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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(MARK ONE)
X Annual Report under Section 13 or 15(d) of the Securities Exchange Act
- --- of 1934 (No fee required)
For the fiscal year ended December 31, 1996
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OR
Transition Report under Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934 (No fee required)
For the transition period from to
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Commission file no. 33-86258
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First Community Corporation
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(Name of Small Business Issuer in Its Charter)
South Carolina 57-1010751
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
5455 Sunset Blvd., Lexington, South Carolina 29072
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(Address of Principal Executive Offices) (Zip Code)
(803) 951-2265
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Issuer's Telephone Number, Including Area Code
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The aggregate market value of the voting stock as of March 3, 1997,
held by non-affiliates of the registrant based on the book value per share on
December 31, 1996, was $3,940,200.
The issuer's revenues for its most recent fiscal year were $1,895,957.
688,077 shares of the Issuer's common stock were issued and outstanding as of
March 3, 1997.
Documents Incorporated by Reference
Portions of the Registrant's definitive Proxy Statement for its April
16, 1997 Annual Meeting of Shareholders, are incorporated by reference into Part
III thereof.
Transitional Small Business Disclosure Format. (Check one): Yes No X
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PART I
ITEM 1. BUSINESS.
GENERAL
First Community Corporation (the "Company") was incorporated as a South
Carolina corporation on November 2, 1994, primarily to own and control all of
the capital stock of First Community Bank, N.A. (the "Bank"). The Company
presently engages in no business other than owning and managing the Bank. The
Bank is a national banking association which engages in a commercial banking
business from its main office in Lexington, South Carolina and a second office
located in Richland County, South Carolina. The Bank's deposits are insured by
the Federal Deposit Insurance Corporation (the "FDIC"), and it is a member of
the Federal Reserve System.
In July 1995, the Company completed its initial public offering of
688,077 shares of its common stock, par value $1.00 per share (the "Common
Stock"), at a price of $10.00 per share, pursuant to its Prospectus dated
January 14, 1995. On August 17, 1995, the Bank opened for business.
LOCATION AND SERVICE AREA
The Bank is engaged in general commercial and retail banking business,
emphasizing the needs of small-to-medium sized businesses, professional
concerns and individuals, primarily in Columbia, South Carolina and the
surrounding area, including Lexington and Richland Counties. The Bank has its
Main Office located in the city of Lexington, South Carolina in Lexington County
and a Branch Office located in the city of Forest Acres, South Carolina in
Richland County. See "Facilities."
The Main Office primarily serves the area in and around Lexington,
South Carolina, which is west of Columbia in Lexington County. The Branch Office
primarily serves the area around Forest Acres, South Carolina, which is east of
Columbia in Richland County.
Lexington County and Richland County are located in the geographic
center of the state of South Carolina. Columbia, the capital of South Carolina,
is located within and divided between these two counties. Columbia can be
reached via three interstate highways: I-20, I-26, and I-77. Columbia is served
by several airlines as well as by passenger and freight rail service. The
Columbia, South Carolina Metropolitan Statistical Area, which includes the
projected service areas for both sites of the Bank, had an estimated population
in 1990 of 472,800 according to the South Carolina Division of Research and
Statistical Services. Lexington County had a population of 167,711 and Richland
County had a population of 285,720. Columbia is home to the University of South
Carolina, Benedict College, Allen University, and the Fort Jackson Army base.
The largest employers in the area are the state, local, and federal governments,
followed by Fort Jackson and the University of South Carolina. Most of the
commercial business in the area is in support of these agencies, including legal
and medical services. The principal components of the economy of the Columbia
Area are the government, service industries, manufacturing, and wholesale and
retail trade. Major employers located in the area include Pirelli Cable,
Michelin, the South Carolina state government, and the Mid-Carolina Electrical
Cooperative. The area has experienced steady growth over the past ten years and
the Organizers expect the area, as well as the service industry needed to
support it, to continue to grow.
BANKING SERVICES
The Bank offers a full range of deposit services that are typically
available in most banks and savings and loan associations, including checking
accounts, NOW accounts, savings accounts and other time deposits
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of various types, ranging from daily money market accounts to longer-term
certificates of deposit. The transaction accounts and time certificates are
tailored to the Bank's principal market area at rates competitive to those
offered in the area. In addition, the Bank offers certain retirement account
services, such as Individual Retirement Accounts (IRAs). All deposit accounts
are insured by the FDIC up to the maximum amount allowed by law (generally,
$100,000 per depositor subject to aggregation rules). The Bank solicits these
accounts from individuals, businesses, associations and organizations, and
governmental authorities.
The Bank also offers a full range of short-to-medium term commercial
and personal loans. Commercial loans include both secured and unsecured loans
for working capital (including inventory and receivables), business expansion
(including acquisition of real estate and improvements), and purchase of
equipment and machinery. Consumer loans include secured and unsecured loans for
financing automobiles, home improvements, education and personal investments.
The Bank also makes real estate construction and acquisition loans. The bank
originates fixed and variable rate mortgage loans in the name of a third party
which are sold into the secondary market.. The Bank's lending activities are
subject to a variety of lending limits imposed by federal law. While differing
limits apply in certain circumstances based on the type of loan or the nature of
the borrower (including the borrower's relationship to the Bank), in general the
Bank is subject to a loan-to-one-borrower limit of an amount equal to 15% of the
Bank's unimpaired capital and surplus, or 25% of the unimpaired capital and
surplus if the excess over 15% is approved by the board of directors of the Bank
and is fully secured by readily marketable collateral. The Bank may not make any
loans to any director, officer, employee or 10% shareholder of the Company or
the Bank unless the loan is approved by the Board of Directors of the Bank and
is made on terms not more favorable to such person than would be available to a
person not affiliated with the Bank.
Other bank services include cash management services, safe deposit
boxes, travelers checks, direct deposit of payroll and social security checks,
and automatic drafts for various accounts. The Bank offers non-deposit
investment products and other investment brokerage services through a third
party arrangement. The Bank is associated with Honor and Plus networks of
automated teller machines and Mastermoney debit cards that may be used by Bank
customers throughout South Carolina and other regions. The Bank also offers VISA
credit card services through a correspondent bank as an agent for the Bank.
The Bank does not plan to exercise trust powers during its initial
years of operation. The Bank may in the future offer a full-service trust
department, but cannot do so without the prior approval of the OCC.
COMPETITION
The banking business is highly competitive. The Bank competes as a
financial intermediary with other commercial banks, savings and loan
associations, credit unions and money market mutual funds operating in the
Columbia area and elsewhere. As of December 31, 1996, there were eleven
commercial banks operating approximately 142 offices and one thrift with a total
of 2 Offices in the Columbia area. A number of these competitors are well
established in the Columbia Area. Most of them have substantially greater
resources and lending limits than the bank and offer certain services, such as
established branch networks and trust services, that the Bank either does not
provide or will not provide initially. The Bank is the only one of these
institutions that is locally owned and operated. The Company believes that the
community bank focus of the Bank with its emphasis on service to small and
medium size businesses, individual and professional concerns gives it an
advantage in this market.
EMPLOYEES
The Bank presently has 18 full-time employees and one part-time
employee. The Company does not have any employees other than its officers, none
whom receive any remuneration for their services to the Company.
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SUPERVISION AND REGULATION
THE COMPANY
Because it owns the outstanding common stock of the Bank, the Company
is a bank holding company within the meaning of the federal Bank Holding Company
Act of 1956 (the "BHCA") and The South Carolina Bank Holding Company Act (the
"South Carolina Act"). The activities of the Company are also governed by the
Glass-Steagall Act of 1933 (the "Glass-Steagall Act").
Under the BHCA, the Company is subject to periodic examination by the
Federal Reserve and files periodic reports of its operations and such additional
information as the Federal Reserve may require. The Company's and the Bank's
activities are limited to banking, managing or controlling banks, furnishing
services to or performing services for its subsidiaries, and engaging in other
activities that the Federal Reserve determines to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
With certain limited exceptions, the BHCA requires every bank holding
company to obtain the prior approval of the Federal Reserve before (I) acquiring
substantially all the assets of any bank, (ii) acquiring direct or indirect
ownership or control of any voting shares of any bank if after such acquisition
it would own or control more than 5% of the voting shares of such bank (unless
it already owns or controls the majority of such shares), or (iii) merging or
consolidating with another bank holding company.
In addition, and subject to certain exceptions, the BHCA and the Change
in Bank Control Act, together with regulations thereunder, require Federal
Reserve approval (or, depending on the circumstances, no notice of disapproval)
prior to any person or company acquiring "control" of a bank holding company,
such as the Company. Control is conclusively presumed to exist if an individual
or company acquires 25% or more of any class of voting securities of the bank
holding company. Control is rebuttably presumed to exist if a person acquires
10% or more but less than 25% of any class of voting securities. The regulations
provide a procedure for challenge of the rebuttable control presumption.
Under the BHCA, a bank holding company is generally prohibited from
engaging in, or acquiring direct or indirect control of more than 5% of the
voting shares of any company engaged in, nonbanking activities, unless the
Federal Reserve Board, by order or regulation, has found those activities to be
so closely related to banking or managing or controlling banks as to be a proper
incident thereto. Some of the activities that the Federal Reserve Board has
determined by regulation to be proper incidents to the business of a bank
holding company include making or servicing loans and certain types of leases,
engaging in certain insurance and discount brokerage activities, performing
certain data processing services, acting in certain circumstances as a fiduciary
or investment or financial adviser, owning savings associations, and making
investments in certain corporations or projects designed primarily to promote
community welfare.
The Federal Reserve Board will impose certain capital requirements on
the Company under the BHCA, including a minimum leverage ratio and a minimum
ratio of "qualifying" capital to risk-weighted assets. These requirements are
described below under "- Capital Regulations." Subject to its capital
requirements and certain other restrictions, the Company is able to borrow money
to make a capital contribution to the Bank, and such loans may be repaid from
dividends paid from the Bank to the Company (although the ability of the Bank to
pay dividends will be subject to regulatory restrictions as described below in
"- The Bank - Dividends"). The Company is also able to raise capital for
contribution to the Bank by issuing securities without having to receive
regulatory approval, subject to compliance with federal and state securities
laws.
In accordance with Federal Reserve Board policy, the Company is
expected to act as a source of financial strength to the Bank and to commit
resources to support the Bank in circumstances in which the Company might not
otherwise do so. Under the BHCA, the Federal Reserve Board may require a bank
holding company to
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terminate any activity or relinquish control of a nonbank subsidiary (other than
a nonbank subsidiary of a bank) upon the Federal Reserve Board's determination
that such activity or control constitutes a serious risk to the financial
soundness or stability of any subsidiary depository institution of the bank
holding company. Further, federal bank regulatory authorities have additional
discretion to require a bank holding company to divest itself of any bank or
nonbank subsidiary if the agency determines that divestiture may aid the
depository institution's financial condition.
The Company is also restricted in its activities by the provisions of
the Glass-Steagall Act, which prohibit the Company from owning subsidiaries that
are engaged principally in the issue, flotation, underwriting, public sale, or
distribution of securities. The interpretation, scope, and application of the
provisions of the Glass- Steagall Act currently are being considered and
reviewed by regulators and legislators, and the interpretation and application
of those provisions have been challenged in the federal courts.
As a bank holding company registered under the South Carolina Act, the
Company is subject to regulation by the South Carolina State Board of Financial
Institutions (the "South Carolina Board"). Consequently, the Company must
receive the approval of the South Carolina Board prior to engaging in the
acquisitions of banking or nonbanking institutions or assets. The Company must
also file with the South Carolina Board periodic reports with respect to its
financial condition and operations, management, and intercompany relationships
between the Company and its subsidiaries.
The Bank. The Bank is operating as a national banking association
incorporated under the laws of the United States and subject to examination by
the OCC. Deposits in the Bank are insured by the FDIC up to a maximum amount
(generally $100,000 per depositor, subject to aggregation rules). The OCC and
the FDIC regulate or monitor virtually all areas of the Bank's operations,
including security devices and procedures, adequacy of capitalization and loss
reserves, loans, investments, borrowings, deposits, mergers, issuances of
securities, payment of dividends, interest rates payable on deposits, interest
rates or fees chargeable on loans, establishment of branches, corporate
reorganizations, maintenance of books and records, and adequacy of staff
training to carry on safe lending and deposit gathering practices. The OCC
requires the Bank to maintain certain capital ratios and imposes limitations on
the Bank's aggregate investment in real estate, bank premises, and furniture and
fixtures. The Bank is required by the OCC to prepare quarterly reports on the
Bank's financial condition and to conduct an annual audit of its financial
affairs in compliance with minimum standards and procedures prescribed by the
OCC.
Under FDICIA, all insured institutions must undergo regular on-site
examination by their appropriate banking agency. The cost of examinations of
insured depository institutions and any affiliates is assessed by the
appropriate agency against each institution or affiliate as it deems necessary
or appropriate. Insured institutions are required to submit annual reports to
the FDIC and the appropriate agency (and state supervisor when applicable).
FDICIA also directs the FDIC to develop with other appropriate agencies a method
for insured depository institutions to provide supplemental disclosure of the
estimated fair market value of assets and liabilities, to the extent feasible
and practicable, in any balance sheet, financial statement, report of condition
or any other report of any insured depository institution. FDICIA also requires
the federal banking regulatory agencies to prescribe, by regulation, standards
for all insured depository institutions and depository institution holding
companies relating, among other things, to: (I) internal controls, information
systems, and audit systems; (ii) loan documentation; (iii) credit underwriting;
(iv) interest rate risk exposure; and (v) asset quality.
