ----
<S> <C> <C>
Commercial and industrial - not secured by real estate ....................................... $ 25,677 $ 13,812
Commercial and industrial - secured by real estate ........................................... 32,248 19,501
Residential real estate - mortgage ........................................................... 43,015 39,533
Residential real estate - construction ....................................................... 26,013 3,065
Loans to individuals for household, family and other personal expenditures ................... 14,964 12,106
-------- --------
141,917 88,017
Less allowance for loan losses ............................................................... 1,581 1,093
-------- --------
$140,336 $ 86,924
======== ========
</TABLE>
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
BALANCE, BEGINNING OF YEAR ....................................... $ 1,093 $ 987 $ 760
Provision for loan losses ...................................... 571 194 325
Loans charged off, net of recoveries ........................... (83) (88) (98)
------- ------- -------
BALANCE, END OF YEAR ............................................. $ 1,581 $ 1,093 $ 987
======= ======= =======
</TABLE>
(Continued)
54
<PAGE>
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES, Continued
At December 31, 1999 and 1998 nonaccrual loans amounted to $628,000
and $649,561, respectively. Foregone interest income was approximately $59,600,
$59,500 and $65,200 on nonaccrual loans for 1999, 1998 and 1997, respectively.
At December 31, 1999 and 1998, there were no impaired loans.
NOTE 5 - PREMISES AND EQUIPMENT
The principal categories and estimated useful lives of premises and
equipment are summarized below (tabular amounts in thousands):
<TABLE>
<CAPTION>
Estimated December 31,
-------------------------------------
useful lives 1999 1998
--------------- ----------- ----------
<S> <C> <C> <C>
Land ............................................................ - $ 1,498 $ 1,370
Building and improvements ....................................... 15 - 40 years 4,323 1,426
Furniture, fixtures and equipment ............................... 3 - 10 years 3,223 2,251
-------------- --------------
9,044 5,047
Less accumulated depreciation ................................... 2,094 1,678
-------------- --------------
6,950 3,369
Construction in process ......................................... 19 1,557
-------------- --------------
$ 6,969 $ 4,926
============== ==============
</TABLE>
Depreciation expense of approximately $464,000, $247,000 and
$208,000 for 1999, 1998 and 1997, 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. These facilities were placed in service in 1999 upon
completion.
NOTE 6 - DEPOSITS
The amounts and scheduled maturities of deposits are as follows
(tabular amounts in thousands):
<TABLE>
<CAPTION>
December 31,
1999 1998
---- ----
Time certificates maturing
<S> <C> <C>
Within one year .............................................................................. $101,372 $ 53,093
After one but within two years ............................................................... 5,466 4,369
After two but within three years ............................................................. 755 1,420
After three but within four years ............................................................ 197 480
After four years ............................................................................. 237 311
-------- --------
108,027 59,673
Transaction and savings accounts ............................................................... 60,749 60,427
-------- --------
$168,776 $120,100
======== ========
</TABLE>
Certificates of deposit in excess of $100,000 totaled approximately
$38,008,000 and $25,161,000, at December 31, 1999 and 1998, respectively.
Interest expense on certificates of deposit in excess of $100,000 was
approximately $1,396,000 in 1999, $986,000 in 1998 and $880,000 in 1997.
55
<PAGE>
NOTE 7 - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Securities sold under repurchase agreements are summarized as
follows (tabular amounts in thousands):
<TABLE>
<CAPTION>
December 31,
1999 1998
---- ----
<S> <C> <C>
U. S. Government securities with an amortized cost of $14,807,000
($14,409,000 fair value) and $4,729,215 ($4,720,518 fair value) at
December 31, 1999 and 1998, respectively, collateralize the agreements ....................... $15,434 $ 5,980
======= =======
</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 4.07 percent
and 3.30 percent at December 31, 1999 and 1998, respectively. Securities sold
under agreements to repurchase averaged $12,803,000 and $4,575,000 during 1999
and 1998, respectively. The maximum amounts outstanding at any month-end were
$16,595,000 and $5,980,000 during 1999 and 1998, respectively.
NOTE 8 - NOTES PAYABLE TO FEDERAL HOME LOAN BANK (FHLB)
The Peoples National Bank had various notes payable aggregating
$5,000,000 and $2,000,000 at December 31, 1999 and 1998, respectively, to the
FHLB. 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 4.95 percent at December 31, 1999 and 5.10
percent and 5.75 percent at December 31, 1998. The notes are collateralized by
mortgage loans aggregating approximately $20,265,000 and $12,962,000 at December
31, 1999 and 1998, respectively. The note payable at December 31, 1999 was
called in the first quarter of 2000.
