<PAGE> 1
================================================================================
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, 1998
-----------------
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
-------- --------
Commission file no. 33-86258
---------
First Community Corporation
----------------------------------------------
(Name of Small Business Issuer in Its Charter)
South Carolina 57-1010751
--------------------------------- ------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
5455 Sunset Blvd., Lexington, South Carolina 29072
-------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(803) 951-2265
----------------------------------------------
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
--- ---
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 15, 1999,
held by non-affiliates of the registrant based on the average of the quoted bid
and ask as of March 15, 1999, was $17,054,650.
The issuer's revenues for its most recent fiscal year were $5,015,224.
1,207,177 shares of the Issuer's common stock were issued and outstanding as of
March 15, 1999.
Documents Incorporated by Reference
Portions of the Registrant's definitive Proxy Statement for its April
21, 1999 Annual Meeting of Shareholders, are incorporated by reference into Part
III thereof.
Transitional Small Business Disclosure Format. (Check one): Yes No X
--- ---
================================================================================
<PAGE> 2
PART I
ITEM 1. BUSINESS.
GENERAL
First Community Corporation 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 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, at a price of $10.00 per share. On August
17, 1995, the bank opened for business. On July 10, 1998 the company closed a
secondary offering in which it issued 517,500 shares of common stock. The net
proceeds received in the secondary offering was approximately $6.6 million after
deducting issuance cost. The proceeds are to be used to purchase properties and
construct and outfit three branches in the next six to eighteen months. The
estimated cost for the three branches is approximately $3.0 million. The
remaining proceeds are to be used to support initial loan growth at the three
new branch offices, as well as the company's two existing branches, and for
other general corporate purposes. At December 31, 1998, the company has entered
into contracts on two properties located in the Midlands of South Carolina.
Branch construction on the first property located in Irmo, South Carolina has
commenced with a projected opening on March 29, 1999. The contract on the second
property is located in West Columbia, South Carolina and provides for a due
diligence period and termination of the contract without penalty under certain
conditions. It is anticipated that this property will be closed on during the
first quarter of 1999.
LOCATION AND SERVICE AREA
The bank is engaged in a 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. A third branch is under construction in Irmo, South Carolina
(Lexington 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 Forest Acres
Office primarily serves the area around Forest Acres, South Carolina, which is
east of Columbia in Richland County. The Branch under construction in Irmo,
South Carolina will serve that community and is anticipated to be opened at the
end of the first quarter 1999.
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. According
to the U. S. Census Bureau, Richland and Lexington Coutnies which includes the
projected service areas for both current sites of the bank and the two projected
sites, had an estimated population in 1995 of 491,600. Lexington County had a
population of 191,900 and Richland County had a population of 299,700. The
principal components of the economy within the company's market areas are
service industries, government, and wholesale and retail trade. The largest
employers in the area each of which employs in excess of 3,000 people in the
Midlands area, include Fort Jackson Army Base, the University of South Carolina,
Policy Management Systems Corporation, Richland Memorial Hospital,
<PAGE> 3
Blus Cross Blue Shield, SCANA Corporation and Pepsi Cola, Inc. The area has
experienced steady growth over the past ten years and the Company expects the
area, as well as the service industry needed to support it, to continue to grow.
Both Richland and Lexington Counties have one of the highest per capita incomes
in the state at, $40,500 in 1995 compared to $29,000 for South Carolina as a
whole.
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 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 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 registered
representative with an affiliation through AAG Securities, Inc. 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 and Mastercard 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, 1998, there were thirteen
commercial banks operating approximately 137 offices and four thrifts with a
total of 4 offices in the Lexington and Richland county area. The company faces
increased competition from both federally-chartered and state -chartered
financial institutions, as well as credit unions, consumer finance companies,
insurance companies and other institutions in the
<PAGE> 4
company's market area. A number of these competitors are well established in the
Lexington and Richland County 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 does not currently
provide. 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 24 full-time employees and two part-time
employees. The company does not have any employees other than its officers, none
whom receive any remuneration for their services to the company.
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.
<PAGE> 5
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 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
<PAGE> 6
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 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 paid 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. Once the BIF reached its legally mandated reserve ratio in
mid-1995, the FDIC lowered premiums for well capitalized banks, eventually to
$.00 per $100, with a minimum semi-annual assessment of $1,000. However, in 1996
Congress enacted the Deposit Insurance Funds Act of 1996, which eliminated the
minimum assessment. It also separated, 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. 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
<PAGE> 7
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.
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 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
<PAGE> 8
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
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
<PAGE> 9
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.
Failure to meet 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 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.
<PAGE> 10
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 banking
facility is approximately 4,000 square feet with a total cost of construction of
approximately $545,000 including paving and landscaping.
The company has purchased one site and entered into a contract on
another site as of December 31, 1998. The purchased site is located at 1030 Lake
Murray Boulevard, Irmo, South Carolina and construction on this property has
been initiated. The cost of this property was approximately $449,000 and
construction cost are approximately $512,000. The site is approximately 1.0
acres and the banking facility will be approximately 3,000 square feet when
completed. The site under contract is located at 506 Meeting Street, West
Columbia, South Carolina and the contract purchase price is $300,000. The
company has not yet entered into contract for the construction of the facility
to be located at this site.
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 1,207,177 were issued and outstanding as of December 31, 1998.
The stock is quoted on the OTC Bulletin Board under the trading symbol "FCCO."
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 several years.
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 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
<PAGE> 11
year combined with its retained net profits for the preceding two years less any
required transfers to surplus. At December 31, 1998, has $114,000 free of these
restrictions. 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.
The following is a summary of stock prices for the Company since the
stock began to be quoted on the OTC Bulletin Board.
<TABLE>
<CAPTION>
1998 High Low
---- ---- ---
<S> <C> <C>
Third quarter $17.00 $15.00
Fourth quarter $17.00 $15.00
</TABLE>
<PAGE> 12
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.
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 from it's first office located
in Lexington, South Carolina. On September 14, 1995 the Company opened it's
second office located in Forest Acres, South Carolina. The Company engages in a
general commercial and retail banking business characterized by personalized
service and local decision making, emphasizing the banking needs of small to
medium-sized businesses, professional concerns and individuals.
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. The Company experienced it's first
quarterly profit in the fourth quarter of 1996 and has experienced continued
profits for each subsequent quarter through the fourth quarter of 1998. The
Company has grown from approximately $38.1 million in total assets, $15.9
million in loans, $30.9 million in deposits and $5.8 million in shareholders'
equity at December 31, 1996 to approximately $73.2 million in total assets,
$40.3 million in loans $56.0 million in deposits and $13.6 million in
shareholders' equity at December 31, 1998. In July 1998 the Company completed a
secondary public offering of its common stock and raised $6.6 million in
additional capital. 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 the Company's short history. The
following discussion is intended to assist the readers in understanding and
evaluating the financial condition and results of operations of the Company.
This review should be read in conjunction Company's financial statements and
accompanying notes included elsewhere herein. This analysis provides an overview
of the significant changes that occurred during the periods presented.
In July 1998 the Company closed a secondary stock offering in which it
raised approximately $6.6 million in additional capital. The use of the proceeds
of this offering are to support its continued growth through its existing
offices and by opening three additional branches in the next 12 to 18 months in
other fast growing areas in the Midlands of South Carolina. At December 31, 1998
the Company has begun construction on one new location located in Irmo, South
Carolina and has entered into a contract to purchase one additional location.
The Irmo property was purchased for approximately $449,000 and the contract for
the construction of the facility is for approximately $512,000. It is
anticipated that the Irmo location will open at the end of the first quarter of
1999. The additional location is in Cayce-West Columbia, South Carolina. The
Company has certain rights under the terms of the contract on Cayce-West
Columbia which allow for an inspection and due diligence period and termination
of the contract without penalty under certain conditions. The purchase price of
the Cayce-West Columbia property is $300,000. Because the Company has not yet
acquired this location or entered into a contract for the construction of the
facility, it has not determined with certainty the cost to open the branch. The
Company will use remaining proceeds beyond the cost of purchasing the properties
and construction of facilities to support initial loan growth at the new
branches, as well as at the Company's two existing branch offices, and for other
general corporate purposes.
RESULTS OF OPERATIONS
The Company's net income was $847,000 or $0.90 per share for the
year-ended December 31, 1998, as compared to a net income of $251,000 or $0.36
per share for the year ended December 31, 1997, and a loss of $282,000 or $0.41
per share for the year ended December 31, 1996. The increase in net income from
1997 to 1998 results primarily from a $857,000 increase in net interest income.
Increased net interest income resulted
<PAGE> 13
from continued growth in all categories of earning assets during 1998. Earning
assets averaged $58.6 million in 1998 as compared to $40.6 million in 1997.
Yields earned and rates paid on the various components of the balance sheet
showed modest changes between the periods. Overall there was an improvement of
10 basis points in the net interest margin in 1998 as compared to 1997. A
$174,000 increase in non-interest income in 1998 as compared to 1997 also
contributed to the improvement in net income. Increases in non-interest income
resulted from increased deposit and related account charges associated with
increased deposit balances as well as a $77,000 increase in mortgage origination
fees. The increases in net interest income and non-interest income were
partially offset by a $391,000 increase in non-interest expense. All categories
of non-interest expense increased during 1998 as compared to 1997. The increases
in expenses primarily result from anticipated increases in staff during this
period, higher marketing and advertising expenses, as well as increased expenses
related to supplies and activity fees due to the growth in numbers and volumes
of accounts. In addition, the Bank incurred approximately $50,000 of cost
associated with remediation and testing of systems for year 2000 compliance.
The improvement in net income in 1997 over a 1996 net loss of $282,000
is also a result of growth in the net interest margin and increases in
non-interest income. The improvement in these areas as well as increases in
non-interest expense in 1997 as compared to 1996 result from the substantial
growth in the size of the Company during the period. Total assets grew from
$38.1 million at December 31, 1996 to $51.0 million at December 31, 1997.
Average earning assets increased to $40.6 million during 1997 as compared to
$24.0 million during 1996. The return on average assets for 1998, 1997 and 1996,
was 1.33%, 0.56% and (1.04%), respectively and return on average equity was
8.68%, 4.28% and (4.82%), respectively.
Net Interest Income
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 $2.7 million in 1998, $1.8 million in 1997
and $1.0 million in 1996. Net interest spread, the difference between the yield
on earning assets and the rate paid on interest-bearing liabilities, was 3.57%
in 1998 as compared to 3.55% in 1997 and 3.13% in 1996. The reason for the
increase in net interest income between 1998 and 1997 was primarily due to the
$18.0 million increase in the level of earning assets between the two periods.
Similarly, the increase in net interest income of $778,000 in 1997 as compared
to 1996 was the result of increases in the level of earning assets as well as an
improvement in the net interest spread from 3.13% in 1996 as compared to 3.55%
in 1997. In 1998 loans represented 57.3% of earning assets as compared to 57.1%
in 1997. Loans typically provide a higher yield than other types of earning
assets and thus one of the Company's goals is to continue to grow the loan
portfolio as a percentage of earning assets. The yield on earning assets
decreased from 7.86% in 1997 to 7.81% in 1998. The decrease was primarily a
result of a decrease in general market rates during 1998 due to several
reductions in the federal funds target rate established by the Federal Reserve
Board and related decreases in the Bank's prime lending rate. This decrease in
yield on average earning assets was partially offset by a decrease in the rate
paid on interest-bearing liabilities to 4.24% in 1998 to 4.31% in 1997. The
increase in net interest income in 1997 of $778,000 as compared to the prior
year was a result of the Bank allocating a greater percentage of its earning
assets to loans in 1997 than it did in 1996 (57.1% in 1997 as compared to 44.5%
in 1996, based on average balances for each year).
<PAGE> 14
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
(IN THOUSANDS) YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1998 1997 1996
---- ---- ----
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- ------- ---- ------- ------- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets
Loans (1) ...................................... $33,641 $ 3,152 9.37% 23,192 $ 2,184 9.42% $10,648 $1,005 9.43%
Securities:
Taxable ...................................... 17,561 1,032 5.88% 13,239 782 5.91% 10,856 635 5.85%
Federal funds sold and securities
purchased under agreement to resell .......... 7,411 395 5.33% 4,193 228 5.43% 2,446 130 5.33%
------ ------- ---- ------ ------- ---- ------- ------ ----
Total earning assets ......................... 58,613 4,579 7.81% 40,624 3,194 7.86% 23,950 1,770 6.20%
------- ---- ------ ------- ---- ------ ----
Cash and due from banks ........................... 1,900 1,349 928
Premises and equipment ............................ 3,149 2,873 2,020
Other assets ...................................... 452 351 258
Allowance for loan losses ......................... (464) (284) (132)
------- -------- -------
Total assets ................................. $63,650 $ 44,913 $27,024
======= ======== =======
LIABILITIES
Interest-Bearing Liabilities
Interest-bearing transaction accounts(1) ....... $ 5,987 $ 69 1.15% $ 4,393 $ 61 1.40% $ 2,411 $ 36 1.49%
Money market accounts .......................... 7,832 341 4.35% 4,740 213 4.50% 1,595 52 3.24%
Savings deposits (1) ........................... 7,232 270 3.73% 6,264 240 3.84% 3,707 148 4.01%
Time deposits (1) .............................. 21,045 1,101 5.23% 15,251 803 5.26% 8,646 459 5.31%
Other short-term borrowings .................... 3,121 139 4.45% 1,662 75 4.48% 1,167 51 4.32%
------- ------- ---- ------ ------- ---- ------- ------ ----
Total interest-bearing liabilities ........... 45,217 1,920 4.24% 32,310 1,392 4.31% 17,526 746 4.26%
------- ---- ------ ------- ---- ------ ----
Demand deposits (1) ............................... 8,260 6,440 3,449
Other liabilities ................................. 417 296 197
Shareholders' equity .............................. 9,756 5,867 5,852
------- -------- -------
Total liabilities and shareholders' equity ... 63,650 $44,913 $27,024
======= ======== =======
Net interest spread ............................... 3.57% 3.55% 3.13%
Net interest income/margin ........................ $ 2,659 4.54% $1,802 4.44% $1,024 4.28%
======= ====== ======
</TABLE>
-----------
(1) All loans and deposits are domestic. The Company had no nonaccrual
loans during the periods presented.
<PAGE> 15
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>
(IN THOUSANDS) 1998 versus 1997 1997 versus 1996
Increase (decrease) due to Increase (decrease) due to
-------------------------- --------------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets
Loans $ 979 $(12) $967 $1,181 $ (1) $1,180
Securities 254 (3) 251 141 6 147
Federal funds sold and securities purchased
under agreements to resell 171 (4) 167 95 (2) 97
--
Total earning assets 1,405 (20) 1,385 1,304 120 1,424
-----
INTEREST-BEARING LIABILITIES
Interest-bearing transaction accounts 15 (6) 9 27 (2) 25
Money market accounts 134 (7) 127 135 27 162
Savings deposits 35 (7) 28 98 (6) 92
Time deposits 303 (4) 299 347 (4) 343
Other short term borrowings 65 0 65 22 2 24
----- -----
Total interest-bearing liabilities 548 (20) 528 637 9 646
----- -----
Net interest income $ 857 $ 778
===== =====
</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 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.
<PAGE> 16
The following table illustrates the Company's interest rate sensitivity
at December 31, 1998.