National banks and their holding companies which have been chartered or
registered or undergone a change in control within the past two years or which
have been deemed by the OCC or the Federal Reserve Board, respectively, to be
troubled institutions must give the OCC or the Federal Reserve Board,
respectively, thirty days prior notice of the appointment of any senior
executive officer or director. Within the thirty day period, the OCC or the
Federal Reserve Board, as the case may be, may approve or disapprove any such
appointment. The
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Company and the Bank will meet the criteria which trigger this additional
approval during the first two years of operation.
The FDIC establishes rates for the payment of premiums by federally
insured banks and thrifts for deposit insurance. A separate Bank Insurance Fund
("BIF") and Savings Association Insurance Fund ("SAIF") are maintained for
commercial banks and thrifts, respectively, with insurance premiums from the
industry used to offset losses from insurance payouts when banks and thrifts
fail. Beginning in 1993, insured depository institutions pay for deposit
insurance under a risk-based premium system. Under this system, a BIF insured
depositor institution pays to BIF from $.04 to $.31 per $100 of insured deposits
depending on its capital levels and risk profile, as determined by its primary
federal regulator subject to a minimum semi-annual assessment of $1,000 per
institution. During 1996 the assessment rates for each category were adjusted
down by $.04. The Bank's BIF assessment was $.00 per $100 of insured deposits
and was therefore subject to the minimum $1,000 semi-annual assessment in 1996.
The Deposit Insurance Funds Act of 1996 eliminated the minimum assessment
required by statute. It also separates, effective January 1, 1997, the Financing
Corporation (FICO) assessment to service the interest on its bond obligations.
The amount assessed on individual institutions, including the Bank, by the FICO
will be in addition to the amount paid for deposit insurance according to the
risk-related assessment rate schedule. FICO assessment rates for the first
semi-annual period of 1997 were set at 1.30 basis points annually for BIF
deposits. For the first semi-annual period of 1997, the FDIC Board of Directors
maintained the adjusted rate schedule and the Bank's insurance assessment will
remain at $.00 per $100 in deposits through June 1997. Increases in deposit
insurance premiums or changes in risk classification will increase the Bank's
cost of funds, and there can be no assurance that such cost can be passed on the
Bank's customers.
The Bank is subject to the provisions of Section 23A of the Federal
Reserve Act, which place limits on the amount of loans or extensions of credit
to, or investments in, or certain other transactions with, affiliates and on the
amount of advances to third parties collateralized by the securities or
obligations of affiliates. The aggregate of all covered transactions is limited
in amount, as to any one affiliate, to 10% of the bank's capital and surplus
and, as to all affiliates combined, to 20% of the bank's capital and surplus.
Furthermore, within the foregoing limitations as to amount, each covered
transaction must meet specified collateral requirements. Compliance is also
required with certain provisions designed to avoid the taking of low quality
assets.
The Bank is also subject to the provisions of Section 23B of the
Federal Reserve Act which, among other things, prohibit an institution from
engaging in certain transactions with certain affiliates unless the transactions
are on terms substantially the same, or at least as favorable to such
institution or its subsidiaries, as those prevailing at the time for comparable
transactions with non-affiliated companies. The Bank is subject to certain
restrictions on extensions of credit to executive officers, directors, certain
principal shareholders, and their related interests. Such extensions of credit
(I) must be made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
third parties and (ii) must not involve more than the normal risk of repayment
or present other unfavorable features.
A national bank may not pay dividends from its capital: All dividends
must be paid out of undivided profits then on hand, after deducting expenses,
including reserves for losses and bad debts. In addition, a national bank is
prohibited from declaring a dividend on its shares of common stock until its
surplus equals its stated capital, unless there has been transferred to surplus
no less than one-tenth of the bank's net profits of the preceding two
consecutive half-year periods (in the case of an annual dividend). The approval
of the OCC is required if the total of all dividends declared by a national bank
in any calendar year exceeds the total of its net profits for that year combined
with its retained net profits for the preceding two years, less any required
transfers to surplus.
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The OCC has promulgated regulations that became effective on December
13, 1990, which significantly affect the level of allowable dividend payments
for national banks. The effect is to make the calculation of national banks'
dividend-paying capacity consistent with generally accepted accounting
principles. In this regard, the allowance for loan and lease losses will not be
considered an element of either "undivided profits then on hand" or "net
profits." Further, a national bank may be able to use a portion of its capital
surplus account as "undivided profits then on hand," depending on the
composition of that account. In addition, under FDICIA, the Bank may not pay a
dividend if, after paying the dividend, the Bank would be undercapitalized.
National banks are required by the National Bank Act to adhere to
branch office banking laws applicable to state banks in the states in which they
are located. Under current South Carolina law, the Bank may open branch offices
throughout South Carolina with the prior approval of the OCC. In addition, with
prior regulatory approval, the Bank will be able to acquire existing banking
operations in South Carolina. Furthermore, federal legislation has recently been
passed which permits interstate branching. The new law permits out of state
acquisitions by bank holding companies (subject to veto by new state law),
interstate branching by banks if allowed by state law, interstate merging by
banks, and de novo branching by national banks if allowed by state law. The
Company currently has no plans or agreements whereby the Bank would acquire
other banks or thrifts.
The Community Reinvestment Act requires that, in connection with
examinations of financial institutions within their respective jurisdictions,
the Federal Reserve, the FDIC, the OCC, or the Office of Thrift Supervision (the
"OTS") shall evaluate the record of the financial institutions in meeting the
credit needs of their local communities, including low and moderate income
neighborhoods, consistent with the safe and sound operation of those
institutions. These factors are also considered in evaluating mergers,
acquisitions, and applications to open a branch or facility.
Interest and certain other charges collected or contracted for by the
Bank are subject to state usury laws and certain federal laws concerning
interest rates. The Bank's loan operations are also subject to certain federal
laws applicable to credit transactions, such as the federal Truth-In-Lending
Act, governing disclosures of credit terms to consumer borrowers; the Home
Mortgage Disclosure Act of 1975, requiring financial institutions to provide
information to enable the public and public officials to determine whether a
financial institution will be fulfilling its obligation to help meet the housing
needs of the community it serves; the Equal Credit Opportunity Act, prohibiting
discrimination on the basis of race, creed or other prohibited factors in
extending credit; the Fair Credit Reporting Act of 1978, governing the use and
provision of information to credit reporting agencies; the Fair Debt Collection
Act, governing the manner in which consumer debts may be collected by collection
agencies; and the rules and regulations of the various federal agencies charged
with the responsibility of implementing such federal laws. The deposit
operations of the Bank also are subject to the Right to Financial Privacy Act,
which imposes a duty to maintain confidentiality of consumer financial records
and prescribes procedures for complying with administrative subpoenas of
financial records, and the Electronic Funds Transfer Act and Regulation E issued
by the Federal Reserve Board to implement that act, which governs 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.
CAPITAL REGULATIONS
The federal bank regulatory authorities have adopted risk-based capital
guidelines for banks and bank holding companies that are designed to make
regulatory capital requirements more sensitive to differences in risk profiles
among banks and bank holding companies, account for off-balance sheet items. The
guidelines are minimums, and the federal regulators have noted that banks and
bank holding companies contemplating significant expansion programs should not
allow expansion to diminish their capital ratios and should maintain in excess
of the minimums. Neither the Company nor the Bank has received any notice
indicating that either entity will be subject to higher capital requirements.
The current guidelines require all bank holding companies
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and federally-regulated banks to maintain a minimum risk-based total capital
ratio equal to 8%, of which at least 4% must be Tier 1 capital. Tier 1 capital
includes common shareholders' equity, qualifying perpetual preferred stock, and
minority interests in equity accounts of consolidated subsidiaries, but excludes
goodwill and most other intangibles and excludes the allowance for loan and
lease losses. Tier 2 capital includes the excess of any preferred stock not
included in Tier 1 capital, mandatory convertible securities, hybrid capital
instruments, subordinated debt and intermediate term-preferred stock, and
general reserves for loan and lease losses up to 1.25% of risk-weighted assets.
Under these guidelines, banks' and bank holding companies' assets are
given risk-weights of 0%, 20%, 50%, or 100%. In addition, certain off-balance
sheet items are given credit conversion factors to convert them to asset
equivalent amounts to which an appropriate risk-weight will apply. These
computations result in the total risk-weighted assets. Most loans are assigned
to the 100% risk category, except for first mortgage loans fully secured by
residential property and, under certain circumstances, residential construction
loans, both of which carry a 50% rating. Most investment securities are assigned
to the 20% category, except for municipal or state revenue bonds, which have a
50% rating, and direct obligations of or obligations guaranteed by the United
States Treasury or United States Government agencies, which have a 0% rating.
The federal bank regulatory authorities have also implemented a
leverage ratio, which is Tier 1 capital as a percentage of average total assets
less intangibles, to be used as a supplement to the risk-based guidelines. The
principal objective of the leverage ratio is to place a constraint on the
maximum degree to which a bank holding company may leverage its equity capital
base. The minimum required leverage ratio for top-rated institutions is 3%, but
most institutions are required to maintain an additional cushion of at least 100
to 200 basis points.
FDICIA established a new capital-based regulatory scheme designed to
promote early intervention for troubled banks and requires the FDIC to choose
the least expensive resolution of bank failures. The new capital- based
regulatory framework contains five categories of compliance with regulatory
capital requirements, including "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized." To qualify as a "well capitalized" institution, a bank must
have a leverage ratio of no less than 5%, a Tier 1 risk-based ratio of no less
than 6%, and a total risk-based capital ratio of no less than 10%, and the bank
must not be under any order or directive from the appropriate regulatory agency
to meet and maintain a specific capital level. Initially, the Organizers expect
the Bank to qualify as "well-capitalized."
Under the FDICIA regulations, the applicable agency can treat an
institution as if it were in the next lower category if the agency determines
(after notice and an opportunity for hearing) that the institution is in an
unsafe or unsound condition or is engaging in an unsafe or unsound practice. The
degree of regulatory scrutiny of a financial institution will increase, and the
permissible activities of the institution will decrease, as it moves downward
through the capital categories. Institutions that fall into one of the three
undercapitalized categories may be required to (I) submit a capital restoration
plan; (ii) raise additional capital; (iii) restrict their growth, deposit
interest rates, and other activities; (iv) improve their management; (v)
eliminate management fees; or (vi) divest themselves of all or a part of their
operations. Bank holding companies controlling financial institutions can be
called upon to boost the institutions' capital and to partially guarantee the
institutions' performance under their capital restoration plans.
These capital guidelines can affect the Company in several ways.
Subsequent to the initial public offering the Company's capital levels are more
than adequate. However, rapid growth, poor loan portfolio performance, or poor
earnings performance, or a combination of these factors, could change the
Company's capital position in a relatively short period of time, making an
additional capital infusion necessary.
Effective January 1, 1997 the OCC amended the risk-based capital
standards to incorporate a measure for market risk to cover all positions
located in an institution's trading account, foreign exchange and commodity
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positions wherever located. The effect of the rule is that it requires any bank
or bank holding company with significant exposure to market risk to measure the
risk and hold capital commensurate with that risk. Since the Bank does not
currently engage, nor has any plans to engage in trading, foreign exchange or
commodity position activities, the rule does not have an effect on the required
Bank capital levels.
FDICIA requires the federal banking regulators to revise the risk-based
capital standards to provide for explicit consideration of interest-rate risk,
concentration of credit risk, and the risks of non-traditional activities. It is
uncertain what affect future changes in these regulations, when implemented,
would have on the Company and the Bank.
Failure to meet these capital requirements would mean that a bank would
be required to develop and file a plan with its primary federal banking
regulator describing the means and a schedule for achieving the minimum capital
requirements. In addition, such a bank would generally not receive regulatory
approval of any application that requires the consideration of capital adequacy,
such as a branch or merger application, unless the bank could demonstrate a
reasonable plan to meet the capital requirement within a reasonable period of
time.
ENFORCEMENT POWERS
FIRREA expanded and increased civil and criminal penalties available
for use by the federal regulatory agencies against depository institutions and
certain "institution-affiliated parties" (primarily including management,
employees, and agents of a financial institution, independent contractors such
as attorneys and accountants and others who participate in the conduct of the
financial institution's affairs). These practices can include the failure of an
institution to timely file required reports or the filing of false or misleading
information or the submission of inaccurate reports. Civil penalties may be as
high as $1,000,000 a day for such violations. Criminal penalties for some
financial institution crimes have been increased to twenty years. In addition,
regulators are provided with greater flexibility to commence enforcement actions
against institutions and institution-affiliated parties. Possible enforcement
actions include the termination of deposit insurance. Further more, FIRREA
expanded the appropriate banking agencies' power to issue cease and desist
orders that may, among other things, require affirmative action to correct any
harm resulting from a violation or practice, including restitution,
reimbursement, indemnifications or guarantees against loss. A financial
institution may also be ordered to restrict its growth, dispose of certain
assets, rescind agreements or contracts, or take other actions as determined by
the ordering agency to be appropriate.