NOTE 9 - UNUSED LINES OF CREDIT
The Banks have unused short-term lines of credit to purchase Federal
Funds from unrelated banks totaling $10,800,000 at December 31, 1999. 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
$18,000,000 from the FHLB as of December 31, 1999. 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,
--------------------------------
1999 1998 1997
---- ---- ----
Current tax provision
<S> <C> <C> <C>
Federal ........................................................ $ 759 $ 711 $ 657
State .......................................................... 63 69 62
----- ----- -----
Total current taxes ........................................ 822 780 719
Deferred tax benefit ............................................. (79) (159) (80)
----- ----- -----
Provision for income taxes ................................. $ 743 $ 621 $ 639
===== ===== =====
</TABLE>
(Continued)
56
<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,
--------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Tax expense at statutory rate .......................................... $ 720 $ 640 $ 661
Increase (decrease) in taxes resulting from:
State income taxes net of federal benefit ............................ 63 45 41
Tax-exempt interest .................................................. (65) (63) (77)
Other ................................................................ 25 (1) 14
----- ----- -----
Provision for income taxes ......................................... $ 743 $ 621 $ 639
===== ===== =====
</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,
------------
1999 1998
---- ----
<S> <C> <C>
Allowance for loan losses ................................................................. $ 538 $ 372
Deferral of loan origination fees and costs ............................................... (33) (47)
Tax depreciation in excess of book depreciation ........................................... (130) (97)
Adjustments from the accrual to the cash basis of accounting .............................. - (11)
Unrealized holding losses on securities available for sale ................................ 263 25
Tax deferral of business start-up costs ................................................... 43 55
Other ..................................................................................... (45) 22
----- -----
636 319
Valuation allowance ....................................................................... (135) (135)
----- -----
$ 501 $ 184
===== =====
</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 (amounts in thousands) ------------
1999 1998
---- ----
<S> <C> <C>
Commitments to extend credit ........................................... $39,052 $24,255
Standby letters of credit .............................................. 5,054 1,920
</TABLE>
(Continued)
57
<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, 1999 and 1998, 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
$4,365,000 and $2,943,000, respectively. During 1999, $2,915,000 of new loans
were made to this group and repayments of $1,493,000 were received.
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 2,985,000 in 1999, 2,329,000 in 1998 and 1,859,000 in 1997. The
weighted average number of common shares outstanding for diluted net income per
common share was 3,095,000 in 1999, 2,447,000 in 1998 and 1,973,000 in 1997.
The Company declared or issued five percent common stock dividends
in 1999, 1998 and 1997. 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, 1999
the Banks' retained earnings were approximately $1,788,000.
58
<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 years ended December 31,
--------------------------------
1999 1998 1997
---- ---- ----
Net income (in thousands)
<S> <C> <C> <C>
As reported ............................................... $ 1,375 $ 1,261 $ 1,304
Pro forma ................................................. 1,337 1,229 1,278
Basic net income per common share
As reported ............................................... $ .46 $ .54 $ .70
Pro forma ................................................ .45 .52 .68
Diluted net income per common share
As reported ............................................... $ .44 $ .51 $ .66
Pro forma ................................................. .43 .50 .65
</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 1999, 1998 and 1997: dividend yields from $.25 to $.15
per share, expected volatility from 5 to 15 percent, risk-free interest rates
from 6.50 to 4.75 percent and expected life of 10 years.
A summary of the status of the plans as of December 31, 1999 and 1998,
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>
1999 1998 1997
---- ---- ----
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 ...................... 285,387 $ 4.09 276,559 $ 5.33 198,073 $ 4.35
Granted .......................... 4,725 14.25 33,075 11.76 86,821 7.73
Exercised ........................ (85,842) 4.28 (22,524) 3.88 (8,335) 3.55
Forfeited or expired ............. (347) 4.49 (1,723) 4.49 - -
-------- ------- -------
Outstanding at end
of year ......................... 203,923 $ 7.33 285,387 $ 4.09 276,559 $ 5.33
======= ======= =======
</TABLE>
(Continued)
59
<PAGE>
NOTE 16 - STOCK OPTION COMPENSATION PLANS, Continued
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Options exercisable at year-end ..................................... 178,341 246,712 235,755
Weighted - average fair value of options
granted during the year ......................................... $ 14.25 $ 11.76 $ 7.73
Shares available for grant .......................................... 268,141 272,519 278,253
</TABLE>
The following table summarizes information at December 31, 1999:
<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>
$3.71 5,913 less than 1 year $ 3.71 5,913 $ 3.71
$4.94 - $4.49 73,387 5.5 years 4.69 66,658 4.69
$7.75 86,823 7.7 years 7.75 86,823 7.75
$11.76 33,075 8.2 years 11.76 14,222 11.76
$14.25 4,725 9.2 years 14.25 4,725 14.25
---------- -----------
203,923 178,341
========== ===========
</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 $58,447, $33,088 and $32,861 were charged to operations during 1999,
1998 and 1997, 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)
60
<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, 1999,
that the Banks meet all capital adequacy requirements to which they are subject.