INTEREST SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
(IN THOUSANDS)
AFTER
THREE
THROUGH AFTER SIX GREATER THAN
WITHIN 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 .................................... $ 16,146 $ 2,375 $ 2,862 $ 21,383 $19,436 $40,819
Securities ............................... 332 1,000 500 1,832 21,011 22,843
Federal funds sold and
securities purchased under
agreement to resell ..................... 3,290 3,290 3,290
-------- ------- -------- -------- ------- -------
Total earning assets ................... 19,768 3,375 3,362 26,505 40,447 66,952
-------- ------- -------- -------- ------- -------
LIABILITIES
Interest-bearing liabilities
Interest-bearing deposits
NOW Accounts (1) ......................... 757 757 1,515 3,029 3,031 6,060
Money Market accounts .................... 9,223 9,223 9,223
Savings deposits (1) ..................... 1,078 1,078 2,156 4,312 4,311 8,623
Time deposits ............................ 10,287 4,877 4,165 19,329 2,323 21,652
-------- ------- -------- -------- ------- -------
Total interest-bearing deposits ........ 21,345 6,712 7,836 35,893 9,665 45,558
Other short-term borrowings ............. 2,738 2,738 2,738
-------- ------- -------- -------- ------- -------
Total interest-bearing liabilities ... 24,083 6,712 7,836 38,631 9,665 48,296
-------- ------- -------- -------- ------- -------
Period gap ................................. $( 4,315) $(3,337) $ (4,474) $(12,126) $30,782 $18,656
Cumulative gap ............................. $( 4,315) $(7,652) $(12,126) $(12,126) $18,656 $18,656
Ratio of cumulative gap to total
earning assets ............................ (6.44%) (11.42%) (18.11%) (18.11%) 27.86%
</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 liability 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
<PAGE> 17
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 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, 1998 and 1997, the allowance for loan losses amounted to
$532,000 and $380,000, respectively. This represents 1.30% and 1.31% of
outstanding loans at December 31, 1998 and 1997, respectively. There were no
non-accrual, restructured or other non-performing loans at December 31, 1998,
1997 or 1996. In addition, there was $3,000 in loans delinquent greater than 30
days at December 31, 1998 and none were delinquent greater than 30 days at
December 31, 1997 and 1996. The provision for loan losses was $179,000, $194,000
and $135,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
The provision was made based on management's assessment of general loan loss
risk and asset quality.
ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Average loans outstanding $33,641 $23,192 $10,648
======= ======= =======
Loans outstanding at period end $40,819 $29,000 $15,915
------- ======= =======
Total nonperforming loans -- -- --
======= =======
Beginning balance of allowance $ 380 $ 201 $ 77
Loans charged-off:
1-4 family residential mortgage loans -- -- --
Home equity loans -- -- --
Commercial loans 28 -- --
Lease receivables 2 14 10
Installment & credit card loans 4 4 11
------- ------- -------
Total loans charged-off 34 18 11
------- ------- -------
Recoveries of previous charge-offs:
1-4 family residential mortgage loans -- -- --
Home equity loans -- -- --
Commercial loans -- -- --
Lease receivables 7 3 --
Installment & credit card loans -- -- --
------- ------- -------
Total recoveries 7 3 --
------- ------- -------
Net loans charged-off 27 15 11
------- ------- -------
Provision for loan losses 179 194 135
------- ------- -------
Balance at period end $ 532 $ 380 $ 201
------- ======= =======
Net charge-offs to average loans .08% .06% .10%
Allowance as percent of total loans 1.30% 1.31% 1.26%
Nonperforming loans as % of total loans -- -- --
Allowance as % of nonperforming loans -- -- --
</TABLE>
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, 1998, 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. The Company's primary source of noninterest income is
service charges on deposit accounts. In addition, the Company originates
mortgage loans which are closed in the name of a third party for which the
Company receives a fee. Other sources of noninterest income is derived from
bankcard fees, commissions on check sales, safe deposit box rent, wire transfer
and official check fees. Noninterest income for the year ended December 31,
1998, was $436,000 as compared to $262,000 for 1997. This increase is primarily
a result of the substantial growth in deposit account balances and the related
deposit account fees. These fees amounted to $205,000 in 1998 as compared to
$171,000 in 1997. Mortgage loan origination fees amounted to $119,000 in 1998 as
compared to $41,000 in 1997. This increase is a result of the low mortgage loan
rate environment in 1998 and the substantial amount of homeowner refinancing
that occurred in 1998 as compared to 1997. The Company continues to place
emphasis on this source of revenue in an effort to increase mortgage loan fee
income. During the first quarter of 1998 the Company employed a registered
investment representative and began offering nondeposit investment products such
as mutual funds, annuities, stocks and bonds. Fees generated from the sale of
these products amounted to $44,000 during the year ended December 31, 1998.
Noninterest income amounted to $126,000 in 1996. The
<PAGE> 18
substantial increase in 1997 as compared to 1996 is attributable to increased
deposit account balances and the related deposit account fees of $89,000 and an
increase in mortgage loan origination fees of $17,000.
Noninterest Expense. 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.
Noninterest expense increased from $1,619,000 for the year ended December 31,
1997 to $2,009,816 for the year ended December 31, 1998. Salary and employee
benefits increased $185,000 in 1998 as compared to 1997. This increase results
from normal merit increases as well as the addition of three full time
equivalent employees in 1998 as compared to 1997. The Company also instituted a
matching program to the existing 401(k) plan during 1998 where it matches 50% of
the employees contribution up to 4%. The Company also began paying incentive
compensation to the mortgage loan originator based on production goals that were
not paid in 1997. Equipment expense increased from $144,000 in 1997 to $180,000
in 1998. This increase is primarily due to increased maintenance expense of
approximately $28,000 the majority of which relates to remediation expense for
existing computer software and hardware to upgrade them to ensure that they are
year 2000 compliant. Marketing and public relations expense increased to
$131,000 in 1998 as compared to $90,000 in 1997. This increase is attributable
to planned budgeted increases in advertising during the Bank's third full year
of operations. Other expense increased from $395,000 in 1997 to $518,000 in
1998. This increase is partially due to an increase in computer service bureau
from $96,000 in 1997 to $149,000 in 1998. Approximately $37,500 of the increase
in computer service bureau expense relates to testing and remediation for year
2000 compliance, with the balance of the increase resulting from increased
transaction volume. Correspondent bank fees, and other expenses increased due to
the growth of the Company in 1998 as compared to 1997 and the resulting
increased activity.
Noninterest expense increased from $1,297,000 in 1996 to $1,619,000 in 1997.
Salary and employee benefits increased $172,000 in 1997 as compared to 1996.
This increase results from normal merit increases as well as the addition of two
full time equivalent and one part time equivalent employees in late 1996 and
early 1997. Equipment expense increased $42,000 in 1997 as compared to 1996
primarily as a result of increases in maintenance contract expense for computer
hardware and software. Marketing and public relations expense increased to
$90,000 in 1997 as compared to $36,000 in 1996. This increase is attributable to
planned increases in advertising during the Bank's second full year of
operations.
The following table sets forth for the periods indicated the primary components
of non-interest expense:
<TABLE>
<CAPTION>
(IN THOUSANDS) YEAR ENDED DECEMBER
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Salaries and employee benefits $1,061 $ 876 $ 704
Occupancy 118 114 130
Equipment 180 144 102
Marketing and public relations 131 90 36
Data processing 149 96 94
Supplies 56 52 44
Telephone 25 22 23
Correspondent services 51 38 30
Insurance 39 32 22
Professional fees 42 36 36
Postage 33 22 13
Other 125 97 63
------ ------ ------
$2,010 $1,619 $1,297
====== ====== ======
</TABLE>
<PAGE> 19
Income Tax Expense
The company had a operating loss carry forward of approximately $733,000, and
$984,000 for the years ended December 31, 1997, and 1996 , respectively. During
the year ended December 31, 1998 the company utilized all of its net operating
loss carry forward. The realization of a deferred tax benefit by the company as
a result of net operating losses depends upon having sufficient taxable income
of an appropriate character in the carry forward periods. The company recognizes
deferred tax assets for future deductible amounts resulting from differences in
the financial statement and tax bases of assets and liabilities and operating
loss carry forwards. A valuation allowance is then established to reduce the
deferred tax asset to the level that it is "more likely than not" that the tax
benefit will be realized. The Company had fully offset the deferred tax assets
resulting primarily from the net operating loss carry forwards by a valuation
allowance in the same amount for each of the years ended December 31, 1997 and
1996. In 1998, the Company eliminated the remaining valuation allowance. The
provision for income taxes for the year ended December 31, 1998 was $60,000.
FINANCIAL POSITION
Total assets at December 31, 1998, were $73.2 million as compared to $51.0
million at December 31, 1997. Average earning assets increased to $58.6 million
during 1998 as compared to $40.6 million during 1997. Asset growth included a
net increase in loans of $11.8 million and a $9.3 million increase in investment
securities during 1998 as compared to 1997. This growth was primarily funded by
an increase in deposit account balances of $13.1 million and proceeds from a
secondary stock offering in 1998. Shareholders' equity totaled $13.6 million at
December 31, 1998 as compared to $6.1 million at December 31, 1997. This
increase was primarily due to the proceeds from the secondary stock offering of
$6.6 million and retained net income of $847,000 during 1998.
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, 1998 loans accounted for
63.7% of earning assets as compared to 64.3% of earning assets at December 31,
1997. 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 $23.2 million during 1997, as compared to $33.6
million in 1998.
The following table shows the composition of the loan portfolio by category:
<TABLE>
<CAPTION>
(IN THOUSANDS) December 31,
----------------------------------------------------------------------------
1998 1997 1996
----------------------------------------------------------------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 8,865 21.73% $ 7,148 24.65% $ 2,837 17.83%
Real Estate:
Construction 3,873 9.48% 2,006 6.92% 792 4.97%
Mortgage-residential 6,538 16.01% 4,457 15.37% 2,602 16.35%
Mortgage-commercial 15,305 37.49% 10,454 36.05% 6,639 41.72%
Consumer 6,234 15.28% 4,880 16.83% 2,762 17.35%
Leases 4 .01% 55 .18% 283 1.78%
------- ------ ------- ------ ------- -------
Total gross loans 40,819 100.00% 29,000 100.00% 15,915 100.00%
====== ====== ======
Allowance for loan losses (532) (380) (201)
------- ------- -------
Total net loans $40,287 $28,620 $15,714
======= ======= =======
</TABLE>
In the context of this discussion, a "real estate mortgage loan" is
defined as any loan, other than loans for construction purposes, secured by real
estate, regardless of the purpose of the loan. The Company follows the common
practice of financial institutions in the Company's market area of obtaining a
security interest in real estate whenever possible, in addition to any other
available collateral. This collateral is taken to reinforce the likelihood of
the ultimate repayment of the loan and tends to increase the magnitude of the
real estate loan components. Generally the Company limits the loan-to-value
ratio to 80%. The principal components of the Company's loan
<PAGE> 20
portfolio, at year end 1998 and 1997, were commercial mortgage loans in the
amount of $15.3 million and $10.4 million, representing 37.49% and 36.05% 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, 1998.
LOAN MATURITY SCHEDULE AND SENSITIVITY TO CHANGES IN INTEREST RATES
<TABLE>
<CAPTION>
(IN THOUSANDS)
DECEMBER 31, 1998
---------------------------------------------------
OVER ONE YEAR
ONE YEAR THROUGH OVER FIVE
OR LESS FIVE YEARS YEARS TOTAL
------- ---------- ----- -----
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural ...................... $ 3,884 $ 4,536 $ 445 $ 8,865
Real estate - construction ........ 2,289 972 612 3,873
All other loans ................... 6,309 18,635 3,137 28,081
------- ------- ------- -------
$12,482 $24,143 $ 4,194 $40,819
======= ======= ======= =======
Loans maturing after one year with:
Fixed interest rates ................................................................ $21,658
Floating interest rates ............................................................. 6,679
-------
$28,337
=======
</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 $17.6
million in 1998, as compared to $13.2 million in 1997. This represents 30.03%
and 32.59% of the average earning assets for the year ended December 31, 1998
and 1997, respectively. 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, 1998, the weighted average life of the portfolio was 2.5
years and the weighted average yield was 5.80%. The Company primarily invests in
U.S. Treasury securities and securities of other U. S. Government agencies with
maturities up to five years. In 1998, as a result of utilizing all prior net
operating losses the Company began investing in south Carolina state and local
government obligations with maturities of up to 15 years.
<PAGE> 21
The following table shows, at carrying value, the scheduled maturities and
average yields of securities held at December 31, 1997.
INVESTMENT SECURITIES MATURITY DISTRIBUTION AND YIELDS (1)
<TABLE>
<CAPTION>
(IN THOUSANDS) DECEMBER 31, 1998
------------------------------------------------------------------------
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 ............... $1,398 6.09% $ 500 6.25%
State and local government ............. 682 5.94% $ 363 6.21%
------ ---- ------- ---- ------ ----
Total investment securities held-to-
maturity ............................... 1,398 6.09% 1,182 6.08% 363 6.21%
------ ---- ------- ---- ------ ----
Available-for-sale:
U.S. Treasury .......................... 1,722 5.93% 2,433 5.63%
U.S. government agencies ............... 500 5.82% 7,860 5.92% 2,004 6.04%
Mortgage-backed securities ............. 122 4.47% 3,765 5.74% 1,198 5.67%
Other .................................. 296 6.00%
------ ---- ------- ---- ------ ---- ---- ----
Total investment securities
available-for-sale ..................... 2,344 5.79% 14,058 5.82% 3,202 5.96% 296 6.00%
------ ---- ------- ---- ------ ---- ---- ----
Total investment securities ............ $3,742 5.82% $15,240 5.85% $3,555 5.98% $296 6.00%
====== ==== ======= ==== ====== ==== ==== ====
</TABLE>
- -----------
(1) Investments with a call feature are shown as of the contractual maturity
date.
Short-Term Investments. Short-term investments, which consist of federal
funds sold and securities purchased under agreements to resell, averaged $7.4
million in 1998, as compared to $4.2 million in 1997. At December 31, 1998,
short-term investments totaled $3.3 million. These funds are a primary source of
the Company's liquidity and are generally invested in an earning capacity on an
overnight basis.
<PAGE> 22
Deposits and Other Interest-Bearing Liabilities
Deposits. Average total deposits were $50.4 million during 1998, compared to
$37.1 million during 1997. Average interest-bearing deposits were $42.1 million
in 1998, as compared to $30.6 million in 1997.
The following table sets forth the deposits of the Company by category.
<TABLE>
<CAPTION>
DEPOSITS
DECEMBER 31,
----------------------------------------------------------------------
(IN THOUSANDS) 1998 1997 1996
--------------------- ------------------- -------------------
PERCENT OF PERCENT OF PERCENT OF
AMOUNT DEPOSITS AMOUNT DEPOSITS AMOUNT DEPOSITS
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Demand deposit accounts................ $10,449 18.66% $ 7,554 17.88% $ 6,044 19.56%
NOW accounts .......................... 6,060 10.82% 6,063 14.35% 3,989 12.91%
Money market accounts.................. 9,223 16.47% 5,957 14.10% 1,974 6.39%
Savings accounts....................... 8,623 15.40% 6,053 14.33% 7,154 23.15%
Time deposits less than $100,000 ...... 13,595 24.27% 10,248 24.26% 6,732 21.78%
Time deposits of $100,000 or over...... 8,056 14.38% 6,372 15.08% 5,008 16.21%
------- ------ ------- ------ ------- ------
Total deposits...................... $56,006 100.00% $42,247 100.00% $30,901 100.00%
======= ====== ======= ====== ======= ======
</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 $47.3 million and $35.9
million at December 31, 1998 and 1997, 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,
1997, is shown in the following table.
MATURITIES OF CERTIFICATES OF DEPOSIT
AND OTHER TIME DEPOSITS OF $100,000 OR MORE
<TABLE>
<CAPTION>
(IN THOUSANDS) DECEMBER 31, 1997
---------------------------------------------------------------
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 .. $3,950 $1,712 $1,688 $706 $8,056
Other time deposits of $100,000 or more ...... -- -- -- -- --
------ ------ ------ ---- ------
Total .............................. $3,950 $1,712 $1,688 $706 $8,056
====== ====== ====== ==== ======
</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
<PAGE> 23
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 $3.0 million and $1.5 million during 1998 and 1997,
respectively. These repurchase agreements are generally originated with
customers that have other relationships with the Company and tend to provide a
stable and predictable 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 1998 and 1997, was $120,000 and $114,000, respectively.