RECENT LEGISLATIVE DEVELOPMENTS
The Interstate Banking Act, passed by Congress in 1994, allows
unrestricted interstate bank mergers and interstate acquisition of banks by bank
holding companies, and ultimately will permit interstate de novo branching by
banks. The states, however, may opt in or opt out of several of the Interstate
Banking Act's provisions. In 1994, South Carolina amended its bank holding
company act to opt into these provisions and allow nationwide interstate banking
beginning in 1996. As a result of these new laws, the number of competitors in
the Company's market may increase. However, the Company believes it can compete
effectively in the market and that the legislation will not have a material
adverse impact on the Company or the Bank. From time to time, various bills are
introduced in the United States Congress and at the state legislative level with
respect to the regulation of financial institutions. Certain of these proposals,
if adopted, could significantly change the regulation of banks and the financial
services industry. The Company cannot predict whether any of these proposals
will be adopted or, if adopted, how these proposals would affect the Company.
EFFECT OF GOVERNMENTAL MONETARY POLICIES
The earnings of the Bank are affected by domestic economic conditions
and the monetary and fiscal policies of the United States government and its
agencies. The Federal Reserve Board's monetary policies have
8
<PAGE> 10
had, and will likely continue to have, an important impact on the operating
results of commercial banks through its power to implement national monetary
policy in order, among other things, to curb inflation or combat a recession.
The monetary policies of the Federal Reserve Board have major effects upon the
levels of bank loans, investments and deposits through its open market
operations in United States government securities and through its regulation of
the discount rate on borrowings of member banks and the reserve requirements
against member bank deposits. It is not possible to predict the nature or impact
of future changes in monetary and fiscal policies.
ITEM 2. DESCRIPTION OF PROPERTY.
Lexington Property. The principal place of business of both the Company
and the Main Office is located at 5455 Sunset Boulevard, Lexington, South
Carolina 29072. The site of the Bank's main office is a 2.29 acre plot of land.
The site was purchased for $576,000. The Company and the Bank are operating in
an 8500 square foot facility located on this site. This site is designed to
allow the addition of 12,000 square feet to the facility at some future date and
as needed.
Forest Acres Property. The Bank also operates a Branch Office facility
at 4404 Forest Drive, Columbia, South Carolina 29206. The Forest Acres site is a
.71 acre plot of land which was acquired at a cost of $376,000. The Bank is
currently operating out of a modular building located on a plot of land
contiguous to the future branch site. Construction of a permanent facility began
in the fourth quarter of 1996 and will be occupied in May 1997. The permanent
banking facility is approximately 4,000 square feet with a total cost of
construction of approximately $545,000 including paving and landscaping.
ITEM 3. LEGAL PROCEEDINGS.
Neither the Company nor the Bank is a party to, nor is any of their
property the subject of, any material pending legal proceedings related to the
business of the Company or the Bank.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's articles of incorporation authorize it to issue up to
10,000,000 shares of common stock, par value $1.00 per share (the "Common
Stock"), of which 688,077 were issued and outstanding as of December 31, 1996.
There is no established public trading market in the Common Stock, and one is
not expected to develop in the near future.
The Company has never paid any dividends. It is anticipated that
earnings will be retained for several years to expand the Bank's capital base to
support deposit growth and that no dividends will be paid on the Company's stock
for the next four years. Dividends might not be paid for several years
thereafter even if the Company achieves profitable operations.
Moreover, the National Banking Act limits dividend payments by national
banks such as the Bank, which in turn could limit the Company's ability to pay
dividends. The Bank may only pay dividends out of its net profits then on hand,
after deducting expenses, including losses and bad debts. In addition, the Bank
is prohibited from
9
<PAGE> 11
declaring a dividend on its shares of common stock until its surplus equals its
stated capital, unless there has been transferred to surplus no less than
one-tenth of the Bank's net profits of the preceding two consecutive half-year
periods (in the case of an annual dividend). The approval of the OCC will be
required if the total of all dividends declared in any calendar year by the Bank
exceeds the Bank's net profits to date, as defined, for that year combined with
its retained net profits for the preceding two years less any required transfers
to surplus. At December 31, 1996, the Bank was not yet cumulatively profitable,
and it is not expected to be cumulatively profitable in 1997. The OCC also has
the authority under federal law to enjoin a national bank from engaging in what
in its opinion constitutes an unsafe or unsound practice in conducting its
business, including the payment of a dividend under certain circumstances.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL
First Community Corporation is a one bank holding company. The Company
commenced operations on November 2, 1994. The Bank, the Company's only
subsidiary, began operations on August 17, 1995. Although, a loss from
operations of $281,631 was experienced for the year ended December 31, 1996,
during the fourth quarter of 1996 the Company recorded its first quarterly
profit since commencing operations. The Company expected to experience losses
until the Bank grew its assets to a point where the assets generated revenue
from operations which exceeded the Bank's fixed costs. Comparisons of the
Company's and the Bank's results for all of the periods presented, particularly
with respect to their banking operations, should be made with an understanding
of these events.
RESULTS OF OPERATIONS
The Company's net loss was $281,631 for the year-ended December 31,
1996, as compared to a loss of $557,834 for the year ended December 31, 1995,
and a loss of $144,615 for the period from November 2, 1994, to December 31,
1994. The 1995 loss of $557,834 includes approximately four months of operations
and eight months of preopening activities. The 1994 loss of $144,615 all
relates to costs associated with preopening activities. The decrease in the net
loss between 1996 and 1995 of 49.5% resulted from the Bank continuing to
leverage its capital with an increased volume of assets. The return on average
assets for 1996 and 1995 was (1.04%) and (8.65%), respectively, and return on
average equity was (4.81%) and (17.02%), respectively. Comparison of these
ratios to 1994, are not meaningful due to the minimal amount of assets in the
Company during this period.
Net Interest Income
General. The largest component of operating earnings for the Company is
net interest income, which is the difference between the income earned on assets
and interest paid on deposits and borrowings used to support such assets. Net
interest income is determined by the rates earned on the Company's
interest-earning assets and the rates paid on its interest-bearing liabilities,
the relative amounts of interest-earning assets and interest-bearing
liabilities, and the degree of mismatch and the maturity and repricing
characteristics of its interest-earning assets and interest-bearing liabilities.
Net interest income totaled $1,023,983 in 1996, compared with $245,037
in 1995. Net interest spread, the difference between the yield on earning assets
and the rate paid on interest-bearing liabilities, was 3.13% in 1996 as compared
to 1.72% in 1995. The reason for the increase was primarily due to the changing
mix of the earning asset portfolios. During 1996, 44.5% of earning assets were
in the loan portfolio as compared to 10.6% in 1995. Loans typically provide a
higher yield than the other types of earning assets and thus one of the
Company's goals is to continue to grow this portfolio as a percentage of total
earning assets.
10
<PAGE> 12
Average Balances, Income Expenses and Rates. The following tables
depict, for the periods indicated, certain information related to the Company's
average balance sheet and its average yields on assets and average costs of
liabilities. Such yields are derived by dividing income or expense by the
average balance of the corresponding assets or liabilities. Average balances
have been derived from daily averages.
<TABLE>
<CAPTION>
AVERAGE BALANCES, INCOME AND EXPENSES, AND RATES
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1996 1995
------------------------------------- ---------------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
----------- ---------- ---- ---------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets
Loans (1) ........................................... $10,647,842 $1,004,243 9.43% $ 584,210 $ 57,223 9.79%
Securities:
Taxable ........................................... 10,855,772 635,326 5.85% 2,357,254 136,436 5.79%
Federal funds sold and securities purchased
under agreement to resell ........................ 2,446,780 130,463 5.33% 1,082,691 62,894 5.81%
Other short term investments, pre-opening ........... -- -- -- 1,512,360 86,754 5.74%
----------- ---------- ---- ---------- -------- ----
Total earning assets .............................. 23,950,394 1,770,032 7.39% 5,536,515 343,307 6.20%
----------- ---------- ---- ---------- -------- ----
Cash and due from banks ................................ 928,597 162,425
Premises and equipment ................................. 2,019,769 731,928
Other assets ........................................... 257,792 31,894
Allowance for loan losses .............................. 132,525 10,375
----------- ----------
Total assets ...................................... $27,024,027 $6,452,387
=========== ==========
LIABILITIES
Interest-Bearing Liabilities
Interest-bearing transaction accounts (1) ........... 2,410,850 36,020 1.49% 236,282 4,586 1.94%
Money Market accounts ............................... 1,595,155 51,702 3.24% 283,616 10,222 3.60%
Savings deposits (1) ................................ 3,706,587 148,462 4.01% 446,597 17,731 3.97%
Time deposits (1) ................................... 8,645,660 459,442 5.31% 1,082,053 58,557 5.41%
Other short-term borrowings ......................... 1,166,761 50,423 4.32% 143,684 7,174 4.99%
----------- ---------- ---- ---------- -------- ----
Total interest-bearing liabilities ................ 17,525,013 746,049 4.26% 2,192,232 98,270 4.48%
----------- ---------- ---- ---------- -------- ----
Demand deposits (1) .................................... 3,449,496 219,548
Other liabilities ...................................... 197,218 762,354
Shareholders' equity ................................... 5,852,300 3,278,253
----------- ---------
Total liabilities and shareholders' equity ........ $27,024,027 $6,452,387
=========== ==========
Net interest spread .................................... 3.13% 1.72%
Net interest income/margin ............................. $1,023,983 4.28% $245,037 4.43%
========== ========
</TABLE>
- -----------
(1) All loans and deposits are domestic. The Company had no nonaccrual loans
during the periods presented.
11
<PAGE> 13
The following table presents the dollar amount of changes in interest
income and interest expense attributable to changes in volume and the amount
attributable to changes in rate. The combined effect in both volume and rate,
which cannot be separately identified, has been allocated proportionately to the
change due to volume and due to rate.
<TABLE>
<CAPTION>
1996 versus 1995
Increase (decrease) due to
----------------------------------------
Volume Rate Net
----------- -------- -----------
<S> <C> <C> <C>
ASSETS
Earning Assets
Loans $ 949,065 $ (2,045) $ 947,020
Securities:
Taxable 497,353 1,537 498,890
Federal funds sold and securities purchased under
agreements to resell 72,280 (4,711) 67,569
Other short-term investments, preopening (86,754) -- (86,754)
Total earning assets $ 1,348,914 77,811 1,426,725
----------- -------- -----------
Interest-bearing liabilities
Interest-bearing transaction accounts 32,240 (806) 31,434
Money market accounts 42,403 (923) 41,480
Savings deposits 130,573 158 130,731
Time deposits 401,921 (1,036) 400,885
Other short term borrowings 44,081 (832) 43,249
Total interest-bearing liabilities 652,474 (4,695) 647,779
----------- -------- -----------
Net interest income $ 778,946
===========
</TABLE>
Interest Sensitivity. The Company monitors and manages the pricing and
maturity of its assets and liabilities in order to diminish the potential
adverse impact that changes in interest rates could have on its net interest
income. A monitoring technique employed by the Company is the measurement of the
Company's interest sensitivity "gap," which is the positive or negative dollar
difference between assets and liabilities that are subject to interest rate
repricing within a given period of time. Also, asset/liability modeling is
performed by the Company to assess the impact varying interest rates and balance
sheet mix assumptions will have on net interest income. Interest rate
sensitivity can be managed by repricing assets or liabilities, selling
securities available-for- sale, replacing an asset or liability at maturity or
by adjusting the interest rate during the life of an asset or liability.
Managing the amount of assets and liabilities repricing in the same time
interval helps to hedge the risk
12
<PAGE> 14
and minimize the impact on net interest income of rising or falling interest
rates. The Company evaluates interest sensitivity risk and then formulates
guidelines regarding asset generation and repricing, funding sources and
pricing, and off-balance sheet commitments in order to decrease interest
sensitivity risk.
The following table illustrates the Company's interest rate sensitivity
at December 31, 1996.
INTEREST SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
AFTER THREE AFTER SIX GREATER THAN
WITHIN THROUGH SIX THROUGH WITHIN ONE YEAR OR
THREE MONTHS MONTHS TWELVE MONTHS ONE YEAR NONSENSITIVE TOTAL
------------ ------ ------------- -------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets
Loans .............................. $ 6,953,415 $ 263,405 $ 886,399 $ 8,103,219 $ 7,811,785 $15,915,004
Securities ......................... 3,671,045 1,289,840 3,073,172 8,034,057 3,841,995 11,876,052
Federal funds sold and securities
purchased under agreement to
resell............................. 5,752,272 5,752,272 5,752,272
----------- ----------- ----------- ----------- --------- -----------
Total earning assets ............. 16.376,732 1,553,245 3,959,571 21,889,548 11,653.780 33,543,328
----------- ----------- ----------- ----------- --------- -----------
LIABILITIES
Interest-bearing liabilities
Interest-bearing deposits
NOW Accounts (1) .................. 498,643 498,643 997,285 1,994,571 1,994,570 3,989,141
Money Market accounts ............. 1,973,945 1,973,945 1,973,945
Savings deposits (1) ............... 894,289 894,289 1,788,577 3,577,155 3,577,152 7,154,307
Time deposits ...................... 6,110,345 3,235,468 1,387,180 10,732,993 1,006,839 11,739,832
----------- ----------- ----------- ----------- --------- -----------
Total interest-bearing deposits .. 9,477,222 4,628,400 4,173,042 18,275,664 6,578,561 24,857,225
Other short-term borrowings ........ 1,222,959 1,222,959 1,222,959
----------- ----------- ----------- ----------- --------- -----------
Total interest-bearing liabilities 10,700,181 4,628,400 4,173,042 19,501,623 6,578,561 26,080,184
----------- ----------- ----------- ----------- --------- -----------
Period gap ............................ $ 5,676,551 $(3,075,155) $ (213,471) $ 2,387,925 $ 5,075,219 $ 7,463,144
Cumulative gap ........................ $ 5,676,551 $ 2,601,396 $ 2,387,925 $ 2,387,925 $ 7,463,144 $ 7,463,144
Ratio of cumulative gap to total
earning assets ..................... 16.92% 7.76% 7.12% 7.12% 22.25%
</TABLE>
- ---------------------
(1)NOW and savings accounts are subject to immediate withdrawal and repricing.
