<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 1999
[ ] Transition report under Section 13 or 15(d) of the Exchange Act for the
transition period from to
------------------ --------------------
Commission File No. 33-86258
FIRST COMMUNITY CORPORATION
(Exact Name of Small Business Issuer as Specified in its Charter)
South Carolina 57-1010751
(State of Incorporation) (I.R.S. Employer Identification)
5455 Sunset Boulevard, Lexington, South Carolina 29072
(Address of Principal Executive Offices)
(803) 951-2265
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
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 the past 90 days.
Yes [x] No [ ]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
1,207,177 shares of common stock, par value $1.00 per share, were
issued and outstanding as of October 31, 1999.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The financial statements of First Community Corporation (the company)
are set forth in the following pages.
<PAGE> 3
FIRST COMMUNITY CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
1999 December 31,
(Unaudited) 1998
-------------- ------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 3,786,684 $ 2,316,369
Federal funds sold and securities purchased under
agreements to resell 6,129,900 3,290,403
Investment securities - available for sale 28,866,938 19,899,891
Investment securities - held-to-maturity (market value of $2,681,869 and
$2,957,892 at September 30, 1999 and
December 31, 1998, respectively) 2,792,849 2,942,760
Loans 49,286,206 40,819,405
Less, allowance for loan losses 686,457 532,025
------------ ------------
Net loans 48,599,749 40,287,380
Property, furniture and equipment - net 4,838,746 3,667,097
Other assets 859,456 747,676
------------ ------------
Total assets $ 95,874,322 $ 73,151,576
============ ============
LIABILITIES
Deposits:
Non-interest bearing demand $ 13,052,494 $ 10,449,284
NOW and money market accounts 22,861,172 15,283,002
Savings 9,210,485 8,622,546
Time deposits less than $100,000 13,701,228 13,595,144
Time deposits $100,000 and over 20,132,830 8,055,794
------------ ------------
Total deposits 78,958,209 56,005,770
Securities sold under agreements to repurchase 2,350,400 2,737,700
Other borrowed money - demand note to US Treasury 127,344 32,413
Other liabilities 492,216 763,349
------------ ------------
Total liabilities 81,928,169 59,539,232
------------ ------------
SHAREHOLDERS' EQUITY
Common stock, par value $1.00 per share;
10,000,000 shares authorized; issued and outstanding
1,207,177 at September 30, 1999 and December 31, 1998 1,207,177 1,207,177
Additional paid in capital 12,248,087 12,248,087
Retained earnings 707,510 114,029
Unrealized gain (loss) on securities available-for-sale (216,621) 43,051
------------ ------------
Total shareholders' equity 13,946,153 13,612,344
------------ ------------
Total liabilities and shareholders' equity $ 95,874,322 $ 73,151,576
============ ============
</TABLE>
<PAGE> 4
FIRST COMMUNITY CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Nine
Months Ended Months Ended
September 30, September 30,
1999 1998
(Unaudited) (Unaudited)
-------------- --------------
<S> <C> <C>
Interest income:
Loans, including fees $ 2,958,041 $ 2,310,598
Investment securities - available-for-sale 1,090,224 616,411
Investment securities - held-to-maturity 109,276 99,284
Federal funds sold and securities purchased
under resale agreements 339,902 286,962
-------------- --------------
Total interest income 4,497,443 3,313,255
-------------- --------------
Interest expense:
Deposits 1,750,468 1,300,457
Federal funds sold and securities sold under agreement
to repurchase 88,818 106,708
Other borrowed money 3,046 3,041
-------------- --------------
Total interest expense 1,842,332 1,410,206
-------------- --------------
Net interest income 2,655,111 1,903,049
Provision for loan losses 180,000 140,000
-------------- --------------
Net interest income after provision for loan losses 2,475,111 1,763,049
-------------- --------------
Non-interest income:
Deposit service charges 164,046 150,154
Mortgage origination fees 73,438 59,736
Other 129,275 86,072
-------------- --------------
Total non-interest income 366,759 295,962
-------------- --------------
Non-interest expense:
Salaries and employee benefits 999,121 783,978
Occupancy 120,174 86,161
Equipment 166,470 129,146
Marketing and public relations 146,126 108,239
Other 496,669 370,185
-------------- --------------
Total non-interest expense 1,928,560 1,477,709
-------------- --------------
Income before tax 913,310 581,302
Income tax 319,829 --
-------------- --------------
============== ==============
Net income $ 593,481 $ 581,302
============== ==============
Basic earnings per common share $ 0.49 $ 0.67
============== ==============
Diluted earnings per common share $ 0.48 $ 0.65
============== ==============
</TABLE>
<PAGE> 5
FIRST COMMUNITY CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended
September 30, September 30,
1999 1998
(Unaudited) (Unaudited)
-------------- --------------
<S> <C> <C>
Interest income:
Loans, including fees $ 1,078,405 $ 833,078
Investment securities - available-for-sale 374,153 235,867
Investment securities - held-to-maturity 36,725 30,187