Capital
Total shareholders' equity as of December 31, 1998 was $13.6 million,
an increase of $7.5 million or approximately 122% compared with shareholders'
equity of $6.1 million as of December 31, 1997. This increase was attributable
to net income for the year ended December 31, 1998 of $847,000 a $40,000
increase in the market value of investment securities available-for-sale and
$6.6 million in net proceeds from issuance of Common Stock in a secondary
offering which closed on July 10, 1998.
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.
<PAGE> 24
The Company and the Bank exceeded their regulatory capital ratios, as
set forth in the following table.
<TABLE>
<CAPTION>
ANALYSIS OF CAPITAL
(IN THOUSANDS)
REQUIRED ACTUAL EXCESS
----------------- ------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
THE BANK:
December 31, 1998
Risk Based Capital
Tier I $ 1,959 4.00% $10,332 21.10% $ 8,373 17.10%
Total Capital 3,917 8.00% 10,864 22.19% 6,947 14.19%
Tier I Leverage 2,111 3.00% 10,232 14.68% 8,121 11.68%
December 31, 1997
Tier I $ 1,401 4.00% $ 5,232 14.93% $ 3,831 10.93%
Total Capital 2,803 8.00% 5,612 16.02% 2,806 8.02%
Tier I Leverage 1,463 3.00% 5,232 10.73% 3,769 7.73%
</TABLE>
<TABLE>
<CAPTION>
REQUIRED ACTUAL EXCESS
----------------- ------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
THE COMPANY:
December 31, 1998
Risk Based Capital
Tier I $ 1,977 4.00% $13,560 27.43% $11,583 23.43%
Total Capital 3,954 8.00% 14,092 28.51% 10,138 20.51%
Tier I Leverage 2,188 3.00% 13,560 18.59% 11,372 15.59%
December 31, 1997
Risk Based Capital
Tier I $1,401 4.00% $ 6,098 17.41% $ 4,697 13.41%
Total Capital 2,803 8.00% 6,478 18.49% 3,675 10.49%
Tier I Leverage 1,464 3.00% 6,098 12.50% 4,634 9.50%
</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 during the
original offering period which closed on July 31, 1995 with gross proceeds after
offering expenses
<PAGE> 25
of $6.8 million. Approximately $6.0 million of the proceeds of the offering were
used to capitalize the Bank. On July 10, 1998 the Company closed a secondary
offering in which 517,500 additional shares were issued in with proceeds after
offering expenses of approximately $6.6 million. Approximately $4.1 million of
the proceeds from this offering was used to provide additional capital to the
Bank. The Company is using the proceeds of this offering to support its
continued growth through its existing offices and by opening three additional
branches in the next six to eighteen months in other fast growing areas in the
Midlands of South Carolina. The Company has entered into contract on one
locations as of December 31, 1998 and has acquired one branch site and plans to
open the new office at the end of the first quarter of 1999. It is anticipated
that the proceeds from the offering are sufficient to support its proposed
growth and expansion, including the establishment of up to three new branch
offices.
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. Asset
liquidity is provided by cash and assets which are readily marketable, or which
can be pledged, or which will mature in the near future. Liability liquidity is
provided by access to core funding sources, principally the ability to generate
customer deposits in the company's market area. In addition, liability liquidity
is provided through the ability to borrow against approved lines of credit
(federal funds purchased) from correspondent banks and to borrow on a secured
basis through securities sold under agreements to repurchase.
With the successful completion of the common stock offering in 1995 and the
secondary offering completed in July 1998, the Company has maintained a high
level of liquidity that has been adequate to meet planned capital expenditures,
as well as providing the necessary cash requirements of the Company and the Bank
needed for operations. The Company's funds sold position, its primary source of
liquidity, averaged $7.4 million during the year ended December 31, 1998, and
was $3.3 million at December 31, 1998. The Company also maintains federal funds
purchased lines, in the amount of $2,500,000, with several financial
institutions, although these have not been utilized in 1998. 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.
ACCOUNTING MATTERS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 130, (SFAS 130) "Reporting Comprehensive
Income. SFAS 130 established standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general purpose financial statements. SFAS 130 requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS 130
requires that companies (I) classify items of other comprehensive income by
their nature in a financial statement and (ii) display the accumulated balance
of other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the statement of financial position at
the end of an accounting period. SFAS 130 is effective for fiscal years
beginning after December 31, 1997. The Company adopted this
<PAGE> 26
pronouncement during the first quarter of 1998. Reclassification of financial
statements for earlier periods as required has been made in the financial
statement included elsewhere herein.
YEAR 2000
The Company recognizes that there is a business risk in computerized
systems as a result of the change into the next century. The Federal Financial
Institutions Examination Council ("FFIEC") issued an interagency statement on
May 5, 1997, outlining five phases for institutions to effectively manage the
Year 2000 challenge. The phases were: Awareness; Assessment; Renovation;
Validation; and Implementation. The FFIEC encouraged institutions to have all
critical applications identified and priorities set by September 30, 1997 and to
have renovation work largely completed and testing well underway by December 31,
1998.
The Company has a program designed to ensure that its operational and
financial systems will not be adversely affected by year 2000 software failures,
due to processing errors arising from calculations using the year 2000 date. The
Board of Directors and management of the Company have established year 2000
compliance as a strategic initiative. While the Company believes that is has
available resources to assure year 2000 compliance, it is to some extent
dependent on its outside core data processing servicer.
The Company continue to work aggressively on its Year 2000 project. The
awareness and assessment phases are complete and the remediation phase is
substantially complete as of December 31, 1998. The validation and
implementation phases are well underway. The Company's core business system
which is provided by our outside service provider are considered to be most
critical. Extensive testing of this system have taken place with additional
testing to occur in the first and second quarter of 1999. The service providers
host hardware and operating systems were upgraded and compliant in the fourth
quarter of 1998. The service provider has met the Company's expectations for
delivery of the year 2000 compliant upgrades. The running of test in a "test
environment" have been performed for certain critical dates with testing to
follow on other critical dates to occur in the first and second quarters of
1999. Item processing systems were upgraded to be year 2000 compliant.
Throughout 1999, the Company will continue to test for Year 2000 compliance on
its core system as well as ancillary systems.
To date the Company has expensed cost to upgrade and test systems of
approximately $60,000 and has budgeted an additional $15,000 in cost to be
incurred in 1999. Capitalized cost for installing new item processing hardware
and software and a frame relay communications network have been approximately
$130,000. The cost of the Year 2000 project and the dates scheduled by the
Company for being compliant are based on managements best estimates at this
time. Additional cost to be incurred are not deemed to be material to the
company's financial position.
The Company continues to evaluate the readiness of its vendors and its
customers as a part of its Year 2000 project plan. The Company is ion the
process of developing a comprehensive contingency and business resumption plan
which will document and outline options in the event any mission critical
systems fail to operate despite all of our Year 2000 efforts. This plan will be
completed in the first quarter of 1999. In addition the Company has undertaken a
n extensive customer awareness program to inform our customers of the progress
that we have made in implementing our Year 2000 readiness plan. The Company's
primary regulator is the Office of the Comptroller of the Currency and thus we
are subject to supervisory review of our Year 2000 preparedness and progress.
Additionally the company's core processing provider is also subject to
examinations of their Year 2000 readiness by federal banking regulatory
agencies.
Management presently believes that with the planned additional
modifications and testing to existing systems, the effects of the Year 2000
problem will be minimized. There can be no assurance however, that the systems
of other vendors upon which the Company rely's, including essential utilities
and telecommunications providers, will be Year 2000 compliant in a timely
manner. If the Company's modifications and testing are not
<PAGE> 27
completed in a timely manner or are in other ways ineffective, or if the Company
is subject to failure of a critical vendor, the Year 2000 issue could have a
material impact on the Company's financial condition and results of operations.
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.
<PAGE> 28
ITEM 7. FINANCIAL STATEMENTS.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
REPORT OF INDEPENDENT AUDITOR
BALANCE SHEETS
STATEMENTS OF OPERATIONS
STATEMENTS OF COMPREHENSIVE INCOME
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
STATEMENTS OF CASH FLOWS
NOTES TO FINANCIAL STATEMENTS
</TABLE>
<PAGE> 29
FIRST COMMUNITY CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1998 1997
----------- ------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 2,316,369 $ 2,869,066
Federal funds sold and securities purchased under
agreements to resell 3,290,403 2,620,000
Investment securities - available for sale 19,899,891 11,606,899
Investment securities - held to maturity (market value of
$2,957,891 and $1,894,940 at December 31,
1998 and 1997, respectively) 2,942,760 1,900,000
Loans 40,819,405 28,999,906
Less, allowance for loan losses 532,025 380,120
----------- ------------
Net loans 40,287,380 28,619,786
Property, furniture and equipment - net 3,667,097 2,983,224
Other assets 747,676 413,456
----------- ------------
Total assets $73,151,576 $ 51,012,431
=========== ============
LIABILITIES
Deposits:
Non-interest bearing demand $10,449,284 $ 7,553,754
NOW and money market accounts 15,283,002 12,020,414
Savings 8,622,546 6,052,584
Time deposits less than $100,000 13,595,144 10,247,650
Time deposits $100,000 and over 8,055,794 6,372,330
----------- ------------
Total deposits 56,005,770 42,246,732
Securities sold under agreements to repurchase 2,737,700 2,143,400
Other borrowed money - demand note to US Treasury 32,413 111,383
Other liabilities 763,349 396,063
----------- ------------
Total liabilities 59,539,232 44,897,578
----------- ------------
SHAREHOLDERS' EQUITY
Preferred stock, par value $1.00 per share; 10,000,000
shares authorized; none issued and outstanding
Common stock, par value $1.00 per share;
10,000,000 shares authorized; issued and outstanding
1,207,177 and 689,677 at December 31,
1998 and 1997, respectively 1,207,177 689,677
Additional paid in capital 12,248,087 6,155,237
Retained earnings 114,029 (732,904)
Unrealized gain on securities available-for-sale 43,051 2,843
----------- ------------
Total shareholders' equity 13,612,344 6,114,853
----------- ------------
Total liabilities and shareholders' equity $73,151,576 $ 51,012,431
=========== ============
</TABLE>
See Notes to Financial Statements
<PAGE> 30
FIRST COMMUNITY CORPORATION
Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
---------- ---------- -----------
<S> <C> <C> <C>
Interest income:
Loans, including fees $3,151,523 $2,184,512 $ 1,004,243
Investment securities - available-for-sale 896,309 624,377 479,822
Investment securities - held-to-maturity 136,245 157,403 155,504
Federal funds sold and securities purchased
under resale agreements 394,742 227,747 130,463
---------- ---------- -----------
Total interest income 4,578,819 3,194,039 1,770,032
---------- ---------- -----------
Interest expense:
Deposits 1,780,634 1,317,360 695,626
Securities sold under agreement to repurchase 134,800 70,007
Other borrowed money 4,117 4,490 2,328
---------- ---------- -----------
Total interest expense 1,919,551 1,391,857 697,954
---------- ---------- -----------
Net interest income 2,659,268 1,802,182 1,072,078
Provision for loan losses 179,000 193,860 135,000
---------- ---------- -----------
Net interest income after provision for loan losses 2,480,268 1,608,322 937,078
---------- ---------- -----------
Non-interest income:
Deposit service charges 205,236 170,863 82,192
Mortgage origination fees 118,608 41,428 24,930
Other 112,561 49,779 18,803
---------- ---------- -----------
Total non-interest income 436,405 262,070 125,925
---------- ---------- -----------
Non-interest expense:
Salaries and employee benefits 1,061,502 876,091 704,416
Occupancy 118,351 114,008 129,978
Equipment 179,982 143,661 102,456
Marketing and public relations 131,545 90,197 35,596
Other 518,436 395,259 324,093
---------- ---------- -----------
Total non-interest expense 2,009,816 1,619,216 1,296,539
---------- ---------- -----------
Net income before tax 906,857 251,176 (233,536)
Income taxes 59,924 -- --
---------- ---------- -----------
Net income (loss) $ 846,933 $ 251,176 $ (233,536)
========== ========== ===========
Basic earnings (loss) per common share $ 0.90 $ 0.36 $ (0.34)
========== ========== ===========
Diluted earnings (loss) per common share $ 0.87 $ 0.36 $ (0.41)
========== ========== ===========
</TABLE>
See Notes to Financial Statements
<PAGE> 31
FIRST COMMUNITY CORPORATION
Statements of Comprehensive Income
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------
1998 1997 1996
-------- -------- ----------
<S> <C> <C> <C>
Net income (loss) $846,933 $251,176 $(281,631)
Other comprehensive income (loss), net
of tax:
Unrealized gains (losses) arising
during the period, net of tax
effect of $21,584, $1,598 and
$0, for the years ended December
'31, 1998, 1997 and 1996,
respectively 40,208 65,571 (71,768)
-------- -------- ---------
Comprehensive income (loss) $887,141 $316,747 $(353,399)
======== ======== =========
</TABLE>
See Notes to Financial Statements
<PAGE> 32
FIRST COMMUNITY CORPORATION
Statement of Changes in Shareholder's Equity
<TABLE>
<CAPTION>
Accumulated
Additional Other
Shares Common Paid-in Retained Comprehensive
Issued Stock Capital Earnings Income Total
--------- ---------- ----------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1995 688,077 $ 688,077 $ 6,140,837 $ (702,449) $ 9,040 $ 6,135,505
Net loss (281,631) (281,631)
Other comprehensive income,
net of tax - unrealized gain on
available-for-sale securities (71,768) (71,768)
--------- ---------- ----------- ---------- --------- -----------
Balance December 31, 1996 688,077 688,077 6,140,837 (984,080) (62,728) 5,782,106
Net income 251,176 251,176
Issuance of common stock 1,600 1,600 14,400 16,000
Other comprehensive income,
net of tax - unrealized gain on
available-for-sale securities 65,571 65,571
--------- ---------- ----------- ---------- --------- -----------
Balance December 31, 1997 689,677 689,677 6,155,237 (732,904) 2,843 6,114,853
Net income 846,933 846,933
Issuance of common stock 517,500 517,500 6,092,850 6,610,350
Other comprehensive income, -
net of tax - unrealized gain on -
available-for-sale securities 40,208 40,208
--------- ---------- ----------- ---------- --------- -----------
Balance December 31, 1998 1,207,177 $1,207,177 $12,248,087 $ 114,029 $ 43,051 $13,612,344
========= ========== =========== ========== ========= ===========
</TABLE>
See Notes to Financial Statements
<PAGE> 33
FIRST COMMUNITY CORPORATION
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 846,933 $ 251,176 $ (281,631)
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation 132,100 135,703 169,129
Premium amortization (Discount accretion) (52,721) (57,987) (4,070)
Provision for loan losses 179,000 193,860 135,000
(Increase) decrease in other assets (355,804) (83,623) (142,965)
Increase in accounts payable 367,286 171,112 114,060
------------ ------------ ------------
------------ ------------ ------------
Net cash provided (used) in operating activities 1,116,794 610,241 (10,477)
------------ ------------ ------------
Cash flows form investing activities:
Purchase of investment securities available-for-sale (20,792,496) (7,680,975) (8,208,751)
Maturity/call of investment securities available-for-sale 12,615,958 5,125,910 5,747,327
Sale of investment securities available-for-sale -- 286,647
Purchase of investment securities held-to-maturity (2,544,701) -- (1,400,333)
Maturity/call of investment securities held-to-maturity 1,500,000 700,000 1,000,000
Increase in loans (11,846,594) (13,099,502) (12,092,752)
Proceeds from sale of fixed assets -- 50,000 41,935
Purchase of property and equipment (815,973) (624,787) (1,191,345)
------------ ------------ ------------
Net cash used in investing activities (21,883,806) (15,242,707) (16,103,919)
------------ ------------ ------------
Cash flows from financing activities:
Increase in deposit accounts 13,060,238 11,345,908 19,566,884
Proceeds from sale of common stock 6,610,350 16,000 --
Increase (decrease) in securities sold under agreements to repurchase 1,293,100 1,220,000 (708,100)
Decrease in other borrowings (78,970) (188,176) 130,198
------------ ------------ ------------
Net cash provided from financing activities 20,884,718 12,393,732 18,988,982
------------ ------------ ------------
Net increase in cash and cash equivalents 117,706 (2,238,734) 2,874,586
Cash and cash equivalents at beginning
of period 5,489,066 7,727,799 4,853,213
------------ ------------ ------------
Cash and cash equivalents at end of period $ 5,606,772 $ 5,489,065 $ 7,727,799
============ ============ ============
Supplemental disclosure:
Cash paid during the period for:
Interest $ 1,879,980 $ 1,280,508 $ 650,670
Taxes $ 2,420
Non-cash investing and financing activities:
Unrealized gain (loss) on securities available-for-sale $ 40,208 $ 65,571 $ (71,768)
</TABLE>
See Notes to Financial Statements
<PAGE> 34
FIRST COMMUNITY CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1 - ORGANIZATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of First
Community Corporation (the Company)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, as a South Carolina corporation, and
was formed to become a bank holding company. The Bank opened for
business on August 17, 1995.