As of December 31, 1999, 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 thousands)
The Peoples National Bank:
As of December 31, 1999
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to risk-weighted assets) .......... $13,448 11.73% $ 9,172 8.00% $11,465 10.00%
Tier I Capital (to risk-weighted assets) ......... 12,327 10.75 4,587 4.00 6,880 6.00
Tier I Capital (to average assets) ............... 12,327 7.87 6,265 4.00 7,832 5.00
As of December 31, 1998
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
Bank of Anderson, N.A.:
As of December 31, 1999
Total Capital (to risk-weighted assets) .......... $ 5,413 19.21% $ 2,254 8.00% $ 2,818 10.00%
Tier I Capital (to risk-weighted assets) ......... 5,101 18.10 1,127 4.00 1,691 6.00
Tier I Capital (to average assets) ............... 5,101 12.61 1,618 4.00 2,023 5.00
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
Seneca National Bank:
As of December 31, 1999
Total Capital (to risk-weighted assets) .......... $ 3,396 26.62% $ 1,021 8.00% $ 1,276 10.00%
Tier I Capital (to risk-weighted assets) ......... 3,248 25.46 510 4.00 765 6.00
Tier I Capital (to average assets) ............... 3,248 20.19 643 4.00 804 5.00
</TABLE>
61
<PAGE>
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, interest-bearing deposits in other banks and federal funds sold.
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, loans
held for sale 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 and securities sold under repurchase agreements maturing within
one year are valued at their carrying value. The fair value of certificate of
deposit accounts and securities sold under repurchase agreements 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 (amounts in thousands):
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
Carrying Fair Carrying Fair
amount value amount value
------ ----- ------ -----
Financial Assets:
<S> <C> <C> <C> <C>
Cash and due from banks ...................................... $ 6,507 $ 6,507 $ 3,413 $ 3,413
Interest-bearing deposits in other banks ..................... 5,047 5,047 - -
Federal funds sold ........................................... 9,200 9,200 17,980 17,980
Securities available for sale ................................ 31,209 31,209 31,971 31,971
Securities held for investment ............................... 4,445 4,438 4,129 4,265
Loans ........................................................ 141,917 141,605 88,017 88,302
Financial Liabilities:
Deposits ..................................................... 168,776 168,437 120,100 120,444
Securities sold under repurchase agreements .................. 15,434 15,434 5,980 5,980
Notes payable to Federal Home Loan Bank ...................... 5,000 5,000 2,000 2,000
</TABLE>
(Continued)
62
<PAGE>
NOTE 19 - FAIR VALUE OF FINANCIAL INSTRUMENTS, Continued
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
Carrying Fair Carrying Fair
amount value amount value
------ ----- ------ -----
Financial Instruments with Off-Balance Sheet Risk:
<S> <C> <C> <C> <C>
Commitments to extend credit ..................................... 39,052 39,052 24,255 24,255
Standby letters of credit ........................................ 5,054 5,054 1,920 1,920
</TABLE>
NOTE 20 - CONDENSED FINANCIAL INFORMATION
Following is condensed financial information of Peoples Bancorporation,
Inc. (parent company only) (amounts in thousands):
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
ASSETS
<S> <C> <C>
Cash ......................................................................... $ 2,305 $ 6,031
Due from subsidiaries ........................................................ 450 294
Investment in bank subsidiaries .............................................. 20,168 14,219
Premises and equipment ....................................................... 767 2,125
Other assets ................................................................. 79 172
------- -------
$23,769 $22,841
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Due to subsidiaries .......................................................... $ 186 $ 268
Other liabilities ............................................................ 237 102
Shareholders' equity ......................................................... 23,346 22,471
------- -------
$23,769 $22,841
======= =======
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1999 1998 1997
---- ---- ----
INCOME
<S> <C> <C> <C>
Fees and dividends from subsidiaries .............................. $1,841 $ 522 $ 204
Other income ...................................................... 6 23 -
------ ------ ------
1,847 545 204
------ ------ ------
EXPENSES
Salaries and benefits ............................................. 964 295 -
Occupancy ......................................................... 56 18 -
Equipment ......................................................... 104 28 -
Other operating ................................................... 293 73 4
------ ------ ------
1,417 414 4
</TABLE>
(Continued)
63
<PAGE>
NOTE 20 - CONDENSED FINANCIAL INFORMATION, Continued
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1999 1998 1997
---- ---- ----
EQUITY IN UNDISTRIBUTED NET INCOME OF BANK
<S> <C> <C> <C>
SUBSIDIARIES ........................................................ 958 1,054 1,104
------- ------- -------
Income before income taxes ...................................... 1,388 1,185 1,304
INCOME TAX EXPENSE (BENEFIT) .......................................... 13 (76) -
------- ------- -------
Net income ...................................................... $ 1,375 $ 1,261 $ 1,304
======= ======= =======
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1999 1998 1997
---- ---- ----
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income ................................................................. $ 1,375 $ 1,261 $ 1,304
Adjustments to reconcile net income to net cash provided
by (used for) operating activities
Equity in undistributed net income of bank subsidiaries ................ (958) (1,054) (1,104)
Depreciation ........................................................... 32 16 -
Amortization ........................................................... 4 3 4
Decrease (increase) in other assets .................................... 56 (410) -
Increase in other liabilities .......................................... 127 57 -