These deposits do not tend to immediately react to changes in interest rates and
the company believes these deposits are a stable and predictable funding source.
Therefore, these deposits are included in the repricing period that management
believes most closely matches the periods in which they are likely to reprice
rather than the period in which the funds can be withdrawn contractually.
The Company generally would benefit from increasing market rates of
interest when it has an asset-sensitive gap and generally would benefit from
decreasing market rates of interest when it is liability sensitive. The Company
currently is asset sensitive over all time frames. However, the Company's gap
analysis is not a precise indicator of its interest sensitivity position. The
analysis presents only 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. Net interest income is also
impacted by other significant factors, including changes in the volume and mix
of earning assets and interest-bearing liabilities.
Provision and Allowance for Loan Losses
The Company has developed policies and procedures for evaluating the
overall quality of its credit portfolio and the timely identification of
potential problem credits. Management's judgment as to the adequacy of the
allowance is based upon a number of
13
<PAGE> 15
assumptions about future events which it believes to be reasonable, but which
may or may not be 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 loan loss allowance will not be required.
Additions to the allowance for loan losses, which are expended as the
provision for loan losses on the Company's income statement, are made
periodically to maintain the allowance at an appropriate level based on
management's analysis of the potential risk in the loan portfolio. Currently,
the allowance for loan losses is evaluated on an overall portfolio basis.
Management intends to implement an allocation system in the future. This system
will allocate the allowance to loan categories, and will be implemented at the
time the size and mix of the portfolio support such a system. The amount of the
provision is a function of the level of loans outstanding, the level of
nonperforming loans, historical loan loss experience, the amount of loan losses
actually charged against the reserve during a given period, and current and
anticipated economic conditions.
At December 31, 1996 and 1995, the allowance for loan losses amounted
to $200,860 and $76,750, respectively. This represents 1.26% and 2.00% of
outstanding loans at December 31, 1996 and 1995, respectively. During 1996, the
Bank charged off one lease in the amount of $9,705 and one consumer loan in the
amount of $1,500. There were no charge-offs during 1995. There were no
non-accrual, restructured or other non-performing loans at December 31, 1996 or
1995. In addition, there were no loans delinquent greater than 30 days. The
provision for loan losses was $135,000 and $76,750 for the years ended December
31, 1996 and 1995, respectively. The provision was made based on management's
assessment of general loan loss risk and asset quality.
Accrual of interest is discontinued on loans when management believes,
after considering economic and business conditions and collection efforts, that
a borrower's financial condition is such that the collection of interest is
doubtful. A delinquent loan is generally placed in nonaccrual status when it
becomes 90 days or more past due. At the time a loan is placed in nonaccrual
status, all interest which has been accrued on the loan but remains unpaid is
reversed and deducted from earnings as a reduction of reported interest income.
No additional interest is accrued on the loan balance until the collection of
both principal and interest becomes reasonably certain.
Potential Problem Loans. A potential problem loan is one in which
management has serious doubts about the borrower's future performance under the
terms of the loan contract. These loans are current as to principal and interest
and, accordingly, they are not included in nonperforming assets categories. At
December 31, 1996, the Company had no loans considered by management to be
potential problem loans. The level of potential problem loans is one factor to
be used in the determination of the adequacy of the allowance for loan losses.
Noninterest Income and Expense
Noninterest Income. Noninterest income for the year ended December 31,
1996, was $125,925 as compared to $19,569 for 1995. This increase is primarily a
result of the substantial growth in deposit account balances and the related
deposit account fees. These fees amounted to $82,192 in 1996, as compared to
$7,434 in 1995. The Company originates mortgage loans which are closed in the
name of a third party for which the Company receives a fee. These fees increased
to $24,930 in 1996, as compared to $9,553 in 1995. The mortgage loan origination
program was in place for the entire year during 1996, as compared to only four
months in 1995. There was no source of noninterest income during the period
ended December 31, 1994.
14
<PAGE> 16
Noninterest Expense. Noninterest expense increased from $745,690 for
the period ended December 31, 1995 to $1,296,539 for the year ended December 31,
1996. Preopening activities accounted for $250,826 of the non interest expenses
during 1995. These pre-opening activities included the preparation and filing of
applications with various regulators and planning and organizing activities for
the opening of the Bank. The substantial increase in expenses related to
operations from 1995 to 1996 is a result of the Bank being in operation for all
of 1996, as compared to approximately four and one half months in 1995.
Non-interest expenses of $144,615 incurred during 1994, related to preopening
activities. In the very competitive financial services market of recent years,
management recognizes the need to place a great deal of emphasis on expense
management and will continue to evaluate and monitor growth in discretionary
expense categories in order to control future increases.
FINANCIAL POSITION
Total assets at December 31, 1996, were $38,129,241 as compared to
$19,379,598 at December 31, 1995. Average earning assets increased to
$23,950,394 during 1996 as compared to $5,536,515 during 1995. Asset growth was
principally attributable to a net increase in loans of $11,957,752 during 1996.
The loan growth was funded by an increase in deposit balances of $19,566,884
from year-end 1995 to year-end 1996. Shareholders' equity totaled $5,782,106 at
December 31, 1996 as compared to $6,135,505 at December 31, 1995. This decrease
was primarily due to the net loss incurred during 1996, the Banks' first full
year of operations.
Earning Assets
Loans. Loans typically provide higher yields than the other types of
earning assets, and thus one of the Bank's goals is to have loans be the largest
category of the Bank's earning assets. At December 31, 1996 loans accounted for
47.5% of earning assets as compared to 22.3% of earning assets at December 31,
1995. Associated with the higher loan yields are the inherent credit and
liquidity risks which management attempts to control and counterbalance.
Management is not willing to sacrifice asset quality in order to achieve its
asset mix goals. Loans averaged $10,647,842 during 1996, as compared to $584,210
in 1995.
The following table shows the composition of the loan portfolio by
category:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------
1996 1995
----------------------- -------------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
------ -------- ------ --------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural........ $ 2,837,396 17.83% $ 496,908 12.96%
Real estate:
Construction......................... 791,758 4.97% 35,000 .91%
Mortgage - residential............... 2,602,274 16.35% 664,504 17.34%
Mortgage - commercial................ 6,639,358 41.72% 1,579,995 41.22%
Consumer...................................... 2,761,621 17.35% 1,056,735 27.57%
Leases 282,597 1.78% -- --
----------- ------ ---------- ------
Total gross loans.................... 15,915,004 100.00% 3,833,142 100.00%
====== ======
Allowance for loan losses..................... 200 860 76,750
----------- ----------
Total net loans...................... $15,714,144 $3,756,392
=========== ==========
</TABLE>
The principal components of the Company's loan portfolio, at year end
1996 and 1995, were commercial mortgage loans in the amount of $6,639,358 and
$1,579,995, representing 41.72% and 41.22% of the portfolio, respectively. A
significant portion of these commercial mortgage loans are made to finance owner
occupied real estate. Due to the short term the loan portfolio has existed, the
current portfolio may not be indicative of the ongoing portfolio mix. Management
maintains a conservative philosophy regarding its underwriting guidelines, and
believes it will reduce the risk elements of its loan portfolio through
strategies that diversify the lending mix.
The repayment of loans in the loan portfolio as they mature is a source
of liquidity for the Company. The following table sets forth the Company's loans
maturing within specified intervals at December 31, 1996.
15
<PAGE> 17
LOAN MATURITY SCHEDULE AND SENSITIVITY TO CHANGES IN INTEREST RATES
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------------
OVER ONE YEAR
ONE YEAR THROUGH OVER FIVE
OR LESS FIVE YEARS YEARS TOTAL
------- ---------- ----- -----
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural .................... $1,382,807 1,454,589 -- 2,837,396
Real estate - construction....... 657,063 134,695 -- 791,758
All other loans ................. 2,657,973 7,552,265 2,075,612 12,285,850
---------- ---------- ----------- -----------
$4,697,843 $9,141,549 $ 2,075,612 $15,915,004
========== ========== =========== ===========
Loans maturing after one year with:
Fixed interest rates............................................... $ 8,655,574
Floating interest rates............................................ 2,561,587
-----------
11,217,161
===========
</TABLE>
The information presented in the above table is based on the
contractual maturities of the individual loans, including loans which may be
subject to renewal at their contractual maturity. Renewal of such loans is
subject to review and credit approval, as well as modification of terms upon
their maturity.
Investment Securities. The investment securities portfolio is a
significant component of the Company's total earning assets. Total securities
averaged $10,855,722 in 1996, as compared to $2,357,254 in 1995. The objective
of the Company in its management of the investment portfolio is to maintain a
portfolio of high quality, highly liquid investments with returns competitive
with short term U.S. Treasury or agency obligations. This policy is particularly
important as the Company continues to emphasize increasing the percentage of the
loan portfolio to total earning assets. At December 31, 1996, the weighted
average life of the portfolio was 2.4 years and the weighted average yield was
5.85%. The Company primarily invests in U.S. Treasury securities and securities
of other U. S. Government agencies with maturities up to five years.
16
<PAGE> 18
The following table shows, at carrying value, the scheduled maturities
and average yields of securities held at December 31, 1996.
INVESTMENT SECURITIES MATURITY DISTRIBUTION AND YIELDS (1)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------------------------------------------------
AFTER ONE BUT AFTER FIVE BUT AFTER TEN
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS YEARS
---------------------- ---------------------- -------------------- -----------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held-to-maturity:
U.S. government agencies ..... $2,600,075 6.16%
---------- ----
Available-for-sale:
U.S. Treasury ................ 1,447,847 5.51% 3,290,740 5.54%
U.S. government agencies ..... 3,986,135 5.99% 400,525 6.15%
Other ........................ $150,730 6.00%
---------- ---- ---------- ---- -------- -------- -------- ----
Total investment securities
available-for-sale ........... 5,433,979 5.86% 3,691,265 5.61% 150,730 6.00%
---------- ---- ---------- ---- -------- -------- -------- ----
Total investment securities... $8,034,057 5.96% $3,691,265 5.61% $150,730 6.00%
========== ==== ========== ==== ======== ======== ======== ====
</TABLE>
- -----------
(1) Investments with a call feature are shown as of the earliest call date.
Short-Term Investments. Short-term investments, which consist of
federal funds sold and securities purchased under agreements to resell, averaged
$2,446,780 in 1996, as compared to $1,082,691 in 1995. At December 31, 1996,
short-term investments totaled $5,752,272. These funds are a primary source of
the Company's liquidity and are generally invested in an earning capacity on an
overnight basis.
17
<PAGE> 19
Deposits and Other Interest-Bearing Liabilities
Deposits. Average total deposits were $20,974,509 during 1996, compared to
$2,411,780 during 1995. Average interest-bearing deposits were $17,525,013 in
1996, as compared to $2,192,232 in 1995.
The following table sets forth the deposits of the Company by category.
DEPOSITS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1996 1995
------------------------- -------------------------
PERCENT OF PERCENT OF
AMOUNT DEPOSITS AMOUNT DEPOSITS
------ -------- ------ --------
<S> <C> <C> <C> <C>
Demand deposit accounts........................ $ 6,043,599 19.56% $ 1,254,338 11.06%
NOW accounts .................................. 3,989,141 12.91% 1,228,298 10.84%
Money market accounts.......................... 1,973,945 6.39% 1,548,916 13.67%
Savings accounts............................... 7,154,307 23.15% 1,779,226 15.70%
Time deposits less than $100,000 .............. 6,731,697 21.78% 2,905,218 25.63%
Time deposits of $100,000 or over.............. 5,008,135 16.21% 2,617,944 23.10%
----------- ------ ----------- ------
Total deposits........................ $30,900,824 100.00% $11,333,940 100.00%
=========== ====== =========== ======
</TABLE>
Core deposits, which exclude certificates of deposit of $100,000 or
more, provide a relatively stable funding source for the Company's loan
portfolio and other earning assets. The Company's core deposits were $25,892,689
and $8,715,996 at December 31, 1996 and 1995, respectively. A stable base of
deposits are expected to be the Company's primary source of funding to meet both
its short-term and long-term liquidity needs in the future.
The maturity distribution of the Company's time deposits at December
31, 1996, is shown in the following table.
MATURITIES OF CERTIFICATES OF DEPOSIT
AND OTHER TIME DEPOSITS OF $100,000 OR MORE
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------------------------------
AFTER SIX
AFTER THREE THROUGH AFTER
WITHIN THREE THROUGH TWELVE TWELVE
MONTHS SIX MONTHS MONTHS MONTHS TOTAL
------ ---------- ------ ------ -----
<S> <C> <C> <C> <C> <C>
Certificates of deposit of $100,000 or
more....................................... $2,996,238 $1,407,238 $200,000 $404,659 $5,008,135
Other time deposits of $100,000 or more.......