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The financial statements are prepared in accordance with generally
accepted accounting principles which require management to make
estimates and assumptions that effect the amounts reported in the
financial statements and accompanying notes. Actual results could
differ from those estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the reserve for loan losses.
The estimation process includes management's judgment as to future
losses on existing loans based on an internal review of the loan
portfolio, including an analysis of the borrowers current financial
position, the consideration of current and anticipated economic
conditions and the effect on specific borrowers. In determining the
collectibility of loans management also considers the fair value of
underlying collateral. Various regulatory agencies, as an integral
part of their examination process, review the Company's allowance
for loan losses. Such agencies may require the Company to recognize
additions to the allowance based on their judgments about
information available to them at the time of their examination.
Because of these factors it is possible that the allowance for loan
losses could change materially.
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
Gains and losses on the sale of available-for-sale securities are
determined using the specific identification method. Declines in
the fair value of individual held-to-maturity and
available-for-sale securities below their cost that are other than
temporary result in write-downs of the individual securities to
their fair value.
Premiums and discounts are recognized in interest income using the
interest method over the period to maturity.
<PAGE> 35
Loans and Allowance for Loan Losses
Loans receivable that management has the intent and ability to hold
for the foreseeable future or until maturity or pay-off are
reported at their outstanding principal balance adjusted for any
charge-offs, the allowance for loan losses, and any deferred fees
or costs on originated loans. 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.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments
as they become due. When interest accrual is discontinued, all
unpaid accrued interest is reversed. Interest income is
subsequently recognized only to the extent cash payments are
received.
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.
Marketing and Public Relations Expense
The Company expenses marketing and public relations expense as
incurred
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.
Stock Based Compensation Cost
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees". Accordingly,
compensation cost for stock options is measured as the excess, if
any, of the market price of the Company's stock at the date of the
grant over the amount an employee must pay to acquire the stock.
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" (SFAS 123) was issued in October
1995, and encourages but does not require, adoption of a fair value
method of accounting for employee stock based compensation plans.
See Note 12.
Earnings/Loss Per Share
During February 1997, Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" (SFAS 128) was issued and specifies
the computation, presentation and disclosure requirements for
earnings per share for entities with publicly held common stock or
potential common stock. SFAS 128 requires entities with other than
simple capital structures to present basic and diluted per share
amounts for income from continuing operations and net income. Basic
earnings per share is calculated by the Company by dividing net
income by the weighted average number of shares outstanding during
the period. Diluted earnings per share is calculated by dividing
net income by the weighted average number of shares outstanding
plus the weighted average number of additional common shares that
would have been outstanding if the dilutive potential common shares
had been issued. Diluted earnings per share include the effects of
outstanding stock options issued by the Company. See Note 13.
<PAGE> 36
Note 3 - INVESTMENT SECURITIES
The amortized cost and estimated fair values of investment
securities are summarized below:
HELD-TO-MATURITY:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Cost Gain Loss Fair Value
--------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1998:
U.S. Government agency securities $1,898,382 $ 12,010 $ -- $ 1,910,392
State and local government 1,034,378 3,122 -- 1,037,500
Other 10,000 -- -- 10,000
---------- ----------- ----------- -----------
$2,942,760 $ 15,132 -- $ 2,957,892
========== =========== =========== ===========
December 31, 1997:
U.S. Government agency securities $1,900,000 -- $ 5,060 $ 1,894,940
========== =========== =========== ===========
</TABLE>
AVAILABLE-FOR-SALE:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Cost Gain Loss Fair Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
December 31, 1998:
US Treasury securities $ 4,109,148 $ 46,231 $ -- $ 4,155,379
US Government agency securities 10,342,764 35,062 13,003 10,364,823
Mortgage-backed securities 5,086,046 10,799 12,856 5,083,989
Other 295,700 -- -- 295,700
----------- ----------- ----------- -----------
$19,833,658 $ 92,092 $ 25,859 $19,899,891
=========== =========== =========== ===========
December 31, 1997:
US Treasury securities $ 5,792,837 $ 14,514 $ 3,162 $ 5,804,189
US Government agency securities 4,847,059 8,068 13,848 4,841,279
Mortgage-backed securities 809,532 -- 1,131 808,401
Other 153,030 -- -- 153,030
----------- ----------- ----------- -----------
$11,602,458 $ 22,582 $ 18,141 $11,606,899
=========== =========== =========== ===========
</TABLE>
The amortized cost and fair value of investment securities at
December 31, 1998, 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 $ -- $ -- $ 2,331,731 $ 2,343,950
Due after one year through five years 1,398,383 1,406,293 14,003,789 14,058,148
Due after five years through ten years 1,181,532 1,188,748 3,202,438 3,202,093
Due after ten years 362,845 362,851 295,700 295,700
---------- ----------- ----------- -----------
$2,942,760 $ 2,957,892 $19,833,658 $19,899,891
========== =========== =========== ===========
</TABLE>
Securities with an amortized cost of $3,589,903 and fair value of
$3,614,411 at December 31, 1998, were pledged to secure public
deposits, demand notes due the U.S. Treasury and
<PAGE> 37
securities sold under agreements to repurchase. During the year ended
December 31, 1997, there were proceeds from the sale and call of
securities from the available-for-sale portfolio of $586,647. Gross
gains amounted to $2,345 and gross losses amounted to $2,304. There
were no sales of securities during 'the years ended December 31, 1998
and 1996.
Note 4 - LOANS
Loans summarized by category are as follows:
<TABLE>
<CAPTION>
December 31,
1998 1997
----------- -----------
<S> <C> <C>
Commercial, financial and agricultural $ 8,864,872 $ 7,148,239
Real estate - construction 3,873,121 2,005,911
Real estate - mortgage
Commercial 15,305,403 10,453,666
Residential 6,538,421 4,456,963
Consumer 6,233,693 4,880,202
Leases 3,895 54,925
----------- -----------
$40,819,405 $28,999,906
=========== ===========
</TABLE>
Activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
December 31,
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Balance at the beginning of year $ 380,120 $ 200,860 $ 76,750
Provision for loan losses 179,000 193,860 135,000
Charged off loans (33,980) (17,357) (11,205)
Recoveries 6,885 2,757 315
--------- --------- ---------
Balance at end of year $ 532,025 $ 380,120 $ 200,860
========= ========= =========
</TABLE>
Loans outstanding to Bank directors, executive officers and their
related business interests amounted to $3,483,610 and $2,101,797 at
December 31, 1998 and 1997, respectively. Total loans made during the
year ended December 31, 1998 totalled $1,734,203 and repayments
totalled $352,390. 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
collectibility.
Note 5 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
1998 1997
----------- -----------
<S> <C> <C>
Land $ 952,774 $ 952,774
Premises 1,742,438 1,742,438
Equipment 643,542 491,102
Construction in process 655,846 --
----------- -----------
3,994,600 3,186,314
Accumulated depreciation 327,503 203,090
----------- -----------
$ 3,667,097 $ 2,983,224
=========== ===========
</TABLE>
Provision for depreciation included in operating expenses for the years
ended December 31, 1998, 1997, and 1996 amounted to $132,100, $135,703
and $169,129, respectively.
<PAGE> 38
At December 31, 1998 the company has begun construction on one new
location located in Irmo, South Carolina and has entered into a
contract to purchase one additional location. The Irmo property was
puurchased for approximately $449,000 and the contract for the
construction of the facility is for approximattely $512,000. Total
construction cost incurred through December 31, 1998 amounts to
approximately $144,000. The additional location is in Cayce-West
Columbia, South Carolina. The Company has certain rights under the
terms of the contract on Cayce-West Columbia which allow for an
inspection and due diligence period and termination of the contract
without penalty under certain conditions. The purchase price of the
Cayce-West columbia property is $300,000. Because the Company has not
enrtered into a contract for costruction of this facility, it has not
determined with certainty the cost to open the branch.
Note 6 - DEPOSITS
At December 31, 1998, the scheduled maturities of Certificates of
Deposits are as follows:
<TABLE>
<S> <C>
1999 $19,312,109
2000 1,323,943
2001 1,004,886
2002 10,000
-----------
$21,650,938
===========
</TABLE>
Note 7 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
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, 1998 and 1997, was 4.52% and
5.49%, respectively. The maximum month-end balance during 1998 and
1997 was $4,973,500 and $2,492,800, 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). 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. At
December 31, 1997 a net deferred tax asset in the amount of
$259,199 has been offset by a valuation allowance.
Income tax expense for the years ended December 31, 1998, 1997
and 1996 consists of the following:
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
Current
Federal $ 208,080 $ -- $ --
State 16,812 -- --
---------- ---------- ----------
224,892 -- --
---------- ---------- ----------
Deferred
Federal 86,271 85,141 (94,276)
State 7,890 7,789 (8,551)
---------- ---------- ----------
94,161 92,930 (102,827)
---------- ---------- ----------
Change in valuation allowance (259,129) (92,930) 102,827
---------- ---------- ----------
Income tax expense $ 59,924 $ -- $ --
========== ========== ==========
</TABLE>
<PAGE> 39
A reconciliation from expected federal tax expense (benefit) to
effective income tax expense for the periods indicated are as
follows:
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996
--------- -------- ---------
<S> <C> <C> <C>
Expected federal income tax
expense (benefit) $ 308,331 $ 85,399 (95,755)
State income tax net of federal
benefit 26,934 7,459 (8,365)
Change in beginning of year
valuation allowance (259,129) (92,930) 102,827
Other (16,212) 72 1,293
--------- -------- ---------
$ 59,924 $ -- $ --
========= ======== =========
</TABLE>
The following is a summary of the tax effects of temporary
differences that give rise to significant portions of the deferred
tax assets and deferred tax liabilities:
<TABLE>
<CAPTION>
December 31,
1998 1997
-------- ---------
<S> <C> <C>
Assets:
Provision for bad debts $191,480 $ 136,808
Deferred pre-opening cost 45,068 73,532
Net operating loss -- 52,911
Other -- 5,418
-------- ---------
Total deferred tax assets 236,548 268,669
Valuation reserve -- (259,199)
-------- ---------
Net deferred tax asset 236,548 9,470
-------- ---------
Liabilities:
Cash basis accounting for tax purposes 9,110 5,975
Tax depreciation in excess of book depreciation 62,399 1,897
Unrealized gain on securities available for sale 23,838 1,598
-------- ---------
Total deferred tax liabilities 95,347 9,470
-------- ---------
Net deferred tax asset recognized $141,201 $ --
======== =========
</TABLE>
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.
<PAGE> 40
Loans - For certain categories of loans, such as variable rate loans
and other lines of credit, the carrying amount, 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
estimated 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 rates are
based on current loan rates as well as management estimates, the fair
values presented may not be indicative of the value negotiated in an
actual sale.
Accrued Interest Receivable - The fair value approximates the carrying
value.
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.
Accrued Interest Payable - The fair value approximates the carrying
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, 1998 December 31, 1997
---------------------------- ----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and short term investments $ 5,606,772 $ 5,606,772 $ 5,489,066 $ 5,489,066
=========== =========== =========== ===========
Investment securities:
Held-to-maturity $ 2,942,760 $ 2,957,891 $ 1,900,000 $ 1,894,940
Available-for-sale 19,899,891 19,899,891 11,606,899 11,606,899
----------- ----------- ----------- -----------
Total investment securities $22,842,651 $22,857,782 $13,506,899 $13,501,839
=========== =========== =========== ===========
Loans
Adjustable rate $12,671,956 $12,671,956 $11,465,832 $11,465,832
Fixed rate 28,147,449 28,276,842 17,534,074 17,534,074
----------- ----------- ----------- -----------
Total loans 40,819,405 40,948,798 28,999,906 28,999,906
Allowance for loan losses 532,025 -- 380,120 --
----------- ----------- ----------- -----------
Net loans $40,287,380 $40,948,798 $28,619,786 $28,999,906
=========== =========== =========== ===========
Accrued interest receivable $ 528,710 $ 528,710 $ 339,455 $ 339,455
=========== =========== =========== ===========
Financial liabilities:
Deposits
Non-interest bearing demand 9,750,484 9,750,484 7,553,754 7,553,754
NOW and money market accounts 15,283,002 15,283,002 12,020,414 12,020,414
Savings 8,622,546 8,622,546 6,052,584 6,052,584
Certificates of deposit 21,650,938 21,754,227 16,619,980 16,639,498
----------- ----------- ----------- -----------
Total deposits $55,306,970 $55,410,259 $42,246,732 $42,266,250
=========== =========== =========== ===========
Short term borrowings $ 3,468,913 $ 3,468,913 $ 2,254,783 $ 2,254,783
=========== =========== =========== ===========
Accrued interest payable $ 276,237 $ 276,237 $ 236,667 $ 236,667
=========== =========== =========== ===========
</TABLE>
<PAGE> 41
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, 1998, the Bank had
commitments to extend credit of $9,022,000.
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, 1998,
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 EXPENSES
A summary of the components of other non-interest expense is as
follows:
<TABLE>
<CAPTION>
December 31,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Data processing $149,043 $ 96,143 $ 93,712
Supplies 55,695 52,063 43,940
Telephone 24,828 22,385 22,630
Correspondent services 50,564 38,097 29,854
Insurance 38,708 32,380 22,100
Postage 32,740 21,863 13,051
Professional fees 42,077 35,585 35,942
Other 124,781 96,743 62,864
-------- -------- --------
$518,436 $395,259 $324,093
======== ======== ========
</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 exercisable for a period of ten years from the date of
grant.
<PAGE> 42
Stock option transactions for the year ended December 31, 1998 and 1997
are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
Weighted Weighted
Average Average
Shares Exercise Price Shares Exercise Price
------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Outstanding at the beginning of
year 84,000 $10.00 $ 88,000 $10.00
Granted -- -- -- --
Exercised -- -- (1,600) 10.00
Forfeited -- -- (2,400) 10.00
------ ------ -------- ------
Outstanding at end of year 84,000 $10.00 84,000 $10.00
====== ====== ======== ======
Option exercisable at end of year 64,000 $10.00 47,200 $10.00
====== ====== ======== ======
</TABLE>
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.
The following summarizes pro-forma data in accordance with SFAS 123:
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
-------- ----------------------- ----------
<S> <C> <C> <C>
Net income, pro-forma $832,106 $228,712 $ (321,951)
Basic earnings/loss per common share, pro-forma $ 0.88 $ 0.33 $ (0.47)
Diluted earnings loss per common share, pro-forma $ 0.86 $ 0.33 $ (0.47)
</TABLE>
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 - EMPLOYEE BENEFIT PLAN
The Company maintains a 401 (k) plan which covers substantially all
employees. Participants may contribute up to the maximum allowed by the
regulation. During the year ended December 31, 1998 and 1997 the plan
expense amounted to $31,569 and $15,350, respectively. In 1998 the
Company began matching 50% of an employees contribution up to 4.00% of
the participants contribution.