-------- -------- --------
Net cash provided by (used for) operating activities ................ 636 (127) 204
-------- -------- --------
INVESTING ACTIVITIES
Investment in bank subsidiaries ............................................ (5,609) (4,500) (31)
Purchase of premises and equipment ......................................... 1,358 (1,238) (479)
-------- -------- --------
Net cash used for investing activities .............................. (4,251) (5,738) (510)
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from the sale of stock and exercise of stock options .............. 369 12,033 31
Cash dividends ............................................................. (398) (304) (203)
Repayment of advances from subsidiaries .................................... (82) - -
-------- -------- --------
Net cash provided by (used for) financing activities ................ (111) 11,729 (172)
-------- -------- --------
Net change in cash .................................................. (3,726) 5,864 (478)
CASH, BEGINNING OF YEAR ...................................................... 6,031 167 644
-------- -------- --------
CASH, END OF YEAR ............................................................ $ 2,305 $ 6,031 $ 166
======== ======== ========
</TABLE>
64
<PAGE>
NOTE 21 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited condensed financial data by quarter for 1999 and 1998 is as
follows (amounts, except per share data, in thousands):
<TABLE>
<CAPTION>
Quarter ended
-------------
1999 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Interest income ........................................ $ 2,890 $ 3,130 $ 3,605 $ 3,952
Interest expense ....................................... 1,220 1,376 1,648 1,878
---------- ---------- ---------- ----------
Net interest income ................................ 1,670 1,754 1,957 2,074
Provision for loan losses .............................. 119 171 250 31
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses ....................... 1,551 1,583 1,707 2,043
Non-interest income .................................... 368 383 479 538
Non-interest expenses .................................. 1,487 1,592 1,641 1,814
---------- ---------- ---------- ----------
Income before income taxes ......................... 432 374 545 767
Provision for income taxes ............................. 147 127 187 282
---------- ---------- ---------- ----------
Net income ......................................... $ 285 $ 247 $ 358 $ 485
========== ========== ========== ==========
Basic net income per common share (1) .................. $ .10 $ .08 $ .12 $ .16
========== ========== ========== ==========
Diluted net income per common share (1) ................ $ .09 $ .08 $ .12 $ .16
========== ========== ========== ==========
Basic weighted average shares
outstanding (1) .................................... 2,982,491 2,983,996 2,983,946 2,984,974
========== ========== ========== ==========
Diluted weighted average shares
outstanding (1) .................................... 3,081,043 3,202,414 3,092,702 3,095,226
========== ========== ========== ==========
<CAPTION>
Quarter ended
-------------
1998 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Interest income ....................................... $ 2,254 $ 2,373 $ 2,489 $ 2,737
Interest expense ...................................... 1,083 1,115 1,111 1,207
----------- ----------- ----------- -----------
Net interest income ............................... 1,171 1,258 1,378 1,520
Provision for loan losses ............................. (3) 5 152 40
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses ...................... 1,174 1,253 1,226 1,480
Non-interest income ................................... 255 288 309 372
Non-interest expenses ................................. 896 947 1,181 1,451
----------- ----------- ----------- -----------
Income before income taxes ........................ 533 594 354 401
Provision for income taxes ............................ 176 196 114 135
----------- ----------- ----------- -----------
Net income ........................................ $ 357 $ 398 $ 240 $ 266
=========== =========== =========== ===========
Basic net income per common share (1) ................. $ .18 $ .19 $ .08 $ .10
=========== =========== =========== ===========
Diluted net income per common share (1) ............... $ .17 $ .18 $ .08 $ .10
=========== =========== =========== ===========
Basic weighted average shares
outstanding (1) ................................... 1,866,544 1,990,420 2,681,331 2,329,295
=========== =========== =========== ===========
Diluted weighted average shares
outstanding (1) ................................... 2,009,196 2,087,820 2,827,558 2,446,801
=========== =========== =========== ===========
</TABLE>
(1) Per share data has been restated to reflect 5 percent stock dividend
declared in 1999.
65
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There has been no occurrence requiring a response to this item.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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 2000 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 11. EXECUTIVE COMPENSATION
The information set forth under the caption "EXECUTIVE COMPENSATION" in
the Proxy Statement is incorporated herein by reference.
ITEM 12. 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 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "CERTAIN TRANSACTIONS" in
the Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) (1) and (2) Financial Statements and Financial Schedules
The following consolidated financial statements and report of
independent auditors of Peoples Bancorporation, Inc. and subsidiaries are
included in item 8 of this Annual Report on Form 10-K:
Report of Independent Auditors
66
<PAGE>
Consolidated Statements of Condition - December 31, 1999 and 1998
Consolidated Statements of Income - Years ended December 31, 1999, 1998
and 1997
Consolidated Statements of Cash Flows - Years ended December 31, 1999,
1998 and 1997
Consolidated Statements of Changes in Stockholders' Equity - Years
ended December 31, 1999. 1998 and 1997
Notes to Consolidated Financial Statements - December 31, 1999
(a) (3) Listing of 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)).