---------- ---------- -------- -------- ----------
Total.................................... $2,996,238 $1,407,238 $200,000 $404,659 $5,008,135
========== ========== ======== ======== ==========
</TABLE>
Large certificate of deposit customers tend to be extremely sensitive
to interest rate levels, making these deposits less reliable sources of funding
for liquidity planning purposes than core deposits. Some financial institutions
partially fund their balance sheets using large certificates of deposit obtained
through brokers. These
18
<PAGE> 20
brokered deposits are generally expensive and are unreliable as long-term
funding sources. Accordingly, the Company does not accept brokered deposits.
Borrowed funds. Borrowed funds consist primarily of short-term
borrowings in the form of securities sold under agreements to repurchase. These
borrowings averaged $1,098,380 and $140,378 during 1996 and 1995, respectively.
These repurchase agreements are generally originated with customers that have
other relationships with the Company and tend to provide a stable source of
funding.
The Company has short term borrowings provided through a U.S. Treasury
demand note associated with a treasury tax and loan account. The average balance
of this note for 1996 and 1995, was $68,385 and $3,305, respectively.
Capital
Under the capital guidelines of the OCC, the Bank is currently required
to maintain a minimum risk- based total capital ratio of 8%, with at least 4%
being Tier 1 capital. Tier 1 capital consists of common shareholders' equity,
qualifying perpetual preferred stock, and minority interests in equity accounts
of consolidated subsidiaries, less goodwill. In addition, the Bank must maintain
a minimum Tier 1 leverage ratio (Tier 1 capital to total assets) of at least 3%,
but this minimum ratio is increased by 100 to 200 basis points for other than
the highest-rated institutions. The Company will be required by the Federal
Reserve to meet the same guidelines once its consolidated total assets exceed
$150 million.
The Company and the Bank exceeded their regulatory capital ratios, as
set forth in the following table.
ANALYSIS OF CAPITAL
<TABLE>
<CAPTION>
REQUIRED ACTUAL EXCESS
--------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
THE BANK:
December 31, 1996
Risk Based Capital
Tier I $ 851,281 4.00% $4,982,000 23.41% $4,130,719 19.41%
Total Capital 1,702,562 8.00% 5,183,000 24.35% 3,480,438 20.35%
Tier I Leverage 1,010,580 3.00% 4,982,000 14.79% 3,971,420 11.79%
December 31, 1995
Risk Based Capital
Tier I $ 302,489 4.00% $5,267,773 69.66% $4,965,284 65.66%
Total Capital 604,976 8.00% 5,344,523 70.67% 4,739,547 62.67%
Tier I Leverage 597,696 3.00% 5,267,773 27.84% 4,700,077 24.84%
</TABLE>
19
<PAGE> 21
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE COMPANY:
December 31, 1996
Risk Based Capital
Tier I $ 851,231 4.00% $5,823,834 27.37% $4,972,603 23.37%
Total Capital 1,702,562 8.00% 6,024,834 28.31% 4,322,272 20.31%
Tier I Leverage 1,010,580 3.00% 5,823,834 17.29% 4,813,254 14.29%
December 31, 1995
Risk Based Capital
Tier I $ 308,484 4.00% $6,109,552 79.22% $5,801,068 75.22%
Total Capital 616,968 8.00% 6,186,302 80.22% 5,569,334 72.22%
Tier I Leverage 590,182 3.00% 6,109,552 31.06% 6,050,370 28.06%
</TABLE>
A condition of the original offering was that a minimum of 610,000
shares be subscribed to and fully paid for prior to approval to become a bank
holding company. There was a total of 688,077 shares sold during the offering
period with gross proceeds after offering expenses of $6,828,914. Approximately
$6,000,000 of the proceeds of the offering were used to capitalize the Bank. The
remaining offering proceeds will be used to provide working capital, including
additional capital for investment in the Bank, if needed.
LIQUIDITY MANAGEMENT
Liquidity management involves monitoring the Company's sources and uses
of funds in order to meet its day-to-day cash flow requirements while maximizing
profits. Liquidity represents the ability of a company to convert assets into
cash or cash equivalents without significant loss and to raise additional funds
by increasing liabilities. Liquidity management is made more complicated because
different balance sheet components are subject to varying degrees of management
control. For example, the timing of maturities of the investment portfolio is
very predictable and subject to a high degree of control at the time investment
decisions are made. However, net deposit inflows and outflows are far less
predictable and are not subject to nearly the same degree of control.
With the successful completion of the common stock offering in 1995,
the Company has maintained a high level of liquidity that is adequate to meet
planned capital expenditures, as well as providing the necessary cash
requirements of the Company and the Bank during the initial stages of
operations. The Company's funds sold position, its primary source of liquidity,
averaged $2,446,780 during the year ended December 31, 1996, and was $5,752,272
at December 31, 1996. The Company also maintains overnight borrowing lines with
several financial institutions, although these have not been utilized in 1996.
Management regularly reviews the liquidity position of the Company and has
implemented internal policies which establish guidelines for sources of asset
based liquidity and limit the total amount of purchased funds used to support
the balance sheet and funding from non core sources. Management believes that
its existing stable base of core deposits along with continued growth in this
deposit base will enable the Company to meet its long term liquidity needs
successfully.
IMPACT OF INFLATION
Unlike most industrial companies, the assets and liabilities of
financial institutions such as the Company and the Bank are primarily monetary
in nature. Therefore, interest rates have a more significant effect on the
Company's performance than do the effects of changes in the general rate of
inflation and change in prices. In addition, interest rates do not necessarily
move in the same direction or in the same magnitude as the prices of goods and
services. As discussed previously, management seeks to manage the relationships
between interest sensitive assets and liabilities in order to protect against
wide interest rate fluctuations, including those resulting from inflation.
20
<PAGE> 22
ITEM 7. FINANCIAL STATEMENTS.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
REPORT OF INDEPENDENT AUDITOR..................................... 22
BALANCE SHEETS ................................................... 23
STATEMENTS OF OPERATIONS.......................................... 24
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY ..................... 25
STATEMENTS OF CASH FLOWS ......................................... 26
NOTES TO FINANCIAL STATEMENTS..................................... 27-34
</TABLE>
21
<PAGE> 23
REPORT OF INDEPENDENT AUDITOR
The Board of Directors
First Community Corporation
Lexington, South Carolina
I have audited the accompanying balance sheets of First Community
Corporation as of December 31, 1996 and 1995, and the related statements of
operations, changes in shareholders' equity and cash flows for the years ended
December 31, 1996 and 1995 and the period from November 2, 1994 (inception) to
December 31, 1994. These financial statements are the responsibility of
management. My responsibility is to express an opinion on these financial
statements based on my audits.
I conducted the audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of First Community
Corporation at December 31, 1996 and 1995 and the results of its operations and
its cash flows for the years ended December 31, 1996 and 1995 and the period
from November 2, 1994 to December 31, 1994 in conformity with generally accepted
accounting principles.
/s/Clifton D. Bodiford
Certified Public Accountant
Columbia, SC
January 10, 1997
22
<PAGE> 24
FIRST COMMUNITY CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,975,527 $ 548,945
Federal funds sold and securities purchased under
agreements to resell 5,752,272 4,304,268
Investment securities - available-for-sale 9,213,248 6,819,265
Investment securities - held-to-maturity (market value of
$2,562,844 and $2,201,370 at December 31, 1996 and 1995) 2,600,076 2,200,000
Loans 15,915,004 3,833,142
Less, allowance for loan losses 200,860 76,750
------------ ------------
Net loans 15,714,144 3,756,392
Property, furniture and equipment - net 2,544,140 1,563,859
Other assets 329,834 186,869
------------ ------------
Total assets $ 38,129,241 $ 19,379,598
============ ============
LIABILITIES
Deposits:
Non-interest bearing demand $ 6,043,599 $ 1,254,338
NOW and money market accounts 5,963,086 2,777,214
Savings 7,154,307 1,779,226
Time deposits less than $100,000 6,731,697 2,905,218
Time deposits $100,000 and over 5,008,135 2,617,944
------------ ------------
Total deposits 30,900,824 11,333,940
Securities sold under agreements to repurchase 923,400 1,631,500
Other borrowed money - demand note to US Treasury 299,559 169,361
Other liabilities 223,352 109,292
------------ ------------
Total liabilities 32,347,135 13,244,093
------------ ------------
SHAREHOLDERS' EQUITY
Common stock, par value $1.00 per share;
10,000,000 shares authorized; issued and outstanding
688,077 at December 31, 1996 and 1995, respectively 688,077 688,077
Additional paid in capital 6,140,837 6,140,837
Accumulated deficit (984,080) (702,449)
Unrealized gain (loss) on securities available-for-sale (62,728) 9,040
------------ ------------
Total shareholders' equity 5,782,106 6,135,505
------------ ------------
Total liabilities and shareholders' equity $ 38,129,241 $ 19,379,598
============ ============
</TABLE>
See Notes to Financial Statements
23
<PAGE> 25
FIRST COMMUNITY CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Periods ended December 31,
---------------------------------------
1996 1995 1994
----------- --------- ---------
<S> <C> <C> <C>
Interest income:
Loans, including fees $ 1,004,243 $ 57,223 $ --
Investment securities - taxable 635,326 136,436 --
Federal funds sold and securities purchased
under agreements to resell 130,463 62,894 --
Other, pre-opening -- 86,754 --
----------- --------- ---------
Total interest income 1,770,032 343,307 --
----------- --------- ---------
Interest expense:
Deposits 695,626 91,096 --
Securities sold under agreements to repurchase 48,095 7,174
Other 2,328 -- --
----------- --------- ---------
Total interest expense 746,049 98,270 --
----------- --------- ---------
Net interest income 1,023,983 245,037 --
Provision for loan losses 135,000 76,750 --
Net interest income after provision for loan losses 888,983 168,287 --
Non-interest income:
Deposit service charges 82,192 7,434 --
Mortgage origination fees 24,930 9,553 --
Other 18,803 2,582 --
----------- --------- ---------
Total non-interest income 125,925 19,569 --
----------- --------- ---------
Non-interest expense:
Salaries and employee benefits 704,416 250,902 --
Occupancy 129,978 58,218 --
Equipment 102,456 29,768 --
Marketing and public relations 35,596 27,317 --
Other 324,093 128,659 --
Pre-opening expense -- 250,826 144,615
----------- --------- ---------
Total non-interest expense 1,296,539 745,690 144,615
----------- --------- ---------
Net loss $ (281,631) $(557,834) $(144,615)
=========== ========= =========
Net loss per common share $ (0.41) $ (1.59)
=========== =========
</TABLE>
See Notes to Financial Statements
24
<PAGE> 26
FIRST COMMUNITY CORPORATION
Statement of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Unrealized
Additional Gain (Loss) on
Common Paid-in Accumulated Securities
Stock Capital Deficit Avail. for Sale Total
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock $ 10 $ 90 $ -- $ -- $ 100
Net loss (144,615) (144,615)
----------- ----------- ----------- ----------- -----------
Balance December 31, 1994 10 90 (144,615) (144,515)
Issuance of common stock 688,067 6,140,747 6,828,814
Net loss (557,834) (557,834)
Unrealized loss on securities
available-for-sale 9,040 9,040
----------- ----------- ----------- ----------- -----------
Balance December 31, 1995 688,077 6,140,837 (702,449) 9,040 6,135,505
Net loss (281,631) (281,631)
Unrealized loss on securities
available-for-sale (71,768) (71,768)
----------- ----------- ----------- ----------- -----------
Balance December 31, 1996 $ 688,077 $ 6,140,837 $ (984,080) $ (62,728) $ 5,782,106
=========== =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements
25
<PAGE> 27
FIRST COMMUNITY CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Periods ended December 31,
----------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (281,631) $ (557,834) $ (144,615)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 169,129 65,254 --
Amortization (accretion) of premium/discount (4,070) 105 --
Provision for loan losses 135,000 76,750 --
Increase in other assets (142,965) (145,438) --
Increase (decrease) in accounts payable 114,060 (113,131) 144,615
------------ ------------ ------------
Net cash used in operating activities (10,477) (674,294) --
------------ ------------ ------------
Cash flows form investing activities:
Purchase of investment securities available-for-sale (8,208,751) (15,403,531) --
Maturity of investment securities available-for-sale 5,747,327 8,593,201 --
Purchase of investment securities held-to-maturity (1,400,333) (2,600,000) --
Maturity of investment securities held-to-maturity 1,000,000 400,000 --
Increase in loans (12,092,752) (3,833,142) --
Purchase of property and equipment (1,191,345) (1,592,736) --
Proceeds from sale of equipment 41,935
------------ ------------ ------------
Net cash used in investing activities (16,103,919) (14,436,208) --
------------ ------------ ------------
Cash flows from financing activities:
Increase in deposit accounts 19,566,884 11,333,940 --
Increase (decrease) in securities sold under
agreements to repurchase (708,100) 1,631,500
Increase in other borrowings 130,198 169,361 --
Proceeds from sale of common stock -- 6,828,814 100
------------ ------------ ------------
Net cash provided from financing activities 18,988,982 19,963,615 100
------------ ------------ ------------
Net increase in cash and cash equivalents 2,874,586 4,853,113 100
Cash and cash equivalents at beginning
of period 4,853,213 100 --
------------ ------------ ------------
Cash and cash equivalents at end of period $ 7,727,799 $ 4,853,213 $ 100
============ ============ ============
Supplemental disclosure:
Cash paid during the period for:
Interest $ 650,670 $ 59,834 --
Non-cash investing and financing activities:
Unrealized gain (loss) on securities available-
for-sale $ (71,768) $ 9,040
</TABLE>
See Notes to Financial Statements
26
<PAGE> 28
FIRST COMMUNITY CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 1 - ORGANIZATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of First
Community Corporation and its wholly owned subsidiary First Community
Bank, N.A. (the Bank). All material intercompany transactions are
eliminated in consolidation. The Company was organized on November 2,
1994 (the "Inception Date"). From the Inception Date through August 16,
1995, the Company was a development stage company. The activities
during this period included conducting the initial public offering, the
pursuit of approvals from various agencies to charter its bank
subsidiary, establishing systems, and hiring and training personnel to
open the Bank. Organizational cost in the amount of $28,300 $28,300
have been capitalized and are being amortized over a period of five
years.