Federal funds sold and securities purchased
under resale agreements 126,914 155,157
-------------- --------------
Total interest income 1,616,197 1,254,289
-------------- --------------
Interest expense:
Deposits 647,740 469,192
Federal funds sold and securities sold under agreement
to repurchase 27,262 32,030
Other borrowed money 1,025 1,001
-------------- --------------
Total interest expense 676,027 502,223
-------------- --------------
Net interest income 940,170 752,066
Provision for loan losses 54,000 42,000
-------------- --------------
Net interest income after provision for loan losses 886,170 710,066
-------------- --------------
Non-interest income:
Deposit service charges 61,902 55,344
Mortgage origination fees 18,134 25,054
Other 49,171 27,528
-------------- --------------
Total non-interest income 129,207 107,926
-------------- --------------
Non-interest expense:
Salaries and employee benefits 352,828 271,704
Occupancy 40,915 29,197
Equipment 59,643 42,628
Marketing and public relations 49,087 29,885
Other 169,747 137,607
-------------- --------------
Total non-interest expense 672,220 511,021
-------------- --------------
Income before tax 343,157 306,971
Income tax 120,968 --
-------------- --------------
Net income $ 222,189 $ 306,971
============== ==============
Basic earnings per common share $ 0.18 $ 0.26
============== ==============
Diluted earnings per common share $ 0.18 $ 0.26
============== ==============
</TABLE>
<PAGE> 6
FIRST COMMUNITY CORPORATION
STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
-------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Net income $593,481 $581,302 $222,189 $306,971
Other comprehensive income, net of tax:
Unrealized gains (losses) arising during
the period, net of tax effect
of $139,824, $34,239 and $23,393,
$29,780 for the nine and three months
ended September 30, 1999 and 1998,
respectively (259,672) 63,588 (43,444) 55,310
-------- -------- -------- --------
Comprehensive income $333,809 $644,890 $178,745 $362,281
======== ======== ======== ========
</TABLE>
<PAGE> 7
FIRST COMMUNITY CORPORATION
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Unrealized Gain (Loss)
Additional on Securities
Common Paid-in Retained Available for
Stock Capital Earnings Sale Total
----------- ------------ --------- -------------------- -----------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1998 $ 1,207,177 $ 12,248,087 $ 114,029 $ 43,051 $13,612,344
Net income 593,481 593,481
Unrealized gain (loss) on
securities available-for-sale (259,672) (259,672)
----------- ------------ --------- -------------- -----------
Balance September 30, 1999 $ 1,207,177 $ 12,248,087 $ 707,510 $ (216,621) $13,946,153
=========== ============ ========= ============== ===========
</TABLE>
<PAGE> 8
FIRST COMMUNITY CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 593,481 $ 581,302
Adjustments to reconcile net income to
net cash provided (used) in operating activities:
Depreciation 153,919 98,406
Premium amortization (Discount accretion) (149,828) (56,533)
Provision for loan losses 180,000 140,000
(Increase) decrease in other assets 28,044 (63,028)
Increase (decrease) in accounts payable (271,133) 81,472
------------ ------------
Net cash provided in operating activities 534,483 781,619
------------ ------------
Cash flows form investing activities:
Purchase of investment securities available-for-sale (25,702,104) (14,999,449)
Maturity of investment securities available-for-sale 16,491,627 8,626,271
Purchase of investment securities held-to-maturity -- (1,890,605)
Maturity of investment securities held-to-maturity 143,673 1,500,000
Increase in loans (8,492,369) (5,722,132)
Purchase of property and equipment (1,325,568) (561,409)
------------ ------------
Net cash used in investing activities (18,884,741) (13,047,324)
------------ ------------
Cash flows from financing activities:
Increase in deposit accounts 22,952,439 11,252,806
Proceeds from sale of common stock -- 6,642,717
Increase (decrease) in securities sold under agreements to repurchase (387,300) 778,200
Decrease in other borrowings 94,931 (45,693)
------------ ------------
Net cash provided from financing activities 22,660,070 18,628,030
------------ ------------
Net increase in cash and cash equivalents 4,309,812 6,362,325
Cash and cash equivalents at beginning
of period 5,606,772 5,489,066
------------ ------------
Cash and cash equivalents at end of period $ 9,916,584 $ 11,851,391
============ ============
Supplemental disclosure:
Cash paid during the period for:
Interest $ 1,869,501 $ 1,392,276
Taxes $ 550,010 --
Non-cash investing and financing activities:
Unrealized gain (loss) on securities available-for-sale $ 97,760 $ 97,760
</TABLE>
<PAGE> 9
FIRST COMMUNITY CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
Note 1 - Basis of Presentation
The consolidated financial statements include the accounts of First
Community Corporation and its wholly owned subsidiary First
Community Bank, N.A. All material inter-company transactions are
eliminated in consolidation. In the opinion of management,
the unaudited financial statements reflect all adjustments
necessary for a fair presentation of the balance sheet and results
of operations for the periods presented.