<PAGE> 43
Note 14 - EARNINGS PER SHARE
The following reconciles the numerator and denominator of the basic and
diluted earnings per share computation:
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
---------------------------------------------
<S> <C> <C> <C>
Numerator (Included in basic and
diluted earnings per share) $ 846,933 $ 251,176 $ (281,631)
========= ========= ==========
Denominator
Weighted average common shares outstanding for:
Basic earnings per share 942,725 689,015 688,077
Dilutive securities:
Stock options - Treasury
stock method 26,741 14,276 3,615
--------- --------- ----------
Diluted earnings per share 969,466 703,291 691,692
========= ========= ==========
</TABLE>
The average market price used in calculating the assumed number of
shares issued for the years ended December 31, 1998, 1997 and 1996 was
$14.67, $12.00 and $10.50, respectively.
Note 15 - CAPITAL REQUIREMENTS AND DIVIDEND RESTRICTIONS
The Bank is subject to various federal and state regulatory
requirements, including regulatory capital requirements. Failure to
meet minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary, actions that, if undertaken, could
have a direct material effect on the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities, and
certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are
also subject to qualitative judgments by the regulators about
components, risk weighting, and other factors. The Bank is required to
maintain minimum Tier 1 capital, total risked based capital and Tier 1
leverage ratios of 4%, 8% and 3%, respectively.
At December 31, 1998, the most recent notification from the Comptroller
of the Currency categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be well
capitalized the Bank must maintain minimum Tier 1 capital, Total
risk-based capital and Tier 1 leverage ratios of 6%, 10% and 5%,
respectively. There are no conditions or events since that notification
that management believes have changed the Bank's well capitalized
status. The Company will be required by the Federal Reserve to meet the
same guidelines once its consolidated assets exceed $150 million.
The actual capital amounts and ratios for the Bank and the Company are
as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
Amount Ratio Amount Ratio
------ ----- ------ -----
<S> <C> <C> <C> <C>
First Community Corporation
Tier 1 Capital $ 13,560,293 27.43% $ 6,098,008 17.41%
Total Risked Based Capital 14,092,378 28.51% 6,478,008 18.49%
Tier 1 Leverage 13,560,293 18.59% 6,098,008 12.50%
First Community Bank, NA
Tier 1 Capital $ 10,332,245 21.10% $ 5,232,345 14.93%
Total Risked Based Capital 10,864,270 22.19% 5,612,345 16.02%
Tier 1 Leverage 10,332,245 14.68% 4,982,000 14.79%
</TABLE>
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 calendar year to net profits of
that year combined with retained net profits for the two preceding
years. At December 31, 1998, there was $114,000 in retained net
profits free of such restriction.
<PAGE> 44
Note 16 - 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,
---------------------------
1998 1997
----------- ----------
<S> <C> <C>
Assets:
Cash on deposit $ 277,200 $ 852
Interest-bearing deposits with the Bank 648,489 878,486
Securities purchased under agreement to resell 1,310,402 --
Investment securities available-for-sale 1,000,000 --
Investment in Bank subsidiary 10,341,246 5,246,346
Other 6,092 480
----------- ----------
Total assets $13,583,429 $6,126,164
=========== ==========
Liabilities:
Other 14,136 14,154
----------- ----------
Shareholders' equity 13,569,293 6,112,010
----------- ----------
Total liabilities and shareholders' equity $13,583,429 $6,126,164
=========== ==========
</TABLE>
Condensed Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------
1998 1997 1996
-------- -------- ---------
<S> <C> <C> <C>
Income:
Interest income $102,182 $ 39,445 $ 40,582
-------- -------- ---------
Expenses:
Other 81,300 40,655 22,446
-------- -------- ---------
Equity in undistributed earnings (loss) of subsidiary 826,051 252,386 (299,767)
-------- -------- ---------
Net Income/(loss) $846,933 $251,176 $(281,631)
======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows Year ended December 31,
------------------------------------------
1998 1997 1996
----------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income/(loss) $ 846,933 $ 251,176 $(281,631)
Adjustments to reconcile net income/(loss) to net
cash used by operating activities
Increase in equity in undistributed
(earnings) loss of subsidiary - 1997 (826,051) (252,386) 299,767
Other-net (5,629) 4,073 11,618
----------- --------- ---------
Net cash provided (used) by operating activities 15,253 2,863 29,754
----------- --------- ---------
Cash flows from investing activities:
Investment in subsidiary (4,268,850) -- -
(Purchase) maturity of investment security
available-for sale (1,000,000) -- 749,688
----------- --------- ---------
Net cash provided (used) by investing activities (5,268,850) -- 749,688
----------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock 6,610,350 16,000 --
----------- --------- ---------
Increase in cash and deposits with Bank 1,356,753 18,863 779,442
Cash and cash equivalent, beginning of period 879,338 860,475 81,033
----------- --------- ---------
Cash and cash equivalent, end of period $ 2,236,091 $ 879,338 $ 860,475
=========== ========= =========
</TABLE>
<PAGE> 45
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, 1998 and 1997, and the related statements of
operations, statements of comprehensive income, changes in shareholders' equity
and cash flows for the three years ended December 31, 1998. 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, 1998 and 1997 and the results of its operations and
its cash flows for the three years ended December 31, 1998, in conformity with
generally accepted accounting principles.
/s/Clifton D. Bodiford
Certified Public Accountant
Columbia, SC
January 13, 1999
<PAGE> 46
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 1999 Annual Meeting of Shareholders (the "1998 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 9 through 10 of the 1999 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 page 11 of the 1999
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 12 of the 1999 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).
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).*
<PAGE> 47
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 (Incorporated by reference to the Company's
1996 Annual Report on Form 10 KSB).
10.8 First Community Corporation 1999 Stock Incentive Plan
21.1 Subsidiaries of the company.
27 Financial Data Schedule (for SEC use only)
* 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, 1998.
<PAGE> 48
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 26, 1999 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 26, 1999
- --------------------------
Richard K. Bogan
/s/ William L. Boyd, III Director March 26, 1999
- --------------------------
William L. Boyd, III
/s/ Thomas C. Brown Director March 26, 1999
- --------------------------
Thomas C. Brown
/s/Chimin J. Chao Director March 26, 1999
- --------------------------
Chimin J. Chao
/s/ Robert G. Clawson Director March 26, 1999
- --------------------------
Robert G. Clawson
/s/ Michael C. Crapps Director, President and Chief March 26, 1999
- -------------------------- Executive Office
Michael C. Crapps
/s/ Hinton G. Davis Director March 26, 1999
- --------------------------
Hinton G. Davis
/s/ Anita B. Easter Director March 26, 1999
- --------------------------
Anita B. Easter
/s/ O.A. Ethridge Director March 26, 1999
- --------------------------
O.A. Ethridge
/s/ George H. Fann, Jr. Director March 26, 1999
- --------------------------
George H. Fann, Jr.
</TABLE>
<PAGE> 49
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/William A. Jordan Director March 26, 1999
- --------------------------
William A. Jordan
/s/ W. James Kitchens, Jr. Director March 26, 1999
- --------------------------
W. James Kitchens, Jr.
/s/ James C. Leventis Director, Chairman of the Board and March 26, 1999
- -------------------------- Secretary
James C. Leventis
/s/ Broadus Thompson Director March 26, 1999
- --------------------------
Broadus Thompson
/s/ Angelo L. Tsiantis Director March 26, 1999
- --------------------------
Angelo L. Tsiantis
/s/Loretta R. Whitehead Director March 26, 1999
Loretta R. Whitehead
Director March 26, 1999
/s/Mitchell M. Willoughby
- --------------------------
Mitchell M. Willoughby
</TABLE>
<PAGE> 1
EXHIBIT 10.8
FIRST COMMUNITY CORPORATION
1999 STOCK INCENTIVE PLAN
<PAGE> 2
FIRST COMMUNITY CORPORTION
1999 STOCK INCENTIVE PLAN
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS..........................................................................................1
ARTICLE II THE PLAN.............................................................................................4
2.1 NAME....................................................................................................4
2.2 PURPOSE.................................................................................................4
2.3 EFFECTIVE DATE..........................................................................................5
ARTICLE III PARTICIPANTS.........................................................................................5
ARTICLE IV ADMINISTRATION.......................................................................................5
4.1 DUTIES AND POWERS OF THE COMMITTEE......................................................................5
4.2 INTERPRETATION; RULES...................................................................................5
4.3 NO LIABILITY............................................................................................6
4.4 MAJORITY RULE...........................................................................................6
4.5 COMPANY ASSISTANCE......................................................................................6
ARTICLE V SHARES OF STOCK SUBJECT TO PLAN......................................................................6
5.1 LIMITATIONS.............................................................................................6
5.2 ANTIDILUTION............................................................................................7
ARTICLE VI OPTIONS..............................................................................................8
6.1 TYPES OF OPTIONS GRANTED................................................................................8
6.2 OPTION GRANT AND AGREEMENT..............................................................................8
6.3 OPTIONEE LIMITATIONS....................................................................................8
6.4 $100,000 LIMITATION.....................................................................................9
6.5 EXERCISE PRICE..........................................................................................9
6.6 EXERCISE PERIOD.........................................................................................9
6.7 OPTION EXERCISE........................................................................................10
6.8 RELOAD OPTIONS.........................................................................................11
6.9 NONTRANSFERABILITY OF OPTION...........................................................................11
6.10 TERMINATION OF EMPLOYMENT OR SERVICE...................................................................11
6.11 EMPLOYMENT RIGHTS......................................................................................12
6.12 CERTAIN SUCCESSOR OPTIONS..............................................................................12
6.13 EFFECT OF A CORPORATE TRANSACTION......................................................................12
ARTICLE VII RESTRICTED STOCK....................................................................................12
7.1 AWARDS OF RESTRICTED STOCK.............................................................................12
7.2 NON-TRANSFERABILITY....................................................................................13
7.3 LAPSE OF RESTRICTIONS..................................................................................13
7.4 TERMINATION OF EMPLOYMENT..............................................................................13
7.5 TREATMENT OF DIVIDENDS.................................................................................13
7.6 DELIVERY OF SHARES.....................................................................................13
ARTICLE VIII STOCK CERTIFICATES..................................................................................14
ARTICLE IX TERMINATION AND AMENDMENT...........................................................................14
9.1 TERMINATION AND AMENDMENT..............................................................................14
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
9.2 EFFECT ON GRANTEE'S RIGHTS.............................................................................15
ARTICLE X RELATIONSHIP TO OTHER COMPENSATION PLANS.............................................................15
ARTICLE XI MISCELLANEOUS........................................................................................15
11.1 REPLACEMENT OR AMENDED GRANTS..........................................................................15
11.2 FORFEITURE FOR COMPETITION.............................................................................15
11.3 LEAVE OF ABSENCE.......................................................................................15
11.4 PLAN BINDING ON SUCCESSORS.............................................................................16
11.5 HEADINGS, ETC., NO PART OF PLAN........................................................................16
11.6 SECTION 16 COMPLIANCE..................................................................................16
EXHIBIT A TO FIRST COMMUNITY CORPORATION 1999 STOCK INCENTIVE PLAN - FORM OF
STOCK OPTION AGREEMENT.........................................................................................1
SCHEDULE A........................................................................................................6
SCHEDULE B........................................................................................................7
</TABLE>
ii
<PAGE> 4
FIRST COMMUNITY CORPORTION
1999 STOCK INCENTIVE PLAN
ARTICLE I
DEFINITIONS
As used herein, the following terms have the following meanings unless
the context clearly indicates to the contrary:
"Award" shall mean a grant of Restricted Stock.
"Board" shall mean the Board of Directors of the Company.
"Cause" (i) with respect to the Company or any subsidiary which
employs the recipient of an Award or Option (the "recipient") or for which such
recipient primarily performs services, the commission by the recipient of an
act of fraud, embezzlement, theft or proven dishonesty, or any other illegal
act or practice (whether or not resulting in criminal prosecution or
conviction), or any act or practice which the Committee shall, in good faith,
deem to have resulted in the recipient's becoming unbondable under the
Company's or the subsidiary's fidelity bond; (ii) the willful engaging by the
recipient in misconduct which is deemed by the Committee, in good faith, to be
materially injurious to the Company or any subsidiary, monetarily or otherwise,
including, but not limited, improperly disclosing trade secrets or other
confidential or sensitive business information and data about the Company or
any subsidiaries and competing with the Company or its subsidiaries, or
soliciting employees, consultants or customers of the Company in violation of
law or any employment or other agreement to which the recipient is a party; or
(iii) the willful and continued failure or habitual neglect by the recipient to
perform his or her duties with the Company or the subsidiary substantially in
accordance with the operating and personnel policies and procedures of the
Company or the subsidiary generally applicable to all their employees. For
purposes of this Plan, no act or failure to act by the recipient shall be
deemed to be "willful" unless done or omitted to be done by recipient not in
good faith and without reasonable belief that the recipient's action or
omission was in the best interest of the Company and/or the subsidiary.
Notwithstanding the foregoing, if the recipient has entered into an employment
agreement that is binding as of the date of employment termination, and if such
employment agreement defines "Cause," then the definition of "Cause" in such
agreement shall apply to the recipient in this Plan. "Cause" under either (i),
(ii) or (iii) shall be determined by the Committee.
"Code" shall mean the United States Internal Revenue Code of 1986,
including effective date and transition rules (whether or not codified). Any
reference herein to a specific section of the Code shall be deemed to include a
reference to any corresponding provision of future law.
"Committee" shall mean a committee of at least two Directors appointed
from time to time by the Board, having the duties and authority set forth
herein in addition to any other authority granted by the Board. In selecting
the Committee, the Board shall consider (i) the benefits under Section 162(m)
of the Code of having a Committee composed of "outside directors" (as that term
is defined in the Code) for certain grants of Options to highly compensated
executives, and (ii) the
<PAGE> 5
benefits under Rule 16b-3 of having a Committee composed of either the entire
Board or a Committee of at least two Directors who are Non-Employee Directors
for Options granted to or held by any Section 16 Insider. At any time that the
Board shall not have appointed a committee as described above, any reference
herein to the Committee shall mean the Board.
"Company" shall mean First Community Corporation.
"Corporate Transaction" shall mean the occurrence of any of the
following events:
(i) a merger or consolidation in which securities
possessing more than 50% of the total combined
voting power of the Company's outstanding securities
are transferred to a person or persons different
from the persons holding those securities
immediately prior to such transaction;
(ii) the sale, transfer or other disposition of all or
substantially all of the Company's assets in
complete liquidation or dissolution of the Company;
or
(iii) the grant of any bank regulatory approval (or notice
of no disapproval) by the Office of Thrift
Supervision or any other regulatory authority for
permission to acquire control of the Company or any
of its banking subsidiaries.
"Director" shall mean a member of the Board and any person who is an
advisory or honorary director of the Company if such person is considered a
director for the purposes of Section 16 of the Exchange Act, as determined by
reference to such Section 16 and to the rules, regulations, judicial decisions,
and interpretative or "no-action" positions with respect thereto of the
Securities and Exchange Commission, as the same may be in effect or set forth
from time to time.
"Employee" shall mean a person who constitutes an employee of the
Company as such term is defined in the instructions to the Form S-8
Registration Statement under the Securities Act of 1933, and also includes
non-employees to whom an offer of employment has been extended.
"Exchange Act" shall mean the Securities Exchange Act of 1934. Any
reference herein to a specific section of the Exchange Act shall be deemed to
include a reference to any corresponding provision of future law.
"Exercise Price" shall mean the price at which an Optionee may
purchase a share of Stock under a Stock Option Agreement.