10.2 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 Non-competition, 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 Non-competition, 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 (incorporated by
reference to Exhibits to Registrant's Form 10-KSB for the year
ended December 31, 1998).
67
<PAGE>
10.7 Salary Continuation Agreement between The Peoples National Bank
and Ralph R. Ridgeway, dated July 7, 1998 (incorporated by
reference to Exhibits to Registrant's Form 10-KSB for the year
ended December 31, 1998).
10.8 Non-competition, Severance and Employment Agreement entered into
between the Company and each of William B. West, David C. King
and F. Davis Arnette, Jr.
21. Subsidiaries of the Registrant
27. Financial Data Schedule
(a) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1999.
68
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, 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: February 29, 2000 By: --------------------------------
Robert E. Dye
Chairman of the Board,
President and Chief
Executive Officer
s/William B. West
Dated: February 29, 2000 By: --------------------------------
William B. West
Senior Vice President
(Principal Financial and
Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
s/Garnet A. Barnes
- ---------------------------- Director February 29, 2000
Garnet A. Barnes
s/William A. Carr
- ---------------------------- Director February 29, 2000
William A. Carr
s/Charles E. Dalton
- ---------------------------- Director February 29, 2000
Charles E. Dalton
s/Robert E. Dye
- ---------------------------- President, Chief February 29, 2000
Robert E. Dye Executive Officer
And Director
s/Robert E. Dye, Jr.
- ---------------------------- Director February 29, 2000
Robert E. Dye, Jr.
s/W. Rutledge Galloway
- ---------------------------- Director February 29, 2000
W. Rutledge Galloway
s/E. Smyth McKissick, III
- ---------------------------- Director February 29, 2000
E. Smyth McKissick, III
s/Eugene W. Merritt, Jr.
- ---------------------------- Director February 29, 2000
Eugene W. Merritt, Jr.
s/George B. Nalley, Jr.
- ---------------------------- Director February 29, 2000
George B. Nalley, Jr.
s/R. Riggie Ridgeway
- ---------------------------- Secretary, February 29, 2000
R. Riggie Ridgeway Treasurer and
Director
s/Nell W. Smith
- ---------------------------- Director February 29, 2000
Nell W. Smith
s/A. J. Thompson, Jr., M. D.
- ---------------------------- Director February 29, 2000
A. J. Thompson, Jr., M. D.
</TABLE>
69
<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)).
10.2 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 (incorporated by
reference to Exhibits to Registrant's Form 10-KSB for the year
ended December 31, 1998).
10.7 Salary Continuation Agreement between The Peoples National Bank
and Ralph R. Ridgeway, dated July 7, 1998 (incorporated by
reference to Exhibits to Registrant's Form 10-KSB for the year
ended December 31, 1998).
10.8 Non-competition, Severance and Employment Agreement entered into
between the Company and each of William B. West, David C. King
and F. Davis Arnette, Jr.
21. Subsidiaries of the Registrant
27. Financial Data Schedule
NONCOMPETITION, SEVERANCE AND EMPLOYMENT AGREEMENT
This Noncompetition, Severance and Employment Agreement (this
"Agreement") is made and entered into as of this 19th day of October, 1999 by
and between [Executive], an individual (the "Executive"), and Peoples
Bancorporation, a South Carolina corporation and financial institution holding
company headquartered in Easley, South Carolina (the "company"). As used herein,
the term "Company" shall include the Company and any and all of its subsidiaries
where the context so applies.
W I T N E S S E T H
WHEREAS the Board of Directors believes that the Executive has been
instrumental in the success of the Company since his employment in 1998;
WHEREAS the company desires to continue to employ the Executive as
[Position] of the Company and in such other capacities as the Executive is
currently employed as of the date hereof;
WHEREAS the Executive is willing to accept the employment contemplated
herein under the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
1. Employment. Subject to the terms and conditions hereof, the Company
hereby employs the Executive and Executive hereby accepts such employment as a
[Position] of the Company having such duties and responsibilities as set forth
in Section 3 below.
2. Definitions. For purposes of this Agreement, the following terms
shall have the meanings specified below.
"Change in 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
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<PAGE>
(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 circumstance constitutes a change in Control for the purposes
of this Agreement.
"Cause" shall mean (i) fraud, gross negligence, dereliction of duties,
intentional material damage to the property or business of the Company, or the
commission of a felony; or (ii) the ineligibility of the Executive to perform
his duties because of a ruling, directive or other action by any agency of the
United States or any state of the United States having regulatory authority over
the Corporation.