Note 2 - Commitments
The Company has entered into a contract to build a branch in
Cayce/West Columbia. The contract to construct the facility is for
$528,000 and the cost of the land was $300,000. Cost incurred
through September 30, 1999 on the land and construction of the
facility amounted to approximately $665,000.
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
First Community Corporation (the company) is a one bank holding company which
was incorporated in South Carolina on November 2, 1994. First Community Bank
N.A. (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 experienced its first quarterly profit in the fourth
quarter of 1996 and has been profitable each subsequent quarter through June 30,
1999.
During the first quarter of 1999 the bank opened it's third banking
office in Irmo, South Carolina. The Bank raised $6.6 million in net proceeds
from a secondary stock offering in July 1998. The proceeds of the offering were
to be used to fund the bank's continued growth through it's existing offices and
to open three additional branches within a period of six to eighteen months.
Since the offering the Bank has opened the Irmo office and has begun
construction on an additional office to be located in West Columbia, South
Carolina. It is anticipated that this office will open in November 1999.
The following discussion contains forward-looking statements that
involve risks and uncertainties. The company's actual results may differ
materially from the results discussed in the forward-looking statements, and the
company's operating performance each quarter is subject to various risks and
uncertainties that are discussed in detail in the company's filings with the
Securities and Exchange Commission, including the "Risk Factors" section in the
company's Registration Statement on Form S-2 (Registration Number 33-86258) as
filed with and declared effective by the Securities and Exchange Commission.
Comparison of Results of Operations for Nine Months Ended September 30,
1999 to the Nine Months Ended September 30, 1998:
Net Income
The Company's net income was $593,000 or $.48 diluted earnings per
share for the nine months ended September 30, 1999 as compared to net income of
$581,000 or $.67 per share for the nine months ended September 30, 1998. This
improvement in earnings reflect the continued growth in the level of earning
assets since the Bank commenced operations. Earnings per share for the nine
months ended September 30, 1999 reflects the addition of 517,500 shares of
common stock issued in a secondary offering which was closed on July 10, 1998.
The level of average earning assets was $83.4 million for the nine months ended
September 30, 1999 as compared to $55.7 million for the nine months ended
September 30, 1998. This reflects a 49.7% increase in the level average earning
assets for the two periods. Net interest margin was 4.26% for the nine months
ended September 30, 1999 as compared to 4.57% for the nine months ended
September 30, 1998. This decrease in margin is primarily a result of a change in
the mix of earning assets in which loans represented 53.5 percent of earning
assets for the nine months
<PAGE> 11
ITEM 2. CONTINUED PAGE 2
ended September 30, 1999 as compared to 58.4% of earning assets for the nine
months ended September 30, 1998. The decrease in the loan to earning asset ratio
was anticipated by management for a period of time as result of the addition of
$6.6 million in new capital in July 1998. As loans typically yield higher
returns than alternative investments management will continue to grow the loan
portfolio as a percentage of total earning assets. Non-interest income increased
26.3% to $367,000 for the nine months ended September 30, 1999 as compared to
$296,000 for the nine months ended September 30, 1998. During these same periods
non-interest expense increased 30.5% to $1.9 million for the nine months ended
September 30, 1999 as compared to $1.5 million for the nine months ended
September 30, 1998. Income tax expense for the nine months ended September 30,
1999 was $320,000 whereas during the same period in 1998 there was no income tax
expense primarily as a result of a reductions in the valuation allowance
established for deferred tax assets related to net operating loss carry forwards
.