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, due from banks,
federal funds sold and securities purchased under agreements to resell.
Generally federal funds are sold for a one-day period and securities
purchased under agreements to resell mature in less than 90 days.
Investment Securities
Investment securities are classified as either held-to-maturity or
available-for-sale. In determining such classification, securities that
the Company has the positive intent and ability to hold to maturity are
classified as held-to maturity and are carried at amortized cost. All
other securities are classified as available-for-sale and carried at
estimated fair values with unrealized gains and losses included in
shareholders' equity on an after tax basis. At June 30, 1995, all
investment securities were classified
Loans and Allowance for Loan Losses
Loans are carried at their principal amount outstanding. Interest is
recognized over the term of the loan based on the loan balance
outstanding. Fees charged for originating loans, if any, are deferred
and offset by the deferral of certain direct expenses associated with
loans originated. The net deferred fees are recognized as yield
adjustments by applying the interest method.
The allowance for loan losses is maintained at a level believed to be
adequate by management to absorb potential losses in the loan
portfolio. Management's determination of the adequacy of the allowance
is based on an evaluation of the portfolio, economic conditions and
volume, growth and composition of the portfolio.
Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line method
over the asset's estimated useful life.
Income Taxes
A deferred income tax liability or asset is recognized for the
estimated future effects attributable to differences in the tax bases
of assets or liabilities and their reported amounts in the financial
statements as well as operating loss and tax credit carryforwards. The
deferred tax asset or liability is measured using the enacted tax rate
expected to apply to taxable income in the period in which the deferred
tax asset or liability is expected to be realized.
27
<PAGE> 29
Net Loss Per Share
Net loss per share for the year ended Decemebr 31, 1996 and 1995, is
based on the weighted average outstanding shares for the period. Net
loss per share for the period ended December 31, 1994, has not been
presented as it is deemed not to be meaningful for the period. There
were 688,077 and 350,641 weighted average shares outstanding for the
years ended December 31, 1996 and 1995, respectively.
Note 3 - INVESTMENT SECURITIES
The amortized cost and estimated fair values of investment securities
are summarized below:
<TABLE>
<CAPTION>
HELD-TO-MATURITY:
Gross Gross
Amortized Unrealized Unrealized
Cost Gain Loss Fair Value
-------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1996
U.S. Government agency securities $2,600,076 -- $ 37,232 $2,562,844
=================================================
December 31, 1995
U.S. Government agency securities $2,200,000 $ 2,160 $ 790 $2,201,370
=================================================
<CAPTION>
AVAILABLE-FOR-SALE:
Gross Gross
Amortized Unrealized Unrealized
Cost Gain Loss Fair Value
-------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1996
US Treasury securities $4,738,586 $ 6,426 $ 20,803 $4,724,209
US Government agency securities 4,386,660 4,737 53,088 4,338,309
Other 150,730 -- -- 150,730
-------------------------------------------------
$9,275,976 $11,163 $ 73,891 $9,213,248
=================================================
December 31, 1995
US Treasury securities $2,649,200 $ 5,462 $ -- $2,654,662
US Government agency securities 3,981,025 4,220 642 3,984,603
Other 180,000 -- -- 180,000
-------------------------------------------------
$6,810,225 $ 9,682 $ 642 $6,819,265
=================================================
</TABLE>
The amortized cost and fair value of investment securities at December
31, 1996, by contractual maturity, follow. Expected maturities differ
from contractual maturities because borrowers may have the right to
call or prepay the obligations with or without pre-payment penalties.
<TABLE>
<CAPTION>
Held-to-maturity Available-for-sale
---------------- ------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-----------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ -- $ -- $2,337,761 $2,343,554
Due after one year through five years 2,600,076 2,562,844 6,787,485 6,718,964
Due after ten years -- - 150,730 150,730
-----------------------------------------------------
$2,600,076 $2,562,844 $9,275,976 $9,213,248
=====================================================
</TABLE>
Securities with an amortized cost of $3,005,991 and fair value of
$2,984,195 at December 31, 1996, were pledged to secure public
deposits, demand notes due the U.S. Treasury and securities sold under
agreements to repurchase. There were no sales of securities during the
periods presented.
28
<PAGE> 30
Note 4 - LOANS
Loans summarized by category are as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995
-------------------------
<S> <C> <C>
Commercial, financial and agricultural $ 2,837,396 $ 496,908
Real estate - construction 791,758 35,000
Real estate - mortgage
Commercial 6,639,358 1,579,995
Residential 2,602,274 664,504
Consumer 2,761,621 1,056,735
Leases 282,597 --
-------------------------
$15,915,004 $3,833,142
=========================
</TABLE>
Activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995
-------------------------
<S> <C> <C>
Balance at the beginning of year $ 76,750 --
Provision for loan losses 135,000 76,750
Charged off loans (11,205) --
Recoveries 315 0
-------------------------
Balance at end of year $ 200,860 $ 76,750
=========================
</TABLE>
Loans outstanding to Bank directors, executive officers and their
related business interests amounted to $1,754,550 and $829,973 at
December 31, 1996 and 1995, respectively. Total loans made during the
year ended December 31, 1996 totalled $1,483,998 and repayments
totalled $559,421. Related party loans are made on substantially the
same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with an unrelated
persons and generally do not involve more than the normal risk of
collectibilty.
Note 5 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
1996 1995
-------------------------
<S> <C> <C>
Land $ 952,774 $ 952,774
Premises 1,207,204 314,527
Equipment 435,859 305,806
Construction in process 83,694 56,006
-------------------------
2,679,531 1,629,113
Accumulated depreciation 135,391 65,254
-------------------------
$2,544,140 $1,563,859
=========================
</TABLE>
Provision for depreciation included in operating expenses for the years
ended December 31, 1996, 1995 and 1994 amounted to $169,129, $65,254
and $0, respectively.
The Company has entered into an agreement to construct a permanent
banking facility of approximately 4,000 square feet adjacent to where
the Forest Acres banking office is currently located. the construction
cost, including the building, parking, and landscaping is approximately
$545,000. construction period interest capitalized during the year
ended December 31, 1996 amounted to $12,104.
29
<PAGE> 31
Note 6 - DEPOSITS
At December 31, 1996 the scheduled maturities of Certificates of
Deposits are as follows:
<TABLE>
<S> <C>
1997 $10,732,993
1998 481,901
1999 524,938
===========
$11,739,832
===========
</TABLE>
Note 7 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER BORROWED MONEY
Securities sold under agreements to repurchase generally mature within
one to four days from the transaction date. The weighted average
interest rate at December 31, 1996 and 1995, was 4.96% and 4.81%,
respectively. The maximum month-end balance during 1996 and 1995 was
$1,198,800 and $1,631,500, respectively.
Note 8 - INCOME TAXES
The Company's accounting and reporting for the effect of income taxes
is in accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (SFAS 109). At December 31, 1996,
and 1995, the Company had a net operating loss carryforward of
approximately $984,000 and $700,000, respectively for financial
reporting purposes. The realization of a deferred tax benefit by the
Company depends upon having sufficient taxable income of an appropriate
character in the carryforward periods. Under SFAS 109 deferred tax
assets are recognized for future deductible amounts resulting from
differences in the financial statement and tax bases of assets and
liabilities and operating loss carryforwards. A valuation allowance is
then established to reduce that deferred tax asset to the level that it
is "more likely than not" that the tax benefit will be realized. The
losses, during the period ended December 31, 1996 and 1995, generated
deferred tax assets of approximately $334,560 and $238,000,
respectively, each of which have been fully offset by a valuation
allowance of the same amount.
The Company has a net operating loss for income tax purposes at
December 31, 1996, of approximately $580,000. The difference in the
loss carryforwards for financial and tax reporting purposes primarily
results from the deferral and amortization of pre-opening expenses,
over sixty months, for tax reporting purposes. Net operating loss
carryforwards will expire in the year 2011, if not previously utilized.
Note 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about
Fair Value of Financial Instruments" (SFAS 107), requires the Company
to disclose estimated fair values for its financial instruments. Fair
value estimates, methods, and assumptions are set forth below.
Cash and short term investments - The carrying amount of these
financial instruments (cash and due from banks, federal funds sold and
securities purchased under agreements to resell) approximate fair
value. All mature within 90 days and do not present unanticipated
credit concerns.
Investment Securities - Fair values are based on quoted market prices,
where available. If quoted market prices are not available, fair values
are based on quoted market prices of comparable instruments.
Loans - For certain categories of loans, such as variable rate loans
and other lines of credit, the carrying amount, adjusted for credit
risk, is a reasonable estimate of fair value as the Company has the
ability to reprice the loan as interest rate changes occur. The fair
value of other loans is estimate by discounting the future cash flows
using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities. As discount
30
<PAGE> 32
rates are based on current loan rates as well as mangement estimates,
the fair values presented may not be indicative of the value
negotiated in an actual sale.
Deposits - The fair value of demand deposits, savings accounts, and
money market accounts is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of
deposits is estimated by discounting the future cash flows using rates
currently offered for deposits of similar remaining maturities.
Short Term Borrowings - the carrying value of short term borrowings
(securities sold under agreements to repurchase and demand notes to
the U.S. Treasury) approximate fair value.
Commitments to Extend Credit - The fair value of these commitments
are immaterial because their underlying interest rates approximate
market.
The carrying amount and estimated fair value of the Company's
financial instruments are as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
--------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and short term investments $ 7,727,799 $ 7,727,799 $ 4,853,213 $ 4,853,213
========================================================
Investment securities:
Held-to-maturity $ 2,600,076 $ 2,562,844 $ 2,200,000 $ 2,201,370
Available-for-sale 9,213,248 9,213,248 6,819,265 6,819,265
--------------------------------------------------------
Total investment securities $11,813,324 $11,776,092 $ 9,019,265 $ 9,020,635
========================================================
Loans
Adjustable rate $ 6,508,335 $ 6,508,335 $ 1,660,610 $ 1,660,610
Fixed rate 9,406,669 9,399,644 2,172,532 2,179,347
--------------------------------------------------------
Total loans 15,915,004 15,907,979 3,833,142 3,839,957
Allowance for loan losses 200,860 -- 76,750 --
--------------------------------------------------------
Net loans $15,714,144 $15,907,979 $ 3,756,392 $ 3,839,957
========================================================
Financial liabilities:
Deposits
Non-interest bearing demand 6,043,599 6,043,599 $ 1,254,338 $ 1,254,338
NOW and money market accounts 5,963,086 5,963,086 2,777,214 2,777,214
Savings 7,154,307 7,154,307 1,779,226 1,779,226
Certificates of deposit 11,739,832 11,748,371 5,523,162 5,526,654
--------------------------------------------------------
Total deposits $30,900,824 $30,909,363 $11,333,940 $11,337,432
========================================================
Short term borrowings $ 1,222,959 $ 1,222,959 $ 1,800,861 $ 1,800,861
========================================================
</TABLE>
Note 10 - OFF-BALANCE SHEET FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT
RISK
The Bank is party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit. These instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the consolidated
balance sheets.
The Bank's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit is represented by the contractual amount of these instruments.
The Bank uses the same credit policies in making commitments as for
on-balance sheet instruments. At December 31, 1996, the Bank had
commitments to extend credit of approximately $4,604,000.
31
<PAGE> 33
Commitments to extend credit are agreements to lend to a customer 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 a payment of a fee. Since
commitments may expire without being drawn upon, the total
commitments do not necessarily represent future cash requirements.
The Bank evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the
Bank upon extension of credit, is based on management's credit
evaluation of the party. Collateral held varies but may include
inventory, property and equipment, residential real estate and income
producing commercial properties.
The primary market area served by the Bank is Lexington and Richland
Counties within the Midlands of South Carolina. Management closely
monitors its credit concentrations and attempts to diversify the
portfolio within its primary market area. At December 31, 1996
management does not consider there to be any significant credit
concentration within the portfolio. Although, the Bank's loan
portfolio as well as existing commitments reflect the diversity of
its primary market area, a substantial portion of its debtors ability
to honor their contracts is dependent upon the economic stability of
the area.
Note 11 - OTHER AND PRE-OPENING EXPENSES
A summary of the components of other non-interest expense is as
follows:
<TABLE>
<CAPTION>
December 31,
1996 1995
----------------------------
<S> <C> <C>
Data processing $ 93,712 $ 32,617
Supplies 43,940 27,519
Telephone 22,630 7,735
Correspondent services 29,854 6,660
Insurance 22,100 7,803
Professional fees 35,942 13,791
Other 75,915 32,534
---------------------------
$324,093 $128,659
===========================
</TABLE>
A summary of the components of pre-opening expenses for the
periods ended December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
---------------------------
<S> <C> <C>
Salaries and employee benefits $155,706 $ 86,888
Consultant fees 13,125 35,941
Legal fees -- 9,965
Occupancy cost 10,046 5,281
Marketing 23,819 1,250
Supplies 19,334 897
Other 28,796 4,393
---------------------------
$250,826 $144,615
===========================
</TABLE>
Note 12 - STOCK OPTIONS
The Company has adopted the 1996 Stock Option Plan under which an
aggregate of 110,000 shares have been reserved for issuance by the
Company upon the grant of stock options or restricted stock awards.