"Confidential Information" shall mean all business and other
information relating to the business of the Company, including without
limitation, technical or nontechnical data, programs, methods, techniques,
processes, financial data, financial plans, product plans, and lists of actual
or potential customers, which (i) derives economic value, actual or potential,
from not being generally known to, and not being readily ascertainable by proper
means by, other Persons, and (ii) is the subject of efforts that are reasonable
under the circumstances to maintain its secrecy or confidentiality. Such
information and compilations of information shall be contractually subject to
protection under this Agreement whether or not such information constitutes a
trade secret and is separately protectable at law or in equity as a trade
secret. Confidential information does not include confidential business
information which does not constitute a trade secret under applicable law two
years after any expiration or termination of this Agreement.
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<PAGE>
"Disability" or "Disabled" shall mean the Executive's inability as a
result of physical or mental incapacity to substantially perform his duties for
the Company on a fulltime basis for a period of six (6) months.
"Involuntary Termination" shall mean the termination of Executive's
employment by the Executive following a Change in Control which, in the sole
judgment of the Executive, is due to (i) a change of the Executive's
responsibilities, position (including status as [Position] of the Company, its
successor or ultimate parent entity, office, title, reporting relationships or
working conditions), authority or duties (including changes resulting from the
assignment to the Executive of any duties inconsistent with his positions,
duties or responsibilities as in effect immediately prior to the Change in
Control); or (ii) a change in the terms or status (including the rolling three
year termination date) of this Agreement; or (iii) a reduction in the
Executive's compensation or benefits; or (iv) a forced relocation of the
Executive outside the Upper State of South Carolina area; or (v) a significant
increase in the Executive's travel requirements.
"Person" shall mean any individual, corporation, bank, partnership,
joint venture, association, joint-stock company, trust, unincorporated
organization or other entity.
"Voluntary Termination" shall mean the termination by Executive of
Executive's employment following a Change in Control which is not the result of
any of clauses (i) through (v) set forth in the definition of Involuntary
Termination above.
3. Duties. During the term hereof, the Executive shall have such duties
and authority as are typical of a [Position] of a company such as the one being
contracted with, and employee will, so long as he is an employee of, he will
devote his full time, attention and energies to the diligent performance of his
duties. Executive shall not, without the written consent of the Company, at any
time during the Term hereof (i) accept employment with, or render services of a
business, professional or commercial nature to, any Person other than the
Company, (ii) engage in any venture or activity which the Company may in good
faith consider to be competitive with or adverse to the business of the Company
or of any affiliate of the Company, whether alone, as a partner, or as an
officer, director, employee or shareholder or otherwise, except that the
ownership of not more than 5% of the stock or other equity interest of any
publicly traded corporation or other entity shall not be deemed a violation of
this Section, or (iii) the Company may in good faith consider to interfere with
Executive's performance of his duties hereunder.
4. Term. Unless earlier terminated as provided herein, the Executive's
employment hereunder shall be for a rolling term of three years (the "Term")
commencing on the date hereof, with compensation to be effective as of October
19, 1999.
3
<PAGE>
This Agreement shall be deemed to extend each day for an additional day
automatically and without any action on behalf of either party hereto; provided,
however, that either party may, by notice to the other, cause this Agreement to
cease to extend automatically and, upon such notice, the "Term" of this
Agreement shall be the three years following the date of such notice, and this
Agreement shall terminate upon the expiration of such Term. If no such notice is
given and this Agreement is terminated pursuant to Section 5 hereof, for the
purposes of calculating any amounts payable to the Executive as a result of such
termination, the remaining Term of this Agreement shall be deemed to be three
years from the date of such termination.
5. Termination. This Agreement may be terminated as follows:
5.1 The Company. The Company shall have the right to terminate
Executive's employment hereunder at any time during the Term hereof (i) for
Cause, (ii) if the Executive becomes Disabled, (iii) upon the Executive's death.
5.1.1 If the Company terminated Executive's employment under
this Agreement pursuant to clauses (i) through (iii) of Section 5.1, the
Company's obligations hereunder shall cease as of the date of termination;
provided, however, if Executive is terminated for Cause after a change in
Control, then such termination shall be treated as a Voluntary Termination as
contemplated in Section 5.2 below.
5.1.2 If the Company terminates Executive other than pursuant
to clauses (i) through (iii) of Section 5.1 and there has been a Change in
Control, Executive shall be entitled to receive immediately as severance upon
such termination, the compensation and benefits provided in Section 6 hereof
that would otherwise be payable over the three years subsequent to such
termination. For purposes of determining compensation which is not fixed (such
as bonus), the annual amount of such unfixed compensation shall be deemed to be
the equal to the average of such compensation over the three year period
immediately prior to the termination.
5.1.3 If the Company terminates Executive other than pursuant
to clauses (i) through (iii) of Section 5.1 and in the absence of a Change in
Control, Executive shall be entitled to receive immediately as severance upon
such termination, the compensation and benefits provided in Section 6 hereof for
the remaining Term of this Agreement.