Net Interest Income
The table on page 18 shows yield and rate data for interest-bearing
balance sheet components during the nine month periods ended September 30, 1999
and 1998, along with average balances and the related interest income and
interest expense amounts.
Net interest income was $2.6 million during the nine months ended September 30,
1999 as compared to $1.9 million for the nine months ended September 30, 1998.
This improvement of net interest income is a result of the increase on the level
of earning assets. The net interest margin was 4.26% for the nine months ended
September 30, 1999 as compared to 4.57% for the nine months ended September 30,
1998. The decrease in margin is primarily a result of a change in the mix of
earning assets in which loans represented 53.5% of earning assets for the nine
months ended September 30, 1999 as compared to 58.4% of earning assets for the
nine months ended September 30, 1998. Loans typically provide a higher yield
then the Bank's alternative uses of these funds such as securities and
short-term overnight investments.
Interest income during the nine months ended September 30, 1999 was
$4.5 million as compared to $3.3 million for the nine months ended September 30,
1998. The average yield on earning assets during the first nine months of 1999
was 7.21% as compared to 7.95% during the same period of 1998. The largest
component of interest income for the nine months ended September 30, 1999 was
interest on loans and amounted to $3.0 million as compared to $2.3 million for
the comparable prior year period. The overall yield on loans was 8.87% for the
nine months ended September 30, 1999 as compared to 9.50% for the nine months
ended September 30, 1998. The reduction in loan yields was primarily a result of
three reductions in the prime rate during the fourth quarter of 1998. The
investment portfolio income increased $484,000, or 67.6%, to $1.2 for the nine
months ended September 30, 1999 as compared to $716,000 for the nine months
ended September 30, 1998. The increase in investment portfolio income is a
result
<PAGE> 12
ITEM 2. CONTINUED PAGE 3
of the average investment portfolio balance being $13.2 million greater for the
nine month period ended September 30, 1999 as compared to the same period in the
prior year. The yield on the investment portfolio for the nine months ended
September 30 ,1999 was 5.45% as compared to 5.90% for the comparable period in
1998. This decrease in yield also resulted from declining market rates in the
fourth quarter of 1998. Interest on overnight federal funds sold and securities
purchased under agreements to resell increased $53,000 or 18.4%, to$340,000 for
the nine month period ended September 30, 1999 as compared to $287,000 for the
nine month period ended September 30, 1998.
Interest expense during the nine months ended September 30, 1999 was $1.8
million with an average rate paid on interest-bearing liabilities of 3.79% as
compared to $1.4 million and 4.31% during the nine months ended September 30,
1998. The primary reason for the increase in interest expense was that average
interest-bearing liabilities were $21.2 million greater for the nine months
ended September 30, 1999 as compared to the nine months ended September 30,
1998. This was offset by a reduction in the cost of interest bearing liabilities
to 3.79% for the nine months period ended September 30, 1999 from 4.31% in the
comparable period of 1998.
Provision and Allowance for Loan Losses
The provision for loan losses was $180,000 and $140,000 for nine months
ended September 30, 1999 and 1998, respectively, and reflects management's
estimate of the amount necessary to maintain the allowance for loan losses at a
level believed to be adequate in relation to the current size, mix and quality
of the portfolio. The Company's allowance for loan losses as a percentage of its
period-end loans was 1.39% at September 30, 1999. The Company had no
nonperforming loans at September 30, 1999. Net charge-offs during nine months
ended September 30, 1999, amounted to approximately $26,000 as compared to
$4,000 for the same period in the prior year. Loans past due greater than 30
days amounted to $49,000 and there were no loans greater than 60 days past due
at September 30, 1999.
The loan portfolio is periodically reviewed to evaluate the outstanding
loans and to measure both the performance of the portfolio and the adequacy of
the allowance for loan losses. This analysis includes a review of delinquency
trends, actual losses, and internal credit ratings. 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
reasonable. However, because of the inherent uncertainty of assumptions made
during the evaluation process, there can be no assurance that loan losses in
future periods will not exceed the allowance for loan losses or that additional
allocations to the allowance will not be required.
<PAGE> 13
ITEM 2. CONTINUED PAGE 4
Noninterest Income and Expense
Noninterest income during the nine months ended September 30, 1999 was
$367,000 as compared to $296,000 for the nine months ended September 30, 1998.
This was a result of increased income on deposit service charges of $14,000 and
from mortgage loan fee originations of $14,000. The company originates mortgage
loans , which are closed in the name of a third party, for which the company
receives a fee. In addition, fee income from the sale of non deposit products
increased by $32,000 for the nine months ended September 30, 1999 as compared to
the same period in 1998.