"Fair Market Value" on any date shall mean (i) the closing sales price
of the Stock, regular way, on such date on the national securities exchange
having the greatest volume of trading in the Stock during the thirty-day period
preceding the day the value is to be determined or, if such exchange was not
open for trading on such date, the next preceding date on which it was open;
(ii) if the Stock is not traded on any national securities exchange, the
average of the
2
<PAGE> 6
closing high bid and low asked prices of the Stock on the over-the-counter
market on the day such value is to be determined, or in the absence of closing
bids on such day, the closing bids on the next preceding day on which there
were bids; or (iii) if the Stock also is not traded on the over-the-counter
market, the fair market value as determined in good faith by the Board or the
Committee based on such relevant facts as may be available to the Board, which
may include opinions of independent experts, the price at which recent sales
have been made, the book value of the Stock, and the Company's current and
future earnings.
"Grantee" shall mean a person who is an Optionee or a person who has
received an Award of Restricted Stock.
"Incentive Stock Option" shall mean an option to purchase any stock of
the Company, which complies with and is subject to the terms, limitations and
conditions of Section 422 of the Code and any regulations promulgated with
respect thereto.
"Non-Employee Director" shall have the meaning set forth in Rule 16b-3
under the Exchange Act, as the same may be in effect from time to time, or in
any successor rule thereto, and shall be determined for all purposes under the
Plan according to interpretative or "no-action" positions with respect thereto
issued by the Securities and Exchange Commission.
"Officer" shall mean a person who constitutes an officer of the
Company for the purposes of Section 16 of the Exchange Act, as determined by
reference to such Section 16 and to the rules, regulations, judicial decisions,
and interpretative or "no-action" positions with respect thereto of the
Securities and Exchange Commission, as the same may be in effect or set forth
from time to time.
"Option" shall mean an option, whether or not an Incentive Stock
Option, to purchase Stock granted pursuant to the provisions of Article VI
hereof.
"Optionee" shall mean a person to whom an Option has been granted
hereunder.
"Parent" shall mean any corporation (other than the Company or a
Subsidiary) in an unbroken chain of corporations ending with the Company if, at
the time of the grant (or modification) of the Option, each of the corporations
other than the Company or a Subsidiary owns stock possessing 50% or more of the
total combined voting power of the classes of stock in one of the other
corporations in such chain.
"Permanent and Total Disability" shall have the same meaning as given
to that term by Code Section 22(e)(3) and any regulations or rulings
promulgated thereunder.
"Plan" shall mean the First Community Corporation 1999 Stock Incentive
Plan, the terms of which are set forth herein.
"Purchasable" shall refer to Stock which may be purchased by an
Optionee under the terms of this Plan on or after a certain date specified in
the applicable Stock Option Agreement.
3
<PAGE> 7
"Qualified Domestic Relations Order" shall have the meaning set forth
in the Code or in the Employee Retirement Income Security Act of 1974, or the
rules and regulations promulgated under the Code or such Act.
"Reload Option" shall have the meaning set forth in Section 6.8 hereof.
"Restricted Stock" shall mean Stock issued, subject to restrictions,
to a Grantee pursuant to Article VII hereof.
"Restriction Agreement" shall mean the agreement setting forth the
terms of an Award, and executed by a Grantee as provided in Section 7.1 hereof.
"Section 16 Insider" shall mean any person who is subject to the
provisions of Section 16 of the Exchange Act, as provided in Rule 16a-2
promulgated pursuant to the Exchange Act.
"Stock" shall mean the Common Stock, par value $1.00, of the Company
or, in the event that the outstanding shares of Stock are hereafter changed
into or exchanged for shares of a different stock or securities of the Company
or some other entity, such other stock or securities.
"Stock Option Agreement" shall mean an agreement between the Company
and an Optionee under which the Optionee may purchase Stock hereunder, a sample
form of which is attached hereto as Exhibit A (which form may be varied by the
Committee in granting an Option).
"Subsidiary" shall mean any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of
the grant (or modification) of the Option, each of the corporations other than
the last corporation in the unbroken chain owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.
ARTICLE II
THE PLAN
2.1 Name. This Plan shall be known as the "First Community
Corporation 1999 Stock Incentive Plan."
2.2 Purpose. The purpose of the Plan is to advance the interests
of the Company, its Subsidiaries, and its shareholders by affording Employees
and Directors of the Company and its Subsidiaries an opportunity to acquire or
increase their proprietary interests in the Company. The objective of the
issuance of the Options and Awards is to promote the growth and profitability
of the Company and its Subsidiaries because the Grantees will be provided with
an additional incentive to achieve the Company's objectives through
participation in its success and growth and by encouraging their continued
association with or service to the Company.
4
<PAGE> 8
2.3 Effective Date. The Plan shall become effective on February
16, 1999; provided, however, that if the shareholders of the Company have not
approved the Plan on or prior to the first anniversary of such effective date,
then all options granted under the Plan shall be non-Incentive Stock Options.
If, at the time of any amendment to the Plan, shareholder approval is required
by the Code for Incentive Stock Options and such shareholder approval has not
been obtained (or is not obtained within 12 months thereof), any Incentive
Stock Options issued under the Plan shall automatically become options which do
not qualify as Incentive Stock Options.
ARTICLE III
PARTICIPANTS
The class of persons eligible to participate in the Plan shall consist
of all Directors and Employees of the Company or any Subsidiary.
ARTICLE IV
ADMINISTRATION
4.1 Duties and Powers of the Committee. The Plan shall be
administered by the Committee. The Committee shall select one of its members as
its Chairman and shall hold its meetings at such times and places as it may
determine. The Committee shall keep minutes of its meetings and shall make such
rules and regulations for the conduct of its business as it may deem necessary.
The Committee shall have the power to act by unanimous written consent in lieu
of a meeting, and to meet telephonically. In administering the Plan, the
Committee's actions and determinations shall be binding on all interested
parties. The Committee shall have the power to grant Options or Awards in
accordance with the provisions of the Plan and may grant Options and Awards
singly, in combination, or in tandem. Subject to the provisions of the Plan,
the Committee shall have the discretion and authority to determine those
individuals to whom Options or Awards will be granted and whether such Options
shall be accompanied by the right to receive Reload Options, the number of
shares of Stock subject to each Option or Award, such other matters as are
specified herein, and any other terms and conditions of a Stock Option
Agreement or Restriction Agreement. The Committee shall also have the
discretion and authority to delegate to any Officer its powers to grant Options
or Awards under the Plan to any person who is an Employee of the Company but
not an Officer or Director. To the extent not inconsistent with the provisions
of the Plan, the Committee may give a Grantee an election to surrender an
Option or Award in exchange for the grant of a new Option or Award, and shall
have the authority to amend or modify an outstanding Stock Option Agreement or
Restriction Agreement, or to waive any provision thereof, provided that the
Grantee consents to such action.
4.2 Interpretation; Rules. Subject to the express provisions of
the Plan, the Committee also shall have complete authority to interpret the
Plan, to prescribe, amend, and rescind rules and regulations relating to it, to
determine the details and provisions of each Stock Option Agreement, and to
make all other determinations necessary or advisable for the administration of
the Plan, including, without limitation, the amending or altering of the Plan
and any Options or Awards
5
<PAGE> 9
granted hereunder as may be required to comply with or to conform to any
federal, state, or local laws or regulations. If an option granted under the
Plan is intended to be an Incentive Stock Option but does not qualify as an
Incentive Stock Option for any reason, then the option granted shall remain
valid but shall be a non-Incentive Stock Option.
4.3 No Liability. Neither any member of the Board nor any member
of the Committee shall be liable to any person for any act or determination
made in good faith with respect to the Plan or any Option or Award granted
hereunder.
4.4 Majority Rule. A majority of the members of the Committee
shall constitute a quorum, and any action taken by a majority at a meeting at
which a quorum is present, or any action taken without a meeting evidenced by a
writing executed by all the members of the Committee, shall constitute the
action of the Committee.
4.5 Company Assistance. The Company shall supply full and timely
information to the Committee on all matters relating to eligible persons, their
employment, death, retirement, disability, or other termination of employment,
and such other pertinent facts as the Committee may require. The Company shall
furnish the Committee with such clerical and other assistance as is necessary
in the performance of its duties.
ARTICLE V
SHARES OF STOCK SUBJECT TO PLAN
5.1 Limitations. Subject to any antidilution adjustment pursuant
to the provisions of Section 5.2 hereof, the maximum number of shares of Stock
that may be issued hereunder shall be 71,000. The number of shares of Stock
available for issuance hereunder shall automatically increase on the first
trading day each calendar year beginning January 1, 2000, by an amount equal to
3% of the shares of Stock outstanding at that; but this automatic increase
shall only apply to the extent that the total number of shares available for
issuance under the Plan and the Company's existing 1996 Stock Option Plan, (not
including any shares actually issued upon the exercise of Options) does not
exceed 15% of the shares of Stock outstanding (subject to adjustment under
Section 5.2). Any or all shares of Stock subject to the Plan may be issued in
any combination of Incentive Stock Options, non-Incentive Stock Options, or
Restricted Stock, and the amount of Stock subject to the Plan may be increased
from time to time in accordance with Article IX, provided that the total number
of shares of Stock issuable pursuant to Incentive Stock Options may not be
increased to more than 71,000 (other than pursuant to anti-dilution
adjustments) without shareholder approval. Shares subject to an Option or
issued as an Award may be either authorized and unissued shares or shares
issued and later acquired by the Company. The shares covered by any unexercised
portion of an Option that has terminated for any reason (except as set forth in
the following paragraph), or any forfeited portion of an Award, may again be
optioned or awarded under the Plan, and such shares shall not be considered as
having been optioned or issued in computing the number of shares of Stock
remaining available for option or award hereunder.
6
<PAGE> 10
If Options are issued in respect of options to acquire stock of any
entity acquired, by merger or otherwise, by the Company (or any Subsidiary of
the Company), to the extent that such issuance shall not be inconsistent with
the terms, limitations and conditions of Code section 422 or Rule 16b-3 under
the Exchange Act, the aggregate number of shares of Stock for which Options may
be granted hereunder shall automatically be increased by the number of shares
subject to the Options so issued; provided, however, that the aggregate number
of shares of Stock for which Options may be granted hereunder shall
automatically be decreased by the number of shares covered by any unexercised
portion of an Option so issued that has terminated for any reason, and the
shares subject to any such unexercised portion may not be optioned to any other
person.
5.2 Antidilution.
(a) If (x) the outstanding shares of Stock are changed
into or exchanged for a different number or kind of shares or other securities
of the Company by reason of merger, consolidation, reorganization,
recapitalization, reclassification, combination or exchange of shares, or stock
split or stock dividend, (y) any spin-off, spin-out or other distribution of
assets materially affects the price of the Company's stock, or (z) there is any
assumption and conversion to the Plan by the Company of an acquired company's
outstanding option grants, then:
(i) the aggregate number and kind of shares of
Stock for which Options or Awards may be granted hereunder
shall be adjusted proportionately by the Committee; and
(ii) the rights of Optionees (concerning the
number of shares subject to Options and the Exercise Price)
under outstanding Options and the rights of the holders of
Awards (concerning the terms and conditions of the lapse of
any then-remaining restrictions), shall be adjusted
proportionately by the Committee.
(b) If the Company shall be a party to any
reorganization in which it does not survive, involving merger, consolidation,
or acquisition of the stock or substantially all the assets of the Company, the
Committee, in its sole discretion, may (but is not required to):
(i) notwithstanding other provisions hereof,
declare that all Options granted under the Plan shall become
exercisable immediately notwithstanding the provisions of the
respective Stock Option Agreements regarding exercisability,
that all such Options shall terminate 30 days after the
Committee gives written notice of the immediate right to
exercise all such Options and of the decision to terminate
all Options not exercised within such 30-day period, and that
all then-remaining restrictions pertaining to Awards under
the Plan shall immediately lapse; and/or
(ii) notify all Grantees that all Options or
Awards granted under the Plan shall be assumed by the
successor corporation or substituted on an equitable basis
with options or restricted stock issued by such successor
corporation.
(c) If the Company is to be liquidated or dissolved in
connection with a reorganization described in Section 5.2(b), the provisions of
such Section shall apply. In all other
7
<PAGE> 11
instances, the adoption of a plan of dissolution or liquidation of the Company
shall, notwithstanding other provisions hereof, cause all then-remaining
restrictions pertaining to Awards under the Plan to lapse, and shall cause
every Option outstanding under the Plan to terminate to the extent not
exercised prior to the adoption of the plan of dissolution or liquidation by
the shareholders, provided that, notwithstanding other provisions hereof, the
Committee may declare all Options granted under the Plan to be exercisable at
any time on or before the fifth business day following such adoption
notwithstanding the provisions of the respective Stock Option Agreements
regarding exercisability.
(d) The adjustments described in paragraphs (a) through
(c) of this Section 5.2, and the manner of their application, shall be
determined solely by the Committee, and any such adjustment may provide for the
elimination of fractional share interests; provided, however, that any
adjustment made by the Board or the Committee shall be made in a manner that
will not cause an Incentive Stock Option to be other than an Incentive Stock
Option under applicable statutory and regulatory provisions. The adjustments
required under this Article V shall apply to any successors of the Company and
shall be made regardless of the number or type of successive events requiring
such adjustments.
ARTICLE VI
OPTIONS
6.1 Types of Options Granted. The Committee may, under this Plan,
grant either Incentive Stock Options or Options which do not qualify as
Incentive Stock Options. Within the limitations provided in this Plan, both
types of Options may be granted to the same person at the same time, or at
different times, under different terms and conditions, as long as the terms and
conditions of each Option are consistent with the provisions of the Plan.
Without limitation of the foregoing, Options may be granted subject to
conditions based on the financial performance of the Company or any other
factor the Committee deems relevant.
6.2 Option Grant and Agreement. Each Option granted hereunder
shall be evidenced by minutes of a meeting or the written consent of the
Committee and by a written Stock Option Agreement executed by the Company and
the Optionee. The terms of the Option, including the Option's duration, time or
times of exercise, exercise price, whether the Option is intended to be an
Incentive Stock Option, and whether the Option is to be accompanied by the
right to receive a Reload Option, shall be stated in the Stock Option
Agreement. No Incentive Stock Option may be granted more than ten years after
the earlier to occur of the effective date of the Plan or the date the Plan is
approved by the Company's shareholders. Separate Stock Option Agreements may be
used for Options intended to be Incentive Stock Options and those not so
intended, but any failure to use such separate agreements shall not invalidate,
or otherwise adversely affect the Optionee's interest in, the Options evidenced
thereby.
6.3 Optionee Limitations. The Committee shall not grant an
Incentive Stock Option to any person who, at the time the Incentive Stock
Option is granted:
8
<PAGE> 12
(a) is not an employee of the Company or any of its
Subsidiaries (as the term "employee" is defined by the Code); or
(b) owns or is considered to own stock possessing at
least 10% of the total combined voting power of all classes of stock of the
Company or any of its Parent or Subsidiary corporations; provided, however,
that this limitation shall not apply if at the time an Incentive Stock Option
is granted the Exercise Price is at least 110% of the Fair Market Value of the
Stock subject to such Option and such Option by its terms would not be
exercisable after five years from the date on which the Option is granted. For
the purpose of this subsection (b), a person shall be considered to own: (i)
the stock owned, directly or indirectly, by or for his or her brothers and
sisters (whether by whole or half blood), spouse, ancestors and lineal
descendants; (ii) the stock owned, directly or indirectly, by or for a
corporation, partnership, estate, or trust in proportion to such person's stock
interest, partnership interest or beneficial interest therein; and (iii) the
stock which such person may purchase under any outstanding options of the
Company or of any Parent or Subsidiary.