5.1.4 In the event of such termination other than pursuant to
clauses (i) through (iii) of Section 5.1, (A) all rights of Executive pursuant
to awards of share grants or options granted by the Company shall be deemed to
have vested and shall be released from all conditions and restrictions, except
for restrictions on transfer pursuant to the Securities Act of 1933, as amended,
and (B) the Executive shall be deemed to be credited with service with the
Company for such remaining Term for the purposes of the Company's benefit plans.
5.2 By Executive. Executive shall have the right to terminate his
employment hereunder if (i) the Company materially breaches this Agreement and
such breach is not cured within 30 days after written notice of such breach is
given by Executive to the Company; (ii) there is a Voluntary Termination; or
(iii) there is an Involuntary Termination.
4
<PAGE>
5.2.1 If Executive terminates his employment other than
pursuant to clauses (i) through (iii) of Section 5.2, the Company's obligations
under this Agreement shall cease as of the date of such termination and
Executive shall be subject to the noncompetition provisions set forth in Section
9 hereof.
5.2.2 If Executive terminates his employment hereunder
pursuant to any clauses (i) or (iii) of Section 5.2, Executive shall be entitled
to receive immediately as severance the compensation and benefits provided in
Section 6 hereof that would otherwise be payable over the three years subsequent
to such termination. For purposes of determining compensation which is not fixed
(such as a bonus), the annual amount of such unfixed compensation over the three
year period immediately prior to the termination.
5.2.3 If Executive terminates his employment pursuant to
clause (ii) of Section 5.2, Executive shall be entitled to receive immediately
as severance the compensation and benefits provided in Sections 6 hereof for one
year following the date of his Voluntary Termination. For purposes of
determining compensation which is not fixed (such as a bonus), the annual amount
of such unfixed compensation shall be deemed to be equal to the average of such
compensation over the three year period immediately prior to the termination.
5.2.4 In addition, in the event of such termination pursuant
to any of clauses (i) through (iii) of this Section 5.2, (A) all rights of
Executive pursuant to awards of share grants or options granted by the Company
shall be deemed to have vested and shall be released from all conditions and
restrictions, except for restrictions on transfer pursuant to the Securities Act
of 1933, as amended, and (B) the Executive shall be deemed to be credited with
service with the Company for such remaining Term for the purposes of the
Company's benefit plans.
6. Compensation. In consideration of Executive's services and covenants
hereunder, Company shall pay to Executive the compensation and benefits
described below (which compensation shall be paid in accordance with the normal
compensation practices of the Company and shall be subject to such deductions
and withholdings as are required by law or policies of the Company in effect
from time to time, provided that his salary pursuant to Section 6.1 shall be
payable not less frequently than monthly);
5
<PAGE>
6.1 Annual Salary. During the Term hereof, the Company shall pay to
Executive a salary at the rate of [ $ ] per annum. Executive's salary will be
reviewed by the Board of Directors of the Company at the beginning of each of
its fiscal years and, in the sole discretion of the Board of Directors, may be
increased for such year. Salary continuation and/or life insurance plans in
existence at the time of the change in control will also be kept in force for
the benefit of the executive and/or his heirs for life.
6.2 Annual Incentive Bonus. During the Term hereof, the Board of
Directors may pay to Executive an annual incentive cash bonus in accordance with
the terms of the Short Term Incentive Compensation Plan.
6.3 Other Benefits. Executive shall be entitled to share in any other
executive officer/employee benefits generally provided by the Company to its
most highly ranking executives (including but not limited to the following;
major medical and dental insurance, short and long term disability insurance,
bonus plans, etc.) for so long as the Company provides such benefits. The
Company also agrees to provide Executive with a Company-paid, full-sized
automobile, reasonable club dues for one area country club of their choice and
two business clubs. Executive shall also be entitled to participate in all other
benefits accorded general Company executive officers and/or employees.
7. Excess Parachute Payments. It is the intention of the parties hereto
that the severance payments and other compensation provided for herein are
reasonable compensation for Executive's services to the Company and shall not
constitute "excess parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended, and any regulations thereunder. In
the event that the Company on the date of a Change of Control determine that the
payments provided for herein constitute "excess parachute payments", then the
compensation payable hereunder shall be reduced to the point that such
compensation shall not qualify as "excess parachute payments".
8. Confidentiality. Executive acknowledges that, prior to and during
the term of this Agreement, the Company has furnished and will furnish to
Executive Confidential Information which could be used by Executive on behalf of
a competitor of the Company to the Company's substantial detriment. In view of
the foregoing, Executive acknowledges and agrees that the restrictive covenants
contained in this Section are reasonably necessary to protect the Company's
legitimate business interests and goodwill. Executive agrees that he shall
protect the Company's Confidential Information and shall not disclose to any
person, or otherwise use, except in connection with his duties performed in
accordance with this Agreement, any Confidential Information provided, however,
that Executive may make disclosures required by a valid order or subpoena issued
by a court or administrative agency of competent jurisdiction, in which event
Executive will promptly notify the Company of such order or subpoena to provide
the Company an opportunity to protect its interests. Upon the termination or
expiration of this employment hereunder, the Executive agrees to deliver
promptly to the Company all Company files, customer lists, management reports,
memoranda, research, Company forms, financial data and reports and other
documents supplied to or created by him in connection with his employment
hereunder (including all copies of the foregoing) in his possession or control
and all of the Company's equipment and other materials in his possession or
control.