Noninterest expense amounted to $1.9 million as compared to $1.5
million during the nine months ended September 30, 1999 and 1998, respectively.
Salary and employee benefits increased $215,000 or 27.4% in the nine months
ended September 30, 1999 as compared to the comparable period in 1998. This
increase is primarily a result of hiring an additional nine full time equivalent
employees during the first nine months of 1999 as compared to the first nine
months of 1998. Five of these positions were hired to staff the new branch
office that opened in April 1999 located in Irmo, South Carolina During the
third quarter of 1999 an additional four were hired to staff the Cayce/West
Columbia branch which will open on November 15, 1999. Occupancy expense
increased by $34,000 in the first nine months of 1999 as compared to the same
period in 1998. This is primarily related to additional expenses related to the
new branch office located in Irmo, South Carolina. Equipment expense increased
from $129,000 for the nine months ended September 30, 1998 to $166,000 for the
nine months ended September 30, 1999. This is a result of increased depreciation
expense related to equipment in the new branch office as well as additional data
processing equipment purchased due to the overall growth in the bank. Marketing
and public relations expense increased by $38,000 or 35.0% in the nine months
ended September 30, 1999 as compared to the comparable period in the prior year.
This increase is a result of planned increases in advertising and marketing
during 1999 as compared to 1998. Other non-interest expense increased $126,000
or 34.2 % in the nine months ended September 30, 1999 compared to the same
period in the prior year. An increase in computer service bureau expense,
supplies, and postage of $23,000, $10,000, and $11,000, respectively account for
a much of the increase in other non-interest expense. These expense categories
are primarily impacted by the numbers of accounts and the volume of activity,
and have increased due to the growth of the Bank for the nine months ended
September 30, 1999 as compared to the same period in the prior year. In
addition, telephone expense increased by $9,000 which results primarily from the
opening of the new branch in April 1999.
Comparison of Results of Operations for Three Months Ended September 30, 1999 to
the Three Months Ended September 30, 1998:
Net income for the third quarter of 1999 was $222,000, as compared to
$307,000 during the comparable period in 1998. This decline, is due to the fact
that during the first nine months
<PAGE> 14
ITEM 2. CONTINUED PAGE 5
of 1998 the company had a zero effective tax rate due to a reduction in
deferred tax asset valuation reserves. The deferred tax assets related primarily
to prior year net operating loss carry forwards. During the first nine months of
1999 and the third quarter of 1999 the company had an effective tax rate of
approximately 35%. Income before taxes for the three months ended September 30,
1999 increased $36,000 (11.7%) to $343,000 as compared to $307,000 during the
same period during the prior year.
Average earning assets were $88.5 million during the third quarter of
1999 as compared to $63.9 million during the third quarter of 1998. The table on
page 19 shows yield and rate data for interest-bearing balance sheet components
during the three month periods ended September 30, 1999 and 1998, along with
average balances and the related interest income and interest expense amounts.
The yield on average earning assets decreased from 7.79% in the third quarter of
1998 to 7.24% in the third quarter of 1999. As previously explained in the
analysis of nine months results, there were three reductions of 25 basis points
each in the prime rate during the fourth quarter of 1998 that had an impact on
overall yields of the asset portfolios through most of the first nine months of
1999. During the third quarter of 1999 there were two increases in the prime
rate of 25 basis points each. The cost of interest bearing liabilities was 3.84%
in third quarter of 1999 as compared to 4.24% in the third quarter of 1998.
Total non-interest income increased by $21,000 during the third quarter
of 1999 as compared to the comparable period in 1998. Deposit service charges
accounted for approximately $7,000 of the increase in non-interest income due to
the increased numbers of accounts in third quarter of 1999 as compared to the
third quarter 1998. Fees from the sale of non-deposit investment products
increased to $27,000 from $9,000 in the third quarter of 1999 as compared to the
third quarter 1998.
Total non-interest expense increased by $161,000 in the third quarter
of 1999 as compared to the same quarter of 1998. This increase is primarily a
result of a $81,000 increase in salary and benefits expense, a $12,000 increase
in occupancy expense and a $17,000 increase in equipment expense. All of these
expense increases were primarily a result of the opening of the new branch in
Irmo, South Carolina in April 1999. As stated in the analysis of the nine month
results, increases in computer service bureau expense, supplies and postage
accounted for the balance of the increase as a result in the growth of the bank
during these periods.