6.4 $100,000 Limitation. Except as provided below, the Committee
shall not grant an Incentive Stock Option to, or modify the exercise provisions
of outstanding Incentive Stock Options held by, any person who, at the time the
Incentive Stock Option is granted (or modified), would thereby receive or hold
any Incentive Stock Options of the Company and any Parent or Subsidiary, such
that the aggregate Fair Market Value (determined as of the respective dates of
grant or modification of each option) of the stock with respect to which such
Incentive Stock Options are exercisable for the first time during any calendar
year is in excess of $100,000 (or such other limit as may be prescribed by the
Code from time to time); provided that the foregoing restriction on
modification of outstanding Incentive Stock Options shall not preclude the
Committee from modifying an outstanding Incentive Stock Option if, as a result
of such modification and with the consent of the Optionee, such Option no
longer constitutes an Incentive Stock Option; and provided that, if the
$100,000 limitation (or such other limitation prescribed by the Code) described
in this Section 6.4 is exceeded, the Incentive Stock Option, the granting or
modification of which resulted in the exceeding of such limit, shall be treated
as an Incentive Stock Option up to the limitation and the excess shall be
treated as an Option not qualifying as an Incentive Stock Option.
6.5 Exercise Price. The Exercise Price of the Stock subject to
each Option shall be determined by the Committee. Subject to the provisions of
Section 6.3(b) hereof, the Exercise Price of an Incentive Stock Option shall
not be less than the Fair Market Value of the Stock, and the Exercise Price of
a non-Incentive Stock Option shall not be less than 85% of the Fair Market
Value of the Stock, as of the date the Option is granted (or in the case of an
Incentive Stock Option that is subsequently modified, on the date of such
modification).
6.6 Exercise Period. The period for the exercise of each Option
granted hereunder shall be determined by the Committee, but the Stock Option
Agreement with respect to each Option intended to be an Incentive Stock Option
shall provide that such Option shall not be exercisable after the expiration of
ten years from the date of grant (or modification) of the Option.
9
<PAGE> 13
6.7 Option Exercise.
(a) Unless otherwise provided in the Stock Option
Agreement or Section 6.6 hereof, an Option may be exercised at any time or from
time to time during the term of the Option as to any or all full shares which
have become Purchasable under the provisions of the Option, but not at any time
as to less than 100 shares unless the remaining shares that have become so
Purchasable are less than 100 shares. The Committee shall have the authority to
prescribe in any Stock Option Agreement that the Option may be exercised only
in accordance with a vesting schedule during the term of the Option.
(b) An Option shall be exercised by (i) delivery to the
Company at its principal office a written notice of exercise with respect to a
specified number of shares of Stock and (ii) payment to the Company at that
office of the full amount of the Exercise Price for such number of shares in
accordance with Section 6.7(c). If requested by an Optionee, an Option may be
exercised with the involvement of a stockbroker in accordance with the federal
margin rules set forth in Regulation T (in which case the certificates
representing the underlying shares will be delivered by the Company directly to
the stockbroker).
(c) The Exercise Price is to be paid in full in cash
upon the exercise of the Option and the Company shall not be required to
deliver certificates for the shares purchased until such payment has been made;
provided, however, that in lieu of cash, in the Company's discretion all or any
portion of the Exercise Price may be paid by tendering to the Company shares of
Stock duly endorsed for transfer and owned by the Optionee, or by authorization
to the Company to withhold shares of Stock otherwise issuable upon exercise of
the Option, in each case to be credited against the Exercise Price at the Fair
Market Value of such shares on the date of exercise (however, no fractional
shares may be so transferred, and the Company shall not be obligated to make
any cash payments in consideration of any excess of the aggregate Fair Market
Value of shares transferred over the aggregate Exercise Price); provided
further, that the Board may provide in a Stock Option Agreement (or may
otherwise determine in its sole discretion at the time of exercise) that, in
lieu of cash or shares, all or a portion of the Exercise Price may be paid by
the Optionee's execution of a recourse note equal to the Exercise Price or
relevant portion thereof, subject to compliance with applicable state and
federal laws, rules and regulations. Notwithstanding the above, the Company
shall not be obligated to accept tender of shares of Stock as payment of the
Exercise Price if doing so would result in a charge to the Company's earnings
for financial reporting purposes.
(d) In addition to and at the time of payment of the
Exercise Price, the Optionee shall pay to the Company in cash the full amount
of any federal, state, and local income, employment, or other withholding taxes
applicable to the taxable income of such Optionee resulting from such exercise;
provided, however, that in the discretion of the Committee any Stock Option
Agreement may provide that all or any portion of such tax obligations, together
with additional taxes not exceeding the actual additional taxes to be owed by
the Optionee as a result of such exercise, may, upon the irrevocable election
of the Optionee, be paid by tendering to the Company whole shares of Stock duly
endorsed for transfer and owned by the Optionee, or by authorization to the
Company to withhold shares of Stock otherwise issuable upon exercise of the
Option, in either case in that number of shares having a Fair Market Value on
the date of exercise
10
<PAGE> 14
equal to the amount of such taxes thereby being paid, and subject to such
restrictions as to the approval and timing of any such election as the
Committee may from time to time determine to be necessary or appropriate to
satisfy the conditions of the exemption set forth in Rule 16b-3 under the
Exchange Act, if such rule is applicable.
(e) The holder of an Option shall not have any of the
rights of a shareholder with respect to the shares of Stock subject to the
Option until such shares have been issued and transferred to the Optionee upon
the exercise of the Option.
6.8 Reload Options.
(a) The Committee may specify in a Stock Option
Agreement (or may otherwise determine in its sole discretion) that a Reload
Option shall be granted, without further action of the Committee, (i) to an
Optionee who exercises an Option (including a Reload Option) by surrendering
shares of Stock in payment of amounts specified in Sections 6.7(c) or 6.7(d)
hereof, (ii) for the same number of shares as are surrendered to pay such
amounts, (iii) as of the date of such payment and at an Exercise Price equal to
the Fair Market Value of the Stock on such date, and (iv) otherwise on the same
terms and conditions as the Option whose exercise has occasioned such payment,
except as provided below and subject to such other contingencies, conditions,
or other terms as the Committee shall specify at the time such exercised Option
is granted; provided, that the Committee may require that the shares
surrendered in payment as provided above must have been held by the Optionee
for at least six months prior to such surrender.
(b) Unless provided otherwise in the Stock Option
Agreement, a Reload Option may not be exercised by an Optionee (i) prior to the
end of a one-year period from the date that the Reload Option is granted, and
(ii) unless the Optionee retains beneficial ownership of the shares of Stock
issued to such Optionee upon exercise of the Option referred to above in
Section 6.8(a)(i) for a period of one year from the date of such exercise.
6.9 Nontransferability of Option. Other than as provided below,
no Option shall be transferable by an Optionee other than by will or the laws
of descent and distribution or, in the case of non-Incentive Stock Options,
pursuant to a Qualified Domestic Relations Order, and, during the lifetime of
an Optionee, Options shall be exercisable only by such Optionee (or by such
Optionee's guardian or legal representative, should one be appointed). However,
a Non-Incentive Stock Option may, in connection with the Optionee's estate
plan, be assigned in whole or in part during Optionee's lifetime to one or more
members of the Optionee's immediate family or to a trust established for the
exclusive benefit of one or more such family members. The assigned portion
shall be exercisable only by the person or persons who acquire a proprietary
interest in the Option pursuant to such assignment. The terms applicable to the
assigned portion shall be the same as those in effect for this Option
immediately prior to such assignment and shall be set forth in such documents
issued to the assignee as the Committee may deem appropriate.
6.10 Termination of Employment or Service. The Committee shall
have the power to specify, with respect to the Options granted to a particular
Optionee, the effect upon such Optionee's right to exercise an Option of
termination of such Optionee's employment or service
11
<PAGE> 15
under various circumstances, which effect may include immediate or deferred
termination of such Optionee's rights under an Option, or acceleration of the
date at which an Option may be exercised in full; provided, however, that in no
event may an Incentive Stock Option be exercised after the expiration of ten
years from the date of grant thereof. Unless a Stock Option Agreement
specifically provides otherwise, in the event the recipient of an Option or
Award is terminated from his or her employment or other service to the Company
or its subsidiaries for Cause, Options and Awards, whether vested or unvested,
granted to such person shall terminate immediately and shall not thereafter be
exercisable.
6.11 Employment Rights. Nothing in the Plan or in any Stock Option
Agreement shall confer on any person any right to continue in the employ of the
Company or any of its Subsidiaries, or shall interfere in any way with the
right of the Company or any of its Subsidiaries to terminate such person's
employment at any time.
6.12 Certain Successor Options. To the extent not inconsistent
with the terms, limitations and conditions of Code section 422 and any
regulations promulgated with respect thereto, an Option issued in respect of an
option held by an employee to acquire stock of any entity acquired, by merger
or otherwise, by the Company (or any Subsidiary of the Company) may contain
terms that differ from those stated in this Article VI, but solely to the
extent necessary to preserve for any such employee the rights and benefits
contained in such predecessor option, or to satisfy the requirements of Code
section 424(a).
6.13 Effect of a Corporate Transaction. All Options, to the extent
outstanding at the time of a Corporate Transaction but not otherwise fully
exercisable, shall automatically accelerate so that the Options shall,
immediately prior to the effective date of the Corporate Transaction, become
exercisable for all shares at the time subject to such Options and may be
exercised for any or all of those shares as fully vested shares of Stock.
ARTICLE VII
RESTRICTED STOCK
7.1 Awards of Restricted Stock. The Committee may grant Awards of
Restricted Stock, which shall be governed by a Restriction Agreement between
the Company and the Grantee. Each Restriction Agreement shall contain such
restrictions, terms, and conditions as the Committee may, in its discretion,
determine, and may require that an appropriate legend be placed on the
certificates evidencing the subject Restricted Stock.
Shares of Restricted Stock granted pursuant to an Award hereunder
shall be issued in the name of the Grantee as soon as reasonably practicable
after the Award is granted, provided that the Grantee has executed the
Restriction Agreement governing the Award, the appropriate blank stock powers
and, in the discretion of the Committee, an escrow agreement and any other
documents which the Committee may require as a condition to the issuance of
such Shares. If a Grantee shall fail to execute the foregoing documents within
any time period prescribed by the Committee, the Award shall be void. At the
discretion of the Committee, Shares issued
12
<PAGE> 16
in connection with an Award shall be deposited together with the stock powers
with an escrow agent designated by the Committee. Unless the Committee
determines otherwise and as set forth in the Restriction Agreement, upon
delivery of the Shares to the escrow agent, the Grantee shall have all of the
rights of a shareholder with respect to such Shares, including the right to
vote the Shares and to receive all dividends or other distributions paid or
made with respect to the Shares.
7.2 Non-Transferability. Until any restrictions upon Restricted
Stock awarded to a Grantee shall have lapsed in a manner set forth in Section
7.3, such shares of Restricted Stock shall not be transferable other than by
will or the laws of descent and distribution, or pursuant to a Qualified
Domestic Relations Order, nor shall they be delivered to the Grantee.
7.3 Lapse of Restrictions. Restrictions upon Restricted Stock
awarded hereunder shall lapse at such time or times (but, with respect to any
award to a Grantee who is also a Section 16 Insider, not less than six months
after the date of the Award) and on such terms and conditions as the Committee
may, in its discretion, determine at the time the Award is granted or
thereafter.
7.4 Termination of Employment. The Committee shall have the power
to specify, with respect to each Award granted to any particular Grantee, the
effect upon such Grantee's rights with respect to such Restricted Stock of the
termination of such Grantee's employment under various circumstances, which
effect may include immediate or deferred forfeiture of such Restricted Stock or
acceleration of the date at which any then-remaining restrictions shall lapse.
7.5 Treatment of Dividends. At the time an Award of Restricted
Stock is made the Committee may, in its discretion, determine that the payment
to the Grantee of any dividends, or a specified portion thereof, declared or
paid on such Restricted Stock shall be (i) deferred until the lapsing of the
relevant restrictions and (ii) held by the Company for the account of the
Grantee until such lapsing. In the event of such deferral, there shall be
credited at the end of each year (or portion thereof) interest on the amount of
the account at the beginning of the year at a rate per annum determined by the
Committee. Payment of deferred dividends, together with interest thereon, shall
be made upon the lapsing of restrictions imposed on such Restricted Stock, and
any dividends deferred (together with any interest thereon) in respect of
Restricted Stock shall be forfeited upon any forfeiture of such Restricted
Stock.
7.6 Delivery of Shares. Except as provided otherwise in Article
VIII below, within a reasonable period of time following the lapse of the
restrictions on shares of Restricted Stock, the Committee shall cause a stock
certificate to be delivered to the Grantee with respect to such shares and such
shares shall be free of all restrictions hereunder.
13
<PAGE> 17
ARTICLE VIII
STOCK CERTIFICATES
The Company shall not be required to issue or deliver any certificate
for shares of Stock purchased upon the exercise of any Option granted hereunder
or any portion thereof, or deliver any certificate for shares of Restricted
Stock granted hereunder, prior to fulfillment of all of the following
conditions:
(a) The admission of such shares to listing on all stock
exchanges on which the Stock is then listed;
(b) The completion of any registration or other qualification of
such shares which the Committee shall deem necessary or advisable under any
federal or state law or under the rulings or regulations of the Securities and
Exchange Commission or any other governmental regulatory body;
(c) The obtaining of any approval or other clearance from any
federal or state governmental agency or body which the Committee shall
determine to be necessary or advisable; and
(d) The lapse of such reasonable period of time following the
exercise of the Option as the Board from time to time may establish for reasons
of administrative convenience.
Stock certificates issued and delivered to Grantees shall bear such
restrictive legends as the Company shall deem necessary or advisable pursuant
to applicable federal and state securities laws. The inability of the Company
to obtain approval from any regulatory body having authority deemed by the
Company to be necessary to the lawful issuance and sale of any Stock pursuant
to Options shall relieve the Company of any liability with respect to the
non-issuance or sale of the Stock as to which such approval shall not have been
obtained. However, the Company shall use its best efforts to obtain all such
approvals.
ARTICLE IX
TERMINATION AND AMENDMENT
9.1 Termination and Amendment. The Board may at any time
terminate the Plan; provided, however, that the Board (unless its actions are
approved or ratified by the shareholders of the Company within twelve months of
the date that the Board amends the Plan) may not amend the Plan to:
(a) Increase the total number of shares of Stock
issuable pursuant to Incentive Stock Options under the Plan, except as
contemplated in Section 5.2 hereof; or
(b) Change the class of employees eligible to receive
Incentive Stock Options that may participate in the Plan.
14
<PAGE> 18
9.2 Effect on Grantee's Rights. No termination, amendment, or
modification of the Plan shall affect adversely a Grantee's rights under a
Stock Option Agreement or Restriction Agreement without the consent of the
Grantee or his legal representative.
ARTICLE X
RELATIONSHIP TO OTHER COMPENSATION PLANS
The adoption of the Plan shall not affect any other stock option,
incentive, or other compensation plans in effect for the Company or any of its
Subsidiaries; nor shall the adoption of the Plan preclude the Company or any of
its Subsidiaries from establishing any other form of incentive or other
compensation plan for employees or Directors of the Company or any of its
Subsidiaries.
ARTICLE XI
MISCELLANEOUS
11.1 Replacement or Amended Grants. At the sole discretion of the
Committee, and subject to the terms of the Plan, the Committee may modify
outstanding Options or Awards or accept the surrender of outstanding Options or
Awards and grant new Options or Awards in substitution for them. However no
modification of an Option or Award shall adversely affect a Grantee's rights
under a Stock Option Agreement or Restriction Agreement without the consent of
the Grantee or his legal representative.
11.2 Forfeiture for Competition. If a Grantee provides services to
a competitor of the Company or any of its Subsidiaries, whether as an employee,
officer, director, independent contractor, consultant, agent, or otherwise,
such services being of a nature that can reasonably be expected to involve the
skills and experience used or developed by the Grantee while an Employee, then
that Grantee's rights under any Options outstanding hereunder shall be
forfeited and terminated, and any shares of Restricted Stock held by such
Grantee subject to remaining restrictions shall be forfeited, subject in each
case to a determination to the contrary by the Committee.