6
<PAGE>
9. Noncompetition. In the event that Executive's employment with the
Company is terminated before a Change in Control voluntarily by the Executive or
by the Board of Directors pursuant to clause (i) of Section 5.1, then Executive
shall not, for a period of one year following such termination of employment (i)
become employed by any insured depository institution which conducts business
activities in Pickens County; (ii) attempt to interfere with any business
relationship of the Company, including without limitation, employee and customer
relationships; or (iii) or otherwise compete against the Company, directly or
indirectly, either as principal, agent, employee, owner (if the percentage of
ownership exceeds 10% of the entity). In the event that Executive's employment
is terminated for any reason following a Change in Control (whether by the
Company or Executive), it is expressly acknowledged that there shall be no
limitation on any activity of Executive, including direct competition with the
Company or its successor, and Company shall not be entitled to injunctive relief
with respect to any such activities of Executive.
10. Assignment. The parties acknowledge that this Agreement has been
entered into due to, among other things, the special skills of Executive, and
agree that this Agreement may not be assigned or transferred by Executive, in
whole or in part, without the prior written consent of Company.
11. Notices. All notices, requests, demands, and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered or seven days after mailing if mailed, first class,
certified mail postage prepaid:
To the Company: Peoples Bancorporation
Post Office Box 1989
Easley, South Carolina 29641
Attn: Chairman of the Board
To Executive: [Executive's name
and address]
7
<PAGE>
Any party may change the address to which notices, requests, demands, and other
communications shall be delivered or mailed by giving notice thereof to the
other party in the same manner provided herein.
12. Provisions Severable. If any provision or covenant, or any part
thereof, of this Agreement should be held by any court to be invalid, illegal or
unenforceable, either in whole or in part, such invalidity, illegality or
unenforceability shall not affect the validity, legality or enforceability of
the remaining provisions or convenants, or any part thereof, of this Agreement,
all of which shall remain in full force and effect.
13. Remedies. The Executive acknowledges that if he breaches or
threatens to breach his covenants and agreements in this Agreement, such actions
may cause irreparable harm and damage to the Company which could not be
compensated in damages. Accordingly, if Executive breaches or threatens to
breach this Agreement, the Company shall be entitled to injunctive relief, in
addition to any other rights or remedies of the Company. In the event that
Executive is reasonably required to engage legal counsel to enforce his rights
hereunder against the Company, Executive shall be entitled to receive from the
Company his reasonable attorney's fees and costs; provided that Executive shall
not be entitled to receive those fees and costs related to matters, if any,
which were the subject of litigation and with respect to which a judgment is
rendered against Executive.
14. Waiver. Failure of either party to insist, in one or more
instances, on performance by the other in strict accordance with the terms and
conditions of this Agreement shall not be deemed a waiver or relinquishment of
any right granted in this Agreement or of the future performance of any such
term or condition or of any other term or condition of this Agreement, unless
such waiver is contained in a writing signed by the party making the waiver.
15. Amendments and Modifications. This Agreement may be amended or
modified only by a writing signed by other parties hereto.
16. Governing Law. The validity and effect of this Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of South Carolina.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
EXECUTIVE
--------------------------
---------------------------
BY: Chairman of the Board
8
APPENDIX A TO EXHIBIT 10.8
Name of Executive Position Salary
- ----------------- -------- ------
William B. West Senior Vice President and CFO $95,000
David C. King Subsidiary President $90,000
F. Davis Arnette, Jr. Subsidiary Presndent $90,000
SUBSIDIARIES OF THE REGISTRANT
The Peoples National Bank, Easley, South Carolina
Bank of Anderson, National Association, Anderson, South Carolina
Seneca National Bank, Seneca, South Carolina
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at December 31, 1999 and the Consolidated Statement
of Income for the year Ended December 31, 1999 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-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,546
<INT-BEARING-DEPOSITS> 148,823
<FED-FUNDS-SOLD> 9,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 31,209
<INVESTMENTS-CARRYING> 4,445
<INVESTMENTS-MARKET> 4,438
<LOANS> 148,579
<ALLOWANCE> 1,581
<TOTAL-ASSETS> 213,913
<DEPOSITS> 168,776
<SHORT-TERM> 15,434
<LIABILITIES-OTHER> 203
<LONG-TERM> 5,000
0
0
<COMMON> 4,989
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<TOTAL-LIABILITIES-AND-EQUITY> 213,913
<INTEREST-LOAN> 10,611
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<INTEREST-TOTAL> 13,577
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