Financial Position
Assets totaled $95.9 million at September 30, 1999 as compared to $73.2
million at December 31, 1998 an increase of $22.7 million. Loans grew by $8.5
million during the nine months ended September 30, 1999, from $40.8 million to
$49.3 million. This loan growth was funded by growth in deposits of $22.9
million from $56.0 million at December 31, 1998 to $78.9 million at September
30, 1999. Approximately $8.0 million of this deposit growth is a result of
<PAGE> 15
ITEM 2. CONTINUED PAGE 6
some short term deposits being placed in the bank from various sources during
this period. As a result, the bank has maintained higher than normal overnight
fund balances and has purchased some short term investments to maintain the
liquidity necessary to fund the anticipated withdrawal of these deposits. In
addition, to funding loan growth the balance of the deposit growth was used to
fund an increase in investment securities of $8.8 million and an increase in
overnight investments of $2.8 million from December 31, 1998 to September 30,
1999. The loan to deposit ratio at September 30, 1999 was 62.4% as compared to
72.9% at December 31, 1998.
Liquidity and Capital Resources
On July 10, 1998, the company closed on a secondary stock offering
whereby 517,500 additional shares of common stock were issued at a price of
$14.00 per share. The net proceeds to the company after the underwriters
discount and expenses amounted to approximately $6.6 million. As explained in
the Form S-2 as filed with the Securities and Exchange Commission approximately
$3.0 million of the proceeds were to be used to purchase properties and
construct three proposed branch facilities over an 18 to 24 month period. As of
September 30, 1999 the company has opened one new branch in Irmo, South Carolina
and will open a second office in West Columbia, South Carolina on November 15,
1999. The third office will be opened late in the first quarter or early second
quarter of 2000. The company intends to use the balance of the proceeds to
support initial loan growth at the three new branch offices, as well as at the
company's two existing offices, and for general corporate purposes.
Management believes that the company's liquidity remains adequate to
meet operating and loan funding requirements. Federal funds sold and investment
securities available-for sale represent 36.5% of total assets at September 30,
1999. 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 and short term liquidity needs successfully. These needs include the
ability to respond to short-term demand for funds caused by the withdrawal of
deposits, maturity of repurchase agreements, extensions of credit, and the
payment of operating expenses. Sources of liquidity in addition to deposit
gathering activities include maturing loans and investments, purchase of federal
funds from other financial institutions, and selling securities under agreements
to repurchase. The company monitors closely the level of large certificates of
deposits in amounts of $100,000 or more as they tend to be extremely sensitive
to interest rate levels, and thus less reliable sources of funding for liquidity
purposes. At September 30, 1999 the amount of certificates of deposits of
$100,000 or more represented 25.5% of total deposits. These deposits are issued
to local customers, many of which have other product relationships with the
Bank, and none of which are brokered deposits. Management is not aware of any
trends, events or uncertainties that may result in a significant adverse effect
on the company's liquidity position.
However, no assurances can be given in this regard, as rapid growth,
deterioration in loan
<PAGE> 16
ITEM 2. CONTINUED PAGE 7
quality, and poor earnings, or a combination of these factors, could change the
company's liquidity position in a relatively short period of time. The capital
needs of the company have been primarily met to date through the initial common
stock offering which raised approximately $6.8 million. This capital was
sufficient to fund the activities of the Bank during the initial stages of
operations and has allowed the Bank to remain a "well capitalized" institution.
As previously stated the additional capital of $6.6 million raised in
the secondary offering closed in 1998 is expected to enable the company to meet
the capital needs related to expansion plans while maintaining it status as a
"well capitalized institution. Shareholders' equity was 14.5% of total assets at
September 30, 1999 as compared to 18.6% at December 31, 1998. The bank's
risked-based capital ratios of Tier 1, total capital, and leverage ratio were
18.1%, 19.2%, and 11.6%, respectively, at September 30, 1999. This compares to
required OCC regulatory capital guidelines for Tier 1 capital, total capital,
and leverage capital ratios of 4.0%, 8.0%, and 3.0%, respectively. The Company
will be required by the Federal Reserve to meet the same guidelines once its
consolidated total assets exceed $150 million.
Year 2000
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.
To date the company has expended cost to upgrade and test systems of
approximately $60,000 all of which was expended in 1998. An additional $15,000
in cost has been budgeted to be incurred in 1999. Capitalized cost for
installing new item processing hardware and software and a frame relay
communications network have been approximately $140,000. The cost of the Year
2000 project and the dates scheduled by the company for being compliant are
based on managements best estimates. Additional cost to be incurred are not
deemed to be material to the company's financial position.