11.3 Leave of Absence. Unless provided otherwise in a particular
Stock Option Agreement, the following provisions shall apply upon an Optionee's
commencement of an authorized leave of absence:
(a) The exercise schedule in effect for such Option shall be
frozen as of the first day of the authorized leave, and the Option shall not
become exercisable for any additional installments of shares of Stock during
the period Optionee remains on such leave.
(b) Should the Optionee resume active Employee status within 60
days after the start date of the authorized leave, Optionee shall, for purposes
of the applicable exercise
15
<PAGE> 19
schedule, receive service credit for the entire period of such leave. If the
Optionee does not resume active Employee status within such 60-day period, then
no service credit shall be given for the entire period of such leave.
(c) If the Option is an Incentive Stock Option, then the
following additional provision shall apply:
If the leave of absence continues for more than
three months, then the Option shall automatically convert to a
Non-Incentive Stock Option under the Federal tax laws upon the
expiration of such three-month period, unless the Optionee's
reemployment rights are guaranteed by statute or written agreement.
Following any such conversion of the Option, all subsequent exercises
of the Option, whether effected before or after Optionee's return to
active Employee status, shall result in an immediate taxable event,
and the Company shall be required to collect from Optionee the
Federal, state and local income and employment withholding taxes
applicable to such exercise.
(d) In no event shall the Option become exercisable for any
additional shares or otherwise remain outstanding if Optionee does not resume
Employee status prior to the Expiration Date of the option term.
11.4 Plan Binding on Successors. The Plan shall be binding upon
the successors and assigns of the Company.
11.5 Headings, etc., No Part of Plan. Headings of Articles and
Sections hereof are inserted for convenience and reference; they do not
constitute part of the Plan.
11.6 Section 16 Compliance. With respect to Section 16 Insiders,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the
extent any provision of the Plan or action by the Committee fails to so comply,
it shall be deemed void to the extent permitted by law and deemed advisable by
the Committee. In addition, if necessary to comply with Rule 16b-3 with respect
to any grant of an Option hereunder, and in addition to any other vesting or
holding period specified hereunder or in an applicable Stock Option Agreement,
any Section 16 Insider acquiring an Option shall be required to hold either the
Option or the underlying shares of Stock obtained upon exercise of the Option
for a minimum of six months.
16
<PAGE> 20
EXHIBIT A to
First Community Corporation
1999 Stock Incentive Plan -
Form of Stock Option Agreement
FIRST COMMUNITY CORPORTION
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement"), entered into as of
this ____ day of _______________, _____________, by and between First Community
Corporation, (the "Company"), and _________________ (the "Optionee").
WHEREAS, on _____________________, the Board of Directors of the
Company adopted a Stock Incentive Plan known as the "First Community
Corporation 1999 Stock Incentive Plan" (the "Plan"), and recommended that the
Plan be approved by the Company's shareholders; and
WHEREAS, the Committee has granted the Optionee a stock option to
purchase the number of shares of the Company's common stock as set forth below,
and in consideration of the granting of that stock option the Optionee intends
to remain in the employ of the Company; and
WHEREAS, the Company and the Optionee desire to enter into a written
agreement with respect to such option in accordance with the Plan.
NOW, THEREFORE, as an employment incentive and to encourage stock
ownership, and also in consideration of the mutual covenants contained herein,
the parties hereto agree as follows.
1. Incorporation of Plan. This option is granted pursuant to the
provisions of the Plan and the terms and definitions of the Plan are
incorporated herein by reference and made a part hereof. A copy of the Plan has
been delivered to, and receipt is hereby acknowledged by, the Optionee.
2. Grant of Option. Subject to the terms, restrictions,
limitations and conditions stated herein, the Company hereby evidences its
grant to the Optionee, not in lieu of salary or other compensation, of the
right and option (the "Option") to purchase all or any part of the number of
shares of the Company's Common Stock, no par value per share (the "Stock"), set
forth on Schedule A attached hereto and incorporated herein by reference. The
Option shall be exercisable in the amounts and at the time specified on
Schedule A. The Option shall expire and shall not be exercisable on the date
specified on Schedule A or on such earlier date as determined pursuant to
Section 8, 9, or 10 hereof. Schedule A states whether the Option is intended to
be an Incentive Stock Option.
A-1
<PAGE> 21
3. Purchase Price. The price per share to be paid by the
Optionee for the shares subject to this Option (the "Exercise Price") shall be
as specified on Schedule A, which price shall be an amount not less than the
Fair Market Value of a share of Stock as of the Date of Grant (as defined in
Section 11 below) if the Option is an Incentive Stock Option.
4. Exercise Terms. The Optionee must exercise the Option for at
least the lesser of 100 shares or the number of shares of Purchasable Stock as
to which the Option remains unexercised. In the event this Option is not
exercised with respect to all or any part of the shares subject to this Option
prior to its expiration, the shares with respect to which this Option was not
exercised shall no longer be subject to this Option.
5. Option Non-Transferable. No Option shall be transferable by
an Optionee other than by will or the laws of descent and distribution or, in
the case of non-Incentive Stock Options, pursuant to a Qualified Domestic
Relations Order. During the lifetime of an Optionee, Options shall be
exercisable only by such Optionee (or by such Optionee's guardian or legal
representative, should one be appointed).
6. Notice of Exercise of Option. This Option may be exercised by
the Optionee, or by the Optionee's administrators, executors or personal
representatives, by a written notice (in substantially the form of the Notice
of Exercise attached hereto as Schedule B) signed by the Optionee, or by such
administrators, executors or personal representatives, and delivered or mailed
to the Company as specified in Section 14 hereof to the attention of the
President, the Chief Operating Officer or such other officer as the Company may
designate. Any such notice shall (a) specify the number of shares of Stock
which the Optionee or the Optionee's administrators, executors or personal
representatives, as the case may be, then elects to purchase hereunder, (b)
contain such information as may be reasonably required pursuant to Section 12
hereof, and (c) be accompanied by (i) a certified or cashier's check payable to
the Company in payment of the total Exercise Price applicable to such shares as
provided herein, (ii) shares of Stock owned by the Optionee and duly endorsed
or accompanied by stock transfer powers having a Fair Market Value equal to the
total Exercise Price applicable to such shares purchased hereunder, or (iii) a
certified or cashier's check accompanied by the number of shares of Stock whose
Fair Market Value when added to the amount of the check equals the total
Exercise Price applicable to such shares purchased hereunder. Upon receipt of
any such notice and accompanying payment, and subject to the terms hereof, the
Company agrees to issue to the Optionee or the Optionee's administrators,
executors or personal representatives, as the case may be, stock certificates
for the number of shares specified in such notice registered in the name of the
person exercising this Option.
7. Adjustment in Option. The number of Shares subject to this
Option, the Exercise Price and other matters are subject to adjustment during
the term of this Option in accordance with Section 5.2 of the Plan.
A-2
<PAGE> 22
8. Termination of Employment.
(a) Except as otherwise specified in Schedule A hereto, in the
event of the termination of the Optionee's employment with the Company or any
of its Subsidiaries, other than a termination that is either (i) for cause,
(ii) voluntary on the part of the Optionee and without written consent of the
Company, or (iii) for reasons of death or disability or retirement, the
Optionee may exercise this Option at any time within 30 days after such
termination to the extent of the number of shares which were Purchasable
hereunder at the date of such termination.
(b) Except as specified in Schedule A attached hereto, in the
event of a termination of the Optionee's employment that is either (i) for
cause or (ii) voluntary on the part of the Optionee and without the written
consent of the Company, this Option, to the extent not previously exercised,
shall terminate immediately and shall not thereafter be or become exercisable.
(c) Unless and to the extent otherwise provided in Exhibit A
hereto, in the event of the retirement of the Optionee at the normal retirement
date as prescribed from time to time by the Company or any Subsidiary, the
Optionee shall continue to have the right to exercise any Options for shares
which were Purchasable at the date of the Optionee's retirement provided that,
on the date which is three months after the date of retirement, the Options
will become void and unexercisable unless on the date of retirement the
Optionee enters into a noncompete agreement with First Community Corporation
and continues to comply with such noncompete agreement. This Option does not
confer upon the Optionee any right with respect to continuance of employment by
the Company or by any of its Subsidiaries. This Option shall not be affected by
any change of employment so long as the Optionee continues to be an employee of
the Company or one of its Subsidiaries.
9. Disabled Optionee. In the event of termination of employment
because of the Optionee's Permanent and Total Disability, the Optionee (or his
or her personal representative) may exercise this Option, within a period
ending on the earlier of (a) the last day of the one year period following the
Optionee's death or (b) the expiration date of this Option, to the extent of
the number of shares which were Purchasable hereunder at the date of such
termination.
10. Death of Optionee. Except as otherwise set forth in Schedule
A with respect to the rights of the Optionee upon termination of employment
under Section 8(a) above, in the event of the Optionee's death while employed
by the Company or any of its Subsidiaries or within three months after a
termination of such employment (if such termination was neither (i) for cause
nor (ii) voluntary on the part of the Optionee and without the written consent
of the Company), the appropriate persons described in Section 6 hereof or
persons to whom all or a portion of this Option is transferred in accordance
with Section 5 hereof may exercise this Option at any time within a period
ending on the earlier of (a) the last day of the one year period following the
Optionee's death or (b) the expiration date of this Option. If the Optionee was
an employee of the Company at the time of death, this Option may be so
exercised to the extent of the number of shares that were Purchasable hereunder
at the date of death. If the
A-3
<PAGE> 23
Optionee's employment terminated prior to his or her death, this Option may be
exercised only to the extent of the number of shares covered by this Option
which were Purchasable hereunder at the date of such termination.
11. Date of Grant. This Option was granted by the Committee on
the date set forth in Schedule A (the "Date of Grant").
12. Compliance with Regulatory Matters. The Optionee acknowledges
that the issuance of capital stock of the Company is subject to limitations
imposed by federal and state law and the Optionee hereby agrees that the
Company shall not be obligated to issue any shares of Stock upon exercise of
this Option that would cause the Company to violate law or any rule,
regulation, order or consent decree of any regulatory authority (including
without limitation the Securities and Exchange Commission) having jurisdiction
over the affairs of the Company. The Optionee agrees that he or she will
provide the Company with such information as is reasonably requested by the
Company or its counsel to determine whether the issuance of Stock complies with
the provisions described by this Section 12.
13. Restriction on Disposition of Shares. The shares purchased
pursuant to the exercise of an Incentive Stock Option shall not be transferred
by the Optionee except pursuant to the Optionee's will, or the laws of descent
and distribution, until such date which is the later of two years after the
grant of such Incentive Stock Option or one year after the transfer of the
shares to the Optionee pursuant to the exercise of such Incentive Stock Option.
14. Miscellaneous.
(a) This Agreement shall be binding upon the parties hereto and
their representatives, successors and assigns.
(b) This Agreement is executed and delivered in, and shall be
governed by the laws of, the State of Georgia.
(c) Any requests or notices to be given hereunder shall be deemed
given, and any elections or exercises to be made or accomplished shall be
deemed made or accomplished, upon actual delivery thereof to the designated
recipient, or three days after deposit thereof in the United States mail,
registered, return receipt requested and postage prepaid, addressed, if to the
Optionee, at the address set forth below and, if to the Company, to the
executive offices of the Company at ______________________________________, or
at such other addresses that the parties provide to each other in accordance
with the notice requirements hereof.
(d) This Agreement may not be modified except in writing executed
by each of the parties hereto.
IN WITNESS WHEREOF, the Committee has caused this Stock Option
Agreement to be executed on behalf of the Company, and the Optionee has
executed this Stock Option Agreement, all as of the day and year first above
written.
A-4
<PAGE> 24
FIRST COMMUNITY CORPORATION OPTIONEE
By:
--------------------------------- ----------------------------------
Name: Name:
-----------------------------
Title: Address:
--------------------------
A-5
<PAGE> 25
SCHEDULE A
TO
STOCK OPTION AGREEMENT
BETWEEN
FIRST COMMUNITY CORPORATION
AND
----------------------------
Dated: ___________________
1. Number of Shares Subject to Option:_________________ Shares.
2. This Option (Check one) [ ] is [ ] is not an Incentive Stock Option.
3. Option Exercise Price: $___________ per Share.
4. Date of Grant: ___________________
5. Option Vesting Schedule:
Check one:
( ) Options are exercisable with respect to all shares
on or after the date hereof
( ) Options are exercisable with respect to the number
of shares indicated below on or after the date
indicated next to the number of shares:
<TABLE>
<CAPTION>
No. of Shares Vesting Date
------------- ------------
<S> <C>
</TABLE>
6. Option Exercise Period:
Check One:
( ) All options expire and are void unless exercised on
or before _______________, 19____.
( ) Options expire and are void unless exercised on or
before the date indicated next to the number of
shares:
<TABLE>
<CAPTION>
No. of Shares Expiration Date
------------- ---------------
<S> <C>
</TABLE>
7. Effect of Termination of Employment of Optionee (if different from
that set forth in Sections 8 and 10 of the Stock Option Agreement):
<PAGE> 26
SCHEDULE B
NOTICE OF EXERCISE
The undersigned hereby notifies First Community Corporation (the
"Company") of this election to exercise the undersigned's stock option to
purchase _____ shares of the Company's common stock, no par value per share
(the "Common Stock"), pursuant to the Stock Option Agreement (the "Agreement")
between the undersigned and the Company dated _______________________, 19____.
Accompanying this Notice is (1) a certified or a cashier's check in the amount
of $________________ payable to the Company, and/or (2) _______________ shares
of the Company's Common Stock presently owned by the undersigned and duly
endorsed or accompanied by stock transfer powers, having an aggregate Fair
Market Value (as defined in the First Community Corporation 1999 Stock
Incentive Plan) as of the date hereof of $________________, and/or (3)
authorization to withhold shares of Stock otherwise issuable upon exercise of
the Option having an aggregate Fair Market Value (as defined in the Plan) as of
the date hereof of $________________, with such shares of Stock that are
withheld being credited against the Exercise Price, such amounts of (1), (2)
and (3) being equal, in the aggregate, to the purchase price per share set
forth in Section 3 of the Agreement multiplied by the number of shares being
purchased hereby (in each instance subject to appropriate adjustment pursuant
to Section 5.2 of the First Community Corporation 1999 Stock Incentive Plan).
IN WITNESS WHEREOF, the undersigned has set his hand and seal, this
_______ day of ____________________ , _________.
OPTIONEE [OR OPTIONEE'S ADMINISTRATOR,
EXECUTOR OR PERSONAL REPRESENTATIVE]
--------------------------------------------
Name:
Position (if other than Optionee):
<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, 1998, CONTAINED IN FORM 10-KSB AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-KSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,316,369
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,290,403
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 19,899,891
<INVESTMENTS-CARRYING> 2,942,760
<INVESTMENTS-MARKET> 2,957,892
<LOANS> 40,819,405
<ALLOWANCE> 532,025
<TOTAL-ASSETS> 73,151,576
<DEPOSITS> 56,005,770
<SHORT-TERM> 2,770,113
<LIABILITIES-OTHER> 763,349
<LONG-TERM> 0
0
0
<COMMON> 1,207,177
<OTHER-SE> 12,405,167
<TOTAL-LIABILITIES-AND-EQUITY> 73,151,576
<INTEREST-LOAN> 3,151,523
<INTEREST-INVEST> 1,032,554
<INTEREST-OTHER> 394,742
<INTEREST-TOTAL> 4,578,819
<INTEREST-DEPOSIT> 1,780,634
<INTEREST-EXPENSE> 1,919,551
<INTEREST-INCOME-NET> 2,659,268
<LOAN-LOSSES> 179,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,009,816
<INCOME-PRETAX> 906,857
<INCOME-PRE-EXTRAORDINARY> 906,857
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 846,933
<EPS-PRIMARY> 0.90
<EPS-DILUTED> 0.87
<YIELD-ACTUAL> 4.54
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 380,120
<CHARGE-OFFS> 33,980
<RECOVERIES> 6,885
<ALLOWANCE-CLOSE> 532,025
<ALLOWANCE-DOMESTIC> 532,025
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