The plan provides for the grant of options to key employees and
Directors as determined by a Stock Option Committee made up of at
least two members of the Board of Directors. During the year ended
December 31, 1996, 88,000 shares were granted, at an option price of
$10.00 per share,'which are excercisable for a period of ten years
from the date of grant. At December 31, 1996, 32,000 of the
outstanding options were exercisable. No shares were exercised
32
<PAGE> 34
or forfeited during the year ended December 31, 1996.
In October 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" ("SFAS 123") The statement
defines a fair value based method of accounting for employee stock
options granted after December 31, 1994. However, SFAS 123 allows an
entity to account for these plans according to Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB
25"), provided pro forma disclosure of net income and earnings per
share are made as if SFAS 123 had been applied. The Company has
elected to use APB 25 and provide the required pro forma disclosures.
Accordingly, no compensation cost has been recognized in the financial
statements for the Company's stock option plan. Had compensation cost
for the Company's plan been determined based on the fair value at the
grant dates for the awards consistent with SFAS 123, net loss and
earnings per share on a pro forma basis would have been ($373,190) and
($0.54), respectively for the year ended December 31, 1996. The
assumptions used in estimating compensation cost on a pro forma basis
were: dividend yield of 0.6%, expected life of six years, volatility
of near 0% and risk free interest rate of 6.36%.
Note 13 - CAPITAL REQUIREMENTS AND DIVIDEND RESTRICTIONS
The Bank is required to maintain minimum amounts of capital to total
"risk weighted" assets, as defined by regulations. The Bank is
required to have minimum Tier 1 and Total capital ratios of 4.00% and
8.00%, respectively. The Bank's tier 1 ratios were 23.41% and
69.66% and total ratios were 24.35% and 70.67% at December 31, 1996
and 1995, respectively. The Bank's leverage ratio at December 31,
1996 and 1995, were 14.79% and 27.84%, respectively.
The Company's dividend payments (when available) will be made
primarily from dividends received from the Bank. Under applicable
federal law, the Comptroller of the Currency restricts national bank
total dividend payments in any calender year to net profits of that
year combined with retained net profits for the two preceding years.
At December 31, 1996, there were no retained net profits free of such
restriction.
Note 14 - PARENT COMPANY FINANCIAL INFORMATION
The balance sheets, statements of operations and cash flows for
First Community Corporation (Parent Only) follow:
Condensed Balance Sheets
<TABLE>
<CAPTION>
At December 31,
--------------------------
1996 1995
--------------------------
<S> <C> <C>
Assets:
Cash on deposit $ 3,302 $ 20,254
Interest-bearing deposits with the Bank 857,173 60,779
Investment securities - available-for-sale -- 749,540
Investment in Bank subsidiary 4,931,231 5,302,914
Other 350 12,018
--------------------------
Total assets $5,792,056 $6,145,505
==========================
Liabilities:
Other 9,950 10,000
--------------------------
Shareholders' equity 5,782,106 6,135,505
--------------------------
Total liabilities and shareholders' equity $5,792,056 $6,145,505
==========================
</TABLE>
33
<PAGE> 35
Condensed Statements of Operations
<TABLE>
<CAPTION>
Period ended December 31,
-------------------------------------
1996 1995 1994
-------------------------------------
<S> <C> <C> <C>
Income:
Interest income $ 40,582 $ 16,983 --
-------------------------------------
Expenses:
Other 22,446 13,158 144,615
-------------------------------------
Equity in undistributed loss of subsidiary (299,767) (561,659) --
-------------------------------------
Net loss $(281,631) $(557,834) $(144,615)
=====================================
</TABLE>
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Period ended December 31,
---------------------------------------
1996 1995 1994
---------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(281,631) $ (557,834) $(144,615)
Adjustments to reconcile net loss to net
cash used by operating activities
Increase in equity in undistributed loss of
subsidiary - 1996 299,767
1995 561,659
1994 144,615
Other-net 11,618 (146,633) 144,615
---------------------------------------
Net cash provided (used) by operating activities 29,754 1,807 --
---------------------------------------
Cash flows from investing activities:
Investment in subsidairy -- (6,000,000)
(Purchase) maturity of investment security available-
for sale 749,688 (749,688)
Net cash used by investing activities 749,688 (6,749,688) --
---------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock -- 6,828,814 100
---------------------------------------
Increase in cash and deposits with Bank 779,442 80,933 100
Cash and cash equivalent, beginning of period 81,033 100 --
---------------------------------------
Cash and cash equivalent, end of period $ 860,475 $ 81,033 $ 100
=======================================
</TABLE>
34
<PAGE> 36
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
NOT APPLICABLE.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item is set form under "Election of
Director" on pages 1 through 5 of the Registrant's Proxy Statement filed in
connection with the 1997 Annual Meeting of Shareholders (the "1997 Proxy
Statement"), which information is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION.
The information required by this item is set forth under "Compensation
of Directors and Executive Officers" on pages 5 through 8 of the 1997 Proxy
Statement, which information is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is set forth under "Security
Ownership of Certain Beneficial Owners and Management" on pages 8 through 9 of
the 1997 Proxy Statement, which information is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is set forth under "Certain
Relationships and Related Transactions" on page 10 of the 1997 Proxy Statement,
which information is incorporated herein by reference.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
3.1 Amended and Restated Articles of Incorporation
(incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement No. 33-86258 on Form
S-1).
3.2 Bylaws (incorporated by reference to Exhibit 3.2 to
the Company's Registration Statement No. 33-86258 on
Form S-1).
4.1 Provisions in the Company's Articles of Incorporation
and Bylaws defining the rights of holders of the
Company's Common Stock (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement
No. 33-86258 on Form S-1).
35
<PAGE> 37
10.1 Employment Agreement dated June 1, 1994, by and
between Michael C. Crapps and the Company
(incorporated by reference to Exhibit 10.1 to the
Company's Registration Statement No. 33-86258 on Form
S-1).*
10.2 Employment Agreement dated June 1, 1994, by and
between James C. Leventis and the Company
(incorporated by reference to Exhibit 10.2 to the
Company's Registration Statement No. 33-86258 on Form
S-1).*
10.3 Construction agreement dated January 11, 1996 by and
between the Bank and Summerfield Associates, Inc. To
build permanent banking facility in Lexington, S.C.
(Incorporated by reference to the Company's 1995
Annual Report on Form 10 KSB)
10.4 Contract of sale of real estate dated August 1, 1994
between First Community Bank (In Organization) and
Three Seventy-Eight Company, Inc. (Incorporated by
reference to the company's registration statement no.
33-86258 on Form S-1).
10.5 Contract of sale of real estate dated July 28, 1994,
between First Community Bank (In Organization) and
the Crescent Partnership (Incorporated by reference
to the Company's registration statement no. 33-86258
on Form S-1).
10.6 First Community Corporation 1996 Stock Option Plan.
(Incorporated by reference to the Company's 1995
Annual Report on Form 10 KSB)
10.7 Construction Agreement dated November 7, 1996 by and
between the Bank and Summerfield Associates, Inc. to
build a banking facility in Forest Acres, South
Carolina.
21.1 Subsidiaries of the Company.
* Denotes executive compensation contract or arrangement.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of
the year ended December 31, 1996.
36
<PAGE> 38
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
First Community Corporation
--------------------------------------------
Date: March 25, 1997 By: /s/ Michael C. Crapps
----------------------------------------
Michael C. Crapps
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Richard K. Bogan Director March 25, 1997
- ------------------------------
Richard K. Bogan
/s/ William L. Boyd, III Director March 25, 1997
- ------------------------------
William L. Boyd, III
/s/ Thomas C. Brown Director March 25, 1997
- ------------------------------
Thomas C. Brown
/s/Chimin J. Chao Director March 25, 1997
- ------------------------------
Chimin J. Chao
/s/ Robert G. Clawson Director March 25, 1997
- ------------------------------
Robert G. Clawson
/s/ Michael C. Crapps Director, President and Chief March 25, 1997
- ------------------------------ Executive Officer
Michael C. Crapps
/s/ Hinton G. Davis Director March 25, 1997
- ------------------------------
Hinton G. Davis
/s/ Anita B. Easter Director March 25, 1997
- ------------------------------
Anita B. Easter
/s/ O.A. Ethridge Director March 25, 1997
- ------------------------------
O.A. Ethridge
/s/ George H. Fann, Jr. Director March 25, 1997
- ------------------------------
George H. Fann, Jr.
</TABLE>
37
<PAGE> 39
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/William A. Jordan Director March 25, 1997
- ------------------------------
William A. Jordan
/s/ W. James Kitchens, Jr. Director March 25, 1997
- ------------------------------
W. James Kitchens, Jr.
/s/ James C. Leventis Director, Chairman of the Board and March 25, 1997
- ------------------------------ Secretary
James C. Leventis
/s/ Broadus Thompson Director March 25, 1997
- ------------------------------
Broadus Thompson
/s/ Angelo L. Tsiantis Director March 25, 1997
- ------------------------------
Angelo L. Tsiantis
/s/Loretta R. Whitehead Director March 25, 1997
- ------------------------------
Loretta R. Whitehead
March 25, 1997
/s/Mitchell M. Willoughby Director
- ------------------------------
Mitchell M. Willoughby
</TABLE>
38
<PAGE> 1
EXHIBIT 10.7
[THE AMERICAN INSTITUTE OF ARCHITECTS Letterhead]
________________________________________________________________________________
AIA Document A101
STANDARD FORM OF AGREEMENT BETWEEN
OWNER AND CONTRACTOR
where the basis of payment is a
STIPULATED SUM
1987 EDITION
THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES; CONSULTATION WITH
AN ATTORNEY IS ENCOURAGED WITH RESPECT TO ITS COMPLETION OR MODIFICATION.
The 1987 Edition of AIA document A201, General Conditions of the
Contract for Construction, is adopted in this document by reference.
Do not use with other general conditions unless this document is modified.
This document has been approved and endorsed by
The Associated General Contractors of America.
_______________________________________________________________________________
AGREEMENT
made as of the 7th day of November in the year of Nineteen Hundred and 96
BETWEEN the Owner: First Community Bank
(Name and address) P.O. Box 64
Lexington, SC 29071
and the Contractor: Summerfield Associates, Inc.
(Name and address) P.O. Box 5815
West Columbia, SC 29169
The Project is: First Community Bank
(Name and address) Permenant Facility - Forest Acres
Forest Acres, SC
The Architect is: Jenkins, Hancock, & Sides
(Name and address) 1812 Lincoln St.
Columbia, SC
The Owner and Contractor agree as set forth below.
________________________________________________________________________________
Copyright 1915, 1918, 1925, 1937, 1951, 1958, 1961, 1963, 1967, 1974, 1977,
1987 by the American Institute of Architects, 1735 New York Avenue, N.W.,
Washington, D.C. 20006. Reproduction of the material herein or substantial
AIA violates the copyright laws of the United States and will be subject to
legal prosecution.
________________________________________________________________________________
AIA DOCUMENT A101 - OWNER-CONTRACTOR AGREEMENT - TWELFTH EDITION - AIA(R) -
(C) 1987
THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W., WASHINGTON,
D.C. 20006
WARNING: Unlicensed photocopying violates U.S. copyright laws and
is subject to legal prosecution.
<PAGE> 2
ARTICLE 1
THE CONTRACT DOCUMENTS
The Contract Documents consist of this Agreement, Conditions of the contract
(General, Supplementary and other Conditions), Drawings, Specifications,
addenda issued prior to execution of this Agreement, other documents listed in
this Agreement and Modifications issued after execution of this Agreement;
these form the Contract, and are as fully a part of the Contract as if attached
to this Agreement or repeated herein. The Contract represents the entire and
integrated agreement between the parties hereto and supersedes prior
negotiations, representations or agreements, either written or oral. An
enumeration of the Contract Documents, other than Modifications, appears in
Article 9.
ARTICLE 2
THE WORK OF THIS CONTRACT
The Contractor shall execute the entire Work described in the Contract
Documents, except to the extent specifically indicated in the Contract
Documents to be the responsibility of others, or as follows:
BANKING EQUIPMENT BY OWNER.
ARTICLE 3
DATE OF COMMENCEMENT AND SUBSTANTIAL COMPLETION
3.1 The date of commencement is the date from which the Contract Time of
Paragraph 3.2 is measured, and shall be the date of this Agreement, as first
written above, unless a different date is stated below or provision is made for
the date to be fixed in a notice to proceed issued by the Owner.
(Insert the date of commencement, if it differs from the date of this Agreement
or, if applicable, state that the date will be fixed in a notice to proceed.)
WITHIN ONE (1) WEEK UPON RECEIPT OF BUILDING PERMIT.
Unless the date of commencement is established by a notice to proceed issued by
the Owner, the Contractor shall notify the Owner in writing not less than five
days before commencing the Work to permit the timely filing of mortgages,
mechanic's liens and other security interests.