The company has substantially completed it's evaluation of the
readiness of its vendors and its customers as a part of its Year 2000 project
plan and will continue to monitor the readiness throughout the fourth quarter of
1999. Management is addressing with its customers the possible consequences of
not being prepared for Year 2000. Should large borrowers not sufficiently
address this issue, the company may experience an increase in loan defaults
although any such amount is not quantifiable at this time. Management has
instituted a program to educate its customers and instituted a credit review
process that evaluates year 2000 exposure. At present, the company's review
indicates exposure to credit risk associated
<PAGE> 17
ITEM 2. CONTINUED PAGE 8
with year 2000 is considered to be low.
The company has developed a comprehensive contingency and business
resumption plan which has been approved by the company's board of directors and
documents and outline options in the event any mission critical systems fail to
operate despite all of our Year 2000 efforts. In addition this plan addresses
liquidity issues and plans to prepare for higher than normal cash withdrawal
demands by customers as the millennium change draws closer. The contingency and
business resumption plan was tested in the third quarter of 1999. In addition
the company has undertaken an 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 modifications already made
to systems and continued testing to these systems, the effects of the Year 2000
problem will be minimized. Testing of all mission critical systems has been
completed and an independent validation of the testing of mission critical
systems is complete. There can be no assurance however, that all year 2000
problems affecting it have been identified or corrected or 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 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.
<PAGE> 18
FIRST COMMUNITY CORPORATION
YIELDS ON AVERAGE EARNING ASSETS AND RATES
ON AVERAGE INTEREST-BEARING LIABILITIES
<TABLE>
<CAPTION>
Nine months ended September 30, 1999 Nine months ended September 30, 1998
--------------------------------------- ---------------------------------------
Average Interest Yield/ Average Interest Yield/
Balance Earned/Paid Rate Balance Earned/Paid Rate
------- ----------- ---- ------- ----------- ----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets
Loans $ 44,593,429 $ 2,958,041 8.87% $32,524,542 $2,310,598 9.50%
Securities:
Taxable 29,433,709 1,199,500 5.45% 16,214,143 715,695 5.90%
Federal funds sold and securities purchased
under agreements to resell 9,345,742 339,902 4.86% 6,985,641 286,962 5.49%
--------------------------------------- ---------------------------------
Total earning assets 83,372,880 4,497,443 7.21% 55,724,326 3,313,255 7.95%
--------------------------------------- ---------------------------------
Cash and due from banks 2,731,857 1,795,512
Premises and equipment 4,295,577 3,010,073
Other assets 878,685 428,608
Allowance for loan losses (603,121) (442,083)
------------ ------------
Total assets $ 90,675,878 $ 60,516,436
============ ============
LIABILITIES
Interest-bearing liabilities
Interest-bearing transaction accounts $ 10,459,375 63,731 0.81% 5,716,261 51,077 1.19%
Money market accounts 9,441,475 288,202 4.08% 7,550,683 250,703 4.44%
Savings deposits 8,680,618 225,235 3.47% 6,620,197 185,523 3.75%
Time deposits 33,295,184 1,173,300 4.71% 20,638,330 813,154 5.27%
Other short term borrowings 3,101,633 91,864 3.96% 3,207,046 109,749 4.58%
--------------------------------------- ---------------------------------
Total interest-bearing liabilities 64,978,285 1,842,332 3.79% 43,732,517 1,410,206 4.31%
--------------------------------------- ---------------------------------
Demand deposits 11,357,785 7,923,009
Other liabilities 539,702 382,797
Shareholders' equity 13,800,106 8,478,113
------------ ------------
Total liabilities and shareholders' equity $ 90,675,878 $ 60,516,436
============ ============
Net interest spread 3.42% 3.64%
Net interest income/margin $ 2,655,111 4.26% $1,903,049 4.57%
=========== ==========
</TABLE>
<PAGE> 19
FIRST COMMUNITY CORPORATION
YIELDS ON AVERAGE EARNING ASSETS AND RATES
ON AVERAGE INTEREST-BEARING LIABILITIES
<TABLE>
<CAPTION>
Three months ended September 30, 1999 Three months ended September 30, 1998
------------------------------------ -----------------------------------
Average Interest Yield/ Average Interest Yield/
Balance Earned/Paid Rate Balance Earned/Paid Rate