3.2 The Contractor shall achieve Substantial Completion of the entire Work not
later than
(Insert the calendar date or number of calendar days after the date of
commencement. Also insert any requirements for earlier Substantial Completion
of certain portions of the Work, if not stated elsewhere in the Contract
Documents.)
June 1, 1997
, subject to adjustments of this Contract Time as provided in the Contract
Documents.
(Insert provisions, if any, for liquidated damages relating to failure to
complete on time.)
_______________________________________________________________________________
AIA DOCUMENT A101 - OWNER-CONTRACTOR AGREEMENT - TWELFTH EDITION - AIA(R) -
(C) 1987
THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W.,
WASHINGTON, D.C. 2006 A101-1987 2
WARNING: Unlicensed photocopying violates U.S. copyright laws and
is subject to legal prosecution.
<PAGE> 3
ARTICLE 4
CONTRACT SUM
4.1 The Owner shall pay the Contractor in current funds for the Contractor's
performance of the Contract the Contract Sum of Four hundred ninety eight
thousand nine hundred sixty one Dollars ($498,961.00), subject to additions and
deductions as provided in the Contract Documents.
4.2 The Contract Sum is based upon the following alternates, if any, which are
described in the Contract Documents and are hereby accepted by the Owner:
(State the numbers or other identification of accepted alternates. If
decisions on other alternates are to be made by the Owner subsequent to the
execution of this Agreement, attach a schedule of such other alternates showing
the amount for each and the date until which that amount is valid.)
Copy of Summerfield Associates Inc. quote dated 10-14-96 (attached)
4.3 Unit prices, if any, are as follows:
None
________________________________________________________________________________
AIA DOCUMENT A101 - OWNER-CONTRACTOR AGREEMENT - TWELFTH EDITION - AIA(R) -
(C)1987
THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W., WASHINGTON,
D.C. 20006 A101-1987 3
WARNING: Unlicensed photocopying violates U.S. copyright laws and
is subject to legal prosecution.
<PAGE> 4
ARTICLE 5
PROGRESS PAYMENTS
5.1 Based upon Applications for payment submitted to the Architect by the
Contractor and Certificates for Payment issued by the Architect, the Owner
shall make progress payments on account of the Contract Sum to the Contractor
as provided below and elsewhere in the Contract Documents.
5.2 The period covered by each Application for Payment shall be one calendar
month ending on the last day of month, or as follows:
5.3 Provided an Application for Payment is received by the Architect not later
than the 25th day of a month, the Owner shall make payment to the Contractor
not later than the 15th day of the following month. If an Application for
Payment is received by the Architect after the application date fixed above,
payment shall be made by the Owner not later than days after the
Architect receives the Applications for Payment.
5.4 Each Application for Payment shall be based upon the schedule of values
submitted by the Contractor in accordance with the Contract Documents. The
schedule of values shall allocate the entire Contract Sum among the various
portions of the Work and be prepared in such form and supported by such data to
substantiate its accuracy as the Architect may require. This schedule, unless
objected to by the Architect, shall be used as a basis for reviewing the
Contractor's Applications for Payment.
5.5 Aplications for Payment shall indicate the percentge of completion of each
portion of the work as of the end of the period covered by the Application for
Payment.
5.6 Subject to the provisions of the Conract Documents, the amount of each
progress payment shall be computed as follows:
5.6.1 Take that portion of the Contract Sum properly allocable to completed
Work as determined by multiplying the percentage completion of each portion of
the Work by the share of the total Contract Sum allocated to that portion of
the Work in the schedule of values, less retainage of ten percent (10%).
Pending final determination of cost to the Owner of changes in the Work,
amounts not in the dispute may be included as provided in Subparagraph 7.3.7 of
the General Conditions even though the Contract Sum has not yet been adjusted
by Change order;
5.6.2 Add that portion of the Contract Sum properly allocable to materials and
equipment delivered and suitably stored at the site for subsequent
inforporation in the completed construction (or, if approved in advance by the
Owner, suitably stored off the site at a location agreed upon in writing), less
retainage of ten percent (10%;
5.6.3 Subtract the aggregate of previous payments made by the Owner; and
5.6.4 Subtract amounts, if any, for which the Architect has withheld or
nullified a Certificate for Payment as provided in Paragraph 9.5 of the General
Conditions.
5.7 The progress payment amount determined in accordance with Paragraph 5.6
shall be further modified under the following circumstances:
5.7.1 Add, upon Substantial Completion of the Work, a sum sufficient to
increase the total payments to five percent (5%) of the Contract Sum, less such
amounts as the Architect shall determine for incomplete Work and unsettled
claims; and
5.7.2 Add, if final completion of the Work is thereafter materially delayed
through no fault of the Contractor, any additional amounts payable in
accordance with Subparagraph 9.10.3 of the General Conditions.
5.8 Reduction or limitation of retainage, if any shall be as follows:
(If it is intended prior to Substantial Completion of the entire Work, to
reduce or limit the retainage resulting from the percentages inserted in
Subparagraphs 5.6.1 and 5.6.2 above, and this is not ecplained elsewhere in the
Contract documents, insert here provisions for such reduction or limitation.)
_______________________________________________________________________________
AIA DOCUMENT A101 - OWNER-CONTRACTOR AGREEMENT - TWELFTH EDITION - AIA(R) -
(C)1987
THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W., WASHINGTON,
D.C. 20006 A101-1987 4
WARNING: Unlicensed photocopying violates U.S. copyright laws and is subject
to legal prosecution.
<PAGE> 5
ARTICLE 6
FINAL PAYMENT
Final payment, constituting the entire unpaid balance of the Contract Sum,
shall be made by the Owner to the Contractor when (1) the Contract has been
fully performed by the Contractor except for the Contractor's responsibility to
correct nonconforming Work as provided in subparagraph 12.2.2. of the General
Conditions and to satisfy other requirements, if any, which necessarily survive
final payment; and (2) a final Certificate for Payment has been issued by the
Architect; such final payment shall be made by the Owner not more than 30 days
after the issuance of the Architect's final Certificate for Payment, or as
follows:
ARTICLE 7
MISCELLANEOUS PROVISIONS
7.1 Where reference is made in this Agreement to a provision of the General
Conditions or another contract Document, the references refers to that
provisions as amended or supplemented by other provisions of the Contract
Documents.
7.2 Payments due and unpaid under the Contract shall bear interest from the
date payment is due at the rate stated below, or in the absence thereof, at the
legal rate prevailing from time to time at the place where the Project is
located.
(Insert rate of interest agreed upon, if any.)
(Usury laws and requirements under the Federal truth in Lending Act, similar
state and local consumer credit laws and other regulations at the Owner's and
Contractor's principal places of business, the location of the Project and
elsewhere may affect the validity of this provision. Legal advice should be
obtained with respect to deletions or modifications, and also regarding
requirement such as written disclosures or waivers.)
7.3 Other provisions:
ARTICLE 8
TERMINATION OR SUSPENSION
8.1 The Contract may be terminated by the Owner or the Contractor as provided
in Article 14 of the General Conditions.
8.2 The Work may be suspended by the Owner as provided in Article 14 of the
General Conditions.
________________________________________________________________________________
AIA DOCUMENT A101 - OWNER-CONTRACTOR AGREEMENT - TWELFTH EDITION - AIA(R) -
(C)1987
THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W., WASHINGTON,
D.C. 20006 A101-1987 5
WARNING: Unlicensed photocopying violates U.S. copyright laws and
is subject to legal prosecution.
<PAGE> 6
ARTICLE 9
ENUMERATION OF CONTRACT DOCUMENTS
9.1 The Contract Documents, except for Modifications issued after execution
of this Agreement, are enumerated as follows:
9.1.1 The Agreement is this executed Standard Form of Agreement Between Owner
and Contractor, AIA Document A101, 1987 Edition.
9.1.2 The General Conditions are the General Conditions of the Contract for
Construction, AIA Document A201, 1987 Edition.
9.1.3 The Supplementary and other Conditions of the Contract are those
contained in the Project Manual dated , and are as follows:
DOCUMENT TITLE PAGES
NONE
9.1.4 The Specifications are those contained in the Project Manual dated as in
Subparagraph 9.1.3, and are as follows:
(Either list the Specifications here or refer to an exhibit attached to this
Agreement.)
SECTION TITLE PAGES
See attached letter dated 10-14-96
- --------------------------------------------------------------------------------
AII DOCUMENT A101 - OWNER-CONTRACTOR AGREEMENT - TWELFTH EDITION - AIA(R) -
(C)1987
THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W. WASHINGTON,
D.C. 20006
A101-1987 6
WARNING:UNLICENSED PHOTOCOPYING VIOLATES U.S. COPYRIGHT LAWS AND IS SUBJECT TO
LEGAL PROSECUTION.
<PAGE> 7
9.1.5 The Drawings are as follows, and are dated unless a
different date is shown below:
(Either list the Drawings here or refer to an exhibit attached to this
Agreement.)
<TABLE>
<CAPTION>
NUMBER TITLE DATE
<S> <C>
1 OF 5, 3 OF 5, 4 OF 5, AND 5 OF 5 6-20-96
2 OF 5 6-28-96
A0.0, A0.1, A1.0, A1.1, A1.2 10-1-96
A2.0, A2.1, A3.0, A3.1 10-1-96
A4.0 8-26-96
A4.1 10-1-96
S-1, S-2 9-24-96
S-3, S-4 8-26-96
M1.1, M2.1 10-1-96
P1.1, P2.1, P2.2 10-1-96
E1, E2, E3, E4 9-27-96
</TABLE>
9.1.6 The addenda, if any, are as follows:
<TABLE>
<CAPTION>
NUMBER DATE PAGES
<S> <C> <C>
</TABLE>
NONE
Portions of this addenda relating to bidding requirements are not part of the
Contract Documents unless the bidding requirements are also enumerated in this
Article 9.
- --------------------------------------------------------------------------------
AII DOCUMENT A101 - OWNER-CONTRACTOR AGREEMENT - TWELFTH EDITION - AIA(R) -
(C)1987
THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W. WASHINGTON,
D.C. 20006
A101-1987 7
WARNING:UNLICENSED PHOTOCOPYING VIOLATES U.S. COPYRIGHT LAWS AND IS SUBJECT TO
LEGAL PROSECUTION.
<PAGE> 8
9.1.7 Other documents, if any, forming part of the Contract Documents are as
follows:
(List here any additional documents which are intended to form part of the
Contract Documents. The General Conditions provide that bidding requirements
such as advertisement or invitation to bid, Instructions to Bidders, sample
forms and the Contractor's bid are not part of the Contract Documents unless
enumerated in this Agreement. They should be listed here only if intended to
be part of the Contract Documents.)
SUMMERFIELD LETTER DATED 10-14-96
This Agreement is entered into as of the day and year first written above and
is executed in at least three original copies of which one is to be delivered
to the Contractor, one to the Architect for use in the administration of the
Contract, and the remainder to the Owner.
OWNER FIRST COMMUNITY BANK CONTRACTOR SUMMERFIELD ASSOCIATES, INC.
/s/ David K. Proctor /s/ T.R. Floyd
- ------------------------------------- ----------------------------------------
(Signature) (Signature)
David K. Proctor T.R. Floyd, President
- ------------------------------------- ----------------------------------------
(Printed name and title) (Printed name and title)
[AIA LOGO] CAUTION: YOU SHOULD SIGN AN ORIGINAL AIA DOCUMENT WHICH HAS THIS
CAUTION PRINTED IN RED. AN ORIGINAL ASSURES THAT CHANGES WILL NOT BE OBSCURED
AS MAY OCCUR WHEN DOCUMENTS ARE REPRODUCED.
- --------------------------------------------------------------------------------
AII DOCUMENT A101 - OWNER-CONTRACTOR AGREEMENT - TWELFTH EDITION - AIA(R) -
(C)1987
THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W. WASHINGTON,
D.C. 20006
A101-1987 8
WARNING:UNLICENSED PHOTOCOPYING VIOLATES U.S. COPYRIGHT LAWS AND IS SUBJECT TO
LEGAL PROSECUTION.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
First Community Bank, N.A.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1996 CONTAINED IN FORM
10KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,975,527
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,752,272
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,213,248
<INVESTMENTS-CARRYING> 2,600,076
<INVESTMENTS-MARKET> 2,562,844
<LOANS> 15,915,004
<ALLOWANCE> 200,860
<TOTAL-ASSETS> 38,129,241
<DEPOSITS> 30,900,824
<SHORT-TERM> 1,222,959
<LIABILITIES-OTHER> 223,352
<LONG-TERM> 0
0
0
<COMMON> 688,077
<OTHER-SE> 5,094,029
<TOTAL-LIABILITIES-AND-EQUITY> 38,129,241
<INTEREST-LOAN> 1,004,243
<INTEREST-INVEST> 635,326
<INTEREST-OTHER> 130,463
<INTEREST-TOTAL> 1,770,032
<INTEREST-DEPOSIT> 695,626
<INTEREST-EXPENSE> 746,049
<INTEREST-INCOME-NET> 1,023,983
<LOAN-LOSSES> 135,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,296,539
<INCOME-PRETAX> (281,631)
<INCOME-PRE-EXTRAORDINARY> (281,631)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (281,631)
<EPS-PRIMARY> (0.41)
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.28
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 76,750
<CHARGE-OFFS> 11,205
<RECOVERIES> 315
<ALLOWANCE-CLOSE> 200,860
<ALLOWANCE-DOMESTIC> 200,860
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