------- ----------- ---- ------- ----------- ----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets
Loans $ 48,037,284 $ 1,078,405 8.91% $ 34,619,741 $ 833,078 9.55%
Securities:
Taxable 30,525,460 410,878 5.34% 18,009,670 266,054 5.86%
Federal funds sold and securities purchased
under agreements to resell 9,977,531 126,914 5.05% 11,273,141 155,157 5.46%
---------------------------------- ---------------------------------
Total earning assets 88,540,275 1,616,197 7.24% 63,902,552 1,254,289 7.79%
---------------------------------- ---------------------------------
Cash and due from banks 2,893,243 1,886,374
Premises and equipment 4,679,498 3,099,077
Other assets 820,070 453,438
Allowance for loan losses (652,423) (491,966)
------------ ------------
Total assets $ 96,280,663 $ 68,849,475
============ ============
LIABILITIES
Interest-bearing liabilities
Interest-bearing transaction accounts $ 10,206,034 19,071 0.74% $ 6,495,220 19,342 1.18%
Money market accounts 10,815,667 111,894 4.10% 8,700,909 95,823 4.37%
Savings deposits 8,704,491 75,168 3.43% 7,165,208 67,250 3.72%
Time deposits 37,464,244 441,607 4.68% 21,703,419 286,777 5.24%
Other short term borrowings 2,675,298 28,287 4.19% 2,894,757 33,031 4.53%
--------------------------------- --------------------------------
Total interest-bearing liabilities 69,865,734 676,027 3.84% 46,959,513 502,223 4.24%
--------------------------------- --------------------------------
Demand deposits 12,086,788 8,601,719
Other liabilities 450,967 441,107
Shareholders' equity 13,877,174 12,847,136
------------ ------------
Total liabilities and shareholders' equity $ 96,280,663 $ 68,849,475
============ ============
Net interest spread 3.40% 3.54%
Net interest income/margin $ 940,170 4.21% $ 752,066 4.67%
=========== ==========
</TABLE>
<PAGE> 20
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which the Company or
any of its subsidiaries is a party or of which any of their property is the
subject.
ITEM 2. CHANGES IN SECURITIES.
(a) Not applicable
(b) Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to shareholders to vote during the
quarter ended September 30, 1999.
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS 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
<PAGE> 21
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).*
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, South
Carolina (incorporated by reference to Exhibit 10.3
to the Company's Annual Report for fiscal year ended
December 31, 1995 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 Exhibit 10.6 to the
Company's Annual Report for fiscal year ended
December 31, 1995 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)
27.1 Financial Data Schedule (for SEC use only)
*Denotes executive compensation contract or
arrangement.
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed by the Company during
the quarter ended September 30, 1999
<PAGE> 22
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FIRST COMMUNITY CORPORATION
(REGISTRANT)
Date: November 11, 1999 By: /s/ Michael C. Crapps
------------------- -----------------------------------
Michael C. Crapps
President and Chief Executive Officer
By: /s/ Joseph G. Sawyer
------------------------------------
Joseph G. Sawyer
Senior Vice President, Principal Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999, CONTAINED IN FORM
10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,786,684
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,129,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 28,866,938
<INVESTMENTS-CARRYING> 2,792,849
<INVESTMENTS-MARKET> 2,681,869
<LOANS> 49,286,206
<ALLOWANCE> 686,457
<TOTAL-ASSETS> 95,874,322
<DEPOSITS> 78,958,209
<SHORT-TERM> 2,477,744
<LIABILITIES-OTHER> 492,216
<LONG-TERM> 0
0
0
<COMMON> 1,207,177
<OTHER-SE> 12,738,976
<TOTAL-LIABILITIES-AND-EQUITY> 95,874,322
<INTEREST-LOAN> 2,958,041
<INTEREST-INVEST> 1,199,500
<INTEREST-OTHER> 339,902
<INTEREST-TOTAL> 4,497,443
<INTEREST-DEPOSIT> 1,750,468
<INTEREST-EXPENSE> 1,842,332
<INTEREST-INCOME-NET> 2,655,111
<LOAN-LOSSES> 180,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,928,560
<INCOME-PRETAX> 913,310
<INCOME-PRE-EXTRAORDINARY> 593,481
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 593,481
<EPS-BASIC> 0.49
<EPS-DILUTED> 0.48
<YIELD-ACTUAL> 4.26
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 532,025
<CHARGE-OFFS> 27,568
<RECOVERIES> 2,000
<ALLOWANCE-CLOSE> 686,457
<ALLOWANCE-DOMESTIC> 686,457
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 686,457
</TABLE>
